N-30D 1 c73755nv30d.txt SEMIANNUAL REPORT DATED 11/30/02 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
Regardless of the market environment, your investment goals don't go away. 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, 2002 Dear Shareholder, During the bull market of the 1990s, many investors ignored what investment risk really means: the possibility of losing money. Instead, investors came to define risk as "more reward." Today, it's clear that for many people, the pendulum has swung to the opposite extreme. Many are reluctant to enter the market, stick with their long-term plans, or assume prudent levels of risk. Not knowing what action to take, many investors are taking none. Regardless of how you define risk and regardless of the market environment, your investment goals don't go away. Parents will want to send children to college, retirees will want to enjoy their golden years, and families will want to purchase homes. And history bears out that a prudent investment may be one of the best ways to get there. How can you reconcile the reality of market risk with the pursuit of your long-term investment goals? At Van Kampen, we believe that diversification and asset allocation are the best strategies for managing the market's ups and downs. That's why Van Kampen offers a full range of fund choices. We encourage you to work with your advisor to make sure that you have an asset allocation that's suitable for you. As we enter a new year, all of us at Van Kampen remain grateful for the trust you have placed in us and for the opportunity to help you enjoy life's true wealth. Sincerely, [SIG] David M. Swanson Chief Operating Officer Van Kampen Asset Management Inc. 1 ECONOMIC SNAPSHOT THE ECONOMY NOVEMBER 2002, LIKE MOST OF THE REPORTING PERIOD, SEEMED RIFE WITH CONTRADICTIONS. ON NOVEMBER 6, THE FEDERAL RESERVE BOARD (THE FED) CUT THE FEDERAL FUNDS RATE BY 50 BASIS POINTS TO 1.25 PERCENT. USUALLY INTENDED TO STIR UP A STAGNATING ECONOMY, SUCH BOLD ACTIONS SEEMED IN SHARP CONTRAST TO THE COMMERCE DEPARTMENT'S ANNOUNCEMENT ON NOVEMBER 26 THAT THIRD QUARTER GROSS DOMESTIC PRODUCT (GDP) WAS 4 PERCENT--MUCH STRONGER THAN THE ORIGINAL 3.1 PERCENT ESTIMATES. BUT OTHER ECONOMIC EVIDENCE AVAILABLE AT THE END OF THE MONTH CLARIFIED THE FED'S DECISION; THE ECONOMY HAD, INDEED, HIT A SOFT SPOT. CONSUMER SPENDING, WHICH ACCOUNTS FOR APPROXIMATELY TWO-THIRDS OF U.S. ECONOMIC ACTIVITY, BEGAN THE FOURTH QUARTER AT LEVELS MARKEDLY LOWER THAN AT THE END OF THE THIRD QUARTER. ADDITIONALLY, THERE WAS LITTLE OR NO EVIDENCE THAT CORPORATE SPENDING ON INVENTORY RESTOCKING HAD MOVED TOWARD HIGHER LEVELS. IN FACT, THE WIDELY FOLLOWED INSTITUTE OF SUPPLY MANAGEMENT SURVEY, WHICH TRIES TO GAUGE OVERALL ECONOMIC ACTIVITY BY TRACKING THE SPENDING PLANS OF 300 PURCHASING MANAGERS NATIONWIDE, RECORDED LEVELS CONSISTENT WITH A STILL SLUGGISH ECONOMY--ONE THAT IS EXPERIENCING LESS-THAN-TREND GROWTH. EMPLOYMENT DATA ALSO DID LITTLE TO CLARIFY THE ECONOMIC OUTLOOK. TOTAL EMPLOYMENT DECLINED SLIGHTLY IN NOVEMBER BUT, ON THE OTHER HAND, THOSE WHO WERE EMPLOYED PRODUCED GOODS AND SERVICES AT THE FASTEST RATE IN THE LAST 30 YEARS. THIS INCREASING PRODUCTIVITY LEVEL KEPT INFLATIONARY PRESSURES UNDER CONTROL. 2 U.S. GROSS DOMESTIC PRODUCT SEASONALLY ADJUSTED ANNUALIZED RATES (September 30, 2000--September 30, 2002) [BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT --------------------------- Sep 00 0.6% Dec 00 1.1% Mar 01 -0.6% Jun 01 -1.6% Sep 01 -0.3% Dec 01 2.7% Mar 02 5.0% Jun 02 1.3% Sep 02 4.0%
Source: Bureau of Economic Analysis INTEREST RATES AND INFLATION (November 30, 2000--November 30, 2002) [LINE GRAPH]
INTEREST RATES INFLATION -------------- --------- Nov 00 6.50 3.40 6.50 3.40 5.50 3.70 Feb 01 5.50 3.50 5.00 2.90 4.50 3.30 May 01 4.00 3.60 3.75 3.20 3.75 2.70 Aug 01 3.50 2.70 3.00 2.60 2.50 2.10 Nov 01 2.00 1.90 1.75 1.60 1.75 1.10 Feb 02 1.75 1.10 1.75 1.50 1.75 1.60 May 02 1.75 1.20 1.75 1.10 1.75 1.50 Aug 02 1.75 1.80 1.75 1.50 1.75 2.00 Nov 02 1.25 2.20
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 OF THE VAN KAMPEN RESERVE FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE SIX MONTHS ENDED NOVEMBER 30, 2002. CURRENT MEMBERS(1) OF THE TEAM INCLUDE DALE ALBRIGHT, EXECUTIVE DIRECTOR, AND JONATHAN PAGE, MANAGING DIRECTOR. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE. (1) Team members may change without notice at any time. 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 After having maintained its target federal funds rate at 1.75 percent for most of the period under review, the Federal Open Market Committee (FOMC) reduced the target rate by 50 basis points at its November meeting. At that meeting the Fed also changed its formal economic assessment to one indicating that it saw risks in the foreseeable future as being balanced with respect to meeting its goals of price stability and sustainable economic growth, compared with its prior stance that was weighted mainly toward economic weakness. High levels of uncertainty in the market have depressed consumer and business confidence over the past several months. Partially as a result, recent economic data show that the current economic expansion is slowing. The Index of Leading Economic Indicators contracted each month from June through September, and preliminary estimates show that nonfarm payrolls declined in September and November. Industrial production declined each month from August through October. Real Gross Domestic Product (GDP) expanded by just 1.3 percent in the second quarter, down from 5.0 percent growth during the first quarter. Although preliminary estimates show that the economy grew at a faster pace during the third quarter than the second, fourth-quarter growth is expected to be sluggish. The fund continues to serve as a useful investment for liquidity, preservation of capital and a yield that reflects prevailing money market conditions. As of November 30, 2002, the seven-day average yield was 0.84 percent for Class A shares, 0.06 percent for Class B shares and 0.06 percent for Class C shares, with an effective annual yield of 0.84 percent for Class A shares, 0.06 percent for Class B shares, and 0.06 percent for Class C shares. For the six months ended November 30, 2002, the fund 4 PORTFOLIO COMPOSITION BY INVESTMENT TYPE (as a percentage of total investments)
As of November 30, 2002 As of May 31, 2002 - Commercial Paper... 42.9% [PIE CHART] - Commercial [PIE CHART] Paper........... 55.9% - U.S. Government - U.S. Government Agency............. 34.2% Agency.......... 18.5% - Certificates of - Certificates of Deposit............ 13.3% Deposit......... 12.4% - Repurchase - Repurchase Agreements......... 5.0% Agreements...... 7.4% - Notes.............. 4.6% - Notes........... 5.8%
posted a total return at net asset value of 0.49 percent for Class A shares, 0.11 percent for Class B shares and 0.11 percent for Class C shares. Including sales charges, the fund's total return for Class B and C shares was -3.89 percent and -0.89 percent, respectively. (No sales charge is assessed on purchases of Class A shares; other charges may apply.) Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS? A We have continued to invest the fund's assets in high-quality commercial paper, U.S. Treasury and Federal agency obligations, overnight repurchase agreements, and bank notes and negotiable certificates of deposit of financially strong commercial banks. Over the past six months, we maintained the fund's high credit standards by continuing to invest substantially in Federal agency obligations, especially in the three-month and longer-maturity segment. At the same time, we attempted to limit purchases of corporate obligations to only issuers that possessed both strong short-term credit ratings and relatively high long-term debt ratings. During most of the period under review, given an environment of stable-to-declining money market interest rates, we attempted to maintain the fund's average maturity in excess of 50 days. However, our stance changed after the Fed lowered its target federal funds rate on November 6. Given the extremely low levels of money market interest rates and our belief that the U.S. economy will continue to recover over the next year, we have begun to shorten the weighted average maturity of the fund slightly. As of November 30, 2002, the fund's weighted average maturity was 48 days, and 88 percent of holdings were due to mature in less than three months. Therefore, we believe the fund is well positioned for stability of principal with a very high degree of liquidity. 5 Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS? A We expect the pace of economic activity to continue to strengthen during the next six months as consumers and businesses regain confidence. Such a recovery would likely lead to moderately higher levels of short-term interest rates, which could potentially materialize during the second or third quarter of 2003. 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 (including annual privacy notices) 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. 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. 6 BY THE NUMBERS YOUR FUND'S INVESTMENTS November 30, 2002 (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 42.1% $15,000 AIG Funding, Inc. ....................... 01/17/03 1.796% $ 14,965,142 45,000 American Express Credit.................. 12/12/02 1.281 44,982,400 24,850 American Honda Finance Corp. ............ 12/10/02 1.764 24,839,066 20,000 Barclays US Funding Corp. ............... 01/24/03 1.730 19,948,400 40,000 CBA Finance, Inc. ....................... 12/23/02 1.738 39,957,711 20,000 ChevronTexaco Corp. ..................... 12/20/02 1.281 19,986,489 25,000 Citicorp................................. 01/09/03 1.323 24,964,250 20,000 Citicorp................................. 01/16/03 1.323 19,966,267 25,000 Fcar Owner Trust II...................... 12/18/02 1.311 24,984,535 10,000 General Electric Capital Corp. .......... 12/02/02 1.980 9,999,455 10,000 General Electric Capital Corp. .......... 12/31/02 2.172 9,982,167 30,000 ING (US) Funding LLC..................... 02/07/03 1.496 29,915,567 25,000 KFW International Finance, Inc. ......... 12/27/02 1.661 24,970,208 20,000 Mortgage Interest Networking............. 12/11/02 1.766 19,990,222 25,000 Mortgage Interest Networking............. 01/22/03 1.363 24,950,889 25,000 New Center Asset Trust................... 01/29/03 1.343 24,945,097 15,000 Shell Finance Corp. ..................... 03/11/03 1.715 14,929,167 25,000 Societe Generale......................... 02/04/03 1.516 24,931,840 ------------ TOTAL COMMERCIAL PAPER........................................ 419,208,872 ------------ U.S. GOVERNMENT AND AGENCY OBLIGATIONS 33.6% 10,000 Federal Farm Credit Bank Discount Note... 08/06/03 1.477 9,899,422 20,000 Federal Home Loan Bank Discount Note..... 04/25/03 1.511 19,879,167 15,403 Federal Home Loan Mortgage Association Discount Note............................ 12/05/02 1.867 15,399,834 20,000 Federal Home Loan Mortgage Association Discount Note............................ 12/13/02 2.095 19,986,267 20,000 Federal Home Loan Mortgage Association Discount Note............................ 12/30/02 1.715 19,972,611 20,000 Federal Home Loan Mortgage Association Discount Note............................ 02/06/03 1.259 19,953,286 15,000 Federal Home Loan Mortgage Association Discount Note............................ 07/17/03 1.763 14,834,700
See Notes to Financial Statements 7 YOUR FUND'S INVESTMENTS November 30, 2002 (Unaudited)
DISCOUNT PAR YIELD ON AMOUNT MATURITY DATE OF AMORTIZED (000) DESCRIPTION DATE PURCHASE COST U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED) $10,000 Federal Home Loan Mortgage Association Discount Note............................ 01/30/03 1.777% $ 9,970,667 20,000 Federal National Mortgage Association Discount Note............................ 12/18/02 1.786 19,983,283 25,000 Federal National Mortgage Association Discount Note............................ 12/24/02 1.657 24,973,646 14,325 Federal National Mortgage Association Discount Note............................ 01/08/03 1.637 14,300,353 20,000 Federal National Mortgage Association Discount Note............................ 01/10/03 1.901 19,958,222 25,000 Federal National Mortgage Association Discount Note............................ 02/05/03 1.809 24,917,958 30,000 Federal National Mortgage Association Discount Note............................ 03/07/03 1.467 29,883,200 20,000 Federal National Mortgage Association Discount Note............................ 04/09/03 1.267 19,909,700 11,000 Federal National Mortgage Association Discount Note............................ 08/22/03 1.776 10,858,833 20,000 Student Loan Marketing Discount Note..... 02/04/03 1.903 19,932,111 20,000 United States Treasury Bill.............. 12/26/02 1.781 19,975,486 ------------ TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS.................. 334,588,746 ------------ CERTIFICATES OF DEPOSIT 13.1% 20,000 BNP Paribas.............................. 12/31/02 1.720 20,000,000 25,000 BNP Paribas.............................. 01/21/03 1.750 25,000,000 15,000 Rabobank Nederland NV.................... 12/16/02 1.780 15,000,000 20,000 State Street Bank & Trust................ 12/03/02 1.740 20,000,000 25,000 Wells Fargo Bank NA...................... 12/17/02 1.760 25,000,000 25,000 Wells Fargo Bank NA...................... 01/23/03 1.730 25,000,000 ------------ TOTAL CERTIFICATES OF DEPOSIT................................. 130,000,000 ------------ NOTE 4.5% 25,000 Standard Federal Bank Trust.............. 12/02/02 1.760 25,000,000 20,000 Standard Federal Bank Trust.............. 12/06/02 1.700 20,000,000 ------------ TOTAL NOTE.................................................... 45,000,000 ------------
See Notes to Financial Statements 8 YOUR FUND'S INVESTMENTS November 30, 2002 (Unaudited)
AMORTIZED DESCRIPTION COST REPURCHASE AGREEMENTS 4.9% BankAmerica Securities ($48,800,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 11/29/02, to be sold on 12/02/02 at $48,805,287)................................................ $ 48,800,000 ------------ TOTAL INVESTMENTS 98.2%.................................................. 977,597,618 OTHER ASSETS IN EXCESS OF LIABILITIES 1.8%............................... 18,332,802 ------------ NET ASSETS 100.0%........................................................ $995,930,420 ============
See Notes to Financial Statements 9 FINANCIAL STATEMENTS Statement of Assets and Liabilities November 30, 2002 (Unaudited) ASSETS: Total Investments, at amortized cost which approximates market value.............................................. $977,597,618 Cash........................................................ 40,516 Receivables: Fund Shares Sold.......................................... 21,219,358 Interest.................................................. 572,734 Other....................................................... 140,089 ------------ Total Assets............................................ 999,570,315 ------------ LIABILITIES: Payables: Fund Shares Repurchased................................... 1,952,882 Distributor and Affiliates................................ 784,865 Investment Advisory Fee................................... 316,412 Income Distributions...................................... 22,944 Accrued Expenses............................................ 387,994 Trustees' Deferred Compensation and Retirement Plans........ 174,798 ------------ Total Liabilities....................................... 3,639,895 ------------ NET ASSETS.................................................. $995,930,420 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $995,955,553 Accumulated Undistributed Net Investment Income............. 2,502 Accumulated Net Realized Loss............................... (27,635) ------------ NET ASSETS.................................................. $995,930,420 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value, offering price and redemption price per share (Based on net assets of $549,894,841 and 549,934,002 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 $386,339,046 and 386,342,875 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 $59,696,533 and 59,720,334 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, 2002 (Unaudited) INVESTMENT INCOME: Interest.................................................... $8,820,220 ---------- EXPENSES: Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $389,845, $1,726,439 and $284,394, respectively)............................................. 2,400,678 Investment Advisory Fee..................................... 1,902,297 Shareholder Services........................................ 1,131,697 Custody..................................................... 97,428 Legal....................................................... 17,084 Trustees' Fees and Related Expenses......................... 14,820 Other....................................................... 248,257 ---------- Total Expenses.......................................... 5,812,261 Investment Advisory Fee Reduction....................... 535 Less Credits Earned on Cash Balances.................... 55,666 ---------- Net Expenses............................................ 5,756,060 ---------- NET INVESTMENT INCOME....................................... $3,064,160 ========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $3,064,160 ==========
See Notes to Financial Statements 11 Statements of Changes in Net Assets (Unaudited)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 2002 MAY 31, 2002 ----------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 3,064,160 $ 14,409,154 --------------- --------------- Distributions from Net Investment Income: Class A Shares................................... (2,590,623) (9,391,875) Class B Shares................................... (406,598) (4,252,158) Class C Shares................................... (66,950) (748,354) --------------- --------------- Total Distributions................................ (3,064,171) (14,392,387) --------------- --------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... (11) 16,767 --------------- --------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 1,500,637,237 1,896,126,309 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 3,064,171 14,392,387 Cost of Shares Repurchased......................... (1,315,534,850) (1,956,211,417) --------------- --------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... 188,166,558 (45,692,721) --------------- --------------- TOTAL INCREASE/DECREASE IN NET ASSETS.............. 188,166,547 (45,675,954) NET ASSETS: Beginning of the Period............................ 807,763,873 853,439,827 --------------- --------------- End of the Period (Including accumulated undistributed net investment income of $2,502 and $2,513, respectively)............................ $ 995,930,420 $ 807,763,873 =============== ===============
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, ------------------------------------------- 2002 2002 2001 2000 1999 1998 ---------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ ------ Net Investment Income......... -0-(d) .02 .05 .05 .04 .05 Less Distributions from Net Investment Income........... -0-(d) .02 .05 .05 .04 .05 ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== ====== Total Return (b).............. .49%*(e) 1.93% 5.35%(a) 4.92% 4.55% 4.78% Net Assets at End of the Period (In millions)........ $549.9 $458.0 $451.7 $573.3 $529.6 $634.1 Ratio of Expenses to Average Net Assets (c).............. .84%(e) .91% .95% .82% .84% 1.02% Ratio of Net Investment Income to Average Net Assets....... .97%(e) 1.94% 5.22% 4.71% 4.38% 4.60%
* Non-Annualized (a) If certain losses had not been assumed by Van Kampen, total return would have been lower by less than .01%. (b) 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. (c) 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 six months ended November 30, 2002 and the year ended May 31, 1999. (d) Amount is less than $.01. (e) If certain expenses had not been voluntarily assumed by Van Kampen, total return, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have changed by less than .01%. 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, ------------------------------------------- 2002 2002 2001 2000 1999 1998 ---------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ ------ Net Investment Income......... -0-(d) .01 .05 .04 .04 .04 Less Distributions from Net Investment Income........... -0-(d) .01 .05 .04 .04 .04 ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== ====== Total Return (b).............. .11%*(e) 1.16% 4.66%(a) 4.14% 3.78% 3.99% Net Assets at End of the Period (In millions)........ $386.3 $299.1 $338.7 $238.8 $129.8 $123.0 Ratio of Expenses to Average Net Assets (c).............. 1.60%(e) 1.67% 1.58% 1.57% 1.63% 1.79% Ratio of Net Investment Income to Average Net Assets....... .21%(e) 1.17% 4.43% 3.96% 3.71% 3.91%
* Non-Annualized (a) If certain losses had not been assumed by Van Kampen, total return would have been lower by less than .01%. (b) 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 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. (c) 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 six months ended November 30, 2002 and the year ended May 31, 1999. (d) Amount is less than $.01. (e) If certain expenses had not been voluntarily assumed by Van Kampen, total return, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have changed by less than .01%. 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, ---------------------------------------- 2002 2002 2001 2000 1999 1998 ------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- Net Investment Income........... -0-(d) .01 .05 .04 .04 .04 Less Distributions from Net Investment Income............. -0-(d) .01 .05 .04 .04 .04 ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF THE PERIOD........................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ===== ===== ===== ===== ===== ===== Total Return (b)................ .11%*(e) 1.23% 4.57%(a) 4.14% 3.77% 3.99% Net Assets at End of the Period (In millions)................. $59.7 $50.7 $63.0 $54.7 $26.9 $16.1 Ratio of Expenses to Average Net Assets (c).................... 1.60%(e) 1.60% 1.69% 1.57% 1.63% 1.78% Ratio of Net Investment Income to Average Net Assets......... .21%(e) 1.29% 4.40% 3.96% 3.73% 3.91%
* Non-Annualized (a) If certain losses had not been assumed by Van Kampen, total return would have been lower by less than .01%. (b) 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. (c) 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 six months ended November 30, 2002 and the year ended May 31, 1999. (d) Amount is less than $.01. (e) If certain expenses had not been voluntarily assumed by Van Kampen, total return, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have changed by less than .01%. See Notes to Financial Statements 15 NOTES TO FINANCIAL STATEMENTS November 30, 2002 (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, 2002 (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, 2002, the Fund had an accumulated capital loss carryforward for tax purposes of $27,635 which will expire between May 31, 2004 and 2009. 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. The tax character of distributions paid during the year ended May 31, 2002 was as follows:
2002 Distributions paid from: Ordinary income........................................... $14,639,745
As of May 31, 2002, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $214,129
F. EXPENSE REDUCTIONS During the six months ended November 30, 2002, the Fund's custody fee was reduced by $55,666 as a result of credits earned on cash balances. 17 NOTES TO FINANCIAL STATEMENTS November 30, 2002 (Unaudited) 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, 2002, the Adviser voluntarily waived $535 of its investment advisory fees. This waiver is voluntary in nature and can be discontinued at the Adviser's discretion. The Fund recognized expenses of approximately $17,100 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. For the six months ended November 30, 2002, the Fund recognized expenses of approximately $32,300 representing Van Kampen Investments Inc.'s 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. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the six months ended November 30, 2002, the Fund recognized expenses of approximately $889,600 representing transfer agency fees paid to VKIS. 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 $98,800 are included in "Other" assets on the Statement of Assets and Liabilities at November 30, 2002. Appreciation/depreciation and distributions received from these investments are 18 NOTES TO FINANCIAL STATEMENTS November 30, 2002 (Unaudited) 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, 2002, capital aggregated $549,899,547, $386,338,330 and $59,719,676 for Classes A, B, and C, respectively. For the six months ended November 30, 2002, transactions were as follows:
SHARES VALUE Sales: Class A.......................................... 1,140,566,748 $ 1,140,566,748 Class B.......................................... 299,204,836 299,204,836 Class C.......................................... 60,865,653 60,865,653 -------------- --------------- Total Sales........................................ 1,500,637,237 $ 1,500,637,237 ============== =============== Dividend Reinvestment: Class A.......................................... 2,636,336 $ 2,636,336 Class B.......................................... 366,582 366,582 Class C.......................................... 61,253 61,253 -------------- --------------- Total Dividend Reinvestment........................ 3,064,171 $ 3,064,171 ============== =============== Repurchases: Class A.......................................... (1,051,330,438) $(1,051,330,438) Class B.......................................... (212,308,036) (212,308,036) Class C.......................................... (51,896,376) (51,896,376) -------------- --------------- Total Repurchases.................................. (1,315,534,850) $(1,315,534,850) ============== ===============
19 NOTES TO FINANCIAL STATEMENTS November 30, 2002 (Unaudited) At May 31, 2002, capital aggregated $458,026,901, $299,074,948, and $50,687,146 for Classes A, B, and C, respectively. For the year ended May 31, 2002, transactions were as follows:
SHARES VALUE Sales: Class A.......................................... 1,374,222,816 $ 1,374,222,816 Class B.......................................... 382,872,986 382,872,986 Class C.......................................... 139,030,507 139,030,507 -------------- --------------- Total Sales........................................ 1,896,126,309 $ 1,896,126,309 ============== =============== Dividend Reinvestment: Class A.......................................... 9,391,875 $ 9,391,875 Class B.......................................... 4,252,158 4,252,158 Class C.......................................... 748,354 748,354 -------------- --------------- Total Dividend Reinvestment........................ 14,392,387 $ 14,392,387 ============== =============== Repurchases: Class A.......................................... (1,377,327,816) $(1,377,327,816) Class B.......................................... (426,739,268) (426,739,268) Class C.......................................... (152,144,333) (152,144,333) -------------- --------------- Total Repurchases.................................. (1,956,211,417) $(1,956,211,417) ============== ===============
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 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, 2002 and the year ended May 31, 2002, 4,884,877 and 18,883,624 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, 2002 and the year ended May 31, 2002, 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 20 NOTES TO FINANCIAL STATEMENTS November 30, 2002 (Unaudited) 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.
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, 2002, Van Kampen, as Distributor for the Fund, received net commissions on redeemed shares which were subject to a CDSC of approximately $3,016,723. 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 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, 2002 are payments retained by Van Kampen of approximately $1,552,400 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $6,500. Also, the amount of distribution expenses incurred by Van Kampen and not yet reimbursed was approximately $10,805,600. This amount may be recovered from future payments under the plan or contingent deferred sales charges. 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 and 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 Capital Preservation Reserve Tax Free Money Senior Loan Prime Rate Income Trust Senior Floating Rate Tax Free California Insured Tax Free High Yield Municipal* Insured Tax Free Income Intermediate Term Municipal Income Municipal Income New York Tax Free Income Pennsylvania Tax Free Income Strategic Municipal 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 Fund Info [COMPUTER ICON] - call us at (800) 847-2424 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] * 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* 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 www.vankampen.com [VAN KAMPEN INVESTMENTS LOGO] Copyright (C)2003 Van Kampen Funds Inc. All rights reserved. 23, 133, 233 Member NASD/SIPC. RES SAR 1/03 9033A03-AP-1/03