0000950124-95-002390.txt : 19950810
0000950124-95-002390.hdr.sgml : 19950810
ACCESSION NUMBER: 0000950124-95-002390
CONFORMED SUBMISSION TYPE: 497
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 19950809
SROS: NONE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AMERICAN CAPITAL RESERVE FUND INC
CENTRAL INDEX KEY: 0000005114
STANDARD INDUSTRIAL CLASSIFICATION: []
IRS NUMBER: 741794065
FISCAL YEAR END: 0531
FILING VALUES:
FORM TYPE: 497
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-59655
FILM NUMBER: 95559987
BUSINESS ADDRESS:
STREET 1: 2800 POST OAK BLVD 46TH FL
CITY: HOUSTON
STATE: TX
ZIP: 77056
BUSINESS PHONE: 7139930500
FORMER COMPANY:
FORMER CONFORMED NAME: AMERICAN GENERAL RESERVE FUND INC
DATE OF NAME CHANGE: 19830912
497
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PROSPECTUS
1
DEAR VAN KAMPEN AMERICAN CAPITAL MONEY MARKET FUND SHAREHOLDER:
Enclosed is information asking you for your vote on a reorganization (the
"Reorganization") pursuant to an Agreement and Plan of Reorganization (the
"Agreement") for the Van Kampen American Capital Money Market Fund (the "VK
Fund"). The Reorganization calls for VK Fund shareholders to become shareholders
of the Van Kampen American Capital Reserve Fund (the "AC Fund"), a mutual fund
which pursues a substantially similar investment objective.
The enclosed materials include a combined Proxy Statement/Prospectus
containing information you need to make an informed decision. However, we
thought it would also be helpful for you to have, at the start, answers to some
of the important questions you might have about the proposed Reorganization. We
hope you find these explanations useful as you review your materials before
voting. For more detailed information about the Reorganization, please refer to
the combined Proxy Statement/Prospectus.
HOW WILL THE REORGANIZATION AFFECT ME?
Assuming shareholders of the VK Fund approve the Reorganization, the assets
and liabilities of the VK Fund will be combined with those of the AC Fund and
you will become a shareholder of the AC Fund. You will receive shares of the AC
Fund equal in value at the time of issuance to the shares of the VK Fund that
you hold immediately prior to the Reorganization. Class A shareholders of the VK
Fund will receive Class A Shares of the AC Fund and Class B shareholders of the
VK Fund will receive Class B Shares of the AC Fund.
WHY IS THE REORGANIZATION BEING RECOMMENDED?
As we reported to you earlier, the parent company of Van Kampen American
Capital Asset Management, Inc. ("AC Adviser"), the investment adviser to the AC
Fund, was acquired in December 1994 by Van Kampen American Capital, Inc.
("VKAC"), and was subsequently merged into VKAC. VKAC, through its wholly owned
subsidiaries, distributes and manages the Van Kampen American Capital funds. AC
Adviser is an affiliate of Van Kampen American Capital Investment Advisory Corp.
("VK Adviser"), the investment adviser to the VK Fund. The primary purposes of
the proposed Reorganization are to seek to achieve future economies of scale and
eliminate certain costs associated with operating the VK Fund and the AC Fund
separately. The Reorganization will result in combining the assets and
liabilities of the VK Fund with the assets and liabilities of the AC Fund and
consolidating their operations.
The Reorganization is intended to provide various benefits to shareholders of
the VK Fund who become shareholders of the AC Fund (as well as to existing and
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future investors in the AC Fund). For example, higher net asset levels should
enable the AC Fund to spread fixed and relatively fixed costs, such as
accounting, legal and printing expenses, over a larger asset base, thereby
potentially reducing per share expense levels. Higher net asset levels also may
benefit portfolio management by permitting larger individual portfolio
investments that may result in reduced transaction costs or more favorable
pricing and by providing the opportunity for greater portfolio diversity. These
benefits, in turn, should have a favorable effect on the relative performance of
the AC Fund.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions (including approval by the VK Fund's shareholders), which
are summarized below in "The Proposed Reorganization -- Terms of the Agreement"
section of the accompanying combined Proxy Statement/Prospectus. These
conditions are stated in the Agreement, which is attached as Exhibit A to the
combined Proxy Statement/Prospectus.
WILL I HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER TRANSACTIONAL FEE IN
CONNECTION WITH THE REORGANIZATION?
No. The full value of your shares of the VK Fund will be exchanged for shares
of the corresponding class of the AC Fund without any sales load, commission or
other transactional fee being imposed. As more fully discussed in the combined
Proxy Statement/Prospectus, the holding period for shareholders acquiring Class
B shares of the AC Fund in the Reorganization subject to a contingent deferred
sales charge will be measured from the time the holder initially purchased such
Class B shares from a Van Kampen American Capital open-end fund that were
subsequently exchanged into Class B shares of the VK Fund. AC Adviser will bear
the costs, whether or not the Reorganization is completed, associated with the
Reorganization, such as printing and mailing costs and other expenses associated
with the Special Meeting.
HOW WILL THE FEES PAID BY THE AC FUND COMPARE TO THOSE PAYABLE BY THE VK FUND?
It is anticipated that, on a per share basis, the total of the various fees
and expenses incurred by the AC Fund will be less, upon completion of the
Reorganization, than the total of such fees and expenses applicable to the VK
Fund. The fees and expenses actually paid to date by the VK Fund have been less
than the total of such fees and expenses applicable to the VK Fund as a result
of voluntary fee waivers and expense reimbursements made by the VK Adviser.
However, if the Reorganization is not consummated, VK Adviser does not currently
intend to continue such voluntary fee waivers and expense reimbursements.
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WHAT WILL I HAVE TO DO TO OPEN AN ACCOUNT IN THE AC FUND? WHAT HAPPENS TO MY
ACCOUNT IF THE REORGANIZATION IS APPROVED?
If the Reorganization is approved, your interest in Class A or B shares of the
VK Fund will automatically be converted into the same class of shares of the AC
Fund and we will send you written confirmation that this change has taken place.
You will receive the same class of shares of the AC Fund equal in value to your
Class A or B shares of the VK Fund. No certificates for AC Fund shares will be
issued in connection with the Reorganization, although such certificates will be
available upon request. If you currently hold certificates representing your
shares of the VK Fund, it is not necessary to surrender such certificates.
WHO WILL ADVISE THE AC FUND AND PROVIDE OTHER SERVICES?
AC Adviser provides advisory services to the AC Fund under an arrangement that
is substantially similar to that currently in effect between the VK Fund and VK
Adviser. The contractual advisory fees payable by the AC Fund are no higher than
the contractual advisory fees applicable to the VK Fund. Van Kampen American
Capital Distributors, Inc. serves as distributor of shares of both the AC Fund
and the VK Fund. In addition, State Street Bank & Trust Company, 225 Franklin
Street, P.O. Box 1713, Boston, Massachusetts 02105-1713 is the custodian of both
the AC Fund and the VK Fund. ACCESS Investor Services, Inc., P.O. Box 418256,
Kansas City, Missouri 64141-9256 serves as the transfer agent for both the AC
Fund and the VK Fund.
WILL I HAVE TO PAY ANY FEDERAL TAXES AS A RESULT OF THE REORGANIZATION?
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Reorganization so qualifies, in general, a shareholder of
the VK Fund will recognize no gain or loss upon its receipt of solely the shares
of the AC Fund in connection with the Reorganization. Additionally, the VK Fund
would not recognize any gain or loss as a result of the transfer of all of its
assets and liabilities solely in exchange for the shares of the AC Fund or as a
result of its liquidation. The AC Fund expects that it will not recognize any
gain or loss as a result of the Reorganization, that it will take a carryover
basis in the assets acquired from the VK Fund and that its holding period of
such assets will include the period during which the assets were held by the VK
Fund. See "The Proposed Reorganization -- Federal Income Tax Consequences" in
the combined Proxy Statement/ Prospectus.
WHAT IF I REDEEM MY VK FUND SHARES BEFORE THE REORGANIZATION TAKES PLACE?
If you choose to redeem your shares of the VK Fund before the Reorganization
takes place, the redemption will be treated as a normal sale of shares and will
be a
4
taxable transaction, unless your account is not subject to taxation, such as an
individual retirement account or other tax-qualified retirement plan.
We hope these answers help to clarify the Reorganization proposal for you. If
you still have questions, do not hesitate to call us at 1-800-341-2911. Please
give this matter your prompt attention. We need to receive your proxy before the
shareholder meeting scheduled for September 15, 1995. If shareholders approve
the Reorganization, it is expected to take effect on September 29, 1995.
Thank you for your investment in the Van Kampen American Capital Money Market
Fund.
Very truly yours,
Van Kampen American Capital Money
Market Fund
Dennis J. McDonnell
President and Trustee
5
VAN KAMPEN AMERICAN
CAPITAL MONEY MARKET FUND
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(800) 341-2911
NOTICE OF SPECIAL MEETING
SEPTEMBER 15, 1995
A Special Meeting of Shareholders of the Van Kampen American Capital Money
Market Fund (the "VK Fund"), a series of the Van Kampen American Capital Money
Market Trust, will be held at the Hyatt Regency Oak Brook, 1909 Spring Road, Oak
Brook, Illinois 60521, on September 15, 1995 at 2:00 p.m. (the "Special
Meeting") for the following purposes:
(1) To approve a plan of reorganization pursuant to which the VK Fund would
transfer all of its assets and liabilities to the Van Kampen American Capital
Reserve Fund (the "AC Fund") in exchange for corresponding Class A and B
shares of beneficial interest of the AC Fund, the VK Fund would distribute
such Class A and B shares of the AC Fund to the holders of Class A and B
shares of the VK Fund and the VK Fund would be dissolved.
(2) To transact such other business as may properly come before the Special
Meeting.
The Special Meeting is scheduled to be held jointly with the special meetings
of the respective shareholders of five other Van Kampen American Capital Funds
because the shareholders of each of such funds are expected to consider and vote
on similar matters. In the event that any shareholder of any Van Kampen American
Capital Fund present at the special meetings objects to the holding of a joint
meeting and moves for an adjournment of the meeting of such fund to a time
immediately after the other special meetings so that such fund's special meeting
may be held separately, the persons named as proxies will vote in favor of such
adjournment. Shareholders of each Van Kampen American Capital Fund will vote
separately on each of the proposals relating to their fund, and an unfavorable
vote on a proposal by the shareholders of one fund will not affect the
implementation of such a proposal by another fund if the proposal is approved by
the shareholders of that fund.
Shareholders of record as of the close of business on August 1, 1995 are
entitled to vote at the Special Meeting or any adjournment thereof.
For the Board of Trustees,
Ronald A. Nyberg
Secretary
August 7, 1995
------------------------
PLEASE VOTE PROMPTLY BY SIGNING AND
RETURNING THE ENCLOSED PROXY.
------------------------
6
VAN KAMPEN AMERICAN CAPITAL MONEY MARKET FUND
PROXY STATEMENT/PROSPECTUS
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
VAN KAMPEN AMERICAN CAPITAL MONEY MARKET FUND
BY AND IN EXCHANGE FOR SHARES OF
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
This Proxy Statement/Prospectus is being furnished to shareholders of the Van
Kampen American Capital Money Market Fund ( the "VK Fund"), a series of the Van
Kampen American Capital Money Market Trust, a Delaware business trust (the "VKAC
Money Market Trust"), and relates to the Special Meeting of Shareholders of the
VK Fund (the "Special Meeting") called for the purpose of approving the proposed
reorganization of the VK Fund (the "Reorganization") which would result in
shareholders of the VK Fund in effect exchanging their VK Fund for shares of the
Van Kampen American Capital Reserve Fund, a Delaware business trust (the "AC
Fund"). The Reorganization would be accomplished as follows: (1) the AC Fund
would acquire all of the then existing assets and liabilities of the VK Fund in
exchange for Class A and B shares of beneficial interest of the AC Fund (the
"Shares"); (2) the VK Fund would distribute the Shares to the VK Fund's
shareholders holding the same respective class of shares; and (3) the VK Fund
would dissolve and all outstanding shares of the VK Fund would be cancelled.
The AC Fund is an open-end, diversified management investment company which is
authorized to issue an unlimited number of shares of beneficial interest, par
value $.01 per share, for each series authorized by its Board of Trustees. The
investment objective of the AC Fund is to seek protection of capital and high
current income through investments in U.S. dollar denominated money market
securities, which is substantially similar to the investment objective of the VK
Fund. (See "Summary -- Comparisons of the VK Fund and the AC Fund -- Investment
Objectives and Policies" below.) There can be no assurance that the AC Fund will
achieve its investment objective. The address, principal executive office and
telephone number of the VK Fund is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, (708) 684-6000 or (800) 341-2911. The address, principal
executive office and telephone number of the AC Fund is 2800 Post Oak Boulevard,
Houston, Texas 77056, (800) 421-5666. The enclosed proxy and this Proxy
Statement/Prospectus are first being sent to VK Fund shareholders on or about
August 7, 1995.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
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This Proxy Statement/Prospectus contains information shareholders of the VK
Fund should know before voting on the Reorganization and constitutes an offering
of Class A and B Shares of the AC Fund only. Please read it carefully and retain
it for future reference. A Statement of Additional Information dated August 4,
1995, relating to this Proxy Statement/Prospectus (the "Reorganization SAI") has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. A Prospectus and Statement of Additional
Information containing additional information about the AC Fund, each dated
August 1, 1995, have been filed with the SEC and are incorporated herein by
reference. A copy of the AC Fund Prospectus accompanies this Proxy
Statement/Prospectus. A Prospectus and Statement of Additional Information
containing additional information about the VK Fund, each dated August 1, 1995,
have been filed with the SEC and are incorporated herein by reference. Copies of
any of the foregoing may be obtained without charge by calling or writing to the
VK Fund at the telephone number or address shown above. If you wish to request
the Reorganization SAI, please ask for the "Reorganization SAI."
No person has been authorized to give any information or make any
representation not contained in this Proxy Statement/Prospectus and, if so given
or made, such information or representation must not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities in any jurisdiction in
which, or to any person to whom, it is unlawful to make such offer or
solicitation.
------------------------
The AC Fund is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as
amended (the "Act"), and in accordance therewith files reports and other
information with the SEC. Such reports, other information and proxy statements
filed by the AC Fund can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at its Regional Office at 500 West Madison Street, Chicago, Illinois.
Copies of such material can also be obtained from the SEC's Public Reference
Branch, Office of Consumer Affairs and Information Services, Washington, D.C.
20549, at prescribed rates.
The date of this Proxy Statement/Prospectus is August 4, 1995.
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TABLE OF CONTENTS
PAGE
----
APPROVAL OR DISAPPROVAL OF THE PROPOSED
REORGANIZATION.................................................... 4
A. SUMMARY...................................................... 4
The Reorganization........................................... 4
Comparisons of the AC Fund and the VK Fund................... 5
Investment Objectives and Policies......................... 7
Advisory and Other Fees.................................... 8
Distribution, Purchase, Redemption and Exchange of Shares.... 9
Federal Income Tax Consequences.............................. 16
Reasons for the Proposed Reorganization...................... 16
B. RISK FACTORS................................................. 19
Nature of Investment......................................... 19
C. INFORMATION ABOUT THE FUNDS.................................. 19
D. THE PROPOSED REORGANIZATION.................................. 20
Terms of the Agreement....................................... 20
Description of Securities to be Issued....................... 21
Shares of Beneficial Interest.............................. 21
Voting Rights of Shareholders.............................. 22
Continuation of Shareholder Accounts and Plans; Share
Certificates................................................. 22
Federal Income Tax Consequences.............................. 23
Capitalization............................................... 25
Comparative Performance Information.......................... 25
Ratification of Investment Objective, Policies and
Restrictions of the AC Fund.................................. 26
Legal Matters.............................................. 26
Expenses..................................................... 26
F. RECOMMENDATION OF THE VK BOARD............................... 27
OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL
MEETING........................................................... 27
OTHER INFORMATION................................................... 27
A. SHAREHOLDINGS OF THE VK FUND AND THE AC FUND................. 27
B. SHAREHOLDER PROPOSALS........................................ 28
VOTING INFORMATION AND REQUIREMENTS................................. 28
EXHIBIT A........................................................... A-1
EXHIBIT B........................................................... A-2
3
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APPROVAL OR DISAPPROVAL OF THE PROPOSED REORGANIZATION
A. SUMMARY
The following is a summary of, and is qualified by reference to, the more
complete information contained in this Proxy Statement/Prospectus, including the
Agreement and Plan of Reorganization by and between the AC Fund and the VKAC
Money Market Trust attached hereto as Exhibit A (the "Agreement"), the
prospectus of the VK Fund dated August 1, 1995 (the "VK Fund Prospectus")
incorporated herein by reference and the prospectus of the AC Fund dated August
1, 1995 (the "AC Fund Prospectus") incorporated herein by reference and
accompanying this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
constitutes an offering of Class A and B Shares of the AC Fund only.
THE REORGANIZATION
On May 11, 1995, the Board of Trustees of the VKAC Money Market Trust (the "VK
Board") approved the Agreement. The Agreement provides that the VK Fund will
transfer all of its assets and liabilities to the AC Fund in exchange for Class
A and B Shares of the AC Fund. At the Closing (as defined herein), the AC Fund
will issue Shares of the AC Fund to the VK Fund, which AC Fund Shares will have
an aggregate net asset value equal in amount to the net asset value of the VK
Fund net assets as of the Closing. The Agreement provides that the VK Fund will
dissolve following the Closing pursuant to a plan of liquidation and dissolution
to be adopted by the VK Board following the Closing and as part of such
dissolution, will distribute to each shareholder of the VK Fund Shares of the
respective class of the AC Fund equal in value to their existing shares in the
VK Fund. All members of the VK Board who were not affiliated with the VK Adviser
were elected as trustees of the AC Fund on July 21, 1995.
The VK Board has unanimously determined that the Reorganization is in the best
interests of the shareholders of each class of shares of the VK Fund and that
such shareholders will not be diluted as a result of the Reorganization.
Similarly, the Board of Trustees of the AC Fund (the "AC Board") has unanimously
determined that the Reorganization is in the best interest of the AC Fund and
that the interests of the shareholders of the AC Fund will not be diluted as a
result of the Reorganization. Management of the respective funds believes that
the proposed Reorganization of the VK Fund into the AC Fund should allow the AC
Fund to achieve future economies of scale and to eliminate certain costs of
operating the VK Fund and the AC Fund separately.
Van Kampen American Capital Asset Management, Inc. ("AC Adviser") has agreed
to pay all expenses of the Reorganization incurred by the AC Fund and the
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10
VK Fund. Accordingly, the VK Fund and its shareholders will not bear any
expenses of the Reorganization.
The VK Board is asking shareholders of the VK Fund to approve the
Reorganization at the Special Meeting to be held on September 15, 1995. If
shareholders of the VK Fund approve the Reorganization, it is expected that the
Closing will be on September 29, 1995, but it may be at a different time, as
described herein.
THE VK BOARD RECOMMENDS THAT YOU VOTE FOR THE REORGANIZATION. APPROVAL OF THE
REORGANIZATION REQUIRES THE FAVORABLE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES ENTITLED TO VOTE. SEE "VOTING INFORMATION AND REQUIREMENTS."
COMPARISONS OF THE AC FUND AND THE VK FUND
The principal changes which would result from the Reorganization are listed
below:
(1) The holders of Class A and B shares of the VK Fund would become holders of
the same class of Shares, respectively, AC Fund. The VK Fund and the AC
Fund have substantially similar investment objectives and follow similar
investment strategies.
(2) The AC Fund is managed by AC Adviser, an affiliate of the VK Fund's
adviser, Van Kampen American Capital Investment Advisory Corp. ("VK
Adviser"). The advisory fee for the AC Fund is a monthly fee computed on
average daily net assets at an annual rate of 0.500% on the first $150
million of net assets; 0.450% on the next $100 million of net assets;
0.400% on the next $100 million of net assets; and 0.350% on net assets
over $350 million. The advisory fee for the VK Fund is a monthly fee
computed on average daily net assets at an annual rate of 0.500% on the
first $250 million of net assets; 0.475% on the next $250 million of net
assets; 0.425% on the next $250 million of net assets and 0.275% on net
assets over $750 million. As of May 31, 1995, the AC Fund's net assets
were approximately $324.5 million. As of May 31, 1995, the VK Fund's net
assets were approximately $28.6 million.
(3) The VK Fund offers two classes of shares. The AC Fund offers three classes
of shares. The VK Fund offers Class A shares at the net asset value per
share without a sales charge. In addition, the VK Fund offers Class B
shares which are not subject to a sales charge when purchased, but which
generally are subject to a contingent deferred sales charge (3.00% if
redeemed within the first year after purchase and reduced thereafter to
zero seven years after purchase). Class B shares of the VK Fund may be
acquired only by exchange of Class B shares from other Van Kampen American
Capital open-end funds and are offered for temporary investment purposes
between investments in such other funds. None of the three classes of AC
Fund
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shares is subject to a sales charge when purchased. However, Class B
and C shares generally are subject to a contingent deferred sales charge
(4.00% if redeemed within the first year after purchase and reduced
thereafter to zero six years after purchase in the case of the Class B
shares and 1.00% if redeemed within the first year after purchase and
reduced to zero thereafter in the case of the Class C shares). Class B
Shares acquired in the Reorganization will remain subject to the
contingent deferred sales charge applicable to Class B shares of the VK
Fund. Class B shares of the VK Fund convert automatically to Class A
shares of the VK Fund seven years after purchase. Class B shares of the
AC Fund convert to Class A shares of the AC Fund six years after
purchase. Class B Shares acquired in the Reorganization will remain
subject to the conversion schedule applicable to Class B shares of the VK
Fund.
(4) The VK Fund and the AC Fund have adopted plans (each, a "Plan") for
distribution-related expenses pursuant to Rule 12b-1 under the Act and
expenses for providing ongoing shareholder services. The VK Fund Plan with
respect to Class A shares provides that the VK Fund may spend an aggregate
amount up to 0.25% per year of the average daily net assets attributable
to Class A shares in connection with the ongoing provision of services to
holders of such shares by Van Kampen American Capital Distributors, Inc.
("VKAC Distributors"), the distributor of the VK Fund shares and by
financial intermediaries in connection with the maintenance of such
shareholders' accounts. The VK Fund Plan with respect to Class B shares
provides that VK Fund can charge up to 0.75% of the average daily net
assets attributable to Class B shares for reimbursement of certain
distribution-related expenses and can charge up to 0.25% of average daily
net assets attributable to Class B shares for the provision of ongoing
services to shareholders. The AC Fund Plan with respect to Class A shares
allows for a service fee payment of up to 0.15% per annum of its average
daily net assets attributable to Class A shares to be paid to VKAC
Distributors, the distributor of the AC Fund shares, for shareholder
servicing-related expenses. The AC Fund Plan with respect to Class B and
Class C shares allows for a distribution fee to VKAC Distributors at an
annual rate of up to 0.75% and a service fee at an annual rate up to 0.15%
of the AC Fund's aggregate daily net assets attributable to the Class B
and C Shares to reimburse VKAC Distributors for service fees paid by it to
certain financial institutions (which may include banks), securities
dealers and other industry professionals and for its distribution costs.
Certain other comparisons between the VK Fund and the AC Fund are discussed
below.
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12
INVESTMENT OBJECTIVES AND POLICIES
The AC Fund and the VK Fund have substantially similar investment objectives
and also share similar investment practices, but there are also certain
differences in their investment policies, practices and restrictions. The
investment objective of the AC Fund is to seek protection of capital and high
current income through investments in U.S. dollar denominated money market
securities. The investment objective of the VK Fund is to provide high current
income consistent with the preservation of capital and liquidity through
investments in a broad range of money market instruments that will mature within
12 months of the date of purchase. Both funds invest principally in a
diversified portfolio of United States agency and government obligations,
commercial paper and repurchase agreements.
As money market funds, both funds are required to comply with the credit
quality, diversification and portfolio security maturity requirements of the Act
applicable to money market funds. Both funds invest in obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies and
instrumentalities. The AC Fund invests in bank obligations including
certificates of deposit, time deposits and bankers' acceptances issued by
domestic banks, foreign branches or subsidiaries of domestic banks and domestic
or foreign branches of foreign banks which at the time of investment are rated
in the two highest categories, A-1 or A-2 by Standard & Poor's Corporation
("S&P") or Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's").
The VK Fund invests in similar types of bank obligations issued by domestic
banks (or a foreign branch thereof) subject to regulation by the U.S. Government
and rated at least A-2 by S&P or Prime-2 by Moody's but may also invest in
unrated securities of comparable quality. Both the VK Fund and the AC Fund may
invest in commercial paper rated at the time of investment at least A-2 by S&P
or Prime-2 by Moody's. Currently, the AC Fund's policy is to limit investments
in commercial paper to obligations rated A-1 or Prime-1, respectively, by S&P or
Moody's.
The VK Fund may not invest in Federal Housing Administration or Veterans'
Administration pooled mortgages, or obligations of the Asian Development Bank,
the Inter-American Development Bank or the International Bank for Reconstruction
and Development (World Bank) or more than 10% of its assets in bank obligations
payable in Euro Dollars. The VK Fund may not invest in bank time deposits
maturing in more than 7 days or invest more than 10% of its assets in bank time
deposits maturing between two business days and 7 calendar days. The AC Fund has
no similar restrictions. For a complete description of the AC Fund's investment
objectives and policies, see the respective sections in the AC Fund's Prospectus
and Statement of Additional Information entitled "Investment Objectives and
Policies". For a complete description of the VK Fund's investment objectives and
policies, see the respective sections in the VK Fund's Prospectus and Statement
of Additional Information entitled "Investment Objective and Policies".
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13
The AC Fund is managed by AC Adviser while the VK Fund is managed by VK
Adviser. AC Adviser and VK Adviser are wholly-owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC") which has been developing investment strategies
and products for individuals, businesses and institutions since 1974. AC Adviser
and VK Adviser are the primary investment advisers to the Van Kampen American
Capital funds. VKAC is a diversified asset management company with more than two
million retail investor accounts, extensive capabilities for arranging
institutional portfolios, and over $50 billion under management or supervision.
VKAC's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. The business address of AC Adviser is 2800 Post Oak Boulevard,
Houston, Texas 77056. AC Adviser and its investment advisory agreement with the
AC Fund are more fully described in the AC Fund Prospectus and Statement of
Additional Information.
ADVISORY AND OTHER FEES
The VK Fund pays the VK Adviser a monthly fee based on its average daily net
asset value at the annual rates of 0.500% of the first $250 million; 0.475% of
the next $250 million; 0.425% of the next $250 million and 0.275% over $750
million. However, such fee has historically been reduced as a result of
voluntary fee waivers and expense reimbursements by the VK Adviser. The
effective rate of advisory fees for the period ended December 31, 1994 was 0.03%
of the average daily net assets of the VK Fund. In addition, the VK Fund bears
most expenses associated with its operations and the issuance and repurchase or
redemption of its securities, except for the compensation of trustees and
officers affiliated with the VK Adviser, VKAC Distributors or VKAC. Total
operating expenses for the VK Fund for the period ended December 31, 1994 were
1.03% and 1.80% of the average daily net assets attributable to the Class A and
B Shares, respectively, after giving effect to voluntary expense reimbursement
by VK Adviser. Absent such voluntary expense reimbursement, such total operating
expenses for the period ending December 31, 1994 would have been 1.50% and 2.27%
of the average daily net assets attributable to the Class A and B Shares,
respectively. The fees and expenses actually paid to date by the VK Fund have
been less than the total of such fees and expenses applicable to the VK Fund as
a result of voluntary fee waivers and expense reimbursements made by VK Adviser.
However, if the Reorganization is not consummated, VK Adviser does not currently
intend to continue such voluntary fee waivers and expense reimbursements.
The AC Fund pays the AC Adviser a monthly fee based on its average daily net
asset value at the annual rates of 0.50% of the first $150 million; 0.45% on the
next $100 million; 0.40% on the next $100 million and 0.35% on net assets over
$350 million. The effective advisory fee for the fiscal year ended May 31, 1995,
was 0.44% of the AC Fund's average daily net asset value. Similar to the VK
Fund, the
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AC Fund also bears most expenses associated with its operation and the issuance
and repurchase or redemption of its securities, except for the compensation of
trustees and officers affiliated with the AC Adviser and VKAC. The total
operating expenses of the AC Fund for the fiscal year ended May 31, 1995 were
1.00%, 1.76% and 1.76%% of the average daily net assets attributable to its
Class A, Class B and Class C shares, respectively. For a complete description of
the AC Fund's advisory services, see the respective sections in the AC Fund's
Prospectus and Statement of Additional Information entitled "Investment Advisory
Services" and "Investment Advisory Agreement." For a complete description of the
VK Fund's advisory services, see the respective sections in the VK Fund's
Prospectus and Statement of Additional Information entitled "Investment Advisory
Services" and "Investment Advisory and Other Services -- Investment Advisory
Agreement."
The AC Fund has adopted Plans for each of the Class A, B and C Shares
hereinafter referred to as the "Class A Plan," "Class B Plan," and the "Class C
Plan." Under the Class A Plan, the AC Fund pays a service fee to VKAC
Distributors, at an annual rate of up to 0.15% of the Fund's aggregate average
daily net assets attributable to the Class A shares. Under the Class B Plan and
Class C Plan, the AC Fund pays a service fee to VKAC Distributors at an annual
rate of up to 0.15% and a distribution fee at an annual rate of up to 0.75% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and Class C shares, respectively, to reimburse VKAC Distributors for service
fees paid by it to certain financial institutions (which may include banks),
securities dealers and other industry professionals (collectively, "Service
Organizations") and for distribution costs. VKAC Distributors uses the Class A
Plan , Class B Plan and Class C Plan fees to compensate Service Organizations
for personal services and/or maintenance of shareholder accounts. The expenses
of the AC Fund attributable to such Class A Plan, Class B Plan and Class C Plan
for the fiscal year ended May 31, 1995 were 0.14%, 0.90% and 0.90% of the
average daily net assets attributable to the Class A, Class B and Class C
shares, respectively. For a complete description of these arrangements, see the
respective sections in the AC Fund's Prospectus and Statement of Additional
Information entitled "Distribution Plans."
The VK Fund has adopted a Plan with respect to each class of its shares. The
expenses of the VK Fund for the period ended December 31, 1994 were 0.25% and
1.00% of the VK Fund's average daily net asset value attributable to the Class A
and B shares, respectively. For a complete description of these arrangements,
see the respective sections in the VK Fund's Prospectus and Statement of
Additional Information entitled, "The Distribution and Service Plans."
DISTRIBUTION, PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Class A shares of the VK Fund and Class A shares of the AC Fund may be
purchased at net asset value, without the imposition of a sales charge. Class B
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shares of the VK Fund may be acquired only by exchange of Class B shares of
other Van Kampen American Capital open-end funds and are subject to a contingent
deferred sales charge (3.00% if redeemed within the first year after purchase
and reduced thereafter to zero seven years after purchase). Class B shares of
the AC Fund are not subject to a sales charge when purchased, but are subject to
a contingent deferred sales charge (4.00% if redeemed within the first year
after purchase and reduced thereafter to zero six years after purchase). Class B
shares of the VK Fund acquired through use of the exchange privilege are subject
to the contingent deferred sales charge applicable to such shares upon the
investor's initial purchase of Class B shares from one of the other Van Kampen
American Capital open-end funds. The Class B shares of the VK Fund will convert
automatically to Class A shares of the VK Fund seven years after the end of the
month in which the shareholder's initial order to purchase such Class B shares
of one of the Van Kampen American Capital open-end funds was accepted. Class B
shares of the AC Fund will convert automatically to Class A shares six years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. Class B Shares of the AC Fund acquired in the Reorganization will
remain subject to the contingent deferred sales charge and conversion schedule
applicable to Class B shares of the VK Fund. Unlike the VK Fund, the AC Fund
offers Class C shares. Class C shares may be purchased at net asset value and
are subject to a contingent deferred sales charge of 1.00% on redemptions made
within one year of purchase, which charge is reduced to zero thereafter. Class C
shares convert automatically to Class A shares ten years after the end of the
calendar month in which the shareholder's order to purchase was accepted.
The minimum initial investment in Class A, B and C shares of the AC Fund and
the Class A and B shares of the VK Fund is $500, although shares of the AC Fund
acquired in connection with the Reorganization will not be subject to the
minimum investment limitation. The minimum subsequent investment in Class A, B
and C Shares of the AC Fund and Class A and B shares the VK Fund is $50. For a
complete description of these arrangements with respect to the AC Fund, see the
respective sections in the AC Fund's Prospectus and Statement of Additional
Information entitled "Purchase of Shares" and "Purchase and Redemption of
Shares." For a complete description of these arrangements with respect to the VK
Fund, see the respective sections in the VK Fund's Prospectus and Statement of
Additional Information entitled "Purchasing Shares of the Fund."
Shares of either the VK Fund or the AC Fund may be purchased by check, by
electronic transfer or by bank wire and offer exchange privileges among all
other Van Kampen American Capital open-end mutual funds distributed by VKAC
Distributors (except Van Kampen American Capital Government Target Fund).
Shares of the AC Fund and the VK Fund properly presented for redemption may be
redeemed or exchanged at the next determined net asset value per share (subject
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to any applicable deferred sales charge). Shares of either the VK Fund or the AC
Fund may be redeemed or exchanged by mail or by special redemption privileges
(telephone exchange, telephone redemption by check or electronic transfer). If a
shareholder of either fund attempts to redeem shares within a short time after
they have been purchased by check, the respective fund may delay payment of the
redemption proceeds until such fund can verify that payment for the purchase of
the shares has been (or will be) received. No further purchases of the shares of
the VK Fund may be made after the date on which the shareholders of the VK Fund
approve the Reorganization, and the stock transfer books of the VK Fund will be
permanently closed as of the date of Closing. Only redemption requests and
transfer instructions received in proper form by the close of business on the
day prior to the date of Closing will be fulfilled by the VK Fund. Redemption
requests or transfer instructions received by the VK Fund after that date will
be treated by the VK Fund as requests for the redemption or instructions for
transfer of the shares of the AC Fund credited to the accounts of the
shareholders of the VK Fund. Redemption requests or transfer instructions
received by the VK Fund after the close of business on the day prior to the date
of Closing will be forwarded to the AC Fund. For a complete description of these
redemption arrangements with respect to the AC Fund, see the respective sections
in the AC Fund's Prospectus and Statement of Additional Information entitled
"Redemption of Shares" and "Purchase and Redemption of Shares." For a complete
description of these redemption arrangements with respect to the VK Fund, see
the respective sections in the VK Fund's Prospectus and Statement of Additional
Information entitled "Redemption of Shares."
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The differences in the distribution, purchase and redemption procedures and
fee structure of the shares of the AC Fund and the shares of the VK Fund are
highlighted in the table below.
FEE COMPARISONS
VK AC
CLASS A SHARES FUND* FUND** PRO FORMA
--------------------------------------------------- ----- ------ ---------
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS A SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price).............. None None None
Maximum Deferred Sales Charge
(as a percentage of the lower of the original
purchase price or redemption proceeds)........... None None None
ANNUAL FUND OPERATING EXPENSES FOR CLASS A SHARES
(as a percentage of average net assets)
Management Fees.................................... 0.50%(1) 0.44% 0.44%
Rule 12b-1 Fees.................................... 0.25% 0.14% 0.14%
Other Expenses..................................... 0.75% 0.42% 0.42%
Total Fund Operating Expenses
(before waivers and reimbursements).............. 1.50%(1) 1.00% 1.00%
Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period
(before waivers and reimbursements)(4)
One Year......................................... $ 15 $ 10 $ 10
Three Years...................................... $ 47 $ 32 $ 32
Five Years....................................... $ 82 $ 55 $ 55
Ten Years........................................ $ 179 $ 122 $ 122
Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the Period
(before waivers and reimbursements)(4)
One Year......................................... $ 15 $ 10 $ 10
Three Years...................................... $ 47 $ 32 $ 32
Five Years....................................... $ 82 $ 55 $ 55
Ten Years........................................ $ 179 $ 122 $ 122
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VK AC
CLASS A SHARES FUND* FUND** PRO FORMA
--------------------------------------------------- ----- ------ ---------
Total Fund Operating Expenses
(after waivers and reimbursements)............... 1.03% 1.00% 1.00%
Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period
(after waivers and reimbursements)(4)
One Year......................................... $ 11 $ 10 $ 10
Three Years...................................... $ 33 $ 32 $ 32
Five Years....................................... $ 57 $ 55 $ 55
Ten Years........................................ $ 126 $ 122 $ 122
Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the Period
(after waivers and reimbursements)(4)
One Year......................................... $ 11 $ 10 $ 10
Three Years...................................... $ 33 $ 32 $ 32
Five Years....................................... $ 57 $ 55 $ 55
Ten Years........................................ $ 126 $ 122 $ 122
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS B SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price).............. None None None
Maximum Deferred Sales Charge (as a percentage of
the lower of the original purchase price or
redemption proceeds)............................. 3.00%(2) 4.00%(3) 4.00%
ANNUAL FUND OPERATING EXPENSES FOR CLASS B SHARES
(as a percentage of average net assets)
Management Fees.................................... 0.50%(1) 0.44% 0.44%
Rule 12b-1 Fees.................................... 1.00% 0.90% 0.90%
Other Expenses..................................... 0.77% 0.42% 0.42%
Total Fund Operating Expenses
(before waivers and reimbursements).............. 2.27%(1) 1.76% 1.76%
Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period
(before waivers and reimbursements)(4)
One Year......................................... $ 53 $ 58 $ 58
Three Years...................................... $ 81 $ 85 $ 85
Five Years....................................... $ 122 $ 110 $ 110
Ten Years........................................ $ 232 $ 169 $ 169
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VK AC
CLASS B SHARES FUND* FUND** PRO FORMA
--------------------------------------------------- ----- ------ ---------
Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the Period
(before waivers and reimbursements)(4)
One Year......................................... $ 23 $ 18 $ 18
Three Years...................................... $ 71 $ 55 $ 55
Five Years....................................... $ 122 $ 95 $ 95
Ten Years........................................ $ 232 $ 169 $ 169
Total Fund Operating Expenses
(after waiver and reimbursements)................ 1.80% 1.76% 1.76%
Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period
(after waivers and reimbursements)(4)
One Year......................................... $ 48 $ 58 $ 58
Three Years...................................... $ 67 $ 85 $ 85
Five Years....................................... $ 97 $ 110 $ 110
Ten Years........................................ $ 182 $ 169 $ 169
Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the Period
(after waivers and reimbursements)(4)
One Year......................................... $ 18 $ 18 $ 18
Three Years...................................... $ 57 $ 55 $ 55
Five Years....................................... $ 97 $ 95 $ 95
Ten Years........................................ $ 182 $ 169 $ 169
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS C SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price).............. N/A None None
Maximum Deferred Sales Charge
(as a percentage of the lower of the original
purchase price or redemption proceeds)........... N/A 1.00%(3) 1.00%
ANNUAL FUND OPERATING EXPENSES FOR CLASS C SHARES
(as a percentage of average net assets)
Management Fees.................................... N/A 0.44% 0.44%
Rule 12b-1 Fees.................................... N/A 0.90% 0.90%
Other Expenses..................................... N/A 0.42% 0.42%
Total Fund Operating Expenses...................... N/A 1.76% 1.76%
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VK AC
CLASS C SHARES FUND* FUND** PRO FORMA
--------------------------------------------------- ----- ------ ---------
Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period(4)
One Year......................................... N/A $ 28 $ 28
Three Years...................................... N/A $ 55 $ 55
Five Years....................................... N/A $ 95 $ 95
Ten Years........................................ N/A $ 207 $ 207
Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the
Period(4)
One Year......................................... N/A $ 18 $ 18
Three Years...................................... N/A $ 55 $ 55
Five Years....................................... N/A $ 95 $ 95
Ten Years........................................ N/A $ 207 $ 207
---------------
(1) Before voluntary expense waiver. After application of the expense waiver,
Management Fees would be 0.03% for each class of shares, and Total Fund
Operating Expenses would be 1.03% and 1.80% for Class A and B shares,
respectively.
(2) Class B shares of the VK Fund are subject to a contingent deferred sales
charge equal to 3.00% of the lesser of the then current net asset value or
the original purchase price on Class B shares redeemed during the first year
after purchase, which charge is reduced each year thereafter to zero over a
four year period as follows: Year 1 -- 3.00%; Year 2 -- 2.00%; Year 3 --
1.00%; Year 4 -- 0.00%.
(3) Class B shares of the AC Fund are subject to a contingent deferred sales
charge equal to 4.00% of the lesser of the then current net asset value or
the original purchase price on Class B shares redeemed during the first year
after purchase, which charge is reduced each year thereafter to zero over a
six year period as follows: Year 1 -- 4.00%; Year 2 -- 4.00%; Year 3 --
3.00%; Year 4 -- 2.50%; Year 5 -- 1.50%; Year 6 -- 0.00%. Class C shares of
the AC Fund are subject to a contingent deferred sales charge equal to 1.00%
of the lesser of the then current net asset value or the original purchase
price on Class C shares redeemed during the first year after purchase, which
charge is reduced to zero thereafter.
(4) Expenses examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return with either redemption or no redemption at the
end of each time period as noted in the above table. The Pro Forma column
reflects expenses estimated to be paid on new shares purchased from the
combined fund subsequent to the Reorganization. For those shares issued in
connection with the Reorganization, the following expenses would be incurred
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based upon the purchase of the VK Fund immediately prior to the Reorganization
and the Pro Forma expense ratio:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
With Redemption at End of Period
Class A............................... $ 10 $32 $ 55 $ 122
Class B............................... $ 48 $65 $ 95 $ 178
Without Redemption at End of Period
Class A............................... $ 10 $32 $ 55 $ 122
Class B............................... $ 18 $55 $ 95 $ 178
* For the semi-annual period ended December 31, 1994 on an annualized basis.
** For the annual period ended May 31, 1995.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Reorganization so qualifies, in general a shareholder of
the VK Fund will recognize no gain or loss upon the receipt solely of the shares
of the AC Fund pursuant to the Reorganization. Additionally, the VK Fund would
not recognize any gain or loss as a result of the exchange of all of its assets
for the shares of the AC Fund or as a result of its liquidation. The AC Fund
expects that it will not recognize any gain or loss as a result of the
Reorganization, that it will take a carryover basis in the assets acquired from
the VK Fund and that its holding period of such assets will include the period
during which the assets were held by the VK Fund. See "The Proposed
Reorganization -- Federal Income Tax Consequences."
The above information is only a summary of more complete information contained
in this Proxy Statement/Prospectus and the related Statement of Additional
Information.
REASONS FOR THE PROPOSED REORGANIZATION
On December 20, 1994, The Van Kampen Merritt Companies, Inc. acquired from The
Travelers Inc. all of the outstanding capital stock of American Capital
Management & Research, Inc., the parent company of the AC Adviser. Immediately
after the acquisition, American Capital Management & Research, Inc. was merged
into The Van Kampen Merritt Companies, Inc. and the combined entity was renamed
Van Kampen American Capital, Inc. ("VKAC"). The VK Adviser and the AC Adviser
currently are each wholly-owned subsidiaries of VKAC.
On February 10, 1995, the VK Board and the AC Board held a joint meeting to
discuss with management ("Management") of the VK Adviser and the AC Adviser the
costs and potential benefits to shareholders of, among other things, (i)
combining certain funds advised by the VK Adviser and the AC Adviser,
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including the VK Fund and the AC Fund in order to seek to achieve certain
economies of scale and efficiencies, (ii) permitting exchangeability of shares
between funds advised by the VK Adviser and the AC Adviser, (iii) selecting a
common transfer agent to facilitate exchangeability and enhance shareholder
services, and (iv) consolidating the VK Board and the AC Board into a combined
board of trustees (collectively, the "Consolidation").
The VK Board and the AC Board created a joint committee (the "Joint
Committee") to consider the possible costs and benefits to shareholders
associated with the proposed Consolidation, including the combination of the VK
Fund and the AC Fund. The Joint Committee held meetings on February 20, 1995,
March 27, 1995 and April 3, 1995 to consider issues relating to the
Consolidation, review information requested from and provided by Management and
review information requested from and provided by third-party analytical
services.
The VK Board and the AC Board held joint meetings on March 14, 1995 and April
6-7, 1995 to review the findings and recommendations of the Joint Committee. The
VK Board unanimously approved each element of the Consolidation, including the
combination of the VK Fund and the AC Fund, on April 7, 1995, subject to
approval of the Consolidation by the AC Board. The AC Board met on May 11, 1995,
and unanimously approved each element of the Consolidation, including the
combination of the VK Fund and the AC Fund. Each of the VK Board and the AC
Board also approved submitting the necessary proposals to the respective
shareholders of the VK Fund and the AC Fund to effect the Consolidation.
At separate shareholder meetings held on July 21, 1995, shareholders of the VK
Fund and the AC Fund approved the reorganization of the VK Fund and the AC Fund
into Delaware business trusts (or series thereof) and the combination of the VK
Board and the AC Board. Shareholders of the VK Fund are now being asked to
approve its consolidation with the AC Fund in order to (i) eliminate the
duplication of services that currently exists as a result of the separate
operations of the funds, (ii) seek to achieve economies of scale by combining
the assets of the funds and (iii) potentially reduce transaction costs and
obtain greater portfolio diversity.
In connection with approving the combination of the VK Fund with the AC Fund,
the VK Board considered the costs resulting from the separate operations of the
AC Fund and the VK Fund in light of their substantially similar investment
objectives, policies and restrictions. The VK Board also considered the
potential expense savings, economies of scale, reduced per-share expenses and
benefits to the portfolio management process that could result from combining
the assets and operations of the AC Fund and the VK Fund. In this regard, the VK
Board reviewed information provided by the AC Adviser, VK Adviser and VKAC
Distributors relating to the anticipated cost savings to the shareholders of the
AC Fund and the VK Fund as a result of the Reorganization.
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In particular, the VK Board considered the probability that the elimination of
duplicative operations and the increase in asset levels of the AC Fund after the
Reorganization would result in the following potential benefits for investors,
although there can, of course, be no assurances in this regard:
(1) ELIMINATION OF SEPARATE OPERATIONS. Consolidating the VK Fund and the
AC Fund should eliminate the duplication of services that currently exists as
a result of their separate operations. For example, currently the VK Fund and
the AC Fund are managed separately by different affiliated investment
advisers. Consolidating the separate operations of the VK Fund with those of
the AC Fund should promote more efficient operations on a more cost-effective
basis.
(2) ACHIEVEMENT OF REDUCED PER SHARE EXPENSES AND ECONOMIES OF
SCALE. Combining the assets of the VK Fund with the assets of the AC Fund
also should lead to reduced expenses, on a per share basis, by allowing fixed
and relatively fixed costs, such as accounting, legal and printing expenses,
to be spread over a larger asset base. An increase in the net asset levels of
the AC Fund also could result in achieving future economies of scale, which
should also reduce per share expenses. Any significant reductions in expenses
on a per share basis should, in turn, have a favorable effect on the relative
total return of the AC Fund.
(3) BENEFITS TO THE PORTFOLIO MANAGEMENT PROCESS. Higher net asset levels
also should enable the AC Fund to purchase larger individual portfolio
investments that may result in reduced transaction costs and/or other more
favorable pricing and provide the opportunity for greater portfolio diversity.
In determining whether to recommend approval of the Reorganization to
shareholders of the VK Fund, the VK Board considered a number of factors,
including, but not limited to: (1) capabilities and resources of AC Adviser and
other service providers to the AC Fund in the areas of marketing, investment and
shareholder services; (2) expenses and advisory fees applicable to the VK Fund
and the AC Fund before the Reorganization and the estimated expense ratios of
the AC Fund after the Reorganization; (3) the comparative investment performance
of the VK Fund and the AC Fund, as well as the performance of the AC Fund
compared to its peers; (4) the terms and conditions of the Agreement and whether
the Reorganization would result in dilution of the VK Fund shareholder
interests; (5) the advantages of eliminating the competition and duplication of
effort inherent in marketing two funds having similar investment objectives, in
addition to the economies of scale realized through the combination of the two
funds; (6) the compatibility of the funds' service features available to
shareholders, including the retention of applicable holding periods and exchange
privileges; (7) the costs estimated to be incurred by the respective funds as a
result of the Reorganization; and (8) the anticipated tax consequences of the
Reorganization. Based upon these
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and other factors, the VK Board unanimously determined that the Reorganization
is in the best interests of the shareholders of the VK Fund.
B. RISK FACTORS
NATURE OF INVESTMENT
Each of the AC Fund and the VK Fund invest primarily in U.S. dollar
denominated money market securities consisting of obligations of the U.S.
Government and its agencies, bank obligations, commercial paper and repurchase
agreements. Investment in either of the AC Fund or the VK Fund may not be
appropriate for all investors. The investment objectives and policies of the AC
Fund and the VK Fund, and the risks associated with an investment in either
Fund, are substantially similar. For additional information see the respective
sections of the AC Fund's Prospectus and Statement of Additional Information
entitled "Investment Objectives and Policies" and "Investment Practices and
Restrictions" and the respective sections of the VK Fund's Prospectus and
Statement of Additional Information entitled "Investment Objectives and
Policies" and "Investment Practices."
C. INFORMATION ABOUT THE FUNDS
AC Fund. Information about the AC Fund is included in its current Prospectus
dated August 1, 1995, which accompanies this Proxy Statement/Prospectus.
Additional information about the AC Fund is included in its Statement of
Additional Information dated the same date as the AC Fund Prospectus. Copies of
AC Fund Statement of Additional Information may be obtained without charge by
calling (800) 421-5666. The AC Fund files proxy material, reports and other
information with the SEC. These reports can be inspected and copied at the
Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549 at prescribed rates.
VK Fund. Information about the VK Fund is included in its current Prospectus
dated August 1, 1995. Additional information about the VK Fund is included in
its current Statement of Additional Information dated the same date as the VK
Fund Prospectus. Copies of the VK Fund Statement of Additional Information may
be obtained without charge by calling (800) 341-2911. The VK Fund files proxy
material, reports and other information with the SEC. These reports can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C. 20549
at prescribed rates.
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As Delaware business trusts, or series thereof, each of the AC Fund and the VK
Fund are governed by their respective Agreements and Declarations of Trust
(each, a "Declaration"), their respective Bylaws and applicable Delaware law.
D. THE PROPOSED REORGANIZATION
The material features of the Agreement are summarized below. This summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement, a copy of which
is attached hereto as Exhibit A. The affirmative vote of a majority of the
outstanding shares entitled to vote is required to approve the Reorganization at
a meeting of shareholders at which a quorum is present.
TERMS OF THE AGREEMENT
Pursuant to the Agreement, the AC Fund will acquire all of the assets and the
liabilities of the VK Fund on the Closing Date in exchange for Class A and B
shares, respectively, of the AC Fund.
Subject to VK Fund shareholder approval of the Reorganization, the closing
(the "Closing") will occur within 15 business days after the later of the
receipt of all necessary regulatory approvals and the final adjournment of the
Special Meeting or such later date as soon as practicable thereafter as the AC
Fund and the VK Fund may mutually agree.
On the date of Closing, the VK Fund will transfer to the AC Fund all of the
assets and liabilities of the VK Fund. The AC Fund will in turn transfer to the
VK Fund a number of Class A and B Shares, respectively, of the AC Fund equal in
value to the value of the net assets of the VK Fund transferred to the AC Fund
as of the date of Closing as determined in accordance with the valuation method
described in the AC Fund's then current prospectus. In order to minimize any
potential for undesirable federal income and excise tax consequences in
connection with the Reorganization, the VK Fund and the AC Fund may distribute
on or before the Closing all or substantially all of their respective
undistributed net investment income as of such date.
The VK Fund expects to distribute the Class A and B Shares, respectively, of
the AC Fund to the shareholders of the VK Fund promptly after the Closing and
then dissolve pursuant to a plan of liquidation and dissolution adopted by the
VK Board.
The VK Fund and the AC Fund have made certain standard representations and
warranties to each other regarding their capitalization, status and conduct of
business.
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Unless waived in accordance with the Agreement, the obligations of the parties
to the Agreement are conditioned upon, among other things:
1. approval of the Reorganization by the VK Fund's shareholders;
2. the absence of any rule, regulation, order, injunction or proceeding
preventing or seeking to prevent the consummation of the transactions
contemplated by the Agreement;
3. the receipt of all necessary approvals, registrations and exemptions
under federal and state laws;
4. the truth in all material respects as of the Closing of the
representations and warranties of the parties and performance and
compliance in all material respects with the parties' agreements,
obligations and covenants required by the Agreement;
5. the effectiveness under applicable law of the registration statement of
the AC Fund of which this Proxy Statement/Prospectus forms a part and the
absence of any stop orders under the Securities Act pertaining thereto;
and
6. receipt of opinions of counsel relating to, among other things, the tax
free nature of the Reorganization.
The Agreement may be terminated or amended by the mutual consent of the
parties either before or after approval thereof by the shareholders of the VK
Fund, provided that no such amendment after such approval shall be made if it
would have a material adverse effect on the interests of VK Fund shareholders.
The Agreement may also be terminated by the non-breaching party if there has
been a material misrepresentation, material breach of any representation or
warranty, material breach of contract or failure of any condition to Closing.
The VK Board recommends that you vote to approve the Reorganization, as it
believes the Reorganization is in the best interests of the VK Fund's
shareholders and that the interests of the VK Fund's existing shareholders will
not be diluted as a result of consummation of the proposed Reorganization.
DESCRIPTION OF SECURITIES TO BE ISSUED
SHARES OF BENEFICIAL INTEREST
Beneficial interests in the AC Fund being offered hereby are represented by
transferable Class A and B Shares, par value $.01 per share. The AC Fund's
Declaration permits the trustees, as they deem necessary or desirable, to create
one or more separate investment portfolios and to issue a separate series of
shares for each portfolio and, subject to compliance with the Act, to further
sub-divide the shares of a series into one or more class of shares for such
portfolio.
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VOTING RIGHTS OF SHAREHOLDERS
Holders of shares of the AC Fund are entitled to one vote per share on matters
as to which they are entitled to vote. The Declaration of the VKAC Money Market
Trust and the Declaration of the AC Fund are substantially identical, except
that the Declaration of the VKAC Money Market Trust permits the VK Board or
shareholders to remove a trustee with or without cause by the act of two-thirds
of such trustees or shareholders, respectively. The Declaration of the AC Fund
permits (i) the AC Fund to remove a trustee with cause by the act of two-thirds
of the trustees and (ii) shareholders holding a majority of the shares of each
series outstanding to remove a trustee with or without cause. The Declaration of
the AC Fund also requires the approval of 80% of the trustees in office or
majority vote of the shares of each series then outstanding to amend these
provisions.
Each of the AC Fund and the VK Fund operate as a diversified, open-end
management investment company registered with the SEC under the Act. Therefore,
in addition to the specific voting rights described above, shareholders of the
AC Fund, as well as shareholders of the VK Fund, are entitled, under current
law, to vote with respect to certain other matters, including changes in
fundamental investment policies and restrictions and the ratification of the
selection of independent auditors. Moreover, under the Act, shareholders owning
not less than 10% of the outstanding shares of the AC Fund or VK Fund may
request that the respective board of trustees call a shareholders' meeting for
the purpose of voting upon the removal of trustee(s).
CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS; SHARE CERTIFICATES
If the Reorganization is approved, the AC Fund will establish an account for
each VK Fund shareholder containing the appropriate number of shares of the AC
Fund. The shareholder services and shareholder programs of the VK Fund and the
AC Fund have already been substantially conformed as part of the Consolidation.
Shareholders of the VK Fund who are accumulating VK Fund shares under the
dividend reinvestment plan, or who are receiving payment under the systematic
withdrawal plan with respect to VK Fund shares, will retain the same rights and
privileges after the Reorganization in connection with the AC Fund Class A and B
Shares, respectively, received in the Reorganization through substantially
similar plans maintained by the AC Fund. Van Kampen American Capital Trust
Company will continue to serve as custodian for the assets of VK Fund
shareholders held in IRA accounts after the Reorganization. Such IRA investors
will be sent appropriate documentation to confirm Van Kampen American Capital
Trust Company's custodianship.
It will not be necessary for shareholders of the VK Fund to whom certificates
have been issued to surrender their certificates. Upon liquidation of the VK
Fund, such certificates will become null and void.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences of the Reorganization to shareholders of the VK Fund and
shareholders of the AC Fund. It is based upon the Code, legislative history,
Treasury regulations, judicial authorities, published positions of the Internal
Revenue Service (the "Service") and other relevant authorities, all as in effect
on the date hereof and all of which are subject to change or different
interpretations (possibly on a retroactive basis). This summary is limited to
shareholders who hold their VK Fund shares as capital assets. No advance rulings
have been or will be sought from the Service regarding any matter discussed in
this Proxy Statement/Prospectus. Accordingly, no assurances can be given that
the Service could not successfully challenge the intended federal income tax
treatment described below. Shareholders should consult their own tax advisors to
determine the specific federal income tax consequences of all transactions
relating to the Reorganization, as well as the effects of state, local and
foreign tax laws.
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Code. It is a condition to closing that the
VK Fund receive an opinion from Skadden, Arps, Slate, Meagher & Flom
substantially to the effect that, for federal income tax purposes:
1. The acquisition by the AC Fund of the assets of the VK Fund in exchange
solely for Class A and B Shares of the AC Fund and the assumption by the AC Fund
of the liabilities of the VK Fund will qualify as a tax-free reorganization
within the meaning of Section 368(a)(1) of the Code.
2. No gain or loss will be recognized by the VK Fund or the AC Fund upon the
transfer to the AC Fund of the assets of the VK Fund in exchange solely for the
Class A and B Shares of the AC Fund and the assumption by the AC Fund of the
liabilities of the VK Fund.
3. The AC Fund's basis in the VK Fund assets received in the Reorganization
will, in each instance, equal the basis in such assets in the hands of the AC
Fund immediately prior to the transfer, and the AC Fund's holding period of such
assets will, in each instance, include the period during which the assets were
held by the VK Fund.
4. No gain or loss will be recognized by the shareholders of the VK Fund upon
the exchange of their shares of the VK Fund solely for the Class A or B Shares,
respectively, of the AC Fund.
5. The aggregate tax basis of the Class A and B Shares of the AC Fund received
by the shareholders of the VK Fund will be the same as the aggregate tax basis
of the shares of the VK Fund surrendered in exchange therefor.
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6. The holding period of the Class A and B Shares of the AC Fund received by
the shareholders of the VK Fund will include the holding period of the shares of
the VK Fund surrendered in exchange therefor if such surrendered shares of the
VK Fund are held as capital assets by such shareholder.
In rendering its opinion, Skadden, Arps, Slate, Meagher & Flom may rely upon
certain representations of the management of the VK Fund and the AC Fund and
assume that the Reorganization will be consummated as described in the Agreement
and that redemptions of shares of the VK Fund occurring prior to the Closing
will consist solely of redemptions in the ordinary course of business.
The AC Fund intends to be taxed under the rules applicable to regulated
investment companies as defined in Section 851 of the Code, which are the same
rules currently applicable to the VK Fund and its shareholders.
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CAPITALIZATION
The following table sets forth the capitalization of the VK Fund and the AC
Fund as of May 31, 1995 and the pro forma combined capitalization of both as if
the Reorganization had occurred on that date. These numbers may differ at the
time of Closing.
CAPITALIZATION TABLE AS OF MAY 31, 1995
VK FUND AC FUND PRO FORMA
----------- ------------ ------------
NET ASSETS
Class A Shares............. $21,829,620 $319,680,102 $341,509,722
Class B Shares............. 6,712,140 4,189,960 10,902,100
Class C Shares............. N/A 588,477 588,477
----------- ------------ ------------
Total...................... $28,541,760 $324,458,539 $353,000,299
============ ============= =============
NET ASSET VALUE PER SHARE
Class A Shares............. $1.00 $1.00 $1.00
Class B Shares............. 1.00 1.00 1.00
Class C Shares............. N/A 1.00 1.00
SHARES OUTSTANDING
Class A Shares............. 21,899,865 319,694,843 341,594,708
Class B Shares............. 6,711,933 4,189,806 10,901,739
Class C Shares............. N/A 588,487 588,487
----------- ------------ ------------
Total...................... 28,611,798 324,473,136 353,084,934
============ ============= =============
SHARES AUTHORIZED
Class A Shares............. Unlimited Unlimited Unlimited
Class B Shares............. Unlimited Unlimited Unlimited
Class C Shares............. N/A Unlimited Unlimited
COMPARATIVE PERFORMANCE INFORMATION
The average annual total return for the VK Fund for the one-year, three-year,
five-year and ten-year periods ended May 31, 1995 and for the period beginning
April 22, 1983 (the date Class A Shares of the VK Fund were first offered for
sale to the public) through May 31, 1995 in respect to the Class A Shares were
4.35%, 3.04%, 4.08%, 5.59% and 6.26%, respectively. The average annual total
return for the VK Fund for the period beginning July 11, 1994 (the date Class B
Shares of the VK Fund were first offered for sale to the public) through May 31,
1995 in respect to Class B Shares was 3.56%. The average annual total return for
the AC Fund for the one-year, three-year, five-year and ten-year periods ended
May 31, 1995 and for the period beginning July 12, 1974 (the date Class A Shares
of the AC Fund were
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first offered for sale to the public) through May 31, 1995 were 4.43%, 3.05%,
4.02%, 5.65% and 7.61%, respectively for Class A Shares. Class B and Class C
shares of the AC Fund became available for purchase on May 1, 1995.
The total return figures above assume reinvestment of all dividends and
distributions and do not include payment of the CDSC. They are not necessarily
indicative of future results. The performance of a fund is a result of
conditions in the securities markets, portfolio management and operating
expenses. Although information such as that shown above is useful in reviewing a
fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
RATIFICATION OF INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS OF THE AC FUND
Approval of the Reorganization will constitute the ratification by VK Fund
shareholders of the investment objectives, policies and restrictions,
Distribution Plan and Advisory Agreement of the AC Fund. For a discussion of the
investment objective, policies and restrictions of the AC Fund, see "Summary --
Comparisons of the AC Fund and the VK Fund" and the AC Fund Prospectus
accompanying this Proxy Statement/Prospectus. Approval of the Reorganization
will constitute approval of amendments to any of the fundamental investment
restrictions of the VK Fund that might otherwise be interpreted as impeding the
Reorganization, but solely for the purpose of and to the extent necessary for,
consummation of the Reorganization.
LEGAL MATTERS
Certain legal matters concerning the issuance of Class A and B Shares of the
AC Fund will be passed on by O'Melveny & Myers, 400 South Hope Street, Los
Angeles, California 90071, counsel to the AC Fund. Lawrence J. Sheehan, a former
partner of, and currently of counsel to said firm is a Trustee of the AC Fund.
On July 21, 1995, Mr. Sheehan was elected as a Trustee of the VK Fund.
Certain legal matters concerning the federal income tax consequences of the
Reorganization will be passed upon by Skadden, Arps, Slate, Meagher & Flom, 333
West Wacker Drive, Chicago, Illinois 60606, counsel to the VKAC Money Market
Trust and the VK Fund. Wayne W. Whalen, a partner of Skadden, Arps, Slate,
Meagher & Flom, is a Trustee of the VKAC Money Market Trust. On July 21, 1995,
Mr. Whalen was elected as a Trustee of the AC Fund.
EXPENSES
The expenses of the Reorganization, whether or not the Reorganization is
completed, including expenses incurred by the VK Fund will be borne by AC
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Adviser. Accordingly, the VK Fund and its shareholders will not bear any
expenses of the Reorganization. The VK Board has determined that the
arrangements regarding the payment of expenses and other charges relating to the
Reorganization are fair and equitable.
F. RECOMMENDATION OF BOARD OF TRUSTEES
The VK Board has unanimously approved the Agreement and has determined that
participation in the Reorganization is in the best interests of the shareholders
of the VK Fund. THE VK BOARD RECOMMENDS VOTING FOR APPROVAL OF THE PROPOSED
REORGANIZATION.
OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING
It is not anticipated that any action will be asked of the shareholders of the
VK Fund other than as indicated above, but if other matters are properly brought
before the Special Meeting, it is intended that the persons named in the proxy
will vote in accordance with their judgment.
OTHER INFORMATION
A. SHAREHOLDINGS OF THE VK FUND AND THE AC FUND
At the close of business on July 21, 1995, there were 20,886,242 Class A
shares and 6,536,023 Class B shares, respectively, of the VK Fund.
As of July 17, 1995, the Trustees and officers as a group owned less than 1%
of the VK Fund's shares.
To the knowledge of the VK Fund, as of July 17, 1995, no person owned of
record or beneficially 5% or more of the VK Fund's Class A shares or Class B
shares.
At the close of business on July 21, 1995, there were 376,916,361 Class A
shares, 18,166,270 Class B shares and 2,456,328 Class C shares, respectively, of
the AC Fund.
As of July 14, 1995, no person was known by management to own beneficially or
of record as much as 5% of the outstanding Class A shares of the AC Fund except
as follows: 24.68% was owned by Van Kampen American Capital Trust Company, 2800
Post Oak Boulevard, Houston, Texas 77056.
As of July 14, 1995, no person was known by management to own beneficially or
of record as much as 5% of the outstanding Class B shares of the AC Fund except
as follows: 17.31% was owned by Van Kampen American Capital Trust Company, 2800
Post Oak Boulevard, Houston, Texas 77056 and 8.59% was owned by National
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Financial Services Corp., @ Southern Nat'l Investment Services, Inc., 200 S.
College St., Suite 204, Charlotte, North Carolina 28202-2005.
As of July 14, 1995, no person was known by management to own beneficially or
of record as much as 5% of the outstanding Class C shares of the AC Fund except
as follows: 7.40% was owned by Donaldson Lufkin Jenrette Securities Corp., Attn:
Mutual Fund Department, P.O. Box 2052, Jersey City, New Jersey 07303-2052, 7.40%
was owned by Van Kampen American Capital Trust Company, 2800 Post Oak Boulevard,
Houston, Texas 77056, 5.16% was owned by National Financial Services Corp., @
Southern Nat'l Investment Services, Inc., 200 S. College St., Suite 204,
Charoltte, North Carolina 28202-2005 and 9.21% was owned by Smith Barney Inc.,
388 Greenwich Street, 11th Floor, New York, New York 10013-2375.
Certain officers, directors and employees of VKAC own, in the aggregate, not
more than 7% of the common stock of VK/AC Holding, Inc. and have the right to
acquire, upon the exercise of options, approximately an additional 11% of the
common stock of VK/AC Holding, Inc.
B. SHAREHOLDER PROPOSALS
As a general matter, the VK Fund does not intend to hold future regular annual
or special meetings of shareholders unless required by the Act. Any shareholder
who wishes to submit proposals for consideration at a meeting of shareholders of
the VK Fund should send such proposal to the VK Fund at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. To be considered for presentation at a
shareholders' meeting, rules promulgated by the SEC require that, among other
things, a shareholder's proposal must be received at the offices of the AC Fund
a reasonable time before a solicitation is made. Timely submission of a proposal
does not necessarily mean that such proposal will be so presented.
VOTING INFORMATION AND REQUIREMENTS
Each valid proxy given by a shareholder of the VK Fund will be voted by the
persons named in the proxy in accordance with the designation on such proxy on
the Reorganization proposal and as the persons named in the proxy may determine
on such other business as may come before the Special Meeting on which
shareholders are entitled to vote. If no designation is made, the proxy will be
voted by the persons named in the proxy as recommended by the VK Board "FOR"
approval of the Reorganization.
Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the VK Fund a written notice of revocation, by delivering a
duly executed proxy bearing a later date, or by attending the Special Meeting
and voting in person.
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The giving of a proxy will not affect your right to vote in person if you
attend the Special Meeting and wish to do so.
The presence in person or by proxy of the holders of a majority of the
outstanding shares entitled to vote is required to constitute a quorum at the
Special Meeting. APPROVAL OF THE REORGANIZATION WILL REQUIRE THE FAVORABLE VOTE
OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF THE VK FUND ENTITLED
TO VOTE AT THE SPECIAL MEETING AT WHICH A QUORUM IS CONSTITUTED. Shares not
voted with respect to a proposal due to an abstention or broker non-vote will be
deemed votes not cast with respect to such proposal, but such shares will be
deemed present for quorum purposes.
In the event that sufficient votes in favor of the Reorganization are not
received by the scheduled time of the Special Meeting, the persons named in the
proxy may propose and vote in favor of one or more adjournments of the Special
Meeting to permit further solicitation of proxies. If sufficient shares were
present to constitute a quorum, but insufficient votes had been cast in favor of
the Reorganization to approve it, proxies would be voted in favor of adjournment
only if the VK Board determined that adjournment and additional solicitation was
reasonable and in the best interest of the shareholders of the VK Fund, taking
into account the nature of the proposal, the percentage of the votes actually
cast, the percentage of negative votes, the nature of any further solicitation
that might be made and the information provided to shareholders about the
reasons for additional solicitation. Any such adjournment will require the
affirmative vote of the holders of a majority of the shares voted at the session
of the Special Meeting to be adjourned.
Proxies of shareholders of the VK Fund are solicited by the VK Board of the VK
Fund. The cost of solicitation will be paid by AC Adviser. In order to obtain
the necessary quorum at the Special Meeting, additional solicitation may be made
by mail, personal interview, telephone, facsimile, telegraph or personal
interview by representatives of the VK Fund, or VK Adviser or VKAC, or by
dealers or their representatives, In addition, such solicitation servicing may
also be provided by Applied Mailing Systems, a solicitation firm located in
Boston, Massachusetts, at a cost estimated to be approximately $3,500 plus
reasonable expenses.
August 4, 1995
PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY.
YOUR VOTE IS IMPORTANT AND YOUR PARTICIPATION
IN THE AFFAIRS OF YOUR FUND DOES MAKE A DIFFERENCE.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
July 31, 1995, by and between the Van Kampen American Capital Reserve
Fund, a Delaware business trust formed under the laws of the State of Delaware
(the "AC Fund") and the Van Kampen American Capital Money Market Trust, a
Delaware business trust created under the laws of the State of Delaware (the
"VKM Trust") on behalf of its series, the Van Kampen American Capital Money
Market Fund (the "VKM Fund").
W I T N E S S E T H:
WHEREAS, on December 20, 1994, (the "AC Acquisition Date") The Van Kampen
Merritt Companies, Inc. ("TVKMC") acquired all of the issued and outstanding
shares of American Capital Management & Research, Inc. ("American Capital") and
subsequently changed the combined entity's name to Van Kampen American Capital,
Inc.;
WHEREAS, American Capital and TVKMC, through their affiliated companies,
sponsor and manage a number of registered investment companies; and
WHEREAS, Van Kampen American Capital Distributors, Inc., successor by merger
between Van Kampen Merritt Inc. and American Capital Marketing, Inc., acts as
the sponsor and principal underwriter for both the AC Fund and the VKM Fund;
WHEREAS, the VKM Trust was organized as a Massachusetts business trust, and
subsequently reorganized as a Delaware business trust, pursuant to an Agreement
and Declaration of Trust (the "Declaration of Trust") dated May 10, 1995,
pursuant to which it is authorized to issue an unlimited number of shares of
beneficial interest with par value of $0.01 per share, which at present have
been divided into different series, each series constituting a separate and
distinct series of the VKM Trust, including the VKM Fund;
WHEREAS, Van Kampen American Capital Investment Advisory Corp. (formerly, Van
Kampen Merritt Investment Advisory Corp.) ("Advisory Corp.") provides
investment advisory and administrative services to the VKM Fund;
WHEREAS, the AC Fund was organized as a Maryland corporation on March 28,
1974, and subsequently reorganized as a Delaware business trust, pursuant to an
Agreement and Declaration of Trust subsequently amended and restated as of June
20, 1995 and is authorized to issue an unlimited number of shares of
beneficial interest with par value of $0.01 per share;
WHEREAS, Van Kampen American Capital Asset Management, Inc. (formerly,
American Capital Asset Management, Inc.) ("VKAC Asset Management") provides
investment advisory and administrative services to the AC Fund;
WHEREAS, the Board of Trustees of each of the VKM Trust and the AC Fund have
determined that entering into this Agreement for the AC Fund to acquire the
assets and liabilities of the VKM Fund is in the best interests of the
shareholders of each respective fund; and
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WHEREAS, the parties intend that this transaction qualify as a reorganization
within the meaning as described in Section 368(a) of the Internal Revenue Code
of 1986, as amended, (the "Code");
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. PLAN OF TRANSACTION.
A. TRANSFER OF ASSETS. Upon satisfaction of the conditions precedent set
forth in Sections 7 and 8 hereof, the VKM Trust will convey, transfer and
deliver to the AC Fund at the closing, provided for in Section 2 hereof, all of
the existing assets of the VKM Fund (including accrued interest to the Closing
Date) consisting of nondefaulted, liquid, U.S. dollar denominated money market
securities, due bills, cash and other marketable securities acceptable to the
AC Fund as more fully set forth on Schedule 1 hereto, and as amended from time
to time prior to the Closing Date (as defined below), free and clear of all
liens, encumbrances and claims whatsoever (the assets so transferred
collectively being referred to as the "Assets").
B. CONSIDERATION. In consideration thereof, the AC Fund agrees that on the
Closing Date the AC Fund will (i) deliver to the VKM Trust, in exchange for
such Assets, full and fractional Class A and Class B shares of the AC Fund
having a net asset value per share calculated as provided in Section 3A hereof,
in an amount equal to the aggregate dollar value of the Assets determined
pursuant to Section 3A of this Agreement net of any liabilities of the VKM Fund
described in Secion 3E hereof (the "Liabilities") (collectively, the "AC Fund
Shares") and (ii) assume all of the VKM Fund's Liabilities. All AC Fund Shares
delivered to the VKM Trust in exchange for such Assets shall be delivered at
net asset value without sales load, commission or other transactional fee being
imposed.
2. CLOSING OF THE TRANSACTION.
CLOSING DATE. The closing shall occur within fifteen (15) business days
after the later of receipt of all necessary regulatory approvals and the final
adjournment of the meeting of shareholders of the VKM Fund at which this
Agreement will be considered and approved or such later date as soon as
practicable thereafter, as the parties may mutually agree (the "Closing Date").
On the Closing Date, the AC Fund shall deliver to the VKM Trust the AC Fund
Shares in the amount determined pursuant to Section 1B hereof and the VKM Trust
thereafter shall, in order to effect the distribution of such shares to the VKM
Fund stockholders, instruct the AC Fund to register the pro rata interest in
the AC Fund Shares (in full and fractional shares) of each of the holders of
record of shares of the VKM Fund in accordance with their holdings of either
Class A or Class B shares and shall provide as part of such instruction a
complete and updated list of such holders (including addresses and taxpayer
identification numbers), and the AC Fund agrees promptly to comply with said
instruction. The AC Fund shall have no obligation to inquire as to the
validity, propriety or correctness of such instruction, but shall assume that
such instruction is valid, proper and correct.
3. PROCEDURE FOR REORGANIZATION.
A. VALUATION. The value of the Assets and Liabilities of the VKM Fund to be
transferred and assumed, respectively, by the AC Fund shall be computed as of
the Closing Date, in the manner set forth in the most recent Prospectus and
Statement of Additional Information of the AC Fund (collectively, the "AC Fund
Prospectus"), copies of which have been delivered to the VKM Trust.
B. DELIVERY OF FUND ASSETS. The Assets shall be delivered to State Street
Bank and Trust Company, 225 Franklin Street, Post Office Box 1713, Boston,
Massachusetts 02105-1713, as custodian for the AC Fund (the "Custodian") for
the benefit of the AC Fund, duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, free and clear of all
liens, encumbrances and claims whatsoever, in accordance with the custom of
brokers, and shall be accompanied by all necessary state stock transfer stamps,
the cost of which shall be borne by the VKM Fund.
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C. FAILURE TO DELIVER SECURITIES. If the VKM Trust is unable to make
delivery pursuant to Section 3B hereof to the Custodian of any of the VKM
Fund's securities for the reason that any of such securities purchased by the
AC Fund have not yet been delivered to it by the VKM Fund's broker or brokers,
then, in lieu of such delivery, the VKM Trust shall deliver to the Custodian,
with respect to said securities, executed copies of an agreement of assignment
and due bills executed on behalf of said broker or brokers, together with such
other documents as may be required by the AC Fund or Custodian, including
brokers' confirmation slips.
D. SHAREHOLDER ACCOUNTS. The AC Fund, in order to assist the VKM Trust in
the distribution of the AC Fund Shares to the VKM Fund shareholders after
delivery of the AC Fund Shares to the VKM Trust, will establish pursuant to the
request of the VKM Trust an open account with the AC Fund for each shareholder
of the VKM Fund and, upon request by the VKM Trust, shall transfer to such
account the exact number of full and fractional shares of the AC Fund then held
by the VKM Trust specified in the instruction provided pursuant to Section 2
hereof. The AC Fund is not required to issue certificates representing AC Fund
Shares unless requested to do so by a shareholder. Upon liquidation or
dissolution of the VKM Fund, certificates representing shares of beneficial
interest of the VKM Fund shall become null and void.
E. LIABILITIES. The Liabilities shall include all of VKM Fund's
liabilities, debts, obligations, and duties of whatever kind or nature, whether
absolute, accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable at the Closing Date,
and whether or not specifically referred to in this Agreement.
F. EXPENSES. Whether or not the transactions contemplated herein are
consummated VKAC Asset Management agrees to pay (i) for the reasonable outside
expenses for the transactions contemplated herein; including, but not by way of
limitation, the preparation of the AC Fund's Registration Statement on Form
N-14 (the "Registration Statement") and the solicitation of VKM Fund
shareholder proxies; (ii) VKM Trust's counsel's reasonable attorney's fees,
which fees shall be payable pursuant to receipt of an itemized statement, and
(iii) the cost of rendering the tax opinion, more fully referenced in Section
7F below.
G. DISSOLUTION. As soon as practicable after the Closing Date but in no
event later than one year after the Closing Date, the VKM Trust shall
voluntarily dissolve and completely liquidate the VKM Fund, by taking, in
accordance with the Delaware Business Trust Law and Federal securities laws,
all steps as shall be necessary and proper to effect a complete liquidation and
dissolution of the VKM Fund. Immediately after the Closing Date, the stock
transfer books relating to the VKM Fund shall be closed and no transfer of
shares shall thereafter be made on such books.
4. VKM TRUST'S REPRESENTATIONS AND WARRANTIES.
The VKM Trust, on behalf of the VKM Fund, hereby represents and warrants to
the AC Fund which representations and warranties are true and correct on the
date hereof, and agrees with the AC Fund that:
A. ORGANIZATION. The VKM Trust, a Delaware Business Trust duly formed and
in good standing under the laws of the State of Delaware and is duly authorized
to transact business in the State of Delaware. The VKM Fund is a separate
series of the VKM Trust duly designated in accordance with the applicable
provisions of the Declaration of Trust. The VKM Trust and the VKM Fund are
qualified to do business in all jurisdictions in which they are required to be
so qualified, except jurisdictions in which the failure to so qualify would not
have a material adverse effect on either the VKM Trust or VKM Fund. The VKM
Trust has all material federal, state and local authorizations necessary to own
on behalf of the VKM Fund all of the properties and assets allocated to the VKM
Fund and to carry on its business and the business of the VKM Fund as now being
conducted, except authorizations which the failure to so obtain would not have
a material adverse effect on the VKM Trust or the VKM Fund.
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B. REGISTRATION. The VKM Trust is registered under the Investment Company
Act of 1940, as amended (the "1940 Act") as an open-end, diversified
management company and such registration has not been revoked or rescinded.
The VKM Fund is duly designated as a series of the VKM Trust pursuant to the
terms of the Declaration of Trust. VKM Trust is in compliance in all material
respects with the 1940 Act and the rules and regulations thereunder with
respect to its activities and those undertaken on behalf of the VKM Fund.
All of the outstanding shares of beneficial interest of the VKM Fund have been
duly authorized and are validly issued, fully paid and non-assessable and not
subject to pre-emptive or dissenters' rights.
C. AUDITED FINANCIAL STATEMENTS. The statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets of the VKM Fund audited as of and for the year ended June
30, 1994, and, as soon as reasonably available, same for the year ended June 30,
1995, true and complete copies of which have been heretofore furnished to the
AC Fund, fairly represent the financial condition and the results of operations
of the VKM Fund as of and for their respective dates and periods in conformity
with generally accepted accounting principles applied on a consistent basis
during the periods involved.
D. FINANCIAL STATEMENTS. The VKM Trust shall furnish to the AC Fund (i) an
unaudited statement of assets and liabilities and the portfolio of investments
and the related statements of operations and changes in net assets of the VKM
Fund for the period ended June 30, 1995; and (ii) within five (5) business days
after the Closing Date an unaudited statement of assets and liabilities and the
portfolio of investments and the related statements of operations and changes
in net assets as of and for the interim period ending on the Closing Date; such
financial statements will represent fairly the financial position and portfolio
of investments and the results of the VKM Fund's operations as of, and for the
period ending on, the dates of such statements in conformity with generally
accepted accounting principles applied on a consistent basis during the periods
involved and the results of its operations and changes in financial position
for the periods then ended; and such financial statements shall be certified by
the Treasurer of the VKM Trust as complying with the requirements hereof.
E. CONTINGENT LIABILITIES. There are, and as of the Closing Date will be, no
contingent Liabilities of the VKM Fund not disclosed in the financial
statements delivered pursuant to Sections 4C and 4D which would materially
affect the VKM Fund's financial condition, and there are no legal,
administrative, or other proceedings pending or, to its knowledge, threatened
against the VKM Trust or the VKM Fund which would, if adversely determined,
materially affect the VKM Fund's financial condition. All Liabilities were
incurred by the VKM Fund in the ordinary course of its business.
F. MATERIAL AGREEMENTS. The VKM Trust is in compliance as to the VKM Fund
with all material agreements, rules, laws, statutes, regulations and
administrative orders affecting the VKM Fund's operations or its assets; and
except as referred to in the VKM Fund's Prospectus and Statement of Additional
Information, there are no material agreements outstanding relating to the VKM
Fund to which the VKM Trust is a party.
G. STATEMENT OF EARNINGS. As promptly as practicable, but in any case no
later than 30 calendar days after the Closing Date, KPMG Peat Marwick L.L.P.,
auditors for the VKM Trust, shall furnish the AC Fund with a statement of the
earnings and profits of the VKM Fund within the meaning of the Code as of the
Closing Date.
H. RESTRICTED SECURITIES. None of the securities comprising the assets of
the VKM Fund at the date hereof are, or on the Closing Date or any subsequent
delivery date will be, "restricted securities" under the Securities Act of
1933, (the "Securities Act") or the rules and regulations of the Securities and
Exchange Commission (the "SEC") thereunder, or will be securities for which
market quotations are not readily available for purposes of Section 2(a)(41)
under the 1940 Act.
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I. TAX RETURNS. At the date hereof and on the Closing Date, all Federal
and other material tax returns and reports of the VKM Fund required by law to
have been filed by such dates shall have been filed, and all Federal and other
taxes shown thereon shall have been paid so far as due, or provision shall have
been made for the payment thereof, and to the best of VKM Trust's knowledge no
such return is currently under audit and no assessment has been asserted with
respect to any such return.
J. CORPORATE AUTHORITY. The VKM Trust has the necessary power under its
Declaration of Trust to enter into this Agreement and to consummate the
transactions contemplated herein. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein
have been duly authorized by the VKM Trust's Board of Trustees, and except for
obtaining approval of the holders of the shares of beneficial interest of the
VKM Fund, no other corporate acts or proceedings by the VKM Trust or the VKM
Fund are necessary to authorize this Agreement and the transactions
contemplated herein. This Agreement has been duly executed and delivered by
VKM Trust and constitutes a legal, valid and binding obligation of VKM Trust
enforceable in accordance with its terms subject to bankruptcy laws and other
equitable remedies.
K. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the VKM Trust does not and will not (i)
result in a material violation of any provision of the Declaration of Trust of
the VKM Trust or the Designation of Series of the VKM Fund, or any amendment
thereto, (ii) result in a material violation of any statute, law, judgment,
writ, decree, order, regulation or rule of any court or governmental authority
applicable to VKM Trust, (iii) result in a material violation or breach of, or
constitute a default under any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument or obligation to which the VKM Trust
is subject, or (iv) result in the creation or imposition or any lien, charge or
encumbrance upon any property or assets of the VKM Trust. Except as set forth
in Schedule 2 to this Agreement, (i) no consent, approval, authorization, order
or filing with or notice to any court or governmental authority or agency is
required for the consummation by the VKM Trust of the transactions contemplated
by this Agreement and (ii) no consent of or notice to any third party or entity
is required for the consummation by the VKM Trust of the transactions
contemplated by this Agreement.
L. ABSENCE OF CHANGES. From the date of this Agreement through the Closing
Date, there shall not have been:
(1) any change in the business, results of operations, assets, or financial
condition or the manner of conducting the business of the VKM Fund, other than
changes in the ordinary course of its business, or any pending or threatened
litigation, which has had or may have a material adverse effect on such
business, results of operations, assets or financial condition;
(2) issued any option to purchase or other right to acquire shares of the
VKM Fund granted by the VKM Trust to any person other than subscriptions to
purchase shares at net asset value in accordance with terms in the Prospectus
for the VKM Fund;
(3) any entering into, amendment or termination of any contract or
agreement with respect to the VKM Fund by the VKM Trust, except as otherwise
contemplated by this Agreement;
(4) any indebtedness incurred, other than in the ordinary course of
business, by the VKM Fund for borrowed money or any commitment to borrow money
entered into by the VKM Fund or the VKM Trust on behalf of the VKM Fund;
(5) any amendment of the Declaration of Trust of the VKM Trust or of the
Designation of Series of the VKM Fund; or
(6) any grant or imposition of any lien, claim, charge or encumbrance
(other than encumbrances arising in the ordinary course of business with
respect to covered options) upon any asset of the VKM Fund other than a lien
for taxes not yet due and payable.
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M. TITLE. On the Closing Date, the VKM Fund will have good and marketable
title to the Assets, free and clear of all liens, mortgages, pledges,
encumbrances, charges, claims and equities whatsoever, other than a lien for
taxes not yet due and payable and full right, power and authority to sell,
assign, transfer and deliver such Assets; upon delivery of such Assets, the AC
Fund will receive good and marketable title to such Assets, free and clear of
all liens, mortgages, pledges, encumbrances, charges, claims and equities other
than a lien for taxes not yet due and payable.
N. PROXY STATEMENT. The VKM Trust's Proxy Statement, at the time of delivery
by the VKM Trust to its shareholders in connection with a special meeting of
shareholders to approve this transaction, and the VKM Trust's Prospectus and
Statement of Additional Information with respect to the VKM Fund on the forms
incorporated by reference into such Proxy Statement and as of their respective
dates (collectively, the "VKM Trust's Proxy Statement/Prospectus"), and at the
time the Registration Statement becomes effective, the Registration Statement
insofar as it relates to the VKM Trust and the VKM Fund and each of them at all
times subsequent thereto and including the Closing Date, as amended or as
supplemented if it shall have been amended or supplemented, conform and will
conform, in all material respects, to the applicable requirements of the
applicable Federal and state securities laws and the rules and regulations of
the SEC thereunder, and do not and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representations or
warranties in this Section 4N apply to statements or omissions made in reliance
upon and in conformity with written information concerning the AC Fund or their
affiliates furnished to VKM Trust by the AC Fund.
O. BROKERS. There are no brokers or finders fees payable by VKM Trust or
VKM Fund in connection with the transactions provided for herein.
P. TAX QUALIFICATION. The VKM Fund has qualified as a regulated investment
company within the meaning of Section 851 of the Code for each of its taxable
years; and has satisfied the distribution requirements imposed by Section 852
of the Code for each of its taxable years.
Q. FAIR MARKET VALUE The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by the AC Fund and
those to which the Assets are subject.
R. VKM TRUST'S LIABILITIES. Except as otherwise provided for herein, the
VKM Trust shall use reasonable efforts, consistent with its ordinary operating
procedures, to repay in full any indebtedness for borrowed money for the
account of the VKM Fund and have discharged or reserved against all of the VKM
Fund's known debts, liabilities and obligations including expenses, costs and
charges whether absolute or contingent, accrued or unaccrued.
5. THE AC FUND'S REPRESENTATIONS AND WARRANTIES.
The AC Fund, hereby represents and warrants to the VKM Trust, which
representations and warranties are true and correct on the date hereof and
agrees with the VKM Trust that:
A. ORGANIZATION. The AC Fund is a Delaware Business Trust duly formed and
in good standing under the laws of the State of Delaware and is duly authorized
to transact business in the State of Delaware. The AC Fund is qualified to do
business as a foreign corporation in all jurisdictions in which it is required
to be so qualified, except jurisdictions in which the failure to so qualify
would not have a material adverse effect on the AC Fund. The AC Fund has all
material federal, state and local authorization necessary to own all of its
properties and assets and to carry on its business and the business thereof as
now being conducted, except authorizations which the failure to so obtain would
not have a material adverse effect on the AC Fund.
B. REGISTRATION. The AC Fund is registered under the 1940 Act as an
open-end, non-diversified management company and; such registration has not
been revoked or rescinded. The AC Fund is in compliance in all material
respects with the 1940 Act and the rules and regulations thereunder. All of
the outstanding shares of the AC Fund have been duly authorized and are validly
issued, fully paid and non-assessable and not subject to pre-emptive dissenters'
rights.
C. AUDITED FINANCIAL STATEMENTS. The statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets of the AC Fund audited
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as of and for the year ended May 31, 1995, true and complete copies of which
have been heretofore furnished to the VKM Trust fairly represent the financial
condition and the results of operations of the AC Fund as of and for their
respective dates and periods in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved.
D. FINANCIAL STATEMENTS. The AC Fund shall furnish to the VKM Trust (i) an
unaudited statement of assets and liabilities and the portfolio of investments
and the related statements of operations and changes in net assets of the AC
Fund for the period ended June 30, 1995, and (ii) within five (5) business
days after the Closing Date, an unaudited statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets as of and for the interim period ending on the Closing
Date; such financial statements will represent fairly the financial position
and portfolio of investments of the AC Fund and the results of its operations
as of, and for the period ending on, the dates of such statements in conformity
with generally accepted accounting principles applied on a consistent basis
during the period involved and fairly present the financial position of the AC
Fund as at the dates thereof and the results of its operations and changes in
financial position for the periods then ended; and such financial statements
shall be certified by the Treasurer of the AC Fund as complying with the
requirements hereof.
E. CONTINGENT LIABILITIES. There are no contingent liabilities of the AC
Fund not disclosed in the financial statements delivered pursuant to Sections
5C and 5D which would materially affect the AC Fund's financial condition, and
there are no legal, administrative, or other proceedings pending or, to its
knowledge, threatened against the AC Fund which would, if adversely determined,
materially affect the AC Fund's financial condition.
F. MATERIAL AGREEMENTS. The AC Fund is in compliance with all material
agreements, rules, laws, statutes, regulations and administrative orders
affecting its operations or its assets; and except as referred to in the AC
Funds Prospectus there are no material agreements outstanding to which the AC
Fund is a party.
G. TAX RETURNS. At the date hereof and on the Closing Date, all Federal and
other material tax returns and reports of the AC Fund required by laws to have
been filed by such dates shall have been filed, and all Federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof, and to the best of the AC Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to any
such return.
H. CORPORATE AUTHORITY. The AC Fund has the necessary power to enter into
this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein have been duly authorized by the AC Fund's
Board of Trustees, no other corporate acts or proceedings by the AC Fund are
necessary to authorize this Agreement and the transactions contemplated herein.
This Agreement has been duly executed and delivered by the AC Fund and
constitutes a valid and binding obligation of the AC Fund enforceable in
accordance with its terms subject to bankruptcy laws and other equitable
remedies.
I. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the AC Fund does not and will not (i) result
in a material violation of any provision of the Declaration of Trust of the AC
Fund, or any amendment thereto, (ii) result in a material violation of any
statute, law, judgment, writ, decree, order, regulation or rule of any court or
governmental authority applicable to the AC Fund or (iii) result in a violation
or breach of, or constitute a default under, or result in the creation or
imposition or any lien, charge or encumbrance upon any property or assets of
the AC Fund pursuant to any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument or obligation to which the AC Fund
is subject. Except as set forth in Schedule 3 to this Agreement, (i) no
consent, approval, authorization, order of or filing with notice to any court or
governmental authority or agency is required for the consummation by the AC
Fund of the transactions contemplated by this Agreement and (ii) no consent of
or notice to any third party or entity is required for the consummation by the
AC Fund of the transactions contemplated by this Agreement.
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J. ABSENCE OF PROCEEDINGS. There are no legal, administrative or other
proceedings pending or, to its knowledge, threatened against the AC Fund which
would materially affect its financial condition.
K. SHARES OF THE AC FUND: REGISTRATION. The AC Fund Shares to be issued
pursuant to Section 1 hereof will be duly registered under the Securities Act
and all applicable state securities laws.
L. SHARES OF THE AC FUND: AUTHORIZATION. The shares of the AC Fund to be
issued pursuant to Section 1 hereof have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued and fully paid and
non-assessable by the AC Fund and conform in all material respects to the
description thereof contained in the AC Fund's Prospectus furnished to the VKM
Trust.
M. ABSENCE OF CHANGES. From the date hereof through the Closing Date, there
shall not have been any change in the business, results of operations, assets
or financial condition or the manner of conducting the business of the AC Fund,
other than changes in the ordinary course of its business, which has had a
material adverse effect on such business, results of operations, assets or
financial condition.
N. REGISTRATION STATEMENT. The Registration Statement and the Prospectus
contained therein filed on Form N-14, the ("Registration Statement"), as of the
effective date of the Registration Statement, and at all times subsequent
thereto up to and including the Closing Date, as amended or as supplemented if
they shall have been amended or supplemented, will conform, in all material
respects, to the applicable requirements of the applicable Federal securities
laws and the rules and regulations of the SEC thereunder, and will not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representations or warranties in this Section apply to statements or
omissions made in reliance upon and in conformity with written information
concerning the VKM Trust or the VKM Fund furnished to the AC Fund by the VKM
Trust.
O. TAX QUALIFICATION. The AC Fund has qualified as a regulated investment
company within the meaning of Section 851 of the Code for each of its taxable
years; and has satisfied the distribution requirements imposed by Section 852
of the Code for each of its taxable years. For purposes of this Section, any
reference to the AC Fund shall include its predecessors, a Maryland corporation
organized on March 28, 1974 and subsequently reorganized by merger with and
into the Fund.
6. COVENANTS.
During the period from the date of this Agreement and continuing until the
Closing Date the VKM Trust and AC Fund each agrees that (except as expressly
contemplated or permitted by this Agreement):
A. OTHER ACTIONS. The VKM Fund shall operate only in the ordinary course of
business consistent with prior practice. No party shall take any action that
would, or reasonably would be expected to, result in any of its representations
and warranties set forth in this Agreement being or becoming untrue in any
material respect.
B. GOVERNMENT FILINGS; CONSENTS. The VKM Trust and the AC Fund shall file
all reports required to be filed by the VKM Trust and the AC Fund with the SEC
between the date of this Agreement and the Closing Date and shall deliver to the
other party copies of all such reports promptly after the same are filed.
Except where prohibited by applicable statutes and regulations, each party
shall promptly provide the other (or its counsel) with copies of all other
filings made by such party with any state, local or federal government agency
or entity in connection with this Agreement or the transactions contemplated
hereby. Each of the VKM Trust and the AC Fund shall use all reasonable
efforts to obtain all consents, approvals, and authorizations required in
connection with the consummation of the transactions contemplated by this
Agreement and to make all necessary filings with the Secretary of State of the
State of Delaware.
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C. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT/PROSPECTUS. In connection with the Registration Statement and the
VKM Fund's Proxy Statement/Prospectus, each party hereto will cooperate with
the other and furnish to the other the information relating to the VKM Trust,
VKM Fund or the AC Fund, as the case may be, required by the Securities Act or
the Exchange Act and the rules and regulations thereunder, as the case may be,
to be set forth in the Registration Statement or the Proxy
Statement/Prospectus, as the case may be. The VKM Trust shall promptly prepare
and file with the SEC the Proxy Statement/Prospectus and the AC Fund shall
promptly prepare and file with the SEC the Registration Statement, in which the
Proxy Statement/Prospectus will be included as a prospectus. In connection
with the Registration Statement, insofar as it relates to the VKM Trust and its
affiliated persons, the AC Fund shall only include such information as is
approved by the VKM Trust for use in the Registration Statement. The AC Fund
shall not amend or supplement any such information regarding the VKM Trust and
such affiliates without the prior written consent of the VKM Trust which
consent shall not be unreasonably withheld. The AC Fund shall promptly notify
and provide the VKM Trust with copies of all amendments or supplements filed
with respect to the Registration Statement. The AC Fund shall use all
reasonable efforts to have the Registration Statement declared effective under
the Securities Act as promptly as practicable after such filing. The AC Fund
shall also take any action (other than qualifying to do business in any
jurisdiction in which it is now not so qualified) required to be taken under
any applicable state securities laws in connection with the issuance of the AC
Fund's shares in the transactions contemplated by this Agreement, and the AC
Fund shall furnish all information concerning the VKM Fund and the holders of
the AC Fund's shares of beneficial interest as may be reasonably requested in
connection with any such action.
D. ACCESS TO INFORMATION. During the period prior to the Closing Date, the
VKM Trust shall make available to the AC Fund a copy of each report, schedule,
registration statement and other document (the "Documents") filed or received
by it during such period pursuant to the requirements of Federal or state
securities laws or Federal or state banking laws (other than Documents which
such party is not permitted to disclose under applicable law or which are not
relevant to the VKM Fund). During the period prior to the Closing Date, the AC
Fund shall make available to the VKM Fund each Document pertaining to the
transactions contemplated hereby filed or received by it during such period
pursuant to Federal or state securities laws or Federal or state banking laws
(other than Documents which such party is not permitted to disclose under
applicable law).
E. SHAREHOLDERS MEETING. The VKM Trust shall call a meeting of the VKM Fund
shareholders to be held as promptly as practicable for the purpose of voting
upon the approval of this Agreement and the transactions contemplated herein,
and shall furnish a copy of the Proxy Statement/Prospectus and form of proxy to
each shareholder of the VKM Fund as of the record date for such meeting of
shareholders. The VKM Trust's Board of Trustees shall recommend to the VKM Fund
shareholders approval of this Agreement and the transactions contemplated
herein, subject to fiduciary obligations under applicable law.
F. COORDINATION OF PORTFOLIOS. The VKM Trust and AC Fund, covenant and
agree to coordinate the respective portfolios of the VKM Fund and AC Fund from
the date of the Agreement up to and including the Closing Date in order that at
Closing, when the Assets are added to the AC Fund's portfolio, the resulting
portfolio will meet the AC Fund's investment objective, policies and
restrictions, as set forth in the AC Fund Prospectus, a copy of which has been
delivered to VKM Trust.
G. DISTRIBUTION OF THE SHARES. At Closing the VKM Trust covenants that it
shall cause to be distributed the AC Fund Shares in the proper pro rata amount
for the benefit of the VKM Fund's shareholders and such that neither the VKM
Trust nor the VKM Fund shall continue to hold amounts of said shares so as to
cause a violation of Section 12(d)(1) of the 1940 Act. VKM Trust covenants
further that, pursuant to Section 3G, it shall liquidate and dissolve the VKM
Fund as promptly as practicable after the Closing Date. The VKM Trust
covenants to use all reasonable efforts to cooperate with the AC Fund and the
AC Fund's transfer agent in the distribution of said shares.
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H. BROKERS OR FINDERS. Except as disclosed in writing to the other party
prior to the date hereof, each of the VKM Trust and the AC Fund represents that
no agent, broker, investment banker, financial advisor or other firm or person
is or will be entitled to any broker's or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by this
Agreement, and each party shall hold the other harmless from and against any
all claims, liabilities or obligations with respect to any such fees,
commissions or expenses asserted by any person to be due or payable in
connection with any of the transactions contemplated by this Agreement on the
basis of any act or statement alleged to have been made by such first party or
its affiliate.
I. ADDITIONAL AGREEMENTS. In case at any time after the Closing Date any
further action is necessary or desirable in order to carry out the purposes of
this Agreement, the proper officers and trustees of each party to
this Agreement shall take all such necessary action.
J. PUBLIC ANNOUNCEMENTS. For a period of time from the date of this
Agreement to the Closing Date, the VKM Trust and the AC Fund will consult with
each other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
herein and shall not issue any press release or make any public statement prior
to such consultation, except as may be required by law or the rules of any
national securities exchange on which such party's securities are traded.
K. TAX STATUS OF REORGANIZATION. The intention of the parties is that the
transaction will qualify as a reorganization within the meaning of Section
368(a) of the Code. Neither the VKM Trust, the VKM Fund nor the AC Fund shall
take any action, or cause any action to be taken (including, without
limitation, the filing of any tax return) that is inconsistent with such
treatment or results in the failure of the transaction to qualify as a
reorganization within meaning of Section 368(a) of the Code. At or prior to
the Closing Date, the VKM Trust, the VKM Fund and the AC Fund will take such
action, or cause such action to be taken, as is reasonably necessary to enable
Skadden, Arps, Slate, Meagher & Flom, counsel to the VKM Trust and the VKM
Fund, to render the tax opinion required herein.
L. DECLARATION OF DIVIDEND. At or immediately prior to the Closing Date, the
VKM Fund shall declare and pay to its stockholders a dividend or other
distribution in an amount large enough so that it will have distributed in an
substantially all (and in any event not less than 98%) of its investment
company taxable income (computed without regard to any deduction for dividends
paid) and realized net capital gain, if any, for the current taxable year
through the Closing Date.
7. CONDITIONS TO OBLIGATIONS OF THE VKM TRUST
The obligations of the VKM Trust hereunder with respect to the consummation
of the Reorganization are subject to the satisfaction, or written waiver by the
VKM Trust, of the following conditions:
A. SHAREHOLDER APPROVAL. This Agreement and the transactions contemplated
herein shall have been approved by the affirmative vote of the holders of a
majority of the shares of beneficial interest of the VKM Fund present in person
or by proxy at a meeting of said shareholders in which a quorum is constituted.
B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the representations
and warranties of the AC Fund contained herein shall be true in all material
respects as of the Closing Date, and as of the Closing Date there shall have
been no material adverse change in the financial condition, results of
operations, business properties or assets of the AC Fund since May 31, 1995, and
the VKM Trust shall have received a certificate of the President or Vice
President of the AC Fund satisfactory in form and
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substance to the VKM Trust so stating. The AC Fund shall have performed and
complied in all material respects with all agreements, obligations and
covenants required by this Agreement to be so performed or complied with by it
on or prior to the Closing Date.
C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.
D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.
E. NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the transactions contemplated by
this Agreement shall be in effect, nor shall any proceeding by any state, local
or federal government agency or entity asking any of the foregoing be pending.
There shall not have been any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the transactions
contemplated by this Agreement, which makes the consummation of the
transactions contemplated by this Agreement illegal or which has a material
adverse affect on the business operations of the AC Fund.
F. TAX OPINION. The VKM Trust and the VKM Fund shall have obtained an
opinion from Skadden, Arps, Slate, Meagher & Flom, counsel for the VKM Trust
and the VKM Fund, dated as of the Closing Date, addressed to the VKM Trust and
the VKM Fund, that the consummation of the transactions set forth in this
Agreement comply with the requirements of a reorganization as described in
Section 368(a) of the Code substantially in the form attached as Annex A.
G. OPINION OF COUNSEL. The VKM Trust shall have received the opinion of
O'Melveny & Myers, counsel for AC Fund, dated as of the Closing Date, addressed
to the VKM Trust and VKM Fund, substantially in the form and to the effect
that: (i) the AC Fund is duly formed and existing as a trust under the laws of
the State of Delaware; (ii) the AC Fund is registered as an open-end,
diversified management company under the 1940 Act; (iii) this Agreement and
the reorganization provided for herein and the execution of this Agreement have
been duly authorized by all necessary trust action of the AC Fund and this
Agreement has been duly executed and delivered by the AC Fund and (assuming the
Agreement is a valid and binding obligation of the other parties thereto) is a
valid and binding obligation of the AC Fund; (iv) neither the execution or
delivery by the AC Fund of this Agreement nor the consummation by the AC Fund
of the transactions contemplated thereby contravene the AC Fund's Declaration
of Trust or, to their knowledge, violate any provision of any statute, or any
published regulation or any judgment or order disclosed to them by the AC Fund
as being applicable to the AC Fund; (v) to their knowledge based solely on the
certificate of an appropriate officer of the AC Fund attached there is no
pending, or threatened litigation involving the AC Fund except as disclosed
therein (vi) the AC Fund's Shares being issued pursuant to this Agreement have
been duly authorized and upon issuance thereof in accordance with this
Agreement will be validly issued, fully paid and non-assessable; (vii) except
as to financial statements and schedules and other financial and statistical
data included or incorporated by reference therein and subject to usual and
customary qualifications with respect to Rule 10b-5 type opinions as of the
effective date of the Registration Statement filed pursuant to the Agreement,
the portions thereof pertaining to the AC Fund comply as to form in all
material respects with their requirements of the Securities Act, the Securities
Exchange Act and the 1940 Act and the rules and regulations of the Commission
thereunder and no facts have come to counsel's attention which cause them to
believe that as of the effectiveness of the portions of the Registration
Statement applicable to the AC Fund, the Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and (viii) to their knowledge and subject to the qualifications set
forth below, the execution and delivery by the AC Fund of the Agreement and the
consummation of the transactions therein contemplated do not require, under
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46
the laws of the State of Delaware, or the Federal laws of the United
States, the consent, approval, authorization, registration, qualification or
order of, or filing with, any court or governmental agency or body (except such
as have been obtained under the Securities Act, the 1940 Act or the rules and
regulations thereunder.) Counsel need express no opinion, however, as to any
such consent, approval, authorization, registration, qualification, order or
filing (a) which may be required as a result of the involvement of other
parties to the Agreement in the transactions contemplated by the Agreement
because of their legal or regulatory status or because of any other facts
specifically pertaining to them; (b) the absence of which does not deprive the
VKM Trust or VKM Fund of any material benefit under such agreements; or (c)
which can be readily obtained without significant delay or expense to the VKM
Trust or VKM Fund, without loss to the VKM Trust or VKM Fund of any material
benefit under the Agreement and without any material adverse effect on them
during the period such consent, approval authorization, registration,
qualification or order was obtained. The foregoing opinion relates only to
consents, approvals, authorizations, registrations, qualifications, orders or
fillings under (a) laws which are specifically referred to in the opinion, (b)
laws of the State of Delaware and the Federal laws of the United States of
America which, in our experience, are normally applicable to transactions of
the type provided for in the Agreement and (c) court orders and judgments
disclosed to them by the AC Fund in connection with the opinion. Counsel's
opinion as to the validity and binding nature of this Agreement may be limited
to the present law of the State of Delaware. Counsel's other opinions may
be limited to the present Federal law of the United States and the present
general corporation and trust laws of the State of Delaware.
H. OFFICER CERTIFICATES. The VKM Trust shall have received a certificate of
an authorized officer of the AC Fund, dated as of the Closing Date, certifying
that the representations and warranties set forth in Section 5 are true and
correct on the Closing Date, together with certified copies of the resolutions
adopted by the Board of Directors shall be furnished to the VKM Trust.
8. CONDITIONS TO OBLIGATIONS OF THE AC FUND
The obligations of the AC Fund hereunder with respect to the consummation of
the Reorganization are subject to the satisfaction, or written waiver by the AC
Fund of the following conditions:
A. SHAREHOLDER APPROVAL. This Agreement and the transactions contemplated
herein shall have been approved by the affirmative vote of the holders of a
majority of the shares of beneficial interest of the VKM Fund present in person
or by proxy at a meeting of said shareholders in which a quorum is constituted.
B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the representations
and warranties of the VKM Trust contained herein shall be true in all material
respects as of the Closing Date, and as of the Closing Date there shall have
been no material adverse change in the financial condition, results of
operations, business, properties or assets of the VKM Fund since June 30, 1994
and the AC Fund shall have received a certificate of the President or Vice
President of the VKM Trust satisfactory in form and substance to the AC Fund
so stating. The VKM Trust and the VKM Fund shall have performed and complied
in all material respects with all agreements, obligations and covenants
required by this Agreement to be so performed or complied with by them on or
prior to the Closing Date.
C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.
D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.
E. NO INJUNCTIONS OR RESTRAINTS: ILLEGALITY. No injunction preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect, nor shall any proceeding by any state, local or federal government
agency or entity seeking any of the foregoing be pending. There shall not be
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47
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this
Agreement, which makes the consummation of the transactions contemplated by
this Agreement illegal.
F. TAX OPINION. The AC Fund shall have obtained an opinion from Skadden,
Arps, Slate, Meagher & Flom, counsel for the VKM Trust and the VKM Fund, dated
as of the Closing Date, addressed to the AC Fund, that the consummation of the
transactions set forth in this Agreement comply with the requirements of
a reorganization as described in Section 368(a) of the Code substantially in
the form attached as Annex A.
G. OPINION OF COUNSEL. The AC Fund shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for the VKM Trust, dated as of
the Closing Date, addressed to the AC Fund substantially in the form of and to
the effect that: (i) the VKM Trust is duly formed and in good standing as a
business trust under the laws of the State of Delaware; (ii) the Board of
Trustees of the VKM Trust has duly designated the VKM Fund as a series of the
VKM Trust pursuant to the terms of the Declaration of Trust of the VKM Trust;
(iii) the VKM Fund is registered as an open-end, diversified management company
under the 1940 Act; (iv) this Agreement and the reorganization provided for
herein and the execution of this Agreement have been duly authorized and
approved by all requisite action of VKM Trust and this Agreement has been duly
executed and delivered by the VKM Trust and (assuming the Agreement is a valid
and binding obligation of the other parties thereto) is a valid and binding
obligation of the VKM Trust; (v) neither the execution or delivery by the VKM
Trust of this Agreement nor the consummation by the VKM Trust or VKM Fund of
the transactions contemplated thereby contravene the VKM Trust's Declaration of
Trust, or, to the best of their knowledge, violate any provision of any statute
or any published regulation or any judgment or order disclosed to them by the
VKM Trust as being applicable to the VKM Trust or the VKM Fund; (vi) to the
best of their knowledge based solely on the certificate of an appropriate
officer of the VKM Trust attached hereto, there is no pending or threatened
litigation which would have the effect of prohibiting any material business
practice or the acquisition of any material property or the conduct of any
material business of the VKM Fund or might have a material adverse effect on
the value of any assets of the VKM Fund; (vii) except as to financial
statements and schedules and other financial and statistical data included or
incorporated by reference therein and subject to usual and customary
qualifications with respect to Rule 10b-5 type opinions, as of the effective
date of the Registration Statement filed pursuant to the Agreement, the
portions thereof pertaining to VKM Trust and the VKM Fund comply as to form in
all material respects with the requirements of the Securities Act, the
Securities Exchange Act and the 1940 Act and the rules and regulations of the
Commission thereunder and no facts have come to counsel's attention which would
cause them to believe that as of the effectiveness of the portions of the
Registration Statement applicable to VKM Trust and VKM Fund, the Registration
Statement contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and (viii) to the best of their knowledge
and information and subject to the qualifications set forth below, the
execution and delivery by the VKM Trust of the Agreement and the consummation
of the transactions therein contemplated do not require, under the laws of the
States of Delaware or Illinois or the federal laws of the United States, the
consent, approval, authorization, registration, qualification or order of, or
filing with, any court or governmental agency or body (except such as have been
obtained). Counsel need express no opinion, however, as to any such consent,
approval, authorization, registration, qualification, order or filing (a) which
may be required as a result of the involvement of other parties to the
Agreement in the transactions contemplated by the Agreement because of their
legal or regulatory status or because of any other facts specifically
pertaining to them; (b) the absence of which does not deprive the AC Fund of
any material benefit under the Agreement; or (c) which can be readily obtained
without significant delay or expense to the AC Fund, without loss to the AC
Fund of any material benefit under the Agreement and without any material
adverse effect on the AC Fund during the period such consent, approval,
authorization, registration, qualification or order was obtained. The
foregoing opinion relates only to consents, approvals, authorizations,
registrations, qualifications, orders or filings under (a) laws which are
specifically referred to in this opinion, (b) laws of the States of Delaware
and Illinois and the Federal laws of the United States of America which, in
counsel's experience, are normally applicable to transactions of the type
provided for in the Agreement and (c) court orders and judgments disclosed to
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48
them by the VKM Trust in connection with this opinion. In addition, although
counsel need not specifically considered the possible applicability to the VKM
Trust of any other laws, orders or judgments, nothing has come to their
attention in connection with their representation of the VKM Trust and the VKM
Fund in this transaction that has caused them to conclude that any other
consent, approval, authorization, registration, qualification, order or filing
is required.
H. THE ASSETS. The Assets, as set forth in Schedule 1, as amended, shall
consist solely of nondefaulted, liquid U.S. dollar denominated money market
securities, cash and other marketable securities which are in conformity with
the AC Fund's investment objective, policy and restrictions as set forth in the
AC Fund's prospectus and statement of additional information, copies of which
have been delivered to the VKM Trust.
I. SHAREHOLDER LIST. The VKM Trust shall have delivered to the AC Fund an
updated list of all shareholders of the VKM Fund, as reported by VKM Trust's
transfer agent, as of one (1) business day prior to the Closing Date with each
shareholder's respective holdings in the VKM Fund, taxpayer identification
numbers, Form W-9 and last known address.
J. OFFICER CERTIFICATES. The AC Fund shall have received a certificate of
an authorized officer of VKM Trust, dated as of the Closing Date, certifying
that the representations and warranties set forth in Section 4 are true and
correct on the Closing Date, together with certified copies of the resolutions
adopted by the Board of Trustees and shareholders shall be furnished to the VKM
Trust.
9. AMENDMENT, WAIVER AND TERMINATION.
(A) The parties hereto may, by agreement in writing authorized by their
respective Boards of Trustees, amend this Agreement at any time before or after
approval thereof by the shareholders of the VKM Fund; provided, however, that
after receipt of VKM Fund shareholder approval, no amendment shall be made by
the parties hereto which substantially changes the terms of Sections 1, 2 and 3
hereof without obtaining VKM Fund's shareholder approval thereof or that affect
any applications for exemptive relief from the SEC or any orders with respect
thereto without obtaining the approval fo the staff of the SEC.
(B) At any time prior to the Closing Date, either of the parties may by
written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein. No delay on the part of either party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or
privilege, or any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
(C) This Agreement may be terminated, and the transactions contemplated
herein may be abandoned at any time prior to the Closing Date:
(i) by the mutual consents of the Board of Trustees of the VKM Trust and
the AC Fund;
(ii) by the VKM Trust, if the AC Fund breaches in any material respect
any of its representations, warranties, covenants or agreements contained in
this Agreement;
(iii) by the AC Fund, if the VKM Trust breaches in any material respect
any of its representations, warranties, covenants or agreements contained in
this Agreement;
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49
(iv) by either the VKM Trust or the AC Fund, if the Closing has not
occurred on or prior to September 30, 1995 (provided that the rights to
terminate this Agreement pursuant to this subsection (C) (iv) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur on or before such date);
(v) by the AC Fund in the event that: (a) all the conditions
precedent to the VKM Trust's obligation to close, as set forth in Section 7 of
this Agreement, have been fully satisfied (or can be fully satisfied at the
Closing); (b) the AC Fund gives the VKM Trust written assurance of its intent
to close irrespective of the satisfaction or non-satisfaction of all conditions
precedent to the AC Fund's obligation to close, as set forth in Section 8 of
this Agreement; and (c) the VKM Trust then fails or refuses to close within the
earlier of five (5) business days or September 30, 1995; or
(vi) by the VKM Trust in the event that: (a) all the conditions precedent
to the AC Fund's obligation to close, as set forth in Section 8 of this
Agreement, have been fully satisfied (or can be fully satisfied at the
Closing); (b) the VKM Trust gives the AC Fund written assurance of its intent
to close irrespective of the satisfaction or non-satisfaction of all the
conditions precedent to the VKM Trust's obligation to close, as set forth in
Section 7 of this Agreement; and (c) the AC Fund then fails or refuses to close
within the earlier of five (5) business days or September 30, 1995.
10. REMEDIES
In the event of termination of this Agreement by either or both of the VKM
Trust and AC Fund pursuant to Section 9(C), written notice thereof shall
forthwith be given by the terminating party to the other party hereto, and this
Agreement shall therefore terminate and become void and have no effect, and the
transactions contemplated herein and thereby shall be abandoned, without
further action by the parties hereto.
11. SURVIVAL OF WARRANTIES AND INDEMNIFICATION.
(A) SURVIVAL. The representations and warranties included or provided for
herein, or in the Schedules or other instruments delivered or to be delivered
pursuant hereto, shall survive the Closing Date for a three year period except
that any representation or warranty with respect to taxes shall survive for the
expiration of the statutory period of limitations for assessments of tax
deficiencies as the same may be extended from time to time by the taxpayer.
The covenants and agreements included or provided for herein shall survive and
be continuing obligations in accordance with their terms. The period for which
a representation, warranty, covenant or agreement survives shall be referred to
hereinafter as the "Survival Period." Notwithstanding anything set forth in
the immediately preceding sentence, the VKM Trust's and the AC Fund's right to
seek indemnity pursuant to this Agreement shall survive for a period of ninety
(90) days beyond the expiration of the Survival Period of the representation,
warranty, covenant or agreement upon which indemnity is sought. In no event
shall the VKM Trust or the AC Fund be obligated to indemnify the other if
indemnity is not sought within ninety (90) days of the expiration of the
applicable Survival Period.
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50
(i) all debts, liabilities and obligations of the VKM Trust of any nature,
whether accrued, absolute, contingent or otherwise, including liabilities or
obligations relating to the Assets (whether or not disclosed to the AC Fund and
whether or not known by the VKM Trust); and
(ii) taxes of any kind in respect of the VKM Fund whether imposed on the VKM
Fund or on any shareholder of the VKM Fund.
(B) INDEMNIFICATION. Each party (an "Indemnitor") shall indemnify and hold
the other and its officers, directors, agents and persons controlled by or
controlling any of them (each an "Indemnified Party") harmless from and against
any and all losses, damages, liabilities, claims, demands, judgments,
settlements, deficiencies, taxes, assessments, charges, costs and expenses of
any nature whatsoever (including reasonable attorneys' fees) including amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by such Indemnified Party in connection with
the defense or disposition of any claim, action, suit or other proceeding,
whether civil or criminal, before any court or administrative or investigative
body in which such Indemnified Party may be or may have been involved as a
party or otherwise or with which such Indemnified Party may be or may have been
threatened, (collectively, the "Losses") arising out of or related to any
claim of a breach of any representation, warranty or covenant made herein by
the Indemnitor; provided, however, that no Indemnified Party shall be
indemnified hereunder against any Losses arising directly from such Indemnified
Party's (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv)
reckless disregard of the duties involved in the conduct of such Indemnified
Party's position.
(C) INDEMNIFICATION PROCEDURE. The Indemnified Party shall use its best
efforts to minimize any liabilities, damages, deficiencies, claims, judgments,
assessments, costs and expenses in respect of which indemnity may be sought
hereunder. The Indemnified Party shall given written notice to Indemnitor
within the earlier of ten (10) days of receipt of written notice to Indemnitor
or thirty (30) days from discovery by Indemnified Party of any matters which
may give rise to a claim for indemnification or reimbursement under this
Agreement. The failure to give such notice shall not affect the right of
Indemnified Party to indemnity hereunder unless such failure has materially and
adversely affected the rights of the Indemnitor; provided that in any event
such notice shall have been given prior to the expiration of the Survival
Period. At any time after ten (10) days from the giving of such notice,
Indemnified Party may, at its option, resist, settle or otherwise compromise,
or pay such claim unless it shall have received notice from Indemnitor that
Indemnitor intends, at Indemnitor's sole cost and expense, to assume the
defense of any such matter, in which case Indemnified Party shall have the
right, at no cost or expense to Indemnitor, to participate in such defense. If
Indemnitor does not assume the defense of such matter, and in any event until
Indemnitor states in writing that it will assume the defense, Indemnitor shall
pay all costs of Indemnified Party arising out of the defense until the defense
is assumed; provided, however, that Indemnified Party shall consult with
Indemnitor and obtain Indemnitor's consent to any payment or settlement of any
such claim. Indemnitor shall keep Indemnified Party fully apprised at all
times as to the status of the defense. If Indemnitor does not assume the
defense, Indemnified Party shall keep Indemnitor apprised at all times as to
the status of the defense. Following indemnification as provided for
hereunder, Indemnitor shall be subrogated to all rights of Indemnified Party
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made.
12. SURVIVAL
The provisions set forth in Sections 10, 11 and 16 hereof shall survive the
termination of this Agreement for any cause whatsoever.
13. NOTICES.
All notices hereunder shall be sufficiently given for all purposes hereunder
if in writing and delivered personally or sent by registered mail or certified
mail, postage prepaid. Notice to the VKM Trust shall be addressed to the VKM
Trust c/o Van Kampen American Capital Investment Advisory Corp., One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, Attention: General Counsel or at such
other address and to the attention of such other person as the VKM Trust may
designate by written notice to the AC Fund. Notice to AC Fund shall be
addressed to the AC Fund c/o Van Kampen American Capital Asset Management,
Inc., 2800 Post Oak Boulevard, Houston, Texas 77056, Attention: General
Counsel, with a copy to George M. Bartlett, O'Melveny & Myers, 400 South Hope
Street, Los Angeles,
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51
California 900710-2899, or at such other address as AC Fund may designate by
written notice to the VKM Trust. Any notice shall be deemed to have been
served or given as of the date such notice is delivered personally or mailed.
14. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns. This Agreement shall not be assigned
by any party without the prior written consent of the other parties.
15. BOOKS AND RECORDS.
The VKM Trust and the AC Fund agree that copies of the books and records of
the VKM Fund relating to the Assets including, but not limited to all files,
records, written materials; e.g., closing transcripts, surveillance files and
credit reports shall be delivered by the VKM Trust to the AC Fund at the
Closing Date. In addition to, and without limiting the foregoing, the VKM Trust
and the AC Fund agree to take such action as may be necessary in order that the
AC Fund shall have reasonable access to such other books and records as may be
reasonably requested, all for three years after the Closing Date for the three
tax years ending December 31, 1992, December 31, 1993 and December 31, 1994
namely, general ledger, journal entries, voucher registers; distribution
journal; payroll register; monthly balance owing report; income tax returns;
tax depreciation schedules; and investment tax credit basis schedules.
16. GENERAL.
This Agreement supersedes all prior agreements between the parties (written
or oral), is intended as a complete and exclusive statement of the terms of the
Agreement between the parties and may not be amended, modified or changed or
terminated orally. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by the VKM Trust and
the AC Fund and delivered to each of the parties hereto. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. This Agreement is for the
sole benefit of the parties thereto, and nothing in this Agreement, expressed
or implied, is intended to confer upon any other person any rights or remedies
under or by reason of this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to principles of conflicts or choice of law.
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52
17. LIMITATION OF LIABILITY.
Copies of the Declarations of Trust of the VKM Trust and AC Fund are on file
with the Secretary of State of the State of Delaware, and notice, is hereby
given and the parties hereto acknowledge and agree that this instrument is
executed on behalf of the Trustees of the VKM Trust and AC Fund, respectively,
as Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or shareholders of the VKM Trust or
the AC Fund individually but binding only upon the assets and property of this
VKM Trust or AC Fund, as the case may be.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND,
a Delaware business trust
By:_____________________________________
Title:__________________________________
Attest: _________________________
Title: _________________________
VAN KAMPEN AMERICAN CAPITAL MONEY MARKET
TRUST, a Delaware business trust
By:_____________________________________
Title:__________________________________
Attest: _________________________
Title: _________________________
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53
SCHEDULE 1 [LIST OF MARKETABLE SECURITIES] [AS AMENDED AT CLOSING]
54
SCHEDULE 2 [VKM TRUST CONSENTS]
55
SCHEDULE 3 [AC FUND CONSENTS]
56
ANNEX A [TAX FREE OPINION: SKADDEN, ARPS, SLATE, MEAGHER & FLOM]
57
--------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
RESERVE FUND
--------------------------------------------------------------------------------
Van Kampen American Capital Reserve Fund, formerly known as American Capital
Reserve Fund, Inc. (the "Fund"), is a mutual fund seeking protection of capital
and high current income through investments in U.S. dollar denominated money
market securities.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. ALTHOUGH THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is (800)421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated August 1, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800)421-5666 or, for Telecommunications Device For
the Deaf, (800)772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED AUGUST 1, 1995.
58
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TABLE OF CONTENTS
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PAGE
---
Prospectus Summary............................................... 3
Shareholder Transaction Expenses................................. 5
Annual Fund Operating Expenses and Example....................... 6
Financial Highlights............................................. 8
The Fund......................................................... 10
Investment Objective and Policies................................ 10
Investment Practices............................................. 13
Investment Advisory Services..................................... 13
Alternative Sales Arrangements................................... 15
Purchase of Shares............................................... 17
Shareholder Services............................................. 22
Redemption of Shares............................................. 26
Distribution Plans............................................... 30
Determination of Net Asset Value................................. 32
Distributions from the Fund...................................... 32
Tax Status....................................................... 33
Fund Performance................................................. 33
Description of Shares of the Fund................................ 34
Additional Information........................................... 35
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
59
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PROSPECTUS SUMMARY
------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Reserve Fund (the "Fund) is a
diversified, open-end management investment company organized as a Delaware
business trust.
MINIMUM PURCHASE. $500 minimum initial investment and $50 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
INVESTMENT OBJECTIVE. Protection of capital and high current income. There is,
however, no assurance that the Fund will be successful in achieving its
objective.
INVESTMENT POLICY. The Fund seeks to maintain a constant net asset value of
$1.00 per share by investing in a diversified portfolio of money market
instruments. It seeks high current income from these short-term investments to
the extent consistent with protection of capital.
RISK FACTORS. Investments in the Fund are neither insured nor guaranteed by the
U.S. Government. Although the Fund seeks to maintain a stable net asset value of
$1.00 per share there is no assurance that the Fund will be able to do so.
INVESTMENT RESULTS. The investment results of the Fund are shown in the
"Financial Highlights" table.
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and Class C shares. Unless investors intend to exchange their Fund
shares for Class B shares or Class C shares of other Van Kampen American Capital
funds, they should purchase the Fund's Class A shares because there is no
distribution fee. Even investors who do intend to exchange their Fund shares for
Class B or Class C shares of other Van Kampen American Capital Funds may prefer
to purchase Class A shares of the Fund and then redeem those shares and use the
proceeds to purchase Class B or Class C shares of other Van Kampen American
Capital funds. See "Alternative Sales Arrangements -- Factors for
Consideration." Each class of shares represents an interest in the same
portfolio of investments of the Fund. The per share dividends on Class B and
Class C shares will be lower than the per share dividends on Class A shares. See
"Alternative Sales Arrangements." For information on redeeming shares see
"Redemption of Shares."
Class A Shares. These shares are offered at net asset value per share. The Fund
pays an annual service fee of up to 0.15% of its average daily net assets
attributable to such class of shares. See "Purchase of Shares -- Class A Shares"
and "Distribution Plans."
Class B Shares. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of four percent of redemp-
3
60
tion proceeds during the first year, declining each year thereafter to zero
percent after the fifth year. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to .90% of its average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares" and "Distribution Plans." Class B shares will convert
automatically to Class A shares six years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of one percent on redemptions made
within one year of purchase. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to .90% of its average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution Plans." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income and capital
gains, if any, are declared and paid daily. All dividends and distributions are
automatically reinvested in shares of the Fund at net asset value per share
(without sales charge) unless payment in cash is requested. See "Distributions
from the Fund."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser to the Fund.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the
"Distributor").
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
4
61
------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- ----------------- -------------
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... None None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds).......... None Year 1--4.00% Year 1--1.00%
Year 2--4.00%
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
5
62
------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES(4) SHARES(4)
--------- --------- ---------
Management fees (as a percentage of
average daily net assets)............. .44% .44% .44%
12b-1 Fees (as a percentage of average
daily net assets)(1).................. .14% .90%(3) .90%(3)
Other Expenses (as a percentage of
average daily net assets)(2).......... .42% .42% .42%
Total Fund Operating Expenses (as a
percentage of average daily net
assets)............................... 1.00% 1.76% 1.76%
------------------------------------------------------------------------------
(1) Up to .15% for Class A shares and .90% for Class B and C shares. See
"Distribution Plans."
(2) See "Investment Advisory Services."
(3) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(4) Based on Class B and C shares being in effect for the entire fiscal year.
6
63
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
------ ------ ------ ------
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.00% for
Class A shares, 1.76% for Class B shares
and 1.76% for Class C shares, (ii) a 5%
annual return and (iii) redemption at the
end of each time period:
Class A............................... $10 $32 $ 55 $122
Class B............................... $59 $88 $113 $169*
Class C............................... $28 $55 $ 95 $207
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $10 $32 $ 55 $122
Class B............................... $18 $55 $ 95 $169*
Class C............................... $18 $55 $ 95 $207
------------------------------------------------------------------------------
*Based on conversion to Class A shares after six years.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the Fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."
7
64
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(Selected data for a share of beneficial interest outstanding throughout each
of the periods indicated)
The following information for each of the five most recent fiscal years has
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified. This information should be read in conjunction with the
related financial statements and notes thereto included in the Statement of
Additional Information.
CLASS A
------------------------------------------------------------------------------------
YEAR ENDED MAY 31
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................ .0535 .0329 .0353 .052 .0758 .0893 .0891
Expenses..................................... (.0101) (.0100) (.0109) (.0105) (.0094) (.0092) (.0076)
---------- ---------- ---------- ---------- ---------- ---------- ------------
Net investment income........................ .0434 .0229 .0244 .0415 .0664 .0801 .0815
Net realized and unrealized gain on
securities.................................. -- -- -- -- -- -- .000007
---------- ---------- ---------- ---------- ---------- ---------- ------------
Total from investment operations............. .0434 .0229 .0244 .0415 .0664 .0801 .081507
---------- ---------- ---------- ---------- ---------- ---------- ------------
LESS DISTRIBUTIONS
Dividends from net investment income......... (.0434) (.0229) (.0244) (.0415) (.0664) (.0801) (.0815)
Distributions from net realized gain on
securities.................................. -- -- -- -- -- -- (.000007)
---------- ---------- ---------- ---------- ---------- ---------- ------------
Total dividends and distributions............ (.0434) (.0229) (.0244) (.0415) (.0664) (.0801) (.081507)
---------- ---------- ---------- ---------- ---------- ---------- ------------
Net asset value, end of period............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ========== ========== ============
TOTAL RETURN(2).............................. 4.43% 2.32% 2.44% 4.20% 6.80% 8.33% 8.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)......... $319.7 $463.8 $279.3 $329.2 $402.3 $426.1 $474.2
Ratios to average net assets (annualized)
Expenses.................................... 1.00% 1.03% 1.09% 1.05% .94% .91% .76%
Net investment income....................... 4.28% 2.36% 2.44% 4.19% 6.68% 7.99% 8.19%
CLASS A
-------------------------------------
YEAR ENDED MAY 31
-------------------------------------
1988 1987 1986
------------ ------------ ---------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $1.00 $1.00 $1.00
------------ ------------ ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................ .0729 .0647 .0802
Expenses..................................... (.0078) (.0092) (.0093)
------------ ------------ ---------
Net investment income........................ .0651 .0555 .0709
Net realized and unrealized gain on
securities.................................. .000015 .000102 .0002
------------ ------------ ---------
Total from investment operations............. .065115 .055602 .0711
------------ ------------ ---------
LESS DISTRIBUTIONS
Dividends from net investment income......... (.0651) (.0556) (.0709)
Distributions from net realized gain on
securities.................................. (.000015) (.000002) (.0002)
------------ ------------ ---------
Total dividends and distributions............ (.065115) (.055602) (.0711)
------------ ------------ ---------
Net asset value, end of period............... $1.00 $1.00 $1.00
============ ============ =========
TOTAL RETURN(2).............................. 6.71% 5.71% 7.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)......... $500.7 $377.8 $227.9
Ratios to average net assets (annualized)
Expenses.................................... .78% .92% .93%
Net investment income....................... 6.56% 5.60% 7.16%
(Table continued on following page)
8
65
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
--------------------------------------------------------------------------------
CLASS B CLASS C
--------------- ---------------
APRIL 18, APRIL 18,
1995(1) THROUGH 1995(1) THROUGH
MAY 31, MAY 31,
1995 1995
--------------- ---------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................................................... $1.00 $1.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................................................................... .0073 .0076
Expenses.................................................................................. (.0026) (.0027)
-------- --------
Net investment income..................................................................... .0047 .0049
Net realized and unrealized gain on securities............................................ -- --
-------- --------
Total from investment operations.......................................................... .0047 .0049
-------- --------
LESS DISTRIBUTIONS
Dividends from net investment income...................................................... (.0047) (.0049)
Distributions from net realized gains on securities....................................... -- --
-------- --------
Total dividends and distributions......................................................... (.0047) (.0049)
-------- --------
Net asset value, end of period............................................................ $1.00 $1.00
======== ========
TOTAL RETURN(2)........................................................................... .47% .49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................................................... $4.2 $0.6
Ratios to average net assets (annualized)
Expenses................................................................................. 1.76%(3) 1.76(3)
Net investment income.................................................................... 3.52%(3) 3.52(3)
---------------
(1) Commencement of operations.
(2) Total return has not been annualized and does not consider the effect of
sales charges.
(3) Ratios based on the class of shares being in effect for the entire fiscal
year.
9
66
------------------------------------------------------------------------------
THE FUND
------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company. This type
of company is commonly known as a mutual fund. A mutual fund provides, for those
who have similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.
Fourteen Trustees have the responsibility for overseeing the affairs of the
Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines the
investment of the Fund's assets, provides administrative services and manages
the Fund's business and affairs. The Adviser together with its predecessors, has
been in the investment advisory business since 1926.
------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
------------------------------------------------------------------------------
The Fund seeks protection of capital and high current income through
investments in U.S. dollar denominated money market securities. These securities
may include obligations of the U.S. Government and its agencies, bank
obligations, commercial paper and repurchase agreements secured by such
obligations. Such securities are described below.
The Fund seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments with remaining
maturities of 13 months or less with a dollar-weighted average maturity of 90
days or less as defined in the rules of the SEC. It seeks high current income
from these short-term investments to the extent consistent with protection of
capital. Of course, there can be no guarantee that the Fund will achieve its
objective or be able at all times to maintain its net asset value per share at
$1.00. In addition, the daily dividend rate paid by the Fund may be expected to
fluctuate. The Fund uses the amortized cost method for valuing portfolio
securities purchased at a discount. See "Determination of Net Asset Value."
OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS AGENCIES. The Fund may invest in
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies and instrumentalities which are supported by any of the
following: (a) the full faith and credit of the U.S. Government, (b) the right
of the issuer to borrow an amount limited to a specific line of credit from the
U.S. Government, (c) discretionary authority of the U.S. Government agency or
instrumentality, or (d) the credit of the instrumentality. Such agencies or
instrumentalities include, but are not limited to, the Federal National Mortgage
Association, the Government National Mortgage Association, Federal Land Banks,
and the Farmer's Home Administration.
10
67
BANK OBLIGATIONS. The Fund may invest in certificates of deposit, time
deposits and bankers' acceptances issued by domestic banks, foreign branches or
subsidiaries of domestic banks, and domestic or foreign branches of foreign
banks which at the time of investment are rated in the two highest categories by
Standard & Poor's Corporation ("S&P") (A-1 and A-2) or by Moody's Investors
Service ("Moody's") (Prime-1 and Prime-2). The ratings of Moody's and S&P
represent their opinions of the quality of the bank obligations they undertake
to rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. The Fund's current policy is to limit investments
in bank obligations to obligations rated A-1 or Prime-1.
Certificates of deposit are certificates representing the obligation of a bank
to repay funds deposited with it for a specified period of time. Time deposits
are non-negotiable deposits maintained in a bank for a specified period of time
(in no event longer than seven days) at a stated interest rate. Time deposits
which may be held by the Fund will not benefit from insurance from the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity.
The purchase of obligations of foreign banks may subject the Fund to
additional investment risks that are different in some respect from those
incurred in investing in obligations of domestic banks. Foreign banks and
foreign branches or subsidiaries of domestic banks are not necessarily subject
to the same or similar regulatory requirements that apply to domestic banks,
such as mandatory reserve requirements, loan limitations and accounting, audit
and financial record keeping requirements. In addition, less information may be
publicly available about a foreign bank or about a foreign branch of a domestic
bank. Because evidences of ownership of obligations of foreign branches or
subsidiaries of foreign banks usually are held outside the United States, the
Fund will be subject to additional risks which include possible adverse
political and economic developments, possible seizure or nationalization of
foreign deposits and possible adopting of governmental restrictions which might
adversely affect the payment of principal and interest on the foreign
obligations or might restrict the payment of principal and interest to investors
located outside the country of the issuer, whether from currency blockage or
otherwise. Income earned or received by the Fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries.
COMMERCIAL PAPER. The Fund may invest in short-term obligations of companies
which at the time of investment are (a) rated in the two highest categories by
S&P (A-1 and A-2) or by Moody's (Prime-1 and Prime-2), or (b) if not rated,
issued by
11
68
a company which at the date of investment has any outstanding long-term debt
securities rated at least A by S&P or by Moody's.
Commercial paper consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. (See Appendix in the Statement of Additional Information for an
explanation of these ratings.) The Fund's current policy is to limit investments
in commercial paper to obligations rated A-1 or Prime-1.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks (or a foreign branch or subsidiary thereof) which have a
short-term debt rating of high quality (in one of the two highest categories) by
either Moody's or S&P and with primary government securities dealers reporting
to the Federal Reserve Bank of New York. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. No repurchase
agreement may exceed one year, and the Fund may not invest in repurchase
agreements maturing in more than seven days if such investment, together with
any other illiquid securities held by the Fund, exceeds 10% of the value of the
net assets. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto, (b) possible lack of access to income on the underlying security
during this period, and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund that would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.
12
69
------------------------------------------------------------------------------
INVESTMENT PRACTICES
------------------------------------------------------------------------------
BROKERAGE PRACTICES. The Adviser is responsible for the placement of orders
for the purchase and sale of portfolio securities for the Fund. Most
transactions made by the Fund are principal transactions at net prices which
incur little or no brokerage costs. Dealers are selected on the basis of their
professional capability for the type of transaction and the value and quality of
execution services rendered on a continuing basis. The Adviser is authorized to
place portfolio transactions with brokerage firms participating in the
distribution of shares of the Fund and other Van Kampen American Capital mutual
funds if it reasonably believes that the quality of the execution and the
commission are comparable to that available from other qualified firms.
No commissions were paid by the Fund during the past three fiscal years.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without the approval of
a majority (as defined in the Investment Company Act of 1940 ("1940 Act") vote
of the Fund's shareholders. The Fund may not borrow money, except from banks for
temporary or emergency purposes, such as to accommodate heavy redemption
requests, and then in amounts not exceeding 10% of the value of the Fund's total
net assets. The Fund may not mortgage, pledge, or hypothecate any assets except
in connection with any such borrowing and in amounts not exceeding the lesser of
the dollar amount borrowed or five percent of the value of the Fund's assets at
the time of such borrowing. The Fund may not lend money, except through the
purchase or holding of the types of debt securities in which the Fund may
invest. Other investment restrictions are described in the Statement of
Additional Information. Except to the extent governed by such restrictions, the
investment policies described under "Investment Objective and Policies" can be
changed by the Trustees.
------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and
nearly $50 billion under management or supervision. Van Kampen American
Capital's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trusts are professionally distributed by leading financial advisers
nationwide.
Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and its sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of
13
70
Van Kampen American Capital. Van Kampen American Capital is a wholly owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut
limited partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc. a New
York based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital own, in the aggregate, not more than 7% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 11% of the common stock of
VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such
options, no officer or trustee of the Fund owns 5% or more of the common stock
of VKAC Holding, Inc.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed on average daily net assets of the Fund at the annual rate of 0.50% of
the first $150 million of net assets; 0.45% on the next $100 million of net
assets; 0.40% on the next $100 million of net assets; and 0.35% on net assets
over $350 million. Under the Advisory Agreement, the Fund also reimburses the
Adviser for the cost of the Fund's accounting services, which include
maintaining its financial books and records and calculating its daily net asset
value. Operating expenses paid by the Fund include shareholder service agency
fees, service fees, distribution fees, custodial fees, legal and accounting
fees, the costs of reports and proxies to shareholders, trustees' fees, and all
other business expenses not specifically assumed by the Adviser. Advisory
(management) fees and total operating expense ratios are shown under the caption
"Annual Fund Operating Expenses and Example" herein.
From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.
The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
14
71
Adviser and its employees. The Codes permit directors/trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.
------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
------------------------------------------------------------------------------
The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value. Class A shares are
subject to an ongoing service fee at an annual rate of up to 0.15% of the Fund's
aggregate average daily net assets attributable to the Class A shares. See
"Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if they are redeemed within five years of purchase.
Class B shares are subject to an ongoing service fee at an annual rate of up to
0.15% of the Fund's aggregate average daily net assets attributable to the Class
B shares and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
The ongoing distribution fee paid by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those related to
Class A shares. See "Purchase of Shares -- Class B Shares." Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month in which the shareholder's order to purchase was accepted. See "Conversion
Feature" below for discussion on applicability of conversion feature to Class B
shares.
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.15% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. The
ongoing distribution fee paid by Class C shares will cause such shares to have a
higher expense ratio and to pay lower dividends than those related to Class A
shares. See "Purchase of Shares -- Class C Shares." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Conversion Feature"
below for discussion on applicability of conversion feature to Class C shares.
CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the
15
72
month in which the shares were purchased and will no longer be subject to the
distribution fee. Such conversion will be on the basis of the relative net asset
values per share, without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to relieve the holders of the Class B
shares and Class C shares that have been outstanding for a period of time
sufficient for the Distributor to have been substantially compensated for
distribution expenses related to the Class B shares or Class C shares as the
case may be from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel or a private
letter ruling from the Internal Revenue Service to the effect that (i) the
assessment of the distribution fee and higher transfer agency costs with respect
to Class B shares and Class C shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code, as amended (the "Code"), and (ii) the conversion of shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B shares and Class C shares may be suspended if an opinion or ruling is no
longer available at the time such conversion is to occur that such conversion
does not constitute a taxable event. In that event, no further conversions of
Class B shares or Class C shares would occur, and shares might continue to be
subject to the distribution fee for an indefinite period which may extend beyond
the period ending six years or ten years, respectively, after the end of the
calendar month in which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. Class B and Class C shares of the Fund are made
available primarily to allow investors to directly purchase Class B and Class C
shares and later exchange such shares directly into Class B and Class C shares
of the other Participating Funds listed in "Shareholder Services -- Exchange
Privilege." Investors purchasing shares of the Fund without regard to the
availability of exchanges should purchase Class A shares because there is no
distribution fee and, therefore, Class A shares will have a higher yield than
Class B and Class C shares. Investors who wish to have the ability to exchange
their shares for Class B or Class C shares of other Participating Funds (as
defined herein) should consider purchasing the class they ultimately intend to
hold in that Participating Fund. Such investors should also consider purchasing
Class A shares of the Fund and then
16
73
redeeming those shares when they wish to invest in Class B shares or Class C
shares of other Participating Funds. Since Class A shares are not subject to an
ongoing distribution fee, purchasing Class A shares and then redeeming them to
purchase Class B or Class C shares of another Participating Fund is likely to
result in a higher return to the investor than purchasing Class B or Class C
shares of the Fund and then exchanging them for Class B or Class C shares of
another Participating Fund.
GENERAL. The distribution expenses incurred by the Distributor in connection
with the sale of Class B and Class C shares will be reimbursed from the proceeds
of the ongoing distribution fee and any contingent deferred sales charge
incurred upon redemption within five years or one year, respectively, of
purchase. Distribution expenses by the Distributor in connection with the sale
of Class A shares are not reimbursed by the Fund. Sales personnel of
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class B and Class C shares. Sales personnel are not entitled to
receive compensation for selling Class A shares.
Dividends paid by the Fund with respect to Class A, Class B and Class C shares
will be calculated in the same manner at the same time on the same day, except
that the distribution fees and any incremental transfer agency costs relating to
Class B or Class C shares will be borne by the respective class. See
"Distributions from the Fund." Shares of the Fund may be exchanged, subject to
certain limitations, for shares of the same class of other mutual funds advised
by the Adviser. See "Shareholder Services -- Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure that no such conflict arises.
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PURCHASE OF SHARES
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GENERAL
The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold at net asset value, without sales charge;
Class B and Class C shares are sold at net asset value, without sales charge,
and are subject to a
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contingent deferred sales charge upon certain redemptions. See "Alternative
Sales Arrangements" for a discussion of factors to consider in selecting which
class of shares to purchase. Contact the Investor Services Department at (800)
421-5666 for further information and appropriate forms.
Shares of the Fund may be purchased on any business day through the
shareholder service agent, ACCESS Investor Services, Inc., a wholly-owned
subsidiary of Van Kampen American Capital ("ACCESS"). When purchasing shares of
this Fund, investors must specify whether the purchase is Class A, Class B or
Class C. All orders and drafts become effective when the wire or check payment
is converted into federal funds. A check order or draft is normally converted
into federal funds on the second business day following receipt of payment by
ACCESS. These payments should be sent to ACCESS, P.O. Box 419319, Kansas City,
Missouri 64141-6319. When payment is by wire transfer of federal funds, such
order becomes effective upon receipt provided that prior notice has been given
as described below; other bank wire payments are normally converted into federal
funds on the day following receipt.
Initial investments must be at least $500 and subsequent investments must be
at least $50. Both minimums may be waived by the Distributor for plans involving
periodic investments. The Fund and the Distributor reserve the right to refuse
any order for the purchase of shares. Shares of the Fund may be sold in foreign
countries where permissible. The Fund also reserves the right to suspend the
sale of the Fund's shares in response to conditions in the securities markets or
for other reasons.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
generally, each class has exclusive voting rights with respect to approvals of
the Rule 12b-1 distribution plan pursuant to which its distribution fee and/or
service fee is paid which relate to a specific class, and (iii) Class B and
Class C shares are subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service options available.
See "Distribution Plans" and "Shareholder Services -- Exchange Privilege." The
net income attributable to Class B and Class C shares and the dividends payable
on Class B and Class C shares will be reduced by the amount of the distribution
fee and incremental expenses associated with such distribution fees. Sales
personnel of broker-dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares.
INITIAL INVESTMENT BY BANK WIRE. To open an account by wire an investor should
telephone ACCESS at (800) 421-6714 (Alaska and Hawaii residents
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should call collect at (816) 283-3979), and provide the account registration,
the address, tax identification number, the amount being wired and the name of
the wiring bank. ACCESS furnishes the investor with an account number. The
investor's bank should wire the specified amount along with the account number
and registration to State Street Bank and Trust Company ("State Street Bank"),
225 Franklin Street, Boston, Massachusetts 02102, attention ACCESS/VKAC Reserve
Account No. 9900-446-7. The investor should then immediately mail a properly
completed application form accompanied by this Prospectus to ACCESS. To receive
immediate credit to an account, the investor must call ACCESS, at the telephone
number listed above, by 11:00 a.m. Kansas City time with the intent to wire
funds and State Street Bank must then receive such funds by 4:00 p.m. Boston
time.
INITIAL INVESTMENT BY MAIL. To open an account by mail an investor should send
a check payable to Van Kampen American Capital Reserve Fund along with a
completed application form to ACCESS.
SUBSEQUENT INVESTMENTS BY BANK WIRE. The investor's bank should wire the
specified amount along with the account number and registration to State Street
Bank. To receive immediate credit to an account, the investor must call ACCESS
at (800) 421-6714 (Alaska and Hawaii residents should call collect at (816)
283-3979), by 11:00 a.m. Kansas City time with the intent to wire funds and
State Street Bank must then receive such funds by 4:00 p.m. Boston time.
SUBSEQUENT INVESTMENTS BY MAIL. Subsequent investments in the amount of $50 or
more may be sent to ACCESS, indicating the account registration and account
number.
CLASS A SHARES
Class A shares are offered at net asset value without sales charge.
The Fund will permit unitholders of unit investment trusts to reinvest
distributions from such trusts in Class A shares of the Fund, any Participating
Fund, the Van Kampen American Capital Money Market Fund ("VK Money Market") and
the Van Kampen American Capital Tax Free Money Market Fund ("VK Tax Free") with
no minimum or subsequent investment requirement. In order to qualify for this
privilege, the administrator of such a unit investment trust must have an
agreement with the Distributor pursuant to which the administrator will (1)
submit a single bulk order and make payment with a single remittance for all
investments in the Fund during each distribution period by all investors who
choose to invest in the Fund through the program and (2) provide ACCESS with
appropriate backup data for each participating investor in a computerized format
fully compatible with ACCESS's processing system. In addition, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any
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systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to
investors on a quarterly basis only, even if an investors' investment period is
more frequent. Persons desiring more information with respect to this program,
including the applicable terms and conditions thereof, should contact their
securities broker or dealer or the Distributor. The Fund reserves the right to
modify or terminate this program at any time.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a contingent deferred
sales charge at the rates set forth in the following table charged as a
percentage of the dollar amount subject thereto. The charge is assessed on an
amount equal to the lesser of the then current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gains
distributions. The Distributor will reject any order of $500,000 or more for
Class B shares.
The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchases
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.
--------------------------------------------------------------------------------
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
--------------------------------------------------------------------------------
First...................................................... 4%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 2.5%
Fifth...................................................... 1.5%
Sixth...................................................... None
--------------------------------------------------------------------------------
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first, of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge, second, of shares held for over five years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the five-year period.
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A commission or transaction fee of four percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a contingent deferred
sales charge of one percent. The charge is assessed on an amount equal to the
lower of the then current market value or the cost of the shares being redeemed.
Accordingly, no sales charge is imposed on increases in net asset value above
the initial purchase price. In addition, no charge is assessed on shares derived
from reinvestment of dividends or capital gains distributions. The Distributor
will reject any order of $1 million or more for Class C shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares in the shareholder's Fund account that are not subject to
a contingent deferred sales charge and second of shares held for more than one
year or shares acquired pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of one percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.75% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge may be waived on redemptions of Class B
and Class C shares (i) following the death or disability (as defined in the
Code) of a shareholder, (ii) in connection with certain distributions from an
IRA or other retirement plan, (iii) pursuant to the Fund's systematic withdrawal
plan but limited to 12% annually of the initial value of the account; and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." The contingent deferred sales
charge is also waived on redemptions of Class C shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption.
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See the Statement of Additional Information for further discussion of waiver
provisions.
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SHAREHOLDER SERVICES
------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate the
investment in its shares at little or no extra cost to the investor. Below is a
description of such services.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Except as described below, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in certain of the
Participating Funds may receive statements quarterly from ACCESS showing any
reinvestment of dividends and capital gains distributions and any other activity
in the account since the preceding statement. Such shareholders also will
receive separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.
SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate no more than 2.00% of the net asset value of the issued
shares, and bill the party to whom the certificate was mailed.
AUTOMATIC INVESTMENT PLAN. Investors desiring a monthly investment are given
the option to utilize an automatic investment plan whereby the Distributor is
empowered to draft the shareholder's account monthly (minimum $50) with the
proceeds of the draft to be invested in Fund shares.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP, and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
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American Capital Trust Company serves as custodian under the IRA, 403(b)(7)
and Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application accompanied by this
Prospectus or by calling (800) 421-5666, (800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund invested into a pre-existing Class A,
Class B or Class C account in any of the Participating Funds, VK Money Market or
VK Tax Free. Both accounts must be of the same class. If a qualified,
pre-existing account does not exist, the shareholder must establish a new
account subject to minimum investment and other requirements of the fund into
which distributions would be invested. Distributions are invested into the
selected fund at its net asset value as of the payable date of the distribution.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of other open-end investment companies distributed by the Distributor
other than The Govett Funds, Inc. (the "Participating Funds"), upon payment of
the excess, if any, of the sales charge rate applicable to the shares being
acquired over the sales charge rate, if any, previously paid. Shares of any
Participating Fund and the Fund may be exchanged for shares of any other
Participating Fund if shares of that Participating Fund are available for sale;
however, shares of a Participating Fund may not be available to potential
investors who are not already shareholders of the Participating Fund.
Shares of the Participating Funds may be exchanged without sales charge for
shares of the same class of the Fund provided that shares of certain Van Kampen
American Capital fixed-income funds may not be exchanged within 30 days of
acquisition without Adviser approval. Shares of Van Kampen American Capital
Government Target Fund may be exchanged for Class A shares of the Fund
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without sales charge. Class B and Class C shareholders of the Fund have the
ability to exchange their shares ("original shares") for the same class of
shares of any other Van Kampen American Capital fund that offers such shares
("new shares") in an amount equal to the aggregate net asset value of the
original shares, without the payment of any contingent deferred sales charge
otherwise due upon redemption of the original shares. Such shares remain subject
to the contingent deferred sales charge imposed by the fund initially purchased
by the shareholder upon their redemption from the Van Kampen American Capital
complex of Funds. Class A shareholders who acquired their shares in exchange for
Class B or Class C shares of a Participating Fund may exchange their Class A
shares for the same class of shares of a Participating Fund (also, "new shares")
as the class of shares they disposed of in acquiring their current shares (also,
"original shares") without incurring a contingent deferred sales charge. For
purposes of computing the contingent deferred sales charge payable upon a
disposition of the new shares, the holding period for the original shares is
added to the holding period of the new shares.
Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
designated otherwise in the application form accompanied by this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges are effected
at the net asset value next calculated after the request is received in good
order with adjustment for any additional sales charge. See "Purchase of Shares"
and "Redemption of Shares." If the exchanging shareholder does not have an
account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options
(except dividend diversification) and dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
file a specific written request. The Fund reserves the right to reject any order
to acquire its shares through exchange. In
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addition, the Fund may modify, restrict or terminate the exchange privilege at
any time on 60 days' notice to its shareholders of any termination or material
amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for information regarding such fund.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the next determined net asset value after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semiannual, or
annual checks in any amount, not less than $50.
A Class B or Class C shareholder or a Class A shareholder who acquired his or
her shares in the Fund in exchange for Class B or Class C shares of another Van
Kampen American Capital mutual fund may redeem up to 12% annually of the
shareholder's initial account balance without incurring a contingent deferred
sales charge. Initial account balance means the amount of the shareholder's
investment in the Fund at the time the election to participate in the plan is
made. For more detail regarding waiver of contingent deferred sales charges,
please refer to the prospectus of the original fund. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A shareholder holding Class A shares of the Fund (a)
for which certificates have not been issued, (b) which are in a non-escrow
status and (c) which were not acquired in exchange for Class B or Class C shares
of another Van Kampen American Capital mutual fund may appoint ACCESS as agent
by completing the AUTHORIZATION FOR REDEMPTION BY CHECK form and the appropriate
section of the application and returning the form and application to ACCESS.
Once the form is properly completed, signed and returned to ACCESS, a supply of
checks drawn on State Street Bank will be sent to the shareholder.
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82
Those checks may be made payable by the shareholder to the order of any person
in any amount of $100 or more.
When a check is presented to State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the shareholder's Class A account by ACCESS at the next determined net
asset value. Checks will not be honored for redemption of Class A shares held
less than 15 calendar days, unless such Class A shares have been paid for by
bank wire. Any Class A shares for which there are outstanding certificates may
not be redeemed by check. If the amount of the check is greater than the
proceeds of all uncertificated Class A shares held in the shareholder's account,
the check will be returned and the shareholder may be subject to additional
charges. A Class A shareholder may not liquidate the entire account by means of
a check. The check writing privilege may be terminated or suspended at any time
by the Fund or State Street Bank. A "stop payment" system is not available on
these checks. Retirement Plans and accounts that are subject to backup
withholding are not eligible for the privilege. See the Statement of Additional
Information for further information regarding the establishment of the
privilege.
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REDEMPTION OF SHARES
------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized dealer.
Orders received from dealers must be at least $500 unless transmitted via the
FUNDSERV network.
As described herein under "Purchase of Shares," redemptions of Class B or
Class C shares are subject to a contingent deferred sales charge. The contingent
deferred sales charge incurred upon redemption is paid to the Distributor in
reimbursement for distribution-related expenses. A custodian of a retirement
plan account may charge fees based on the custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered, and the names must be exactly the same as the names which
were signed when the shares were purchased. If the proceeds of the redemption
exceed $50,000, if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker/dealer; a credit union; a savings and loan association; a
member firm of a national securities exchange, registered securities association
or clearing agency; or federal savings bank.
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Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it does so if a special request has been made
to ACCESS. In the case of shareholders holding certificates, the certificates
for the shares being redeemed must accompany the redemption request. In the
event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as custodian, special IRA, 403(b)(7), or Keogh distribution forms
must be obtained from and must be forwarded to Van Kampen American Capital Trust
Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian for
information.
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by
ACCESS. Payment for shares redeemed is made by check mailed within seven days
after acceptance by ACCESS of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check until
the purchase check has cleared, usually a period of up to 15 days. Such delay
can be avoided if such payment of shares is made by bank wire. Any taxable gain
or loss will be recognized by the shareholder upon redemption of shares.
The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Trustees. At least 60 days advance written notice of any such involuntary
redemption is required and the shareholder is given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record of the account or to the
bank account of record as described below. To establish such privilege a
shareholder must complete the appropriate section of the application form
accompanied by this Prospectus or call the Fund at (800) 421-5666 to request
that a copy of the
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Telephone Redemption Authorization form be sent to them for completion. To
redeem shares contact the telephone transaction line at (800) 421-5684. VKAC and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. VKAC and the
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular redemption procedure described
above. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If an account has multiple owners, ACCESS
may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. To establish such privilege a shareholder must
complete the appropriate section of the application form accompanied by this
Prospectus or call the Fund at 1-800 421-5666. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
EXPEDITED REDEMPTIONS. Shareholders of the Fund who have completed the
appropriate section of the application may request expedited redemption payment
of shares having a value of $1,000 or more, by calling (800) 421-5671 (Alaska
and Hawaii residents should call collect at (816) 283-3114). Redemption proceeds
in the form of federal funds will be wired to the bank designated in the
application. Expedited redemption requests received in good order prior to 10:00
a.m. Kansas City time are processed on the date of receipt. Redemption requests
received by ACCESS after such hour are priced at the net asset value next
determined and the proceeds are wired on the next banking day following receipt
of such request.
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ACCESS reserves the right to deduct the wiring costs from the proceeds of the
redemption. A shareholder may change the bank account previously designated at
any time by written notice to ACCESS with the signature of the shareholder
guaranteed. The Fund reserves the right at any time to terminate, limit or
otherwise modify this expedited redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of a Class B and Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B and Class C shares.
In cases of disability, the contingent deferred sales charge on Class B and
Class C shares will be waived where the disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the initial determination of disability.
This waiver of the contingent deferred sales charge on Class B and Class C
shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class A shares of the Fund. A Class C shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the proceeds of such
redemption in Class C shares of the Fund with credit given for any contingent
deferred sales charge paid upon such redemption. Such reinstatement is made at
the net asset value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.
29
86
------------------------------------------------------------------------------
DISTRIBUTION PLANS
------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing of its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such rule, the Trustees of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD Rules
limit the annual distribution charges that a mutual fund may impose on a class
of shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan, the Fund pays a service fee
to the Distributor at an annual rate of up to 0.15% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Under the Class B
Plan and the Class C Plan, the Fund pays a service fee to the Distributor at an
annual rate of up to 0.15% and a distribution fee at an annual rate of up to
0.75% of the Fund's aggregate average daily net assets attributable to the Class
B shares or Class C shares to reimburse the Distributor for service fees paid by
it to certain financial institutions (which may include banks), securities
dealers and other industry professionals (collectively, "Service Organizations")
and for its distribution costs.
The Distributor uses the Class A, Class B and Class C service fees to
compensate Service Organizations for personal services and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to four
percent of the purchase price of Class B shares purchased by the clients of
broker-dealers and other Service Organizations, and (ii) other distribution
expenses as described in the Statement of Additional Information. Under the
Class C Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class C shares as reimbursements for (i) upfront commissions and
transaction fees of up to 0.75% of the purchase price of Class C shares
purchased by the clients of broker-dealers and other Service Organizations and
ongoing commissions and transaction fees of up to 0.75% of the average daily net
assets of the Fund's Class C shares, and (ii) other distribution expenses as
described in the Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees of the Fund determined that there was a reasonable likelihood that such
30
87
Plans would benefit the Fund and its shareholders. Information with respect to
distribution and service revenues and expenses is presented to the Trustees each
year for their consideration in connection with their deliberations as to the
continuance of the Distribution Plans. In their review of the Distribution
Plans, the Trustees are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.
Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.
Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class B Plan of $1 million, of which $500,000 was recovered in the form of
contingent deferred sales charges paid by investors and $400,000 was reimbursed
in the form of payments made by the Fund to the Distributor under the Class B
Plan, the balance of $100,000, would be subject to recovery in future fiscal
years from such sources.
For the period April 18, 1995 through May 31, 1995, the unreimbursed expenses
incurred by the Distributor under the Class B Plan and carried forward were
approximately $9,000 or .41% of average daily net assets of the class under the
Class B Plan. For the same time period, the unreimbursed expenses incurred by
the Distributor under the Class C Plan and carried forward were approximately
$3,000 or .97% of average daily net assets of the class under the Class C Plan.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material
31
88
adverse consequences to the Fund. In light of the Glass-Steagall Act, the
Distributor engages banks as Service Organizations only to perform
administrative and shareholder servicing functions. State securities laws
regarding registration of banks and other financial institutions may differ from
the interpretation of federal law expressed herein and banks and other financial
institutions may be required to register as dealers pursuant to certain state
laws.
------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
------------------------------------------------------------------------------
Purchases of shares are priced at the next determined net asset value after a
purchase order becomes effective which is upon receipt by the Fund of federal
funds. Net asset value per share for each class is determined once daily as of
the close of trading on the New York Stock Exchange (the "Exchange") (currently
4:00 p.m., New York time) each day the Exchange is open. Net asset value per
share for each class is determined by adding the total market value of all
portfolio securities owned by the Fund, cash and other assets, including accrued
interest and dividends attributable to such class. All liabilities attributable
to such class, including accrued expenses, are subtracted. The resulting amount
is divided by the total number of shares of the class outstanding to arrive at
the net asset value of each share of the class. The Fund's assets are valued on
the basis of amortized cost, which involves valuing a portfolio security at its
cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides for certainty in
valuation it may result in periods in which value as determined by amortized
cost is higher or lower than the price the Fund would receive if it sold the
security.
------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
------------------------------------------------------------------------------
The Fund's net income is declared as a dividend on a daily basis. Dividends
are paid to shareholders of record immediately prior to the determination of net
asset value for that day. Since shares are issued and redeemed at the time net
asset value is determined, dividends commence on the day following the date
shares are issued and are paid for the day shares are redeemed. All dividends
are automatically invested in additional full and fractional shares of the Fund
at net asset value. Shareholders may elect to receive monthly payment of
dividends in cash by written instruction to ACCESS. Shares purchased by daily
reinvestments are liquidated at the net asset value on the last business day of
the month and the proceeds of such redemption mailed to the shareholder electing
cash payment. A redeeming shareholder receives all dividends accrued through the
date of redemption.
32
89
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the distribution fees and
incremental transfer agency fees applicable to such classes of shares.
The Fund's net income for dividend purposes is calculated daily and consists
of interest accrued or discount earned, plus or minus any net realized gains or
losses on portfolio securities, less any amortization of premium and the
expenses of the Fund.
------------------------------------------------------------------------------
TAX STATUS
------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By qualifying as a regulated
investment company, the Fund is not subject to federal income taxes to the
extent it distributes its net investment income and net realized capital gains.
Dividends from net investment income and distributions from any net realized
short-term capital gains are taxable to shareholders as ordinary income.
However, shareholders not subject to tax on their income will not be required to
pay tax on amounts distributed to them.
Information as to the federal tax status of dividends and distributions is
provided by the Fund to shareholders annually if such amounts are $10.00 or
more.
To avoid being subject to a 31% federal back-up withholding tax on dividends,
distributions and redemption payments, a shareholder must furnish the Fund with
a certification of their correct taxpayer identification number.
The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisers for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Fund.
------------------------------------------------------------------------------
FUND PERFORMANCE
------------------------------------------------------------------------------
From time to time the Fund advertises its "yield" and "effective yield." Both
yield figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Fund refers to the income generated by an
investment in the Fund over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The
33
90
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The current and effective yields for the
seven-day period ending May 31, 1995, and a description of the method by which
the yield was calculated is contained in the Statement of Additional
Information.
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instrument held in a
portfolio, portfolio maturity, operating expenses and market conditions.
Yield is calculated separately for Class A, Class B and Class C shares.
Because of the differences in distribution fees, the yields for each of the
classes will differ with Class B and Class C shares having a lower yield than
Class A shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc.,
Donoghue's Money Market Report or similar independent services which monitor the
performance of mutual funds, with other appropriate indexes of investment
securities, or with investment or savings vehicles. The performance information
may also include evaluations of the Fund published by nationally recognized
ranking services and by financial publications that are nationally recognized,
such as Business Week, Forbes, Fortune, Institutional Investor, Investor's
Business Daily, Kiplinger's Personal Finance Magazine, Money, Mutual Fund
Forecaster, Stanger's Investment Advisor, U.S. News & World Report, USA Today
and The Wall Street Journal. The Fund will include performance data for Class A,
Class B and Class C shares of the Fund in any advertisement or information
including performance data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
------------------------------------------------------------------------------
The Fund was originally incorporated in Maryland on March 28, 1974 and
reorganized on July 31, 1995, under the laws of the state of Delaware as a
business entity commonly known as a "Delaware Business Trust." It is authorized
to issue an unlimited number of Class A, Class B and Class C shares of
beneficial interest of $0.01 par value. Other classes of shares may be
established from time to time in
34
91
accordance with provisions of the Fund's Declaration of Trust. Shares issued by
the Fund are fully paid, non-assessable and have no preemptive or conversion
rights.
The Fund currently offers three classes, designated Class A shares, Class B
shares and Class C shares. Each class of shares represents an interest in the
same assets of the Fund and generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. See "Distribution Plans."
Each class of share is equal as to earnings, assets and voting privileges,
except as noted above, and each class bears the expenses related to the
distribution of its shares. There are no conversion, preemptive or other
subscription rights, except with respect to the conversion of Class B shares and
Class C shares into Class A shares as described above. In the event of
liquidation, each of the shares of the Fund is entitled to its portion of all of
the Fund's net assets after all debt and expenses of the Fund have been paid.
Since Class B shares and Class C shares pay higher distribution expenses, the
liquidation proceeds to Class B shareholders and Class C shareholders are likely
to be lower than to other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
------------------------------------------------------------------------------
ADDITIONAL INFORMATION
------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
An investment in the Fund may not be appropriate for all investors.
The Fund is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision with respect to the Fund.
An investment in the Fund is intended to be a long-term investment, and should
not be used as a trading vehicle.
35
92
VAN KAMPEN AMERICAN CAPITAL
RESERVE FUND
------------------
2800 Post Oak Boulevard
Houston, TX 77056
------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Boulevard
Houston, TX 77056
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
EXISTING SHAREHOLDERS-- ACCESS INVESTOR SERVICES, INC.
FOR INFORMATION ON YOUR P.O. Box 418256
EXISTING ACCOUNT PLEASE CALL Kansas City, MO 64141-9256
THE FUND'S TOLL-FREE
NUMBER--(800) 421-5666 Custodian
PROSPECTIVE INVESTORS--CALL STATE STREET BANK AND
YOUR BROKER OR (800) 421-5666 TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
DEALERS--FOR DEALER Boston, MA 02105-1713
INFORMATION, SELLING Attn: Van Kampen American Capital Funds
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE Legal Counsel
NUMBER--(800) 421-5666
O'MELVENY & MYERS
FOR SHAREHOLDER AND DEALER 400 South Hope Street
INQUIRIES THROUGH Los Angeles, CA 90071
TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD) Independent Accountants
DIAL (800) 772-8889
PRICE WATERHOUSE LLP
FOR TELEPHONE TRANSACTIONS 1201 Louisiana, Suite 2900
DIAL (800) 421-5684 Houston, TX 77002
93
RESERVE FUND
------------------------------------------------------------------------------
P R O S P E C T U S
AUGUST 1, 1995
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
-----------------------------------------------------------------------------
94
VAN KAMPEN AMERICAN CAPITAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
VAN KAMPEN AMERICAN CAPITAL MONEY MARKET FUND
BY AND IN EXCHANGE FOR SHARES OF
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
------------------------
Statement of Additional Information
Dated August 4, 1995
------------------------
This Statement of Additional Information provides information about the
Van Kampen American Capital Reserve Fund (the "AC Fund"), an open-end
management investment company, in addition to information contained in the
Proxy Statement/Prospectus of the AC Fund, dated August 1, 1995, which also
serves as the Proxy Statement of the Van Kampen American Capital Money Market
Fund, a series of the Van Kampen American Capital Money Market Trust (the "VKAC
Trust") in connection with the issuance of shares of the AC Fund to
shareholders of the VK Fund. This Statement of Additional Information is not a
prospectus. It should be read in conjunction with the Proxy
Statement/Prospectus, into which it has been incorporated by reference and
which may be obtained by contacting the VK Fund located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, (708) 684-6000 or (800) 341-2911 or the AC
Fund located at 2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666.
TABLE OF CONTENTS
PAGE
----
Proposed Reorganization of the VK Fund................................................ 2
Additional Information About the AC Fund.............................................. 2
Additional Information About the VK Fund.............................................. 2
Financial Statements.................................................................. 2
Pro Forma Financial Statements........................................................ 2
The AC Fund will provide, without charge, upon the written or oral request
of any person to whom this Statement of Additional Information is delivered, a
copy of any and all documents that have been incorporated by reference in the
registration statement of which this Statement of Additional Information is a
part.
1
95
PROPOSED REORGANIZATION OF THE VK FUND
The shareholders of the VK Fund are being asked to approve an acquisition
of all the assets and liabilities of the VK Fund in exchange for shares of the
AC Fund (the "Reorganization").
For detailed information about the Reorganization, shareholders should
refer to the Proxy Statement/ Prospectus.
ADDITIONAL INFORMATION ABOUT THE AC FUND
Incorporated herein by reference to the Statement of Additional Information
of the AC Fund, dated August 1, 1995, attached as Appendix A to this Statement
of Additional Information.
ADDITIONAL INFORMATION ABOUT THE VK FUND
Incorporated herein by reference to the Statement of Additional Information
of the VK Fund, dated August 1, 1995, attached as Appendix B to this Statement
of Additional Information.
FINANCIAL STATEMENTS
Incorporated herein by reference in their respective entireties are (i) the
audited financial statements of the AC Fund for fiscal year ended May 31, 1995,
attached as Appendix C to this Statement of Additional Information, (ii) the
audited financial statements of the VK Fund for fiscal year ended June 30, 1994,
attached as Appendix D to this Statement of Additional Information and (iii) the
unaudited semi-annual financial statements of the VK Fund for the six months
ended December 31, 1994, attached as Appendix E to this Statement of Additional
Information.
The unaudited semi-annual financial statements of the AC Fund and the VK
Fund, respectively, reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented. All such adjustments are of a normal recurring nature.
PRO FORMA FINANCIAL STATEMENTS
In connection with the Reorganization, the AC Fund will acquire all of the
assets and liabilities of the VK Fund in exchange for a number of shares of the
AC Fund equal to the value of the net assets of the VK Fund being acquired.
Based on the respective net assets of the AC Fund and the VK Fund as of May 19,
1995, the net asset value of the VK Fund does not exceed ten (10%) percent of
the AC Fund's net assets. Accordingly, pro forma financial statements are not
included herein.
2
96
APPENDIX A
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
AUGUST 1, 1995
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated August 1,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION........................................................... 2
INVESTMENT POLICIES........................................................... 3
INVESTMENT RESTRICTIONS....................................................... 3
REPURCHASE AGREEMENTS......................................................... 5
LOANS OF PORTFOLIO SECURITIES................................................. 5
TRUSTEES AND EXECUTIVE OFFICERS............................................... 5
INVESTMENT ADVISORY AGREEMENT................................................. 9
DISTRIBUTOR................................................................... 10
DISTRIBUTION PLANS............................................................ 10
TRANSFER AGENT................................................................ 12
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................... 12
DETERMINATION OF NET ASSET VALUE.............................................. 12
PURCHASE OF SHARES............................................................ 13
EXCHANGE PRIVILEGE............................................................ 15
REDEMPTION OF SHARES.......................................................... 16
CHECK WRITING PRIVILEGE....................................................... 16
DIVIDENDS AND TAXES........................................................... 16
YIELD INFORMATION............................................................. 17
OTHER INFORMATION............................................................. 18
FINANCIAL STATEMENTS.......................................................... 18
APPENDIX...................................................................... 19
97
GENERAL INFORMATION
Van Kampen American Capital Reserve Fund (the "Fund") was originally
incorporated in Maryland on March 28, 1974, and reorganized under the laws of
Delaware July 31, 1995.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), ACCESS Investor
Services, Inc. ("ACCESS") and Advantage Capital Corporation, a retail
broker-dealer affiliate of the Distributor, are wholly owned subsidiaries of Van
Kampen/American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of
VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of
a substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
VKAC own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 10% of the common stock of VK/AC Holding, Inc.
VKAC offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight, July 1995. VKAC's roots in money
management extend back to 1926. Today, VKAC manages or supervises more than $50
billion in mutual funds, closed-end funds and unit investment trusts -- assets
which have been entrusted to VKAC in more than 2 million investor accounts. VKAC
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
As of July 14, 1995, no one person was known to own beneficially or hold of
record five percent or more of the outstanding shares of any class of the Fund,
except for those listed below:
NAME AND ADDRESS NATURE OF NUMBER OF
OF HOLDER OWNERSHIP CLASS SHARES HELD PERCENT
-------------------------------------------- ---------------- ------ ------------ --------
Donaldson Lufkin Jenrette Securities Corp. of record C 121,347 7.40%
Attn: Mutual Fund Department
P.O. Box 2052
Jersey City, NJ 07303-2052
Van Kampen American Capital of record A 85,603,757 24.68%
Trust Company of record B 1,743,034 17.31%
2800 Post Oak Blvd. of record C 121,413 7.40%
Houston, TX 77056
National Financial Services Corp. of record B 865,147 8.59%
@Southern Nat'l Investment Services, Inc. of record C 84,684 5.16%
200 S. College St. Suite 204
Charlotte, NC 28202-2005
Smith Barney, Inc. of record C 151,079 9.21%
388 Greenwich Street
11th Floor
New York, NY 10013-2375
2
98
INVESTMENT POLICIES
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing the Fund's securities pursuant to Rule 2a-7 under the Investment Company
Act of 1940 (the "1940 Act"), certain requirements of which are summarized
below.
In accordance with Rule 2a-7, the Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Trustees to present minimal credit risks and which are rated
in one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Trustees. The nationally recognized statistical rating
organizations currently rating instruments of the type the Fund may purchase are
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S & P"), Fitch Investors Services, Inc., Duff and Phelps, Inc. and IBCA
Limited and IBCA Inc. See Appendix hereto.
In addition, the Fund will not invest more than five percent of its total
assets in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that (i)
the Fund may invest more than five percent of its total assets in a single
issuer for a period of up to three business days in certain limited
circumstances, (ii) the Fund may invest in obligations issued or guaranteed by
the U.S. Government without any such limitation, and (iii) the limitation with
respect to puts does not apply to unconditional puts if no more than ten percent
of the Fund's total assets is invested in securities issued or guaranteed by the
issuer of the unconditional put. Investments in rated securities not rated in
the highest category by at least two rating organizations (or one rating
organization if the instrument was rated by only one such organization), and
unrated securities not determined by the Trustees to be comparable to those
rated in the highest category, will be limited to five percent of the Fund's
total assets, with the investment in any one such issuer being limited to no
more than the greater of one percent of the Fund's total assets or $1,000,000.
As to each security, these percentages are measured at the time the Fund
purchases the security. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which may be less
restrictive than the investment policies stated in the Prospectus and may not be
changed without approval by the holders of a majority of its outstanding shares.
Such majority is defined by the 1940 Act as the lesser of (i) 67% or more of the
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy;
or (ii) more than 50% of the Fund's outstanding voting securities. In addition
to the fundamental investment limitations set forth in the Fund's Prospectus,
the Fund may not:
1. Purchase any security which matures more than two years from the date
of purchase. As set forth under "Investment Objective and Policies" in
the Prospectus, the Fund's operating policy is not to purchase any
security having a remaining maturity of more than 13 months;
2. Purchase any security other than (a) obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities; (b) bank
time deposits, certificates of deposit and bankers' acceptances which
are obligations of a domestic bank (or a foreign branch or subsidiary
thereof), or of a foreign bank, rated at the time of investment A-1 and
A-2 by Moody's or Prime-1 and Prime-2 by S & P; (c) instruments secured
by a bank obligation described in item 2(b); (d) commercial paper if
rated A by S & P's or Prime by Moody's, or if not rated, issued by a
company having an outstanding debt issue rated at least A by S & P's or
Moody's (see Appendix for an explanation of these ratings); and (e)
repurchase agreements collateralized by the debt securities described
above;
3. Issue any senior security, although the Fund may borrow as set forth
under item 14 below;
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4. Purchase or sell real estate; although the Fund may purchase securities
issued by companies, including real estate investment trusts, which
invest in real estate or interest therein;
5. Purchase securities on margin, make short sales of securities or
maintain a short position;
6. Purchase or sell commodities or commodity contracts, or invest in oil,
gas or mineral exploration or development programs;
7. Acquire voting securities of any issuer or any securities of other
investment companies;
8. Make investments for the purpose of exercising control or management;
9. Lend its portfolio securities in excess of 10% of its total assets,
both taken at market value provided that any loans shall be in
accordance with the guidelines established for such loans by the
Trustees of the Fund as described under "Loans of Portfolio
Securities," including the maintenance of collateral from the borrower
equal at all times to the current market value of the securities
loaned;
10. Invest in securities, except repurchase agreements, for which there are
legal or contractual restrictions on resale;
11. Underwrite securities of other issuers except that the Fund may sell an
investment position even though it may be deemed an underwriter as that
term is defined under the Securities Act of 1933;
12. Invest in warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof;
13. Purchase or retain securities of any issuer if those officers and
directors of the Fund or its investment adviser who own beneficially
more than one-half of one percent of the securities of such issuer,
together own more than five percent of the securities of such issuer;
14. Borrow money, except from banks for temporary or emergency purposes and
then in amounts not exceeding ten percent of the value of the Fund's
total net assets; or mortgage, pledge, or hypothecate any assets except
in connection with any such borrowing and in amounts not exceeding the
lesser of the dollar amount borrowed or five percent of the value of
the Fund's assets at the time of such borrowing (the Fund will not
borrow for leveraging or investment but only to meet redemption
requests which might otherwise require undue dispositions of portfolio
securities);
15. Lend money, except through the purchase or holding of the types of debt
securities in which the Fund may invest;
16. With respect to 75% of its assets, purchase securities if the purchase
would cause the Fund, at that time, to have more than five percent of
the value of its total assets invested in the securities of any one
issuer (except obligations of the U.S. government, its agencies or
instrumentalities and repurchase agreements fully collateralized
thereby);
17. Invest in the securities of any issuer, if immediately thereafter, the
Fund would own more than ten percent of the total value of all
outstanding securities of such issuer;
18. Invest more than five percent of its assets in companies having a
record together with predecessors, of less than three years continuous
operation; and
19. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the U.S.
Government and of domestic branches of U.S. banks).
The Fund has committed to one state that so long as its shares are
registered for sale in that state it will apply the restriction contained in No.
17 above to any class of the outstanding securities of any issuer. Consistent
with its investment objectives, the Fund may make additional commitments more
restrictive than its fundamental policies. Should the Fund determine in the
future that a commitment is no longer in the best interests of the Fund and its
shareholders, it will revoke the commitment by withdrawing its shares from sale
in the state to which the commitment was made.
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REPURCHASE AGREEMENTS
Repurchase agreements are collateralized by the underlying debt securities
and may be considered to be loans under the 1940 Act. The Fund makes payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement is required to maintain the value of the underlying
securities marked-to-market daily at not less than the repurchase price. The
underlying securities must be of a type in which the Fund may invest (normally
securities of the U.S. Government, or its agencies and instrumentalities),
except that the underlying securities may have maturity dates exceeding one
year.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend portfolio securities to brokers, dealers and financial
institutions provided that cash equal to 100% of the market value of the
securities loaned is deposited by the borrower with the Fund and is maintained
each business day. While such securities are on loan, the borrower is required
to pay the Fund any income accruing thereon. Furthermore, the Fund may invest
the cash collateral in portfolio securities thereby increasing the return to the
Fund as well as increasing the market risk to the Fund. The Fund does not
presently intend to lend its portfolio securities in excess of five percent of
its total assets.
Any loans would be made for short-term purposes and would be subject to
termination by the Fund in the normal settlement time, currently five business
days after notice, or by the borrower on one day's notice. Borrowed securities
must be returned when the loan is terminated. Any gain or loss in the market
price of the borrowed securities which occurs during the term of the loan inures
to the Fund and its shareholders, but any gain can be realized only if the
borrower does not default. The Fund may pay reasonable finders', administrative
and custodial fees in connection with a loan.
TRUSTEES AND EXECUTIVE OFFICERS
The Fund's Trustees and executive officers and their principal occupations
for the past five years are listed below.
TRUSTEES
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ---------------------------------------------------------
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall President of MDT Corporation, a company which develops,
Suite 200 manufactures, markets and services medical and scientific
1009 Slater Road equipment. A Trustee of each of the Van Kampen American
Harrisville, NC 27560 Capital Funds.
Age: 63
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Radnor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art. Founder and
Age: 62 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing. A
Trustee of each of the Van Kampen American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ---------------------------------------------------------
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A Trustee of each of the
Lyme, CT 06371 Van Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. A Trustee
of each of the Van Kampen American Capital Funds.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. A Trustee of each of the Van Kampen American
Capital Funds and Chairman of each Van Kampen American
Capital Fund advised by Van Kampen American Capital
Investment Advisory Corp.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser. Director and Executive Vice
President of ACCESS, Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director, Trustee or Managing General Partner of
each of the Van Kampen American Capital Funds and other
open-end investment companies and closed-end investment
companies advised by the Adviser and its affiliates.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A Director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital, a Director and the Second
Vice President of International Institute of Los Angeles.
A Trustee of each of the Van Kampen American Capital
Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. A Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 Fund. Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 63 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A Trustee of each of the Van Kampen American Capital
Funds.
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ---------------------------------------------------------
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Van Kampen American
Capital Funds advised by the Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A Trustee of each of the Van
Age: 55 Kampen American Capital Funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. A Trustee of each of the Van
Kampen American Capital Funds.
---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Powell is an interested person of the Adviser and the
Fund by reason of his position with the Adviser. Mr. Sheehan and Mr. Whalen
are interested persons of the Adviser and the Fund by reason of their firms
having acted as legal counsel to the Adviser or an affiliate thereof.
The Fund's officers other than Messrs. McDonnell and Nyberg are located at
2800 Post Oak Blvd., Houston, Texas 77056. Messrs. McDonnell and Nyberg are
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
OFFICERS
POSITIONS AND PRINCIPAL OCCUPATIONS DURING
NAME AND AGE OFFICES WITH FUND PAST 5 YEARS
------------------------- -------------------------- -------------------------------------------
Nori L. Gabert........... Vice President and Vice President, Associate General Counsel
Age: 41 Secretary and Corporate Secretary of the Adviser.
Tanya M. Loden........... Vice President and Vice President and Controller of most of
Age: 35 Controller the investment companies advised by the
Adviser, formerly Tax Manager/Assistant
Controller.
Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
Age: 53 Director of the Adviser. Director of VK/AC
Holding, Inc. and Van Kampen American
Capital.
Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 48 Treasurer investment companies advised by the
Adviser.
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POSITIONS AND PRINCIPAL OCCUPATIONS DURING
NAME AND AGE OFFICES WITH FUND PAST 5 YEARS
------------------------- -------------------------- -------------------------------------------
Ronald A. Nyberg......... Vice President Executive Vice President, General Counsel
Age: 41 and Secretary of Van Kampen American
Capital. Executive Vice President and a
Director of the Distributor. Executive Vice
President of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute.
Robert C. Peck, Jr....... Vice President Senior Vice President and Director of the
Age: 48 Adviser.
David R. Troth........... Vice President Senior Vice President of the Advisor
Age: 61
J. David Wise............ Vice President and Vice President, Associate General Counsel
Age: 51 Assistant Secretary and Assistant Corporate Secretary of the
Adviser.
Paul R. Wolkenberg....... Vice President Senior Vice President of the Adviser;
Age: 50 President, Chief Operating Officer and
Director of Van Kampen American Capital
Services, Inc. Executive Vice President,
Chief Operating Officer and Director of Van
Kampen American Capital Trust Company.
Executive Vice President and Director of
ACCESS.
The Trustees and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. Only Messrs. Branagan, Caruso, Hilsman,
Powell, Rees, Sheehan, Sisto and Woodside served as Trustees of the Fund during
the last fiscal year. During the fiscal year ended May 31, 1995, the Trustees
who were not affiliated with the Adviser or its parent received as a group
$19,263 in trustees' fees from the Fund in addition to certain out-of-pocket
expenses. Such Trustees also received compensation for serving as directors or
trustees of other investment companies advised by the Adviser. For legal
services rendered during the last fiscal year, the Fund paid legal fees of
$20,066 to the law firm of O'Melveny & Myers, of which Mr. Sheehan is Of
Counsel. The firm also serves as legal counsel to other Van Kampen American
Capital Funds.
Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Trustees serve as trustees is set forth
below. The compensation shown for the Fund is for the most recent fiscal year,
and the total compensation shown for the Fund and other related mutual Funds is
for the calendar year ended December 31, 1994. Mr. Powell is not compensated for
his service as Trustee, because of his affiliation with the Adviser.
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED AND FUND
FROM AS PART OF FUND COMPLEX PAID TO
NAME OF PERSON REGISTRANT EXPENSES DIRECTORS(1)(5)
------------------------------------------------- --------------- ---------------- ---------------
J. Miles Branagan................................ $ 2,355 -0- $64,000
Dr. Richard E. Caruso(3)......................... 2,360(2) -0- 64,000
Dr. Roger Hilsman................................ 2,425 -0- 66,000
David Rees(3).................................... 2,355 -0- 64,000
Lawrence J. Sheehan.............................. 2,465 -0- 67,000
Dr. Fernando Sisto(3)............................ 3,020 -0- 82,000
William S. Woodside(4)........................... 1,145 -0- 18,000
---------------
(1) Represents 29 investment company portfolios in the fund complex.
8
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(2) Mr. Caruso deferred his $2,280 of his compensation from the Fund for the
most recent fiscal year.
(3) Messrs. Caruso, Rees and Sisto have deferred compensation in the past. The
cumulative deferred compensation paid by the Fund is as follows: Caruso,
$6,668; Rees, $31,491; Sisto, $5,810.
(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. As a result, with respect to the second and fourth columns, $970
and $36,000, respectively, was paid by the Adviser directly.
(5) Includes the following amounts for which the various funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000. (Mr. Woodside was
paid $36,000 directly by the Advisor as discussed in footnote 4 above.)
Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $1,010 and a
meeting fee of $29 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be caused by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of the Fund's
investment objectives. The Adviser also furnishes at no cost to the Fund (except
as noted herein) the services of sufficient executive and clerical personnel for
the Fund as are necessary to prepare registration statements, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of a Treasurer or other principal
financial officer and the personnel operating under his direction. Charges are
allocated among the investment companies advised or subadvised by the Adviser.
During the fiscal years ended May 31, 1993, 1994 and 1995, the Adviser received
$1,426,894, $1,494,701 and $1,896,937, respectively in advisory fees from the
Fund. For such periods the Fund paid $90,648, $106,905 and $100,666,
respectively, for accounting services. A portion of these amounts was paid to
the Adviser or its parent in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost. The Fund also pays
transfer agency fees, custodian fees, legal and auditing fees, the costs of
reports to shareholders and all other ordinary expenses not specifically assumed
by the Adviser.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at the annual
rate of: 0.50% on the first $150 million net assets; 0.45% on the next $100
million of net assets; 0.40% on the next $100 million of net assets; and 0.35%
on the net assets over $350 million.
The average net asset value for purposes of computing the advisory fee is
determined by taking the average of all of the determinations of net asset value
for each day during a given calendar month. Such fee is payable for each
calendar month as soon as practicable after the end of that month.
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105
The fees payable to the adviser by the Fund shall be reduced by any
commissions, tender solicitation and other fees, brokerage or similar payments
received by the Adviser, or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. in connection with the purchase and sale of
portfolio investments of the Fund, less any direct expenses incurred by such
subsidiary of VK/AC Holding, Inc. in connection with obtaining such commissions,
fees, brokerage or similar payments. The Adviser agrees to use its best efforts
to recapture tender solicitation fees and exchange offer fees for the Fund's
benefit and to advise the Trustees of the Fund of any other commissions, fees,
brokerage or similar payments which may be possible for the Adviser or any other
direct or indirect majority owned subsidiary of VK/AC Holding, Inc., to receive
in connection with the Fund's portfolio transactions or other arrangements which
may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed one percent of the
Fund's average net assets, the compensation due the Adviser will be reduced by
the amount of such excess and that, if a reduction in and refund of the advisory
fee is insufficient, the Adviser will pay the Fund monthly an amount sufficient
to make up the deficiency, subject to readjustment during the year. Ordinary
business expenses do not include (1) interest and taxes; (2) brokerage
commissions; (3) certain litigation and indemnification expenses as described in
the Advisory Agreement and (4) payments made by the Fund pursuant to the
Distribution Plans. The Advisory Agreement also provides that the Adviser shall
not be liable to the Fund for any actions or omissions if it acted in good faith
without negligence or misconduct.
The Advisory Agreement has an initial term of two years and may be
continued from year to year if specifically approved at least annually (a)(i) by
the Fund's Trustees or (ii) by vote of a majority of the Fund's outstanding
voting securities and (b) by the affirmative vote of a majority of the Trustees
who are not parties to the agreement or interested persons of any such party by
votes cast in person at a meeting called for such purpose. The Advisory
Agreement provides that it shall terminate automatically if assigned and that it
may be terminated without penalty by either party on 60 days' written notice.
DISTRIBUTOR
The Distributor, acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
is owned by the Adviser's parent company. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Underwriting Agreement is renewable from year to year if approved (a) (i) by the
Fund's Trustees or (ii) by a vote of a majority of the Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Directors who are
not parties to the Underwriting Agreement or interested persons of any party, by
votes cast in person at a meeting called for such purpose. The Underwriting
Agreement provides that it will terminate if assigned, and that it may be
terminated without penalty by either party on 60 days' written notice. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and the cost and expense of supplemental sales
literature, promotion and advertising. The Fund pays all expenses attributable
to the registrations of its shares under federal and state laws, including
registration and filing fees, the cost of preparation of the prospectuses,
related legal and auditing expenses, and the cost of printing prospectuses for
current shareholders.
DISTRIBUTION PLANS
The Fund adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan", "Class B Plan" or "Class C
Plan", respectively) to permit the Fund directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").
The Trustees have authorized payments by the Fund under the Plan to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who
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106
are also their clients and/or for distribution. Such payments are based on an
annual percentage of the value of Fund shares held in shareholder accounts for
which such Service Organizations are responsible. With respect to the Class A
Plan, the Distributor intends to make payments, in an amount up to 0.15% of the
aggregate average daily net assets attributable to Class A shares, thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and C Plans,
authorized payments by the Fund include payments at an annual rate of up to
0.15% of the net assets of the shares of the respective class to reimburse the
Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to four percent of the purchase price of Class B
shares purchased by the clients of broker-dealers and other Service
Organizations, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals, (5) advertising and promotion expenses, including conducting and
organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses, and (6) interest expense thereon computed at the
three-month LIBOR rate plus one and one-half percent compounded quarterly on the
unreimbursed distribution expenses. With respect to the Class C Plan, authorized
payments by the Fund also include payments at an annual rate of up to 0.75% of
the net assets of the Class C shares to reimburse the Distributor for (1)
upfront commissions and transaction fees of up to 0.75% of the purchase price of
Class C shares purchased by the clients of broker-dealers and other Service
Organizations and ongoing commissions and transaction fees paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature, (4) expenses for promotional incentives to broker-dealers
and financial and industry professionals, (5) advertising and promotion
expenses, including seminars, marketing support salaries and bonuses, and
travel-related expenses, and (6) interest expense thereon computed at the
three-month LIBOR rate plus one and one-half percent compounded quarterly on the
unreimbursed distribution expenses. Such reimbursements are subject to the
maximum sales charge limits specified by the NASD for asset-based charges.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements and selling group agreements were approved by the Trustees,
including a majority of the Trustees who are not affiliated persons (as defined
in the 1940 Act) of the Fund and who have no direct or indirect financial
interest in the operation of any of the Plans or in any agreements related to
each Plan ("Independent Trustees"). In approving each Plan in accordance with
the requirements of Rule 12b-1, the Trustees determined that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, each Plan will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Fund. Any change in any of the Plans that would materially increase
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107
the distribution expenses borne by the Fund requires shareholder approval;
otherwise, it may be amended by a majority of the Trustees, including a majority
of the Independent Trustees, by vote cast in person at a meeting called for the
purpose of voting upon such amendments. So long as each Plan is in effect, the
selection or nomination of the Independent Trustees is committed to the
discretion of the Independent Trustees.
During the fiscal year ended May 31, 1995, the Fund's aggregate expenses
under the Class A Plan were $611,646 or .14%, respectively of the Fund's average
net assets. Such expenses were paid to reimburse the Distributor for payments
made to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the period April 18, 1995 (the commencement
of the offering of Class B shares) through May 31, 1995, the Fund's aggregate
expenses under the Class B Plan were $3,845 or .17% (not annualized) of the
Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $3,268 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in respect of sales
of Class B shares of the Fund and $577 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B Plan. For the
period April 18, 1995 (the commencement of the offering of Class C shares)
through May 31, 1995, the Fund's aggregate expenses under the Class C Plan were
$526 or .17% (not annualized) of the Class C shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments: $447
for commissions and transaction fees paid to broker-dealers and other Service
Organizations in respect of sales of Class C shares of the Fund and $79 for fees
paid to Service Organizations for servicing Class B shareholders and
administering the Class C Plan.
TRANSFER AGENT
During the fiscal years ending May 31, 1993, 1994 and 1995, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $986,681, $898,801 and $1,266,690 respectively, for these
services. These services are provided at cost plus a profit.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions, if any, on such transactions. As most transactions made by the Fund
are principal transactions at net prices, the Fund incurs little or no brokerage
cost. During the past three years the Fund paid no commissions to brokers on the
purchase or sale of portfolio securities. Portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include the spread between the bid and
asked price. The Adviser places portfolio transactions in a manner deemed fair
and reasonable to the Fund and not according to any formula. The primary
consideration in all portfolio transactions is prompt execution of orders in an
effective manner at a favorable price.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies, and seeks to allocate portfolio
transactions equitably whenever concurrent decisions are made to purchase or
sell securities by the Fund and another advisory account. In some cases, this
procedure could have an adverse effect on the price or the amount of securities
available to the Fund. In making such allocations, the main factors considered
by the Adviser are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and
opinions of the persons responsible for recommending the investment.
DETERMINATION OF NET ASSET VALUE
Purchases of shares will be priced at the net asset value next determined
after a purchase order becomes effective which is upon receipt by the Fund of
federal funds. The net asset value per share is determined once daily as of the
close of trading on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m., New York time) each day the Exchange is open. The Exchange is currently
closed on weekends and on the
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following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value is computed by dividing the value of the Fund's securities plus all cash
and other assets (including accrued interest) less all liabilities (including
accrued expenses) by the number of shares outstanding.
The valuation of the Fund's portfolio securities is based upon their
amortized cost, which does not take into account unrealized capital gains or
losses. Amortized cost valuation involves initially valuing an instrument at its
cost and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price that the Fund would receive if
it sold the instrument.
The Fund's use of the amortized cost method of valuing its portfolio
securities is permitted by a rule adopted by the Securities and Exchange
Commission ("SEC"). Under this rule, the Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in securities
determined by the Adviser to be of eligible quality with minimal credit risks.
The Fund's Trustees has established procedures reasonably designed, taking
into account current market conditions and the Fund's investment objective, to
stabilize the net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Trustees, at such intervals as it
deems appropriate, to determine the extent, if any, to which the net asset value
per share calculated by using available market quotations deviates from $1.00
per share based on amortized cost. In the event such deviation should exceed
four tenths of one percent, the Trustees is required to promptly consider what
action, if any, should be initiated. If the Trustees believes that the extent of
any deviation from a $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing shareholders, it will take
such steps as it considers appropriate to eliminate or reduce these consequences
to the extent reasonably practicable. Such steps may include selling portfolio
securities prior to maturity; shortening the average maturity of the portfolio;
withholding or reducing dividends; or utilizing a net asset value per share
determined by using available market quotations.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the SEC.
PURCHASE OF SHARES
Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through ACCESS. All orders become effective when the wire or
check payment is converted into federal funds. A check order will normally be
converted into federal funds on the second business day following receipt of
payment by ACCESS. When payment is by wire transfer of federal funds, such order
becomes effective upon receipt provided that prior notice has been given as
described below; other bank wire payments will normally be converted into
federal funds on the day following receipt.
After each initial and subsequent investment, the shareholder receives a
statement of the number of shares owned. Certificates for shares purchased will
not normally be issued but shares will be held on deposit by ACCESS. However,
the shareholder may request a certificate by writing ACCESS for shares at any
time. It is preferred that such request for a certificate be for at least 1,000
shares in order to minimize shareholder service agent costs.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues three classes of shares: Class A shares are sold at net
asset value without a sales charge; Class B shares and Class C shares are sold
at net asset value and are subject to a contingent deferred sales charge. The
three classes of shares each represent interests in the same portfolio of
investments of the Fund,
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have the same rights and are identical in all respects, except that Class B and
Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)
resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
The CDSC -- Class B and C may be waived on redemptions of Class B and Class
C shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC -- Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. An individual will be
considered disabled for this purpose if he or she meets the definition thereof
in Section 72(m)(7) of the Internal Revenue Code (the "Code"), which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of death or disability before it determines to
waive the CDSC -- Class B and C.
In cases of disability or death, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of Van Kampen American
Capital Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held onto the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC -- Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also will be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and C
upon such involuntary redemption.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be
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specified by the shareholder upon his or her election to participate in the
Plan. The CDSC -- Class B and C will be waived on redemptions made under the
Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(e) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. Any involuntary redemption may only occur if
the shareholder account is less than the amount specified in the Prospectus due
to shareholder redemptions. The Fund will waive the CDSC -- Class B and Class C
upon such involuntary redemption.
(f) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest, with
credit for any CDSC -- Class C paid on the redeemed shares, any portion or all
of his or her redemption proceeds (plus that amount necessary to acquire a
fractional share to round off his or her purchase to the nearest full share) in
shares of the Fund, provided that the reinvestment is effected within 120 days
after such redemption and the shareholder has not previously exercised this
reinvestment privilege with respect to Class C shares of the Fund. Shares
acquired in this manner will be deemed to have the original cost and purchase
date of the redeemed shares for purposes of applying the CDSC -- Class C to
subsequent redemptions.
(g) Redemption by Adviser
The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Exchange Privilege" in the
Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described above.
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A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
CHECK WRITING PRIVILEGE
To establish the check writing privilege, a shareholder must complete the
appropriate section of the application and the Authorization for Redemption form
and return both documents to ACCESS before checks will be issued. All signatures
on the authorization card must be guaranteed if any of the signators are persons
not referenced in the account registration or if more than 30 days have elapsed
since ACCESS established the account on its records. Moreover, if the
shareholder is a corporation, partnership, trust, fiduciary, executor or
administrator, the appropriate documents appointing authorized signers
(corporate resolutions, partnerships or trust agreements) must accompany the
authorization card. The documents must be certified in original form, and the
certificates must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
DIVIDENDS AND TAXES
The Fund's net income is declared as dividends on a daily basis. Dividends
are paid to shareholders of record immediately prior to the determination of net
asset value for that day. Since shares are issued and redeemed at the time net
asset value is determined, dividends commence on the day following the date
shares are issued and are received for the day shares are redeemed. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares as a result of the distribution fees and higher
transfer agency fees applicable to the Class B and Class C shares. All dividends
are automatically invested in additional full and fractional shares of the Fund
at net asset value. Shareholders may elect to receive monthly payment of
dividends in cash by written instruction to ACCESS. Shares purchased by daily
reinvestments are liquidated at the net asset value on the last business day of
the month and the proceeds of such redemption less any applicable CDSC mailed to
the shareholder electing cash payment. A redeeming shareholder receives all
dividends accrued through the date of redemption.
The Fund's net income for dividend purposes is calculated daily and
consists of interest accrued or discount earned, plus or minus any net realized
gains or losses on portfolio securities, less any amortization of premium and
the expenses of the Fund.
Should the Fund incur or anticipate any unusual expense, or loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Trustees would at that time consider whether
to adhere to the present dividend policy described above or to revise it in the
light of the then prevailing circumstances. For example, if the Fund's net asset
value per share was reduced below $1.00, the Board may suspend further dividend
payments until net asset value returned to $1.00. Thus, such expenses or losses
or depreciation may result in an investor receiving no dividends for the period
during which he held his shares and in his receiving upon redemption a price per
share lower than that which he paid.
By meeting certain diversification of assets and other requirements of the
Internal Revenue Code (the "Code"), the Fund intends to continue to qualify as a
regulated investment company and thereby be relieved
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from payment of federal income taxes on that portion of its net investment
income and net realized capital gains which is distributed to shareholders.
Dividends from net investment income and distributions from any net realized
short-term capital gains are taxable to shareholders as ordinary income.
Dividends do not qualify for the dividends received deduction for corporations.
All dividends and any distributions are taxable to the shareholder whether or
not reinvested in shares. Information as to the federal tax status of dividends
and distributions is provided by the Fund to shareholders annually if such
amounts are $10.00 or more.
If for any taxable year the Fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net realized capital gains, would be subject to tax at regular
corporate rates (without any deduction for distributions to shareholders).
The Fund is subject to a four percent excise tax to the extent it does not
distribute to its shareholders during any calendar year at least 98% of its
ordinary taxable (net investment) income for the twelve months ended December
31, plus 98% of its capital gain net income for the twelve months ended October
31 of such year. The Fund intends to distribute sufficient amounts to avoid
liability for the excise tax.
If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year
are considered taxable income to shareholders on the record date even though
paid in the next year.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate up to 30% under existing provisions of
the Code applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Non-resident shareholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and any distributions may also be subject to state and local
taxes.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to Federal, state or local taxes.
Back-up Withholding. The Fund is required to withhold and remit to the
United States Treasury 31% of (i) reportable taxable dividends and distributions
and (ii) the proceeds of any redemptions of Fund shares with respect to any
shareholder who is not exempt from withholding and who fails to furnish the Fund
with a correct taxpayer identification number, who fails to report fully
dividend or interest income, or who fails to certify to the Fund that he has
provided a correct taxpayer identification number and that he is not subject to
withholding. (An individual's taxpayer identification number is his social
security number.) The 31% back-up withholding tax is not an additional tax and
may be credited against a taxpayer's regular federal income tax liability.
YIELD INFORMATION
The annualized current yield for Class A shares for the seven day period
ending May 31, 1995 was 4.53%. Its compound effective yield for the same period
was 4.63%. For Class B shares the annualized yield and compound effective yield
for the seven day period was 3.61% and 3.68%, respectively. For Class C shares
the annualized yield and compound effective yield for the seven day period was
3.59% and 3.65%, respectively.
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The yield of the Fund is its net income expressed in annualized terms. The
SEC requires by rule that a yield quotation set forth in an advertisement for a
"money market" fund be computed by a standardized method based on a historical
seven calendar day period. The standardized yield is computed by determining the
net change (exclusive of realized gains and losses and unrealized appreciation
and depreciation) in the value of an hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by
(365/7). The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and such additional shares, and all fees
that are charged to all shareholder accounts, in proportion to the length of the
base period and the Fund's average account size. The Fund may also calculate its
annualized yield by compounding the unannualized base period return (calculated
as described above) by adding 1 to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one.
The yield quoted at any time represents the amount being earned on a
current basis for the indicated period and is a function of the types of
instruments in the Fund's portfolio, their quality and length of maturity, and
the Fund's operating expenses. At May 31, 1995, 20% of the Fund's portfolio was
invested in obligations of U.S. Government Agencies', 50% was invested in
commercial paper of which 100% was rated A-1 or Prime-1, 5% was invested in U.S.
Treasury obligations and the remaining 30% was invested in repurchase
agreements. See "Investment Policies -- Commercial Paper," and the Appendix
hereto. The length of maturity for the portfolio is the average dollar weighted
maturity of the portfolio. This means that the portfolio has an average maturity
of a stated number of days for all of its issues. The calculation is weighted by
the relative value of the investment. At May 31, 1995 the average dollar
weighted maturity of the portfolio was 25 days.
The yield fluctuates daily as the income earned on the investments of the
Fund fluctuates. Accordingly, there is no assurance that the yield quoted on any
given occasion will remain in effect for any period of time. It should also be
emphasized that the Fund is an open-end investment company and that there is no
guarantee that the net asset value will remain constant. A shareholder's
investment in the Fund is not insured. Investors comparing results of the Fund
with investment results and yields from other sources such as banks or savings
and loan associations should understand this distinction. The yield quotation
may be of limited use for comparative purposes because it does not reflect
charges imposed at the Account level which, if included, would decrease the
yield.
Other funds of the money market type as well as banks and savings and loan
associations may calculate their yield on a different basis, and the yield
quoted by the Fund could vary upwards or downwards if another method of
calculation or base period were used.
Yield is calculated separately for Class A, Class B and Class C shares.
Because of the differences in distribution fees, the yield for each of the
classes will differ.
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, performs annual audits of the
Fund's financial statements.
FINANCIAL STATEMENTS
The attached financial statements in the form in which they appear in the
Annual Report to Shareholders including the related report of Independent
Accountants on such financial statements are included in the Statement of
Additional Information.
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APPENDIX
Description of the highest commercial paper, bond and other short-term and
long-term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service ("Moody's"), Fitch Investors Service, Inc. ("Fitch"),
Duff and Phelps, Inc. ("Duff") and IBCA Limited and IBCA Inc. ("IBCA").
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations and ordinarily well established industries,
high rates of return of funds employed, conservative well established
industries, high rates of return of funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 (P-2) have a strong
capacity for repayment of short-term promissory obligations. This ordinarily
will be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff,
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors small.
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. The designation A2 by
IBCA indicates that the obligation is supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay principal and interest. Bonds
rated AA by S&P are judged by S&P to have a very strong capacity to pay
principal and interest and, in the majority of instances, differ only in small
degrees from issues rated AAA.
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
Bonds are rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in
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the higher end of this rating category, the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates a ranking in the lower end of the rating
category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated AA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
IBCA also assigns a rating to certain international and U.S. banks. An IBCA
bank rating represents IBCA's current assessment of the strength of the bank and
whether such bank would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system comprised of Legal
Rating and Individual Ratings. In addition, IBCA assigns banks Long- and
Short-Term Ratings as used in the corporate ratings discussed above. Legal
Ratings, which range in gradation from 1 through 5, address the question of
whether the bank would receive support by central banks or shareholders if it
experienced difficulties, and such ratings are considered by IBCA to be a prime
factor in its assessment of credit risk. Individual Ratings, which range in
gradations from A through E, represent IBCA's assessment of a bank's economic
merits and address the question of how the bank would be viewed if it were
entirely independent and could not rely on support from state authorities or its
owners.
20
116
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
May 31, 1995
--------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
--------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 60.7%
$16,000 Associates Corp. of North America.............. 6.230% 07/12/95 $ 15,886,133
15,000 Chevron Oil Finance Co......................... 5.930% 06/26/95 14,936,083
10,000 Du Pont (E.I.) de Nemours...................... 6.060% 06/27/95 9,955,150
18,000 General Electric Capital Corp.................. 6.190% 07/24/95 17,837,190
19,000 General Electric Co............................ 6.230% 09/05/95 18,689,250
6,300 Lilly (Eli) & Co............................... 6.000% 06/30/95 6,268,815
10,000 MetLife Funding, Inc........................... 5.960% 06/22/95 9,963,761
10,000 MetLife Funding, Inc........................... 6.000% 07/11/95 9,932,350
18,000 Pitney Bowes Credit Corp....................... 6.100% 06/12/95 17,963,880
9,000 Pitney Bowes, Inc.............................. 5.960% 06/14/95 8,979,210
8,000 Prudential Funding Corp........................ 6.230% 07/24/95 7,927,160
9,000 Prudential Funding Corp........................ 6.230% 07/27/95 8,913,503
18,000 Raytheon Co.................................... 5.970% 06/09/95 17,973,180
5,000 State Bank of New South Wales.................. 6.250% 08/29/95 4,923,750
10,000 State Bank of New South Wales.................. 6.260% 09/06/95 9,833,944
17,000 Toronto Dominion Holdings...................... 5.990% 07/10/95 16,887,989
------------
TOTAL COMMERCIAL PAPER (Cost
$196,871,348)............................. 196,871,348
------------
REPURCHASE AGREEMENTS* 37.2%
SBC Capital Markets, Inc., dated 5/31/95,
repurchase
65,000 proceeds $65,011,104.......................... 6.150% 06/01/95 65,000,000
State Street Bank & Trust Co., dated 5/31/95,
55,905 repurchase proceeds $55,914,512............... 6.125% 06/01/95 55,905,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $120,905,000)....................... 120,905,000
------------
UNITED STATES GOVERNMENT OBLIGATIONS 24.6%
30,000 Federal Home Loan Banks........................ 6.100% 06/01/95 29,994,917
25,000 Federal National Mortgage Association.......... 5.900% 06/02/95 24,991,819
25,000 Federal National Mortgage Association.......... 5.940% 08/09/95 24,715,625
------------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS
(Cost $79,702,361)........................ 79,702,361
------------
TOTAL INVESTMENTS (Cost $397,478,709) 122.5%...................................... 397,478,709
OTHER ASSETS AND LIABILITIES, NET (22.5%)......................................... (73,020,170)
------------
NET ASSETS 100%................................................................... $324,458,539
============
*Collateralized by U.S. Government obligations in a pooled cash account
See Notes to Financial Statements
F-1
117
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
--------------------------------------------------------------------------------
ASSETS
Investments, at amortized cost.............................................. $397,478,709
Cash........................................................................ 127,602
Receivable for Fund shares sold............................................. 786,579
Other assets................................................................ 43,829
------------
Total Assets............................................................. 398,436,719
------------
LIABILITIES
Payable for Fund shares redeemed............................................ 73,417,480
Due to shareholder service agent............................................ 162,280
Due to Adviser.............................................................. 138,975
Due to Distributor.......................................................... 87,995
Dividends payable........................................................... 62,989
Deferred Directors' compensation............................................ 60,138
Accrued expenses............................................................ 48,323
------------
Total Liabilities........................................................ 73,978,180
------------
NET ASSETS, equivalent to $1.00 per share for Class A, B and C shares....... $324,458,539
============
NET ASSETS WERE COMPRISED OF:
Capital stock at par; 319,694,843 Class A, 4,189,806 Class B and 588,487
Class C shares outstanding................................................. $ 3,244,731
Capital surplus............................................................. 321,161,934
Undistributed net investment income......................................... 51,874
------------
NET ASSETS at May 31, 1995.................................................. $324,458,539
============
See Notes to Financial Statements
F-2
118
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended May 31, 1995
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest..................................................................... $22,971,502
-----------
EXPENSES
Management fees.............................................................. 1,896,937
Shareholder service agent's fees and expenses................................ 1,495,213
Accounting services.......................................................... 100,666
Service fees--Class A........................................................ 611,646
Distribution and service fees--Class B....................................... 3,845
Distribution and service fees--Class C....................................... 526
Directors' fees and expenses................................................. 22,739
Audit fees................................................................... 21,525
Legal fees................................................................... 20,066
Reports to shareholders...................................................... 58,845
Registration and filing fees................................................. 111,820
Miscellaneous................................................................ 13,559
-----------
Total expenses............................................................ 4,357,387
-----------
NET INVESTMENT INCOME........................................................ 18,614,115
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $18,614,115
===========
See Notes to Financial Statements
F-3
119
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended May 31
-----------------------------------
1995 1994
------------------------------------------------------------------------------------------------
NET ASSETS, beginning of period.......................... $ 463,827,313 $ 279,344,078
--------------- ---------------
Operations
Increase from net investment income...................... 18,614,115 7,722,464
--------------- ---------------
Distributions to shareholders from net investment income
Class A............................................... (18,623,009) (7,713,417)
Class B............................................... (15,317) --
Class C............................................... (2,167) --
--------------- ---------------
(18,640,493) (7,713,417)
--------------- ---------------
Capital transactions
Proceeds from shares sold
Class A............................................... 3,148,142,161 2,733,962,738
Class B............................................... 21,754,203 --
Class C............................................... 3,049,049 --
--------------- ---------------
3,172,945,413 2,733,962,738
--------------- ---------------
Proceeds from shares issued for distributions reinvested
Class A............................................... 18,623,009 7,713,418
Class B............................................... 15,317 --
Class C............................................... 2,167 --
--------------- ---------------
18,640,493 7,713,418
--------------- ---------------
Cost of shares redeemed
Class A............................................... (3,310,885,859) (2,557,201,968)
Class B............................................... (17,579,714) --
Class C............................................... (2,462,729) --
--------------- ---------------
(3,330,928,302) (2,557,201,968)
--------------- ---------------
Increase (decrease) in net assets resulting from
capital transactions................................ (139,342,396) 184,474,188
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS........................ (139,368,774) 184,483,235
--------------- ---------------
NET ASSETS, end of period................................ $ 324,458,539 $ 463,827,313
=============== ===============
See Notes to Financial Statements
F-4
120
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
--------------------------------------------------------------------------------
Class A
--------------------------------------------------
Year Ended May 31
--------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Income from operations
Investment income............................... .0535 .0329 .0353 .052 .0758
Expenses........................................ (.0101) (.0100) (.0109) (.0105) (.0094)
------ ------ ------ ------ ------
Net investment income............................ .0434 .0229 .0244 .0415 .0664
------ ------ ------ ------ ------
Distributions from net investment income......... (.0434) (.0229) (.0244) (.0415) (.0664)
------ ------ ------ ------ ------
Net asset value, end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
TOTAL RETURN..................................... 4.43% 2.32% 2.44% 4.20% 6.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $319.7 $463.8 $279.3 $329.2 $402.3
Average net assets (millions).................... $434.4 $326.8 $306.7 $377.5 $482.6
Ratios to average net assets
Expenses........................................ 1.00% 1.03% 1.09% 1.05% .94%
Net investment income........................... 4.28% 2.36% 2.44% 4.19% 6.68%
See Notes to Financial Statements
F-5
121
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
--------------------------------------------------------------------------------
Class B Class C
---------------- ----------------
April 18, April 18,
1995(1) 1995(1)
through through
May 31, 1995 May 31, 1995
---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................... $ 1.00 $ 1.00
------ ------
Income from investment operations
Investment income....................................... .0073 .0076
Expenses................................................ (.0026) (.0027)
------ ------
Net investment income.................................... .0047 .0049
------ ------
Distributions from net investment income................. (.0047) (.0049)
------ ------
Net asset value, end of period........................... $ 1.00 $ 1.00
====== ======
TOTAL RETURN(2).......................................... .47% .49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................... $ 4.2 $ 0.6
Average net assets (millions)............................ $ 2.3 $ 0.3
Ratios to average net assets (annualized)(3.
Expenses................................................ 1.76% 1.76%
Net investment income................................... 3.52% 3.52%
(1) Commencement of operations
(2) Total return has not been annualized and does not consider the effect of
sales charges.
(3) Ratios based on the class of shares being in effect for the entire fiscal
year.
See Notes to Financial Statements
F-6
122
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Reserve Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
A. INVESTMENT VALUATIONS-Investments are valued at amortized cost, which
approximates market value. The cost of investments for federal income tax
purposes is substantially the same as for financial reporting purposes.
B. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund 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 American Capital Asset Management, Inc. (the "Adviser"),
the daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund 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 Fund.
C. FEDERAL INCOME TAXES-No provision for federal income taxes is required
because the Fund has elected to be taxed as a "regulated investment company"
under the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized gains to its shareholders. Additionally, approximately $18,000 of
financial statement losses are deferred for federal income tax purposes to the
1996 fiscal year.
D. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transactions
are accounted for on the trade date. Realized gains and losses on investments
are determined on the basis of amortized cost. Interest income is accrued daily.
E. DIVIDENDS-The Fund records daily dividends from net investment income. These
dividends are automatically reinvested in additional shares of the Fund at net
asset value. Shares purchased by daily reinvestments are liquidated at net asset
value on the last business day of the month and the proceeds of such redemptions
paid to the shareholders electing to receive dividends in cash. The Fund
distributes tax basis earnings in accordance with the minimum
F-7
123
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
distribution requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such distributions may result in
dividends in excess of financial statement net investment income.
F. DEBT DISCOUNT AND PREMIUM-For financial and tax reporting purposes, all
discounts and premiums are amortized over the life of the security.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are
calculated monthly, based on the average daily net assets of the Fund at an
annual rate of .50% of the first $150 million; .45% of the next $100 million;
.40% of the next $100 million; and .35% of the amount in excess of $350 million.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allocated
among investment companies advised by the Adviser. During the period, these
charges included $12,498 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services expense
was paid to the Adviser in reimbursement of personnel, facilities and equipment
costs attributable to the provision of accounting services to the Fund. The
services provided by the Adviser are at cost.
ACCESS Investors Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. During the period, such fees aggregated $1,266,690.
Under the Distribution Plans, each class of shares pays up to .15% per annum
of its average daily net assets to reimburse the Distributor for expenses and
service fees incurred. Class B and Class C shares pay an additional fee of up to
.75% per annum of their average daily net assets to reimburse Van Kampen
American Capital Distributors, Inc. (the "Distributor") for its distribution
expenses. Actual distribution expenses incurred by the Distributor for Class B
and Class C shares may exceed the amounts reimbursed to the Distributor by the
Fund. At the end of the period, the unreimbursed expenses incurred by the
Distributor under the Class B and Class C plans aggregated approximately $9,000
and $3,000, respectively, and may be carried forward and reimbursed through
either the collection of the contingent deferred sales charges from share
redemptions or, subject to the annual renewal of the plans, future Fund
reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor and the shareholder service agent.
F-8
124
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
NOTE 3--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,440 plus a fee of $35 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $540. During the period, such fees aggregated $19,263.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered by the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund on
its short-term investments or equal to the total return of the Fund.
NOTE 4--CAPITAL
The Fund offers three classes of shares at their respective net asset values per
share. Class B and Class C shares are subject to a sales charge imposed at the
time of redemption on a contingent deferred basis. All classes of shares have
the same rights, except that Class B and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B and Class C shares
automatically convert to Class A shares six years and ten years after purchase,
respectively, subject to certain conditions. The offering of Class B and Class C
shares commenced April 18, 1995, at which time all previously outstanding shares
became Class A shares.
F-9
125
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Fund has 1 billion of Class A shares, and 500 million each of Class B
and Class C shares of $.01 par value capital stock authorized. Transactions in
shares of capital stock were as follows:
Year Ended May 31
---------------------------------
1995 1994
------------------------------------------------------------------------------------------------
Shares sold
Class A................................................. 3,148,142,161 2,733,962,738
Class B................................................. 21,754,203 --
Class C 3,049,049 --
------------- --------------
3,172,945,413 2,733,962,738
============= ==============
Shares issued for distributions reinvested
Class A................................................. 18,623,009 7,713,418
Class B................................................. 15,317 --
Class C................................................. 2,167 --
------------- --------------
18,640,493 7,713,418
============= ==============
Shares redeemed
Class A................................................. (3,310,885,862) (2,557,202,100)
Class B................................................. (17,579,714) --
Class C................................................. (2,462,729) --
------------- --------------
(3,330,928,305) (2,557,202,100)
------------- --------------
Increase (decrease) in shares outstanding.................. (139,342,399) 184,474,056
============= ==============
F-10
126
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL RESERVE FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, 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 American Capital Reserve Fund, Inc.
at May 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
June 30, 1995
F-11
127
APPENDIX B
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL MONEY MARKET FUND
Van Kampen American Capital Money Market Fund, formerly known as Van Kampen
Merritt Money Market Fund (the "Fund"), is a money market mutual fund whose
investment objective is to provide a high level of current income, liquidity and
safety of principal through investment in a diversified portfolio of money
market securities. There can be no assurance that the Fund will achieve its
objective. The Fund is a separate series of Van Kampen American Capital Money
Market Trust, a Delaware business trust (the "Trust"). The Fund is a mutual fund
whose portfolio is advised by Van Kampen American Capital Investment Advisory
Corp. (the "Adviser").
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated August 1, 1995 (the
"Prospectus"). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing shares
of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge by
calling the Fund at (800) 421-5666. This Statement of Additional Information
incorporates by reference the entire Prospectus.
The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the Securities
and Exchange Commission (the "Commission"), Washington, D.C. This omitted
information may be obtained from the Commission upon payment of the fee
prescribed or inspected at the Commission's office at no charge.
TABLE OF CONTENTS
The Fund and the Trust............................................................ 2
Investment Policies and Restrictions.............................................. 2
Officers and Trustees............................................................. 5
Legal Counsel..................................................................... 11
Investment Advisory and Other Services............................................ 11
Portfolio Transactions............................................................ 13
The Distributor................................................................... 14
Yield Information................................................................. 15
Dividends......................................................................... 16
Unaudited Financial Statements.................................................... 17
Notes to Unaudited Financial Statements........................................... 25
Independent Auditors' Report...................................................... 28
Audited Financial Statements...................................................... 29
Notes to Audited Financial Statements............................................. 35
Appendix.......................................................................... 38
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED AUGUST 1, 1995.
128
THE FUND AND THE TRUST
The Fund is an open-end diversified management investment company. The Fund is
a series of Van Kampen American Capital Money Market Trust (the "Trust"). At
present, the Fund is the only series of the Trust although other series may be
organized and offered in the future. The Trust and each of its series, including
the Fund, will be treated as separate corporations for Federal income tax
purposes.
The Trust is an unincorporated business trust established under the laws of
the state of Delaware by an Agreement and Declaration of Trust dated as of May
10, 1995, (the "Declaration of Trust"). The Declaration of Trust permits the
Trustees to create one or more separate investment portfolios and issue a series
of shares for each portfolio. The Trustees can further sub-divide each series of
shares into one or more classes of shares for each portfolio. Each share
represents an equal proportionate interest in the assets of the series with each
other share in such series and no interest in any other series. No series is
subject to the liabilities of any other series. The Declaration of Trust
provides that shareholders are not liable for any liabilities of the Trust or
any of its series, requires inclusion of a clause to that effect in every
agreement entered into by the Trust or any of its series and indemnifies
shareholders against any such liability.
Each Class A Share and Class B Share represents an equal proportionate
interest in the assets of the respective class of the series, with each other
share of the respective class, and no interest in any other series. No series is
subject to the liabilities of any other series. The Declaration of Trust
provides that shareholders are not liable for any liabilities of the Trust or
any of its series, requires inclusion of a clause to that effect in every
agreement entered into by the Trust or any of its series and indemnifies
shareholders against any such liability.
Shares of the Trust entitle their holders to one vote per share. However,
separate votes are taken by each series on matters affecting an individual
series or, with respect to a class of shares, on the respective class'
distribution plan. For example, a change in investment policy for a series would
be voted upon by shareholders of only the series involved. Shares do not have
cumulative voting rights, preemptive rights or any conversion or exchange
rights. The Trust does not contemplate holding regular meetings of shareholders
to elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares present and voting at
such meeting.
The Trustees may amend the Declaration of Trust if authorized by a vote of the
Trustees and a favorable vote of the holders of more than 50% of the outstanding
shares entitled to vote (or such higher vote as may be required by the
Investment Company Act of 1940 (the "Investment Company Act") or other
applicable law).
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms as part, each such statement
being qualified in all respects by such reference.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective of the Fund is to provide high current income,
liquidity and safety of principal through investment in a diversified portfolio
of money market securities. The Fund will invest
2
129
only in the securities listed below. These securities must be denominated in
U.S. dollars and must either (i) mature or have been called for redemption
within one year of the date purchased or (ii) be subject to repurchase
agreements maturing within one year. There can be no assurance that the Fund
will achieve its objective. The foregoing is a fundamental policy and cannot be
changed without approval of the shareholders of the Fund.
1. U.S. Government Securities. The Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
2. Bank Obligations. The Fund may invest in time deposits of federal and
state banks whose accounts are insured by a government agency; certificates
of deposit, bankers' acceptances and other bank obligations if they are
obligations of a domestic bank (or foreign branch thereof) subject to
regulation by the U.S. Government.
3. Commercial Paper Obligations. The Fund may invest in commercial paper,
including variable amount master demand notes, rated at least A-3 by
Standard & Poor's Ratings Group ("S&P") or Prime-3 by Moody's Investors
Service, Inc. ("MIS") or, if not rated, issued by a corporation in whose
debt obligations the Fund may invest (see 4 below) see Appendix A to this
Statement of Additional Information for a description of the factors
considered by S&P and MIS.
4. Corporate Debt Obligations. The Fund may invest in corporate debt
obligations (for example, bonds and debentures) if they are rated at least
AA by S&P or Aa by MIS see Appendix A to this Statement of Additional
Information for bond ratings.
Fundamental investment restrictions limiting the investments of the Fund provide
that the Money Fund may not:
1. Purchase any securities (other than obligations issued or guaranteed
by the United States Government or by its agencies or instrumentalities)
if, as a result, more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer or if, as a
result, the Fund would hold more than 10% of the outstanding voting
securities of an issuer. (There is no limit on the amount of the Fund's
assets which may be invested in any single issue of U.S. Government
Securities.)
2. Borrow money, except from banks for temporary or emergency purposes
and then not in amounts in excess of 10% of its net assets at the time of
borrowing. It can mortgage or pledge its assets only in connection with
such borrowing and in amounts not in excess of 10% of the value of its net
assets at the time of such borrowing. Interest on borrowing would reduce
the Fund's income. The Fund will not purchase any securities while it has
any outstanding borrowings and will not engage in reverse repurchase
transactions.
3. Buy any securities "on margin" or sell any securities "short."
4. Make investments for the purpose of exercising control or management.
5. Write, purchase or sell puts, calls or combinations thereof, or
purchase or sell interest rate futures contracts or related options.
6. Purchase any security which is restricted as to disposition under
federal securities laws or by contract or which are not readily marketable,
or enter into a repurchase agreement maturing in more than seven days with
respect to any security if, as a result, more than 10% of the Fund's total
assets would be invested in such securities.
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7. Invest in securities of other investment companies, except as part of
a merger, consolidation or other acquisition.
8. Invest in interests in oil, gas or other mineral exploration or
development programs.
9. Purchase or retain securities of any company if, to the knowledge of
the Fund, its officers and directors and the officers and directors of the
Fund's investment advisor who individually own more than 1/2 of 1% of the
securities of such company together own beneficially more than 5% of such
securities.
10. Make loans, except that the Fund can purchase and hold those publicly
distributed debt securities which it is permitted to buy, lend its
portfolio securities, and enter into repurchase agreements.
11. Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
12. Purchase or sell real estate, commodities or commodity contracts,
except that the Fund may purchase marketable debt securities issued by
companies which invest in interests in real estate.
13. Purchase or retain securities of issuers having a record, together
with predecessors, of less than three years continuous operations if at the
time of purchase more than 5% of the Fund's total assets would be invested
in such securities.
14. Invest more than 25% of its assets in a single industry, except that
such limitation shall not apply to U.S. Government Securities or domestic
bank obligations (excluding foreign branches thereof).
15. Invest in FHA or VA pooled mortgages, or obligations of the Asian
Development Bank, the Inter-American Development Bank or the International
Bank for Reconstruction and Development (World Bank) or in foreign
securities or more than 10% of its assets in bank obligations payable in
Eurodollars; also, the Fund may not purchase or sell forward foreign
currency exchange contracts, invest in bank time deposits maturing in more
than seven days, or invest more than 10% of its assets in bank time
deposits maturing between two business days and seven calendar days.
The Fund may not change any of these investment restrictions without the
approval of the lesser of (i) more than 50% of the Fund's outstanding shares or
(ii) 67% of the Fund's shares present at a meeting at which the holders of more
than 50% of such outstanding shares are present in person or by proxy. As long
as the percentage restrictions described above are satisfied at the time of the
investment or borrowing, the Fund will be considered to have abided by those
restrictions even if, at a later time, a change in values or net assets causes
an increase or decrease in percentage.
From time to time, the Fund may adopt more stringent investment restrictions
in order to satisfy rules and regulations promulgated by the Commission or to be
able to offer its shares to residents in particular states. In order to offer
its shares to residents in particular states, the Fund presently will not invest
in warrants.
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OFFICERS AND TRUSTEES
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser" or "Adviser"), Van Kampen American
Capital Asset Management, Inc., (the "AC Adviser"), Van Kampen American Capital
Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van
Kampen American Capital, Inc. ("Van Kampen American Capital") or VK/AC Holding,
Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the VK Adviser (excluding
the Van Kampen Merritt Series Trust) and each of the open-end investment
companies advised by the AC Adviser.
TRUSTEES
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ----------------------------------------------------
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which
Torrance, CA 90501 develops manufactures, markets and services medical
Age: 63 and scientific equipment. Trustee of each of the Van
Kampen American Capital Funds.
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer,
Two Randor Station, Suite 314 Integra Life Sciences Corporation, a firm
King of Prussia Road specializing in life sciences. Trustee of
Radnor, PA 19087 Susquehanna University and First Vice President, The
Age: 52 Baum School of Art; Founder and Director of Uncom-
mon Individual Foundation, a youth development
foundation. Director of International Board of
Business Performance Group, London School of
Economics. Formerly, Director of First Sterling
Bank, and Executive Vice President and a Director of
LFC Financial Corporation, a provider of lease and
project financing. Trustee of each of the Van Kampen
American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and
9615 Torresdale Avenue Manager of Municipal Bond Department, W. H.
Philadelphia, PA 19114 Newbold's Sons & Co. Trustee of each of the Van
Age: 66 Kampen American Capital Funds.
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of
Lyme, CT 06371 the Van Kampen American Capital Funds.
Age: 75
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ----------------------------------------------------
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis
Chicago, IL 60615 Trading Group Inc. Prior to 1992, President and
Age: 43 Chief Executive Officer, Director and member of the
Investment Committee of the Joyce Foundation, a
private foundation. Trustee of each of the Van
Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of
One Parkview Plaza the VK Adviser, the AC Adviser and Van Kampen
Oakbrook Terrace, IL 60181 American Capital Management, Inc. Director of VK/AC
Age: 53 Holding, Inc, Van Kampen American Capital, and
McCarthy, Crisanti & Maffei, Inc. Chairman and a
Director of MCM Asia Pacific Company, Ltd.
President, Chief Executive Officer and Trustee of
each of the funds advised by the VK Adviser. Prior
to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a
415 North Adams company in insurance related businesses. Formerly
Hinsdale, IL 60521 Vice Chairman and Director of Continental Illinois
Age: 75 National Bank and Trust Company of Chicago and
Continental Illinois Corporation. Trustee of each of
the Van Kampen American Capital Funds and Chairman
of the Board of each of the open-end funds (except
the Van Kampen Merritt Series Trust) advised by the
VK Adviser.
Jack E. Nelson..................... President of Nelson Investment Planning Services,
423 Country Club Drive Inc., a financial planning company and registered
Winter Park, FL 32789 investment adviser. President of Nelson Investment
Age: 59 Brokerage Services Inc., a member of the National
Association of Securities Dealers, Inc. (NASD) and
Securities Investors Protection Corp. (SIPC).
Trustee of each of the Van Kampen American Capital
Funds.
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ----------------------------------------------------
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of
Age: 55 the Distributor, the VK Adviser, the AC Adviser and
Van Kampen American Capital Management, Inc.
Director, President and Chief Executive Officer of
Van Kampen American Capital Advisers, Inc. and Van
Kampen American Capital Exchange Corp. Director and
Executive Vice President of Advantage Capital
Corporation, ACCESS Investor Services, Inc., Van
Kampen American Capital Services, Inc. and Van
Kampen American Capital Trust Company. Director of
McCarthy, Crisanti & Maffei, Inc. President and
Director, Trustee or Managing General Partner of
each of the funds advised by the AC Adviser and
Trustee of each of the funds advised by the VK Ad-
viser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end
investment companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior
1601 Country Club Drive Editor of Los Angeles Business Journal. A director
Glendale, CA 91208 of Source Capital, Inc., a closed-end investment
Age: 71 company unaffiliated with Van Kampen American
Capital, a director and the second vice president of
International Institute of Los Angeles. Trustee of
each of the Van Kampen American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products
115 River Road Corporation, a manufacturer and processor of welding
Edgewater, NJ 07020 alloys, supplies and equipment. Director of
Age: 72 Pacesetter Software, a software programming company
specializing in white collar productivity. Director
of Panasia Bank. Trustee of each of the Van Kampen
American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to
1999 Avenue of the Stars 1994) of the law firm of O'Melveny & Myers, legal
Suite 700 counsel to the funds advised by the AC Adviser.
Los Angeles, CA 90067 Director, FPA Capital Fund, Inc.; FPA New Income
Age: 63 Fund, Inc.; FPA Perennial Fund, Inc.; Source
Capital, Inc.; and TCW Convertible Security Fund,
Inc. Trustee of each of the Van Kampen American
Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995,
Stevens Institute Dean of Graduate School and Chairman, Department of
of Technology Mechanical Engineering, Stevens Institute of
Castle Point Station Technology. Director of Dynalysis of Princeton, a
Hoboken, NJ 07030 firm engaged in engineering research. Trustee of
Age: 70 each of the Van Kampen American Capital Funds and
Chairman of the Board of each of the open-end funds
advised by the AC Adviser.
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ----------------------------------------------------
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate,
333 West Wacker Drive Meagher & Flom, legal counsel to funds advised by
Chicago, IL 60606 the VK Adviser. Trustee of each of the Van Kampen
Age: 55 American Capital Funds. He also is a Trustee of the
Van Kampen Merritt Series Trust and closed-end
investment companies advised by the VK Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of
40th Floor Primerica Corporation (currently known as The
New York, NY 10019 Traveler's Inc.). Formerly, Director of James River
Age: 73 Corporation, a producer of paper products. Trustee,
and former President of Whitney Museum of American
Art. Formerly, Chairman of Institute for Educational
Leadership, Inc., Board of Visitors, Graduate School
of The City University of New York, Academy of
Political Science. Trustee of Committee for Economic
Development. Director of Public Education Fund
Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's
Council, Harvard School of Public Health. Member of
Mental Health Task Force, Carter Center. Trustee of
each of the Van Kampen American Capital Funds.
OFFICERS
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
--------------------- -------------------------- ----------------------------------------
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice
President of each of the Van Kampen
American Capital Funds and closed- end
funds advised by the VK Adviser.
Ronald A. Nyberg..... Vice President and Executive Vice President, General
Age: 41 Secretary Counsel and Secretary of Van Kampen
American Capital. Executive Vice
President and a Director of the VK
Adviser and the Distributor. Executive
Vice President of the AC Adviser. Vice
President and Secretary of each of the
Van Kampen American Capital Funds and
closed-end funds advised by the VK
Adviser. Director of ICI Mutual
Insurance Co., a provider of insurance
to members of the Investment Company
Institute. Prior to March 1990,
Secretary of Van Kampen Merritt Inc.,
the VK Adviser and McCarthy, Crisanti &
Maffei, Inc.
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POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
--------------------- -------------------------- ----------------------------------------
Edward C. Wood III... Vice President, Treasurer Senior Vice President of the VK Adviser.
Age: 39 and Chief Financial Vice President, Treasurer and Chief
Officer Financial Officer of each of the Van
Kampen American Capital Funds and
closed-end funds advised by the VK
Adviser.
Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and Attorney of
Age: 30 Van Kampen American Capital. Assistant
Secretary of each of the Van Kampen
American Capital Funds and closed-end
funds advised by the VK Adviser. Prior
to May 1992, attorney for Cantwell &
Cantwell, a Chicago law firm.
Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy General
Age: 38 Counsel and Assistant Secretary of Van
Kampen American Capital. Senior Vice
President, Deputy General Counsel and
Secretary of the VK Adviser and the
Distributor. Assistant Secretary of each
of the Van Kampen American Capital Funds
and closed-end funds advised by the VK
Adviser.
Weston B. Assistant Secretary Vice President, Associate General
Wetherell.......... Counsel and Assistant Secretary of Van
Age: 39 Kampen American Capital, the VK Adviser
and the Distributor. Assistant Secretary
of McCarthy, Crisanti & Maffei, Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and
closed-end funds advised by the VK
Adviser.
John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen
American Capital Funds and closed-end
funds advised by the VK Adviser.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK
Age: 30 Adviser. Assistant Treasurer of each of
the Van Kampen American Capital Funds
and closed-end funds advised by the VK
Adviser.
---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.
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136
Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/ AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.
The Fund will pay trustees who are not affiliated persons of the VK Adviser,
the Distributor or Van Kampen American Capital an annual retainer of $2,500 per
year and $125 per regular quarterly meeting of the Fund, plus expenses. No
additional fees are proposed at the present time to be paid for special
meetings, committee meetings or to the chairman of the board. The trustees have
approved an aggregate annual compensation cap from the combined fund complex of
$84,000 per trustee (excluding any retirement benefits) until December 31, 1996,
based upon the current net assets and the current number of Van Kampen American
Capital funds (except that Mr. Whalen, who is also a trustee of the closed-end
funds advised by the VK Adviser would receive additional compensation for
serving as a trustee of such funds). In addition, the VK Adviser has agreed to
reimburse the Fund through December 31, 1996, for any increase in the aggregate
trustees' compensation over the aggregate compensation paid by the Fund in its
1994 fiscal year.
COMPENSATION TABLE(1)
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF BENEFITS UPON COMPLEX PAID TO
NAME FROM REGISTRANT(2) FUND EXPENSES(3) RETIREMENT(4) TRUSTEE(5)
-------------------------- -------------------- ------------------ ---------------- ---------------
R. Craig Kennedy.......... $3,783 $0 $2,500 $62,362
Philip G. Gaughan......... 3,783 0 2,500 63,250
Donald C. Miller.......... 3,783 0 2,500 62,178
Jack A. Nelson............ 3,783 0 2,500 62,362
Jerome L. Robinson........ 3,786 0 2,500 58,475
Wayne W. Whalen........... 891 0 2,500 49,875
---------------
(1) Messrs. McDonnell and Powell, trustees of the Registrant, are affiliated
persons of the VK Adviser and are not eligible for compensation or
retirement benefits from the Trust. Messrs. Branagan, Caruso, Hilsman, Rees,
Sheehan, Sisto and Woodside were elected as trustees of the Trust at a
shareholders meeting held July 21, 1995 and thus received no compensation or
retirement benefits from the Registrant during its 1994 fiscal year.
(2) The Registrant is Van Kampen American Capital Money Market Trust (the
"Trust") which currently is comprised of 1 operating series. The amounts
shown in this column are accumulated from the Aggregate Compensation of the
Registrant's year ended December 31, 1994. Beginning in October 1994 each
Trustee, except Messrs. Gaughan and Whalen, began deferring his entire
aggregate compensation. The total combined amount of deferred compensation
(including interest) accrued with respect to each trustee from the Fund
Complex (as defined herein) as of December 31, 1994 is as follows: Mr.
Kennedy $14,737; Mr. Miller $14,553; Mr. Nelson $14,737 and Mr. Robinson
$13,725.
(3) The Registrant's last completed fiscal year for which audited financial
statements are available ended on June 30, 1994. The Retirement Plan
commenced as of August 1, 1994 for the Fund.
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(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by a Fund
assuming: the Trustee has 10 or more years of service on the Board of the
Fund and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service for the Fund
may receive reduced retirement benefits from such Fund.
(5) As of December 31, 1994, the Fund Complex consisted of 20 mutual funds
advised by the VK Adviser which had the same members on each funds' Board of
Trustees. The amounts shown in this column are accumulated from the
Aggregate Compensation of each of these 20 mutual funds in the Fund Complex
during the calendar year ended December 31, 1994. The VK Adviser also serves
as investment adviser for other investment companies; however, with the
exception of Messrs. Powell, McDonnell and Whalen, such investment companies
do not have the same trustees as the Fund Complex. Combining the Fund
Complex with other investment companies advised by the VK Adviser, Mr.
Whalen received Total Compensation of $161,850.
As of July 17, 1995, the Trustees and officers as a group owned less than 1%
of the Fund's shares.
To the knowledge of the Fund, as of July 17, 1995, no person owned of record
or beneficially 5% or more of the Fund's Class A Shares or Class B Shares.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.
INVESTMENT ADVISORY AND OTHER SERVICES
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. The
Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc., which
in turn is a wholly-owned subsidiary of VK/AC Holding, Inc.
VK/AC Holding, Inc. is controlled, through the ownership of a substantial
majority of its common stock by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is
managed by Clayton, Dubilier & Rice, Inc., a New York based private investment
firm. The General Partner of C&D L.P. is Clayton & Dubilier Associates IV
Limited Partnership ("C&D Associates L.P."). The general partners of C&D
Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital, Inc. own, in the aggregate, not more than 7% of the common
stock of VK/AC Holding, Inc. and have the right to acquire upon the exercise of
options, approximately an additional 11% of the common stock of VK/AC Holding,
Inc. Presently, and after giving effect to the exercise of such options, no
officer or trustee owns or would own 5% or more of VK/AC Holding, Inc.
The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will supply investment research and portfolio management,
including the selection of securities for the Fund
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138
to purchase, hold or sell and the selection of brokers through whom the Fund's
portfolio transactions are executed. The Adviser also administers the business
affairs of the Fund, furnishes offices, necessary facilities and equipment,
provides administrative services, and permits its officers and employees to
serve without compensation as trustees and officers of the Trust if duly elected
to such positions.
The Adviser's activities are subject to the review and supervision of the
Trustees, to whom the Adviser renders periodic reports of the Fund's investment
activities.
The investment advisory agreement with the Fund will remain in effect from
year to year if specifically approved by the Trustees of the Fund or the
shareholders, as the case may be, and by the disinterested Trustees in
compliance with the requirements of the Investment Company Act. The agreement
may be terminated without penalty upon 60 days written notice by either party
and will automatically terminate in the event of assignment.
The Adviser has undertaken to reimburse the Fund for annual expenses which
exceed the most stringent limit prescribed by any State in which the Fund's
shares are offered for sale. Currently, the most stringent limit in any State
would require such reimbursement to the extent that aggregate operating expenses
of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million. 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.
OTHER AGREEMENTS
SUPPORT SERVICES AGREEMENT. Under a support services agreement with the
Distributor and Van Kampen American Capital which terminated concurrent with the
Fund's change in transfer agent, the Fund received support services for
shareholders, including the handling of all written and telephonic
communications, including any other distribution related communications. Payment
by the Fund for such services is made on a cost basis for the employment of the
personnel and the equipment necessary to render the support services. The Fund,
and the other mutual funds distributed by the Distributor and advised by the
Adviser, share such costs proportionately among themselves based upon their
respective net asset values.
ACCOUNTING SERVICES AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other mutual funds distributed by the
Distributor and advised by the Adviser in the cost of employment of persons to
provide such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost being paid by the Fund and such other funds based
proportionally on their respective net assets.
LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as
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139
responding to day-to-day legal issues on behalf of the funds. Payment by the
Fund for such services is made on a cost basis for the employment of personnel
as well as the overhead and the equipment necessary to render such services.
Other funds distributed by the Distributor also receive legal services from Van
Kampen American Capital. Of the total costs for legal services provided to funds
distributed by the Distributor, one half of such costs are allocated equally to
each fund and the remaining one half of such costs are allocated to specific
funds based on specific funds based on monthly time records.
CUSTODIAN AND INDEPENDENT AUDITORS
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.
The independent auditors for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent auditors will be subject to ratification
by the shareholders of the Fund at any annual meeting of shareholders.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for decisions to buy and sell securities for the
Fund and broker-dealer selection. The primary consideration in effecting a
securities transaction will be execution at the most favorable securities price.
A substantial majority of the Fund's portfolio transactions may be transacted
with primary market makers acting as principal on a net basis, with no brokerage
commissions being paid by the Fund. Such principal transactions may, however,
result in a profit to the market makers. In certain instances the Adviser may
make purchases of underwritten issues at prices which include underwriting fees.
In selecting a broker-dealer to execute each particular transaction, the Adviser
will take the following into consideration: the best securities price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. Accordingly, the price to the Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Trustees of the Trust may determine,
the Adviser may cause the Fund to pay a broker-dealer that provides brokerage
and research services an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund. The Adviser may
also allocate the orders placed by it on behalf of the Fund to such
broker-dealers who provide research or statistical material, or other services
to the Fund or the Adviser. Such allocation shall be in such amounts and
proportions as the Adviser shall determine, and the Adviser will report on said
allocations regularly to the Trustees, indicating the brokers to whom such
allocations have been made and the basis therefor.
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140
While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the Trustees of
the Trust.
THE DISTRIBUTOR
The Distributor offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight. Van Kampen American Capital's roots in
money management extend back to 1926. Today, Van Kampen American Capital manages
or supervises more than $50 billion in mutual funds, closed-end funds and unit
investment trusts -- assets which have been entrusted to Van Kampen American
Capital in more than 2 million investor accounts. Van Kampen American Capital
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
Shares of the Fund are offered on a continuous basis through the Distributor,
One Parkview Plaza, Oakbrook Terrace, Illinois 60181. The Distributor is a
wholly-owned subsidiary of Van Kampen American Capital, which is a subsidiary of
VK/AC Holding, Inc., a Delaware corporation that is controlled through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut
limited partnership. In addition, certain officers, directors and employees of
Van Kampen American Capital and its subsidiaries own, in the aggregate not more
than 7% of the common stock of VK/AC Holding, Inc. and have the right to
acquire, upon the exercise of options, approximately an additional 11% of the
common stock of VK/AC Holding, Inc. C&D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates
L.P.") is the general partner of C&D L.P. Pursuant to a distribution agreement,
Van Kampen American Capital will purchase shares of the Fund for resale to the
public, either directly or through securities dealers and brokers, and is
obligated to purchase only those shares for which it has received purchase
orders. A discussion of how to purchase and redeem the Fund's shares and how the
Fund's shares are priced is contained in the Prospectus.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the Investment
Company Act. The Fund also has adopted a service plan (the "Service Plan") with
respect to each class of its shares. The Distribution Plan and the Service Plan
sometimes are referred to herein as the "Plans." The Plans provide that the Fund
may spend a portion of the Fund's average daily net assets attributable to each
class of its shares in connection with the distribution of the shares and in
connection with the provision of ongoing services to shareholders. The Plans are
being implemented through an agreement (the "Distribution and Service
Agreement") with the Distributor of each class of the Fund's shares,
sub-agreements between the Distributor and members of the NASD who are acting as
securities dealers and NASD members or eligible non-members who are acting as
brokers or agents and similar agreements between the Fund and banks who are
acting as brokers (collectively, "Selling Agreements") that may provide for
their customers or clients certain services or assistance, which may include,
but not be limited to, processing purchase and redemption transactions,
establishing and maintaining shareholder accounts regarding the Fund, and such
other services as may be agreed to from time to time and as may be permitted by
applicable statute, rule or regulation. Brokers, dealers and banks that have
entered into sub-agreements with the Distributor and sell shares of the Fund are
referred to herein as "financial intermediaries."
14
141
Under the Distribution and Service Agreement and the Selling Agreements,
financial intermediaries that sold shares prior to July 1, 1987, or prior to the
beginning of the calendar quarter in which the Selling Agreement between the
Fund and such financial intermediary was approved by the Money Fund's Board of
Trustees (an "Implementation Date") are not eligible to receive compensation
pursuant to such Distribution and Service Agreement and/or Selling Agreement. To
the extent that there remain outstanding shares of the Fund that were purchased
prior to all Implementation Dates, the percentage of the total average daily net
asset value that may be utilized pursuant to the Distribution and Service
Agreement will be less than the maximum percentage amount permissible under the
Distribution and Service Agreement.
The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class all
amounts paid under the Plans and the purposes for which such expenditures were
made, together with such other information as from time to time is reasonably
requested by the Trustees. The Plans provide that they will continue in full
force and effect from year to year so long as such continuance is specifically
approved by a vote of the Trustees, and also by a vote of the disinterested
Trustees, cast in person at a meeting called for the purpose of voting on the
Plans. Each of the Plans may not be amended to increase materially the amount to
be spent for the services described therein with respect to a class of shares
without approval by a vote of a majority of the outstanding voting shares of
such class and all material amendments to either of the Plans must be approved
by the Trustees and also by the disinterested Trustees. Each of the Plans may be
terminated with respect to a class of shares at any time by a vote of a majority
of the disinterested Trustees or by a vote of a majority of the outstanding
voting shares of such class.
YIELD INFORMATION
There are two methods by which the Fund's yield for a specified period of time
is calculated. Normally a seven day period will be used in determining yields in
published or mailed advertisements.
The first method, which results in an amount referred to as the "current
yield," assumes an account containing exactly one share at the beginning of the
period. (The net asset value of this share will be $1.00 except under
extraordinary circumstances.) The net change in the value of the account during
the period is then determined by subtracting this beginning value from the value
of the account at the end of the period; however, capital changes and unrealized
appreciation or depreciation of the Fund's portfolio are excluded from this
calculation. This net change in the account value is then divided by the value
of the account at the beginning of the period (i.e., normally $1.00 as discussed
above) and the resulting figure (referred to as the "base period return") is
then annualized by multiplying it by 365 and dividing by the seven days of the
period; the result is the "current yield," usually expressed to the nearest one-
hundredth of one percent.
The second method results in an amount referred to as the "compounded
effective yield." This represents an annualization of the current yield with
dividends reinvested daily. This compounded effective yield, calculated again
for a seven day period, would be computed by compounding the unannualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by seven and subtracting one from the result.
In addition to using the yields in advertisements or information furnished to
present or prospective stockholders, the Fund also may quote rankings, yields or
returns as published by recognized statistical
15
142
services or publishers, such as Lipper Analytical Services, Inc., Weisenberger
Investment Companies, Donoghues Money Fund Report, or others.
Yield information may be useful to investors in reviewing the performance of
the Fund. However, a number of factors should be taken into account before using
yield information as a basis for comparison with alternative investments. An
investment in the Fund is not insured and its yields are not guaranteed. They
normally will fluctuate on a daily basis. Accordingly they cannot be compared to
yields on those savings accounts or other investment alternatives which provide
a guaranteed fixed yield for a stated period of time and which may be insured by
a government agency. The yields for any given past period are not an indication
or representation by the Trust of future yields or rates of return on the Fund's
shares. For the fiscal year ended June 30, 1994 the Adviser waived a portion of
its fee, and the Adviser may in its discretion elect to discontinue waiving all
or any portion of its fee. In the event that the Adviser elects to discontinue
waiving its fee, the Fund's yield will be less than it otherwise would have
been. In comparing the yields of one money market fund to another, consideration
should be given to each fund's investment policy, portfolio quality, portfolio
maturity, type of instruments held and operating expenses.
DIVIDENDS
On each day, including a Saturday, Sunday or other holiday, a dividend of all
of the Fund's net income since the last declaration is declared. The Fund's net
income for dividend purposes consists of all interest income accrued on the
Fund's portfolio, less the Fund's expenses.
Under the procedures which the Trust's Board of Trustees have adopted relating
to amortized cost valuation, the calculation of the Fund's daily dividends for
each respective class of shares will change from that indicated above in certain
circumstances. If on any date the deviation between the net asset value for a
class of shares determined on an amortized cost basis and that determined using
market quotations is 0.5% or more, the amount of such deviation will be added to
or subtracted from the daily dividend for such class of shares to the extent
necessary to reduce such deviation to within 0.5%.
16
143
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1994 (Unaudited)
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) SECURITY DESCRIPTION DATE PURCHASE COST
-----------------------------------------------------------------------------------------------
AGENCY 9.1%
$ 869 Small Business Administration................... 1/03/95 5.750% $ 868,761
1,000 Federal Farm Credit Bank........................ 1/05/95 5.300 999,411
1,000 Federal Home Loan Mortgage Corp.(b)............. 1/05/95 5.900 999,344
1,000 Federal Home Loan Bank.......................... 1/10/95 5.780 998,555
-----------
TOTAL AGENCY.......................................................... 3,866,071
-----------
BANKERS ACCEPTANCES 13.0%
1,000 Bank of New York................................ 1/06/95 5.480 999,239
1,000 Nationsbank Corp. .............................. 1/06/95 5.880 999,183
1,000 Sanwa Bank...................................... 1/19/95 5.870 997,065
1,500 National Bank of Detroit........................ 1/23/95 5.870 1,500,000
1,000 Northern Trust Co. ............................. 2/17/95 5.980 992,193
-----------
TOTAL BANKERS ACCEPTANCES............................................. 5,487,680
-----------
CERTIFICATES OF DEPOSIT 4.7%
1,000 Dresdner Bank................................... 1/26/95 5.530 999,947
1,000 Societe Generale Bank Yankee.................... 2/03/95 6.150 1,000,000
-----------
TOTAL CERTIFICATES OF DEPOSIT......................................... 1,999,947
-----------
COMMERCIAL PAPER 52.0%
1,000 AT & T Capital Corp. ........................... 1/03/95 5.850 999,645
1,500 J. P. Morgan & Co. Inc. ........................ 1/03/95 6.000 1,499,500
1,500 Exxon Asset Management.......................... 1/04/95 5.600 1,499,300
1,500 Southern California Edison Co. ................. 1/05/95 5.930 1,499,012
1,000 Credit Suisse First Boston Inc. ................ 1/09/95 5.030 998,883
1,500 Rabobank USA Financial Corp. ................... 1/09/95 5.910 1,498,030
1,500 IBM Credit Corp. ............................... 1/10/95 6.000 1,497,750
1,000 State Street Boston Corp. ...................... 1/12/95 5.138 1,000,000
1,500 Ford Motor Credit Co. .......................... 1/17/95 5.950 1,496,033
1,000 Merrill Lynch & Co. Inc. ....................... 1/19/95 5.100 1,000,000
1,000 Commercial Credit Corp. ........................ 1/23/95 5.450 1,000,000
1,000 American General Finance Corp. ................. 1/25/95 5.750 1,000,000
1,500 Associates Corp. ............................... 1/27/95 6.120 1,493,370
1,000 CIT Group Holdings Inc. ........................ 1/27/95 5.750 1,000,000
1,500 American Express Credit Corp. .................. 1/30/95 5.850 1,492,931
1,500 Norwest Financial Inc. ......................... 2/07/95 6.050 1,490,673
1,500 John Deere Capital Corp. ....................... 2/09/95 6.000 1,490,250
-----------
TOTAL COMMERCIAL PAPER................................................ 21,955,377
-----------
See Notes to Financial Statements.
17
144
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) SECURITY DESCRIPTION DATE PURCHASE COST
-----------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND OBLIGATIONS 13.0%
$1,500 Virginia St Housing Development Authority....... 1/03/95 6.000% $ 1,500,000
1,400 Catholic Healthcare West (Gtd: Toronto Dominion
Bank)........................................... 1/04/95 7.000 1,400,000
500 Florida Housing Finance Agency (L.O.C. Credit
Suisse)......................................... 1/04/95 6.100 500,000
900 Health Insurance Plan Greater New York (L.O.C.
Morgan Gty)..................................... 1/04/95 6.450 900,000
500 Illinois Student Assistance Commission (L.O.C.
Sumitomo Bank).................................. 1/04/95 6.170 500,000
700 Mississippi Business Finance Corp. ............. 1/04/95 6.400 700,000
-----------
TOTAL VARIABLE RATE DEMAND OBLIGATIONS................................ 5,500,000
-----------
REPURCHASE AGREEMENT 7.2%
UBS Securities, U.S. T-Note, $3,165,000 par, 3.875% coupon, due
10/31/95, dated 12/30/94, to be sold on 01/03/95 at $3,041,942........ 3,040,000
-----------
TOTAL INVESTMENTS (a) 99.0%........................................... 41,849,075
Other Assets in Excess of Liabilities 1.0%............................ 408,518
-----------
NET ASSETS 100.0%..................................................... $42,257,593
==========
(a) At December 31, 1994, cost is identical for both book and federal income
tax purposes.
(b) This is a Mortgage Backed Security (MBS) which is a pass-through
instrument created by pooling mortgages and selling participations in the
principal and interest payments received from borrowers. This security is
guaranteed by Federal Home Loan Mortgage Corporation (FHLMC), a federally
sponsored agency.
See Notes to Financial Statements.
18
145
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (Unaudited)
ASSETS:
Investments, at Amortized Cost which Approximates Market (Note 1)......... $41,849,075
Cash...................................................................... 180,760
RECEIVABLES:
Fund Shares Sold.......................................................... 544,455
Interest.................................................................. 118,772
Other..................................................................... 4,883
-----------
Total Assets.............................................................. 42,695,945
-----------
LIABILITIES:
PAYABLES:
Fund Shares Repurchased................................................... 346,906
Income Distributions...................................................... 24,412
Investment Advisory Fee (Note 2).......................................... 1,791
Accrued Expenses.......................................................... 55,243
-----------
Total Liabilities......................................................... 438,352
-----------
NET ASSETS................................................................ $42,257,593
===========
NET ASSETS CONSIST OF:
Paid in Surplus:
Class A Shares............................................................ $32,412,705
Class B Shares............................................................ 9,918,443
Accumulated Net Realized Loss on Investments.............................. (73,555)
-----------
NET ASSETS................................................................ $42,257,593
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net Asset Value per share (Based on net assets of $32,339,762 and
32,412,706 shares of beneficial interest issued and outstanding)........ $ 1.00
===========
Class B Shares:
Net Asset Value per share (Based on net assets of $9,917,831 and 9,918,443
shares of beneficial interest issued and outstanding)................... $ 1.00
===========
See Notes to Financial Statements.
19
146
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1994 (Unaudited)
INVESTMENT INCOME:
Interest................................................................... $ 842,639
Amortization of Premium.................................................... (10,988)
-----------
Total Income............................................................... 831,651
-----------
EXPENSES:
Investment Advisory Fee (Note 2)........................................... 83,571
Shareholder Services....................................................... 60,277
Distribution (12b-1) and Service Fees (Allocated to Classes A and B of
$35,230 and $21,742, respectively)(Note 4)............................... 56,972
Printing................................................................... 18,400
Audit...................................................................... 15,088
Custody.................................................................... 14,107
Trustees Fees and Expenses (Note 2)........................................ 11,040
Legal (Note 2)............................................................. 6,440
Other...................................................................... 1,844
-----------
Total Expenses............................................................. 267,739
Less Fees Deferred......................................................... 79,108
-----------
Net Expenses............................................................... 188,631
-----------
NET INVESTMENT INCOME...................................................... $ 643,020
===========
REALIZED GAIN/LOSS ON INVESTMENTS:
Proceeds from Sales........................................................ $ 1,531,038
Cost of Securities Sold.................................................... (1,550,018)
-----------
NET REALIZED LOSS ON INVESTMENTS........................................... $ (18,980)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS................................. $ 624,040
===========
See Notes to Financial Statements.
20
147
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1994 and the Year Ended June 30, 1994
(Unaudited)
-----------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 JUNE 30, 1994
-----------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net Investment Income................................... $ 643,020 $ 499,064
Net Realized Loss on Investments........................ (18,980) (26,427)
----------------- -------------
Change in Net Assets from Operations.................... 624,040 472,637
----------------- -------------
DISTRIBUTIONS FROM NET INVESTMENT INCOME:
Class A Shares.......................................... (568,757) (499,064)
Class B Shares.......................................... (74,263) -0-
----------------- -------------
Total Distributions.................................. (643,020) (499,064)
----------------- -------------
Net Change in Net Assets from Investment Activities..... (18,980) (26,427)
----------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
PROCEEDS FROM SHARES SOLD:
Class A Shares.......................................... 40,881,989 79,908,069
Class B Shares.......................................... 15,887,574 -0-
----------------- -------------
56,769,563 79,908,069
----------------- -------------
NET ASSET VALUE OF SHARES ISSUED THROUGH DIVIDEND
REINVESTMENT:
Class A Shares.......................................... 479,626 445,332
Class B Shares.......................................... 50,549 -0-
----------------- -------------
530,175 445,332
----------------- -------------
COST OF SHARES REPURCHASED:
Class A Shares.......................................... (36,550,200) (74,519,684)
Class B Shares.......................................... (6,019,680) -0-
----------------- -------------
(42,569,880) (74,519,684)
----------------- -------------
Net Change in Net Assets from Capital Transactions........ 14,729,858 5,833,717
----------------- -------------
Total Increase in Net Assets......................... 14,710,878 5,807,290
NET ASSETS:
Beginning of the Period................................. 27,546,715 21,739,425
----------------- -------------
End of the Period....................................... $ 42,257,593 $ 27,546,715
============= ===========
See Notes to Financial Statements.
21
148
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DEC. 31, --------------------------------
CLASS A SHARES 1994 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period............. $ 1.00 $1.00 $1.00 $1.00 $1.00
---------- ----- ----- ----- -----
Net Investment Income.......................... .019 .025 .023 .041 .065
Less Distributions from Net Investment
Income...................................... .019 .025 .023 .041 .065
---------- ----- ----- ----- -----
Net Asset Value, End of Period................... $ 1.00 $1.00 $1.00 $1.00 $1.00
---------- ----- ----- ----- -----
TOTAL RETURN (Non-Annualized)*................... 1.96% 2.50% 2.31% 4.21% 6.72%
Net Assets at End of Period (In millions)........ $ 32.3 $27.5 $21.7 $24.9 $35.0
Ratio of Expenses to Average Net Assets*......... 1.03% 1.13% 1.16% 1.14% .99%
Ratio of Net Investment Income to Average Net
Assets*........................................ 3.91% 2.44% 2.31% 4.21% 6.57%
-------------------------
* If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.......... 1.50% 1.54% 1.31% 1.55% 1.39%
Ratio of Net Investment Income to Average Net
Assets......................................... 3.44% 2.03% 2.16% 3.80% 6.17%
See Notes to Financial Statements.
22
149
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
--------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
CLASS A SHARES 1990 1989 1988 1987 1986
------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................ $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Net Investment Income............................. .078 .078 .066 .056 .068
Less Distributions from Net Investment Income..... .078 .078 .066 .056 .068
----- ----- ----- ----- -----
Net Asset Value, End of Period...................... $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
TOTAL RETURN (Non-Annualized)*...................... 8.11% 8.07% 6.60% 5.94% 6.96%
Net Assets at End of Period (in millions)........... $45.0 $44.1 $51.5 $17.1 $ 6.3
Ratio of Expenses to Average Net Assets*............ .90% .98% .78% .58% .88%
Ratio of Net Investment Income to Average Net
Assets*........................................... 7.81% 7.79% 6.56% 5.65% 6.78%
-------------------------
* If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets............. 1.31% 1.31% 1.22% 1.48% 1.85%
Ratio of Net Investment Income to Average Net
Assets............................................ 7.40% 7.46% 6.13% 4.74% 5.81%
See Notes to Financial Statements.
23
150
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the period indicated. (Unaudited)
------------------------------------------------------------------------------------------
JULY 11, 1994
(COMMENCEMENT OF
DISTRIBUTION) TO
DECEMBER 31,
CLASS B SHARES 1994
------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................................... $ 1.00
------
Net Investment Income................................................ .015
Less Distributions from Net Investment Income........................ .015
------
Net Asset Value, End of Period......................................... $ 1.00
==============
TOTAL RETURN (Non-Annualized)*......................................... 1.49%
Net Assets at End of Period (in millions).............................. $ 9.9
Ratio of Expenses to Average Net Assets*............................... 1.80%
Ratio of Net Investment Income to Average Net Assets*.................. 3.41%
---------------
* If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:
Ratio of expenses to average net assets................................ 2.28%
Ratio of net investment income to average net assets................... 2.93%
See Notes to Financial Statements.
24
151
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 (Unaudited)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Merritt Money Market Fund (the "Fund") is a separate series of Van
Kampen Merritt Money Market Trust (the "Trust"). The Fund is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The distribution of the Fund's second class of
shares, Class B shares, commenced on July 11, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
A. Security Valuation
Investments are valued at amortized cost, which approximates market. Under
this valuation method, a portfolio instrument is valued at cost and any discount
or premium is amortized on a straight-line basis to the maturity of the
instrument.
B. Security Transactions
Security transactions are recorded on a trade date basis. Realized gains and
losses are determined on an identified cost basis. Interest income is recorded
on an accrual basis.
C. Federal Income Taxes
It is the Fund'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. The Fund intends to utilize
provisions of the federal income tax laws which allow it 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. At June 30, 1994, the
Fund had an accumulated capital loss carryforward for tax purposes of $39,559.
Of this amount, $26,110, $2,038 and $11,411 will expire on June 30, 1998, 1999
and 2000, respectively. Net realized gains or losses differ for financial
statement and tax reporting purposes primarily because of the deferral of post
October 31 losses which are not recognized for tax purposes until the first day
of the following fiscal year.
D. Distribution of Income and Gains
The Fund declares dividends from net investment income daily and automatically
reinvests such dividends daily. Net realized gains, if any, are distributed
annually. Shareholders can elect to receive the cash equivalent of their daily
dividends at each month end.
25
152
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)
NOTE 2 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Fund for an annual fee payable monthly
as follows:
AVERAGE NET ASSETS % PER ANNUM
--------------------------------------------------- ------------
First $250 million................................. .500 of 1%
Next $250 million.................................. .475 of 1%
Next $250 million.................................. .425 of 1%
Over $750 million.................................. .275 of 1%
Certain legal expenses were paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended December 31, 1994, the Fund recognized expenses of
approximately $9,700 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' ("VKAC") cost of providing accounting, legal and
certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC.
At December 31, 1994, VKAC owned 611,383 and 100 shares of Classes A and B,
respectively.
26
153
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)
NOTE 3 -- CAPITAL TRANSACTIONS
The Fund has outstanding two classes of common shares, Classes A and B. There
are an unlimited number of shares of each class without par value authorized.
At June 30, 1994, paid in surplus for Class A shares aggregated $27,601,290.
Transactions in shares were as follows:
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, 1994 1994
----------------- -----------
SALES:
Class A.................................................... 40,881,989 79,908,069
Class B.................................................... 15,887,574 -0-
----------------- -----------
Total Sales................................................ 56,769,563 79,908,069
============= ==========
DIVIDEND REINVESTMENT:
Class A.................................................... 479,626 445,332
Class B.................................................... 50,549 -0-
----------------- -----------
Total Dividend Reinvestment................................ 530,175 445,332
============= ==========
REPURCHASES:
Class A.................................................... (36,550,200) (74,519,684)
Class B.................................................... (6,019,680) -0-
----------------- -----------
Total Repurchases.......................................... (42,569,880) (74,519,684)
============= ==========
NOTE 4 -- DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a Service Plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts. Annual fees under
the Plans of up to .25% of Class A shares and 1.00% of Class B shares are
accrued daily. Included in these fees for the six months ended December 31,
1994, are payments to VKAC of approximately $16,300.
27
154
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
June 30, 1994
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) DESCRIPTION DATE PURCHASE COST
----------------------------------------------------------------------------------------------
AGENCY 9.7%
$ 877 Small Business Administration................... 07/01/94 5.250% $ 876,598
800 Student Loan Marketing Association.............. 07/06/94 4.325 800,000
1,000 Federal Home Loan Bank.......................... 08/22/94 4.270 993,832
-----------
TOTAL AGENCY......................................................... 2,670,430
-----------
COMMERCIAL PAPER 25.4%
1,000 American General Finance Corp................... 07/15/94 4.245 1,000,000
1,000 Ford Motor Credit Co............................ 07/15/94 4.245 1,000,000
1,000 John Deere Capital Corp......................... 07/15/94 4.245 1,000,000
1,000 Associates Corp................................. 07/20/94 4.290 1,000,000
1,000 State Street Bank & Trust....................... 07/20/94 4.311 1,000,000
1,000 American Express Credit Corp.................... 08/01/94 4.367 1,000,000
1,000 General Electric Capital Corp................... 08/01/94 4.387 1,000,000
-----------
TOTAL COMMERCIAL PAPER............................................... 7,000,000
-----------
MEDIUM TERM NOTES 14.8%
500 CIT Group Hldgs Inc............................. 07/01/94 4.600 500,027
1,000 Purdue University Indiana Rev................... 07/01/94 4.000 1,000,000
1,000 Kent County, MI Gen Oblig Limited Tax Notes..... 11/01/94 4.547 1,009,598
750 San Diego, CA Taxable Anticipation Notes........ 12/14/94 4.000 750,493
800 Cuyahoga County, OH Taxable Anticipation
Notes........................................... 12/30/94 4.170 800,845
-----------
TOTAL MEDIUM TERM NOTES.............................................. 4,060,963
-----------
VARIABLE RATE DEMAND OBLIGATIONS 15.6%
500 AT & T Capital Corp............................. 07/01/94 4.750 500,000
700 Catholic Healthcare West (Gtd: Toronto Dominion
Bank)........................................... 07/06/94 4.600 700,000
500 Florida Housing Finance Agency (L.O.C. Credit
Suisse)......................................... 07/06/94 4.460 500,000
700 Health Insurance Plan Greater New York (L.O.C.
Morgan Gty)..................................... 07/06/94 4.500 700,000
500 Illinois Student Assistance Commission (L.O.C.
Sumitomo Bank).................................. 07/06/94 4.820 500,000
700 Mississippi Business Finance Corp............... 07/06/94 4.400 700,000
700 Virginia St Housing Development Authority....... 07/06/94 4.500 700,000
-----------
TOTAL VARIABLE RATE DEMAND OBLIGATIONS............................... 4,300,000
-----------
28
155
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1994
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) DESCRIPTION DATE PURCHASE COST
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 16.1%
4,440 UBS Securities, U.S. T-Note, $4,190,000 par,
9.500% coupon, due 11/15/95, dated 06/30/94, to
be sold on 07/01/94 at $4,440,518............... 07/01/94 4.200 4,440,000
-----------
TOTAL INVESTMENTS (A) 81.6%.......................................... 22,471,393
OTHER ASSETS IN EXCESS OF LIABILITIES 18.4%.......................... 5,075,322
-----------
NET ASSETS 100.0%.................................................... $27,546,715
===========
(a) At June 30, 1994, cost is identical for both book and federal income tax
purposes.
See Notes to Financial Statements
29
156
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1994
ASSETS:
Investments, at Amortized Cost which Approximates Market (Note 1)......... $22,471,393
Cash...................................................................... 36,251
RECEIVABLES:
Fund Shares Sold.......................................................... 5,002,968
Interest.................................................................. 119,753
Other..................................................................... 5,070
-----------
Total Assets.............................................................. 27,635,435
-----------
LIABILITIES:
PAYABLES:
Fund Shares Repurchased................................................... 33,514
Income Distributions...................................................... 4,018
Investment Advisory Fee (Note 2).......................................... 3,400
Accrued Expenses.......................................................... 47,788
-----------
Total Liabilities......................................................... 88,720
-----------
NET ASSETS................................................................ $27,546,715
===========
NET ASSETS CONSIST OF:
Paid in Surplus........................................................... $27,601,290
Accumulated Net Realized Loss on Investments.............................. (54,575)
-----------
NET ASSETS (equivalent to $1.00 per share on 27,601,290 shares
outstanding)............................................................ $27,546,715
===========
See Notes to Financial Statements
30
157
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1994
INVESTMENT INCOME:
Interest................................................................... $ 727,456
Amortization of Discount (Premium) -- Net.................................. 3,996
-----------
Total Income............................................................... 731,452
-----------
EXPENSES:
Investment Advisory Fee (Note 2)........................................... 97,029
Shareholder Services....................................................... 58,932
Distribution (12b-1) and Service Fees (Note 4)............................. 49,893
Printing................................................................... 31,130
Audit...................................................................... 28,430
Trustees Fees and Expenses (Note 2)........................................ 18,855
Custody.................................................................... 17,760
Legal (Note 2)............................................................. 10,950
Other...................................................................... 3,170
-----------
Total Expenses............................................................. 316,149
Less Fees Waived........................................................... 83,761
-----------
Net Expenses............................................................... 232,388
-----------
Net Investment Income...................................................... $ 499,064
===========
REALIZED GAIN/LOSS ON INVESTMENTS:
Proceeds from Sales........................................................ $ 8,035,919
Cost of Securities Sold.................................................... (8,062,346)
-----------
NET REALIZED LOSS ON INVESTMENTS (including $85,500 reimbursement by the
Adviser for realized losses incurred on variable rate instruments)....... $ (26,427)
===========
Net Increase in Net Assets from Operations................................. $ 472,637
===========
See Notes to Financial Statements
31
158
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1994 and 1993
---------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1993
---------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net Investment Income..................................... $ 499,064 $ 541,128
Net Realized Gain/Loss on Investments..................... (26,427) 695
------------- -------------
Change in Net Assets from Operations...................... 472,637 541,823
Distributions from Net Investment Income.................. (499,064) (541,128)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (26,427) 695
------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................................. 79,908,069 86,871,367
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................... 445,332 500,012
Cost of Shares Repurchased................................ (74,519,684) (90,537,141)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 5,833,717 (3,165,762)
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 5,807,290 (3,165,067)
NET ASSETS:
Beginning of the Period................................... 21,739,425 24,904,492
------------- -------------
End of the Period......................................... $ 27,546,715 $ 21,739,425
============= =============
See Notes to Financial Statements
32
159
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following schedule presents selected per share data and related ratios for
one share of the Fund outstanding throughout the periods indicated.
--------------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------------------------------------------------------------------------
Net Asset Value, Beginning of
Period......................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Investment Income............ .025 .023 .041 .065 .078 .078 .066 .056 .068 .092
Less Distribution from Net
Investment Income.............. .025 .023 .041 .065 .078 .078 .066 .056 .068 .092
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value, End of Period... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Return*.................... 2.50% 2.31% 4.21% 6.72% 8.11% 8.07% 6.60% 5.94% 6.96% 9.60%
Net Assets at End of Period (in
millions)...................... $27.5 $21.7 $24.9 $35.0 $45.0 $44.1 $51.5 $17.1 $ 6.3 $ 1.5
Ratio of Expenses to Average Net
Assets*........................ 1.13% 1.16% 1.14% .99% .90% .98% .78% .58% .88% 1.01%
Ratio of Net Investment Income to
Average Net Assets*............ 2.44% 2.31% 4.21% 6.57% 7.81% 7.79% 6.56% 5.65% 6.78% 8.39%
* If certain expenses had not been assumed by the investment adviser, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets......................... 1.54% 1.31% 1.55% 1.39% 1.31% 1.31% 1.22% 1.48% 1.85% 1.94%
Ratio of Net Investment Income to
Average Net Assets............. 2.03% 2.16% 3.80% 6.17% 7.40% 7.46% 6.13% 4.74% 5.81% 7.46%
See Notes to Financial Statements
33
160
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Merritt Money Market Fund (the "Fund") is a separate series of Van
Kampen Merritt Money Market Trust (the "Trust"). The Fund is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The distribution of the Fund's second class of
shares, Class B shares, commenced on July 11, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
A. Security Valuation
Investments are valued at amortized cost, which approximates market. Under
this valuation method, a portfolio instrument is valued at cost and any discount
or premium is amortized on a straight-line basis to the maturity of the
instrument.
B. Security Transactions
Security transactions are recorded on a trade date basis. Realized gains and
losses are determined on an identified cost basis. Interest income is recorded
on an accrual basis.
C. Federal Income Taxes
It is the Fund'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. The Fund intends to utilize
provisions of the federal income tax laws which allow it 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. At June 30, 1994, the
Fund had an accumulated capital loss carryforward for tax purposes of $39,559.
Of this amount, $26,110, $2,038 and $11,411 will expire on June 30, 1998, 1999
and 2000, respectively. Net realized gains or losses differ for financial
statement and tax reporting purposes primarily because of the deferral of post
October 31 losses which are not recognized for tax purposes until the first day
of the following fiscal year.
D. Distribution of Income and Gains
The Fund declares dividends from net investment income daily and automatically
reinvests such dividends daily. Net realized gains, if any, are distributed
annually. Shareholders can elect to receive the cash equivalent of their daily
dividends at each month end.
34
161
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1994
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Merritt Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE NET ASSETS % PER ANNUM
--------------------------------------------------- -----------
First $250 million................................. .500 of 1%
Next $250 million.................................. .475 of 1%
Next $250 million.................................. .425 of 1%
Over $750 million.................................. .275 of 1%
Certain legal expenses were paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended June 30, 1994, the Fund recognized expenses of
approximately $20,250 representing Van Kampen Merritt Inc.'s ("Van Kampen
Merritt") or the Adviser's cost of providing accounting, legal and certain
shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
the Adviser and Van Kampen Merritt. The Fund does not compensate its officers or
trustees who are officers of the Adviser or Van Kampen Merritt.
At June 30, 1994, Van Kampen Merritt owned 743,833 shares of the Fund.
3. CAPITAL TRANSACTIONS
The Fund is authorized to issue an unlimited number of shares of beneficial
interest without par value. At June 30, 1994, and 1993, paid in surplus
aggregated $27,601,290 and $21,767,573, respectively. Transactions in shares
were as follows:
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1993
------------- -------------
Beginning Shares............................................... 21,767,573 24,933,335
------------- -------------
Shares Sold.................................................... 79,908,069 86,871,367
Shares Issued Through Dividend Reinvestment.................... 445,332 500,012
Shares Repurchased............................................. (74,519,684) (90,537,141)
------------- -------------
Net Change in Shares Outstanding............................... 5,833,717 (3,165,762)
------------- -------------
Ending Shares.................................................. 27,601,290 21,767,573
============= =============
35
162
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1994
4. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a Service Plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts. Annual fees under
the Plans of up to .25% of the Fund's average net assets are accrued daily.
36
163
VAN KAMPEN MERRITT MONEY MARKET FUND
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders of
Van Kampen Merritt Money Market Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Money Market Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1994, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1994, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen Merritt Money Market Fund as of June 30, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 4, 1994
37
164
APPENDIX
STANDARD & POORS RATINGS
DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
c The letter "c" indicates that the holder's option to tender the security for
purchase may be canceled under certain prestated conditions enumerated in the
tender option documents.
L The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is federally
insured and interest in adequately collateralized. In the case of certificates
of deposit, the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued per-default interest up to the federal insurance limits
within 30 days
38
165
after closing of the insured institution or, in the event that the deposit is
assumed by a successor insured institution, upon maturity.
p The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
* Continuance of the rating is contingent upon S&P's receipt of an executed copy
of the escrow agreement or closing documentation confirming investments and
cash flows.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1".
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of , such information, or based on other circumstances.
39
166
MOODY'S RATINGS
DEBT RATINGS
Aaa Bonds which are rated AAA are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the AAA
securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification of Aa and A. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issues to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured sources
of alternative liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
40
167
APPENDIX C
AMERICAN CAPITAL RESERVE FUND
PORTFOLIO OF INVESTMENTS
May 31, 1995
--------------------------------------------------------------------------------
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 60.7%
$16,000 Associates Corp. of North America................... 6.230% 07/12/95 $ 15,886,133
15,000 Chevron Oil Finance Co. ............................ 5.930% 06/26/95 14,936,083
10,000 Du Pont (E.I.) de Nemours........................... 6.060% 06/27/95 9,955,150
18,000 General Electric Capital Corp. ..................... 6.190% 07/24/95 17,837,190
19,000 General Electric Co. ............................... 6.230% 09/05/95 18,689,250
6,300 Lilly (Eli) & Co. .................................. 6.000% 06/30/95 6,268,815
10,000 MetLife Funding, Inc. .............................. 5.960% 06/22/95 9,963,761
10,000 MetLife Funding, Inc. .............................. 6.000% 07/11/95 9,932,350
18,000 Pitney Bowes Credit Corp. .......................... 6.100% 06/12/95 17,963,880
9,000 Pitney Bowes, Inc. ................................. 5.960% 06/14/95 8,979,210
8,000 Prudential Funding Corp. ........................... 6.230% 07/24/95 7,927,160
9,000 Prudential Funding Corp. ........................... 6.230% 07/27/95 8,913,503
18,000 Raytheon Co. ....................................... 5.970% 06/09/95 17,973,180
5,000 State Bank of New South Wales....................... 6.250% 08/29/95 4,923,750
10,000 State Bank of New South Wales....................... 6.260% 09/06/95 9,833,944
17,000 Toronto Dominion Holdings........................... 5.990% 07/10/95 16,887,989
------------
TOTAL COMMERCIAL PAPER (Cost $196,871,348).......... 196,871,348
------------
REPURCHASE AGREEMENTS* 37.2%
65,000 SBC Capital Markets, Inc., dated 5/31/95, repurchase
proceeds $65,011,104................................ 6.150% 06/01/95 65,000,000
55,905 State Street Bank & Trust Co., dated 5/31/95,
repurchase proceeds $55,914,512..................... 6.125% 06/01/95 55,905,000
------------
TOTAL REPURCHASE AGREEMENTS (Cost $120,905,000)..... 120,905,000
------------
UNITED STATES GOVERNMENT OBLIGATIONS 24.6%
30,000 Federal Home Loan Banks............................. 6.100% 06/01/95 29,994,917
25,000 Federal National Mortgage Association............... 5.900% 06/02/95 24,991,819
25,000 Federal National Mortgage Association............... 5.940% 08/09/95 24,715,625
------------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS
(Cost $79,702,361).................................. 79,702,361
------------
TOTAL INVESTMENTS (Cost $397,478,709) 122.5%....... 397,478,709
Other assets and liabilities, net (22.5%).......... (73,020,170)
------------
NET ASSETS 100%.................................... $324,458,539
============
* Collateralized by U.S. Government obligations in a pooled cash account
See Notes to Financial Statements.
C-1
168
AMERICAN CAPITAL RESERVE FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
ASSETS
Investments, at amortized cost................................................. $397,478,709
Cash........................................................................... 127,602
Receivable for Fund shares sold................................................ 786,579
Other assets................................................................... 43,829
------------
Total Assets................................................................... 398,436,719
------------
LIABILITIES
Payable for Fund shares redeemed............................................... 73,417,480
Due to shareholder service agent............................................... 162,280
Due to Adviser................................................................. 138,975
Due to Distributor............................................................. 87,995
Dividends payable.............................................................. 62,989
Deferred Directors' compensation............................................... 60,138
Accrued expenses............................................................... 48,323
------------
Total Liabilities.............................................................. 73,978,180
------------
NET ASSETS, equivalent to $1.00 per share for Class A, B and C shares.......... $324,458,539
============
NET ASSETS WERE COMPRISED OF:
Capital stock at par; 319,694,843 Class A, 4,189,806 Class B and
588,487 Class C shares outstanding............................................. $ 3,244,731
Capital surplus................................................................ 321,161,934
Undistributed net investment income............................................ 51,874
------------
NET ASSETS at May 31, 1995..................................................... $324,458,539
============
See Notes to Financial Statements.
C-2
169
AMERICAN CAPITAL RESERVE FUND
STATEMENT OF OPERATIONS
Year Ended May 31, 1995
INVESTMENT INCOME
Interest........................................................................ $22,971,502
-----------
EXPENSES
Management fees................................................................. 1,896,937
Shareholder service agent's fees and expenses................................... 1,495,213
Accounting services............................................................. 100,666
Service fees --Class A.......................................................... 611,646
Distribution and service fees -- Class B........................................ 3,845
Distribution and service fees -- Class C........................................ 526
Directors' fees and expenses.................................................... 22,739
Audit fees...................................................................... 21,525
Legal fees...................................................................... 20,066
Reports to shareholders......................................................... 58,845
Registration and filing fees.................................................... 111,820
Miscellaneous................................................................... 13,559
-----------
Total expenses.................................................................. 4,357,387
-----------
Net investment income........................................................... 18,614,115
-----------
Increase in Net Assets Resulting from Operations................................ $18,614,115
===========
See Notes to Financial Statements.
C-3
170
AMERICAN CAPITAL RESERVE FUND
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
---------------------------------
1995 1994
------------------------------------------------------------------------------------------------
NET ASSETS, beginning of period.............................. $ 463,827,313 $ 279,344,078
--------------- ---------------
OPERATIONS
Increase from net investment income........................ 18,614,115 7,722,464
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A.................................................... (18,623,009) (7,713,417)
Class B.................................................... (15,317) --
Class C.................................................... (2,167) --
--------------- ---------------
(18,640,493) (7,713,417)
--------------- ---------------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A.................................................... 3,148,142,161 2,733,962,738
Class B.................................................... 21,754,203 --
Class C.................................................... 3,049,049 --
--------------- ---------------
3,172,945,413 2,733,962,738
--------------- ---------------
Proceeds from shares issued for distributions reinvested
Class A.................................................... 18,623,009 7,713,418
Class B.................................................... 15,317 --
Class C.................................................... 2,167 --
--------------- ---------------
18,640,493 7,713,418
--------------- ---------------
Cost of shares redeemed
Class A.................................................... (3,310,885,859) (2,557,201,968)
Class B.................................................... (17,579,714) --
Class C.................................................... (2,462,729) --
--------------- ---------------
(3,330,928,302) (2,557,201,968)
--------------- ---------------
Increase (decrease) in net assets resulting from capital
transactions............................................ (139,342,396) 184,474,188
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS............................ (139,368,774) 184,483,235
--------------- ---------------
NET ASSETS, end of period.................................... $ 324,458,539 $ 463,827,313
=============== ===============
See Notes to Financial Statements.
C-4
171
AMERICAN CAPITAL RESERVE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
--------------------------------------------------------------------------------------------------
CLASS A
YEAR ENDED MAY 31,
-----------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
INCOME FROM OPERATIONS
Investment income................................ .0535 .0329 .0353 .052 .0758
Expenses......................................... (.0101) (.0100) (.0109) (.0105) (.0094)
------- ------- ------- ------- -------
Net investment income............................ .0434 .0229 .0244 .0415 .0664
------- ------- ------- ------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME......... (.0434) (.0229) (.0244) (.0415) (.0664)
------- ------- ------- ------- -------
Net asset value, end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN..................................... 4.43% 2.32% 2.44% 4.20% 6.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $ 319.7 $ 463.8 $ 279.3 $ 329.2 $ 402.3
Average net assets (millions).................... $ 434.4 $ 326.8 $ 306.7 $ 377.5 $ 482.6
Ratios to average net assets
Expenses....................................... 1.00% 1.03% 1.09% 1.05% .94%
Net investment income.......................... 4.28% 2.36% 2.44% 4.19% 6.68%
See Notes to Financial Statements.
C-5
172
AMERICAN CAPITAL RESERVE FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
------------------------------------------------------------------------------------------------------
CLASS B CLASS C
----------------- -----------------
APRIL 18, 1995(1) APRIL 18, 1995(1)
THROUGH THROUGH
MAY 31, 1995 MAY 31, 1995
------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................... $ 1.00 $ 1.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income.............................................. .0073 .0076
Expenses....................................................... (.0026) (.0027)
------- -------
Net investment income.......................................... .0047 .0049
------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME....................... (.0047) (.0049)
------- -------
Net asset value, end of period................................. $ 1.00 $ 1.00
======= =======
TOTAL RETURN(2)................................................ .47% .49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)........................... $ 4.2 $ 0.6
Average net assets (millions).................................. $ 2.3 $ 0.3
Ratios to average net assets (annualized)(3)
Expenses..................................................... 1.76% 1.76%
Net investment income........................................ 3.52% 3.52%
---------------
(1) Commencement of operations.
(2) Total return has not been annualized and does not consider the effect of
sales charges.
(3) Ratios based on the class of shares being in effect for the entire fiscal
year.
See Notes to Financial Statements.
C-6
173
AMERICAN CAPITAL RESERVE FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
American Capital Reserve Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
A. Investment Valuations
Investments are valued at amortized cost, which approximates market value.
The cost of investments for federal income tax purposes is substantially the
same as for financial reporting purposes.
B. Repurchase Agreements
A repurchase agreement is a short-term investment in which the Fund
acquires ownership of a debt security and the seller agrees to repurchase the
security at a future time and specified price. The Fund 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
American Capital Asset Management, Inc. (the "Adviser"), the daily aggregate of
which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Fund 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 Fund.
C. Federal Income Taxes
No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification by annually distributing
all of its taxable net investment income and taxable net realized gains to its
shareholders. Additionally, approximately $18,000 of financial statement losses
are deferred for federal income tax purposes to the 1996 fiscal year.
D. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gains
and losses on investments are determined on the basis of amortized cost.
Interest income is accrued daily.
E. Dividends
The Fund records daily dividends from net investment income. These
dividends are automatically reinvested in additional shares of the Fund at net
asset value. Shares purchased by daily reinvestments are liquidated at net asset
value on the last business day of the month and the proceeds of such redemptions
paid to the shareholders electing to receive dividends in cash. The Fund
distributes tax basis earnings in accordance with the minimum distribution
requirements of the Internal Revenue Code, which may differ from generally
accepted accounting principles. Such distributions may result in dividends in
excess of financial statement net investment income.
C-7
174
AMERICAN CAPITAL RESERVE FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
F. Debt Discount and Premium
For financial and tax reporting purposes, all discounts and premiums are
amortized over the life of the security.
NOTE 2 -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are
calculated monthly, based on the average daily net assets of the Fund at an
annual rate of .50% of the first $150 million; .45% of the next $100 million;
.40% of the next $100 million; and .35% of the amount in excess of $350 million.
Accounting services include the salaries and overhead expenses of the
Fund's Treasurer and the personnel operating under his direction. Charges are
allocated among investment companies advised by the Adviser. During the period,
these charges included $12,498 as the Fund's share of the employee costs
attributable to the Fund's accounting officers. A portion of the accounting
services expense was paid to the Adviser in reimbursement of personnel,
facilities and equipment costs attributable to the provision of accounting
services to the Fund. The services provided by the Adviser are at cost.
ACCESS Investors Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. During the period, such fees aggregated $1,266,690.
Under the Distribution Plans, each class of shares pays up to .15% per
annum of its average daily net assets to reimburse the Distributor for expenses
and service fees incurred. Class B and Class C shares pay an additional fee of
up to .75% per annum of their average daily net assets to reimburse Van Kampen
American Capital Distributors, Inc. (the "Distributor") for its distribution
expenses. Actual distribution expenses incurred by the Distributor for Class B
and Class C shares may exceed the amounts reimbursed to the Distributor by the
Fund. At the end of the period, the unreimbursed expenses incurred by the
Distributor under the Class B and Class C plans aggregated approximately $9,000
and $3,000, respectively, and may be carried forward and reimbursed through
either the collection of the contingent deferred sales charges from share
redemptions or, subject to the annual renewal of the plans, future Fund
reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of
the Adviser, the Distributor and the shareholder service agent.
NOTE 3 -- DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by
the Fund at the annual rate of $1,440 plus a fee of $35 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $540. During the period, such fees aggregated $19,263.
C-8
175
AMERICAN CAPITAL RESERVE FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The directors may participate in a voluntary Deferred Compensation Plan
(the "Plan"). The Plan is not funded and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered by the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund on
its short-term investments or equal to the total return of the Fund.
NOTE 4 -- CAPITAL
The Fund offers three classes of shares at their respective net asset
values per share. Class B and Class C shares are subject to a sales charge
imposed at the time of redemption on a contingent deferred basis. All classes of
shares have the same rights, except that Class B and Class C shares bear the
cost of distribution fees and certain other class specific expenses. Realized
and unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B and Class C shares
automatically convert to Class A shares six years and ten years after purchase,
respectively, subject to certain conditions. The offering of Class B and Class C
shares commenced April 18, 1995, at which time all previously outstanding shares
became Class A shares.
The Fund has 1 billion of Class A shares, and 500 million each of Class B
and Class C shares of $.01 par value capital stock authorized. Transactions in
shares of capital stock were as follows:
------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
-------------------------------
1995 1994
------------------------------------------------------------------------------------------------
Shares sold
Class A...................................................... 3,148,142,161 2,733,962,738
Class B...................................................... 21,754,203 --
Class C...................................................... 3,049,049 --
------------- -------------
3,172,945,413 2,733,962,738
============= =============
Shares issued for distributions reinvested
Class A...................................................... 18,623,009 7,713,418
Class B...................................................... 15,317 --
Class C...................................................... 2,167 --
------------- -------------
18,640,493 7,713,418
============= =============
Shares redeemed
Class A...................................................... (3,310,885,862) (2,557,202,100)
Class B...................................................... (17,579,714) --
Class C...................................................... (2,462,729) --
------------- -------------
(3,330,928,305) (2,557,202,100)
------------- -------------
Increase (decrease) in shares outstanding.................... (139,342,399) 184,474,056
============= =============
C-9
176
AMERICAN CAPITAL RESERVE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
American Capital Reserve Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, 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 American Capital Reserve Fund, Inc.
at May 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
June 30, 1995
C-10
177
APPENDIX D
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
June 30, 1994
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) DESCRIPTION DATE PURCHASE COST
---------------------------------------------------------------------------------------------------
AGENCY 9.7%
$ 877 Small Business Administration........................ 07/01/94 5.250% $ 876,598
800 Student Loan Marketing Association................... 07/06/94 4.325 800,000
1,000 Federal Home Loan Bank............................... 08/22/94 4.270 993,832
-----------
TOTAL AGENCY.............................................................. 2,670,430
-----------
COMMERCIAL PAPER 25.4%
1,000 American General Finance Corp........................ 07/15/94 4.245 1,000,000
1,000 Ford Motor Credit Co................................. 07/15/94 4.245 1,000,000
1,000 John Deere Capital Corp.............................. 07/15/94 4.245 1,000,000
1,000 Associates Corp...................................... 07/20/94 4.290 1,000,000
1,000 State Street Bank & Trust............................ 07/20/94 4.311 1,000,000
1,000 American Express Credit Corp......................... 08/01/94 4.367 1,000,000
1,000 General Electric Capital Corp........................ 08/01/94 4.387 1,000,000
-----------
TOTAL COMMERCIAL PAPER.................................................... 7,000,000
-----------
MEDIUM TERM NOTES 14.8%
500 CIT Group Hldgs Inc.................................. 07/01/94 4.600 500,027
1,000 Purdue University Indiana Rev........................ 07/01/94 4.000 1,000,000
1,000 Kent County, MI Gen Oblig Limited Tax Notes.......... 11/01/94 4.547 1,009,598
750 San Diego, CA Taxable Anticipation Notes............. 12/14/94 4.000 750,493
800 Cuyahoga County, OH Taxable Anticipation Notes....... 12/30/94 4.170 800,845
-----------
TOTAL MEDIUM TERM NOTES................................................... 4,060,963
-----------
VARIABLE RATE DEMAND OBLIGATIONS 15.6%
500 AT & T Capital Corp.................................. 07/01/94 4.750 500,000
700 Catholic Healthcare West (Gtd: Toronto Dominion
Bank)................................................ 07/06/94 4.600 700,000
500 Florida Housing Finance Agency (L.O.C. Credit
Suisse).............................................. 07/06/94 4.460 500,000
700 Health Insurance Plan Greater New York (L.O.C. Morgan
Gty)................................................. 07/06/94 4.500 700,000
500 Illinois Student Assistance Commission (L.O.C.
Sumitomo Bank)....................................... 07/06/94 4.820 500,000
700 Mississippi Business Finance Corp.................... 07/06/94 4.400 700,000
700 Virginia St Housing Development Authority............ 07/06/94 4.500 700,000
-----------
TOTAL VARIABLE RATE DEMAND OBLIGATIONS.................................... 4,300,000
-----------
D-1
178
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1994
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) DESCRIPTION DATE PURCHASE COST
---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 16.1%
4,440 UBS Securities, U.S. T-Note, $4,190,000 par, 9.500%
coupon, due 11/15/95, dated 06/30/94, to be sold on
07/01/94 at $4,440,518............................... 07/01/94 4.200 4,440,000
-----------
TOTAL INVESTMENTS (A) 81.6%............................................... 22,471,393
OTHER ASSETS IN EXCESS OF LIABILITIES 18.4%............................... 5,075,322
-----------
NET ASSETS 100.0%......................................................... $27,546,715
===========
(a) At June 30, 1994, cost is identical for both book and federal income tax
purposes.
See Notes to Financial Statements
D-2
179
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1994
ASSETS:
Investments, at Amortized Cost which Approximates Market (Note 1).............. $22,471,393
Cash........................................................................... 36,251
RECEIVABLES:
Fund Shares Sold............................................................... 5,002,968
Interest....................................................................... 119,753
Other.......................................................................... 5,070
-----------
Total Assets................................................................... 27,635,435
-----------
LIABILITIES:
PAYABLES:
Fund Shares Repurchased........................................................ 33,514
Income Distributions........................................................... 4,018
Investment Advisory Fee (Note 2)............................................... 3,400
Accrued Expenses............................................................... 47,788
-----------
Total Liabilities.............................................................. 88,720
-----------
NET ASSETS..................................................................... $27,546,715
===========
NET ASSETS CONSIST OF:
Paid in Surplus................................................................ $27,601,290
Accumulated Net Realized Loss on Investments................................... (54,575)
-----------
NET ASSETS (equivalent to $1.00 per share on 27,601,290 shares outstanding).... $27,546,715
===========
See Notes to Financial Statements
D-3
180
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1994
INVESTMENT INCOME:
Interest........................................................................ $ 727,456
Amortization of Discount (Premium) -- Net....................................... 3,996
-----------
Total Income.................................................................... 731,452
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................................ 97,029
Shareholder Services............................................................ 58,932
Distribution (12b-1) and Service Fees (Note 4).................................. 49,893
Printing........................................................................ 31,130
Audit........................................................................... 28,430
Trustees Fees and Expenses (Note 2)............................................. 18,855
Custody......................................................................... 17,760
Legal (Note 2).................................................................. 10,950
Other........................................................................... 3,170
-----------
Total Expenses.................................................................. 316,149
Less Fees Waived................................................................ 83,761
-----------
Net Expenses.................................................................... 232,388
-----------
Net Investment Income........................................................... $ 499,064
===========
REALIZED GAIN/LOSS ON INVESTMENTS:
Proceeds from Sales............................................................. $ 8,035,919
Cost of Securities Sold......................................................... (8,062,346)
-----------
NET REALIZED LOSS ON INVESTMENTS (including $85,500 reimbursement by the Adviser
for realized losses incurred on variable rate instruments).................... $ (26,427)
===========
Net Increase in Net Assets from Operations...................................... $ 472,637
===========
See Notes to Financial Statements
D-4
181
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1994 and 1993
--------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1993
--------------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net Investment Income.......................................... $ 499,064 $ 541,128
Net Realized Gain/Loss on Investments.......................... (26,427) 695
------------- -------------
Change in Net Assets from Operations........................... 472,637 541,823
Distributions from Net Investment Income....................... (499,064) (541,128)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.............. (26,427) 695
------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold...................................... 79,908,069 86,871,367
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................................ 445,332 500,012
Cost of Shares Repurchased..................................... (74,519,684) (90,537,141)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS............... 5,833,717 (3,165,762)
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS............................ 5,807,290 (3,165,067)
NET ASSETS:
Beginning of the Period........................................ 21,739,425 24,904,492
------------- -------------
End of the Period.............................................. $ 27,546,715 $ 21,739,425
============= =============
See Notes to Financial Statements
D-5
182
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following schedule presents selected per share data and related ratios for
one share of the Fund outstanding throughout the periods indicated.
--------------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------------------------------------------------------------------------
Net Asset Value, Beginning of Period... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Investment Income.................. .025 .023 .041 .065 .078 .078 .066 .056 .068 .092
Less Distribution from Net Investment
Income............................... .025 .023 .041 .065 .078 .078 .066 .056 .068 .092
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value, End of Period......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Return*.......................... 2.50% 2.31% 4.21% 6.72% 8.11% 8.07% 6.60% 5.94% 6.96% 9.60%
Net Assets at End of Period (in
millions)............................ $27.5 $21.7 $24.9 $35.0 $45.0 $44.1 $51.5 $17.1 $ 6.3 $ 1.5
Ratio of Expenses to Average Net
Assets*.............................. 1.13% 1.16% 1.14% .99% .90% .98% .78% .58% .88% 1.01%
Ratio of Net Investment Income to
Average Net Assets*.................. 2.44% 2.31% 4.21% 6.57% 7.81% 7.79% 6.56% 5.65% 6.78% 8.39%
* If certain expenses had not been assumed by the investment adviser, total return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets............................... 1.54% 1.31% 1.55% 1.39% 1.31% 1.31% 1.22% 1.48% 1.85% 1.94%
Ratio of Net Investment Income to
Average Net Assets................... 2.03% 2.16% 3.80% 6.17% 7.40% 7.46% 6.13% 4.74% 5.81% 7.46%
See Notes to Financial Statements
D-6
183
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Merritt Money Market Fund (the "Fund") is a separate series of
Van Kampen Merritt Money Market Trust (the "Trust"). The Fund is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The distribution of the Fund's second class of
shares, Class B shares, commenced on July 11, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
A. Security Valuation
Investments are valued at amortized cost, which approximates market. Under
this valuation method, a portfolio instrument is valued at cost and any discount
or premium is amortized on a straight-line basis to the maturity of the
instrument.
B. Security Transactions
Security transactions are recorded on a trade date basis. Realized gains
and losses are determined on an identified cost basis. Interest income is
recorded on an accrual basis.
C. Federal Income Taxes
It is the Fund'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. The Fund intends to utilize
provisions of the federal income tax laws which allow it 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. At June 30, 1994, the
Fund had an accumulated capital loss carryforward for tax purposes of $39,559.
Of this amount, $26,110, $2,038 and $11,411 will expire on June 30, 1998, 1999
and 2000, respectively. Net realized gains or losses differ for financial
statement and tax reporting purposes primarily because of the deferral of post
October 31 losses which are not recognized for tax purposes until the first day
of the following fiscal year.
D. Distribution of Income and Gains
The Fund declares dividends from net investment income daily and
automatically reinvests such dividends daily. Net realized gains, if any, are
distributed annually. Shareholders can elect to receive the cash equivalent of
their daily dividends at each month end.
D-7
184
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1994
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Merritt Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE NET ASSETS % PER ANNUM
-------------------------------------------------------- -----------
First $250 million...................................... .500 of 1%
Next $250 million....................................... .475 of 1%
Next $250 million....................................... .425 of 1%
Over $750 million....................................... .275 of 1%
Certain legal expenses were paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended June 30, 1994, the Fund recognized expenses of
approximately $20,250 representing Van Kampen Merritt Inc.'s ("Van Kampen
Merritt") or the Adviser's cost of providing accounting, legal and certain
shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors
of the Adviser and Van Kampen Merritt. The Fund does not compensate its officers
or trustees who are officers of the Adviser or Van Kampen Merritt.
At June 30, 1994, Van Kampen Merritt owned 743,833 shares of the Fund.
3. CAPITAL TRANSACTIONS
The Fund is authorized to issue an unlimited number of shares of beneficial
interest without par value. At June 30, 1994, and 1993, paid in surplus
aggregated $27,601,290 and $21,767,573, respectively. Transactions in shares
were as follows:
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1993
------------- -------------
Beginning Shares.................................................... 21,767,573 24,933,335
------------- -------------
Shares Sold......................................................... 79,908,069 86,871,367
Shares Issued Through Dividend Reinvestment......................... 445,332 500,012
Shares Repurchased.................................................. (74,519,684) (90,537,141)
------------- -------------
Net Change in Shares Outstanding.................................... 5,833,717 (3,165,762)
------------- -------------
Ending Shares....................................................... 27,601,290 21,767,573
============= =============
D-8
185
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1994
4. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a Service Plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts. Annual fees under
the Plans of up to .25% of the Fund's average net assets are accrued daily.
D-9
186
VAN KAMPEN MERRITT MONEY MARKET FUND
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders of
Van Kampen Merritt Money Market Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Money Market Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1994, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1994, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Merritt Money Market Fund as of June 30, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 4, 1994
D-10
187
APPENDIX E
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1994 (Unaudited)
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) SECURITY DESCRIPTION DATE PURCHASE COST
----------------------------------------------------------------------------------------------------
AGENCY 9.1%
$ 869 Small Business Administration........................ 1/03/95 5.750% $ 868,761
1,000 Federal Farm Credit Bank............................. 1/05/95 5.300 999,411
1,000 Federal Home Loan Mortgage Corp.(b).................. 1/05/95 5.900 999,344
1,000 Federal Home Loan Bank............................... 1/10/95 5.780 998,555
-----------
TOTAL AGENCY............................................................... 3,866,071
-----------
BANKERS ACCEPTANCES 13.0%
1,000 Bank of New York..................................... 1/06/95 5.480 999,239
1,000 Nationsbank Corp. ................................... 1/06/95 5.880 999,183
1,000 Sanwa Bank........................................... 1/19/95 5.870 997,065
1,500 National Bank of Detroit............................. 1/23/95 5.870 1,500,000
1,000 Northern Trust Co. .................................. 2/17/95 5.980 992,193
-----------
TOTAL BANKERS ACCEPTANCES.................................................. 5,487,680
-----------
CERTIFICATES OF DEPOSIT 4.7%
1,000 Dresdner Bank........................................ 1/26/95 5.530 999,947
1,000 Societe Generale Bank Yankee......................... 2/03/95 6.150 1,000,000
-----------
TOTAL CERTIFICATES OF DEPOSIT.............................................. 1,999,947
-----------
COMMERCIAL PAPER 52.0%
1,000 AT & T Capital Corp. ................................ 1/03/95 5.850 999,645
1,500 J. P. Morgan & Co. Inc. ............................. 1/03/95 6.000 1,499,500
1,500 Exxon Asset Management............................... 1/04/95 5.600 1,499,300
1,500 Southern California Edison Co. ...................... 1/05/95 5.930 1,499,012
1,000 Credit Suisse First Boston Inc. ..................... 1/09/95 5.030 998,883
1,500 Rabobank USA Financial Corp. ........................ 1/09/95 5.910 1,498,030
1,500 IBM Credit Corp. .................................... 1/10/95 6.000 1,497,750
1,000 State Street Boston Corp. ........................... 1/12/95 5.138 1,000,000
1,500 Ford Motor Credit Co. ............................... 1/17/95 5.950 1,496,033
1,000 Merrill Lynch & Co. Inc. ............................ 1/19/95 5.100 1,000,000
1,000 Commercial Credit Corp. ............................. 1/23/95 5.450 1,000,000
1,000 American General Finance Corp. ...................... 1/25/95 5.750 1,000,000
1,500 Associates Corp. .................................... 1/27/95 6.120 1,493,370
1,000 CIT Group Holdings Inc. ............................. 1/27/95 5.750 1,000,000
1,500 American Express Credit Corp. ....................... 1/30/95 5.850 1,492,931
1,500 Norwest Financial Inc. .............................. 2/07/95 6.050 1,490,673
1,500 John Deere Capital Corp. ............................ 2/09/95 6.000 1,490,250
-----------
TOTAL COMMERCIAL PAPER..................................................... 21,955,377
-----------
See Notes to Financial Statements.
E-1
188
VAN KAMPEN MERRITT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)
--------------------------------------------------------------------------------
DISCOUNT
PAR YIELD ON
AMOUNT MATURITY DATE OF AMORTIZED
(000) SECURITY DESCRIPTION DATE PURCHASE COST
----------------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND OBLIGATIONS 13.0%
$1,500 Virginia St Housing Development Authority............ 1/03/95 6.000% $ 1,500,000
1,400 Catholic Healthcare West (Gtd: Toronto Dominion
Bank)................................................ 1/04/95 7.000 1,400,000
500 Florida Housing Finance Agency (L.O.C. Credit
Suisse).............................................. 1/04/95 6.100 500,000
900 Health Insurance Plan Greater New York (L.O.C. Morgan
Gty)................................................. 1/04/95 6.450 900,000
500 Illinois Student Assistance Commission (L.O.C.
Sumitomo Bank)....................................... 1/04/95 6.170 500,000
700 Mississippi Business Finance Corp. .................. 1/04/95 6.400 700,000
-----------
TOTAL VARIABLE RATE DEMAND OBLIGATIONS..................................... 5,500,000
-----------
REPURCHASE AGREEMENT 7.2%
UBS Securities, U.S. T-Note, $3,165,000 par, 3.875% coupon, due 10/31/95,
dated 12/30/94, to be sold on 01/03/95 at $3,041,942....................... 3,040,000
-----------
TOTAL INVESTMENTS (a) 99.0%................................................ 41,849,075
Other Assets in Excess of Liabilities 1.0%................................. 408,518
-----------
NET ASSETS 100.0%.......................................................... $42,257,593
===========
(a) At December 31, 1994, cost is identical for both book and federal
income tax purposes.
(b) This is a Mortgage Backed Security (MBS) which is a pass-through
instrument created by pooling mortgages and selling participations in the
principal and interest payments received from borrowers. This security is
guaranteed by Federal Home Loan Mortgage Corporation (FHLMC), a federally
sponsored agency.
See Notes to Financial Statements.
E-2
189
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (Unaudited)
ASSETS
Investments, at Amortized Cost which Approximates Market (Note 1).............. $41,849,075
Cash........................................................................... 180,760
RECEIVABLES:
Fund Shares Sold............................................................... 544,455
Interest....................................................................... 116,772
Other.......................................................................... 4,883
-----------
Total Assets................................................................... 42,695,945
-----------
LIABILITIES:
PAYABLES:
Fund Shares Repurchased........................................................ 346,906
Income Distributions........................................................... 24,412
Investment Advisory Fee (Note 2)............................................... 1,791
Accrued Expenses............................................................... 65,243
-----------
Total Liabilities.............................................................. 438,352
-----------
NET ASSETS..................................................................... $42,257,593
===========
NET ASSETS CONSIST OF:
PAID IN SURPLUS:
Class A Shares................................................................. $32,412,705
Class B Shares................................................................. 9,918,443
Accumulated Net Realized Loss on Investments................................... (73,555)
-----------
NET ASSETS..................................................................... $42,257,593
===========
MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share (Based on Net Assets of $32,339,762 and 32,412,705
Shares of Beneficial Interest Issued and Outstanding)........................ $1.00
CLASS B SHARES: =====
Net Asset Value Per Share (Based on Net Assets of $9,917,831 and 9,918,443
Shares of Beneficial Interest Issued and Outstanding)........................ $1.00
=====
See Notes to Financial Statements.
E-3
190
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1994 (Unaudited)
INVESTMENT INCOME:
Interest........................................................................ $ 842,639
Amortization of Premium......................................................... (10,988)
-----------
Total Income.................................................................... 831,651
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................................ 83,571
Shareholder Services............................................................ 60,277
Distribution (12b-1) and Service Fees (allocated to Classes A and B of $35,230
and $21,742, respectively) (Note 4)........................................... 56,972
Printing........................................................................ 18,400
Audit........................................................................... 15,088
Custody......................................................................... 14,107
Trustees Fees and Expenses (Note 2)............................................. 11,040
Legal (Note 2).................................................................. 6,440
Other........................................................................... 1,844
-----------
Total Expenses.................................................................. 267,739
Less Fees Deferred.............................................................. 79,108
-----------
Net Expenses.................................................................... 188,631
-----------
Net Investment Income........................................................... $ 643,020
===========
REALIZED GAIN/LOSS ON INVESTMENTS:
Proceeds from Sales............................................................. $ 1,531,038
Cost of Securities Sold......................................................... (1,550,018)
-----------
Net Realized Loss on Investments................................................ $ (18,980)
===========
Net Increase in Net Assets from Operations...................................... $ 624,040
===========
See Notes to Financial Statements.
E-4
191
VAN KAMPEN MERRITT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1994 and the Year Ended June 30, 1994
(Unaudited)
----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 JUNE 30, 1994
----------------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net Investment Income........................................ $ 643,020 $ 499,064
Net Realized Loss on Investments............................. (18,980) (26,427)
------------- -------------
Change in Net Assets from Operations......................... 624,040 472,637
------------- -------------
DISTRIBUTIONS FROM NET INVESTMENT INCOME:
Class A Shares............................................... (568,757) (499,064)
Class B Shares............................................... (74,263) -0-
------------- -------------
Total Distributions....................................... (643,020) (499,064)
------------- -------------
Net Change in Net Assets from Investment Activities.......... (18,980) (26,427)
------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
PROCEEDS FROM SHARES SOLD:
Class A Shares............................................... 40,881,989 79,908,069
Class B Shares............................................... 15,887,574 -0-
------------- -------------
56,769,563 79,908,069
------------- -------------
NET ASSET VALUE OF SHARES ISSUED THROUGH DIVIDEND REINVESTMENT:
Class A Shares............................................... 479,626 445,332
Class B Shares............................................... 50,549 -0-
------------- -------------
530,175 445,332
------------- -------------
COST OF SHARES REPURCHASED:
Class A Shares............................................... (36,550,200) (74,519,684)
Class B Shares............................................... (6,019,680) -0-
------------- -------------
(42,569,880) (74,519,684)
------------- -------------
Net Change in Net Assets from Capital Transactions............. 14,729,858 5,833,717
------------- -------------
Total Increase in Net Assets.............................. 14,710,878 5,807,290
NET ASSETS:
Beginning of the Period...................................... 27,546,715 21,739,425
------------- -------------
End of the Period............................................ $ 42,257,593 $ 27,546,715
============= =============
See Notes to Financial Statements.
E-5
192
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DEC. 31, --------------------------------
CLASS A SHARES 1994 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period.................. $ 1.00 $1.00 $1.00 $1.00 $1.00
------ ----- ----- ----- -----
Net Investment Income............................... .019 .025 .023 .041 .065
Less Distributions from Net Investment Income....... .019 .025 .023 .041 .065
------ ----- ----- ----- -----
Net Asset Value, End of Period........................ $ 1.00 $1.00 $1.00 $1.00 $1.00
------ ----- ----- ----- -----
TOTAL RETURN (Non-Annualized)*........................ 1.96% 2.50% 2.31% 4.21% 6.72%
Net Assets at End of Period (In millions)............. $ 32.3 $27.5 $21.7 24.9 $35.0
Ratio of Expenses to Average Net Assets*.............. 1.03% 1.13% 1.16% 1.14% .99%
Ratio of Net Investment Income to Average Net
Assets*............................................. 3.91% 2.44% 2.31% 4.21% 6.57%
-------------------------
* If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets............... 1.50% 1.54% 1.31% 1.55% 1.39%
Ratio of Net Investment Income to Average Net
Assets.............................................. 3.44% 2.03% 2.16% 3.80% 6.17%
See Notes to Financial Statements.
E-6
193
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
--------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
CLASS A SHARES 1990 1989 1988 1987 1986
-----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period..................... $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Net Investment Income.................................. .078 .078 .066 .056 .068
Less Distributions from Net Investment Income.......... .078 .078 .066 .056 .068
----- ----- ----- ----- -----
Net Asset Value, End of Period........................... $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
TOTAL RETURN (Non-Annualized)*........................... 8.11% 8.07% 6.60% 5.94% 6.96%
Net Assets at End of Period (in millions)................ $45.0 $44.1 $51.5 $17.1 $ 6.3
Ratio of Expenses to Average Net Assets*................. .90% .98% .78% .58% .88%
Ratio of Net Investment Income to Average Net Assets*.... 7.81% 7.79% 6.56% 5.65% 6.78%
-------------------------
* If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.................. 1.31% 1.31% 1.22% 1.48% 1.85%
Ratio of Net Investment Income to Average Net Assets..... 7.40% 7.46% 6.13% 4.74% 5.81%
See Notes to Financial Statements.
E-7
194
VAN KAMPEN MERRITT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the period indicated. (Unaudited)
-----------------------------------------------------------------------------------------------
JULY 11, 1994
(COMMENCEMENT OF
DISTRIBUTION) TO
DECEMBER 31,
CLASS B SHARES 1994
-----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period........................................ $ 1.00
------
Net Investment Income..................................................... .015
Less Distributions from Net Investment Income............................. .015
------
Net Asset Value, End of Period.............................................. $ 1.00
======
TOTAL RETURN (Non-Annualized)*.............................................. 1.49%
Net Assets at End of Period (in millions)................................... $ 9.9
Ratio of Expenses to Average Net Assets*.................................... 1.80%
Ratio of Net Investment Income to Average Net Assets*....................... 3.41%
---------------
* If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:
Ratio of expenses to average net assets..................................... 2.28%
Ratio of net investment income to average net assets........................ 2.93%
See Notes to Financial Statements.
E-8
195
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 (Unaudited)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Merritt Money Market Fund (the "Fund") is a separate series of
Van Kampen Merritt Money Market Trust (the "Trust"). The Fund is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The distribution of the Fund's second class of
shares, Class B shares, commenced on July 11, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
A. Security Valuation
Investments are valued at amortized cost, which approximates market. Under
this valuation method, a portfolio instrument is valued at cost and any discount
or premium is amortized on a straight-line basis to the maturity of the
instrument.
B. Security Transactions
Security transactions are recorded on a trade date basis. Realized gains
and losses are determined on an identified cost basis. Interest income is
recorded on an accrual basis.
C. Federal Income Taxes
It is the Fund'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. The Fund intends to utilize
provisions of the federal income tax laws which allow it 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. At June 30, 1994, the
Fund had an accumulated capital loss carryforward for tax purposes of $39,559.
Of this amount, $26,110, $2,038 and $11,411 will expire on June 30, 1998, 1999
and 2000, respectively. Net realized gains or losses differ for financial
statement and tax reporting purposes primarily because of the deferral of post
October 31 losses which are not recognized for tax purposes until the first day
of the following fiscal year.
D. Distribution of Income and Gains
The Fund declares dividends from net investment income daily and
automatically reinvests such dividends daily. Net realized gains, if any, are
distributed annually. Shareholders can elect to receive the cash equivalent of
their daily dividends at each month end.
E-9
196
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)
NOTE 2 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Fund for an annual fee payable monthly
as follows:
AVERAGE NET ASSETS % PER ANNUM
------------------ ------------
First $250 million...................................... .500 of 1%
Next $250 million....................................... .475 of 1%
Next $250 million....................................... .425 of 1%
Over $750 million....................................... .275 of 1%
Certain legal expenses were paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended December 31, 1994, the Fund recognized expenses of
approximately $9,700 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' ("VKAC") cost of providing accounting, legal and
certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC.
At December 31, 1994, VKAC owned 611,383 and 100 shares of Classes A and B,
respectively.
E-10
197
VAN KAMPEN MERRITT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)
NOTE 3 -- CAPITAL TRANSACTIONS
The Fund has outstanding two classes of common shares, Classes A and B.
There are an unlimited number of shares of each class without par value
authorized.
At June 30, 1994, paid in surplus for Class A shares aggregated
$27,601,290. Transactions in shares were as follows:
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
SALES:
Class A......................................................... 40,881,989 79,908,069
Class B......................................................... 15,887,574 -0-
------------- -----------
Total Sales..................................................... 56,769,563 79,908,069
============= ===========
DIVIDEND REINVESTMENT:
Class A......................................................... 479,626 445,332
Class B......................................................... 50,549 -0-
------------- -----------
Total Dividend Reinvestment..................................... 530,175 445,332
============= ===========
REPURCHASES:
Class A......................................................... (36,550,200) (74,519,684)
Class B......................................................... (6,019,680) -0-
------------- -----------
Total Repurchases............................................... (42,569,880) (74,519,684)
============= ===========
NOTE 4 -- DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a Service Plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts. Annual fees under
the Plans of up to .25% of Class A shares and 1.00% of Class B shares are
accrued daily. Included in these fees for the six months ended December 31,
1994, are payments to VKAC of approximately $16,300.
E-11