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(Il)
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 2000
REGISTRATION NO. 2-50870
NO. 811-2482
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
[Download Table]
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 42 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 27 [X]
VAN KAMPEN RESERVE FUND
(Exact Name of Registrant as Specified in Declaration of Trust)
1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555
(Address of Principal Executive Offices) (Zip Code)
(630) 684-6000
Registrant's Telephone Number, Including Area Code
A. THOMAS SMITH III
Executive Vice President,
General Counsel and Secretary
Van Kampen Investments Inc.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, Illinois 60181-5555
(Name and Address of Agent for Service)
------------------------
Copies to:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
(312) 407-0700
------------------------
Approximate Date of Proposed Public Offering: As soon as practicable
following effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
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VAN KAMPEN
RESERVE FUND
Van Kampen Reserve Fund's investment objective is to seek protection of capital
and high current income. The Fund's investment adviser seeks to achieve the
Fund's investment objective by investing in a portfolio of U.S.
dollar-denominated money-market securities.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This prospectus is dated SEPTEMBER 28, 2000.
[VAN KAMPEN FUNDS LOGO]
TABLE OF CONTENTS
[Download Table]
Risk/Return Summary................................ 3
Fees and Expenses of the Fund...................... 4
Investment Objective, Policies and Risks........... 5
Investment Advisory Services....................... 7
Purchase of Shares................................. 8
Redemption of Shares............................... 12
Distributions from the Fund........................ 14
Shareholder Services............................... 14
Federal Income Taxation............................ 16
Financial Highlights............................... 18
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek protection of capital and high
current income.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing in a portfolio of U.S. dollar-denominated money-market securities,
including U.S. government securities, domestic and foreign bank obligations,
commercial paper and repurchase agreements secured by such obligations. The Fund
seeks to maintain a constant net asset value of $1.00 per share by investing in
money-market securities with remaining maturities of 13 months or less and with
a dollar-weighted average maturity of 90 days or less. The Fund's investments
are limited to those securities that meet maturity, quality and diversification
standards with which money market funds must comply. In selecting securities for
investment, the Fund's investment adviser seeks to invest in those securities
that it believes entail reasonable risk considered in relation to the Fund's
investment policies and may sell such securities in order to increase the yield
or to adjust the average maturity or credit quality of the Fund's investment
portfolio.
INVESTMENT RISKS
An investment in the Fund is subject to risks. An investment in the Fund is not
a deposit of any bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund. There can be no assurance that the Fund will
achieve its investment objective.
INCOME RISK. The income you receive from the Fund is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Fund may drop as well.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. While credit risk should be low for the Fund because
it invests in high-quality money-market instruments, an investment in the Fund
is not risk free. The Fund is still subject to the risk that the issuers of such
securities may experience financial difficulties and, as a result, fail to pay
on their obligations.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline and adversely affect the Fund's net asset value.
The prices of debt securities tend to fall as interest rates rise but market
risk should be low for the Fund because it invests in high-quality, short-term
securities.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques,
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- Seek protection of capital and high current income through investments in
money-market instruments
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the ten calendar years prior to the
date of this prospectus. Remember that the past performance of the Fund is not
indicative of its future performance.
[Download Table]
ANNUAL RETURN
-------------
1990 7.53
1991 5.33
1992 2.91
1993 2.16
1994 3.38
1995 5.00
1996 4.46
1997 4.68
1998 4.85
1999 4.48
3
The Fund's return for the six-month period ended June 30, 2000 was 2.61%. As a
result of recent market activity, current performance may vary from the figures
shown.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the ten-year period shown in the bar chart, the highest quarterly return
for Class A Shares was 1.88% (for the quarter ended June 30, 1990) and the
lowest quarterly return for Class A Shares was 0.52% (for the quarter ended June
30, 1993).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows the Fund's average annual total returns for the periods ended December 31,
1999 (the most recently completed calendar year prior to the date of this
prospectus). The Fund's performance figures for Class B Shares and Class C
Shares include the maximum contingent deferred sales charges paid by investors.
Remember that the past performance of the Fund is not indicative of its future
performance.
[Download Table]
Average Annual
Total Returns Past 10
for the Years or
Periods Ended Past Past Since
December 31, 1999 1 Year 5 Years Inception
-------------------------------------------------------
Van Kampen
Reserve Fund--
Class A Shares 4.48% 4.69% 4.47%
.......................................................
Van Kampen
Reserve Fund--
Class B Shares -0.29% -- 3.60%(1)
.......................................................
Van Kampen
Reserve Fund--
Class C Shares 2.70% -- 3.87%(1)
.......................................................
Inception date: (1) 4/18/95.
Investors can obtain the current 7-day yield for each class of shares of the
Fund by calling (800) 341-2911.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
[Download Table]
Class A Class B Class C
Shares Shares Shares
--------------------------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment)
--------------------------------------------------------------
[Download Table]
Maximum sales charge
(load) imposed on
purchases None None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None 4.00%(1)(2) 1.00%(1)(3)
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..............................................................
Redemption fee None None None
..............................................................
Exchange fee None None None
..............................................................
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
[Download Table]
--------------------------------------------------------------
Management fees 0.39% 0.39% 0.39%
..............................................................
Distribution and/or
service (12b-1) 0.15% 0.90%(5) 0.90%(5)
fees(4)
..............................................................
Other expenses 0.28% 0.28% 0.28%
..............................................................
Total annual fund
operating expenses 0.82% 1.57% 1.57%
..............................................................
(1) Class B Shares and Class C Shares of the Fund generally are made available
to shareholders for temporary investment purposes in connection with
exchanges to or from other Van Kampen funds. Unless investors intend to
exchange their Fund shares to or from Class B Shares or Class C Shares of
other Van Kampen funds, they should purchase the Fund's Class A Shares
because Class A Shares are not subject to any sales charges and are subject
to less ongoing distribution/service fees and or related expenses. Even
investors who do intend to exchange their Fund shares for Class B Shares or
Class C Shares of other Van Kampen funds may prefer to purchase Class A
Shares of the Fund and then redeem those shares and use the proceeds to
purchase Class B Shares or Class C Shares of other Van Kampen funds. See
"Purchase of Shares."
(2) The maximum deferred sales charge is 4.00% in the first and second year
after purchase, declining thereafter as follows:
Year 1-4.00%
Year 2-4.00%
Year 3-3.00%
Year 4-2.50%
Year 5-1.50%
After-None
See "Purchase of Shares -- Class B Shares."
4
(3) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares -- Class C Shares."
(4) Class A Shares are subject to an annual service fee of up to 0.15% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 0.90% of the average daily net assets attributable
to such class of shares. See "Purchase of Shares."
(5) Because distribution and/or service (12b-1) fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
[Download Table]
One Three Five Ten
Year Years Years Years
----------------------------------------------------------------------
Class A Shares $ 84 $262 $ 455 $1,014
......................................................................
Class B Shares $560 $796 $1,005 $1,666*
......................................................................
Class C Shares $260 $496 $ 855 $1,867
......................................................................
You would pay the following expenses if you did not redeem your shares:
[Download Table]
One Three Five Ten
Year Years Years Years
----------------------------------------------------------------------
Class A Shares $ 84 $262 $ 455 $1,014
......................................................................
Class B Shares $160 $496 $ 855 $1,666*
......................................................................
Class C Shares $160 $496 $ 855 $1,867
......................................................................
* Based on conversion to Class A Shares after eight years.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek protection of capital and high
current income. The Fund's investment objective is a fundamental policy and may
not be changed without shareholder approval by a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). The Fund seeks to maintain a constant net asset
value of $1.00 per share. There are risks inherent in all investments in
securities; accordingly, there can be no assurance that the Fund's net asset
value will not vary or that the Fund will achieve its investment objective.
The Fund's investment adviser seeks to achieve the investment objective by
investing in a diversified portfolio of U.S. dollar-denominated money-market
securities, including U.S. government securities, domestic and foreign bank
obligations, commercial paper and repurchase agreements secured by such
obligations. The Fund seeks to maintain a constant net asset value of $1.00 per
share by investing in high-quality money-market securities with remaining
maturities of 13 months or less and with a dollar-weighted average maturity of
90 days or less. To be considered high quality, a security generally must be
rated in one of the two highest short-term ratings categories by the ratings
services such as Standard & Poor's ("S&P") or Moody's Investors Service, Inc.
("Moody's").
The Fund's investment adviser seeks to invest in those securities that meet the
maturity, quality and diversification standards established by the Fund's Board
of Trustees following special rules for money market funds established under the
1940 Act. These include requirements for maintaining high credit quality in the
Fund's portfolio, a short average portfolio maturity to reduce the effects of
changes in interest rates on the value of portfolio securities and diversifying
investments among issuers to reduce the effects of a default by any one issuer
on the value of the Fund's shares. In addition, the Fund's Board of Trustees has
adopted procedures to evaluate potential investments and the Fund's investment
adviser has the responsibility to implement those procedures in making
investments for the Fund's portfolio. In selecting securities for investment,
the Fund's investment adviser focuses on identifying the best relative values
among potential investments based upon an analysis of the yield, price, interest
rate sensitivity and credit quality of such securities. The Fund's investment
adviser seeks to add value and limit risk through careful security selection and
by actively managing the Fund's portfolio. On an ongoing basis, the Fund's
investment adviser analyzes the economic and financial outlook of the money
markets in order to anticipate and respond to changing developments that may
affect the Fund's existing and
5
prospective investments. While the Fund intends to hold investments until
maturity, it may sell portfolio securities prior to maturity in order to
increase the yield or to adjust the average maturity or credit quality of the
Fund's portfolio.
The Fund's dividend and yield are expected to change daily based upon changes in
interest rates and other market conditions. Although the Fund is managed to
maintain a stable $1.00 share price, there is no guarantee that the Fund will be
able to do so.
The following is a brief description of the types of money-market instruments
the Fund may invest in, all of which will be U.S. dollar-denominated
obligations:
U.S. GOVERNMENT SECURITIES. The Fund may invest in obligations issued or
guaranteed as to principal and interest by the U.S. government, its agencies or
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. government which include U.S. Treasury bills
(maturing within one year of issuance) and U.S. Treasury notes and bonds (which
have longer maturities), (b) the right of the issuer to borrow from the U.S.
Treasury, (c) the discretionary authority of the U.S. government agencies or
instrumentalities or (d) the credit of the instrumentality issuing the
securities. If the securities are not backed by the full faith and credit of the
U.S. government, the owners of such securities must look to the agency or
instrumentality issuing the obligation for repayment and will not be able to
assert a claim against the U.S. government in the event of nonpayment.
Governmental agencies or instrumentalities in which the Fund may invest include,
but are not limited to, the Federal National Mortgage Association, the
Government National Mortgage Association, Federal Land Banks, and the Farmer's
Home Administration.
BANK OBLIGATIONS. The Fund may invest in high-quality obligations issued by
domestic and foreign banks or their subsidiaries or overseas branches. Bank
obligations include time deposits, certificates of deposit and bankers'
acceptances, as well as securities secured by such obligations. Certificates of
deposit are instruments representing the obligation of a bank to repay funds
deposited with it for a specified period of time. Time deposits are
interest-bearing deposits maintained in a bank for a specified period of time
(not longer than seven days) at a specific rate of interest. Time deposits held
by the Fund generally will not benefit from insurance provided by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity.
The Fund only invests in "high-quality" bank obligations which are securities
rated in one of the two highest short-term ratings categories by any two
nationally recognized statistical rating organizations ("NRSROs"), such as S&P
(e.g., A-1 or A-2) or Moody's (e.g., P-1 or P-2) (or any one NRSRO if the
instrument was rated by only one such organization). Credit quality at the time
of purchase determines which securities may be acquired. Subsequent downgrades
in ratings may require reassessment of the credit risks presented by such
securities and may even require their sale. NRSROs assign ratings based upon
their opinions as to the quality of the debt securities they undertake to rate,
but they do not base their assessment on the market value risk of such
securities. It should be emphasized that ratings are general and are not
absolute standards of quality. The Fund's current policy is to limit investments
in bank obligations to those rated A-1 or P-1.
The purchase of obligations of foreign banks may subject the Fund to additional
investment risks that are different in some respects from those incurred in
investing in obligations of domestic banks. Foreign banks and foreign branches
or subsidiaries of domestic banks are not necessarily subject to the same or
similar regulatory requirements that apply to domestic banks, such as mandatory
reserve requirements, loan limitations and accounting, audit and financial
record keeping requirements. In addition, less information may be publicly
available about a foreign bank or about a foreign branch of a domestic bank.
Because evidences of ownership of obligations of foreign branches or
subsidiaries of foreign banks usually are held outside the United States, the
Fund will be subject to additional risks which include possible adverse
political and economic developments, possible seizure or nationalization of
foreign deposits and possible adopting of governmental restrictions which might
adversely affect the payment of principal and interest on the foreign
obligations or might restrict the payment of principal and interest to investors
located outside the country of the issuer, whether from currency blockage or
otherwise. Income earned or received by the Fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries.
6
COMMERCIAL PAPER. Commercial paper consists of short-term (usually 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. The Fund may invest in a commercial paper obligation
that (a) is rated in one of the two highest short-term ratings categories by any
two NRSROs (e.g., A-1 or A-2 by S&P and P-1 or P-2 by Moody's) (or any one NRSRO
if the instrument was rated by only one such organization) or (b) is unrated, if
such security is of comparable quality as determined in accordance with
procedures established by the Fund's Board of Trustees or if such security was a
long-term security at the time of issuance but has a remaining life of 397 days
or less and has received a long-term rating in one of the three highest
long-term ratings categories by any two NRSROs (e.g., A or higher by S&P and
Moody's) (or any one NRSRO if the instrument was rated by only one such
organization). Credit quality at the time of purchase determines which
securities may be acquired. The Fund's current policy is to limit investments in
commercial paper to obligations rated A-1 or P-1.
REPURCHASE AGREEMENTS. A repurchase agreement is a short-term investment in
which the purchaser (e.g., the Fund) acquires ownership of a debt security and
the seller agrees to repurchase the obligation at a future time and at a set
price, thereby determining the yield during the holding period. The Fund may
enter into repurchase agreements with U.S. banks, their subsidiaries or overseas
branches, and with primary dealers of U.S. government securities that report to
the Federal Reserve Bank of New York. The Fund only enters into repurchase
agreements that are (a) rated at the time of investment in one of the two
highest ratings categories by at least two NRSROs (e.g. A-1 or A-2 by S&P and
P-1 or P-2 by Moody's) (or one NRSRO if the instrument was rated by only one
such organization) and (b) collateralized by the underlying securities of the
same type and quality in which the Fund otherwise may invest. The Fund will not
invest in repurchase agreements maturing in more than seven days if any such
investment, together with any other illiquid securities held by the Fund, would
exceed 10% of the Fund's net assets. Repurchase agreements are subject to the
risk of default by the other party.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information.
INVESTMENT ADVISORY SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment adviser
(the "Adviser" or "Asset Management"). The Adviser is a wholly owned subsidiary
of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than three
million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $100 billion under management or
supervision as of June 30, 2000. Van Kampen Investments' more than 50 open-end
and 39 closed-end funds and more than 2,700 unit investment trusts are
professionally distributed by leading authorized dealers nationwide. Van Kampen
Funds Inc., the distributor of the Fund (the "Distributor") and the sponsor of
the funds mentioned above, is also a wholly owned subsidiary of Van Kampen
Investments. Van Kampen Investments is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The Adviser's principal office is located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to the average daily net assets of
the Fund as follows:
[Download Table]
Average Daily Net Assets % Per Annum
------------------------------------------------------
First $150 million 0.50 of 1.00%
......................................................
Next $100 million 0.45 of 1.00%
......................................................
Next $100 million 0.40 of 1.00%
......................................................
Over $350 million or
thereafter 0.35 of 1.00%
......................................................
Applying this fee schedule, the effective advisory fee rate was 0.39% of the
Fund's average daily net assets for the Fund's fiscal year ended May 31, 2000.
The Fund's average daily net assets are determined by taking the average of all
of the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment,
7
and provides administrative services to the Fund. The Fund pays all charges and
expenses of its day-to-day operations, including service fees, distribution
fees, custodian fees, legal and independent accountant fees, the costs of
reports and proxies to shareholders, compensation of trustees of the Trust
(other than those who are affiliated persons of the Adviser, Distributor or Van
Kampen Investments) and all other ordinary business expenses not specifically
assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Distributor have
adopted Codes of Ethics designed to recognize the fiduciary relationships among
the Fund, the Adviser, the Distributor and their respective employees. The Codes
of Ethics permit directors, trustees, officers and employees to buy and sell
securities for their personal accounts subject to certain restrictions. Persons
with access to certain sensitive information are subject to pre-clearance and
other procedures designed to prevent conflicts of interest.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments generally must be at least $1,000 for each class of shares,
and subsequent investments must be at least $25 for each class of shares.
Minimum investment amounts may be waived by the Distributor for plans involving
periodic investments and for certain retirement accounts.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares are sold
without a sales charge, while Class B Shares and Class C Shares generally bear
sales charge expenses at the time of redemption and any expenses (including
higher distribution fees and transfer agency costs) resulting from such deferred
sales charge arrangement, (ii) each class of shares has exclusive voting rights
with respect to approvals of the Rule 12b-1 distribution plan and the service
plan (each as described below) under which the class's distribution fee and/or
the service fee is paid, (iii) each class of shares has different exchange
privileges, (iv) certain classes of shares are subject to a conversion feature
and (v) certain classes of shares have different shareholder service options
available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share. The net asset values per share of the Class A Shares, Class B Shares
and Class C Shares are generally expected to be substantially the same. In
certain circumstances, however, the per share net asset values of the classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees and transfer agency costs applicable to the Class B
Shares and Class C Shares and the differential in the dividends that may be paid
on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Trustees reserves the right to calculate the net
asset value per share and adjust the offering price more frequently than once
daily if deemed desirable. Net asset value per share for each class is
determined by dividing the value of the Fund's portfolio securities, cash and
other assets (including accrued interest) attributable to such class, less all
liabilities (including accrued expenses) attributable to such class, by the
total number of shares of the class outstanding. The securities held by the Fund
are valued on the basis of amortized cost, which does not take into account
unrealized capital gains or losses. Amortized cost valuation involves initially
valuing a security at its cost and thereafter, applying a constant amortization
to maturity of any
8
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price that the Fund would receive if
it sold the security.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class and the maintenance of the shareholders' accounts.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution and service fees and other expenses of the Fund associated with
that class of shares. To assist investors in comparing classes of shares, the
tables under the Prospectus heading "Fees and Expenses of the Fund" provide a
summary of sales charges and expenses and an example of the sales charges and
expenses of the Fund applicable to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through members
of the NASD who are acting as securities dealers ("dealers") and NASD members or
eligible non-NASD members who are acting as brokers or agents for investors
("brokers"). "Dealers" and "brokers" are sometimes referred to herein as
"authorized dealers."
Shares may be purchased on any business day by following the wire transfer
instructions described below or by completing the account application form and
forwarding the account application, directly or through an authorized dealer, to
the Fund's shareholder service agent, Van Kampen Investor Services Inc.
("Investor Services"), a wholly owned subsidiary of Van Kampen Investments. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A Shares, Class B Shares or Class C Shares by selecting the correct
Fund number on the account application. Sales personnel of authorized dealers
distributing the Fund's shares are entitled to receive compensation for selling
Class B Shares and Class C Shares and may receive differing compensation for
selling Class B Shares or Class C Shares. Sales personnel of authorized dealers
are not entitled to receive compensation for selling Class A Shares.
The offering price for shares is based upon the next calculation of net asset
value per share after an order becomes effective, which is upon receipt by
Investor Services of federal funds. Payment by check generally will be converted
into federal funds on the second business day following receipt of payment for
the order by Investor Services.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund by telephone at (800)
341-2911 or by writing to the Fund, c/o Van Kampen Investor Services Inc., PO
Box 218256, Kansas City, MO 64121-8256.
INITIAL INVESTMENT BY BANK WIRE. To open an account by wire an investor should
telephone Investor Services at (800) 421-6714 and provide the account
registration, the address, tax identification number, the amount being wired and
the name of the wiring bank. Investor Services furnishes the investor with an
account number. The investor's bank should wire the specified amount along with
the account number and
9
registration to the Fund's custodian: State Street Bank and Trust Company
("State Street Bank"), 225 Franklin Street, Boston, Massachusetts 02102,
ABA-011000028, attention Van Kampen Investor Services Inc./Van Kampen Fund
Account No. 9900-446-7. The investor should then immediately complete and mail
the account application form accompanying this Prospectus to Investor Services.
To receive same day credit to an account, the investor must call Investor
Services, at the telephone number listed above, by 11:00 a.m. Kansas City time
with the intent to wire funds and State Street Bank must then receive such funds
by 4:00 p.m. Boston time.
INITIAL INVESTMENT BY MAIL. To open an account by mail an investor should send a
check payable to the Fund along with a completed account application form to
Investor Services.
SUBSEQUENT INVESTMENTS BY BANK WIRE. The investor's bank should wire the
specified amount along with the account number and registration to State Street
Bank. To receive same day credit to an account, the investor must call Investor
Services at (800) 421-6714 by 11:00 a.m. Kansas City time with the intent to
wire funds and State Street Bank must then receive such funds by 4:00 p.m.
Boston time.
SUBSEQUENT INVESTMENTS BY MAIL. Subsequent investments in the amount of $25 or
more may be sent by mail to Investor Services, indicating the account
registration and account number.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value without a sales charge
and no sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and the Service Plan, the Fund may spend up to a
total of 0.15% per year of the Fund's average daily net assets with respect to
the Class A Shares of the Fund. From such amount, under the Service Plan, the
Fund may spend up to 0.15% per year of the Fund's average daily net assets with
respect to the Class A Shares of the Fund.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The administrator of such a unit investment
trust must have an agreement with the Distributor pursuant to which the
administrator will (1) submit a single bulk order and make payment with a single
remittance for all investments in the Fund during each distribution period by
all investors who choose to invest in the Fund through the program and (2)
provide Investor Services with appropriate backup data for each investor
participating in the program in a computerized format fully compatible with
Investor Services' processing system. As further requirements for obtaining
these special benefits, the Fund also requires that all dividends and other
distributions by the Fund be reinvested in additional shares without any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
[Download Table]
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
------------------------------------------------
First 4.00%
................................................
Second 4.00%
................................................
Third 3.00%
................................................
Fourth 2.50%
................................................
Fifth 1.50%
................................................
Sixth and After None
................................................
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived
10
from reinvestment of dividends or capital gain dividends. It is presently the
policy of the Distributor not to accept any order for Class B Shares in an
amount of $500,000 or more because it ordinarily will be more advantageous for
an investor making such an investment to purchase Class A Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for each purchase of Class B Shares
until the time of redemption of such shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the shares being redeemed first are any shares in
the shareholder's Fund account that are not subject to a contingent deferred
sales charge, followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.15% per year of
the Fund's average daily net assets with respect to the Class B Shares of the
Fund.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1,000,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the shares being redeemed first are any shares in
the shareholder's Fund account that are not subject to a contingent deferred
sales charge, followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.15% per year of
the Fund's average daily net assets with respect to the Class C Shares of the
Fund.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, including Class B Shares
received from reinvestment of distributions through the dividend reinvestment
plan, automatically convert to Class A Shares eight years after the end of the
calendar month in which the shares were purchased. Class B Shares purchased
before June 1, 1996, including Class B Shares received from reinvestment of
distributions through the dividend reinvestment plan, automatically convert to
Class A Shares six years after the end of the calendar month in which the shares
were purchased. Class C Shares purchased before January 1, 1997, including Class
C Shares received from reinvestment of distributions through the dividend
reinvestment plan, automatically convert to Class A Shares ten years after the
end of the calendar month in which the shares were purchased. Such conversion
will be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and (ii)
the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
FACTORS FOR CONSIDERATION
Class B Shares and Class C Shares of the Fund generally are made available to
shareholders for temporary investment purposes in connection with
11
exchanges to or from other Van Kampen funds participating in the exchange
program. Investors purchasing shares of the Fund without regard to the
availability of exchanges should purchase Class A Shares because Class A Shares
are not subject to any sales charges and are subject to less ongoing
distribution/service fees and related expenses. Therefore, Class A Shares will
have a higher yield than Class B Shares and Class C Shares. Even investors who
do intend to exchange their shares for Class B Shares or Class C Shares of other
Van Kampen funds should consider purchasing Class A Shares and then redeeming
those shares when they wish to invest in Class B Shares or Class C Shares of
other Van Kampen funds. Since Class A Shares are subject to lower
distribution/service fees and related expenses, purchasing Class A Shares and
then redeeming them to purchase Class B Shares or Class C Shares of other Van
Kampen funds is likely to result in a higher return to the investor than
purchasing Class B Shares or Class C Shares and then exchanging them for Class B
Shares or Class C Shares of other Van Kampen funds. The contingent deferred
sales charges applicable to Class B Shares and Class C Shares is not imposed on
exchanges among Van Kampen funds participating in the exchange program for the
same class of shares. Instead, Class B Shares or Class C Shares acquired in an
exchange remain subject to the contingent deferred sales charges schedule of the
initial fund from which the Class B Shares or Class C Shares were purchased.
Similarly the holding period for calculating any contingent deferred sales
charge is based upon the date of purchase of such shares from the initial fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by the
Fund's involuntary liquidation of a shareholder's account as described under the
Prospectus heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the Prospectus heading "Purchase of Shares," redemptions of
Class B Shares and Class C Shares may be subject to a contingent deferred sales
charge. Redemptions completed through an authorized dealer or a
custodian/trustee of a retirement plan account may involve additional fees
charged by the dealer or custodian/trustee.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the redemption request and any other necessary
documents in proper form as described below. Such payment may be postponed or
the right of redemption suspended as provided by the rules of the SEC. Such
payment may, under certain circumstances, be paid wholly or in part by a
distribution-in-kind of portfolio securities. A distribution-in-kind will result
in recognition by the shareholder of a gain or loss for federal income tax
purposes when such securities are distributed, and the shareholder may have
brokerage costs and a gain or loss for federal income tax purposes upon the
shareholder's subsequent disposition of such securities. If the shares to be
redeemed have been recently purchased by check, Investor Services may delay the
payment of redemption proceeds until it confirms the purchase check has cleared,
which may take up to 15 days from the date of purchase. A taxable gain or loss
may be recognized by the shareholder upon redemption of shares. Certificated
shares must be properly endorsed for transfer and must accompany a written
redemption request.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in
12
proper form sent directly to Van Kampen Investor Services Inc., PO Box 218256,
Kansas City, MO 64121-8256. The request for redemption should indicate the
number of shares or dollar amount to be redeemed, the Fund name and class
designation of such shares and the shareholder's account number. The redemption
request must be signed by all persons in whose names the shares are registered.
Signatures must conform exactly to the account registration. If the proceeds of
the redemption exceed $50,000, or if the proceeds are not to be paid to the
record owner at the record address, or if the record address has changed within
the previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing agency; a savings and
loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption request to be in proper form.
In some cases, however, additional documents may be necessary. Certificated
shares may be redeemed only by written request. The certificates for the shares
being redeemed must be properly endorsed for transfer and must accompany the
redemption request. Generally, in the event a redemption is requested by and
registered to a corporation, partnership, trust, fiduciary, estate or other
legal entity owning shares of the Fund, a copy of the corporate resolution or
other legal documentation appointing the authorized signer and certified within
the prior 120 days must accompany the redemption request. Retirement plan
distribution requests should be sent to the plan custodian/trustee to be
forwarded to Investor Services. Contact the plan custodian/trustee for further
information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. The redemption price for such shares is
the net asset value per share next calculated after an order in proper form is
received by an authorized dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the account application
form. For accounts that are not established with telephone redemption
privileges, a shareholder may call the Fund at (800) 341-2911 to request that a
copy of the Telephone Redemption Authorization form be sent to the shareholder
for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Shares may also be redeemed by telephone through FundInfo(R)
(automated telephone system), which is accessible 24 hours a day, seven days a
week at (800) 847-2424. Van Kampen Investments and its subsidiaries, including
Investor Services, and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape-recording telephone
communications and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, none of Van Kampen
Investments, Investor Services or the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Telephone
redemptions may not be available if the shareholder cannot reach Investor
Services by telephone, whether because all telephone lines are busy or for any
other reason; in such case, a shareholder would have to use the Fund's other
redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for most
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This
13
privilege is not available if the address of record has been changed within 30
days prior to a telephone redemption request. Proceeds from redemptions payable
by wire transfer are expected to be wired on the next business day following the
date of redemption. The Fund reserves the right at any time to terminate, limit
or otherwise modify this redemption privilege.
Expedited telephone redemption requests. Shareholders of the Fund who have
completed the appropriate section of the application may request expedited
redemption payment of shares having a value of $1,000 or more by calling (800)
421-5684. Redemption proceeds in the form of federal funds will be wired to the
bank designated in the application. Expedited telephone redemption requests
received prior to 10:00 a.m. Kansas City time are processed and the proceeds are
wired on the date of receipt. Redemption requests received by Investor Services
after such hour are subsequently processed and the proceeds are wired on the
next banking day following receipt of such request. Investor Services reserves
the right to deduct the wiring costs from the proceeds of the redemption. A
shareholder may change the bank account previously designated at any time by
written notice to Investor Services with the signature(s) of the shareholder(s)
guaranteed. The Fund reserves the right at any time to terminate, limit or
otherwise modify this expedited redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem any shareholder account that
has a value on the date of the notice of redemption less than the minimum
initial investment as specified in this prospectus. At least 60 days' advance
written notice of any such involuntary redemption will be provided to the
shareholder and such shareholder will be given an opportunity to purchase the
required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM THE FUND
Shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of net
investment income. The Fund's present policy, which may be changed at any time
by the Fund's Board of Trustees, is to declare daily and distribute monthly all,
or substantially all, of its net investment income as dividends to shareholders.
All dividends are automatically applied to purchase additional full and
fractional shares of the Fund at the next determined net asset value.
Shareholders may elect to receive monthly payment of dividends in cash by
written instruction to Investor Services. Dividends are paid to shareholders of
record immediately prior to the determination of net asset value for that day.
Since shares are issued and redeemed at the time net asset value is determined,
dividends commence on the day following the date shares are issued and are paid
for. A redeeming shareholder receives all dividends accrued through the date of
redemption.
The per share dividends on Class B Shares and Class C Shares will be lower than
the per share dividends on Class A Shares as a result of the higher
distribution/service expenses and transfer agency expenses applicable to such
classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. The Fund distributes any capital gains to
shareholders at least annually. As in the case of dividends, capital gain
dividends are automatically reinvested in additional shares of the Fund at the
next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Fund's Statement of Additional Information or contact your
authorized dealer.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer
14
to our web site at www.vankampen.com for further instruction. Van Kampen
Investments and its subsidiaries, including Investor Services, and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated through the internet are genuine. Such procedures
include requiring use of a personal identification number prior to acting upon
internet instructions and providing written confirmation of instructions
communicated through the internet. If reasonable procedures are employed, none
of Van Kampen Investments, Investor Services or the Fund will be liable for
following instructions received through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911 ((800)
421-2833 for the hearing impaired) or by writing to Investor Services. The
investor may, on the account application form or prior to any declaration,
instruct that dividends and/or capital gain dividends be paid in cash, be
reinvested in the Fund at the next determined net asset value, or be invested in
another Participating Fund (defined below) at the next determined net asset
value.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to debit a shareholder's bank
account on a regular basis to invest predetermined amounts in the Fund.
Additional information is available from the Distributor or your authorized
dealer.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are not in escrow may write
checks against such shareholder's account by completing the Authorization for
Redemption by Check form and the appropriate section of the account application
and returning the form and the account application to Investor Services. Once
the form is properly completed, signed and returned, a supply of checks
(redemption drafts) will be sent to the Class A shareholder. Checks can be
written to the order of any person in any amount of $100 or more.
When a check is presented to the custodian bank, State Street Bank and Trust
Company (the "Bank"), for payment, full and fractional Class A Shares required
to cover the amount of the check are redeemed from the shareholder's Class A
Share account by Investor Services at the next determined net asset value per
share. Check writing redemptions represent the sale of Class A Shares. Any gain
or loss realized on the redemption of shares is a taxable event.
Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A Share account, the check
will be returned and the shareholder may be subject to additional charges. A
Class A shareholder may not liquidate the entire account by means of a check.
The check writing privilege may be terminated or suspended at any time by the
Fund or by the Bank and neither shall incur any liability for such amendment or
termination or for effecting redemptions to pay checks reasonably believed to be
genuine or for returning or not paying on checks which have not been accepted
for any reason. Retirement plans and accounts that are subject to backup
withholding are not eligible for the checkwriting privilege.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund (defined below) based on the next determined net
asset value per share of each fund after requesting the exchange without any
sales charge, subject to certain limitations. Shares of the Fund may be
exchanged for shares of any Participating Fund only if shares of that
Participating Fund are available for sale; however, during periods of suspension
of sales, shares of a Participating Fund may be available for sale only to
existing shareholders of a Participating Fund. Class A shares of the Fund which
have not previously been charged a sales charge (except for Class A Shares
issued under the reinvestment option) or that have been charged a lower sales
charge than the sales charge applicable of the shares of the Participating Fund
being acquired will have any applicable sales charges differential imposed upon
an exchange into a Participating Fund.
15
Shareholders seeking an exchange into a Participating Fund should obtain and
read the current prospectus for such fund prior to implementing an exchange. A
prospectus of any of the Participating Funds may be obtained from any authorized
dealer or the Distributor.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of shares of one Participating Fund and purchases
of shares of another Participating Fund. The sale may result in a gain or loss
for federal income tax purposes. If the shares sold have been held for less than
91 days, the sales charge paid on such shares is carried over and included in
the tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services, by contacting the telephone transaction line at (800)
421-5684, through FundInfo(R) (automated telephone system) at (800) 847-2424 or
through the internet at www.vankampen.com. A shareholder automatically has these
exchange privileges unless the shareholder indicates otherwise by checking the
applicable box on the account application form. Van Kampen Investments and its
subsidiaries, including Investor Services, and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions,
tape-recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
none of Van Kampen Investments, Investor Services or the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine. If
the exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gain dividend options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privilege to such shareholders. For further information
on these restrictions, see the Fund's Statement of Additional Information. The
Fund may modify, restrict or terminate the exchange privilege at any time on 60
days' notice to its shareholders of any termination or material amendment.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the fund that the shareholder is
purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time that shares of the
funds involved in the request are priced will be processed on the next business
day in the manner described herein.
FEDERAL INCOME
TAXATION
Distributions of the Fund's investment company taxable income (consisting
generally of ordinary income and net short-term capital gain) are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain (which is the excess of net long-term capital
gain over net short-term capital
16
loss) as capital gain dividends, if any, are taxable to shareholders as
long-term capital gains, whether paid in cash or reinvested in additional
shares, and regardless of how long the shares of the Fund have been held by such
shareholders. The Fund expects that its distributions will consist primarily of
ordinary income. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming such shares are held as a capital asset). Although
distributions generally are treated as taxable in the year they are paid,
distributions declared in October, November or December, payable to shareholders
of record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
The sale or exchange of shares may be a taxable transaction for federal income
tax purposes. Shareholders who sell their shares will generally recognize a gain
or loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held by the
shareholder as a capital asset, the gain or loss will be a capital gain or loss.
Any recognized capital gains may be taxed at different rates depending on how
long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its investment company taxable income, the Fund
will not be required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding and disposing of shares
of the Fund, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
17
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information for the year ended May 31, 2000 has been audited by Ernst & Young
LLP, independent auditors, whose report, along with the Fund's most recent
financial statements, is included in the Statement of Additional Information and
may be obtained by shareholders without charge by calling the telephone number
on the back cover of this prospectus. The information for the years ended May
31, 1999, 1998, 1997 and 1996 has been audited by PricewaterhouseCoopers LLP.
This information should be read in conjunction with the financial statements and
notes thereto included in the Statement of Additional Information.
[Enlarge/Download Table]
Class A Shares
Year Ended May 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the Period.................... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net Investment Income....................................... .0482 .0449 .0467 .0440 .0465
Less Distributions from Net Investment Income............... (.0482) (.0449) (.0467) (.0440) (.0465)
------ ------ ------ ------ ------
Net Asset Value, End of the Period.......................... $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ======
Total Return(b)............................................. 4.92% 4.55% 4.78% 4.52% 4.75%
Net Assets at End of the Period (In millions)............... $573.3 $529.6 $634.1 $451.3 $440.3
Ratio of Expenses to Average Net Assets*(a)................. 0.82% 0.84% 1.02% 1.02% 1.07%
Ratio of Net Investment Income to Average Net Assets*....... 4.71% 4.38% 4.60% 4.38% 4.62%
Class B Shares
Year Ended May 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the Period.................... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net Investment Income....................................... .0406 .0374 .0391 .0363 .0388
Less Distributions from Net Investment Income............... (.0406) (.0374) (.0391) (.0363) (.0388)
------ ------ ------ ------ ------
Net Asset Value, End of the Period.......................... $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ======
Total Return(b)............................................. 4.14%(b) 3.78%(b) 3.99%(b) 3.71%(b) 3.95%(b)
Net Assets at End of the Period (In millions)............... $238.8 $129.8 $123.0 $103.0 $81.5
Ratio of Expenses to Average Net Assets*(a)................. 1.57% 1.63% 1.79% 1.77% 1.86%
Ratio of Net Investment Income to Average Net Assets*....... 3.96% 3.71% 3.91% 3.70% 3.75%
Class C Shares
Year Ended May 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the Period.................... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net Investment Income....................................... .0406 .0373 .0392 .0362 .0387
Less Distributions from Net Investment Income............... (.0406) (.0373) (.0392) (.0362) (.0387)
------ ------ ------ ------ ------
Net Asset Value, End of the Period.......................... $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ======
Total Return(b)............................................. 4.14%(c) 3.77%(c) 3.99%(c) 3.72%(c) 3.94%(c)
Net Assets at End of the Period (In millions)............... $54.7 $26.9 $16.1 $8.4 $9.7
Ratio of Expenses to Average Net Assets*(a)................. 1.57% 1.63% 1.78% 1.78% 1.87%
Ratio of Net Investment Income to Average Net Assets*....... 3.96% 3.73% 3.91% 3.64% 3.81%
* For the years ended May 31, 1996 and 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to the Adviser's
reimbursement of certain expenses was less than 0.01%.
(a) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended May 31,
1999.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within the first and second year of
purchase and declining thereafter to 0% after the fifth year. If the sales
charge was included, total returns would be lower.
(c) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
See Financial Statements and Notes thereto
18
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
[Download Table]
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Richard A. Ciccarone*
Vice President
John R. Reynoldson*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer and Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUNDINFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN RESERVE FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Reserve Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Reserve Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Auditors
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
VAN KAMPEN
RESERVE FUND
PROSPECTUS
SEPTEMBER 28, 2000
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports to
shareholders.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC's Public
Reference Room in Washington, DC or on the
EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. 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.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-2482. RES PRO 9/00
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN RESERVE FUND
Van Kampen Reserve Fund's (the "Fund") investment objective is to seek
protection of capital and high current income. The Fund's investment adviser
seeks to achieve the Fund's investment objective by investing in a portfolio of
U.S. dollar-denominated money-market securities.
The Fund is organized as a diversified series of the Van Kampen Reserve
Fund, an open-end, management investment company (the "Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833
for the hearing impaired).
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
[Download Table]
Page
----
General Information......................................... B-2
Investment Objective, Policies and Risks.................... B-3
Investment Restrictions..................................... B-6
Description of Securities Ratings........................... B-9
Trustees and Officers....................................... B-13
Investment Advisory Agreement............................... B-22
Other Agreements............................................ B-23
Distribution and Service.................................... B-23
Transfer Agent.............................................. B-26
Portfolio Transactions and Brokerage Allocation............. B-26
Shareholder Services........................................ B-28
Redemption of Shares........................................ B-30
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-30
Taxation.................................................... B-32
Yield Information........................................... B-36
Other Information........................................... B-38
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-10
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED SEPTEMBER 28, 2000.
RES SAI 9/00
GENERAL INFORMATION
The Fund was originally incorporated in Maryland on March 28, 1974 under
the name American Capital Reserve Fund, Inc. As of July 31, 1995, the Fund was
reorganized as a series of the Trust under the name Van Kampen American Capital
Reserve Fund. The Trust is a business trust organized under the laws of the
State of Delaware. On July 14, 1998, the Fund and the Trust adopted their
present names.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. ("Morgan Stanley Dean Witter"). The principal
office of the Trust, the Fund, the Adviser, the Distributor and Van Kampen
Investments is located at 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555. The principal office of Investor Services is located at 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153.
Morgan Stanley Dean Witter is a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities; asset management; and credit services.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally is identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. Shares of the Trust entitle their holders
to one vote per share; however, separate votes are taken by each series on
matters affecting an individual series and separate votes are taken by each
class of a series on matters affecting an individual class of such series. For
example, a change in investment policy for a series would be voted upon by
shareholders of only the series involved and a change in the distribution fee
for a class of a series would be voted upon by shareholders of only the class of
such series involved. Except as otherwise described in the Prospectus or herein,
shares do not have cumulative voting rights, preemptive rights or any
conversion, subscription or exchange rights.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the
B-2
extent required by the Investment Company Act of 1940, as amended (the "1940
Act"), or rules or regulations promulgated by the Securities and Exchange
Commission ("SEC").
In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be less than to holders of
Class A Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
outstanding and entitled to vote (or such higher vote as may be required by the
1940 Act or other applicable law) and except that the Trustees cannot amend the
Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
As of September 5, 2000, no person was known by the Fund to own
beneficially or to hold of record 5% or more of the outstanding Class A Shares,
Class B Shares or Class C Shares of the Fund except as follows:
[Download Table]
NAME AND ADDRESS NUMBER OF
OF RECORD HOLDER CLASS OF SHARES SHARES HELD PERCENT OF CLASS
---------------- --------------- ----------- ----------------
Van Kampen Trust Company A 113,583,513 26.00%
2800 Post Oak Blvd. B 43,146,391 26.78%
Houston, TX 77056 C 8,927,570 18.96%
Van Kampen Trust Company acts as custodian for certain employee benefit
plans and individual retirement accounts.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The following disclosure supplements the disclosure set forth under the
same caption in the Prospectus and does not, standing alone, present a complete
or accurate explanation of the matters disclosed. Readers must refer also to
this caption in the Prospectus for a complete presentation of the matters
disclosed below.
MONEY-MARKET SECURITIES
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing the Fund's securities pursuant to Rule 2a-7 under the 1940 Act, certain
requirements of which are summarized below.
B-3
In accordance with Rule 2a-7, the Fund is required to (i) maintain a
dollar-weighted average portfolio maturity of 90 days or less, (ii) purchase
only instruments having remaining maturities of 13 months or less and (iii)
invest only in U.S. dollar denominated securities determined in accordance with
procedures established by the Trustees to present minimal credit risks.
Additionally, securities purchased for investment must be rated in one of the
two highest short-term rating categories for debt obligations by any two
nationally recognized statistical rating organizations ("NRSROs") (or any one
NRSRO if the instrument was rated by only one such organization) or, if unrated,
are of comparable quality as determined in accordance with procedures
established by the Trustees.
In addition, the Fund will not invest more than 5% of its total assets in
the securities (including the securities collateralizing a repurchase agreement)
of a single issuer, except that (i) the Fund may invest up to 25% of its total
assets in the "first tier securities" of a single issuer for a period of up to
three business days in certain limited circumstances, (ii) the Fund may invest
in obligations issued or guaranteed by the U.S. government without any such
limitation, and (iii) the Fund may invest, with limitations, more than 5% of its
total assets in securities subject to a guarantee issued by a non-controlled
person. First tier securities are those that have been rated in the highest
rating category for short-term obligations by at least two NRSROs (or one NRSRO
if the instrument was rated by only one such organization), and unrated
securities determined by the Fund's Board of Trustees to be comparable to those
rated in the highest category. The Fund will be limited to 5% of the Fund's
total assets for other permitted investments not in the first tier ("second tier
securities"), with the investment in any one such issuer being limited to no
more than the greater of 1% of the Fund's total assets or $1,000,000. As to each
security, these percentages are measured at the time the Fund purchases the
security.
If a security's rating is downgraded, the Adviser and/or the Fund's Board
of Trustees may have to reassess the security's credit risk. If a security has
ceased to be a first tier security, the Adviser will promptly reassess whether
the security continues to present minimal credit risk. If the Adviser becomes
aware that any NRSRO has downgraded its rating of a second tier security or
rated previously unrated security below its second highest rating category, the
Fund's Board of Trustees shall promptly reassess whether the security presents
minimal credit risk and whether it is in the best interests of the Fund to
dispose of it. If the Fund disposes of the security within five days of the
Adviser learning of the downgrade, the Adviser will provide the Board with
subsequent notice of such downgrade. If a security is in default, ceases to be a
security permitted for investment, is determined no longer to present minimal
credit risks or if an event of insolvency as defined in Rule 2a-7 occurs, the
Fund must dispose of the security as soon as practicable unless the Fund's Board
of Trustees determines it would be in the best interests of the Fund not to
dispose of the security. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
REPURCHASE AGREEMENTS
Repurchase agreements are collateralized by the underlying securities and
may be considered to be loans under the 1940 Act. The Fund makes payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement is required to maintain the value of the underlying
securities marked-to-market daily at not less than the
B-4
repurchase price. The underlying securities must be of a type in which the Fund
may invest (normally securities of the U.S. government, or its agencies and
instrumentalities), except that the underlying securities may have maturity
dates exceeding one year. The Fund may enter into repurchase agreements with
broker-dealers, banks and other financial institutions deemed to be creditworthy
by the Adviser under guidelines approved by the Fund's Board of Trustees. The
Fund will not invest in repurchase agreements maturing in more than seven days
if any such investment, together with any other illiquid securities held by the
Fund, would exceed the Fund's limitation on illiquid securities described
herein. The Fund does not bear the risk of a decline in value of the underlying
security unless the seller defaults under its repurchase obligation. In the
event of the bankruptcy or other default of a seller of a repurchase agreement,
the Fund could experience both delays in liquidating the underlying securities
and losses including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights thereto;
(b) possible lack of access to income on the underlying security during this
period; and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC permitting this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days, and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be readily marketable without some time delay.
Investments in securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Adviser in
accordance with procedures approved by the Fund's Board of Trustees. Ordinarily,
the Fund would invest in restricted securities only when it receives the
issuer's commitment to register the securities without expense to the Fund.
However, registration and underwriting expenses (which typically range from 7%
to 15% of the gross proceeds of the securities sold) may be paid by the Fund.
Restricted securities which can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act ("144A Securities") and are determined
to be liquid under guidelines adopted by and subject to the supervision of the
Fund's Board of Trustees are not subject to the limitation
B-5
on illiquid securities. Such 144A Securities are subject to monitoring and may
become illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief (such as "no action" letters issued by the staff of the SEC
interpreting or providing guidance on the 1940 Act or regulations thereunder)
from the provisions of the 1940 Act, as amended from time to time.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend portfolio securities to brokers, dealers and financial
institutions provided that cash equal to 100% of the market value of the
securities loaned is deposited by the borrower with the Fund and is maintained
each business day. While such securities are on loan, the borrower is required
to pay the Fund any income accruing thereon. Furthermore, the Fund may invest
the cash collateral in portfolio securities thereby increasing the return to the
Fund as well as increasing the market risk to the Fund. The Fund does not
presently intend to lend its portfolio securities in excess of 5% of its total
assets.
Loans would be made for short-term purposes and subject to termination by
the Fund in the normal settlement time, currently three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Fund and its shareholders, but any gain can be realized only if the borrower
does not default. The Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without shareholder approval by the vote of a majority
of its outstanding voting securities, which is defined by the 1940 Act as the
lesser of (i) 67% or more of the Fund's voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities of the Fund
are present or represented by proxy; or (ii) more than 50% of the Fund's
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. With respect to the limitations on illiquid securities and
borrowings, the percentage limitations apply at the time of purchase and on an
ongoing basis. These restrictions provide that the Fund shall not:
1. Purchase any security which matures more than two years from the date
of purchase. As set forth under "Investment Objective, Policies and
Risks" in the
B-6
Prospectus, the Fund's operating policy is not to purchase any security
having a remaining maturity of more than 13 months.
2. Purchase any security other than (a) obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities; (b) bank
time deposits, certificates of deposit and bankers' acceptances which
are obligations of a domestic bank (or a foreign branch or subsidiary
thereof), or of a foreign bank, rated at the time of investment A-1 and
A-2 by Moody's or Prime-1 and Prime-2 by S & P; (c) instruments secured
by a bank obligation described in item 2(b); (d) commercial paper if
rated A by S & P's or Prime by Moody's, or if not rated, issued by a
company having an outstanding debt issue rated at least A by S & P's or
Moody's (see "Description of Securities Ratings" for an explanation of
these ratings); and (e) repurchase agreements collateralized by the
debt securities described above.
3. Issue any senior security, although the Fund may borrow as set forth
under item 14 below.
4. Purchase or sell real estate; although the Fund may purchase securities
issued by companies, including real estate investment trusts, which
invest in real estate or interest therein.
5. Purchase securities on margin, make short sales of securities or
maintain a short position.
6. Purchase or sell commodities or commodity contracts, or invest in oil,
gas or mineral exploration or development programs.
7. The Fund may not invest in securities issued by other investment
companies except as part of a merger, reorganization or other
acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act, as
amended from time to time.
8. Make investments for the purpose of exercising control or management,
except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act, as amended from
time to time.
9. Lend its portfolio securities in excess of 10% of its total assets,
both taken at market value provided that any loans shall be in
accordance with the guidelines established for such loans by the
Trustees of the Fund as described under "Investment Objective, Policies
and Risks -- Loans of Portfolio Securities," including the maintenance
of collateral from the borrower equal at all times to the current
market value of the securities loaned.
10. Invest in securities, except repurchase agreements, for which there are
legal or contractual restrictions on resale, except that the Fund may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as
B-7
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act, as
amended from time to time.
11. Underwrite securities of other issuers except that the Fund may sell an
investment position even though it may be deemed an underwriter as that
term is defined under the Securities Act of 1933, as amended (the "1933
Act").
12. Invest in warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof.
13. Purchase or retain securities of any issuer if those officers and
directors of the Fund or its investment adviser who own beneficially
more than 0.50% of the securities of such issuer, together own more
than 5% of the securities of such issuer.
14. Borrow money, except from banks for temporary or emergency purposes and
then in amounts not exceeding 10% of the value of the Fund's total net
assets; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not exceeding the
lesser of the dollar amount borrowed or 5% of the value of the Fund's
assets at the time of such borrowing (the Fund will not borrow for
leveraging or investment but only to meet redemption requests which
might otherwise require undue dispositions of portfolio securities).
15. Lend money, except through the purchase or holding of the types of debt
securities in which the Fund may invest.
16. With respect to 75% of its assets, purchase securities if the purchase
would cause the Fund, at that time, to have more than 5% of the value
of its total assets invested in the securities of any one issuer
(except obligations of the U.S. government, its agencies or
instrumentalities and repurchase agreements fully collateralized
thereby).
17. Invest in the securities of any issuer, if immediately thereafter, the
Fund would own more than 10% of the total value of all outstanding
securities of such issuer, except that the Fund may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the
1940 Act.
18. Invest more than 5% of its assets in companies having a record together
with predecessors, of less than three years continuous operation.
19. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the U.S.
government and of domestic branches of U.S. banks).
B-8
DESCRIPTION OF SECURITIES RATINGS
Below is a description of the two highest rating categories for short-term
debt obligations and long-term debt obligations by the "nationally recognized
statistical rating organizations." The ratings descriptions are based on
information supplied by the ratings organizations to subscribers.
SHORT-TERM DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. ("Moody's"): The following rating
designations for commercial paper (defined by Moody's as promissory obligations
not having original maturity in excess of one year), are judged by Moody's to be
investment grade, and indicate the relative repayment capacity of rated issuers:
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PRIME-1: Superior ability for repayment. Ability will normally be
evidenced by the following characteristics: (a) leading
market positions in well-established industries; (b) high
rates of return on funds employed; (c) conservative
capitalization structures with moderate reliance on debt
and ample asset protection; (d) broad margins in earnings
coverage of fixed financial charges and high internal
cash generation; and (e) well-established access to a
range of financial markets and assured sources of
alternate liquidity.
PRIME-2: Strong ability for repayment. This will normally be
evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3: Acceptable ability for repayment. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection
measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
The following rating designations for state and municipal notes, are judged
by Moody's to be investment grade, and indicate the relative repayment capacity
of rated issuers:
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MIG-1/
VMIG-1: This designation denotes superior credit quality.
Excellent protection is afforded by established cash
flows, highly reliable liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/
VMIG-2: This designation denotes strong credit quality. Margins
of protection are ample though not so large as in the
preceding group.
B-9
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MIG-3/
VMIG-3: This designation denotes acceptable credit quality.
Liquidity and cash-flow protection may be narrow, and
market access for refinancing is likely to be less
well-established.
STANDARD & POOR'S ("S&P"): The following ratings by S&P for commercial
paper (defined by S&P as debt having an original maturity of no more than 365
days) assess the likelihood of payment:
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A-1: A short-term obligation rated "A-1" is rated in the
highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the
obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely
strong.
A-2: A short-term obligation rated "A-2" is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity
to meet its financial commitment on the obligation is
satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate
protection parameters. However, adverse economic
conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
The following ratings by S&P for state and municipal notes assess the
likelihood of payment:
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SP-1: Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic
changes over the term of the notes.
FITCH IBCA, DUFF & PHELPS. Fitch's short-term debt credit ratings are
applied to the spectrum of corporate, structured, and public finance. They cover
sovereign (including supranational and subnational), financial, bank, insurance,
and other corporate entities and the securities they issue, as well as municipal
and other public finance entities, and securities backed by receivables or other
financial assets, and counterparties. When applied to an entity, these
short-term ratings assess its general creditworthiness on a senior basis. When
applied to specific issues and programs, these ratings take into account the
relative preferential position of the holder of the security and reflect the
terms, conditions, and covenants attaching to that security.
Short-term debt credit ratings assess the capacity to meet foreign currency
or local currency commitments. Both "foreign currency" and "local currency"
ratings are internationally comparable assessments. The local currency rating
measures the probability of payment within the relevant sovereign state's
currency and jurisdiction and therefore, unlike the foreign currency rating,
does not take account of the possibility of foreign exchange controls limiting
transfer into foreign currency.
B-10
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for US public finance securities, and thus
places greater emphasis on the liquidity necessary to meet the financial
commitments in a timely manner.
[Download Table]
F-1: Highest credit quality, indicates the best capacity for
timely payment of financial commitments; may have an
added "+" to denote any exceptionally strong credit
feature.
F-2: Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of
safety is not as great as in the case of the higher
ratings.
F-3: Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term
adverse changes could result in a reduction to
non-investment grade.
Notes: "+" or "-" may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to short-term
ratings other than "F1".
LONG-TERM DEBT RATINGS
These ratings are relevant for securities purchased by the Fund with a
remaining maturity of 397 days or less, or for rating issuers of short-term
obligations. Bonds (including municipal bonds) are rated as follows:
MOODY'S INVESTORS SERVICE, INC.:
[Download Table]
AAA: Judged to be the best quality. They carry the smallest
degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin, and principal
is secure. While the various protective elements are
likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong
positions of such issues.
AA: Judged to be of high quality by all standards. Together
with "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large
as in "Aaa" securities or fluctuations of protective
elements may be of greater amplitude or there may be
other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A: Possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered
adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Moody's applies numerical modifiers "1", "2" and "3" in its "Aa" and "A"
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its
B-11
generic rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S:
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AAA: The highest rating assigned by S&P. Capacity to meet its
financial commitment on the obligation is extremely
strong.
AA: Differs from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A: Somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than
obligations in higher rated categories. Capacity to meet
its financial commitment on the obligation is still
strong.
FITCH IBCA, DUFF & PHELPS
[Download Table]
AAA: Highest credit quality. "AAA" ratings denote the lowest
expectation of credit risk. They are assigned only in case
of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA: Very high credit quality. "AA" ratings denote a very low
expectation of credit risk. They indicate very strong
capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable
events.
A: High credit quality. "A" ratings denote a low expectation
of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity
may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case
for higher ratings.
BBB: Good credit quality. "BBB" ratings indicate that there is
currently a low expectations of credit risk. The capacity
for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
B-12
TRUSTEES AND OFFICERS
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 officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).
TRUSTEES
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
J. Miles Branagan......................... Private investor. Trustee/Director of each of
1632 Morning Mountain Road the funds in the Fund Complex. Co-founder, and
Raleigh, NC 27614 prior to August 1996, Chairman, Chief Executive
Date of Birth: 07/14/32 Officer and President, MDT Corporation (now
Age: 68 known as Getinge/Castle, Inc., a subsidiary of
Getinge Industrier AB), a company which
develops, manufactures, markets and services
medical and scientific equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological
53 Monarch Bay Drive company. Trustee/Director of each of the funds
Dana Point, CA 92629 in the Fund Complex. Prior to January 1999,
Date of Birth: 09/16/38 Chairman and Chief Executive Officer of The
Age: 62 Allstate Corporation ("Allstate") and Allstate
Insurance Company. Prior to January 1995,
President and Chief Executive Officer of
Allstate. Prior to August 1994, various
management positions at Allstate.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Trustee/Director of each
233 South Wacker Drive of the funds in the Fund Complex. Prior to
Suite 7000 1997, Partner, Ray & Berndtson, Inc., an
Chicago, IL 60606 executive recruiting and management consulting
Date of Birth: 06/03/48 firm. Formerly, Executive Vice President of ABN
Age: 52 AMRO, N.A., a Dutch bank holding company. Prior
to 1992, Executive Vice President of La Salle
National Bank. Trustee on the University 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 1996, Trustee of The
International House Board, a fellowship and
housing organization for international graduate
students.
B-13
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
R. Craig Kennedy.......................... President and Director, German Marshall Fund of
11 DuPont Circle, N.W. the United States, an independent U.S.
Washington, D.C. 20016 foundation created to deepen understanding,
Date of Birth: 02/29/52 promote collaboration and stimulate exchanges
Age: 48 of practical experience between Americans and
Europeans. Trustee/Director of each of the
funds in the Fund Complex. 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.
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset
Two World Trade Center Management of Morgan Stanley Dean Witter since
66th Floor December 1998. President and Director since
New York, NY 10048 April 1997 and Chief Executive Officer since
Date of Birth: 08/13/53 June 1998 of Morgan Stanley Dean Witter
Age: 47 Advisors Inc. and Morgan Stanley Dean Witter
Services Company Inc. Chairman, Chief Executive
Officer and Director of Morgan Stanley Dean
Witter Distributors Inc. since June 1998.
Chairman and Chief Executive Officer since June
1998, and Director since January 1998, of
Morgan Stanley Dean Witter Trust FSB. Director
of various Morgan Stanley Dean Witter
subsidiaries. President of the Morgan Stanley
Dean Witter Funds since May 1999.
Trustee/Director of each of the funds in the
Fund Complex. Previously Chief Strategic
Officer of Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Services
Company Inc. and Executive Vice President of
Morgan Stanley Dean Witter Distributors Inc.
April 1997-June 1998, Vice President of the
Morgan Stanley Dean Witter Funds May 1997-April
1999, and Executive Vice President of Dean
Witter, Discover & Co.
Jack E. Nelson............................ President and owner, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser in the State
Date of Birth: 02/13/36 of Florida. President and owner, Nelson Ivest
Age: 64 Brokerage Services Inc., a member of the
National Association of Securities Dealers,
Inc. and Securities Investors Protection Corp.
Trustee/Director of each of the funds in the
Fund Complex.
B-14
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer
1 Parkview Plaza of Van Kampen Investments. Chairman, Director
P.O. Box 5555 and Chief Executive Officer of the Advisers,
Oakbrook Terrace, IL 60181-5555 the Distributor, Van Kampen Advisors Inc. and
Date of Birth: 02/02/46 Van Kampen Management Inc. Director and officer
Age: 54 of certain other subsidiaries of Van Kampen
Investments. Chief Sales and Marketing Officer
of Morgan Stanley Dean Witter Asset Management
Inc. Trustee/Director and President of each of
the funds in the Fund Complex. Trustee,
President and Chairman of the Board of other
investment companies advised by the Advisers
and their affiliates, and Chief Executive
Officer of Van Kampen Exchange Fund. Prior to
May 1998, Executive Vice President and Director
of Marketing at Morgan Stanley Dean Witter and
Director of Dean Witter Discover & Co. and Dean
Witter Realty. Prior to 1996, Director of Dean
Witter Reynolds Inc.
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director
One ServiceMaster Way (since 1994) of The ServiceMaster Company, a
Downers Grove, IL 60515 business and consumer services company.
Date of Birth: 07/08/44 Director of Illinois Tool Works, Inc., a
Age: 56 manufacturing company and the Urban Shopping
Centers Inc., a retail mall management company.
Trustee, University of Notre Dame.
Trustee/Director of each of the funds in the
Fund Complex. Prior to 1998, Director of Stone
Smurfit Container Corp., a paper manufacturing
company. From May 1996 through February 1997 he
was President, Chief Executive Officer and
Chief Operating Officer of Waste Management,
Inc., an environmental services company, and
from November 1984 through May 1996 he was
President and Chief Operating Officer of Waste
Management, Inc.
Fernando Sisto............................ Professor Emeritus. Prior to August 1996, a
155 Hickory Lane George M. Bond Chaired Professor with Stevens
Closter, NJ 07624 Institute of Technology, and prior to 1995,
Date of Birth: 08/02/24 Dean of the Graduate School, Stevens Institute
Age: 76 of Technology. Director, Dynalysis of
Princeton, a firm engaged in engineering
research. Trustee/Director of each of the funds
in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal counsel
Chicago, IL 60606 to the funds in the Fund Complex and other
Date of Birth: 08/22/39 investment companies advised by the Advisers.
Age: 61 Trustee/Director of each of the funds in the
Fund Complex, and Trustee/ Managing General
Partner of other investment companies advised
by the Advisers.
B-15
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
Suzanne H. Woolsey........................ Chief Operating Officer of the National Academy
2101 Constitution Ave., N.W. of Sciences/National Research Council, an
Room 206 independent, federally chartered policy
Washington, D.C. 20418 institution, since 1993. Director of Neurogen
Date of Birth: 12/27/41 Corporation, a pharmaceutical company, since
Age: 58 January 1998. Director of the German Marshall
Fund of the United States, Trustee of Colorado
College, and Vice Chair of the Board of the
Council for Excellence in Government. Trustee/
Director of each of the funds in the Fund
Complex. 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.
------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. Merin and
Powers are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter or its affiliates.
B-16
OFFICERS
Messrs. Smith, Santo, Ciccarone, Reynoldson, Sullivan and Zimmermann are
located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181-5555. Mr. Boyd is
located at 2800 Post Oak Blvd., Houston, TX 77056.
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NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
A. Thomas Smith III.................. Executive Vice President, General Counsel,
Date of Birth: 12/14/56 Secretary and Director of Van Kampen Investments,
Age: 43 the Advisers, Van Kampen Advisors Inc., Van Kampen
Vice President and Secretary Management Inc., the Distributor, American Capital
Contractual Services, Inc., Van Kampen Exchange
Corp., Van Kampen Recordkeeping Services Inc.,
Investor Services, Van Kampen Insurance Agency of
Illinois Inc. and Van Kampen System Inc. Vice
President and Secretary of each of the funds in the
Fund Complex and Vice President and Secretary/Vice
President, Principal Legal Officer and Secretary of
other investment companies advised by the Advisers
or their affiliates. Prior to January 1999, Vice
President and Associate General Counsel to New York
Life Insurance Company ("New York Life"), and prior
to March 1997, Associate General Counsel of New
York Life. Prior to December 1993, Assistant
General Counsel of The Dreyfus Corporation. Prior
to August 1991, Senior Associate, Willkie Farr &
Gallagher. Prior to January 1989, Staff Attorney at
the Securities and Exchange Commission, Division of
Investment Management, Office of Chief Counsel.
Michael H. Santo..................... Executive Vice President, Chief Administrative
Date of Birth: 10/22/55 Officer and Director of Van Kampen Investments, the
Age: 44 Advisers, the Distributor, Van Kampen Advisors
Vice President Inc., Van Kampen Management Inc. and Van Kampen
Investor Services Inc., and serves as a Director or
Officer of certain other subsidiaries of Van Kampen
Investments. Vice President of each of the funds in
the Fund Complex and certain other investment
companies advised by the Advisers and their
affiliates. Prior to 1998, Senior Vice President
and Senior Planning Officer for Individual Asset
Management of Morgan Stanley Dean Witter and its
predecessor since 1994. From 1990-1994, First Vice
President and Assistant Controller in Dean Witter's
Controller's Department.
B-17
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NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
Stephen L. Boyd...................... Executive Vice President and Chief Investment
Date of Birth: 11/16/40 Officer of Van Kampen Investments, and President
Age: 59 and Chief Operating Officer of the Advisers.
Executive Vice President and Chief Executive Vice President and Chief Investment
Investment Officer Officer of each of the funds in the Fund Complex
and certain other investment companies advised by
the Advisers or their affiliates. Prior to April
2000, Executive Vice President and Chief Investment
Officer for Equity Investments of the Advisers.
Prior to October 1998, Vice President and Senior
Portfolio Manager with AIM Capital Management, Inc.
Prior to February 1998, Senior Vice President and
Portfolio Manager of Van Kampen American Capital
Asset Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen American
Capital Management, Inc.
Richard A. Ciccarone................. Senior Vice President and Co-head of the Fixed
Date of Birth: 06/15/52 Income Department of the Advisers, Van Kampen
Age: 48 Management Inc. and Van Kampen Advisors Inc. Prior
Vice President to May 2000, he served as Co-head of Municipal
Investments and Director of Research of the
Advisers, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Mr. Ciccarone first joined the
Adviser in June 1983, and worked for the Adviser
until May 1989, with his last position being a Vice
President. From June 1989 to April 1996, he worked
at EVEREN Securities (formerly known as Kemper
Securities), with his last position at EVEREN being
an Executive Vice President. Since April 1996, Mr.
Ciccarone has been a Senior Vice President of the
Advisers, Van Kampen Management Inc. and Van Kampen
Advisors Inc.
John R. Reynoldson................... Senior Vice President and Co-head of the Fixed
Date of Birth: 05/15/53 Income Department of the Advisers, Van Kampen
Age: 47 Management Inc. and Van Kampen Advisors Inc. Prior
Vice President to May 2000, he managed the investment grade
taxable group for the Adviser since July 1999. From
July 1988 to June 1999, he managed the government
securities bond group for Asset Management. Mr.
Reynoldson has been with Asset Management since
April 1987, and has been a Senior Vice President of
Asset Management since July 1988. He has been a
Senior Vice President of the Adviser and Van Kampen
Management Inc. since June 1995 and Senior Vice
President of Van Kampen Advisors Inc. since June
2000.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments and
Date of Birth: 08/20/55 the Advisers. Vice President, Chief Financial
Age: 45 Officer and Treasurer of each of the funds in the
Vice President, Chief Financial Fund Complex and certain other investment companies
Officer and Treasurer advised by the Advisers or their affiliates.
B-18
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NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
John H. Zimmermann, III.............. Senior Vice President and Director of Van Kampen
Date of Birth: 11/25/57 Investments, President and Director of the
Vice President Distributor, and President of Van Kampen Insurance
Age: 42 Agency of Illinois Inc. Vice President of each of
the funds in the Fund Complex. From November 1992
to December 1997, Mr. Zimmermann was Senior Vice
President of the Distributor.
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 61 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of the Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees/directors to defer receipt of their compensation
and earn a return on such deferred amounts. Deferring compensation has the
economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex on the basis of the
relative net assets of each fund as of the last business day of the preceding
calendar quarter. The compensation of each Non-Affiliated Trustee includes a per
meeting fee from each fund in the Fund Complex in the amount of $200 per
quarterly or special meeting attended by the Non-Affiliated Trustee, due on the
date of the meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500
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per year for each of the ten years following such retirement from such Fund.
Non-Affiliated Trustees retiring prior to the age of 60 or with fewer than 10
years but more than 5 years of service may receive reduced retirement benefits
from such Fund. Each trustee/director has served as a member of the Board of
Trustees of the Fund since he or she was first appointed or elected in the year
set forth below. The retirement plan contains a Fund Complex retirement benefit
cap of $60,000 per year.
COMPENSATION TABLE
[Enlarge/Download Table]
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Upon Fund
Name(1) the Board the Trust(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
J. Miles Branagan 1991 $2,137 $40,303 $60,000 $126,000
Jerry D. Choate(1) 1999 2,137 0 60,000 88,700
Linda Hutton Heagy 1995 2,137 5,045 60,000 126,000
R. Craig Kennedy 1995 2,137 3,571 60,000 125,600
Jack E. Nelson 1995 2,137 21,664 60,000 126,000
Phillip B. Rooney 1997 2,137 7,787 60,000 113,400
Fernando Sisto 1978 2,137 72,060 60,000 126,000
Wayne W. Whalen 1995 2,137 15,189 60,000 126,000
Suzanne H. Woolsey(1) 1999 2,137 0 60,000 88,700
------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Choate and Ms. Woolsey became members of the Board of Trustees
for the Fund and other funds in the Fund Complex on May 26, 1999 and
therefore do not have a full calendar year of information to report. Paul G.
Yovovich resigned as a member of the Board of Trustees for the Fund and
other funds in the Fund Complex on April 14, 2000.
(2) The amounts shown in this column represent the Aggregate Compensation before
deferral with respect to the Fund's fiscal year ended May 31, 2000. The
following trustees deferred compensation from the Fund during the fiscal
year ended May 31, 2000: Mr. Branagan, $2,137; Mr. Choate, $2,137; Ms.
Heagy, $2,137; Mr. Kennedy, $1,068; Mr. Nelson, $2,137; Mr. Rooney, $2,137;
Mr. Sisto, $1,168; and Mr. Whalen, $2,137. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to either the
return on the common shares of the Fund or other funds in the Fund Complex
as selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each fund may
invest in securities of those funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from the Fund as of the Fund's fiscal
year ended May 31, 2000 is as follows: Mr. Branagan, $11,108; Mr. Choate,
$2,528; Mr. Gaughan, $936; Ms. Heagy,
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$8,891; Mr. Kennedy, $19,792; Mr. Miller, $8,912; Mr. Nelson, $29,183; Mr.
Rees, $30,406; Mr. Robinson, $14,443; Mr. Rooney, $10,265; Mr. Sisto,
$16,902 and Mr. Whalen, $20,664. The deferred compensation plan is described
above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the funds' respective fiscal years ended in
1999. The retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in the year of such trustee's anticipated retirement. The
retirement plan is described above the Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 1999 before
deferral by the trustees under the deferred compensation plan. Because the
funds in the Fund Complex have different fiscal year ends, the amounts shown
in this column are presented on a calendar year basis. Certain trustees
deferred all or a portion of their aggregate compensation from the Fund
Complex during the calendar year ended December 31, 1999. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such Non-
Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of
those investment companies selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The Advisers and their
affiliates also serve as investment adviser for other investment companies;
however, with the exception of Mr. Whalen, the Non-Affiliated Trustees were
not trustees of such investment companies. Combining the Fund Complex with
other investment companies advised by the Advisers and their affiliates, Mr.
Whalen received Total Compensation of $279,250 during the calendar year
ended December 31, 1999.
As of September 5, 2000, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
The Fund, the Adviser and the Distributor have adopted Codes of Ethics
(collectively, the "Code of Ethics") that set forth general and specific
standards relating to the securities trading activities of their employees. The
Code of Ethics does not prohibit employees from acquiring securities that may be
purchased or held by the Fund, but is intended to ensure that all employees
conduct their personal transactions in a manner that does not interfere with the
portfolio transactions of the Fund or other Van Kampen funds, or that such
employees take unfair advantage of their relationship with the Fund. Among other
things, the Code of Ethics prohibits certain types of transactions absent prior
approval, imposes various trading restrictions (such as time periods during
which personal transactions may or may not be made) and requires quarterly
reporting of securities transactions and other matters. All reportable
securities transactions and other required reports are to be reviewed by
appropriate personnel for compliance with the Code of Ethics. Additional
restrictions apply to portfolio managers, traders, research analysts and
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others who may have access to nonpublic information about the trading activities
of the Fund or other Van Kampen funds or who otherwise are involved in the
investment advisory process. Exceptions to these and other provisions of the
Code of Ethics may be granted in particular circumstances after review by
appropriate personnel.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate
strategy and implement the Fund's investment objective. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to the Fund, renders periodic reports to the Fund's Board of Trustees
and permits its officers and employees to serve without compensation as trustees
of the Trust or officers of the Fund if elected to such positions. The Fund,
however, bears the cost of its day-to-day operations, including service fees,
distribution fees, custodian fees, legal and independent accountant fees, the
costs of reports and proxies to shareholders, compensation of trustees of the
Trust (other than those who are affiliated persons of the Adviser, Distributor
or Van Kampen Investments), and all other ordinary business expenses not
specifically assumed by the Adviser. The Advisory Agreement also provides that
the Adviser shall not be liable to the Fund for any actions or omissions if it
acted without willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations.
The Advisory Agreement also provides that, in the event the expenses of the
Fund for any fiscal year exceed 1% of the Fund's average daily net assets, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the fiscal year. Ordinary business
expenses include the investment advisory fee and other operating costs paid by
the Fund except (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreement
and (4) payments made by the Fund pursuant to its distribution plans.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Board of Trustees or (ii) by a
vote of a majority of the Fund's outstanding voting securities and (b) by a vote
of a majority of the Trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party on 60
days' written notice.
During the fiscal years ended May 31, 2000, 1999 and 1998, the Adviser
received approximately $3,651,500, $3,246,800 and $2,251,200, respectively, in
advisory fees from the Fund.
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OTHER AGREEMENTS
Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which Advisory Corp. provides accounting services
supplementary to those provided by the custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund pays all costs and expenses related to such services, including all
salary and related benefits of accounting personnel, as well as the overhead and
expenses of office space and the equipment necessary to render such services.
The Fund shares together with the other Van Kampen funds in the cost of
providing such services with 25% of such costs shared proportionately based on
the respective number of classes of securities issued per fund and the remaining
75% of such costs based proportionately on the respective net assets per fund.
During the fiscal years ended May 31, 2000, 1999 and 1998, Advisory Corp.
received approximately $38,200, $227,500 and $131,800, respectively, in
accounting services fees from the Fund.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's
Trustees or (ii) by a vote of a majority of the Fund's outstanding voting
securities and (b) by a vote of a majority of Trustees who are not parties to
the Distribution and Service Agreement or interested persons of any party, by
votes cast in person at a meeting called for such purpose. The Distribution and
Service Agreement provides that it will terminate if assigned, and that it may
be terminated without penalty by either party on 90 days' written notice.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.
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In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to, and sponsor
business seminars for, qualifying authorized dealers for certain services or
activities which are primarily intended to result in sales of shares of the Fund
or other Van Kampen funds. Fees may include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its quarterly sales of shares of the Fund and other Van
Kampen Funds and increases in net assets of the Fund and other Van Kampen Funds
over specified thresholds. All of the foregoing payments are made by the
Distributor out of its own assets. Such fees paid for such services and
activities with respect to the Fund will not exceed in the aggregate 1.25% of
the average total daily net assets of the Fund on an annual basis. These
programs will not change the price an investor will pay for shares or the amount
that a Fund will receive from such sale.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares, sub-agreements between the Distributor and members
of the NASD who are acting as securities dealers and NASD members or eligible
non-members who are acting as brokers or agents and similar agreements between
the Fund and financial intermediaries who are acting as brokers (collectively,
"Selling Agreements") that may provide for their customers or clients certain
services or assistance, which may include, but not be limited to, processing
purchase and redemption transactions, establishing and maintaining shareholder
accounts regarding the Fund, and such other services as may be agreed to from
time to time and as may be permitted by applicable statute, rule or regulation.
Brokers, dealers and financial intermediaries that have entered into
sub-agreements with the Distributor and sell shares of the Fund are referred to
herein as "financial intermediaries."
Certain financial intermediaries may be prohibited under law from providing
certain underwriting or distribution services. If a financial intermediary were
prohibited from acting in any capacity or providing any of the described
services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that
B-24
termination of a relationship with a financial intermediary would result in any
material adverse consequences to the Fund.
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
For Class A Shares in any given year in which the Plans are in effect, the
Plans generally provide for the Fund to pay the Distributor the lesser of (i)
the amount of the Distributor's actual expenses incurred during such year less
any deferred sales charges (if any) it received during such year (the "actual
net expenses") or (ii) the distribution and service fees at the rates specified
in the Prospectus (the "plan fees"). Therefore, to the extent the Distributor's
actual net expenses in a given year are less than the plan fees for such year,
the Fund only pays the actual net expenses. Alternatively, to the extent the
Distributor's actual net expenses in a given year exceed the plan fees for such
year, the Fund only pays the plan fees for such year. For Class A Shares, there
is no carryover of any unreimbursed actual net expenses to succeeding years.
The Plans for Class B Shares and Class C Shares are similar to the Plans
for Class A Shares, except that any actual net expenses which exceed plan fees
for a given year are carried forward and are eligible for payment in future
years by the Fund so long as the Plans remain in effect. Thus, for each of the
Class B Shares and Class C Shares, in any given year in which the Plans are in
effect, the Plans generally provide for the Fund to pay the Distributor the
lesser of (i) the applicable amount of the Distributor's actual net expenses
incurred during such year for such class of shares plus any actual net expenses
from prior years that are still unpaid by the Fund for such class of shares or
(ii) the applicable plan fees for such class of shares. Except as may be
mandated by applicable law, the Fund does not impose any limit with respect to
the number of years into the future that such unreimbursed actual net expenses
may be carried forward (on a Fund level basis). These unreimbursed actual net
expenses may or may not be recovered through plan fees or contingent deferred
sales charges in future years.
Because of fluctuation in net asset value, the plan fees with respect to a
particular Class B Share or Class C Share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor with
respect to such share. In such circumstances, a shareholder of a share may be
deemed to incur expenses attributable to other shareholders of such class. As of
May 31, 2000, there were $4,104,542 and $154,909 of unreimbursed
distribution-related expenses with respect to Class B Shares and Class C Shares,
respectively, representing 1.72% and 0.28% of the Fund's net assets
B-25
attributable to Class B Shares and Class C Shares, respectively. If the Plans
were terminated or not continued, the Fund would not be contractually obligated
to pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through contingent deferred sales charges.
For the fiscal year ended May 31, 2000, the Fund's aggregate expenses paid
under the Plans for Class A Shares were $1,039,290 or 0.15% of the Class A
Shares' average daily net assets. For the fiscal year ended May 31, 2000, the
Fund's aggregate expenses paid under the Plans for Class B Shares were
$1,706,385 or 0.90% of the Class B Shares' average daily net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$1,412,386 for commissions and transaction fees paid to financial intermediaries
in respect of sales of Class B Shares of the Fund and $293,999 for fees paid to
financial intermediaries for servicing Class B shareholders and administering
the Class B Share Plans. For the fiscal year ended May 31, 2000, the Fund's
aggregate expenses paid under the Plans for Class C Shares were $365,565 or
0.90% of the Class C Shares' average daily net assets. Such expenses were paid
to reimburse the Distributor for the following payments: $234,110 for
commissions and transaction fees paid to financial intermediaries in respect of
sales of Class C Shares of the Fund and $131,455 for fees paid to financial
intermediaries for servicing Class C shareholders and administering the Class C
Share Plans.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent is Van Kampen Investor Services Inc. The transfer agency prices
are determined through negotiations with the Fund's Board of Trustees and are
based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Board of Trustees of the Fund.
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money-market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on an exchange, which are effected through brokers who
charge a commission for their shares.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary
B-26
consideration in all portfolio transactions is prompt execution of orders in an
effective manner at the most favorable price. In selecting broker-dealers and in
negotiating prices and any brokerage commissions on such transactions, the
Adviser considers the firm's reliability, integrity and financial condition and
the firm's execution capability, the size and breadth of the market for the
security, the size of and difficulty in executing the order, and the best net
price. There are many instances when, in the judgment of the Adviser, more than
one firm can offer comparable execution services. In selecting among such firms,
consideration may be given to those firms which supply research and other
services in addition to execution services. The Adviser is authorized to pay
higher commissions to brokerage firms that provide it with investment and
research information than to firms which do not provide such services if the
Adviser determines that such commissions are reasonable in relation to the
overall services provided. No specific value can be assigned to such research
services which are furnished without cost to the Adviser. Since statistical and
other research information is only supplementary to the research efforts of the
Adviser to the Fund and still must be analyzed and reviewed by its staff, the
receipt of research information is not expected to reduce its expenses
materially. The investment advisory fee is not reduced as a result of the
Adviser's receipt of such research services. Services provided may include (a)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Fund effects its securities transactions may be used by the Adviser in
servicing all of its advisory accounts; not all of such services may be used by
the Adviser in connection with the Fund. The Adviser also may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Fund, the Adviser or the Distributor and with brokerage firms
participating in the distribution of the Fund's shares if it reasonably believes
that the quality of execution and the commission are comparable to that
available from other qualified firms. Similarly, to the extent permitted by law
and subject to the same considerations on quality of execution and comparable
commission rates, the Adviser may direct an executing broker to pay a portion or
all of any commissions, concessions or discounts to a firm supplying research or
other services or to a firm participating in the distribution of the Fund's
shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
During the past three years, the Fund paid no commissions to brokers on the
purchase or sale of portfolio securities.
B-27
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds (as defined in the Prospectus) will receive statements
quarterly from Investor Services showing any reinvestments of dividends and
capital gain dividends and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gain dividends and systematic purchases or redemptions. Additional shares may be
purchased at any time through authorized dealers, by bank wire or by mailing a
check directly to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption of the shares represented by the certificate. In addition, if such
certificates are lost the shareholder must write to Van Kampen Funds Inc., c/o
Investor Services, PO Box 218256, Kansas City, MO 64121-8256, requesting an
"Affidavit of Loss" and obtain a Surety Bond in a form acceptable to Investor
Services. On the date the letter is received, Investor Services will calculate
the fee for replacing the lost certificate equal to no more than 1.50% of the
net asset value of the issued shares, and bill the party to whom the replacement
certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Money Purchase and Profit Sharing
Keogh plans.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Shareholders can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemption proceeds transferred to a
bank account via the ACH plan
B-28
are available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemption proceeds are
to be deposited together with the completed application. Once Investor Services
has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing Investor Services
or by calling (800) 341-2911 ((800) 421-2833 for the hearing impaired).
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the account application form or by calling (800) 341-2911 ((800)
421-2833 for the hearing impaired), elect to have all dividends and capital gain
dividends paid on a class of shares of the Fund invested into shares of the same
class of any Participating Fund so long as the investor has a pre-existing
account for such class of shares of the other fund. Both accounts must be of the
same type, either non-retirement or retirement. If the accounts are retirement
accounts, they must both be for the same class and of the same type of
retirement plan (e.g. IRA, 403(b)(7), 401(k), Money Purchase and Profit Sharing
Keogh) and for the benefit of the same individual. If a qualified, pre-existing
account does not exist, the shareholder must establish a new account subject to
minimum investment and other requirements of the fund into which distributions
would be invested. Distributions are invested into the selected fund at its net
asset value per share as of the payable date of the distribution from the Fund.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a monthly, quarterly, semiannual or annual
withdrawal plan if the shareholder owns shares in a single account valued at
$10,000 or more at the next determined net asset value per share at the time the
plan is established. If a shareholder owns shares in a single account valued at
$5,000 or more at the next determined net asset value per share at the time the
plan is established, the shareholder may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each payment
represents the proceeds of a redemption of shares on which any capital gain or
loss will be recognized. The planholder may arrange for periodic checks in any
amount, not less than $25. Such a systematic withdrawal plan may also be
maintained by an investor purchasing shares for a retirement plan established on
a form made available by the Fund. See "Shareholder Services--Retirement Plans."
Class B Shareholders and Class C Shareholders who establish a systematic
withdrawal plan may redeem up to 12% annually of the shareholder's initial
account balance without incurring a contingent deferred sales charge. Initial
account balance means the amount of the shareholder's investment at the time the
election to participate in the plan is made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gain dividends
on shares held in
B-29
accounts with systematic withdrawal plans are reinvested in additional shares at
the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gain dividends, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Redemptions made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program upon 30 days' notice to its shareholders.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
In addition, if the Fund's Board of Trustees determines that payment wholly
or partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. A
distribution-in-kind will result in recognition by the shareholder of a gain or
loss for federal income tax purposes when such securities are distributed, and
the shareholder may have brokerage charges and a gain or loss for federal income
tax purposes upon the shareholder's subsequent disposition of such securities.
WAIVER OF CLASS B AND CLASS C CONTINGENT
DEFERRED SALES CHARGES
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge ("CDSC-Class B and C"). The CDSC-Class B and C is waived on redemptions
of Class B Shares and Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
B-30
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The CDSC-Class B and C will be waived upon the tax-free rollover or
transfer of assets to another retirement plan invested in one or more
Participating Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held on to the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC-Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), the financial hardship of the
employee pursuant to U.S. Treasury Regulations Section 1.401(k)-1(d)(2) or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge will be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO THE FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the systematic
withdrawal plan, a dollar amount of a participating shareholder's investment in
the Fund will be redeemed systematically by the Fund on a periodic basis, and
the proceeds sent to the designated payee of record. The amount to be redeemed
and frequency of the systematic withdrawals will be specified by the shareholder
upon his or her election to participate in the systematic withdrawal plan. The
CDSC-Class B and C will be waived on redemptions made under the systematic
withdrawal plan.
The amount of the shareholder's investment in the Fund at the time the
election to participate in the systematic withdrawal plan is made with respect
to the Fund is hereinafter referred to as the "initial account balance." The
amount to be systematically redeemed from the Fund without the imposition of a
CDSC-Class B and C may not exceed a maximum of 12% annually of the shareholder's
initial account balance. The Fund reserves the right to change the terms and
conditions of the systematic withdrawal plan and the ability to offer the
systematic withdrawal plan.
B-31
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" in the Prospectus.
INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the value of the
account up to the required minimum balance. The Fund will waive the CDSC-Class B
and C upon such involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of the Fund may reinvest at
net asset value, with credit for any CDSC-Class C paid on the redeemed shares,
any portion or all of his or her redemption proceeds (plus that amount necessary
to acquire a fractional share to round off his or her purchase to the nearest
full share) in Class C Shares of the Fund, provided that the reinvestment is
effected within 180 days after such redemption and the shareholder has not
previously exercised this reinvestment privilege with respect to Class C Shares
of the Fund. Shares acquired in this manner will be deemed to have the original
cost and purchase date of the redeemed shares for purposes of applying the
CDSC-Class C to subsequent redemptions.
REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
FEDERAL INCOME TAXATION OF THE FUND
The Fund has elected and qualified, and intends to continue to qualify each
year, to be treated as a regulated investment company under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must comply with
certain requirements of the Code relating to, among other things, the source of
its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its investment company taxable income (generally including ordinary
income and net short-term capital gain, but not net capital gain, which is the
excess of net long-term capital gain over net short-term capital loss), and
meets certain other requirements, it will not be required to pay federal income
taxes on any income it distributes to shareholders. The Fund intends to
distribute at least the minimum amount of investment company taxable income
necessary to satisfy the 90% distribution requirement. The Fund will not be
subject to federal income tax on any net capital gain distributed to
shareholders.
B-32
To avoid a 4% excise tax, the Fund will be required to distribute, by
December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. In addition, the Fund
could be required to recognize unrealized gains, pay taxes and interest charges
and make distributions before requalifying for taxation as a regulated
investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. To
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions of the Fund's investment company taxable income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains regardless of the length of time shares
of the Fund have been held by such shareholders. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the maximum tax rates applicable to capital
gains (including capital gain dividends), see "Capital Gains Rates" below.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.
B-33
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Distributions from
the Fund generally will not be eligible for the dividends received deduction for
corporations.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes generally will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) the Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gains. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) may be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
sold and the amount received. If the shares sold are held as a capital asset,
the gain or loss will be a capital gain or loss. For a summary of the maximum
tax rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rates" below. Any loss recognized upon a taxable disposition of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends received with respect to such
shares. For purposes of determining whether shares have been held for six months
or less, the holding period is suspended for any periods during which the
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers investing in the Fund is (i) the
same as the maximum ordinary income tax rate for capital assets held for one
year or less or (ii) 20% for capital
B-34
assets held for more than one year. The maximum long-term capital gains rate for
corporations is 35%.
NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such shareholder.
Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) an
individual Non-U.S. Shareholder who is not present in the United States for more
than 182 days during the taxable year (assuming that certain other conditions
are met). However, certain Non-U.S. Shareholders may nonetheless be subject to
backup withholding on capital gain dividends and gross proceeds paid to them
upon the sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares are
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.
United States Treasury regulations, generally effective for payments made
after December 31, 2000, modify the withholding, backup withholding and
information reporting rules, including the procedures to be followed by foreign
investors in establishing foreign status. Prospective foreign investors should
consult their tax advisers concerning the applicability and effect of such
Treasury regulations on an investment in shares of the Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of the Fund.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to properly furnish the
B-35
Fund with its correct taxpayer identification number, (ii) the IRS notifies the
Fund that the shareholder has failed to properly report certain interest and
dividend income to the IRS and to respond to notices to that effect or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. Redemption proceeds may be subject to withholding
under the circumstances described in (i) above.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's U.S. federal income tax liability, if any,
provided that the required information is furnished to the IRS.
INFORMATION REPORTING
The Fund must report annually to the IRS and to each shareholder (other
than a Non-U.S. Shareholder) the amount of dividends paid to such shareholder
and the amount, if any, of tax withheld pursuant to backup withholding rules
with respect to such dividends. In the case of a Non-U.S. Shareholder, the Fund
must report to the IRS and such shareholder the aggregate amount of dividends
paid that are subject to backup withholding (if any) and the amount of tax
withheld with respect to such dividends pursuant to the backup withholding
rules. This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence. Generally, dividends paid to
Non-U.S. Shareholders that are subject to the 30% federal income tax withholding
described above under "Non-U.S. Shareholders" are not subject to backup
withholding.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors and shareholders should consult their
tax advisers regarding the specific federal tax consequences of purchasing,
holding and disposing of shares, as well as the effects of state, local and
foreign tax law and any proposed tax law changes.
YIELD INFORMATION
From time to time the Fund may advertise its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of the Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The yield of the Fund is its net income expressed in annualized terms. The
SEC requires by rule that a yield quotation set forth in an advertisement for a
"money market" fund be computed by a standardized method based on a historical
seven-calendar-day period. The standardized yield is computed by determining the
net change (exclusive of realized gains and losses and unrealized appreciation
and depreciation) in the value of a
B-36
hypothetical pre-existing account having a balance of one share at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by 365/7. The determination of net change
in account value reflects the value of additional shares purchased with
dividends from the original share, dividends declared on both the original share
and such additional shares, and all fees that are charged to all shareholder
accounts, in proportion to the length of the base period and the Fund's average
account size. The Fund may also calculate its effective yield by compounding the
unannualized base period return (calculated as described above) by adding 1 to
the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting one.
Yield and effective yield are calculated separately for Class A Shares,
Class B Shares and Class C Shares. Because of the differences in distribution
fees, the yield and effective yield for each class of shares will differ.
The yield and effective yield quoted at any time represents the amount
being earned on a current basis for the indicated period and is a function of
the types of instruments in the Fund, their quality and length of maturity, and
the Fund's operating expenses. The length of maturity for the Fund is the
average dollar-weighted maturity of the Fund. This means that the Fund has an
average maturity of a stated number of days for all of its issues. The
calculation is weighted by the relative value of the investment.
The yield and effective yield fluctuate daily as the income earned on the
investments of the Fund fluctuates. Accordingly, there is no assurance that the
yield and effective yield quoted on any given occasion will remain in effect for
any period of time. It should also be emphasized that there is no guarantee that
the net asset value will remain constant. A shareholder's investment in the Fund
is not insured. Investors comparing results of the Fund with investment results
and yields from other sources such as banks or savings and loan associations
should understand this distinction.
Other funds of the money market type as well as banks and savings and loan
associations may calculate their yield on a different basis, and the yield
quoted by the Fund could vary upwards or downwards if another method of
calculation or base period were used.
Additionally, since yield and effective yield fluctuate, yield data cannot
necessarily be used to compare an investment in the Fund's shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield and effective yield are generally a
function of the kind and quality of the instrument held in a fund's portfolio,
portfolio maturity, operating expenses and market conditions.
From time to time marketing materials may provide a portfolio manager
update, an adviser update and discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top five sector holdings and ten largest holdings. Materials
may also mention how the Distributor believes the Fund compares relative to
other Van Kampen funds. The Fund will also be marketed on the Internet.
B-37
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may include the yield quotation as of a
current period. Such yield information will be calculated pursuant to rules
established by the SEC and will be computed separately for each class of the
Fund's shares. For these purposes, the performance of the Fund, as well as the
performance of other mutual funds or indices, do not reflect sales charges, the
inclusion of which would reduce the Fund's performance. The Fund will include
performance data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar-cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed yields.
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the back cover of the Prospectus.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as custodian. The custodian also provides
accounting services to the Fund.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
B-38
INDEPENDENT AUDITORS
Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Fund's Board of Trustees has engaged Ernst & Young
LLP, located at 233 South Wacker Drive, Chicago, Illinois 60606, to be the
Fund's independent auditors, effective May 18, 2000. PricewaterhouseCoopers LLP,
located at 200 East Randolph Drive, Chicago, Illinois 60601 ("PWC"), ceased
being the Fund's independent accountants effective May 18, 2000. The cessation
of the client-auditor relationship between the Fund and PWC was based solely on
a possible future business relationship by PWC with an affiliate of the Fund's
investment adviser. The change in independent accountants was approved by the
Fund's audit committee and the Fund's Board of Trustees, including Trustees who
are not "interested persons" of the Fund (as defined in the 1940 Act).
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
B-39
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen Reserve Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Van Kampen Reserve Fund, as of May 31, 2000,
and the related statement of operations, changes in net assets and financial
highlights for the year 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 based on our audit. The
statement of changes in net assets of Van Kampen Reserve Fund for the year ended
May 31, 1999, and the financial highlights for each of the four years in the
period then ended were audited by other auditors whose report dated July 1,
1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 2000, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen Reserve Fund at May 31, 2000, the results of its
operations, changes in its net assets and the financial highlights for the year
then ended, in conformity with accounting principles generally accepted in the
United States.
[ERNST & YOUNG LLP SIG]
Chicago, IL
July 14, 2000
F-1
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
May 31, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
[Enlarge/Download Table]
PAR YIELD ON
AMOUNT DATE OF AMORTIZED
(000) DESCRIPTION PURCHASE MATURITY COST
CERTIFICATES OF DEPOSIT 16.1%
$ 9,000 Bank of America........................... 6.433% 10/16/00 $ 8,996,668
16,000 Bank of America........................... 6.974 10/16/00 16,000,000
25,000 BNP Paribas............................... 6.608 06/27/00 25,000,000
25,000 Canadian Imperial Bank.................... 6.728 08/08/00 24,998,436
25,000 Northern Trust Co. ....................... 6.242 06/21/00 25,000,274
15,000 SunTrust Bank............................. 6.284 07/06/00 15,000,343
25,000 UBS, AG................................... 5.673 07/17/00 24,990,362
------------
Total Certificates of Deposit................................. 139,986,083
------------
COMMERCIAL PAPER 57.2%
25,000 Abbott Labs............................... 6.595 06/30/00 24,869,701
12,500 American Express Credit Corp. ............ 6.572 06/02/00 12,497,750
25,000 American Express Credit Corp. ............ 6.594 06/29/00 24,874,194
25,000 American General Finance Corp. ........... 6.855 08/28/00 24,593,611
25,000 Associates Corp. of North America......... 6.855 06/01/00 25,000,000
25,000 Bank of Nova Scotia....................... 6.192 06/26/00 24,894,445
25,000 Chevron USA, Inc. ........................ 6.575 06/13/00 24,946,083
25,000 CIT Group Holdings, Inc. ................. 6.190 06/05/00 24,983,056
25,000 Citicorp.................................. 6.487 06/16/00 24,933,542
25,000 Coca Cola Co. ............................ 6.618 07/10/00 24,824,500
25,000 DaimlerChrysler Corp. .................... 6.329 06/02/00 24,995,667
12,500 DaimlerChrysler Corp. .................... 6.629 06/07/00 12,486,396
25,000 Ford Motor Credit Corp. .................. 6.693 07/13/00 24,808,958
13,000 General Electric Capital Corp. ........... 6.815 06/01/00 13,000,000
25,000 General Electric Capital Corp. ........... 6.348 06/19/00 24,922,000
25,000 General Motors Acceptance Corp. .......... 6.220 06/14/00 24,944,750
25,000 IBM Credit Corp. ......................... 6.196 06/01/00 25,000,000
25,000 Merrill Lynch & Co. Inc. ................. 6.748 07/24/00 24,757,451
25,000 Norwest Financial, Inc. .................. 6.126 06/12/00 24,953,938
25,000 Prudential Funding Corp. ................. 6.672 07/12/00 24,814,076
10,000 Societe Generale North America Inc. ...... 6.402 11/09/00 9,725,406
25,000 State Street Boston Corp. ................ 6.040 06/07/00 24,975,208
------------
Total Commercial Paper........................................ 495,800,732
------------
See Notes to Financial Statements
F-2
YOUR FUND'S INVESTMENTS
May 31, 2000
[Enlarge/Download Table]
PAR YIELD ON
AMOUNT DATE OF AMORTIZED
(000) DESCRIPTION COUPON PURCHASE COST
NOTE 1.2%
$10,000 LaSalle National Bank..................... 6.571% 11/03/00 $ 10,000,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 8.3%
15,000 Federal Home Loan Mortgage Association
Discount Note............................. 6.379 06/06/00 14,986,906
15,000 Federal Home Loan Mortgage Association
Discount Note............................. 6.151 07/06/00 14,912,062
20,000 Federal National Mortgage Association
Discount Note............................. 5.331 07/07/00 19,895,400
15,000 Student Loan Marketing Medium Term Note... 6.063 08/03/00 15,010,738
7,500 Student Loan Marketing Short Term Note.... 6.265 09/21/00 7,495,739
------------
Total U.S. Government Agency Obligations...................... 72,300,845
------------
REPURCHASE AGREEMENT 5.6%
BankAmerica Securities ($48,200,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated
05/31/00, to be sold on 06/01/00 at $48,208,663).............. 48,200,000
------------
TOTAL INVESTMENTS 88.4% (A)............................................. 766,287,660
OTHER ASSETS IN EXCESS OF LIABILITIES 11.6%............................. 100,515,526
------------
NET ASSETS 100.0%....................................................... $866,803,186
============
(a) At May 31, 2000, cost is identical for both book and federal income tax
purposes.
See Notes to Financial Statements
F-3
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
May 31, 2000
[Download Table]
ASSETS:
Total Investments, at amortized cost which approximates
market.................................................... $766,287,660
Receivables:
Fund Shares Sold.......................................... 109,644,921
Interest.................................................. 2,497,971
Other....................................................... 75,504
------------
Total Assets............................................ 878,506,056
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 10,031,082
Distributor and Affiliates................................ 464,206
Income Distributions...................................... 399,641
Investment Advisory Fee................................... 260,244
Custodian Bank............................................ 192,610
Trustees' Deferred Compensation and Retirement Plans........ 223,756
Accrued Expenses............................................ 131,331
------------
Total Liabilities....................................... 11,702,870
------------
NET ASSETS.................................................. $866,803,186
============
NET ASSETS CONSIST OF:
Capital (par value of $.01 per share with an unlimited
number of shares authorized).............................. $866,865,574
Accumulated Undistributed Net Investment Income............. 2,508
Accumulated Net Realized Loss............................... (64,896)
------------
NET ASSETS.................................................. $866,803,186
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net Asset Value, Offering Price and Redemption Price per
share (Based on net assets of $573,291,949 and
573,331,156 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 $238,838,956 and 238,842,750 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 $54,672,281 and 54,696,056 shares of
beneficial interest issued and outstanding)............. $ 1.00
============
See Notes to Financial Statements
F-4
Statement of Operations
For the Year Ended May 31, 2000
[Download Table]
INVESTMENT INCOME:
Interest.................................................... $51,966,920
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,651,499
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,019,761, $1,790,460, and $371,357,
respectively)............................................. 3,181,578
Shareholder Services........................................ 1,954,495
Custody..................................................... 130,847
Legal....................................................... 63,250
Trustees' Fees and Related Expenses......................... 45,422
Other....................................................... 545,968
-----------
Total Expenses.......................................... 9,573,059
Less Credits Earned on Cash Balances.................... 80,482
-----------
Net Expenses............................................ 9,492,577
-----------
NET INVESTMENT INCOME....................................... $42,474,343
===========
NET REALIZED LOSS........................................... $ (2,832)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $42,471,511
===========
See Notes to Financial Statements
F-5
Statement of Changes in Net Assets
For the Years Ended May 31, 2000, and 1999
[Enlarge/Download Table]
YEAR ENDED YEAR ENDED
MAY 31, 2000 MAY 31, 1999
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 42,474,343 $ 34,857,720
Net Realized Gain/Loss......................... (2,832) 31,626
---------------- ----------------
Change in Net Assets from Operations........... 42,471,511 34,889,346
---------------- ----------------
Distributions from Net Investment Income:
Class A Shares............................... (32,587,988) (28,300,866)
Class B Shares............................... (8,191,882) (5,631,517)
Class C Shares............................... (1,735,136) (934,371)
---------------- ----------------
Total Distributions............................ (42,515,006) (34,866,754)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (43,495) 22,592
---------------- ----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...................... 20,201,171,990 22,546,743,249
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 36,993,767 34,866,754
Cost of Shares Repurchased..................... (20,057,635,316) (22,668,497,361)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 180,530,441 (86,887,358)
---------------- ----------------
TOTAL INCREASE/DECREASE IN NET ASSETS.......... 180,486,946 (86,864,766)
NET ASSETS:
Beginning of the Period........................ 686,316,240 773,181,006
---------------- ----------------
End of the Period (Including accumulated
undistributed net investment income of $2,508
and $43,171, respectively)................... $ 866,803,186 $ 686,316,240
================ ================
See Notes to Financial Statements
F-6
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
[Enlarge/Download Table]
YEAR ENDED MAY 31,
CLASS A SHARES ---------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net Investment Income................ .0482 .0449 .0467 .0440 .0465
Less Distributions from Net
Investment Income.................. (.0482) (.0449) (.0467) (.0440) (.0465)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return......................... 4.92% 4.55% 4.78% 4.52% 4.75%
Net Assets at End of the Period (In
millions).......................... $ 573.3 $ 529.6 $ 634.1 $ 451.3 $ 440.3
Ratio of Expenses to Average Net
Assets*(a)......................... 0.82% 0.84% 1.02% 1.02% 1.07%
Ratio of Net Investment Income to
Average Net Assets*................ 4.71% 4.38% 4.60% 4.38% 4.62%
*For the years ended May 31, 1996 and 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(a) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended May 31,
1999.
See Notes to Financial Statements
F-7
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
[Enlarge/Download Table]
YEAR ENDED MAY 31,
CLASS B SHARES ---------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net Investment Income................ .0406 .0374 .0391 .0363 .0388
Less Distributions from Net
Investment Income.................. (.0406) (.0374) (.0391) (.0363) (.0388)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return (a)..................... 4.14% 3.78% 3.99% 3.71% 3.95%
Net Assets at End of the Period (In
millions).......................... $ 238.8 $ 129.8 $ 123.0 $ 103.0 $ 81.5
Ratio of Expenses to Average Net
Assets*(b)......................... 1.57% 1.63% 1.79% 1.77% 1.86%
Ratio of Net Investment Income to
Average Net Assets*................ 3.96% 3.71% 3.91% 3.70% 3.75%
* For the years ended May 31, 1996 and 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within the first and second year of
purchase and declining thereafter to 0% after the fifth year. If the sales
charge was included, total returns would be lower.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended May 31,
1999.
See Notes to Financial Statements
F-8
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
[Enlarge/Download Table]
YEAR ENDED MAY 31,
CLASS C SHARES ---------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net Investment Income................ .0406 .0373 .0392 .0362 .0387
Less Distributions from Net
Investment Income.................. (.0406) (.0373) (.0392) (.0362) (.0387)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return (a)..................... 4.14% 3.77% 3.99% 3.72% 3.94%
Net Assets at End of the Period (In
millions).......................... $ 54.7 $ 26.9 $ 16.1 $ 8.4 $ 9.7
Ratio of Expenses to Average Net
Assets*(b)......................... 1.57% 1.63% 1.78% 1.78% 1.87%
Ratio of Net Investment Income to
Average Net Assets*................ 3.96% 3.73% 3.91% 3.64% 3.81%
* For the years ended May 31, 1996 and 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended May 31,
1999.
See Notes to Financial Statements
F-9
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Reserve Fund (the "Fund") is organized as a Delaware business trust.
The Fund is an open-end diversified management investment company registered
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek protection of capital and high current income through
investments in U.S. dollar denominated money market securities. The Fund
commenced investment operations on July 12, 1974. The distribution of the Fund's
Class B and Class C shares commenced on April 18, 1995.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Investments are valued at amortized cost, which
approximates market. Under this valuation method, a portfolio instrument is
valued at cost and any discount or premium is accreted or amortized to the
maturity of the instrument.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments 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 Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Income
and expenses of the Fund are allocated on a pro rata basis to each class of
shares, except for distribution and service fees and transfer agency costs which
are unique to each class of shares.
F-10
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At May 31, 2000, the Fund had an accumulated capital loss carryforward
for tax purposes of $64,398 which will expire between May 31, 2001 and May 31,
2008, of this amount $6,782 will expire on May 31, 2001.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which may not be
recognized for tax purposes until the first day of the following fiscal year.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares dividends daily from net
investment income and capital gains, if any, and automatically reinvests such
dividends daily. Shareholders can elect to receive the cash equivalent of their
daily dividends at each month end.
F. EXPENSE REDUCTIONS During the year ended May 31, 2000, the Fund's custody fee
was reduced by $80,482 as a result of credits earned on overnight cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
[Download Table]
AVERAGE DAILY NET ASSETS % PER ANNUM
First $150 million.......................................... .50 of 1%
Next $100 million........................................... .45 of 1%
Next $100 million........................................... .40 of 1%
Over $350 million........................................... .35 of 1%
For the year ended May 31, 2000, the Fund recognized expenses of
approximately $63,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended May 31, 2000, the Fund recognized expenses of
approximately $38,200 representing Van Kampen Funds Inc.'s, or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
F-11
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended May 31, 2000,
the Fund recognized expenses of approximately $1,494,900. The transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At May 31, 2000, capital aggregated $573,317,572, $238,852,191 and $54,695,811
for Classes A, B and C, respectively. For the year ended May 31, 2000,
transactions were as follows:
[Enlarge/Download Table]
SHARES VALUE
Sales:
Class A........................................ 18,409,830,894 $ 18,409,830,894
Class B........................................ 1,333,924,471 1,333,924,471
Class C........................................ 457,416,625 457,416,625
--------------- ----------------
Total Sales...................................... 20,201,171,990 $ 20,201,171,990
=============== ================
Dividend Reinvestment:
Class A........................................ 28,255,055 $ 28,255,055
Class B........................................ 7,247,047 7,247,047
Class C........................................ 1,491,665 1,491,665
--------------- ----------------
Total Dividend Reinvestment...................... 36,993,767 $ 36,993,767
=============== ================
Repurchases:
Class A........................................ (18,394,381,792) $(18,394,381,792)
Class B........................................ (1,232,117,711) (1,232,117,711)
Class C........................................ (431,135,813) (431,135,813)
--------------- ----------------
Total Repurchases................................ (20,057,635,316) $(20,057,635,316)
=============== ================
F-12
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
At May 31, 1999, capital aggregated $529,613,415, $129,798,384, and
$26,923,334 for Classes A, B and C, respectively. For the year ended May 31,
1999, transactions were as follows:
[Enlarge/Download Table]
SHARES VALUE
Sales:
Class A........................................ 20,964,963,416 $ 20,964,963,502
Class B........................................ 1,241,941,716 1,241,941,716
Class C........................................ 339,838,031 339,838,031
--------------- ----------------
Total Sales...................................... 22,546,743,163 $ 22,546,743,249
=============== ================
Dividend Reinvestment:
Class A........................................ 28,300,866 $ 28,300,866
Class B........................................ 5,631,517 5,631,517
Class C........................................ 934,371 934,371
--------------- ----------------
Total Dividend Reinvestment...................... 34,866,754 $ 34,866,754
=============== ================
Repurchases:
Class A........................................ (21,097,762,520) $(21,097,762,520)
Class B........................................ (1,240,799,799) (1,240,799,799)
Class C........................................ (329,935,042) (329,935,042)
--------------- ----------------
Total Repurchases................................ (22,668,497,361) $(22,668,497,361)
=============== ================
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs. Class B shares purchased on or after June 1, 1996, and
any dividend reinvestment plan Class B shares received thereon, automatically
convert to Class A shares eight years after the end of the calendar month in
which the shares were purchased. Class B shares purchased before June 1, 1996,
and any dividend reinvestment plan Class B shares received thereon,
automatically convert to Class A shares six years after the end of the calendar
month in which the shares were purchased. For the year ended May 31, 2000, no
Class B shares converted to Class A shares. Class C shares purchased before
January 1, 1997, and any dividend reinvestment plan Class C shares received
thereon, automatically convert to Class A shares ten years after the end of the
calendar month in which the shares were purchased. Class C shares purchased on
or after January 1, 1997 do not possess a
F-13
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
conversion feature. For the year ended May 31, 2000, no Class C shares converted
to Class A shares.
[Download Table]
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO CHARGE
---------------------
YEAR OF REDEMPTION CLASS B CLASS C
First....................................................... 4.00% 1.00%
Second...................................................... 4.00% None
Third....................................................... 3.00% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth and Thereafter........................................ None None
For the year ended May 31, 2000, Van Kampen, as Distributor for the Fund,
received commissions on redeemed shares which were subject to a CDSC of
approximately $1,533,200. Sales charges do not represent expenses of the Fund.
4. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12B-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .15% of average daily net assets of
Class A shares and .90% each of Class B and Class C shares are accrued daily.
Included in these fees for the year ended May 31, 2000, are payments retained by
Van Kampen of approximately $1,711,700.
F-14
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
[Download Table]
(a)(1) First Amended and Restated Agreement and Declaration of
Trust(1)
(2) Second Certificate of Amendment(3)
(3) Second Amended and Restated Certificate of Designation(3)
(b) Amended and Restated Bylaws(1)
(c)(1) Specimen Class A Share Certificate(3)
(2) Specimen Class B Share Certificate(3)
(3) Specimen Class C Share Certificate(3)
(d) Investment Advisory Agreement(2)
(e)(1) Distribution and Service Agreement(2)
(2) Form of Dealer Agreement(1)
(3) Form of Broker Fully Disclosed Clearing Agreement(1)
(4) Form of Bank Fully Disclosed Clearing Agreement(1)
(f)(1) Form of Trustee Deferred Compensation Plan(4)
(2) Form of Trustee Retirement Plan(4)
(g)(1) Custodian Contract(2)
(2) Transfer Agency and Service Agreement(2)
(h)(1) Fund Accounting Agreement(2)
(i)(1) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(1)
(i)(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)+
(j)(1) Consent of Ernst & Young LLP+
(2) Consent of PricewaterhouseCoopers LLP+
(k) Not Applicable
(l) Not Applicable
(m)(1) Plan of Distribution pursuant to Rule 12b-1(2)
(2) Form of Shareholder Assistance Agreement(2)
(3) Form of Administrative Services Agreement(2)
(n) Amended Multi-Class Plan(2)
(p) Code of Ethics of the Fund, Investment Adviser and
Distributor+
(q) Power of Attorney+
(z)(1) List of certain investment companies in response to Item
27(a)+
(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)+
(1) Incorporated herein by reference to Post-Effective Amendment No. 37 to
Registrant's Registration Statement on Form N-1A, File No. 2-50870, filed
September 27, 1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 38 to the
Registrant's Registration Statement on Form N1-A, File No. 2-50870, filed
September 26, 1997.
(3) Incorporated herein by reference to Post-Effective Amendment No. 39 to the
Registrant's Registration Statement on Form N1-A, File No. 2-50870, filed
September 15, 1998.
(4) Incorporated herein by reference to Post-Effective Amendment No. 81 to Van
Kampen Harbor Fund's Registration Statement on Form N-1A, File No. 2-12685,
and 811-734, filed April 29, 1999.
+ Filed herewith.
C-1
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 25. INDEMNIFICATION.
Pursuant to Del. Code Ann. Title 12 Section 3817, a Delaware business trust
may provide in its governing instrument for the indemnification of its officers
and trustees from and against any and all claims and demands whatsoever.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust. Article 8, Section 8.4 of the Agreement and
Declaration of Trust provides that each officer and trustee of the Registrant
shall be indemnified by the Registrant against all liabilities incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which the officer or trustee may be or
may have been involved by reason of being or having been an officer or trustee,
except that such indemnity shall not protect any such person against a liability
to the Registrant or any shareholder thereof to which such person would
otherwise be subject by reason of (i) not acting in good faith in the reasonable
belief that such person's actions were not in the best interests of the Trust,
(ii) willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office, or (iii) for a criminal
proceeding not having a reasonable cause to believe that such conduct was
unlawful (collectively "Disabling Conduct"). Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of Disabling Conduct in the conduct of his or her office, the decision by
the Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of Disabling
Conduct in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds Inc. (the
"Distributor") and each of its trustees and officers and each person, if any,
who controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damages or expense (including the reasonable
cost of investigating or defending any alleged
C-2
loss, liability, claim, damages, or expense and reasonable counsel fees) arising
by reason of any person acquiring any shares, based upon the ground that the
Registration Statement, prospectus, shareholder reports or other information
filed or made public by the Registrant (as from time to time amended) included
an untrue statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading under the 1933 Act, or any other statute or the common law. The
Registrant does not agree to indemnify the Distributor or hold it harmless to
the extent that the statement or omission was made in reliance upon, and in
conformity with, information furnished to the Registrant by or on behalf of the
Distributor. In no case is the indemnity of the Registrant in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor or
any person against any liability to the Fund or its security holders to which
the Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under the
agreement.
Pursuant to the agreement by which Van Kampen Investor Services Inc.
("Investor Services") is appointed transfer agent of the Fund, the Registrant
agrees to indemnify and hold Investor Services harmless against any losses,
damages, costs, charges, payments, liabilities and expenses (including
reasonable counsel fees) arising out of or attributable to:
(1) the performance of Investor Services under the agreement provided that
Investor Services acted in good faith with due diligence and without negligence
or willful misconduct.
(2) reliance by Investor Services on, or reasonable use by, Investor
Services of information, records and documents which have been prepared on
behalf of, or have been furnished by, the Fund, or the carrying out by Investor
Services of any instructions or requests of the Fund.
(3) the offer or sale of the Fund's shares in violation of any federal or
state law or regulation or ruling by any federal agency unless such violation
results from any failure by Investor Services to comply with written
instructions from the Fund that such offers or sales were not permitted under
such law, rule or regulation.
(4) the refusal of the Fund to comply with terms of the agreement, or the
Fund's lack of good faith, negligence or willful misconduct or breach of any
representation or warranty made by the Fund under the agreement provided that if
the reason for such failure is attributable to any action of the Fund's
investment adviser or distributor or any person providing accounting or legal
services to the Fund, Investor Services only will be entitled to indemnification
if such entity is otherwise entitled to the indemnification from the Fund.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Investment Advisory Services" in the Prospectus and "Investment
Advisory Agreement," "Other Agreements" and "Trustees and Officers" in the
Statement of Additional Information for information regarding the business of
Van Kampen Asset Management Inc. (the "Adviser"). For information as to the
business, profession, vocation and employment of a substantial nature of each of
the officers and directors of the Adviser, reference is made to the Adviser's
current Form ADV (File No. 801-1669) filed under the Investment Advisers Act of
1940, as amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The sole principal underwriter is Van Kampen Funds Inc. (the
"Distributor") which acts as principal underwriter for certain investment
companies and unit investment trusts. See Exhibit (z)(1).
(b) Van Kampen Funds Inc. is an affiliated person of the Registrant and is
the only principal underwriter for the Registrant. The name, principal business
address and positions and offices with Van Kampen Funds Inc. of each of the
trustees and officers are disclosed in Exhibit (z)(2). Except as disclosed under
the heading, "Trustees and Officers" in Part B of this Registration Statement,
none of such persons has any position or office with the Registrant.
(c) Not applicable.
C-3
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents of the Registrant required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder to be maintained (i) by the Registrant will be maintained
at its offices located at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-
5555; Van Kampen Investor Services Inc., 7501 Tiffany Springs Parkway, Kansas
City, Missouri 64153; or at State Street Bank and Trust Company, 1776 Heritage
Drive, North Quincy, Massachusetts 02171, (ii) by the Adviser, will be
maintained at its offices located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555 and (iii) by Van Kampen Funds Inc., the principal
underwriter, will be maintained at its offices located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN RESERVE FUND, certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the 1933 Act and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oakbrook Terrace, and the State of Illinois, on the
28th day of September, 2000.
VAN KAMPEN RESERVE FUND
By: /s/ A. THOMAS SMITH III
-------------------------------------
A. Thomas Smith III, Secretary
Pursuant to the requirements of the 1933 Act, this Amendment to the
Registration Statement has been signed on September 28, 2000, by the following
persons in the capacities indicated.
[Enlarge/Download Table]
SIGNATURES TITLE
---------- -----
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* Trustee and President
------------------------------------------------
Richard F. Powers, III
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and Treasurer
------------------------------------------------
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
------------------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Trustee
------------------------------------------------
Jerry D. Choate
/s/ LINDA HUTTON HEAGY* Trustee
------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
------------------------------------------------
R. Craig Kennedy
/s/ MITCHELL M. MERIN* Trustee
------------------------------------------------
Mitchell M. Merin
/s/ JACK E. NELSON* Trustee
------------------------------------------------
Jack E. Nelson
/s/ PHILLIP B. ROONEY* Trustee
------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
------------------------------------------------
Suzanne H. Woolsey
---------------
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
/s/ A. THOMAS SMITH III September 28, 2000
------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
C-5
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT 42 TO FORM N-1A
[Download Table]
EXHIBIT
NUMBER EXHIBIT
------- -------
(i)(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(j)(1) Consent of Ernst & Young LLP
(2) Consent of PricewaterhouseCoopers LLP
(p) Code of Ethics of the Fund, Investment Adviser and
Distributor
(q) Power of Attorney
(z)(1) List of certain investment companies in response to Item
27(a)
(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘485BPOS’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 5/31/08 | | 71 | | | | | 24F-2NT, N-CSR, NSAR-B, NSAR-B/A |
| | 5/31/01 | | 71 | | | | | 24F-2NT, N-30D, NSAR-B |
| | 12/31/00 | | 56 |
| Filed as of / Effective on: | | 9/28/00 | | 1 | | 79 |
| Filed on: | | 9/27/00 |
| | 9/5/00 | | 24 | | 42 |
| | 7/14/00 | | 61 |
| | 6/30/00 | | 5 | | 8 |
| | 5/31/00 | | 8 | | 74 | | | 24F-2NT, N-30D, NSAR-B |
| | 5/18/00 | | 60 |
| | 4/14/00 | | 41 |
| | 12/31/99 | | 5 | | 42 |
| | 7/1/99 | | 61 |
| | 5/31/99 | | 19 | | 73 | | | 24F-2NT, 24F-2NT/A, N-30D, NSAR-B |
| | 5/26/99 | | 41 |
| | 4/29/99 | | 75 |
| | 9/15/98 | | 75 | | | | | 485BPOS |
| | 7/14/98 | | 23 |
| | 5/31/98 | | 19 | | 44 | | | 24F-2NT, N-30D, NSAR-B, NSAR-B/A |
| | 9/26/97 | | 75 | | | | | 485BPOS |
| | 5/31/97 | | 19 | | 69 | | | 24F-2NT, N-30D, NSAR-B |
| | 1/1/97 | | 12 | | 73 |
| | 9/27/96 | | 75 | | | | | 485BPOS |
| | 6/1/96 | | 12 | | 73 |
| | 5/31/96 | | 19 | | 69 | | | 24F-2NT, N-30D, NSAR-B |
| | 7/31/95 | | 23 | | | | | NSAR-B |
| | 4/18/95 | | 70 |
| | 6/30/93 | | 5 |
| List all Filings |
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