N-30D 1 c66683n-30d.txt SEMIANNUAL REPORT Table of Contents OVERVIEW LETTER TO SHAREHOLDERS 1 ECONOMIC SNAPSHOT 2 PORTFOLIO AT A GLANCE Q&A WITH YOUR PORTFOLIO MANAGERS 4 BY THE NUMBERS YOUR FUND'S INVESTMENTS 7 FINANCIAL STATEMENTS 10 NOTES TO FINANCIAL STATEMENTS 16 VAN KAMPEN INVESTMENTS THE VAN KAMPEN FAMILY OF FUNDS 22 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 23
Van Kampen wishes peace and prosperity to all. This report must be preceded or accompanied by a prospectus for the fund being offered. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE OVERVIEW LETTER TO SHAREHOLDERS December 20, 2001 Dear Shareholder, As the new year begins, Van Kampen wishes peace, prosperity and hope to all. With a legacy that spans nearly four generations, Van Kampen has helped investors pursue their goals through social, political and economic change. In the face of challenges and uncertainty, our core investment philosophy has been tested and, we believe affirmed. Whether you're new to the Van Kampen family or revisiting your investment strategy, we encourage you to focus on two fundamental investing principles: SEEK FINANCIAL ADVICE BEFORE YOU INVEST. Your financial advisor can help you develop a tailored investment strategy based on several factors, including your age, family status and goals. While no portfolio is immune to volatility, your advisor can help you structure a portfolio designed to address your long-term financial goals. EXAMINE YOUR PORTFOLIO AND MODERATE YOUR INVESTMENT RISK--DIVERSIFY. Consider including a variety of stock and fixed-income funds in your portfolio, which may improve your long-term performance. We are grateful for your continued trust in Van Kampen and appreciate the opportunity to manage your assets. In the new year, we hope you and your loved ones enjoy life's true wealth--family, friends and life's daily pleasures. Sincerely, [SIG] Richard F. Powers, III President and CEO Van Kampen Asset Management Inc. 1 ECONOMIC SNAPSHOT THE ECONOMY IN NOVEMBER 2001, THE NATIONAL BUREAU OF ECONOMIC RESEARCH (NBER) CONFIRMED WHAT MANY HAD SUSPECTED FOR SEVERAL MONTHS--THE WORLD'S LARGEST ECONOMY HAD SLIPPED INTO RECESSION. ACCORDING TO THE NBER, THE U.S. ECONOMY BEGAN TO CONTRACT IN MARCH, THEREBY ENDING THE COUNTRY'S RECORD-SETTING 10-YEAR PERIOD OF EXPANSION. THIS LATEST DOWNTURN MARKS THE NATION'S 10TH RECESSION, COMMONLY DEFINED AS TWO CONSECUTIVE QUARTERS OF NEGATIVE GROWTH, SINCE THE END OF WORLD WAR II. BUSINESS ACTIVITY CONTINUED ITS YEAR-LONG DECLINE IN NOVEMBER, SPIRALING DOWNWARD IN THE MONTHS FOLLOWING THE SEPTEMBER 11 TRAGEDY. THROUGHOUT THE REPORTING PERIOD THE ECONOMY SHOWED SIGNS OF INCREASING WEAKNESS, PROMPTING BUSINESSES TO SLASH INVENTORIES AND CAPITAL EXPENDITURES. CONSUMER SPENDING AND EMPLOYMENT WITH THE ECONOMY OFFICIALLY IN RECESSION, MANY ECONOMISTS WERE SURPRISED TO FIND THAT CONSUMER SPENDING--THE ENGINE DRIVING TWO-THIRDS OF U.S. ECONOMIC GROWTH--REMAINED WEAK, BUT SURPRISINGLY RESILIENT. WHILE CONSUMERS APPEARED MORE PRICE-CONSCIOUS, SHUNNING HIGH-PRICED DEPARTMENT AND SPECIALTY STORES FOR DISCOUNT STORES, MANY ALSO TOOK ADVANTAGE OF THE DEEP PRICE DISCOUNTING AND ZERO-PERCENT FINANCING OFFERED BY CARMAKERS DURING THE FIRST TWO MONTHS OF THE FOURTH QUARTER. IRRESPECTIVE OF THE UNANTICIPATED RESILIENCY OF THE CONSUMER, MANY ECONOMIC ANALYSTS WONDERED HOW LONG CONSUMERS COULD CONTINUE TO SPEND IN THE FACE OF MOUNTING JOB REDUCTION ANNOUNCEMENTS. BY THE END OF NOVEMBER 2001, CONSUMER CONFIDENCE LEVELS DROPPED FOR THE FIFTH CONSECUTIVE MONTH. THE CONTINUING EROSION OF CONFIDENCE WAS LARGELY FUELED BY RISING UNEMPLOYMENT AND MASS LAYOFFS. UNEMPLOYMENT LEVELS, WHICH WERE ON THE RISE THROUGHOUT THE REPORTING PERIOD, SURGED TO 5.7 PERCENT--THE HIGHEST LEVEL IN SIX YEARS--BY THE END OF NOVEMBER 2001. INTEREST RATES AND INFLATION CONSISTENT WITH ITS RECENT ACTIONS, THE FEDERAL RESERVE BOARD (THE FED) AGAIN ATTEMPTED TO STIMULATE THE FALTERING ECONOMY BY SLASHING INTEREST RATES. THE FED'S 0.50 PERCENT CUT ON NOVEMBER 6--THE TENTH RATE-CUT TO OCCUR BETWEEN JANUARY 1 AND NOVEMBER 30, 2001--BROUGHT THE FEDERAL FUNDS RATE TO 2.0 PERCENT. FINALLY, INFLATION REMAINED MODEST DURING THE REPORTING PERIOD. THE CONSUMER PRICE INDEX, A COMMON MEASURE OF THE INFLATION RATE, ROSE 1.9 PERCENT IN THE 12 MONTHS ENDED NOVEMBER 30. 2 U.S. GROSS DOMESTIC PRODUCT SEASONALLY ADJUSTED ANNUALIZED RATES (September 30, 1999--September 30, 2001) [BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT --------------------------- Sep 99 5.7 Dec 99 8.3 Mar 00 4.8 Jun 00 5.7 Sep 00 1.3 Dec 00 1.9 Mar 01 1.3 Jun 01 0.3 Sep 01 -1.3
Source: Bureau of Economic Analysis INTEREST RATES AND INFLATION (November 30, 1999--November 30, 2001) [LINE GRAPH]
INTEREST RATES INFLATION -------------- --------- Nov 99 5.5 2.6 5.5 2.7 5.5 2.7 Feb 00 5.75 3.2 6 3.8 6 3.1 May 00 6.5 3.2 6.5 3.7 6.5 3.7 Aug 00 6.5 3.4 6.5 3.5 6.5 3.4 Nov 00 6.5 3.4 6.5 3.4 5.5 3.7 Feb 01 5.5 3.5 5 2.9 4.5 3.3 May 01 4 3.6 3.75 3.2 3.75 2.7 Aug 01 3.5 2.7 3 2.6 2.5 2.1 Nov 01 2 1.9
Interest rates are represented by the closing midline federal funds target rate on the last day of each month. Inflation is indicated by the annual percentage change of the Consumer Price Index for all urban consumers at the end of each month. Source: Bloomberg 3 Q&A WITH YOUR PORTFOLIO MANAGERS WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGEMENT TEAM FOR THE VAN KAMPEN RESERVE FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE PAST SIX MONTHS. THE MANAGEMENT TEAM INCLUDES DALE ALBRIGHT AND JONATHAN PAGE, WHO HAVE OVER FOUR DECADES OF COMBINED INDUSTRY EXPERIENCE. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2001. Q HOW WOULD YOU CHARACTERIZE THE ECONOMIC AND MARKET CONDITIONS IN WHICH THE FUND OPERATED, AND HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD? A Responding to weak manufacturing activity and deteriorating labor market conditions, as well as to eroding consumer and business confidence after the events of September 11, the Federal Reserve (the Fed) lowered its federal funds target rate on five separate occasions, for a total of 200 basis points during the period under review. Despite declining interest rates, recent economic data continued to reflect softness in the overall economy. A preliminary reading on third quarter real gross domestic product (GDP) indicated that the economy contracted by 1.1 percent as compared to growth of just 0.3 percent during the second quarter of 2001. As of the end of October, industrial production had declined for thirteen consecutive months, and overall capacity utilization fell to its lowest level in eighteen years. In addition, non-farm payrolls contracted substantially in September, October and November. Although the fund's income stream was certainly affected by the continuing decline in short-term interest rates, it continued to provide shareholders with what we believe is a competitive level of current income, as well as relative stability and daily liquidity at $1.00 per share.(1) The fund continued to serve as a useful investment for liquidity, preservation of capital and a yield that reflected prevailing money market conditions. As of November 30, 2001, the seven-day current yield was 1.69 percent for Class A shares, 0.94 percent for Class B shares, and 0.93 percent for Class C shares. For the six months ended November 30, 2001, the fund posted a total return at net asset value of 1.36 percent for Class A shares, 0.98 percent for Class B shares, (1) An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. 4 PORTFOLIO COMPOSITION BY INVESTMENT TYPE (as a percentage of total investments)
As of November 30, 2001 As of May 31, 2001 - Commercial Paper... 44.1% [PIE CHART] - Commercial [PIE CHART] Paper........... 60.2% - Agencies........... 32.1% - Agencies........ 22.0% - Notes.............. 12.8% - Notes........... 2.8% - Certificates of - Certificates of Deposit............ 10.0% Deposit......... 13.6% - Repurchase - Repurchase Agreements......... 1.0% Agreements...... 1.4%
and 0.97 percent for Class C shares. Including sales charges, the fund's total return for Class B and C shares was -3.02 percent and -0.03 percent, respectively. (No sales charge is assessed on purchases of Class A shares; be advised that other charges may apply.) Please note that the yield quotation more closely reflects the current earnings of the fund than the total return quotation. Total return assumes reinvestment of all distributions for the six-month period ended November 30, 2001. As a result of recent market activity, current performance may vary from the figures shown. For more up-to-date information, please visit vankampen.com or speak with your financial advisor. Past performance is no guarantee of future results. Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS? A We have continued to invest the fund in high-quality commercial paper, Federal agency obligations, overnight repurchase agreements, and bank notes and negotiable certificates of deposit of what we believe to be financially strong commercial banks. Over the past six months, we attempted to raise our high credit standards even higher in the fund by using an increased mix of Federal agency obligations, while at the same time attempting to limit purchases of corporate obligations to only those issuers that possess both top short-term credit ratings and relatively high long-term debt ratings. As of November 30, 2001, approximately 32 percent of the portfolio's total investments were invested in high-quality government agency securities. The bulk of the portfolio--roughly 44 percent of total investments--was invested in commercial paper issued by corporations with strong credit ratings. Another 10.0 percent of total investments was in certificates of deposit issued by highly-rated banks and other financial institutions, with the remainder of total investments invested 5 in notes and repurchase agreements. Holdings are subject to change daily. Given the economic environment of declining interest rates, we purchased longer maturities of selected high-quality issuers. Our strategy in doing so was to extend the weighted average maturity of the fund in an effort to lock in current market rates for longer periods of time. As of November 30, 2001, the fund's weighted average maturity was 59 days, with approximately 74 percent of holdings due to mature in less than three months. Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS? A Following the November 6, 2001 Federal Open Market Committee meeting, the Fed's formal economic assessment indicated that risks are weighted toward conditions that may generate ongoing economic weakness. This assessment leads us to believe that the Fed could take an additional step to further reduce short-term interest rates sometime before year-end 2001. However, we also believe that the Fed is nearing an end in its current cycle of interest rate reductions. In our view, the fund is well positioned to take advantage of the money market yield levels that may become available during the months ahead. As always, we will continue to seek the fund's investment objectives of protection of capital and high current income. ANNUAL HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling (800) 341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. 6 BY THE NUMBERS YOUR FUND'S INVESTMENTS November 30, 2001 (Unaudited) THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF THE REPORTING PERIOD.
DISCOUNT PAR YIELD ON AMOUNT MATURITY DATE OF AMORTIZED (000) DESCRIPTION DATE PURCHASE COST COMMERCIAL PAPER 44.3% $35,000 Abbey National North America............ 12/21/01 2.424% $ 34,953,139 15,000 American General Finance Corp. ......... 12/03/01 2.286 14,998,100 10,000 American General Finance Corp. ......... 02/04/02 1.889 9,966,056 25,000 ANZ, Inc. (Delaware).................... 12/24/01 2.445 24,961,187 25,000 Bank New York, Inc. .................... 01/28/02 2.007 24,919,444 25,000 CBA Finance, Inc. (Delaware)............ 03/01/02 2.000 24,875,625 15,000 Ciesco, LP.............................. 12/04/01 2.256 14,997,187 25,000 Ciesco, LP.............................. 12/04/01 2.307 24,995,208 20,000 Citicorp................................ 12/19/01 2.054 19,979,500 15,000 Deutsche Bank Financial, Inc. .......... 12/07/01 3.430 14,991,500 25,000 Fcar Owner Trust II..................... 01/24/02 2.335 24,913,000 15,000 Fcar Owner Trust II..................... 02/21/02 2.051 14,930,300 10,000 General Electric Capital Corp. ......... 12/20/01 3.582 9,981,369 30,000 General Electric Capital Corp. ......... 04/16/02 2.255 29,747,267 20,000 JP Morgan Chase & Co. .................. 02/04/02 1.987 19,928,500 15,000 New Center Asset Trust.................. 03/20/02 2.023 14,908,712 20,000 New Center Asset Trust.................. 03/21/02 2.053 19,875,333 25,000 Royal Bank Canada....................... 12/18/01 3.648 24,957,736 10,000 Societe General North America, Inc. .... 12/10/01 3.410 9,991,550 20,000 Societe General North America, Inc. .... 01/07/02 3.818 19,923,225 15,000 Wells Fargo Financial, Inc. ............ 03/08/02 2.342 14,906,233 ------------ TOTAL COMMERCIAL PAPER.................................................. 413,700,171 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS 32.3% 10,000 Federal Home Loan Bank Discount Note.... 02/01/02 2.010 9,965,556 15,000 Federal Home Loan Bank Discount Note.... 04/05/02 2.224 14,885,417 20,000 Federal Home Loan Mortgage Association Discount Note........................... 01/31/02 3.652 19,878,678 10,000 Federal Home Loan Mortgage Association Discount Note........................... 02/14/02 1.934 9,959,896 25,000 Federal Home Loan Mortgage Association Discount Note........................... 02/14/02 1.979 24,897,396 20,000 Federal Home Loan Mortgage Association Discount Note........................... 03/01/02 1.810 19,910,000
See Notes to Financial Statements 7 YOUR FUND'S INVESTMENTS November 30, 2001 (Unaudited)
DISCOUNT PAR YIELD ON AMOUNT MATURITY DATE OF AMORTIZED (000) DESCRIPTION DATE PURCHASE COST U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED) $15,000 Federal Home Loan Mortgage Association Discount Note........................... 03/08/02 2.219% $ 14,911,083 12,250 Federal Home Loan Mortgage Association Discount Note........................... 04/24/02 4.118 12,055,960 11,000 Federal Home Loan Mortgage Association Discount Note........................... 04/25/02 1.968 10,913,604 20,000 Federal National Mortgage Association Discount Note........................... 12/06/01 3.225 19,991,111 25,000 Federal National Mortgage Association Discount Note........................... 12/27/01 2.435 24,956,306 15,000 Federal National Mortgage Association Discount Note........................... 02/07/02 3.427 14,904,517 20,000 Federal National Mortgage Association Discount Note........................... 02/22/02 3.423 19,845,067 20,000 Federal National Mortgage Association Discount Note........................... 02/26/02 2.249 19,892,217 25,000 Federal National Mortgage Association Discount Note........................... 03/05/02 4.370 24,725,833 15,000 Federal National Mortgage Association Discount Note........................... 03/27/02 1.974 14,905,267 25,000 Federal National Mortgage Association Discount Note........................... 05/03/02 2.208 24,768,375 ------------ TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS................................ 301,366,283 ------------
See Notes to Financial Statements 8 YOUR FUND'S INVESTMENTS November 30, 2001 (Unaudited)
PAR AMOUNT MATURITY AMORTIZED (000) DESCRIPTION DATE COUPON COST NOTE 12.8% $15,000 Bank America North America Charlotte..... 12/28/01 2.240% $ 15,000,000 15,000 Bank America North America Charlotte..... 01/07/02 2.470 15,000,000 35,000 Lasalle National Bank.................... 02/19/02 2.530 35,000,000 35,000 US Bank National Association Minneapolis.............................. 01/29/02 2.250 35,000,000 20,000 Wells Fargo Financial, Inc. ............. 12/20/01 2.480 20,000,000 ------------ TOTAL NOTE............................................................. 120,000,000 ------------ CERTIFICATES OF DEPOSIT 10.1% 25,000 Bayerische Landesbank NY................. 12/14/01 3.770 25,001,466 20,000 Chase Manhattan Bank..................... 12/12/01 2.350 20,000,000 30,000 State Street Bank & Trust................ 12/11/01 2.360 30,000,000 19,250 Toronto Dominion Holding................. 01/09/02 3.690 19,251,977 ------------ TOTAL CERTIFICATES OF DEPOSIT.......................................... 94,253,443 ------------ REPURCHASE AGREEMENTS 1.0% BankAmerica Securities ($9,450,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 11/30/01, to be sold on 12/03/01 at $9,451,662)................................... 9,450,000 ------------ TOTAL INVESTMENTS 100.5%............................................... 938,769,897 LIABILITIES IN EXCESS OF OTHER ASSETS (0.5%).......................... (4,894,195) ------------ NET ASSETS 100.0%..................................................... $933,875,702 ============
See Notes to Financial Statements 9 FINANCIAL STATEMENTS Statement of Assets and Liabilities November 30, 2001 (Unaudited) ASSETS: Total Investments, at amortized cost which approximates market value.............................................. $938,769,897 Receivables: Fund Shares Sold.......................................... 2,026,393 Interest.................................................. 1,363,540 Other....................................................... 165,862 ------------ Total Assets............................................ 942,325,692 ------------ LIABILITIES: Payables: Fund Shares Repurchased................................... 6,265,652 Custodian Bank............................................ 997,179 Distributor and Affiliates................................ 509,931 Investment Advisory Fee................................... 309,641 Income Distributions...................................... 83,815 Trustees' Deferred Compensation and Retirement Plans........ 197,737 Accrued Expenses............................................ 86,035 ------------ Total Liabilities....................................... 8,449,990 ------------ NET ASSETS.................................................. $933,875,702 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $933,954,311 Accumulated Distributions in Excess of Net Investment Income.................................................... (20,495) Accumulated Net Realized Loss............................... (58,114) ------------ NET ASSETS.................................................. $933,875,702 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value, offering price and redemption price per share (Based on net assets of $478,587,453 and 478,641,277 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 $396,541,575 and 396,549,446 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 $58,746,674 and 58,774,768 shares of beneficial interest issued and outstanding)............. $ 1.00 ============
See Notes to Financial Statements 10 Statement of Operations For the Six Months Ended November 30, 2001 (Unaudited) INVESTMENT INCOME: Interest.................................................... $16,851,321 ----------- EXPENSES: Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $366,289, $1,711,742 and $283,483, respectively)............................................. 2,361,514 Investment Advisory Fee..................................... 1,845,643 Shareholder Services........................................ 1,316,880 Custody..................................................... 78,497 Trustees' Fees and Related Expenses......................... 14,532 Legal....................................................... 11,374 Other....................................................... 282,529 ----------- Total Expenses.......................................... 5,910,969 Less Credits Earned on Cash Balances.................... 27,683 ----------- Net Expenses............................................ 5,883,286 ----------- NET INVESTMENT INCOME....................................... $10,968,035 =========== NET REALIZED GAIN/LOSS...................................... $ -0- =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $10,968,035 ===========
See Notes to Financial Statements 11 Statements of Changes in Net Assets For the Six Months Ended November 30, 2001 and the Year Ended May 31, 2001 (Unaudited)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 2001 MAY 31, 2001 ------------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................ $ 10,968,035 $ 37,999,919 --------------- --------------- Distributions from and in Excess of Net Investment Income: Class A Shares................................. (6,761,744) (24,360,250) Class B Shares................................. (3,600,869) (11,451,242) Class C Shares................................. (611,663) (2,205,189) --------------- --------------- Total Distributions.............................. (10,974,276) (38,016,681) --------------- --------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..................................... (6,241) (16,762) --------------- --------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold........................ 1,282,292,584 2,505,005,403 Net Asset Value of Shares Issued Through Dividend Reinvestment................................... 10,544,369 38,016,681 Cost of Shares Repurchased....................... (1,212,394,837) (2,556,368,681) --------------- --------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS................................... 80,442,116 (13,346,597) --------------- --------------- TOTAL INCREASE/DECREASE IN NET ASSETS............ 80,435,875 (13,363,359) NET ASSETS: Beginning of the Period.......................... 853,439,827 866,803,186 --------------- --------------- End of the Period (Including accumulated distributions in excess of net investment income of $20,495 and $14,254, respectively)... $ 933,875,702 $ 853,439,827 =============== ===============
See Notes to Financial Statements 12 Financial Highlights (Unaudited) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS ENDED YEAR ENDED MAY 31, CLASS A SHARES NOVEMBER 30, ---------------------------------------------- 2001 2001 2000 1999 1998 1997 ------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ ------ Net Investment Income..... .01 .05 .05 .04 .05 .04 Less Distributions from Net Investment Income... .01 .05 .05 .04 .05 .04 ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== ====== Total Return (a)............ 1.36%* 5.35%** 4.92% 4.55% 4.78% 4.52% Net Assets at End of the Period (In millions)...... $478.6 $451.7 $573.3 $529.6 $634.1 $451.3 Ratio of Expenses to Average Net Assets*** (b)......... .89% .95% .82% .84% 1.02% 1.02% Ratio of Net Investment Income to Average Net Assets***................. 2.68% 5.22% 4.71% 4.38% 4.60% 4.38%
* Non-Annualized ** If certain losses had not been assumed by Van Kampen, total return would have been lower by less than .01%. *** For the year ended May 31, 1997, the impact on the Ratios of Expenses and Net Investment Income to Average Net Assets due to Van Kampen's reimbursement of certain expenses was less than .01%. (a) Assumes reinvestment of all distributions for the period and includes combined Rule 12b-1 fees and service fees of up to .15% and does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratio would decrease by .01% for the year ended May 31, 1999. See Notes to Financial Statements 13 Financial Highlights (Unaudited) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS ENDED YEAR ENDED MAY 31, CLASS B SHARES NOVEMBER 30, ---------------------------------------------- 2001 2001 2000 1999 1998 1997 ------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ ------ Net Investment Income..... .01 .05 .04 .04 .04 .04 Less Distributions from Net Investment Income... .01 .05 .04 .04 .04 .04 ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== ====== Total Return (a)............ 0.98%* 4.66%** 4.14% 3.78% 3.99% 3.71% Net Assets at End of the Period (In millions)...... $396.5 $338.7 $238.8 $129.8 $123.0 $103.0 Ratio of Expenses to Average Net Assets*** (b)......... 1.66% 1.58% 1.57% 1.63% 1.79% 1.77% Ratio of Net Investment Income to Average Net Assets***................. 1.89% 4.43% 3.96% 3.71% 3.91% 3.70%
* Non-Annualized ** If certain losses had not been assumed by Van Kampen, total return would have been lower by less than .01%. *** For the year ended May 31, 1997, the impact on the Ratios of Expenses and Net Investment Income to Average Net Assets due to Van Kampen's reimbursement of certain expenses was less than .01%. (a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum contingent deferred sales charge (CDSC) of 4%, charged on certain redemptions made within the first and second year of purchase and declining thereafter to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .90% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratio would decrease by .01% for the year ended May 31, 1999. See Notes to Financial Statements 14 Financial Highlights (Unaudited) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS ENDED YEAR ENDED MAY 31, CLASS C SHARES NOVEMBER 30, ----------------------------------------- 2001 2001 2000 1999 1998 1997 -------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- Net Investment Income.......... .01 .05 .04 .04 .04 .04 Less Distributions from Net Investment Income............ .01 .05 .04 .04 .04 .04 ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF THE PERIOD....................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ===== ===== ===== ===== ===== ===== Total Return (a)............... 0.97%* 4.57%** 4.14% 3.77% 3.99% 3.72% Net Assets at End of the Period (In millions)................ $58.7 $63.0 $54.7 $26.9 $16.1 $ 8.4 Ratio of Expenses to Average Net Assets*** (b)............ 1.64% 1.69% 1.57% 1.63% 1.78% 1.78% Ratio of Net Investment Income to Average Net Assets***..... 1.93% 4.40% 3.96% 3.73% 3.91% 3.64%
* Non-Annualized ** If certain losses had not been assumed by Van Kampen, total return would have been lower by less than .01%. *** For the year ended May 31, 1997, the impact on the Ratios of Expenses and Net Investment Income to Average Net Assets due to Van Kampen's reimbursement of certain expenses was less than .01%. (a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .90% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratio would decrease by .01% for the year ended May 31, 1999. See Notes to Financial Statements 15 NOTES TO FINANCIAL STATEMENTS November 30, 2001 (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen 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 (the "1940 Act"), as amended. The Fund's investment objective is to seek protection of capital and high current income. The Fund's investment adviser seeks to achieve this objective 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 accounting principles generally accepted in the United States of America 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 value. Under this valuation method, a portfolio instrument is valued at cost and any discount or premium is accreted or amortized 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. The Fund may invest in repurchase agreements, which are short-term investments whereby 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 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. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, 16 NOTES TO FINANCIAL STATEMENTS November 30, 2001 (Unaudited) except for distribution and service fees and transfer agency costs which are unique to each class of shares. D. 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. 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, 2001, the Fund had an accumulated capital loss carryforward for tax purposes of $58,114 which will expire between May 31, 2002 and May 31, 2009, of this amount $30,479 will expire on May 31, 2002. Net realized gains or losses may differ for financial and tax reporting purposes. E. DISTRIBUTION OF INCOME AND GAINS The Fund declares dividends daily from net investment income and automatically reinvests such dividends daily. Shareholders can elect to receive the cash equivalent of their daily dividends at each month end. The Fund distributes capital gains, if any, to shareholders at least annually. F. EXPENSE REDUCTIONS During the six months ended November 30, 2001, the Fund's custody fee was reduced by $27,683 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $150 million.......................................... .50% Next $100 million........................................... .45% Next $100 million........................................... .40% Over $350 million........................................... .35%
For the six months ended November 30, 2001, the Fund recognized expenses of approximately $11,400 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under an Accounting Services agreement, the Adviser provides accounting services to the Fund. The Adviser allocates the cost of such services to each fund. 17 NOTES TO FINANCIAL STATEMENTS November 30, 2001 (Unaudited) For the six months ended November 30, 2001, the Fund recognized expenses of approximately $30,400 representing Van Kampen Investments Inc. or its affiliates' (collectively "Van Kampen") cost of providing accounting services to the Fund, which are reported as part of "Other" expenses in the Statement of Operations. Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the six months ended November 30, 2001, the Fund recognized expenses of approximately $1,035,200. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees and are based on competitive market benchmarks. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Fund and, to the extent permitted by the 1940 Act, as amended, may be invested in the common shares of those funds selected by the trustees. Investments in such funds of approximately $115,700 are included in "Other" assets on the Statement of Assets and Liabilities at November 30, 2001. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. Benefits under the retirement plan are payable upon retirement for a ten-year period and are based upon each trustee's years of service to the Fund. The maximum annual benefit per trustee under the plan is $2,500. 3. CAPITAL TRANSACTIONS At November 30, 2001, capital aggregated $478,624,104, $396,556,185 and $58,774,022 for Classes A, B, and C, respectively. For the six months ended November 30, 2001, transactions were as follows:
SHARES VALUE Sales: Class A............................................ 916,600,097 $ 916,600,098 Class B............................................ 268,373,015 268,373,016 Class C............................................ 97,319,470 97,319,470 ------------- -------------- Total Sales.......................................... 1,282,292,582 $1,282,292,584 ============= ==============
18 NOTES TO FINANCIAL STATEMENTS November 30, 2001 (Unaudited)
SHARES VALUE Dividend Reinvestment: Class A............................................ 6,910,378 $ 6,910,378 Class B............................................ 3,109,405 3,109,405 Class C............................................ 524,586 524,586 ------------- -------------- Total Dividend Reinvestment.......................... 10,544,369 $ 10,544,369 ============= ============== Repurchases: Class A............................................ (896,643,679) $ (896,643,680) Class B............................................ (213,626,591) (213,626,593) Class C............................................ (102,124,564) (102,124,564) ------------- -------------- Total Repurchases.................................... (1,212,394,834) $(1,212,394,837) ============= ==============
At May 31, 2001, capital aggregated $451,757,308, $338,700,357, and $63,054,530 for Classes A, B, and C, respectively. For the year ended May 31, 2001, transactions were as follows:
SHARES VALUE Sales: Class A........................................... 1,646,318,049 $ 1,646,318,049 Class B........................................... 687,547,727 687,547,727 Class C........................................... 171,139,627 171,139,627 -------------- --------------- Total Sales......................................... 2,505,005,403 $ 2,505,005,403 ============== =============== Dividend Reinvestment: Class A........................................... 24,360,250 $ 24,360,250 Class B........................................... 11,451,242 11,451,242 Class C........................................... 2,205,189 2,205,189 -------------- --------------- Total Dividend Reinvestment......................... 38,016,681 $ 38,016,681 ============== =============== Repurchases: Class A........................................... (1,792,234,974) $(1,792,234,973) Class B........................................... (599,148,102) (599,148,112) Class C........................................... (164,985,596) (164,985,596) -------------- --------------- Total Repurchases................................... (2,556,368,672) $(2,556,368,681) ============== ===============
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares eight years after the end of the calendar month in which the shares were purchased. Class B Shares purchased before June 1, 1996, and any dividend 19 NOTES TO FINANCIAL STATEMENTS November 30, 2001 (Unaudited) reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares six years after the end of the calendar month in which the shares were purchased. For the six months ended November 30, 2001 and year ended May 31, 2001, 7,991,251 and 12,687,988 Class B Shares automatically converted to Class A Shares, respectively. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received on such shares, automatically convert to Class A Shares ten years after the end of the calendar month in which such shares were purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the six months ended November 30, 2001 and year ended May 31, 2001, no Class C Shares converted to Class A Shares. 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 Shares and one year of the purchase for Class C Shares as detailed in the following schedule. The Class B and C Shares bear the expense of their respective deferred sales arrangements, including higher distribution on service fees and incremental transfer agency costs.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO 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 six months ended November 30, 2001, Van Kampen, as Distributor for the Fund, received net commissions on redeemed shares which were subject to a CDSC of approximately $1,237,400. Sales charges do not represent expenses to the Fund. 4. DISTRIBUTION AND SERVICE PLANS With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund and its shareholders have adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans"). The Plans govern payments for: the distribution of the Fund's Class A Shares, Class B Shares 20 NOTES TO FINANCIAL STATEMENTS November 30, 2001 (Unaudited) and Class C Shares; the provision of ongoing shareholder services with respect to such classes of shares; and the maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to .15% of Class A average daily net assets and .90% each of Class B and Class C average daily net assets are accrued daily. Included in these fees for the six months ended November 30, 2001, are payments retained by Van Kampen of approximately $1,567,000 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $60,900. 21 VAN KAMPEN INVESTMENTS THE VAN KAMPEN FAMILY OF FUNDS Growth Aggressive Growth American Value* Emerging Growth Enterprise Equity Growth Focus Equity Growth Mid Cap Growth Pace Select Growth Small Cap Growth Small Cap Value Tax Managed Equity Growth Technology Growth and Income Comstock Equity Income Growth and Income Harbor Real Estate Securities Utility Value Value Opportunities Global/International Asian Equity Emerging Markets European Value Equity Global Equity Allocation Global Franchise Global Value Equity International Advantage International Magnum Latin American Worldwide High Income Income Corporate Bond Government Securities High Income Corporate Bond High Yield Limited Maturity Government U.S. Government U.S. Government Trust for Income Capital Preservation Reserve Tax Free Money Senior Loan Prime Rate Income Trust Senior Floating Rate Tax Free California Insured Tax Free Florida Insured Tax Free Income High Yield Municipal** Insured Tax Free Income Intermediate Term Municipal Income Municipal Income New York Tax Free Income Pennsylvania Tax Free Income Tax Free High Income For more complete information, including risk considerations, fees, sales charges and ongoing expenses, please contact your financial advisor for a prospectus. Please read it carefully before you invest or send money. To view a current Van Kampen fund prospectus or to receive additional fund information, choose from one of the following: - visit our Web site at VANKAMPEN.COM-- to view a prospectus, select Download Prospectus [COMPUTER ICON] - call us at (800) 341-2911 Telecommunications Device for the Deaf (TDD) users, call (800) 421-2833. [PHONE ICON] - e-mail us by visiting VANKAMPEN.COM and selecting Contact Us [MAIL ICON] * Closed to new investors ** Open to new investors for a limited time 22 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES VAN KAMPEN RESERVE FUND BOARD OF TRUSTEES J. MILES BRANAGAN JERRY D. CHOATE LINDA HUTTON HEAGY R. CRAIG KENNEDY MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* PHILLIP B. ROONEY WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 218256 Kansas City, Missouri 64121-8256 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS ERNST & YOUNG LLP 233 South Wacker Drive Chicago, Illinois 60606 * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 23 Van Kampen Privacy Notice The Van Kampen companies and investment products* respect your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain nonpublic personal information about you. This is information we collect from you on applications or other forms, and from the transactions you make with us, our affiliates, or third parties. We may also collect information you provide when using our web site, and text files (a.k.a. "cookies") may be placed on your computer to help us to recognize you and to facilitate transactions you initiate. We do not disclose any nonpublic personal information about you or any of our former customers to anyone, except as permitted by law. For instance, so that we may continue to offer you Van Kampen investment products and services that meet your investing needs, and to effect transactions that you request or authorize, we may disclose the information we collect to companies that perform services on our behalf, such as printers and mailers that assist us in the distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your nonpublic personal information internally, we permit access to it only by authorized employees, and maintain physical, electronic and procedural safeguards to guard your nonpublic personal information. * Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the many Van Kampen mutual funds and Van Kampen unit investment trusts. Van Kampen Funds Inc. 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 vankampen.com [VAN KAMPEN INVESTMENTS LOGO] Copyright (C)2002 Van Kampen Funds Inc. All rights reserved. 23, 133, 233 Member NASD/SIPC. RES SAR 1/02 5008A02-AP-1/02