N-CSR 1 c05991nvcsr.txt ANNUAL CERTIFIED SHAREHOLDER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-02482 Van Kampen Reserve Fund -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Ronald Robison 1221 Avenue of the Americas, New York, New York 10020 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: 5/31 Date of reporting period: 5/31/06 Item 1. Reports to Shareholders. The Fund's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Reserve Fund performed during the annual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the fund's financial statements and a list of fund investments as of May 31, 2006. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE FUND SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE INFORMATION ON INVESTMENT RISKS. AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION NOR 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.
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 5/31/06
A SHARES B SHARES C SHARES since 7/12/74 since 4/18/95 since 4/18/95 --------------------------------------------------------------------------------------------- W/MAX W/MAX 4.00% 1.00% AVERAGE ANNUAL W/O SALES W/O SALES SALES W/O SALES SALES TOTAL RETURNS CHARGES CHARGES CHARGE CHARGES CHARGE Since Inception 6.09% 2.88% 2.88% 2.70% 2.70% 10-year 3.13 2.67 2.67 2.50 2.50 5-year 1.45 0.89 0.59 0.97 0.97 1-year 3.13 2.51 -1.49 2.56 1.56 ---------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total return includes a contingent deferred sales charge of 4.00 percent for Class B shares (in the first and second year and declining to zero after year five), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.15 percent for Class A shares and up to 0.90 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares six years after purchase. The since inception returns for Class C shares reflect the conversion of Class C shares into Class A shares ten years after purchase. The fund's adviser has waived or reimbursed fees and expenses from time to time; absent such waivers/reimbursements, the fund's returns would have been lower. Figures shown above assume reinvestment of all dividends and capital gains. The returns shown in this report do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance of share classes will vary due to differences in sales charges and expenses. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED MAY 31, 2006 MARKET CONDITIONS During the 12 months ended May 31, 2006, many economic trends remained relatively strong, despite higher money market rates. The average monthly increase in non-farm payrolls was slightly higher for the year ended May 2006 relative to the same period in the previous year, despite the impact of Hurricane Katrina. In addition, the Institute of Supply Management Manufacturing Index continued to remain above 50 for the year, a figure indicating growth in manufacturing activity. U.S. economic growth, as measured by gross domestic product (GDP), accelerated sharply in the first quarter ended March 2006 after slowing in the fourth quarter of 2005. In response to the expanding U.S. economy, the Federal Open Market Committee (the "Fed") raised the federal funds target rate eight times during the fund's past fiscal year, to stand at 5.00 percent at the end of the reporting period. The Fed indicated that future interest rate changes would be driven by developments in economic data rather than by pre-set targets, but Fed Chairman Bernanke stated that the rising inflationary pressures which have begun to appear over the past few months are "unwelcome" and the Fed would ensure they are "not sustained." PERFORMANCE ANALYSIS For the 12-month period ended May 31, 2006, the fund provided a total return of 3.13 percent (Class A shares). For the seven-day period ended May 31, 2006, the fund provided an annualized yield of 3.99 percent, while its 30-day average annualized yield was 4.03 percent for the Class A shares. TOTAL RETURNS FOR THE 12-MONTH PERIOD ENDED MAY 31, 2006
--------------------------------------- CLASS A CLASS B CLASS C 3.13% 2.51% 2.56% ---------------------------------------
The performance for the three share classes varies because each has different expenses. The fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information. As of the end of the period, the fund had net assets of approximately $495 million. The average maturity of the portfolio was 27 days. Throughout the reporting period, the fund continued to seek high liquidity and preservation of capital while generating a yield reflecting prevailing money market conditions. To do this, the management team continued its long- 2 standing policy of purchasing only high quality, very liquid money market securities.
PORTFOLIO COMPOSITION AS OF 5/31/06 Commercial Paper 52.7% Floating Rate Notes 31.1 Certificates of Deposit 16.2
Subject to change daily. All percentages are as a percentage of total investments. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities in the industries shown above. Securities are classified by sectors that represent broad groupings of related industries. Van Kampen is a wholly owned subsidiary of a global securities firm which is engaged in a wide range of financial services including, for example, securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. 3 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Van Kampen also delivers the semiannual and annual reports to fund shareholders, and makes these reports available on its public Web site, www.vankampen.com. In addition to the semiannual and annual reports that Van Kampen delivers to shareholders and makes available through the Van Kampen public Web site, each fund files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q. Van Kampen does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Van Kampen public Web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web site, http://www.sec.gov. You may also review and copy them at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the Public Reference section of the SEC, Washington, DC 20549-0102. You may obtain copies of a fund's fiscal quarter filings by contacting Van Kampen Client Relations at (800) 847-2424. 4 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. PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD You may obtain a copy of the fund's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 847-2424 or by visiting our Web site at www.vankampen.com. It is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov. You may obtain information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting our Web site at www.vankampen.com. This information is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov. 5 Expense Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including contingent deferred sales charge on redemptions of Class B and Class C Shares; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 12/1/05 - 5/31/06. ACTUAL EXPENSE The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or contingent deferred sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------- 12/1/05 5/31/06 12/1/05-5/31/06 Class A Actual..................................... $1,000.00 $1,018.07 $5.03 Hypothetical............................... 1,000.00 1,019.93 5.04 (5% annual return before expenses) Class B Actual..................................... 1,000.00 1,015.03 8.04 Hypothetical............................... 1,000.00 1,016.93 8.05 (5% annual return before expenses) Class C Actual..................................... 1,000.00 1,015.34 7.74 Hypothetical............................... 1,000.00 1,017.23 7.75 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 1.00%, 1.60%, and 1.54% for Class A, B, and C Shares, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). These ratios reflect an expense waiver. Assumes all dividends and distributions were reinvested. 6 Investment Advisory Agreement Approval Both the Investment Company Act of 1940 and the terms of the Fund's investment advisory agreement require that the investment advisory agreement between the Fund and its investment adviser be approved annually both by a majority of the Board of Trustees and by a majority of the independent trustees voting separately. On May 22, 2006, the Board of Trustees, and the independent trustees voting separately, determined that the terms of the investment advisory agreement are fair and reasonable and approved the continuance of the investment advisory contract as being in the best interests of the Fund and its shareholders. In making its determination, the Board of Trustees considered materials that were specifically prepared by the investment adviser at the request of the Board and Fund counsel, and by an independent provider of investment company data contracted to assist the Board, relating to the contract review process. The Board also considered information received periodically about the portfolio, performance, the investment strategy, portfolio management team and fees and expenses of the Fund. The Board of Trustees considered the contract over a period of several months and the non-management trustees held sessions both with the investment adviser and separate from the investment adviser in reviewing and considering the contract. In approving the investment advisory agreement, the Board of Trustees considered, among other things, the nature, extent and quality of the services provided by the investment adviser, the performance, fees and expenses of the Fund compared to other similar funds and other products, the investment adviser's expenses in providing the services and the profitability of the investment adviser and its affiliated companies. The Board of Trustees considered the extent to which any economies of scale experienced by the investment adviser are shared with the Fund's shareholders, and the propriety of breakpoints in the Fund's investment advisory fee schedule. The Board of Trustees considered comparative advisory fees of the Fund and other investment companies and/or other products at different asset levels, and considered the trends in the industry versus historical and projected assets of the Fund. The Board of Trustees evaluated other benefits the investment adviser and its affiliates derive from their relationship with the Fund. The Board of Trustees reviewed information about the foregoing factors and considered changes, if any, in such information since its previous approval. The Board of Trustees discussed the financial strength of the investment adviser and its affiliated companies and the capability of the personnel of the investment adviser, and specifically the strength and background of its portfolio management personnel. The Board of Trustees reviewed the statutory and regulatory requirements for approval and disclosure of investment advisory agreements. The Board of Trustees, including the independent trustees, evaluated all of the foregoing and does not believe any single factor or group of factors control or dominate the review process, and, after considering all factors together, has determined, in the 7 exercise of its business judgment, that approval of the investment advisory agreement is in the best interests of the Fund and its shareholders. The following summary provides more detail on certain matters considered but does not detail all matters considered. Nature, Extent and Quality of the Services Provided. On a regular basis, the Board of Trustees considers the roles and responsibilities of the investment adviser as a whole and for those specific portfolio management, support and trading functions servicing the Fund. The trustees discuss with the investment adviser the resources available and used in managing the Fund and changes made in the Fund's portfolio management team over time. The trustees also discuss certain other services which are provided on a cost-reimbursement basis by the investment adviser or its affiliates to the Van Kampen funds including certain accounting, administrative and legal services. The Board has determined that the nature, extent and quality of the services provided by the investment adviser support its decision to approve the investment advisory contract. Performance, Fees and Expenses of the Fund. On a regular basis, the Board of Trustees reviews the performance, fees and expenses of the Fund compared to its peers and to appropriate benchmarks. In addition, the Board spends more focused time on the performance of the Fund and other funds in the Van Kampen complex, paying specific attention to underperforming funds. The trustees discuss with the investment adviser the performance goals and the actual results achieved in managing the Fund. When considering a fund's performance, the trustees and the investment adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance with special attention to three-year performance) and, when a fund's weighted performance is under the fund's benchmark, they discuss the causes and where necessary seek to make specific changes to investment strategy or investment personnel. The Fund discloses more information about its performance elsewhere in this report and in the Fund's prospectus. The trustees discuss with the investment adviser the level of advisory fees for this Fund relative to comparable funds and other products advised by the adviser and others in the marketplace. The trustees review not only the advisory fees but other fees and expenses (whether paid to the adviser, its affiliates or others) and the Fund's overall expense ratio. The Fund discloses more information about its fees and expenses in its prospectus. The Board has determined that the performance, fees and expenses of the Fund support its decision to approve the investment advisory contract. Investment Adviser's Expenses in Providing the Service and Profitability. At least annually, the trustees review the investment adviser's expenses in providing services to the Fund and other funds advised by the investment adviser and the profitability of the investment adviser. These profitability reports are put together by the investment adviser with the oversight of the Board. The trustees discuss with the investment adviser its revenues and expenses, including among other things, revenues for advisory services, portfolio management-related 8 expenses, revenue sharing arrangement costs and allocated expenses both on an aggregate basis and per fund. The Board has determined that the analysis of the investment adviser's expenses and profitability support its decision to approve the investment advisory contract. Economies of Scale. On a regular basis, the Board of Trustees considers the size and growth prospects of the Fund and how that relates to the Fund's expense ratio and particularly the Fund's advisory fee rate. In conjunction with its review of the investment adviser's profitability, the trustees discuss with the investment adviser how more (or less) assets can affect the efficiency or effectiveness of managing the Fund's portfolio and whether the advisory fee level is appropriate relative to current and projected asset levels and/or whether the advisory fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of the Fund support its decision to approve the investment advisory contract. Other Benefits of the Relationship. On a regular basis, the Board of Trustees considers other benefits to the investment adviser and its affiliates derived from its relationship with the Fund and other funds advised by the investment adviser. These benefits include, among other things, fees for transfer agency services provided to the funds, in certain cases research received by the adviser generated from commission dollars spent on funds' portfolio trading, and in certain cases distribution or service related fees related to funds' sales. The trustees review with the investment adviser each of these arrangements and the reasonableness of its costs relative to the services performed. The Board has determined that the other benefits received by the investment adviser or its affiliates support its decision to approve the investment advisory contract. 9 VAN KAMPEN RESERVE FUND PORTFOLIO OF INVESTMENTS -- MAY 31, 2006
PAR YIELD ON AMOUNT MATURITY DATE OF AMORTIZED (000) DESCRIPTION DATE PURCHASE COST -------------------------------------------------------------------------------------------- COMMERCIAL PAPER 52.6% $20,000 American Express Credit Corp. ............... 06/05/06 5.012% $ 19,988,911 20,000 CIT Group, Inc. ............................. 06/01/06 4.857 20,000,000 20,000 Citigroup Funding, Inc. ..................... 06/26/06 4.968 19,931,597 7,000 DaimlerChrysler Revolving Auto Conduit LLC, Series II.................................... 06/28/06 4.929 6,974,433 15,000 DaimlerChrysler Revolving Auto Conduit LLC, Series II.................................... 07/18/06 5.083 14,901,300 5,000 Deutsche Bank Financial LLC.................. 07/06/06 4.620 4,978,052 20,000 General Electric Capital Corp. .............. 07/10/06 4.626 19,902,067 15,000 HSBC Finance Corp. .......................... 06/23/06 4.999 14,954,350 7,660 ING (US) Funding LLC......................... 06/19/06 4.961 7,641,156 15,000 LaSalle Bank Corp. .......................... 06/22/06 4.869 14,957,913 10,000 Merrill Lynch & Co., Inc. ................... 08/07/06 5.079 9,906,572 15,000 MetLife Funding, Inc. ....................... 06/21/06 4.854 14,960,000 20,000 Northern Trust Corp. ........................ 06/29/06 4.996 19,922,922 10,900 PNC Bank, NA................................. 06/16/06 5.016 10,877,292 20,000 Prudential Funding LLC....................... 06/07/06 5.001 19,983,400 15,900 Sanpaolo IMI US Financial Co. ............... 06/01/06 5.061 15,900,000 5,000 Societe Generale NA, Inc. ................... 11/20/06 5.244 4,878,047 20,000 Toyota Motor Credit Corp. ................... 06/27/06 5.002 19,928,067 ------------ TOTAL COMMERCIAL PAPER............................................ 260,586,079 ------------ FLOATING RATE NOTES 31.1% 20,000 Bank of Nova Scotia.......................... 09/29/06 3.648 19,998,578 20,000 Barclays Bank PLC............................ 06/21/06 3.520 19,999,857 10,000 Royal Bank of Scotland PLC................... 07/05/06 3.255 9,999,629 12,000 SouthTrust Bank, NA.......................... 06/01/06 2.971 12,000,000 15,000 State Street Bank & Trust Co. ............... 12/01/06 4.790 15,002,414 20,000 SunTrust Banks, Inc. ........................ 05/01/07 4.859 20,001,500 20,000 U.S. Bank, NA Cincinnati..................... 09/29/06 3.625 19,998,528 20,000 Wal-Mart Stores, Inc. ....................... 03/28/07 5.048 19,990,045 7,000 Wells Fargo & Co. ........................... 09/15/06 3.800 7,002,756 10,000 Wells Fargo & Co. ........................... 09/15/06 4.825 10,003,885 ------------ TOTAL FLOATING RATE NOTES......................................... 153,997,192 ------------ CERTIFICATES OF DEPOSIT 16.1% 20,000 First Tennessee Bank, NA..................... 08/04/06 5.120 20,000,000 20,000 Fortis Bank.................................. 07/20/06 4.625 19,993,642 20,000 Washington Mutual Bank, FA................... 08/08/06 5.100 20,000,000 20,000 World Savings Bank, FSB...................... 06/16/06 4.920 20,000,000 ------------ TOTAL CERTIFICATES OF DEPOSIT..................................... 79,993,642 ------------
10 See Notes to Financial Statements VAN KAMPEN RESERVE FUND PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 continued
AMORTIZED COST ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS 99.8% (a)................................................ $494,576,913 OTHER ASSETS IN EXCESS OF LIABILITIES 0.2%................................. 894,512 ------------ NET ASSETS 100.0%.......................................................... $495,471,425 ============
Percentages are calculated as a percentage of net assets. (a) At May 31, 2006, cost is identical for both book and federal income tax purposes. See Notes to Financial Statements 11 VAN KAMPEN RESERVE FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities May 31, 2006 ASSETS: Total Investments, at amortized cost which approximates market value.............................................. $494,576,913 Receivables: Interest.................................................. 1,614,707 Fund Shares Sold.......................................... 1,523,682 Other....................................................... 189,311 ------------ Total Assets.......................................... 497,904,613 ------------ LIABILITIES: Payables: Fund Shares Repurchased................................... 1,306,967 Distributor and Affiliates................................ 295,000 Custodian Bank............................................ 167,877 Investment Advisory Fee................................... 165,525 Income Distributions...................................... 31,274 Trustees' Deferred Compensation and Retirement Plans........ 249,177 Accrued Expenses............................................ 217,368 ------------ Total Liabilities..................................... 2,433,188 ------------ NET ASSETS.................................................. $495,471,425 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $495,499,352 Accumulated Undistributed Net Investment Income............. (4,588) Accumulated Net Realized Loss............................... (23,339) ------------ NET ASSETS.................................................. $495,471,425 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value, offering price and redemption price per share (Based on net assets of $379,451,073 and 379,508,349 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 $91,801,757 and 91,815,103 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 $24,218,595 and 24,244,101 shares of beneficial interest issued and outstanding)............. $ 1.00 ============
12 See Notes to Financial Statements VAN KAMPEN RESERVE FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended May 31, 2006 INVESTMENT INCOME: Interest.................................................... $20,070,497 ----------- EXPENSES: Investment Advisory Fee..................................... 2,041,074 Shareholder Services........................................ 1,821,585 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $529,714, $993,203 and $193,567, respectively)............................................. 1,716,484 Custody..................................................... 73,759 Trustees' Fees and Related Expenses......................... 54,929 Legal....................................................... 16,006 Other....................................................... 341,127 ----------- Total Expenses............................................ 6,064,964 Expense Reduction......................................... 214,071 Less Credits Earned on Cash Balances...................... 97,951 ----------- Net Expenses.............................................. 5,752,942 ----------- NET INVESTMENT INCOME....................................... $14,317,555 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $14,317,555 ===========
See Notes to Financial Statements 13 VAN KAMPEN RESERVE FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED MAY 31, 2006 MAY 31, 2005 ------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income..................................... $ 14,317,555 $ 5,358,354 Net Realized Loss......................................... -0- (255) ------------- ------------- Change in Net Assets from Operations...................... 14,317,555 5,358,099 ------------- ------------- Distributions from Net Investment Income: Class A Shares.......................................... (11,115,670) (4,296,257) Class B Shares.......................................... (2,656,203) (874,478) Class C Shares.......................................... (553,394) (201,897) ------------- ------------- Total Distributions....................................... (14,325,267) (5,372,632) ------------- ------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....... (7,712) (14,533) ------------- ------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold................................. 412,512,986 451,107,359 Net Asset Value of Shares Issued Through Dividend Reinvestment............................................ 14,325,267 5,372,632 Cost of Shares Repurchased................................ (465,387,166) (640,401,453) ------------- ------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS........ (38,548,913) (183,921,462) ------------- ------------- TOTAL DECREASE IN NET ASSETS.............................. (38,556,625) (183,935,995) NET ASSETS: Beginning of the Period................................... 534,028,050 717,964,045 ------------- ------------- End of the Period (Including accumulated undistributed net investment income of ($4,588) and $10,211, respectively)........................................... $ 495,471,425 $ 534,028,050 ============= =============
14 See Notes to Financial Statements VAN KAMPEN RESERVE FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED MAY 31, CLASS A SHARES ------------------------------------------------------ 2006 2005 2004 2003 2002 ------------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ Net Investment Income....................... .03(a) .01 -0-(d) .01 .02 Less Distributions from Net Investment Income.................................... .03 .01 -0-(d) .01 .02 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== Total Return* (b)........................... 3.13% 1.11% .24% .89% 1.93% Net Assets at End of the Period (In millions)................................. $379.5 $370.3 $452.1 $501.4 $458.0 Ratio of Expenses to Average Net Assets* (c)....................................... 1.02% .97% .84% .69% .91% Ratio of Net Investment Income to Average Net Assets*............................... 3.08% 1.07% .25% .89% 1.94% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets (c).................................... N/A N/A .94% .85% N/A Ratio of Net Investment Income to Average Net Assets............................. N/A N/A .15% .73% N/A
(a) Based on average shares outstanding. (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 .02% for the year ended May 31, 2006 and by .01% for the years ended May 31, 2005 and May 31, 2003. (d) Amount is less than $.01. N/A=Not Applicable See Notes to Financial Statements 15 VAN KAMPEN RESERVE FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED MAY 31, CLASS B SHARES ----------------------------------------------------- 2006 2005 2004 2003 2002 ----------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.... $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ----- ------ ------ ------ ------ Net Investment Income....................... .02(a) .01 -0-(d) -0-(d) .01 Less Distributions from Net Investment Income.................................... .02 .01 -0-(d) -0-(d) .01 ----- ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ===== ====== ====== ====== ====== Total Return* (b)........................... 2.51% .59% .06% .13% 1.16% Net Assets at End of the Period (In millions)................................. $91.8 $133.2 $214.0 $349.8 $299.1 Ratio of Expenses to Average Net Assets* (c)....................................... 1.63% 1.47% 1.04% 1.45% 1.67% Ratio of Net Investment Income to Average Net Assets*............................... 2.41% .51% .06% .13% 1.17% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets (c).................................... 1.79% 1.72% 1.68% 1.61% N/A Ratio of Net Investment Income/Loss to Average Net Assets..................... 2.25% .26% (.59%) (.03%) N/A
(a) Based on average shares outstanding. (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 .02% for the year ended May 31, 2006 and by .01% for the years ended May 31, 2005 and May 31, 2003. (d) Amount is less than $.01. N/A=Not Applicable 16 See Notes to Financial Statements VAN KAMPEN RESERVE FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED MAY 31, CLASS C SHARES ------------------------------------------------- 2006 2005 2004 2003 2002 ------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- Net Investment Income........................ .02(a) .01 -0-(f) -0-(f) .01 Less Distributions from Net Investment Income..................................... .02 .01 -0-(f) -0-(f) .01 ----- ----- ----- ----- ----- NET ASSET VALUE, END OF THE PERIOD........... $1.00 $1.00 $1.00 $1.00 $1.00 ===== ===== ===== ===== ===== Total Return* (b)............................ 2.56%(d) .64%(d) .29%(d) .17% 1.23% Net Assets at End of the Period (In millions).................................. $24.2 $30.5 $51.9 $56.2 $50.7 Ratio of Expenses to Average Net Assets* (c)........................................ 1.58%(d) 1.42%(d) .89(d) 1.41% 1.60% Ratio of Net Investment Income to Average Net Assets*.................................... 2.44%(d) .55%(d) .20%(d) .22%(e) 1.29% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets (c)..................................... 1.74%(d) 1.68%(d) 1.54%(d) 1.57% N/A Ratio of Net Investment Income/Loss to Average Net Assets...................... 2.28%(d) .28%(d) (.44%)(d) .06%(e) N/A
(a) Based on average shares outstanding. (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 .02% for the year ended May 31, 2006 and by .01% for the years ended May 31, 2005 and May 31, 2003. (d) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income/Loss to Average Net Assets reflect actual 12b-1 fees of less than .90% (See footnote 4). (e) Certain non-recurring payments were made to Class C Shares, resulting in an increase to the Ratio of Net Investment Income to Average Net Assets of .05%. (f) Amount is less than $.01. N/A=Not Applicable See Notes to Financial Statements 17 VAN KAMPEN RESERVE FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Reserve Fund (the "Fund") is organized as a Delaware statutory 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 Fund offers Class A Shares, Class B Shares and Class C Shares. Each class of shares differs by its initial sales load, contingent deferred sales charges, the allocation of class-specific expenses and voting rights on matters affecting a single class. 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 U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Investments are valued at amortized cost, which approximates market value. Under this valuation method, a portfolio instrument is initially recorded at cost, any discount is accreted and any premium is amortized on a straight-line basis to the maturity of the instrument. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Fund may invest in repurchase agreements, which are short-term investments in which the Fund acquires ownership of a debt security and the seller agrees to repurchase the security at a future time and specified price. The Fund may invest independently in repurchase agreements, or transfer uninvested cash balances into a pooled cash account along with other investment companies advised by Van Kampen Asset Management (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, except for distribution and service fees and incremental 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 Subchapter M 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. 18 VAN KAMPEN RESERVE FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 continued 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. During the current fiscal year, the Fund utilized capital losses carried forward of $5,227. At May 31, 2006, the Fund had an accumulated capital loss carryforward for tax purposes of $23,339, which will expire according to the following schedule.
AMOUNT EXPIRATION $ 2,334..................................................... May 31, 2008 498..................................................... May 31, 2009 20,101..................................................... May 31, 2012 406..................................................... May 31, 2013
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 years ended May 31, 2006 and 2005 was as follows:
2006 2005 Distributions paid from: Ordinary income........................................... $14,323,073 $5,348,855
Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. A permanent book and tax difference relating to the Fund's investments in other regulated investment companies totaling $7,087 was reclassified to accumulated net realized loss from accumulated undistributed net investment income. Also, a permanent book and tax difference relating to a portion of the capital loss carryforward that expired during the current year totaling $880 was reclassified from accumulated net realized loss to capital. As of May 31, 2006, the component of distributable earnings on a tax basis was as follows: Undistributed ordinary income............................... $245,252
F. EXPENSE REDUCTIONS During the year ended May 31, 2006, the Fund's custody and accounting fees were reduced by $63,719 and $34,232, respectively, as a result of credits earned on cash balances. 19 VAN KAMPEN RESERVE FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 continued 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 $250 million.......................................... .450 Next $500 million........................................... .375 Next $500 million........................................... .325 Next $250 million........................................... .300 Next $250 million........................................... .275 Next $500 million........................................... .250 Next $500 million........................................... .225 Next $12.25 billion......................................... .200 Next $2.50 billion.......................................... .199 Next $7.50 billion.......................................... .198 Next $5.00 billion.......................................... .197 Over $30.00 billion......................................... .196
For the year ended May 31, 2006, the Adviser waived $214,071 of 12b-1 related expenses. This represents .04% of its average daily net assets for the period. This waiver is voluntary in nature and can be discontinued at any time. For the year ended May 31, 2006, the Fund recognized expenses of approximately $15,700 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such firm and he and his law firm provide legal services as legal counsel to the Fund. Under separate Accounting Services and Chief Compliance Officer (CCO) Employment agreements, the Adviser provides accounting services and the CCO provides compliance services to the Fund. The costs of these services are allocated to each fund. For the year ended May 31, 2006, the Fund recognized expenses of approximately $37,000 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting services to the Fund, as well as, the salary, benefits and related costs of the CCO and related support staff paid by Van Kampen. Services provided pursuant to the Accounting Services and CCO Employment agreement are reported as part of "Other" expenses on 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 year ended May 31, 2006, the Fund recognized expenses of approximately $1,386,000 representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. 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 also 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 $151,379 are included in "Other" assets on the Statement of Assets and Liabilities at May 31, 2006. Appreciation/depreciation and 20 VAN KAMPEN RESERVE FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 continued 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. For the year ended May 31, 2006, Van Kampen, as Distributor for the Fund, received net commissions on redeemed shares which were subject to a contingent deferred sales charge (CDSC) of approximately $363,500. Sales charges do not represent expenses to the Fund. 3. CAPITAL TRANSACTIONS For the years ended May 31, 2006 and 2005, transactions were as follows:
FOR THE FOR THE YEAR ENDED YEAR ENDED MAY 31, 2006 MAY 31, 2005 ----------------------------- ----------------------------- SHARES VALUE SHARES VALUE Sales: Class A..................... 324,732,570 $ 324,732,570 336,114,382 $ 336,114,382 Class B..................... 62,212,454 62,212,454 78,125,483 78,125,483 Class C..................... 25,567,962 25,567,962 36,867,494 36,867,494 ------------ ------------- ------------ ------------- Total Sales................... 412,512,986 $ 412,512,986 451,107,359 $ 451,107,359 ============ ============= ============ ============= Dividend Reinvestment: Class A..................... 11,247,787 $ 11,247,787 4,373,354 $ 4,373,354 Class B..................... 2,539,431 2,539,431 813,344 813,344 Class C..................... 538,049 538,049 185,934 185,934 ------------ ------------- ------------ ------------- Total Dividend Reinvestment... 14,325,267 $ 14,325,267 5,372,632 $ 5,372,632 ============ ============= ============ ============= Repurchases: Class A..................... (326,815,093) $(326,815,093) (422,294,081) $(422,294,081) Class B..................... (106,180,012) (106,180,012) (159,701,277) (159,701,277) Class C..................... (32,392,061) (32,392,061) (58,406,095) (58,406,095) ------------ ------------- ------------ ------------- Total Repurchases............. (465,387,166) $(465,387,166) (640,401,453) $(640,401,453) ============ ============= ============ =============
4. DISTRIBUTION AND SERVICE PLANS Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"), an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate the Distributor for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to .15% of Class A average daily net assets and up to .90% each of Class B and Class C average daily net assets. These fees are accrued daily and paid to the Distributor monthly. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed receivable") was approximately $2,068,800 and $12,000 for Class B and Class C Shares, respectively. These amounts may be recovered from future payments under 21 VAN KAMPEN RESERVE FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 continued the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, the distribution fee is reduced. 5. LEGAL MATTERS The Adviser and certain affiliates of the Adviser are named as defendants in a derivative suit which additionally names as defendants certain individual trustees of certain Van Kampen funds. The named investment companies, including the Fund, are listed as nominal defendants. The complaint alleges that defendants caused the Van Kampen funds to pay economic incentives to a proprietary sales force to promote the sale of Van Kampen funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in connection with the sales of the funds. The complaint seeks, among other things, the removal of the current trustees of the funds, rescission of the management contracts for the funds, disgorgement of profits by Morgan Stanley and its affiliates and monetary damages. This derivative action was coordinated with a direct action alleging related violations of defendants' statutory disclosure obligations and fiduciary duties with respect to the payments described above. In addition, this derivative action was stayed by agreement of the parties pending rulings on the motion to dismiss the direct action and the motion to dismiss the action described in the next paragraph. In April 2006, the court granted defendants' motion to dismiss the direct action. In June 2006, the court granted defendants' motion to dismiss the action described in the next paragraph. Accordingly, the stay on this action was lifted. Plaintiff and defendants have agreed that this action should be dismissed in light of the rulings dismissing the two cases discussed above. The derivative plaintiff in the action described in the preceding paragraph filed a separate derivative action against the Adviser, certain affiliates of the Adviser, the individual trustees of certain Van Kampen funds, and certain unaffiliated entities. The named investment companies, including the Fund, were listed as nominal defendants. The complaint alleged that certain unaffiliated entities engaged in or facilitated market timing and late trading in the Van Kampen funds, and that the Adviser, certain affiliates of the Adviser, and the trustees failed to prevent and/or detect such market timing and late trading. The complaint sought, among other things, the removal of the current trustees of the funds, rescission of the management contracts and distribution plans for the funds, disgorgement of fees and profits from the Adviser and its affiliates, and monetary damages. The court initially granted in part and denied in part defendants' motion to dismiss this complaint. The defendants moved the court to reconsider those claims it denied. The plaintiff thereafter voluntarily dismissed the independent trustees from the action without prejudice. On June 14, 2006, the court entered an order granting defendants' motion for reconsideration and dismissing all claims in the action. 6. INDEMNIFICATIONS The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 22 VAN KAMPEN RESERVE FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen Reserve Fund We have audited the accompanying statement of assets and liabilities of Van Kampen Reserve Fund (the "Fund"), including the portfolio of investments, as of May 31, 2006, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2006, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen Reserve Fund at May 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois July 14, 2006 23 VAN KAMPEN RESERVE FUND BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR JACK E. NELSON HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY OFFICERS RONALD E. ROBISON President and Principal Executive Officer DENNIS SHEA Vice President J. DAVID GERMANY Vice President AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer PHILLIP G. GOFF Chief Financial Officer and Treasurer INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1221 Avenue of the Americas New York, New York 10020 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY One Lincoln Street Boston, Massachusetts 02111 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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. 24 VAN KAMPEN RESERVE FUND TRUSTEES AND OFFICERS INFORMATION The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund and their principal occupations during the last five years, other directorships held by trustees and their affiliations, if any, with Van Kampen Investments, the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Investor Services. The term "Fund Complex" includes each of the investment companies advised by the Adviser as of the date of this Annual Report. Trustees serve until reaching their retirement age or until their successors are duly elected and qualified. Officers are annually elected by the trustees. INDEPENDENT TRUSTEES:
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (61) Trustee Trustee Chairman and Chief 68 Trustee/Director/Managing Blistex Inc. since 2003 Executive Officer of General Partner of funds 1800 Swift Drive Blistex Inc., a consumer in the Fund Complex. Oak Brook, IL 60523 health care products manufacturer. Director of the Heartland Alliance, a nonprofit organization serving human needs based in Chicago. Director of St. Vincent de Paul Center, a Chicago based day care facility serving the children of low income families. Board member of the Illinois Manufacturers' Association. Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 66 Trustee/Director/Managing 33971 Selva Road since 1999 Chairman and Chief General Partner of funds Suite 130 Executive Officer of the in the Fund Complex. Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a ("Allstate") and Allstate biotechnological company, Insurance Company. Prior and Director of Valero to January 1995, Energy Corporation, an President and Chief independent refining Executive Officer of company. Allstate. Prior to August 1994, various management positions at Allstate.
25
VAN KAMPEN RESERVE FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (65) Trustee Trustee President of CAC, L.L.C., 68 Trustee/Director/Managing CAC, L.L.C. since 2003 a private company General Partner of funds 4350 LaJolla Village Drive offering capital in the Fund Complex. Suite 980 investment and management Director of Quidel San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle, to February 2001, Vice Inc., Ventana Medical Chairman and Director of Systems, Inc., and GATX Anixter International, Corporation and Trustee Inc., a global of The Scripps Research distributor of wire, Institute. Prior to cable and communications January 2005, Trustee of connectivity products. the University of Chicago Prior to July 2000, Hospitals and Health Managing Partner of Systems. Prior to April Equity Group Corporate 2004, Director of Investment (EGI), a TheraSense, Inc. Prior to company that makes January 2004, Director of private investments in TeleTech Holdings Inc. other companies. and Arris Group, Inc. Prior to May 2002, Director of Peregrine Systems Inc. Prior to February 2001, Director of IMC Global Inc. Prior to July 2000, Director of Allied Riser Communications Corp., Matria Healthcare Inc., Transmedia Networks, Inc., CNA Surety, Corp. and Grupo Azcarero Mexico (GAM).
26
VAN KAMPEN RESERVE FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 66 Trustee/Director/Managing Heidrick & Struggles since 1995 Heidrick & Struggles, an General Partner of funds 233 South Wacker Drive executive search firm. in the Fund Complex. Suite 7000 Trustee on the University Chicago, IL 60606 of Chicago Hospitals Board, Vice Chair of the Board of the YMCA of Metropolitan Chicago and a member of the Women's Board of the University of Chicago. Prior to 1997, Partner of Ray & Berndtson, Inc., an executive recruiting firm. Prior to 1996, Trustee of The International House Board, a fellowship and housing organization for international graduate students. Prior to 1995, Executive Vice President of ABN AMRO, N.A., a bank holding company. Prior to 1990, Executive Vice President of The Exchange National Bank. R. Craig Kennedy (54) Trustee Trustee Director and President of 66 Trustee/Director/Managing 1744 R Street, NW since 1995 the German Marshall Fund General Partner of funds Washington, DC 20009 of the United States, an in the Fund Complex. independent U.S. foundation created to deepen understanding, promote collaboration and stimulate exchanges of practical experience between Americans and Europeans. Formerly, advisor to the Dennis Trading Group Inc., a managed futures and option company that invests money for individuals and institutions. Prior to 1992, President and Chief Executive Officer, Director and member of the Investment Committee of the Joyce Foundation, a private foundation. Howard J Kerr (70) Trustee Trustee Prior to 1998, President 68 Trustee/Director/Managing 14 Huron Trace since 2003 and Chief Executive General Partner of funds Galena, IL 61036 Officer of Pocklington in the Fund Complex. Corporation, Inc., an Director of the Lake investment holding Forest Bank & Trust. company. Director of the Marrow Foundation.
27
VAN KAMPEN RESERVE FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (70) Trustee Trustee President of Nelson 66 Trustee/Director/Managing 423 Country Club Drive since 1995 Investment Planning General Partner of funds Winter Park, FL 32789 Services, Inc., a in the Fund Complex. financial planning company and registered investment adviser in the State of Florida. President of Nelson Ivest Brokerage Services Inc., a member of the NASD, Securities Investors Protection Corp. and the Municipal Securities Rulemaking Board. President of Nelson Sales and Services Corporation, a marketing and services company to support affiliated companies. Hugo F. Sonnenschein (65) Trustee Trustee President Emeritus and 68 Trustee/Director/Managing 1126 E. 59th Street since 2003 Honorary Trustee of the General Partner of funds Chicago, IL 60637 University of Chicago and in the Fund Complex. the Adam Smith Director of Winston Distinguished Service Laboratories, Inc. Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences. Suzanne H. Woolsey, Ph.D. Trustee Trustee Chief Communications 66 Trustee/Director/Managing (64) since 1999 Officer of the National General Partner of funds 815 Cumberstone Road Academy of in the Fund Complex. Harwood, MD 20776 Sciences/National Director of Fluor Corp., Research Council, an an engineering, independent, federally procurement and chartered policy construction institution, from 2001 to organization, since November 2003 and Chief January 2004 and Director Operating Officer from of Neurogen Corporation, 1993 to 2001. Director of a pharmaceutical company, the Institute for Defense since January 1998. Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, Director of the Rocky Mountain Institute and Trustee of Colorado College. Prior to 1993, Executive Director of the Commission on Behavioral and Social Sciences and Education at the National Academy of Sciences/National Research Council. From 1980 through 1989, Partner of Coopers & Lybrand.
28 VAN KAMPEN RESERVE FUND TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEE:*
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 68 Trustee/Director/Managing 333 West Wacker Drive since 1995 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Director of the Abraham Fund Complex. Lincoln Presidential Library Foundation.
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act) of certain funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such funds in the Fund Complex. 29 VAN KAMPEN RESERVE FUND TRUSTEE AND OFFICER INFORMATION continued OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (67) President and Officer President of funds in the Fund Complex since September 2005 1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex New York, NY 10020 Officer since May 2003. Managing Director of Van Kampen Advisors Inc. since June 2003. Director of Investor Services since September 2002. Director of the Adviser, Van Kampen Investments and Van Kampen Exchange Corp. since January 2005. Managing Director of Morgan Stanley and Morgan Stanley & Co. Incorporated. Managing Director and Director of Morgan Stanley Investment Management Inc. Chief Administrative Officer, Managing Director and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Managing Director and Director of Morgan Stanley Distributors Inc. and Morgan Stanley Distribution Inc. Chief Executive Officer and Director of Morgan Stanley Trust. Executive Vice President and Principal Executive Officer of the Institutional and Retail Morgan Stanley Funds. Director of Morgan Stanley SICAV. Previously Chief Global Operations Officer of Morgan Stanley Investment Management Inc. and Executive Vice President of funds in the Fund Complex from May 2003 to September 2005. Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-- Global Equity of the same entities since February 2006. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley from April 2000 to February 2006. J. David Germany (51) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 25 Cabot Square, Canary since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser Wharf and Van Kampen Advisors Inc. Chief Investment Officer-- London, GBR E14 4QA Global Fixed Income of the same entities since December 2005. Managing Director and Director of Morgan Stanley Investment Management Ltd. Director of Morgan Stanley Investment Management (ACD) Limited since December 2003. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006.
30
VAN KAMPEN RESERVE FUND TRUSTEE AND OFFICER INFORMATION continued TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Amy R. Doberman (44) Vice President Officer Managing Director and General Counsel, U.S. Investment 1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment New York, NY 10020 Management Inc., Morgan Stanley Investment Advisers Inc. and the Adviser. Vice President of the Morgan Stanley Institutional and Retail Funds since July 2004 and Vice President of funds in the Fund Complex since August 2004. Previously, Managing Director and General Counsel of Americas, UBS Global Asset Management from July 2000 to July 2004 and General Counsel of Aeltus Investment Management, Inc. from January 1997 to July 2000. Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management 1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund New York, NY 10020 Complex. John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since 1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen Advisors Inc. and certain other subsidiaries of Van Kampen Investments, Vice President, Chief Financial Officer and Treasurer of funds in the Fund Complex and head of Fund Accounting for Morgan Stanley Investment Management Inc. Prior to December 2002, Executive Director of Van Kampen Investments, the Adviser and Van Kampen Advisors Inc. Phillip G. Goff (42) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management 1 Parkview Plaza and Treasurer since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer Oakbrook Terrace, IL 60181 of funds in the Fund Complex since August 2005. Prior to June 2005, Vice President and Chief Financial Officer of Enterprise Capital Management, Inc., an investment holding company.
31 Van Kampen Reserve Fund An Important Notice Concerning Our U.S. Privacy Policy We are required by federal law to provide you with a copy of our Privacy Policy annually. The following Policy applies to current and former individual clients of Van Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange Corp., as well as current and former individual investors in Van Kampen mutual funds, unit investment trusts, and related companies. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, 529 Educational Savings Accounts, accounts subject to the Uniform Gifts to Minors Act, or similar accounts. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law. WE RESPECT YOUR PRIVACY We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as "personal information." 1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU? To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources. (continued on next page) Van Kampen Reserve Fund An Important Notice Concerning Our U.S. Privacy Policy continued For example: -- We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us. -- We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources. -- We may obtain information about your creditworthiness and credit history from consumer reporting agencies. -- We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements. -- If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer's operating system and Web browser, your use of our Web sites and your product and service preferences, through the use of "cookies." "Cookies" recognize your computer each time you return to one of our sites, and help to improve our sites' content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies. 2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU? To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law. A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law. B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with (continued on back) Van Kampen Reserve Fund An Important Notice Concerning Our U.S. Privacy Policy continued other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to non-affiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose. 3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE COLLECT ABOUT YOU? We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information. The Statement of Additional Information includes additional information about Fund trustees and is available, without charge, upon request by calling 1-800-847-2424. Van Kampen Funds Inc. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 www.vankampen.com Copyright (C)2006 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 23, 133, 233 RES ANR 7/06 (VAN KAMPEN INVESTMENTS SHINE LOGO) RN06-01870P-Y0506 Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) The Fund has amended its Code of Ethics during the period covered by the shareholder report presented in Item 1. Due to personnel changes at the Adviser, the list of Covered Officers set forth in Exhibit B was amended in August 2005 and a second time in September 2005. All three editions of Exhibit B are attached. Additionally, Exhibit B was amended to remove Mitchell M. Merin as a covered officer. (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit 12A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees : Jerry D. Choate and R. Craig Kennedy. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2006 REGISTRANT COVERED ENTITIES(1) AUDIT FEES........................ $21,000 N/A NON-AUDIT FEES AUDIT-RELATED FEES...... $0 $627,000(2) TAX FEES................... $1,500(3) $52,799(4) ALL OTHER FEES........... $0 $1,274,166(5) TOTAL NON-AUDIT FEES.......... $1,500 $1,952,965 TOTAL.............................. $22,500 $1,952,965
2005 REGISTRANT COVERED ENTITIES(1) AUDIT FEES........................ $20,000 N/A NON-AUDIT FEES AUDIT-RELATED FEES..... $0 $250,000(2) TAX FEES.................. $1,000(3) $100,829(4) ALL OTHER FEES........... $0 $64,000(5) TOTAL NON-AUDIT FEES......... $1,000 $414,829 TOTAL.............................. $21,000 $414,829
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically attestation services provided in connection with a SAS 70 Report. (3) Tax Fees represent tax advice and compliance services provided in connection with the review of the Registrant's tax. (4) Tax Fees represent tax advice services provided to Covered Entities, including research and identification of PFIC entities. (5) All Other Fees represent attestation services provided in connection with performance presentation standards. (e)(1) The audit committee's pre-approval policies and procedures are as follows: JOINT AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE VAN KAMPEN FUNDS AS ADOPTED JULY 23, 2003 AND AMENDED MAY 26, 2004(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund.(2) The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("general pre-approval"); or require the specific pre-approval of the Audit Committee ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC's rules on auditor independence. The Audit Committee will also consider whether the Independent Auditors are best positioned to provide the most effective and efficient services, for reasons such as its familiarity with the Fund's business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Fund's ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine for each fiscal year, the appropriate ratio between the total amount of fees for Audit, Audit-related and Tax services for the Fund (including any Audit-related or Tax service fees for Covered Entities that were subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. ---------- (1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "Policy"), amended as of the date above, supercedes and replaces all prior versions that may have been amended from time to time. (2) Terms used in this Policy and not otherwise defined herein shall have the meanings as defined in the Joint Audit Committee Charter. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will monitor the Audit services engagement as necessary, but no less than on a quarterly basis, and will also approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements or, to the extent they are Covered Services, the Covered Entities' financial statements, or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those Tax services that have historically been provided by the Independent Auditors, that the Audit Committee has reviewed and believes would not impair the independence of the Independent Auditors, and that are consistent with the SEC's rules on auditor independence. The Audit Committee will not permit the retention of the Independent Auditors in connection with a transaction initially recommended by the Independent Auditors, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with Director of Tax or outside counsel to determine that the tax planning and reporting positions are consistent with this policy. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services involving large and complex transactions not listed in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated), including tax services proposed to be provided by the Independent Auditors to any executive officer or trustee/director/managing general partner of the Fund, in his or her individual capacity, where such services are paid for by the Fund (generally applicable only to internally managed investment companies). 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). A list of the SEC's prohibited non-audit services is attached to this policy as Appendix B.5. The SEC's rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions. 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriate ratio between the total amount of fees for Audit, Audit-related, and Tax services for the Fund (including any Audit-related or Tax services fees for Covered Entities subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. A sample report is included as Appendix B.7. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: - Van Kampen Investments Inc. - Van Kampen Asset Management - Van Kampen Advisors Inc. - Van Kampen Funds Inc. - Van Kampen Investor Services Inc. - Morgan Stanley Investment Management Inc. - Morgan Stanley Trust Company - Morgan Stanley Investment Management Ltd. - Morgan Stanley Investment Management Company - Morgan Stanley Asset & Investment Trust Management Company Ltd. (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (included herein). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. (a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: R. Craig Kennedy, Jerry D. Choate, Rod Dammeyer. (b) Not applicable. Item 6. Schedule of Investments. Please refer to Item #1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Security Holders. Not applicable. Item 11. Controls and Procedures. (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (1) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (2)(a) A certification for the Principal Executive Officer of the registrant is attached hereto as part of EX-99.CERT. (2)(b) A certification for the Principal Financial Officer of the registrant is attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Van Kampen Reserve Fund By: /s/ Ronald E. Robison ---------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: July 20, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison --------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: July 20, 2006 By: /s/ Phillip G. Goff ------------------- Name: Phillip G. Goff Title: Principal Financial Officer Date: July 20, 2006