-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcHBxjOz6JoJzA4bTKVFcHJbpugr9T/LLxP9TLJFMObuOUN/ADm0Vfa6gFFJhecD SdGaNGZ2cH+UMDPwly1COA== 0000950131-97-004560.txt : 19970725 0000950131-97-004560.hdr.sgml : 19970725 ACCESSION NUMBER: 0000950131-97-004560 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970724 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL RESERVE FUND CENTRAL INDEX KEY: 0000005114 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 741794065 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02482 FILM NUMBER: 97644659 BUSINESS ADDRESS: STREET 1: ONE PARKVIEW PLAZA CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 7139934495 MAIL ADDRESS: STREET 1: ONE PARKVIEW PLAZA CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL RESERVE FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GENERAL RESERVE FUND INC DATE OF NAME CHANGE: 19830912 N-30D 1 RESERVE FUND Table of Contents Letter to Shareholders.............................................. 1 Portfolio of Investments............................................ 4 Statement of Assets and Liabilities................................. 6 Statement of Operations............................................. 7 Statement of Changes in Net Assets.................................. 8 Financial Highlights................................................ 9 Notes to Financial Statements.......................................12 Report of Independent Accountants...................................17
RES ANR 7/97 Letter to Shareholders [PHOTO] June 27, 1997 Dear Shareholder, The past year in the financial markets has been both thrilling and troublesome. As we navigate our way through one of the sturdiest economic expansions in recent history, we are encouraged by each new milestone we pass. At the same time, we must remain wary of the signals that point to more challenging conditions ahead, lest we drop our guard and be taken by surprise. It is exactly this kind of investment environment that highlights the value of an investment option such as the Van Kampen American Capital Reserve Fund. A professionally managed money market fund gives the individual investor a vehicle in which to invest for short-term needs, a "parking place" for assets which may be allocated in another fashion in the weeks or months ahead, and a "quiet place" where funds can earn income outside the volatility of the day's stock and bond markets. We are pleased to offer our shareholders an investment alternative which we consider to be a valuable--and perhaps, necessary--tool for virtually every investor. Below, we outline the events and results of the Fund's most recent fiscal year ended May 31, 1997. Performance Summary The Van Kampen American Capital Reserve Fund continues to provide shareholders with relative stability, daily liquidity at $ 1.00 per share/1/ and a competitive level of current income. As of May 31, 1997, the seven-day average yield on the Fund's Class A shares was 4.82 percent, with an effective annual yield of 4.94 percent. Over the past fiscal year (through May 31, 1997), the Fund's Class A shares achieved a total return of 4.52 percent/2/ (Class A shares at net asset value). The average total return for money market funds, as measured by Lipper Analytical Services, was 4.79 percent over the same 12-month period. Our portfolio management team has pursued the Fund's investment objectives--protection of capital and a high level of current income--in a characteristically cautious fashion. They have been carefully gauging anticipated shifts in Federal Reserve Board policy, which is the single most important determinant of the direction of short-term interest rates. The Fed chose not to increase key short-term rates at its May Federal Open Market Committee (FOMC) meeting, prompting speculation that they expect economic growth to slow over the summer. In response, the Fund continues to maintain its holdings in high-grade, short-term corporate securities (e.g., commercial paper which has been issued an A-I/P-I short-term rating), which helps provide income without excessive risk. At the same time, approximately two-thirds of the /1/Fund shares are not guaranteed or insured by the U.S. government, and there is no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. /2/Total return assumes reinvestment of all distributions for the 12-month period ended May 31, 1997. 1 Continued on page two [PIE CHART APPEAR HERE] Fund's net assets have been invested in securities issued and/or guaranteed by federal agencies, combined with repurchase agreements collateralized by U.S. government securities. The portfolio's average maturity is relatively short-approximately 29 days, as of May 31, 1997-to enable the Fund to react more swiftly to changes in Federal Reserve policy. In fact, the portfolio's duration is at its lowest point for the fiscal year. Economic Overview Your Fund has been operating in an economic environment characterized by relatively low rates of inflation, unemployment, and GDP growth. On the whole, economic growth has been subdued since the first quarter, with a slowdown in housing starts and retail spending appearing for the first time this year. The federal budget deficit has been reduced, which has enabled the government to slow the issuance of debt instruments, such as Treasury bills. At the same time, however, foreign demand for Treasury securities remains strong enough to provide price support in the marketplace. The rate on the six-month Treasury bill began and ended the fiscal year at approximately 5.40 percent; in between, it rose to a high of 5.66 percent in April, due to the weakening of the U.S. dollar and the Federal Reserve's action to increase short-term rates in late March. Expectations of slower growth and an improvement in the federal deficit number helped to bring rates back down to current levels. Of course, uncertainty still centers around the potential for stronger economic growth. Many market watchers point to the low unemployment rate as a possible trigger of price inflation, as employers compete for qualified workers in a tight labor market, forcing them to push wages higher. In a highly competitive global marketplace, however, passing along the cost of higher wages to the consumer (in the form of higher prices) could prove difficult. Economic Outlook While we do not anticipate a significant upturn, we will continue to watch the horizon for signs of surging economic activity, particularly in the latter part of the year. One factor that warrants our close attention is economic activity overseas. Rising interest rates in the European bloc, spurred by policies designed to align these countries with the requirements of the proposed European Monetary Union, could exert pressure on our markets. However, with its 2 Continued on page three short duration, our Fund is poised to make adjustments which would take advantage of potentially higher interest rates. On the other hand, our interpretation of the most recent decisions by the Fed to leave short-term rates unchanged is that they expect economic growth to slow as we head into the summer. Not raising rates now has given them the latitude to tighten rates at a later date, should growth begin to accelerate. Our approach to managing the Fund will mirror these expectations. We will strive to meet your expectations as well. Please keep in mind that we always welcome your suggestions and comments pertaining to the operations of your Fund. We look forward to hearing from you, and to serving your investment needs. Corporate News As you know, VK/AC Holding, Inc., the parent company of Van Kampen American Capital, Inc., was acquired by Morgan Stanley Group Inc., a world leader in asset management. More recently, on February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co. agreed to merge. The merger was completed on May 31, 1997, creating the combined company of Morgan Stanley, Dean Witter, Discover & Co. Additionally, we are very pleased to announce that Philip N. Duff, formerly of Morgan Stanley, has joined Van Kampen American Capital as president and chief executive officer. I will continue as chairman. And, we are confident that our partnership with Morgan Stanley will continue to work to the benefit of our fund shareholders. Sincerely, /s/ Don G. Powell /s/ Dennis J. McDonnell Don G. Powell Dennis J. McDonnell Chairman President Van Kampen American Capital Van Kampen American Capital Asset Management, Inc. Asset Management, Inc. 3 Portfolio of Investments May 31, 1997
- ------------------------------------------------------------------------------------------------ Par Discount Yield Amount on Date of Amortized (000) Description Purchase Maturity Cost - ------------------------------------------------------------------------------------------------ U.S. Agency Obligations 62.6% $ 10,000 Federal Farm Credit Bank .............. 5.385% 06/03/97 $ 9,995,516 10,000 Federal Farm Credit Bank .............. 5.481 06/03/97 9,995,466 5,000 Federal Farm Credit Bank .............. 5.402 07/29/97 4,956,897 10,000 Federal Home Loan Bank ................ 5.446 06/19/97 9,971,500 10,000 Federal Home Loan Bank ................ 5.451 06/23/97 9,965,500 10,000 Federal Home Loan Bank ................ 5.577 07/03/97 9,949,583 10,000 Federal Home Loan Bank ................ 5.326 07/11/97 9,940,664 10,295 Federal Home Loan Bank ................ 5.377 08/21/97 10,172,123 10,000 Federal Home Loan Bank ................ 5.701 09/23/97 9,822,708 75,000 Federal Home Loan Mortgage Corp. ...... 5.553 06/02/97 74,965,313 20,000 Federal Home Loan Mortgage Corp. ...... 5.576 07/01/97 19,905,278 21,000 Federal Home Loan Mortgage Corp. ...... 5.589 07/02/97 20,897,147 15,000 Federal Home Loan Mortgage Corp. ...... 5.614 08/15/97 14,824,725 12,000 Federal National Mortgage Assn. ....... 5.281 06/10/97 11,982,867 13,000 Federal National Mortgage Assn. ....... 5.310 06/12/97 12,977,597 3,000 Federal National Mortgage Assn. ....... 5.373 06/16/97 2,992,987 10,000 Federal National Mortgage Assn. ....... 5.462 06/24/97 9,963,933 3,000 Federal National Mortgage Assn. ....... 5.373 07/08/97 2,983,438 5,000 Federal National Mortgage Assn. ....... 5.390 07/18/97 4,964,733 7,000 Federal National Mortgage Assn. ....... 5.422 08/07/97 6,929,922 15,000 Federal National Mortgage Assn. ....... 5.629 08/08/97 14,841,300 10,000 Federal National Mortgage Assn. ....... 5.495 08/15/97 9,885,367 10,000 Federal National Mortgage Assn. ....... 5.518 08/18/97 9,880,403 15,000 Federal National Mortgage Assn. ....... 5.618 08/22/97 14,809,446 10,000 Federal National Mortgage Assn. ....... 5.418 08/25/97 9,873,867 7,000 Federal National Mortgage Assn. ....... 5.535 08/26/97 6,907,635 3,000 Federal National Mortgage Assn. ....... 5.479 09/24/97 2,949,057 15,000 Tennessee Valley Authority ............ 5.487 06/26/97 14,941,175 ------------ Total U.S. Agency Obligations .................................. 352,246,147 ------------ Commercial Paper 36.3% 29,000 Associates Corp. of North America ..... 5.573 06/04/97 28,982,117 24,000 Bank of Nova Scotia ................... 5.423 06/03/97 23,989,300 22,000 Chevron Oil Finance Co. ............... 5.493 06/06/97 21,979,907
See Notes to Financial Statements 4
Portfolio of Investments (Continued) May 31, 1997 =============================================================================================== Par Amount Discount Yield (000) Description on Date of Purchase Maturity Amortized Cost - ----------------------------------------------------------------------------------------------- Commercial Paper (Continued) $23,000 Ford Motor Credit Co. ....................... 5.654% 07/07/97 $ 22,867,622 22,000 General Electric Capital Corp. .............. 5.524 06/12/97 21,960,400 34,000 General Electric Co. ........................ 5.680 07/21/97 33,730,267 22,000 MetLife Funding Inc. ........................ 5.577 07/16/97 21,844,545 29,000 Toronto Dominion Holdings.................... 5.567 06/09/97 28,959,835 ------------- Total Commercial Paper............................................. 204,313,993 ------------- Repurchase Agreements 21.8% BankAmerica Securities ($60,350,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 05/30/97, to be sold on 06/02/97 at $60,377,962)......................................... 60,350,000 Prudential Securities Inc. ($62,000,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 05/30/97, to be sold on 06/02/97 at $62,028,778)......................................... 62,000,000 ------------- Total Repurchase Agreements........................................ 122,350,000 ------------- Total Investments 120.7% (a)................................................... 678,910,140 ------------- Liabilities in Excess of Other Assets (20.7%).................................. (116,234,809) ------------- Net Assets 100.0%.............................................................. $ 562,675,331 ============= (a) At May 31, 1997, cost is identical for both book and federal income tax purposes. See Notes to Financial Statements 5
Statement of Assets and Liabilities May 31, 1997 =================================================================================== Assets: Investments, at Amortized Cost which Approximates Market............. $556,560,140 Repurchase Agreements, at Amortized Cost............................. 122,350,000 Cash................................................................. 349,772 Receivable for Fund Shares Sold...................................... 1,323,985 Other................................................................ 33,989 ------------ Total Assets....................................................... 680,617,886 ------------ Liabilities: Payables: Fund Shares Repurchased............................................ 117,127,578 Distributor and Affiliates......................................... 252,904 Investment Advisory Fee............................................ 195,718 Income Distributions............................................... 101,666 Accrued Expenses..................................................... 152,887 Deferred Compensation and Retirement Plans........................... 111,802 ------------ Total Liabilities.................................................. 117,942,555 ------------ Net Assets........................................................... $562,675,331 ============ Net Assets Consist of: Capital.............................................................. $562,718,838 Accumulated Undistributed Net Investment Income...................... 26,309 Accumulated Net Realized Loss on Securities.......................... (69,816) ------------ Net Assets........................................................... $562,675,331 ============ Maximum Offering Price Per Share: Class A Shares: Net Asset Value, Offering Price and Redemption Price per share (Based on net assets of $451,260,769 and 451,309,332 shares of beneficial interest issued and outstanding)............ $ 1.00 ============ Class B Shares: Net Asset Value and Offering Price per share (Based on net assets of $103,031,346 and 103,028,995 shares of beneficial interest issued and outstanding)............ $ 1.00 ============ Class C Shares: Net Asset Value and Offering Price per share (Based on net assets of $8,383,216 and 8,382,947 shares of beneficial interest issued and outstanding)............ $ 1.00 ============ See Notes to Financial Statements 6
Statement of Operations For the Year Ended May 31, 1997 - -------------------------------------------------------------------------------- Investment Income: Interest................................................................. $27,897,844 ----------- Expenses: Investment Advisory Fee.................................................. 2,170,578 Shareholder Services..................................................... 1,701,438 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $616,795, $713,515 and $83,878, respectively)........................ 1,414,188 Legal.................................................................... 48,195 Trustees Fees and Expenses............................................... 24,010 Custody.................................................................. 301 Other.................................................................... 578,052 ----------- Total Expenses......................................................... 5,936,762 Less Expenses Reimbursed............................................... 11,000 ----------- Net Expenses........................................................... 5,925,762 ----------- Net Investment Income.................................................... $21,972,082 =========== Net Realized Loss on Securities.......................................... $ (7,692) =========== Net Increase in Net Assets from Operations............................... $21,964,390 ===========
7 See Notes to Financial Statements
Statement of Changes in Net Assets For the Years Ended May 31, 1997 and 1996 ==================================================================================================== Year Ended Year Ended May 31, 1997 May 31, 1996 - ---------------------------------------------------------------------------------------------------- From Investment Activities: Operations: Net Investment Income............................................ $ 21,972,082 $ 19,032,684 Net Realized Loss on Securities.................................. (7,692) --- --------------- --------------- Change in Net Assets from Operations............................. 21,964,390 19,032,684 --------------- --------------- Distributions from Net Investment Income: Class A Shares................................................. (18,710,328) (17,616,820) Class B Shares................................................. (2,925,963) (1,250,566) Class C Shares................................................. (339,500) (188,995) --------------- --------------- Total Distributions........................................... (21,975,791) (19,056,381) --------------- --------------- Net Change in Net Assets from Investment Activities..................................... (11,401) (23,697) --------------- --------------- From Capital Transactions: Proceeds from Shares Sold: Class A Shares................................................. 7,336,713,031 5,916,701,540 Class B Shares................................................. 648,076,384 402,157,689 Class C Shares................................................. 141,950,181 99,265,824 --------------- --------------- 8,126,739,596 6,418,125,053 --------------- --------------- Value Received for Shares Issued in Business Combination: Class A Shares................................................. --- 20,714,880 Class B Shares................................................. --- 5,651,573 Class C Shares................................................. --- --- --------------- --------------- --- 26,366,453 --------------- --------------- Net Asset Value of Shares Issued Through Dividend Reinvestment: Class A Shares................................................. 18,710,328 17,616,820 Class B Shares................................................. 2,925,963 1,250,566 Class C Shares................................................. 339,500 188,995 --------------- --------------- 21,975,791 19,056,381 --------------- --------------- Cost of Shares Repurchased: Class A Shares................................................. (7,344,457,086) (5,834,380,999) Class B Shares................................................. (629,443,280) (331,779,955) Class C Shares................................................. (143,617,542) (90,332,522) --------------- --------------- (8,117,517,908) (6,256,493,476) --------------- --------------- Net Change in Net Assets from Capital Transactions............... 31,197,479 207,054,411 --------------- --------------- Total Increase in Net Assets..................................... 31,186,078 207,030,714 Net Assets: Beginning of the Period.......................................... 531,489,253 324,458,539 --------------- --------------- End of the Period (Including accumulated undistributed net investment income of $26,309 and $11,822, respectively)........ $ 562,675,331 $ 531,489,253 =============== =============== 8 See Notes to Financial Statements
Financial Highlights The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated.
- ------------------------------------------------------------------------------------------------ Year Ended May 31 ----------------------------------------------- Class A Shares 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of the Period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Net Investment Income.......................... .0440 .0465 .0434 .0229 .0244 Less Distributions from Net Investment Income.. (.0440) (.0465) (.0434) (.0229) (.0244) ------- ------- ------- ------- ------- Net Asset Value, End of the Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total Return................................... 4.52% 4.75% 4.43% 2.32% 2.44% Net Assets at End of the Period (in millions).. $ 451.3 $ 440.3 $ 319.7 $ 463.8 $ 279.3 Ratio of Expenses to Average Net Assets*....... 1.02% 1.07% 1.00% 1.03% 1.09% Ratio of Net Investment Income to Average Net Assets*.................................... 4.38% 4.62% 4.28% 2.36% 2.44%
* The impact on the Ratios of Expenses and Net Investment Income to Average Net Assets due to VKAC reimbursement of expenses was less than 0.01%. 9 See Notes to Financial Statements Financial Highlights (Continued) The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated.
- ------------------------------------------------------------------------------------------------------- April 18, 1995 Year Ended May 31, (Commencement of ------------------ Distribution) to Class B Shares 1997 1996 May 31, 1995 - ------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of the Period ................. $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- Net Investment Income .................................... .0363 .0388 .0047 Less Distributions from Net Investment Income ............ (.0363) (.0388) (.0047) ------- ------- ------- Net Asset Value, End of the Period ....................... $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= Total Return (a) ......................................... 3.71% 3.95% .47%* Net Assets at End of the Period (in millions) ............ $ 103.0 $ 81.5 $ 4.2 Ratio of Expenses to Average Net Assets** ................ 1.77% 1.86% 1.76% Ratio of Net Investment Income to Average Net Assets** ... 3.70% 3.75% 3.52%
* Non-Annualized ** The impact on the Ratios of Expenses and Net Investment Income to Average Net Assets due to VKAC reimbursement of expenses was less than 0.01%. (a) Total return is based upon net asset value which does not include payment of the contingent deferred sales charge. See Notes to Financial Statements 10 Financial Highlights (Continued) The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated. - --------------------------------------------------------------------------------
April 18, 1995 Year Ended May 31, (Commencement ---------------------- of Distribution) to Class C Shares 1997 1996 May 31, 1995 - ------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of the Period....... $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- Net Investment Income.......................... .0362 .0387 .0049 Less Distributions from Net Investment Income........................... (.0362) (.0387) (.0049) ------- ------- ------- Net Asset Value, End of the Period............. $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= Total Return (a)............................... 3.72% 3.94% .49%* Net Assets at End of the Period (in millions).. $ 8.4 $ 9.7 $ 0.6 Ratio of Expenses to Average Net Assets**...... 1.78% 1.87% 1.76% Ratio of Net Investment Income to Average Net Assets**................................ 3.64% 3.81% 3.52%
* Non-Annualized ** The impact on the Ratios of Expenses and Net Investment Income to Average Net Assets due to VKAC reimbursement of expenses was less than 0.01%. (a) Total return is based upon net asset value which does not include payment of the contingent deferred sales charge. 11 See Notes to Financial Statements Notes to Financial Statements May 31, 1997 - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Van Kampen American Capital Reserve Fund ( the "Fund") is organized as a Delaware business trust. The Fund is an open-end diversified management investment company registered under the Investment Company Act of 1940, as amended. The Fund's investment objective is to seek protection of capital and high current income through investments in U.S. dollar denominated money market securities. The Fund commenced investment operations on July 12, 1974. The distribution of the Fund's Class B and Class C shares commenced on April 18, 1995. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. Security Valuation-Investments 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. The Fund invests in repurchase agreements, which are short-term investments 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") or its affiliates, the daily aggregate of which is invested in repurchase agreements. Repurchase agreements are fully 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-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, if any, to its shareholders. Therefore, no provision for federal income taxes is required. 12 Notes to Financial Statements (Continued) - ------------------------------------------------------------------------------- May 31, 1997 =============================================================================== 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 May 31, 1997, the Trust had an accumulated capital loss carryforward for tax purposes of $62,624 which will expire between May 31, 1998 and May 31, 2005. Of this amount, $2,038 will expire in 1998. Permanent book and tax differences of $9,915 relating to the expiration of capital loss carryforward during fiscal 1997 was reclassified from accumulated net realized loss to capital. Net realized gains or losses may differ for financial and tax reporting purposes primarily as a result of post October 31 losses which may not be 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. 2. Investment Advisory Fees and Other Transactions with Affiliates Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American Capital Asset Management, Inc. ( the "Adviser") will provide facilities and investment advice to the Fund for an annual fee payable monthly as follows: Average Net Assets % Per Annum - ---------------------------------------------------------- First $150 million............................. .50 of 1% Next $100 million.............................. .45 of 1% Next $100 million.............................. .40 of 1% Over $350 million.............................. .35 of 1% The Adviser agreed to reimburse the Fund for certain trustees' compensation in connection with the July, 1995 increase in the number of trustees of the Fund. This reimbursement was effective through December 31, 1996. Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated person. For the year ended May 31, 1997, the Fund recognized expenses of approximately $90,200 representing Van Kampen American Capital Distributors, Inc.'s, or its affiliates' (collectively "VKAC") cost of providing accounting services to the Fund. These services are provided by VKAC at cost. 13 Notes to Financial Statements (Continued) May 31, 1997 - -------------------------------------------------------------------------------- ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended May 31, 1997, the Fund recognized expenses of approximately $1,374,100, representing ACCESS' cost of providing transfer agency and shareholder services plus a profit. 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 provides deferred compensation and retirement plans for its trustees who are not officers of VKAC. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable for a ten-year period and are based upon each trustee's years of service to the Fund. The maximum annual benefit under the plan is $2,500. At May 31, 1997, VKAC owned 4,074 Class A shares of the Fund. 3. Capital Transactions The Fund has outstanding three classes of shares of beneficial interest, Classes A, B and C. There are an unlimited number of shares of each class with a par value of $0.01 per share. 14 Notes to Financial Statements (Continued) May 31, 1997 - -------------------------------------------------------------------------------- Transactions in shares and ending capital were as follows:
Year Ended Year Ended May 31, 1997 May 31, 1996 - --------------------------------------------------------------------------------- Shares Sold: Class A..................................... 7,336,711,667 5,916,698,879 Class B..................................... 648,076,624 402,157,689 Class C..................................... 141,950,203 99,265,826 --------------- --------------- Total Sold.................................... 8,126,738,494 6,418,122,394 =============== =============== Shares Issued in Business Combination Class A..................................... - 20,714,880 Class B..................................... - 5,651,573 Class C..................................... - - --------------- --------------- Total Business Combination.................... - 26,366,453 =============== =============== Shares Issued Through Dividend Reinvestment: Class A..................................... 18,710,328 17,616,820 Class B..................................... 2,926,008 1,250,566 Class C..................................... 339,500 188,995 --------------- --------------- Total Dividend Reinvestment................... 21,975,836 19,056,381 =============== =============== Shares Repurchased: Class A..................................... (7,344,457,086) (5,834,380,999) Class B..................................... (629,443,316) (331,779,955) Class C..................................... (143,617,542) (90,332,522) --------------- --------------- Total Repurchased............................. (8,117,517,944) (6,256,493,476) =============== =============== Capital: Class A..................................... $ 451,297,333 $ 440,339,270 Class B..................................... 103,038,760 81,481,218 Class C..................................... 8,382,745 9,710,786 --------------- --------------- Total Capital................................. $ 562,718,838 $ 531,531,274 =============== ===============
Class B and C shares are offered without a front end sales charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made within five years of the purchase for Class B and one year of the purchase for Class C as detailed in the following schedule. The Class B and C shares bear the expense of their respective deferred sales arrangements, including higher distribution and service fees and incremental transfer agency costs. 15 Notes to Financial Statements (Continued) May 31, 1997 ================================================================================ Contingent Deferred Sales Charge -------------------- Year of Redemption Class B Class C ================================================================================ First................................................... 4.00% 1.00% Second.................................................. 4.00% None Third................................................... 3.00% None Fourth.................................................. 2.50% None Fifth................................................... 1.50% None Sixth and Thereafter.................................... None None For the year ended May 31, 1997, VKAC, as Distributor for the Fund, received commissions on CDSC redeemed shares of approximately $414,900. Sales charges do not represent expenses of the Fund. 4. Distribution and Service Plans The Fund and its shareholders have adopted a distribution plan pursuant to Rule 12B-1 under the Investment Company Act of 1940 and a 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 .15% of average daily net assets of Class A shares and .90% each of Class B and Class C shares are accrued daily. Included in these fees for the year ended May 31, 1997, are payments to VKAC of approximately $684,300. 5. Business Combination On September 22, 1995, the Fund acquired the net assets of Van Kampen American Capital Money Market Fund ("VKMM") pursuant to a plan of reorganization approved by VKMM shareholders on September 21, 1995. The acquisition resulted in a tax- free exchange of 26,366,453 shares of the Fund for the 26,366,453 shares of VKMM outstanding on September 22, 1995. VKMM's net assets at that date were $26,366,453; the Fund's net assets were $422,227,929. After the acquisition, the combined net assets of the Fund were $448,594,382. See Notes to Financial Statements 16 Report of Independent Accountants To the Shareholders and Board of Trustees of Van Kampen American Capital Reserve Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Van Kampen American Capital Reserve Fund (the "Fund") at May 31, 1997, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods presented, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the 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, 1997 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Houston, Texas July 14, 1997 17 Funds Distributed by Van Kampen American Capital GLOBAL AND INTERNATIONAL Global Equity Fund Global Government Securities Fund Global Managed Assets Fund Short-Term Global Income Fund Strategic Income Fund EQUITY Growth Aggressive Growth Fund Emerging Growth Fund Enterprise Fund Growth Fund Pace Fund Growth & Income Comstock Fund Equity Income Fund Growth and Income Fund Harbor Fund Real Estate Securities Fund Utility Fund FIXED INCOME Corporate Bond Fund Government Securities Fund High Income Corporate Bond Fund High Yield Fund Limited Maturity Government Fund Prime Rate Income Trust Reserve Fund U.S. Government Fund U.S. Government Trust for Income TAX-FREE California Insured Tax Free Fund Florida Insured Tax Free Income Fund High Yield Municipal Fund Insured Tax Free Income Fund Intermediate Term Municipal Income Fund Municipal Income Fund New Jersey Tax Free Income Fund New York Tax Free Income Fund Pennsylvania Tax Free Income Fund Tax Free High Income Fund Tax Free Money Fund MORGAN STANLEY FUND, INC. Aggressive Equity Fund American Value Fund Asian Growth Fund Emerging Markets Fund Global Equity Allocation Fund Global Fixed Income Fund High Yield Fund International Magnum Fund Latin American Fund U.S. Real Estate Fund Value Fund Worldwide High Income Fund Ask your investment representative for a prospectus containing more complete information, including sales charges and expenses. Please read it carefully before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or 1-800- 282-4404 for Morgan Stanley retail funds. 18 Results of Shareholder Votes Reserve Fund A Special Meeting of Shareholders of the Fund was held on May 28, 1997, where shareholders voted on a new investment advisory agreement, the election of Trustees, and the selection of Price Waterhouse LLP as independent public accountants for its current fiscal year. With regard to the approval of a new investment advisory agreement between Van Kampen American Capital Asset Management Inc. and the Fund, 328,563,944 shares voted for the proposal, 7,083,419 shares voted against and 23,015,003 shares abstained. With regard to the election of Trustees, J. Miles Branagan received 347,378,307 affirmative votes and 11,284,058 shares withheld; Richard M. DeMartini received 347,297,804 affirmative votes and 11,364,561 shares withheld; Linda Hutton Heagy received 347,400,106 affirmative votes and 11,262,260 shares withheld; R. Craig Kennedy received 347,477,072 affirmative votes and 11,185,293 shares withheld; Jack E. Nelson received 347,466,518 affirmative votes and 11,195,848 shares withheld; Jerome L. Robinson received 347,347,943 affirmative votes and 11,314,422 withheld; Phillip B. Rooney received 347,406,434 affirmative votes and 11,255,931 shares withheld; Fernando Sisto received 347,353,524 affirmative votes and 11,308,841 shares withheld; and, Wayne W. Whalen received 347,465,883 affirmative votes and 11,196,482 shares withheld. With regard to the ratification of the selection of Price Waterhouse LLP as independent public accountants for its current fiscal year, 335,448,080 shares voted for the proposal, 3,047,030 shares voted against and 20,167,255 shares abstained. 19 Van Kampen American Capital Reserve Fund Board of Trustees J. Miles Branagan Richard M. DeMartini* Linda Hutton Heagy R. Craig Kennedy Jack E. Nelson Jerome L. Robinson Phillip B. Rooney Fernando Sisto Wayne W. Whalen*-- Chairman Officers Dennis J. McDonnell* President Ronald A. Nyberg* Vice President and Secretary Edward C. Wood, III* Vice President and Chief Financial Officer Curtis W. Morell* Vice President and Chief Accounting Officer John L. Sullivan* Treasurer Tanya M. Loden* Controller Peter W. Hegel* Alan T. Sachtleben* Paul R. Wolkenberg* Vice Presidents Investment Adviser Van Kampen American Capital Asset Management, Inc. One Parkview Plaza Oakbrook Terrace, Illinois 60181 Distributor Van Kampen American Capital Distributors, Inc. One Parkview Plaza Oakbrook Terrace, Illinois 60181 Shareholder Servicing Agent ACCESS Investor Services, Inc. P.O. Box 418256 Kansas City, Missouri 64141-9256 Custodian State Street Bank and Trust Company 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02105 Legal Counsel Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, Illinois 60606 Independent Accountants Price Waterhouse LLP 1201 Louisiana Houston, Texas 77002 * "Interested" persons of the Fund, as defined in the Investment Company Act of 1940. (C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved. /SM/ denotes a service mark of Van Kampen American Capital Distributors, Inc. This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors unless it has been preceded or is accompanied by an effective prospectus of the Fund which contains additional information on how to purchase shares, the sales charge, and other pertinent data. 20 -----END PRIVACY-ENHANCED MESSAGE-----