<PAGE> 1
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VAN KAMPEN AMERICAN CAPITAL
RESERVE FUND
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Van Kampen American Capital Reserve Fund, formerly known as American Capital
Reserve Fund, Inc. (the "Fund"), is a mutual fund seeking protection of capital
and high current income through investments in U.S. dollar denominated money
market securities.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. ALTHOUGH THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is (800)421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated August 1, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800)421-5666 or, for Telecommunications Device For
the Deaf, (800)772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED AUGUST 1, 1995.
<PAGE> 2
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary............................................... 3
Shareholder Transaction Expenses................................. 5
Annual Fund Operating Expenses and Example....................... 6
Financial Highlights............................................. 8
The Fund......................................................... 10
Investment Objective and Policies................................ 10
Investment Practices............................................. 13
Investment Advisory Services..................................... 13
Alternative Sales Arrangements................................... 15
Purchase of Shares............................................... 17
Shareholder Services............................................. 22
Redemption of Shares............................................. 26
Distribution Plans............................................... 30
Determination of Net Asset Value................................. 32
Distributions from the Fund...................................... 32
Tax Status....................................................... 33
Fund Performance................................................. 33
Description of Shares of the Fund................................ 34
Additional Information........................................... 35
</TABLE>
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 ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE 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.
2
<PAGE> 3
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PROSPECTUS SUMMARY
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THE FUND. Van Kampen American Capital Reserve Fund (the "Fund) is a
diversified, open-end management investment company organized as a Delaware
business trust.
MINIMUM PURCHASE. $500 minimum initial investment and $50 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
INVESTMENT OBJECTIVE. Protection of capital and high current income. There is,
however, no assurance that the Fund will be successful in achieving its
objective.
INVESTMENT POLICY. The Fund seeks to maintain a constant net asset value of
$1.00 per share by investing in a diversified portfolio of money market
instruments. It seeks high current income from these short-term investments to
the extent consistent with protection of capital.
RISK FACTORS. Investments in the Fund are neither insured nor guaranteed by the
U.S. Government. Although the Fund seeks to maintain a stable net asset value of
$1.00 per share there is no assurance that the Fund will be able to do so.
INVESTMENT RESULTS. The investment results of the Fund are shown in the
"Financial Highlights" table.
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and Class C shares. Unless investors intend to exchange their Fund
shares for Class B shares or Class C shares of other Van Kampen American Capital
funds, they should purchase the Fund's Class A shares because there is no
distribution fee. Even investors who do intend to exchange their Fund shares for
Class B or Class C shares of other Van Kampen American Capital Funds may prefer
to purchase Class A shares of the Fund and then redeem those shares and use the
proceeds to purchase Class B or Class C shares of other Van Kampen American
Capital funds. See "Alternative Sales Arrangements -- Factors for
Consideration." Each class of shares represents an interest in the same
portfolio of investments of the Fund. The per share dividends on Class B and
Class C shares will be lower than the per share dividends on Class A shares. See
"Alternative Sales Arrangements." For information on redeeming shares see
"Redemption of Shares."
Class A Shares. These shares are offered at net asset value per share. The Fund
pays an annual service fee of up to 0.15% of its average daily net assets
attributable to such class of shares. See "Purchase of Shares -- Class A Shares"
and "Distribution Plans."
Class B Shares. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of four percent of redemp-
3
<PAGE> 4
tion proceeds during the first year, declining each year thereafter to zero
percent after the fifth year. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to .90% of its average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares" and "Distribution Plans." Class B shares will convert
automatically to Class A shares six years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of one percent on redemptions made
within one year of purchase. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to .90% of its average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution Plans." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income and capital
gains, if any, are declared and paid daily. All dividends and distributions are
automatically reinvested in shares of the Fund at net asset value per share
(without sales charge) unless payment in cash is requested. See "Distributions
from the Fund."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser to the Fund.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the
"Distributor").
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
4
<PAGE> 5
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SHAREHOLDER TRANSACTION EXPENSES
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- ----------------- -------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... None None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds).......... None Year 1--4.00% Year 1--1.00%
Year 2--4.00%
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
</TABLE>
5
<PAGE> 6
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ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES(4) SHARES(4)
--------- --------- ---------
<S> <C> <C> <C>
Management fees (as a percentage of
average daily net assets)............. .44% .44% .44%
12b-1 Fees (as a percentage of average
daily net assets)(1).................. .14% .90%(3) .90%(3)
Other Expenses (as a percentage of
average daily net assets)(2).......... .42% .42% .42%
Total Fund Operating Expenses (as a
percentage of average daily net
assets)............................... 1.00% 1.76% 1.76%
</TABLE>
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(1) Up to .15% for Class A shares and .90% for Class B and C shares. See
"Distribution Plans."
(2) See "Investment Advisory Services."
(3) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(4) Based on Class B and C shares being in effect for the entire fiscal year.
6
<PAGE> 7
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
------ ------ ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.00% for
Class A shares, 1.76% for Class B shares
and 1.76% for Class C shares, (ii) a 5%
annual return and (iii) redemption at the
end of each time period:
Class A............................... $10 $32 $ 55 $122
Class B............................... $59 $88 $113 $169*
Class C............................... $28 $55 $ 95 $207
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $10 $32 $ 55 $122
Class B............................... $18 $55 $ 95 $169*
Class C............................... $18 $55 $ 95 $207
</TABLE>
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*Based on conversion to Class A shares after six years.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the Fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."
7
<PAGE> 8
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FINANCIAL HIGHLIGHTS
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(Selected data for a share of beneficial interest outstanding throughout each
of the periods indicated)
The following information for each of the five most recent fiscal years has
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified. This information should be read in conjunction with the
related financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------
YEAR ENDED MAY 31
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................ .0535 .0329 .0353 .052 .0758 .0893 .0891
Expenses..................................... (.0101) (.0100) (.0109) (.0105) (.0094) (.0092) (.0076)
---------- ---------- ---------- ---------- ---------- ---------- ------------
Net investment income........................ .0434 .0229 .0244 .0415 .0664 .0801 .0815
Net realized and unrealized gain on
securities.................................. -- -- -- -- -- -- .000007
---------- ---------- ---------- ---------- ---------- ---------- ------------
Total from investment operations............. .0434 .0229 .0244 .0415 .0664 .0801 .081507
---------- ---------- ---------- ---------- ---------- ---------- ------------
LESS DISTRIBUTIONS
Dividends from net investment income......... (.0434) (.0229) (.0244) (.0415) (.0664) (.0801) (.0815)
Distributions from net realized gain on
securities.................................. -- -- -- -- -- -- (.000007)
---------- ---------- ---------- ---------- ---------- ---------- ------------
Total dividends and distributions............ (.0434) (.0229) (.0244) (.0415) (.0664) (.0801) (.081507)
---------- ---------- ---------- ---------- ---------- ---------- ------------
Net asset value, end of period............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ========== ========== ============
TOTAL RETURN(2).............................. 4.43% 2.32% 2.44% 4.20% 6.80% 8.33% 8.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)......... $319.7 $463.8 $279.3 $329.2 $402.3 $426.1 $474.2
Ratios to average net assets (annualized)
Expenses.................................... 1.00% 1.03% 1.09% 1.05% .94% .91% .76%
Net investment income....................... 4.28% 2.36% 2.44% 4.19% 6.68% 7.99% 8.19%
<CAPTION>
CLASS A
-------------------------------------
YEAR ENDED MAY 31
-------------------------------------
1988 1987 1986
------------ ------------ ---------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $1.00 $1.00 $1.00
------------ ------------ ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................ .0729 .0647 .0802
Expenses..................................... (.0078) (.0092) (.0093)
------------ ------------ ---------
Net investment income........................ .0651 .0555 .0709
Net realized and unrealized gain on
securities.................................. .000015 .000102 .0002
------------ ------------ ---------
Total from investment operations............. .065115 .055602 .0711
------------ ------------ ---------
LESS DISTRIBUTIONS
Dividends from net investment income......... (.0651) (.0556) (.0709)
Distributions from net realized gain on
securities.................................. (.000015) (.000002) (.0002)
------------ ------------ ---------
Total dividends and distributions............ (.065115) (.055602) (.0711)
------------ ------------ ---------
Net asset value, end of period............... $1.00 $1.00 $1.00
============ ============ =========
TOTAL RETURN(2).............................. 6.71% 5.71% 7.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)......... $500.7 $377.8 $227.9
Ratios to average net assets (annualized)
Expenses.................................... .78% .92% .93%
Net investment income....................... 6.56% 5.60% 7.16%
</TABLE>
(Table continued on following page)
8
<PAGE> 9
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FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------- ---------------
APRIL 18, APRIL 18,
1995(1) THROUGH 1995(1) THROUGH
MAY 31, MAY 31,
1995 1995
--------------- ---------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................................................... $1.00 $1.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................................................................... .0073 .0076
Expenses.................................................................................. (.0026) (.0027)
-------- --------
Net investment income..................................................................... .0047 .0049
Net realized and unrealized gain on securities............................................ -- --
-------- --------
Total from investment operations.......................................................... .0047 .0049
-------- --------
LESS DISTRIBUTIONS
Dividends from net investment income...................................................... (.0047) (.0049)
Distributions from net realized gains on securities....................................... -- --
-------- --------
Total dividends and distributions......................................................... (.0047) (.0049)
-------- --------
Net asset value, end of period............................................................ $1.00 $1.00
======== ========
TOTAL RETURN(2)........................................................................... .47% .49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................................................... $4.2 $0.6
Ratios to average net assets (annualized)
Expenses................................................................................. 1.76%(3) 1.76(3)
Net investment income.................................................................... 3.52%(3) 3.52(3)
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Total return has not been annualized and does not consider the effect of
sales charges.
(3) Ratios based on the class of shares being in effect for the entire fiscal
year.
9
<PAGE> 10
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THE FUND
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The Fund is an open-end, diversified management investment company. This type
of company is commonly known as a mutual fund. A mutual fund provides, for those
who have similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.
Fourteen Trustees have the responsibility for overseeing the affairs of the
Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines the
investment of the Fund's assets, provides administrative services and manages
the Fund's business and affairs. The Adviser together with its predecessors, has
been in the investment advisory business since 1926.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund seeks protection of capital and high current income through
investments in U.S. dollar denominated money market securities. These securities
may include obligations of the U.S. Government and its agencies, bank
obligations, commercial paper and repurchase agreements secured by such
obligations. Such securities are described below.
The Fund seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments with remaining
maturities of 13 months or less with a dollar-weighted average maturity of 90
days or less as defined in the rules of the SEC. It seeks high current income
from these short-term investments to the extent consistent with protection of
capital. Of course, there can be no guarantee that the Fund will achieve its
objective or be able at all times to maintain its net asset value per share at
$1.00. In addition, the daily dividend rate paid by the Fund may be expected to
fluctuate. The Fund uses the amortized cost method for valuing portfolio
securities purchased at a discount. See "Determination of Net Asset Value."
OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS AGENCIES. The Fund may invest in
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies and instrumentalities which are supported by any of the
following: (a) the full faith and credit of the U.S. Government, (b) the right
of the issuer to borrow an amount limited to a specific line of credit from the
U.S. Government, (c) discretionary authority of the U.S. Government agency or
instrumentality, or (d) the credit of the instrumentality. Such agencies or
instrumentalities 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.
10
<PAGE> 11
BANK OBLIGATIONS. The Fund may invest in certificates of deposit, time
deposits and bankers' acceptances issued by domestic banks, foreign branches or
subsidiaries of domestic banks, and domestic or foreign branches of foreign
banks which at the time of investment are rated in the two highest categories by
Standard & Poor's Corporation ("S&P") (A-1 and A-2) or by Moody's Investors
Service ("Moody's") (Prime-1 and Prime-2). The ratings of Moody's and S&P
represent their opinions of the quality of the bank obligations they undertake
to rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. The Fund's current policy is to limit investments
in bank obligations to obligations rated A-1 or Prime-1.
Certificates of deposit are certificates representing the obligation of a bank
to repay funds deposited with it for a specified period of time. Time deposits
are non-negotiable deposits maintained in a bank for a specified period of time
(in no event longer than seven days) at a stated interest rate. Time deposits
which may be held by the Fund will not benefit from insurance from 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 purchase of obligations of foreign banks may subject the Fund to
additional investment risks that are different in some respect 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.
COMMERCIAL PAPER. The Fund may invest in short-term obligations of companies
which at the time of investment are (a) rated in the two highest categories by
S&P (A-1 and A-2) or by Moody's (Prime-1 and Prime-2), or (b) if not rated,
issued by
11
<PAGE> 12
a company which at the date of investment has any outstanding long-term debt
securities rated at least A by S&P or by Moody's.
Commercial paper consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. (See Appendix in the Statement of Additional Information for an
explanation of these ratings.) The Fund's current policy is to limit investments
in commercial paper to obligations rated A-1 or Prime-1.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks (or a foreign branch or subsidiary thereof) which have a
short-term debt rating of high quality (in one of the two highest categories) by
either Moody's or S&P and with primary government securities dealers reporting
to the Federal Reserve Bank of New York. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. No repurchase
agreement may exceed one year, and the Fund may not invest in repurchase
agreements maturing in more than seven days if such investment, together with
any other illiquid securities held by the Fund, exceeds 10% of the value of the
net assets. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss 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 substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested 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 greater 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 that would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.
12
<PAGE> 13
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
BROKERAGE PRACTICES. The Adviser is responsible for the placement of orders
for the purchase and sale of portfolio securities for the Fund. Most
transactions made by the Fund are principal transactions at net prices which
incur little or no brokerage costs. Dealers are selected on the basis of their
professional capability for the type of transaction and the value and quality of
execution services rendered on a continuing basis. The Adviser is authorized to
place portfolio transactions with brokerage firms participating in the
distribution of shares of the Fund and other Van Kampen American Capital mutual
funds if it reasonably believes that the quality of the execution and the
commission are comparable to that available from other qualified firms.
No commissions were paid by the Fund during the past three fiscal years.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without the approval of
a majority (as defined in the Investment Company Act of 1940 ("1940 Act") vote
of the Fund's shareholders. The Fund may not borrow money, except from banks for
temporary or emergency purposes, such as to accommodate heavy redemption
requests, and then in amounts not exceeding 10% of the value of the Fund's total
net assets. The Fund may not 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 five percent of the value of the Fund's assets at
the time of such borrowing. The Fund may not lend money, except through the
purchase or holding of the types of debt securities in which the Fund may
invest. Other investment restrictions are described in the Statement of
Additional Information. Except to the extent governed by such restrictions, the
investment policies described under "Investment Objective and Policies" can be
changed by the Trustees.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and
nearly $50 billion under management or supervision. Van Kampen American
Capital's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trusts are professionally distributed by leading financial advisers
nationwide.
Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and its sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of
13
<PAGE> 14
Van Kampen American Capital. Van Kampen American Capital is a wholly owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut
limited partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc. a New
York based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital own, in the aggregate, not more than 7% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 11% of the common stock of
VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such
options, no officer or trustee of the Fund owns 5% or more of the common stock
of VKAC Holding, Inc.
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 on average daily net assets of the Fund at the annual rate of 0.50% of
the first $150 million of net assets; 0.45% on the next $100 million of net
assets; 0.40% on the next $100 million of net assets; and 0.35% on net assets
over $350 million. Under the Advisory Agreement, the Fund also reimburses the
Adviser for the cost of the Fund's accounting services, which include
maintaining its financial books and records and calculating its daily net asset
value. Operating expenses paid by the Fund include shareholder service agency
fees, service fees, distribution fees, custodial fees, legal and accounting
fees, the costs of reports and proxies to shareholders, trustees' fees, and all
other business expenses not specifically assumed by the Adviser. Advisory
(management) fees and total operating expense ratios are shown under the caption
"Annual Fund Operating Expenses and Example" herein.
From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.
The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
14
<PAGE> 15
Adviser and its employees. The Codes 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 preclearance and other procedures designed to prevent conflicts of
interest.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value. Class A shares are
subject to an ongoing service fee at an annual rate of up to 0.15% of the Fund's
aggregate average daily net assets attributable to the Class A shares. See
"Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if they are redeemed within five years of purchase.
Class B shares are subject to an ongoing service fee at an annual rate of up to
0.15% of the Fund's aggregate average daily net assets attributable to the Class
B shares and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
The ongoing distribution fee paid by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those related to
Class A shares. See "Purchase of Shares -- Class B Shares." Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month in which the shareholder's order to purchase was accepted. See "Conversion
Feature" below for discussion on applicability of conversion feature to Class B
shares.
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.15% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. The
ongoing distribution fee paid by Class C shares will cause such shares to have a
higher expense ratio and to pay lower dividends than those related to Class A
shares. See "Purchase of Shares -- Class C Shares." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Conversion Feature"
below for discussion on applicability of conversion feature to Class C shares.
CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the
15
<PAGE> 16
month in which the shares were purchased and will no longer be subject to the
distribution fee. 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 purpose of the conversion feature is to relieve the holders of the Class B
shares and Class C shares that have been outstanding for a period of time
sufficient for the Distributor to have been substantially compensated for
distribution expenses related to the Class B shares or Class C shares as the
case may be from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel or a private
letter ruling from the Internal Revenue Service to the effect that (i) the
assessment of the distribution fee and higher transfer agency costs with respect
to Class B shares and Class C shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code, as amended (the "Code"), and (ii) the conversion of shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B shares and Class C shares may be suspended if an opinion or ruling is no
longer available at the time such conversion is to occur that such conversion
does not constitute a taxable event. In that event, no further conversions of
Class B shares or Class C shares would occur, and shares might continue to be
subject to the distribution fee for an indefinite period which may extend beyond
the period ending six years or ten years, respectively, after the end of the
calendar month in which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. Class B and Class C shares of the Fund are made
available primarily to allow investors to directly purchase Class B and Class C
shares and later exchange such shares directly into Class B and Class C shares
of the other Participating Funds listed in "Shareholder Services -- Exchange
Privilege." Investors purchasing shares of the Fund without regard to the
availability of exchanges should purchase Class A shares because there is no
distribution fee and, therefore, Class A shares will have a higher yield than
Class B and Class C shares. Investors who wish to have the ability to exchange
their shares for Class B or Class C shares of other Participating Funds (as
defined herein) should consider purchasing the class they ultimately intend to
hold in that Participating Fund. Such investors should also consider purchasing
Class A shares of the Fund and then
16
<PAGE> 17
redeeming those shares when they wish to invest in Class B shares or Class C
shares of other Participating Funds. Since Class A shares are not subject to an
ongoing distribution fee, purchasing Class A shares and then redeeming them to
purchase Class B or Class C shares of another Participating Fund is likely to
result in a higher return to the investor than purchasing Class B or Class C
shares of the Fund and then exchanging them for Class B or Class C shares of
another Participating Fund.
GENERAL. The distribution expenses incurred by the Distributor in connection
with the sale of Class B and Class C shares will be reimbursed from the proceeds
of the ongoing distribution fee and any contingent deferred sales charge
incurred upon redemption within five years or one year, respectively, of
purchase. Distribution expenses by the Distributor in connection with the sale
of Class A shares are not reimbursed by the Fund. Sales personnel of
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class B and Class C shares. Sales personnel are not entitled to
receive compensation for selling Class A shares.
Dividends paid by the Fund with respect to Class A, Class B and Class C shares
will be calculated in the same manner at the same time on the same day, except
that the distribution fees and any incremental transfer agency costs relating to
Class B or Class C shares will be borne by the respective class. See
"Distributions from the Fund." Shares of the Fund may be exchanged, subject to
certain limitations, for shares of the same class of other mutual funds advised
by the Adviser. See "Shareholder Services -- Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure that no such conflict arises.
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
GENERAL
The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("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").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold at net asset value, without sales charge;
Class B and Class C shares are sold at net asset value, without sales charge,
and are subject to a
17
<PAGE> 18
contingent deferred sales charge upon certain redemptions. See "Alternative
Sales Arrangements" for a discussion of factors to consider in selecting which
class of shares to purchase. Contact the Investor Services Department at (800)
421-5666 for further information and appropriate forms.
Shares of the Fund may be purchased on any business day through the
shareholder service agent, ACCESS Investor Services, Inc., a wholly-owned
subsidiary of Van Kampen American Capital ("ACCESS"). When purchasing shares of
this Fund, investors must specify whether the purchase is Class A, Class B or
Class C. All orders and drafts become effective when the wire or check payment
is converted into federal funds. A check order or draft is normally converted
into federal funds on the second business day following receipt of payment by
ACCESS. These payments should be sent to ACCESS, P.O. Box 419319, Kansas City,
Missouri 64141-6319. When payment is by wire transfer of federal funds, such
order becomes effective upon receipt provided that prior notice has been given
as described below; other bank wire payments are normally converted into federal
funds on the day following receipt.
Initial investments must be at least $500 and subsequent investments must be
at least $50. Both minimums may be waived by the Distributor for plans involving
periodic investments. The Fund and the Distributor reserve the right to refuse
any order for the purchase of shares. Shares of the Fund may be sold in foreign
countries where permissible. 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.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
generally, each class has exclusive voting rights with respect to approvals of
the Rule 12b-1 distribution plan pursuant to which its distribution fee and/or
service fee is paid which relate to a specific class, and (iii) Class B and
Class C shares are subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service options available.
See "Distribution Plans" and "Shareholder Services -- Exchange Privilege." The
net income attributable to Class B and Class C shares and the dividends payable
on Class B and Class C shares will be reduced by the amount of the distribution
fee and incremental expenses associated with such distribution fees. Sales
personnel of broker-dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares.
INITIAL INVESTMENT BY BANK WIRE. To open an account by wire an investor should
telephone ACCESS at (800) 421-6714 (Alaska and Hawaii residents
18
<PAGE> 19
should call collect at (816) 283-3979), and provide the account registration,
the address, tax identification number, the amount being wired and the name of
the wiring bank. ACCESS furnishes the investor with an account number. The
investor's bank should wire the specified amount along with the account number
and registration to State Street Bank and Trust Company ("State Street Bank"),
225 Franklin Street, Boston, Massachusetts 02102, attention ACCESS/VKAC Reserve
Account No. 9900-446-7. The investor should then immediately mail a properly
completed application form accompanied by this Prospectus to ACCESS. To receive
immediate credit to an account, the investor must call ACCESS, 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 Van Kampen American Capital Reserve Fund along with a
completed application form to ACCESS.
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 immediate credit to an account, the investor must call ACCESS
at (800) 421-6714 (Alaska and Hawaii residents should call collect at (816)
283-3979), 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 $50 or
more may be sent to ACCESS, indicating the account registration and account
number.
CLASS A SHARES
Class A shares are offered at net asset value without sales charge.
The Fund will permit unitholders of unit investment trusts to reinvest
distributions from such trusts in Class A shares of the Fund, any Participating
Fund, the Van Kampen American Capital Money Market Fund ("VK Money Market") and
the Van Kampen American Capital Tax Free Money Market Fund ("VK Tax Free") with
no minimum or subsequent investment requirement. In order to qualify for this
privilege, 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 ACCESS with
appropriate backup data for each participating investor in a computerized format
fully compatible with ACCESS's processing system. In addition, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any
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<PAGE> 20
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to
investors on a quarterly basis only, even if an investors' investment period is
more frequent. Persons desiring more information with respect to this program,
including the applicable terms and conditions thereof, should contact their
securities broker or dealer or the Distributor. The Fund reserves the right to
modify or terminate this program at any time.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a contingent deferred
sales charge at the rates set forth in the following table charged as a
percentage of the dollar amount subject thereto. The 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 charge is
assessed on shares derived from reinvestment of dividends or capital gains
distributions. The Distributor will reject any order of $500,000 or more for
Class B shares.
The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchases
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- --------------------------------------------------------------------------------
<S> <C>
First...................................................... 4%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 2.5%
Fifth...................................................... 1.5%
Sixth...................................................... None
- --------------------------------------------------------------------------------
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first, of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge, second, of shares held for over five years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the five-year period.
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<PAGE> 21
A commission or transaction fee of four percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a contingent deferred
sales charge of one percent. The charge is assessed on an amount equal to the
lower 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 charge is assessed on shares derived
from reinvestment of dividends or capital gains distributions. The Distributor
will reject any order of $1 million or more for Class C shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares in the shareholder's Fund account that are not subject to
a contingent deferred sales charge and second of shares held for more than one
year or shares acquired pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of one percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.75% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge may be waived on redemptions of Class B
and Class C shares (i) following the death or disability (as defined in the
Code) of a shareholder, (ii) in connection with certain distributions from an
IRA or other retirement plan, (iii) pursuant to the Fund's systematic withdrawal
plan but limited to 12% annually of the initial value of the account; and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." The contingent deferred sales
charge is also waived on redemptions of Class C shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption.
21
<PAGE> 22
See the Statement of Additional Information for further discussion of waiver
provisions.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate the
investment in its shares at little or no extra cost to the investor. Below is a
description of such services.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Except as described below, 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 certain of the
Participating Funds may receive statements quarterly from ACCESS showing any
reinvestment of dividends and capital gains distributions 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 gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.
SHARE CERTIFICATES. As a rule, 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
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate no more than 2.00% of the net asset value of the issued
shares, and bill the party to whom the certificate was mailed.
AUTOMATIC INVESTMENT PLAN. Investors desiring a monthly investment are given
the option to utilize an automatic investment plan whereby the Distributor is
empowered to draft the shareholder's account monthly (minimum $50) with the
proceeds of the draft to be invested in Fund shares.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP, and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
22
<PAGE> 23
American Capital Trust Company serves as custodian under the IRA, 403(b)(7)
and Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan 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 Automated Clearing House. 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
redemptions are to be deposited together with the completed application. Once
ACCESS 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 ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application accompanied by this
Prospectus or by calling (800) 421-5666, (800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund invested into a pre-existing Class A,
Class B or Class C account in any of the Participating Funds, VK Money Market or
VK Tax Free. Both accounts must be of the same class. 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 as of the payable date of the distribution.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of other open-end investment companies distributed by the Distributor
other than The Govett Funds, Inc. (the "Participating Funds"), upon payment of
the excess, if any, of the sales charge rate applicable to the shares being
acquired over the sales charge rate, if any, previously paid. Shares of any
Participating Fund and the Fund may be exchanged for shares of any other
Participating Fund if shares of that Participating Fund are available for sale;
however, shares of a Participating Fund may not be available to potential
investors who are not already shareholders of the Participating Fund.
Shares of the Participating Funds may be exchanged without sales charge for
shares of the same class of the Fund provided that shares of certain Van Kampen
American Capital fixed-income funds may not be exchanged within 30 days of
acquisition without Adviser approval. Shares of Van Kampen American Capital
Government Target Fund may be exchanged for Class A shares of the Fund
23
<PAGE> 24
without sales charge. Class B and Class C shareholders of the Fund have the
ability to exchange their shares ("original shares") for the same class of
shares of any other Van Kampen American Capital fund that offers such shares
("new shares") in an amount equal to the aggregate net asset value of the
original shares, without the payment of any contingent deferred sales charge
otherwise due upon redemption of the original shares. Such shares remain subject
to the contingent deferred sales charge imposed by the fund initially purchased
by the shareholder upon their redemption from the Van Kampen American Capital
complex of Funds. Class A shareholders who acquired their shares in exchange for
Class B or Class C shares of a Participating Fund may exchange their Class A
shares for the same class of shares of a Participating Fund (also, "new shares")
as the class of shares they disposed of in acquiring their current shares (also,
"original shares") without incurring a contingent deferred sales charge. For
purposes of computing the contingent deferred sales charge payable upon a
disposition of the new shares, the holding period for the original shares is
added to the holding period of the new shares.
Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
designated otherwise in the application form accompanied by this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), 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, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges are effected
at the net asset value next calculated after the request is received in good
order with adjustment for any additional sales charge. See "Purchase of Shares"
and "Redemption of Shares." 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 options
(except dividend diversification) and 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
file a specific written request. The Fund reserves the right to reject any order
to acquire its shares through exchange. In
24
<PAGE> 25
addition, 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.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for information regarding such fund.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the next determined net asset value after receipt of
instructions may establish a monthly, quarterly, semi-annual 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 withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semiannual, or
annual checks in any amount, not less than $50.
A Class B or Class C shareholder or a Class A shareholder who acquired his or
her shares in the Fund in exchange for Class B or Class C shares of another Van
Kampen American Capital mutual fund 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 in the Fund at the time the election to participate in the plan is
made. For more detail regarding waiver of contingent deferred sales charges,
please refer to the prospectus of the original fund. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A shareholder holding Class A shares of the Fund (a)
for which certificates have not been issued, (b) which are in a non-escrow
status and (c) which were not acquired in exchange for Class B or Class C shares
of another Van Kampen American Capital mutual fund may appoint ACCESS as agent
by completing the AUTHORIZATION FOR REDEMPTION BY CHECK form and the appropriate
section of the application and returning the form and application to ACCESS.
Once the form is properly completed, signed and returned to ACCESS, a supply of
checks drawn on State Street Bank will be sent to the shareholder.
25
<PAGE> 26
Those checks may be made payable by the shareholder to the order of any person
in any amount of $100 or more.
When a check is presented to State Street 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 account by ACCESS at the next determined net
asset value. 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 Class A shares held in the shareholder's 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 State Street Bank. A "stop payment" system is not available on
these checks. Retirement Plans and accounts that are subject to backup
withholding are not eligible for the privilege. See the Statement of Additional
Information for further information regarding the establishment of the
privilege.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized dealer.
Orders received from dealers must be at least $500 unless transmitted via the
FUNDSERV network.
As described herein under "Purchase of Shares," redemptions of Class B or
Class C shares are subject to a contingent deferred sales charge. The contingent
deferred sales charge incurred upon redemption is paid to the Distributor in
reimbursement for distribution-related expenses. A custodian of a retirement
plan account may charge fees based on the custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered, and the names must be exactly the same as the names which
were signed when the shares were purchased. If the proceeds of the redemption
exceed $50,000, 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 savings and loan association; a
member firm of a national securities exchange, registered securities association
or clearing agency; or federal savings bank.
26
<PAGE> 27
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it does so if a special request has been made
to ACCESS. In the case of shareholders holding certificates, the certificates
for the shares being redeemed must accompany the redemption request. In the
event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as custodian, special IRA, 403(b)(7), or Keogh distribution forms
must be obtained from and must be forwarded to Van Kampen American Capital Trust
Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian for
information.
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by
ACCESS. Payment for shares redeemed is made by check mailed within seven days
after acceptance by ACCESS of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check until
the purchase check has cleared, usually a period of up to 15 days. Such delay
can be avoided if such payment of shares is made by bank wire. Any taxable gain
or loss will be recognized by the shareholder upon redemption of shares.
The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Trustees. At least 60 days advance written notice of any such involuntary
redemption is required and the shareholder is given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record of the account or to the
bank account of record as described below. To establish such privilege a
shareholder must complete the appropriate section of the application form
accompanied by this Prospectus or call the Fund at (800) 421-5666 to request
that a copy of the
27
<PAGE> 28
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares contact the telephone transaction line at (800) 421-5684. VKAC 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, neither VKAC nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. VKAC and the
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS 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 regular redemption procedure described
above. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If an account has multiple owners, ACCESS
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 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 privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. To establish such privilege a shareholder must
complete the appropriate section of the application form accompanied by this
Prospectus or call the Fund at 1-800 421-5666. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
EXPEDITED REDEMPTIONS. 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) 421-5671 (Alaska
and Hawaii residents should call collect at (816) 283-3114). Redemption proceeds
in the form of federal funds will be wired to the bank designated in the
application. Expedited redemption requests received in good order prior to 10:00
a.m. Kansas City time are processed on the date of receipt. Redemption requests
received by ACCESS after such hour are priced at the net asset value next
determined and the proceeds are wired on the next banking day following receipt
of such request.
28
<PAGE> 29
ACCESS 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 ACCESS with the signature of the shareholder
guaranteed. The Fund reserves the right at any time to terminate, limit or
otherwise modify this expedited redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of a Class B 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 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 she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B and Class C shares.
In cases of disability, the contingent deferred sales charge on Class B and
Class C shares will be waived where the 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 initial determination of disability.
This waiver of the contingent deferred sales charge on Class B and Class C
shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class A shares of the Fund. A Class C shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the proceeds of such
redemption in Class C shares of the Fund with credit given for any contingent
deferred sales charge paid upon such redemption. Such reinstatement is made at
the net asset value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.
29
<PAGE> 30
- ------------------------------------------------------------------------------
DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing of its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such rule, the Trustees of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD Rules
limit the annual distribution charges that a mutual fund may impose on a class
of shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan, the Fund pays a service fee
to the Distributor at an annual rate of up to 0.15% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Under the Class B
Plan and the Class C Plan, the Fund pays a service fee to the Distributor at an
annual rate of up to 0.15% and a distribution fee at an annual rate of up to
0.75% of the Fund's aggregate average daily net assets attributable to the Class
B shares or Class C shares to reimburse the Distributor for service fees paid by
it to certain financial institutions (which may include banks), securities
dealers and other industry professionals (collectively, "Service Organizations")
and for its distribution costs.
The Distributor uses the Class A, Class B and Class C service fees to
compensate Service Organizations for personal services and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to four
percent of the purchase price of Class B shares purchased by the clients of
broker-dealers and other Service Organizations, and (ii) other distribution
expenses as described in the Statement of Additional Information. Under the
Class C Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class C shares as reimbursements for (i) upfront commissions and
transaction fees of up to 0.75% of the purchase price of Class C shares
purchased by the clients of broker-dealers and other Service Organizations and
ongoing commissions and transaction fees of up to 0.75% of the average daily net
assets of the Fund's Class C shares, and (ii) other distribution expenses as
described in the Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees of the Fund determined that there was a reasonable likelihood that such
30
<PAGE> 31
Plans would benefit the Fund and its shareholders. Information with respect to
distribution and service revenues and expenses is presented to the Trustees each
year for their consideration in connection with their deliberations as to the
continuance of the Distribution Plans. In their review of the Distribution
Plans, the Trustees are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.
Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.
Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class B Plan of $1 million, of which $500,000 was recovered in the form of
contingent deferred sales charges paid by investors and $400,000 was reimbursed
in the form of payments made by the Fund to the Distributor under the Class B
Plan, the balance of $100,000, would be subject to recovery in future fiscal
years from such sources.
For the period April 18, 1995 through May 31, 1995, the unreimbursed expenses
incurred by the Distributor under the Class B Plan and carried forward were
approximately $9,000 or .41% of average daily net assets of the class under the
Class B Plan. For the same time period, the unreimbursed expenses incurred by
the Distributor under the Class C Plan and carried forward were approximately
$3,000 or .97% of average daily net assets of the class under the Class C Plan.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms 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 termination of a relationship with a bank
would result in any material
31
<PAGE> 32
adverse consequences to the Fund. In light of the Glass-Steagall Act, the
Distributor engages banks as Service Organizations only to perform
administrative and shareholder servicing functions. State securities laws
regarding registration of banks and other financial institutions may differ from
the interpretation of federal law expressed herein and banks and other financial
institutions may be required to register as dealers pursuant to certain state
laws.
- ------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- ------------------------------------------------------------------------------
Purchases of shares are priced at the next determined net asset value after a
purchase order becomes effective which is upon receipt by the Fund of federal
funds. Net asset value per share for each class 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. Net asset value per
share for each class is determined by adding the total market value of all
portfolio securities owned by the Fund, cash and other assets, including accrued
interest and dividends attributable to such class. All liabilities attributable
to such class, including accrued expenses, are subtracted. The resulting amount
is divided by the total number of shares of the class outstanding to arrive at
the net asset value of each share of the class. The Fund's assets are valued on
the basis of amortized cost, which involves valuing a portfolio security at its
cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides for certainty in
valuation it may result in periods in which value as determined by amortized
cost is higher or lower than the price the Fund would receive if it sold the
security.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
The Fund's net income is declared as a dividend on a daily basis. 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 the day shares are redeemed. All dividends
are automatically invested in additional full and fractional shares of the Fund
at net asset value. Shareholders may elect to receive monthly payment of
dividends in cash by written instruction to ACCESS. Shares purchased by daily
reinvestments are liquidated at the net asset value on the last business day of
the month and the proceeds of such redemption mailed to the shareholder electing
cash payment. A redeeming shareholder receives all dividends accrued through the
date of redemption.
32
<PAGE> 33
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the distribution fees and
incremental transfer agency fees applicable to such classes of shares.
The Fund's net income for dividend purposes is calculated daily and consists
of interest accrued or discount earned, plus or minus any net realized gains or
losses on portfolio securities, less any amortization of premium and the
expenses of the Fund.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By qualifying as a regulated
investment company, the Fund is not subject to federal income taxes to the
extent it distributes its net investment income and net realized capital gains.
Dividends from net investment income and distributions from any net realized
short-term capital gains are taxable to shareholders as ordinary income.
However, shareholders not subject to tax on their income will not be required to
pay tax on amounts distributed to them.
Information as to the federal tax status of dividends and distributions is
provided by the Fund to shareholders annually if such amounts are $10.00 or
more.
To avoid being subject to a 31% federal back-up withholding tax on dividends,
distributions and redemption payments, a shareholder must furnish the Fund with
a certification of their correct taxpayer identification number.
The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisers for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Fund.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time the Fund advertises 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
33
<PAGE> 34
"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 current and effective yields for the
seven-day period ending May 31, 1995, and a description of the method by which
the yield was calculated is contained in the Statement of Additional
Information.
Since yield fluctuates, 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 is
generally a function of the kind and quality of the instrument held in a
portfolio, portfolio maturity, operating expenses and market conditions.
Yield is calculated separately for Class A, Class B and Class C shares.
Because of the differences in distribution fees, the yields for each of the
classes will differ with Class B and Class C shares having a lower yield than
Class A shares.
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 ratings or rankings prepared by Lipper Analytical Services, Inc.,
Donoghue's Money Market Report or similar independent services which monitor the
performance of mutual funds, with other appropriate indexes 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 financial publications that are nationally recognized,
such as Business Week, Forbes, Fortune, Institutional Investor, Investor's
Business Daily, Kiplinger's Personal Finance Magazine, Money, Mutual Fund
Forecaster, Stanger's Investment Advisor, U.S. News & World Report, USA Today
and The Wall Street Journal. The Fund will include performance data for Class A,
Class B and Class C 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 provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally incorporated in Maryland on March 28, 1974 and
reorganized on July 31, 1995, under the laws of the state of Delaware as a
business entity commonly known as a "Delaware Business Trust." It is authorized
to issue an unlimited number of Class A, Class B and Class C shares of
beneficial interest of $0.01 par value. Other classes of shares may be
established from time to time in
34
<PAGE> 35
accordance with provisions of the Fund's Declaration of Trust. Shares issued by
the Fund are fully paid, non-assessable and have no preemptive or conversion
rights.
The Fund currently offers three classes, designated Class A shares, Class B
shares and Class C shares. Each class of shares represents an interest in the
same assets of the Fund and generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. See "Distribution Plans."
Each class of share is equal as to earnings, assets and voting privileges,
except as noted above, and each class bears the expenses related to the
distribution of its shares. There are no conversion, preemptive or other
subscription rights, except with respect to the conversion of Class B shares and
Class C shares into Class A shares as described above. 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 debt and expenses of the Fund have been paid.
Since Class B shares and Class C shares pay higher distribution expenses, the
liquidation proceeds to Class B shareholders and Class C shareholders are likely
to be lower than to other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
An investment in the Fund may not be appropriate for all investors.
The Fund is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision with respect to the Fund.
An investment in the Fund is intended to be a long-term investment, and should
not be used as a trading vehicle.
35
<PAGE> 36
<TABLE>
<S> <C>
VAN KAMPEN AMERICAN CAPITAL
RESERVE FUND
------------------
2800 Post Oak Boulevard
Houston, TX 77056
------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Boulevard
Houston, TX 77056
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
EXISTING SHAREHOLDERS-- ACCESS INVESTOR SERVICES, INC.
FOR INFORMATION ON YOUR P.O. Box 418256
EXISTING ACCOUNT PLEASE CALL Kansas City, MO 64141-9256
THE FUND'S TOLL-FREE
NUMBER--(800) 421-5666 Custodian
PROSPECTIVE INVESTORS--CALL STATE STREET BANK AND
YOUR BROKER OR (800) 421-5666 TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
DEALERS--FOR DEALER Boston, MA 02105-1713
INFORMATION, SELLING Attn: Van Kampen American Capital Funds
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE Legal Counsel
NUMBER--(800) 421-5666
O'MELVENY & MYERS
FOR SHAREHOLDER AND DEALER 400 South Hope Street
INQUIRIES THROUGH Los Angeles, CA 90071
TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD) Independent Accountants
DIAL (800) 772-8889
PRICE WATERHOUSE LLP
FOR TELEPHONE TRANSACTIONS 1201 Louisiana, Suite 2900
DIAL (800) 421-5684 Houston, TX 77002
</TABLE>
<PAGE> 37
RESERVE FUND
------------------------------------------------------------------------------
P R O S P E C T U S
AUGUST 1, 1995
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
-----------------------------------------------------------------------------
<PAGE> 38
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
AUGUST 1, 1995
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated August 1,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION........................................................... 2
INVESTMENT POLICIES........................................................... 3
INVESTMENT RESTRICTIONS....................................................... 3
REPURCHASE AGREEMENTS......................................................... 5
LOANS OF PORTFOLIO SECURITIES................................................. 5
TRUSTEES AND EXECUTIVE OFFICERS............................................... 5
INVESTMENT ADVISORY AGREEMENT................................................. 9
DISTRIBUTOR................................................................... 10
DISTRIBUTION PLANS............................................................ 10
TRANSFER AGENT................................................................ 12
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................... 12
DETERMINATION OF NET ASSET VALUE.............................................. 12
PURCHASE OF SHARES............................................................ 13
EXCHANGE PRIVILEGE............................................................ 15
REDEMPTION OF SHARES.......................................................... 16
CHECK WRITING PRIVILEGE....................................................... 16
DIVIDENDS AND TAXES........................................................... 16
YIELD INFORMATION............................................................. 17
OTHER INFORMATION............................................................. 18
FINANCIAL STATEMENTS.......................................................... 18
APPENDIX...................................................................... 19
</TABLE>
<PAGE> 39
GENERAL INFORMATION
Van Kampen American Capital Reserve Fund (the "Fund") was originally
incorporated in Maryland on March 28, 1974, and reorganized under the laws of
Delaware July 31, 1995.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), ACCESS Investor
Services, Inc. ("ACCESS") and Advantage Capital Corporation, a retail
broker-dealer affiliate of the Distributor, are wholly owned subsidiaries of Van
Kampen/American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of
VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of
a substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
VKAC own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 10% of the common stock of VK/AC Holding, Inc.
VKAC offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight, July 1995. VKAC's roots in money
management extend back to 1926. Today, VKAC manages or supervises more than $50
billion in mutual funds, closed-end funds and unit investment trusts -- assets
which have been entrusted to VKAC in more than 2 million investor accounts. VKAC
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
As of July 14, 1995, no one person was known to own beneficially or hold of
record five percent or more of the outstanding shares of any class of the Fund,
except for those listed below:
<TABLE>
<CAPTION>
NAME AND ADDRESS NATURE OF NUMBER OF
OF HOLDER OWNERSHIP CLASS SHARES HELD PERCENT
- -------------------------------------------- ---------------- ------ ------------ --------
<S> <C> <C> <C> <C>
Donaldson Lufkin Jenrette Securities Corp. of record C 121,347 7.40%
Attn: Mutual Fund Department
P.O. Box 2052
Jersey City, NJ 07303-2052
Van Kampen American Capital of record A 85,603,757 24.68%
Trust Company of record B 1,743,034 17.31%
2800 Post Oak Blvd. of record C 121,413 7.40%
Houston, TX 77056
National Financial Services Corp. of record B 865,147 8.59%
@Southern Nat'l Investment Services, Inc. of record C 84,684 5.16%
200 S. College St. Suite 204
Charlotte, NC 28202-2005
Smith Barney, Inc. of record C 151,079 9.21%
388 Greenwich Street
11th Floor
New York, NY 10013-2375
</TABLE>
2
<PAGE> 40
INVESTMENT POLICIES
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 Investment Company
Act of 1940 (the "1940 Act"), certain requirements of which are summarized
below.
In accordance with Rule 2a-7, the Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Trustees to present minimal credit risks and which are rated
in one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization 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. The nationally recognized statistical rating
organizations currently rating instruments of the type the Fund may purchase are
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S & P"), Fitch Investors Services, Inc., Duff and Phelps, Inc. and IBCA
Limited and IBCA Inc. See Appendix hereto.
In addition, the Fund will not invest more than five percent of its total
assets in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that (i)
the Fund may invest more than five percent of its total assets in 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 limitation with
respect to puts does not apply to unconditional puts if no more than ten percent
of the Fund's total assets is invested in securities issued or guaranteed by the
issuer of the unconditional put. Investments in rated securities not rated in
the highest category by at least two rating organizations (or one rating
organization if the instrument was rated by only one such organization), and
unrated securities not determined by the Trustees to be comparable to those
rated in the highest category, will be limited to five percent of the Fund's
total assets, with the investment in any one such issuer being limited to no
more than the greater of one percent 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. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which may be less
restrictive than the investment policies stated in the Prospectus and may not be
changed without approval by the holders of a majority of its outstanding shares.
Such majority is defined by the 1940 Act as the lesser of (i) 67% or more of the
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. In addition
to the fundamental investment limitations set forth in the Fund's Prospectus,
the Fund may not:
1. Purchase any security which matures more than two years from the date
of purchase. As set forth under "Investment Objective and Policies" in
the 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 Appendix 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;
3
<PAGE> 41
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. Acquire voting securities of any issuer or any securities of other
investment companies;
8. Make investments for the purpose of exercising control or management;
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 "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;
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;
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 one-half of one percent of the securities of such issuer,
together own more than five percent of the securities of such issuer;
14. Borrow money, except from banks for temporary or emergency purposes and
then in amounts not exceeding ten percent 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 five percent 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 five percent 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 ten percent of the total value of all
outstanding securities of such issuer;
18. Invest more than five percent of its assets in companies having a
record together with predecessors, of less than three years continuous
operation; and
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).
The Fund has committed to one state that so long as its shares are
registered for sale in that state it will apply the restriction contained in No.
17 above to any class of the outstanding securities of any issuer. Consistent
with its investment objectives, the Fund may make additional commitments more
restrictive than its fundamental policies. Should the Fund determine in the
future that a commitment is no longer in the best interests of the Fund and its
shareholders, it will revoke the commitment by withdrawing its shares from sale
in the state to which the commitment was made.
4
<PAGE> 42
REPURCHASE AGREEMENTS
Repurchase agreements are collateralized by the underlying debt 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 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.
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 five percent of
its total assets.
Any loans would be made for short-term purposes and would be subject to
termination by the Fund in the normal settlement time, currently five 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.
TRUSTEES AND EXECUTIVE OFFICERS
The Fund's Trustees and executive officers and their principal occupations
for the past five years are listed below.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall President of MDT Corporation, a company which develops,
Suite 200 manufactures, markets and services medical and scientific
1009 Slater Road equipment. A Trustee of each of the Van Kampen American
Harrisville, NC 27560 Capital Funds.
Age: 63
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Radnor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art. Founder and
Age: 62 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing. A
Trustee of each of the Van Kampen American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
</TABLE>
5
<PAGE> 43
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A Trustee of each of the
Lyme, CT 06371 Van Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. A Trustee
of each of the Van Kampen American Capital Funds.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. A Trustee of each of the Van Kampen American
Capital Funds and Chairman of each Van Kampen American
Capital Fund advised by Van Kampen American Capital
Investment Advisory Corp.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser. Director and Executive Vice
President of ACCESS, Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director, Trustee or Managing General Partner of
each of the Van Kampen American Capital Funds and other
open-end investment companies and closed-end investment
companies advised by the Adviser and its affiliates.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A Director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital, a Director and the Second
Vice President of International Institute of Los Angeles.
A Trustee of each of the Van Kampen American Capital
Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. A Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 Fund. Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 63 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A Trustee of each of the Van Kampen American Capital
Funds.
</TABLE>
6
<PAGE> 44
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Van Kampen American
Capital Funds advised by the Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A Trustee of each of the Van
Age: 55 Kampen American Capital Funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. A Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Powell is an interested person of the Adviser and the
Fund by reason of his position with the Adviser. Mr. Sheehan and Mr. Whalen
are interested persons of the Adviser and the Fund by reason of their firms
having acted as legal counsel to the Adviser or an affiliate thereof.
The Fund's officers other than Messrs. McDonnell and Nyberg are located at
2800 Post Oak Blvd., Houston, Texas 77056. Messrs. McDonnell and Nyberg are
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS DURING
NAME AND AGE OFFICES WITH FUND PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Nori L. Gabert........... Vice President and Vice President, Associate General Counsel
Age: 41 Secretary and Corporate Secretary of the Adviser.
Tanya M. Loden........... Vice President and Vice President and Controller of most of
Age: 35 Controller the investment companies advised by the
Adviser, formerly Tax Manager/Assistant
Controller.
Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
Age: 53 Director of the Adviser. Director of VK/AC
Holding, Inc. and Van Kampen American
Capital.
Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 48 Treasurer investment companies advised by the
Adviser.
</TABLE>
7
<PAGE> 45
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS DURING
NAME AND AGE OFFICES WITH FUND PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Ronald A. Nyberg......... Vice President Executive Vice President, General Counsel
Age: 41 and Secretary of Van Kampen American
Capital. Executive Vice President and a
Director of the Distributor. Executive Vice
President of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute.
Robert C. Peck, Jr....... Vice President Senior Vice President and Director of the
Age: 48 Adviser.
David R. Troth........... Vice President Senior Vice President of the Advisor
Age: 61
J. David Wise............ Vice President and Vice President, Associate General Counsel
Age: 51 Assistant Secretary and Assistant Corporate Secretary of the
Adviser.
Paul R. Wolkenberg....... Vice President Senior Vice President of the Adviser;
Age: 50 President, Chief Operating Officer and
Director of Van Kampen American Capital
Services, Inc. Executive Vice President,
Chief Operating Officer and Director of Van
Kampen American Capital Trust Company.
Executive Vice President and Director of
ACCESS.
</TABLE>
The Trustees and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. Only Messrs. Branagan, Caruso, Hilsman,
Powell, Rees, Sheehan, Sisto and Woodside served as Trustees of the Fund during
the last fiscal year. During the fiscal year ended May 31, 1995, the Trustees
who were not affiliated with the Adviser or its parent received as a group
$19,263 in trustees' fees from the Fund in addition to certain out-of-pocket
expenses. Such Trustees also received compensation for serving as directors or
trustees of other investment companies advised by the Adviser. For legal
services rendered during the last fiscal year, the Fund paid legal fees of
$20,066 to the law firm of O'Melveny & Myers, of which Mr. Sheehan is Of
Counsel. The firm also serves as legal counsel to other Van Kampen American
Capital Funds.
Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Trustees serve as trustees is set forth
below. The compensation shown for the Fund is for the most recent fiscal year,
and the total compensation shown for the Fund and other related mutual Funds is
for the calendar year ended December 31, 1994. Mr. Powell is not compensated for
his service as Trustee, because of his affiliation with the Adviser.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED AND FUND
FROM AS PART OF FUND COMPLEX PAID TO
NAME OF PERSON REGISTRANT EXPENSES DIRECTORS(1)(5)
- ------------------------------------------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
J. Miles Branagan................................ $ 2,355 -0- $64,000
Dr. Richard E. Caruso(3)......................... 2,360(2) -0- 64,000
Dr. Roger Hilsman................................ 2,425 -0- 66,000
David Rees(3).................................... 2,355 -0- 64,000
Lawrence J. Sheehan.............................. 2,465 -0- 67,000
Dr. Fernando Sisto(3)............................ 3,020 -0- 82,000
William S. Woodside(4)........................... 1,145 -0- 18,000
</TABLE>
- ---------------
(1) Represents 29 investment company portfolios in the fund complex.
8
<PAGE> 46
(2) Mr. Caruso deferred his $2,280 of his compensation from the Fund for the
most recent fiscal year.
(3) Messrs. Caruso, Rees and Sisto have deferred compensation in the past. The
cumulative deferred compensation paid by the Fund is as follows: Caruso,
$6,668; Rees, $31,491; Sisto, $5,810.
(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. As a result, with respect to the second and fourth columns, $970
and $36,000, respectively, was paid by the Adviser directly.
(5) Includes the following amounts for which the various funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000. (Mr. Woodside was
paid $36,000 directly by the Advisor as discussed in footnote 4 above.)
Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $1,010 and a
meeting fee of $29 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be caused by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.
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 its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of the Fund's
investment objectives. The Adviser also furnishes at no cost to the Fund (except
as noted herein) the services of sufficient executive and clerical personnel for
the Fund as are necessary to prepare registration statements, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of a Treasurer or other principal
financial officer and the personnel operating under his direction. Charges are
allocated among the investment companies advised or subadvised by the Adviser.
During the fiscal years ended May 31, 1993, 1994 and 1995, the Adviser received
$1,426,894, $1,494,701 and $1,896,937, respectively in advisory fees from the
Fund. For such periods the Fund paid $90,648, $106,905 and $100,666,
respectively, for accounting services. A portion of these amounts was paid to
the Adviser or its parent in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost. The Fund also pays
transfer agency fees, custodian fees, legal and auditing fees, the costs of
reports to shareholders and all other ordinary expenses not specifically assumed
by the Adviser.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at the annual
rate of: 0.50% on the first $150 million net assets; 0.45% on the next $100
million of net assets; 0.40% on the next $100 million of net assets; and 0.35%
on the net assets over $350 million.
The average net asset value for purposes of computing the advisory fee is
determined by taking the average of all of the determinations of net asset value
for each day during a given calendar month. Such fee is payable for each
calendar month as soon as practicable after the end of that month.
9
<PAGE> 47
The fees payable to the adviser by the Fund shall be reduced by any
commissions, tender solicitation and other fees, brokerage or similar payments
received by the Adviser, or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. in connection with the purchase and sale of
portfolio investments of the Fund, less any direct expenses incurred by such
subsidiary of VK/AC Holding, Inc. in connection with obtaining such commissions,
fees, brokerage or similar payments. The Adviser agrees to use its best efforts
to recapture tender solicitation fees and exchange offer fees for the Fund's
benefit and to advise the Trustees of the Fund of any other commissions, fees,
brokerage or similar payments which may be possible for the Adviser or any other
direct or indirect majority owned subsidiary of VK/AC Holding, Inc., to receive
in connection with the Fund's portfolio transactions or other arrangements which
may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed one percent of the
Fund's average 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 year. Ordinary
business expenses do not include (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 the
Distribution Plans. The Advisory Agreement also provides that the Adviser shall
not be liable to the Fund for any actions or omissions if it acted in good faith
without negligence or misconduct.
The Advisory Agreement has an initial term of two years and may be
continued from year to year if specifically approved at least annually (a)(i) by
the Fund's Trustees or (ii) by vote of a majority of the Fund's outstanding
voting securities and (b) by the affirmative 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.
DISTRIBUTOR
The Distributor, acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
is owned by the Adviser's parent company. 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
Underwriting 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 the affirmative vote of a majority of Directors who are
not parties to the Underwriting Agreement or interested persons of any party, by
votes cast in person at a meeting called for such purpose. The Underwriting
Agreement provides that it will terminate if assigned, and that it may be
terminated without penalty by either party on 60 days' written notice. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and the cost and expense of supplemental sales
literature, promotion and advertising. The Fund pays all expenses attributable
to the registrations of its shares under federal and state laws, including
registration and filing fees, the cost of preparation of the prospectuses,
related legal and auditing expenses, and the cost of printing prospectuses for
current shareholders.
DISTRIBUTION PLANS
The Fund adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan", "Class B Plan" or "Class C
Plan", respectively) to permit the Fund directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").
The Trustees have authorized payments by the Fund under the Plan to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who
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<PAGE> 48
are also their clients and/or for distribution. Such payments are based on an
annual percentage of the value of Fund shares held in shareholder accounts for
which such Service Organizations are responsible. With respect to the Class A
Plan, the Distributor intends to make payments, in an amount up to 0.15% of the
aggregate average daily net assets attributable to Class A shares, thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and C Plans,
authorized payments by the Fund include payments at an annual rate of up to
0.15% of the net assets of the shares of the respective class to reimburse the
Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to four percent of the purchase price of Class B
shares purchased by the clients of broker-dealers and other Service
Organizations, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals, (5) advertising and promotion expenses, including conducting and
organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses, and (6) interest expense thereon computed at the
three-month LIBOR rate plus one and one-half percent compounded quarterly on the
unreimbursed distribution expenses. With respect to the Class C Plan, authorized
payments by the Fund also include payments at an annual rate of up to 0.75% of
the net assets of the Class C shares to reimburse the Distributor for (1)
upfront commissions and transaction fees of up to 0.75% of the purchase price of
Class C shares purchased by the clients of broker-dealers and other Service
Organizations and ongoing commissions and transaction fees paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature, (4) expenses for promotional incentives to broker-dealers
and financial and industry professionals, (5) advertising and promotion
expenses, including seminars, marketing support salaries and bonuses, and
travel-related expenses, and (6) interest expense thereon computed at the
three-month LIBOR rate plus one and one-half percent compounded quarterly on the
unreimbursed distribution expenses. Such reimbursements are subject to the
maximum sales charge limits specified by the NASD for asset-based charges.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms 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 termination of a relationship with a bank
would result in any material adverse consequences to the Fund. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements and selling group agreements were approved by the Trustees,
including a majority of the Trustees who are not affiliated persons (as defined
in the 1940 Act) of the Fund and who have no direct or indirect financial
interest in the operation of any of the Plans or in any agreements related to
each Plan ("Independent Trustees"). In approving each Plan in accordance with
the requirements of Rule 12b-1, the Trustees determined that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, each Plan will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Fund. Any change in any of the Plans that would materially increase
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<PAGE> 49
the distribution expenses borne by the Fund requires shareholder approval;
otherwise, it may be amended by a majority of the Trustees, including a majority
of the Independent Trustees, by vote cast in person at a meeting called for the
purpose of voting upon such amendments. So long as each Plan is in effect, the
selection or nomination of the Independent Trustees is committed to the
discretion of the Independent Trustees.
During the fiscal year ended May 31, 1995, the Fund's aggregate expenses
under the Class A Plan were $611,646 or .14%, respectively of the Fund's average
net assets. Such expenses were paid to reimburse the Distributor for payments
made to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the period April 18, 1995 (the commencement
of the offering of Class B shares) through May 31, 1995, the Fund's aggregate
expenses under the Class B Plan were $3,845 or .17% (not annualized) of the
Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $3,268 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in respect of sales
of Class B shares of the Fund and $577 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B Plan. For the
period April 18, 1995 (the commencement of the offering of Class C shares)
through May 31, 1995, the Fund's aggregate expenses under the Class C Plan were
$526 or .17% (not annualized) of the Class C shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments: $447
for commissions and transaction fees paid to broker-dealers and other Service
Organizations in respect of sales of Class C shares of the Fund and $79 for fees
paid to Service Organizations for servicing Class B shareholders and
administering the Class C Plan.
TRANSFER AGENT
During the fiscal years ending May 31, 1993, 1994 and 1995, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $986,681, $898,801 and $1,266,690 respectively, for these
services. These services are provided at cost plus a profit.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions, if any, on such transactions. As most transactions made by the Fund
are principal transactions at net prices, the Fund incurs little or no brokerage
cost. During the past three years the Fund paid no commissions to brokers on the
purchase or sale of portfolio securities. Portfolio securities are normally
purchased directly from the issuer or 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 the spread between the bid and
asked price. The Adviser places portfolio transactions in a manner deemed fair
and reasonable to the Fund and not according to any formula. The primary
consideration in all portfolio transactions is prompt execution of orders in an
effective manner at a favorable price.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies, and seeks to allocate portfolio
transactions equitably whenever concurrent decisions are made to purchase or
sell securities by 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, the main factors considered
by the Adviser are 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.
DETERMINATION OF NET ASSET VALUE
Purchases of shares will be priced at the net asset value next determined
after a purchase order becomes effective which is upon receipt by the Fund of
federal funds. The net asset value per share 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. The Exchange is currently
closed on weekends and on the
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<PAGE> 50
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value is computed by dividing the value of the Fund's securities plus all cash
and other assets (including accrued interest) less all liabilities (including
accrued expenses) by the number of shares outstanding.
The valuation of the Fund's portfolio securities is based upon their
amortized cost, which does not take into account unrealized capital gains or
losses. Amortized cost valuation involves initially valuing an instrument at its
cost and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. 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 instrument.
The Fund's use of the amortized cost method of valuing its portfolio
securities is permitted by a rule adopted by the Securities and Exchange
Commission ("SEC"). Under this rule, the Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in securities
determined by the Adviser to be of eligible quality with minimal credit risks.
The Fund's Trustees has established procedures reasonably designed, taking
into account current market conditions and the Fund's investment objective, to
stabilize the net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Trustees, at such intervals as it
deems appropriate, to determine the extent, if any, to which the net asset value
per share calculated by using available market quotations deviates from $1.00
per share based on amortized cost. In the event such deviation should exceed
four tenths of one percent, the Trustees is required to promptly consider what
action, if any, should be initiated. If the Trustees believes that the extent of
any deviation from a $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing shareholders, it will take
such steps as it considers appropriate to eliminate or reduce these consequences
to the extent reasonably practicable. Such steps may include selling portfolio
securities prior to maturity; shortening the average maturity of the portfolio;
withholding or reducing dividends; or utilizing a net asset value per share
determined by using available market quotations.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the SEC.
PURCHASE OF SHARES
Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through ACCESS. All orders become effective when the wire or
check payment is converted into federal funds. A check order will normally be
converted into federal funds on the second business day following receipt of
payment by ACCESS. When payment is by wire transfer of federal funds, such order
becomes effective upon receipt provided that prior notice has been given as
described below; other bank wire payments will normally be converted into
federal funds on the day following receipt.
After each initial and subsequent investment, the shareholder receives a
statement of the number of shares owned. Certificates for shares purchased will
not normally be issued but shares will be held on deposit by ACCESS. However,
the shareholder may request a certificate by writing ACCESS for shares at any
time. It is preferred that such request for a certificate be for at least 1,000
shares in order to minimize shareholder service agent costs.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues three classes of shares: Class A shares are sold at net
asset value without a sales charge; Class B shares and Class C shares are sold
at net asset value and are subject to a contingent deferred sales charge. The
three classes of shares each represent interests in the same portfolio of
investments of the Fund,
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<PAGE> 51
have the same rights and are identical in all respects, except that Class B and
Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)
resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
The CDSC -- Class B and C may be waived on redemptions of Class B and Class
C shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC -- Class B and C on redemptions following the
death or disability of a Class B 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 (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 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 disability or death, 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.
(b) 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 charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of Van Kampen American
Capital Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held onto 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), 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.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
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 account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and C
upon such involuntary redemption.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
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 mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be
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<PAGE> 52
specified by the shareholder upon his or her election to participate in the
Plan. The CDSC -- Class B and C will be waived on redemptions made under the
Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such 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 Plan and the ability to offer the Plan.
(e) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
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 account up
to the required minimum balance. Any involuntary redemption may only occur if
the shareholder account is less than the amount specified in the Prospectus due
to shareholder redemptions. The Fund will waive the CDSC -- Class B and Class C
upon such involuntary redemption.
(f) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest, 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
shares of the Fund, provided that the reinvestment is effected within 120 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.
(g) 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.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Exchange Privilege" in the
Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), 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,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.
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 in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing 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
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described above.
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<PAGE> 53
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." 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) trading on the Exchange is
restricted; (c) 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.
CHECK WRITING PRIVILEGE
To establish the check writing privilege, a shareholder must complete the
appropriate section of the application and the Authorization for Redemption form
and return both documents to ACCESS before checks will be issued. All signatures
on the authorization card must be guaranteed if any of the signators are persons
not referenced in the account registration or if more than 30 days have elapsed
since ACCESS established the account on its records. Moreover, if the
shareholder is a corporation, partnership, trust, fiduciary, executor or
administrator, the appropriate documents appointing authorized signers
(corporate resolutions, partnerships or trust agreements) must accompany the
authorization card. The documents must be certified in original form, and the
certificates must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
DIVIDENDS AND TAXES
The Fund's net income is declared as dividends on a daily basis. 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 received for the day shares are redeemed. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares as a result of the distribution fees and higher
transfer agency fees applicable to the Class B and Class C shares. All dividends
are automatically invested in additional full and fractional shares of the Fund
at net asset value. Shareholders may elect to receive monthly payment of
dividends in cash by written instruction to ACCESS. Shares purchased by daily
reinvestments are liquidated at the net asset value on the last business day of
the month and the proceeds of such redemption less any applicable CDSC mailed to
the shareholder electing cash payment. A redeeming shareholder receives all
dividends accrued through the date of redemption.
The Fund's net income for dividend purposes is calculated daily and
consists of interest accrued or discount earned, plus or minus any net realized
gains or losses on portfolio securities, less any amortization of premium and
the expenses of the Fund.
Should the Fund incur or anticipate any unusual expense, or loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Trustees would at that time consider whether
to adhere to the present dividend policy described above or to revise it in the
light of the then prevailing circumstances. For example, if the Fund's net asset
value per share was reduced below $1.00, the Board may suspend further dividend
payments until net asset value returned to $1.00. Thus, such expenses or losses
or depreciation may result in an investor receiving no dividends for the period
during which he held his shares and in his receiving upon redemption a price per
share lower than that which he paid.
By meeting certain diversification of assets and other requirements of the
Internal Revenue Code (the "Code"), the Fund intends to continue to qualify as a
regulated investment company and thereby be relieved
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<PAGE> 54
from payment of federal income taxes on that portion of its net investment
income and net realized capital gains which is distributed to shareholders.
Dividends from net investment income and distributions from any net realized
short-term capital gains are taxable to shareholders as ordinary income.
Dividends do not qualify for the dividends received deduction for corporations.
All dividends and any distributions are taxable to the shareholder whether or
not reinvested in shares. Information as to the federal tax status of dividends
and distributions is provided by the Fund to shareholders annually if such
amounts are $10.00 or more.
If for any taxable year the Fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net realized capital gains, would be subject to tax at regular
corporate rates (without any deduction for distributions to shareholders).
The Fund is subject to a four percent excise tax to the extent it does not
distribute to its shareholders during any calendar year at least 98% of its
ordinary taxable (net investment) income for the twelve months ended December
31, plus 98% of its capital gain net income for the twelve months ended October
31 of such year. The Fund intends to distribute sufficient amounts to avoid
liability for the excise tax.
If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year
are considered taxable income to shareholders on the record date even though
paid in the next year.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate up to 30% under existing provisions of
the Code applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Non-resident shareholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and any distributions may also be subject to state and local
taxes.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to Federal, state or local taxes.
Back-up Withholding. The Fund is required to withhold and remit to the
United States Treasury 31% of (i) reportable taxable dividends and distributions
and (ii) the proceeds of any redemptions of Fund shares with respect to any
shareholder who is not exempt from withholding and who fails to furnish the Fund
with a correct taxpayer identification number, who fails to report fully
dividend or interest income, or who fails to certify to the Fund that he has
provided a correct taxpayer identification number and that he is not subject to
withholding. (An individual's taxpayer identification number is his social
security number.) The 31% back-up withholding tax is not an additional tax and
may be credited against a taxpayer's regular federal income tax liability.
YIELD INFORMATION
The annualized current yield for Class A shares for the seven day period
ending May 31, 1995 was 4.53%. Its compound effective yield for the same period
was 4.63%. For Class B shares the annualized yield and compound effective yield
for the seven day period was 3.61% and 3.68%, respectively. For Class C shares
the annualized yield and compound effective yield for the seven day period was
3.59% and 3.65%, respectively.
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<PAGE> 55
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 an 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
annualized 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.
The 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's portfolio, their quality and length of maturity, and
the Fund's operating expenses. At May 31, 1995, 20% of the Fund's portfolio was
invested in obligations of U.S. Government Agencies', 50% was invested in
commercial paper of which 100% was rated A-1 or Prime-1, 5% was invested in U.S.
Treasury obligations and the remaining 30% was invested in repurchase
agreements. See "Investment Policies -- Commercial Paper," and the Appendix
hereto. The length of maturity for the portfolio is the average dollar weighted
maturity of the portfolio. This means that the portfolio 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. At May 31, 1995 the average dollar
weighted maturity of the portfolio was 25 days.
The yield fluctuates daily as the income earned on the investments of the
Fund fluctuates. Accordingly, there is no assurance that the yield quoted on any
given occasion will remain in effect for any period of time. It should also be
emphasized that the Fund is an open-end investment company and 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. The yield quotation
may be of limited use for comparative purposes because it does not reflect
charges imposed at the Account level which, if included, would decrease the
yield.
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.
Yield is calculated separately for Class A, Class B and Class C shares.
Because of the differences in distribution fees, the yield for each of the
classes will differ.
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
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, performs annual audits of the
Fund's financial statements.
FINANCIAL STATEMENTS
The attached financial statements in the form in which they appear in the
Annual Report to Shareholders including the related report of Independent
Accountants on such financial statements are included in the Statement of
Additional Information.
18
<PAGE> 56
APPENDIX
Description of the highest commercial paper, bond and other short-term and
long-term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service ("Moody's"), Fitch Investors Service, Inc. ("Fitch"),
Duff and Phelps, Inc. ("Duff") and IBCA Limited and IBCA Inc. ("IBCA").
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations and ordinarily well established industries,
high rates of return of funds employed, conservative well established
industries, high rates of return of funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 (P-2) have a strong
capacity for repayment of short-term promissory obligations. This ordinarily
will be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff,
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors small.
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. The designation A2 by
IBCA indicates that the obligation is supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay principal and interest. Bonds
rated AA by S&P are judged by S&P to have a very strong capacity to pay
principal and interest and, in the majority of instances, differ only in small
degrees from issues rated AAA.
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
Bonds are rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large 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. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in
19
<PAGE> 57
the higher end of this rating category, the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates a ranking in the lower end of the rating
category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated AA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
IBCA also assigns a rating to certain international and U.S. banks. An IBCA
bank rating represents IBCA's current assessment of the strength of the bank and
whether such bank would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system comprised of Legal
Rating and Individual Ratings. In addition, IBCA assigns banks Long- and
Short-Term Ratings as used in the corporate ratings discussed above. Legal
Ratings, which range in gradation from 1 through 5, address the question of
whether the bank would receive support by central banks or shareholders if it
experienced difficulties, and such ratings are considered by IBCA to be a prime
factor in its assessment of credit risk. Individual Ratings, which range in
gradations from A through E, represent IBCA's assessment of a bank's economic
merits and address the question of how the bank would be viewed if it were
entirely independent and could not rely on support from state authorities or its
owners.
20
<PAGE> 58
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER 60.7%
$16,000 Associates Corp. of North America.............. 6.230% 07/12/95 $ 15,886,133
15,000 Chevron Oil Finance Co......................... 5.930% 06/26/95 14,936,083
10,000 Du Pont (E.I.) de Nemours...................... 6.060% 06/27/95 9,955,150
18,000 General Electric Capital Corp.................. 6.190% 07/24/95 17,837,190
19,000 General Electric Co............................ 6.230% 09/05/95 18,689,250
6,300 Lilly (Eli) & Co............................... 6.000% 06/30/95 6,268,815
10,000 MetLife Funding, Inc........................... 5.960% 06/22/95 9,963,761
10,000 MetLife Funding, Inc........................... 6.000% 07/11/95 9,932,350
18,000 Pitney Bowes Credit Corp....................... 6.100% 06/12/95 17,963,880
9,000 Pitney Bowes, Inc.............................. 5.960% 06/14/95 8,979,210
8,000 Prudential Funding Corp........................ 6.230% 07/24/95 7,927,160
9,000 Prudential Funding Corp........................ 6.230% 07/27/95 8,913,503
18,000 Raytheon Co.................................... 5.970% 06/09/95 17,973,180
5,000 State Bank of New South Wales.................. 6.250% 08/29/95 4,923,750
10,000 State Bank of New South Wales.................. 6.260% 09/06/95 9,833,944
17,000 Toronto Dominion Holdings...................... 5.990% 07/10/95 16,887,989
------------
TOTAL COMMERCIAL PAPER
(Cost $196,871,348)....................... 196,871,348
------------
REPURCHASE AGREEMENTS* 37.2%
SBC Capital Markets, Inc., dated 5/31/95,
65,000 repurchase proceeds $65,011,104............... 6.150% 06/01/95 65,000,000
State Street Bank & Trust Co., dated 5/31/95,
55,905 repurchase proceeds $55,914,512............... 6.125% 06/01/95 55,905,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $120,905,000)....................... 120,905,000
------------
UNITED STATES GOVERNMENT OBLIGATIONS 24.6%
30,000 Federal Home Loan Banks........................ 6.100% 06/01/95 29,994,917
25,000 Federal National Mortgage Association.......... 5.900% 06/02/95 24,991,819
25,000 Federal National Mortgage Association.......... 5.940% 08/09/95 24,715,625
------------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS
(Cost $79,702,361)........................ 79,702,361
------------
TOTAL INVESTMENTS (Cost $397,478,709) 122.5%.................................... 397,478,709
OTHER ASSETS AND LIABILITIES, NET (22.5%)....................................... (73,020,170)
------------
NET ASSETS 100%................................................................. $324,458,539
============
</TABLE>
*Collateralized by U.S. Government obligations in a pooled cash account
See Notes to Financial Statements
F-1
<PAGE> 59
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at amortized cost.............................................. $397,478,709
Cash........................................................................ 127,602
Receivable for Fund shares sold............................................. 786,579
Other assets................................................................ 43,829
------------
Total Assets............................................................. 398,436,719
------------
LIABILITIES
Payable for Fund shares redeemed............................................ 73,417,480
Due to shareholder service agent............................................ 162,280
Due to Adviser.............................................................. 138,975
Due to Distributor.......................................................... 87,995
Dividends payable........................................................... 62,989
Deferred Directors' compensation............................................ 60,138
Accrued expenses............................................................ 48,323
------------
Total Liabilities........................................................ 73,978,180
------------
NET ASSETS, equivalent to $1.00 per share for Class A, B and C shares....... $324,458,539
============
NET ASSETS WERE COMPRISED OF:
Capital stock at par; 319,694,843 Class A, 4,189,806 Class B and 588,487
Class C shares outstanding................................................. $ 3,244,731
Capital surplus............................................................. 321,161,934
Undistributed net investment income......................................... 51,874
------------
NET ASSETS at May 31, 1995.................................................. $324,458,539
============
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 60
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest..................................................................... $22,971,502
-----------
EXPENSES
Management fees.............................................................. 1,896,937
Shareholder service agent's fees and expenses................................ 1,495,213
Accounting services.......................................................... 100,666
Service fees--Class A........................................................ 611,646
Distribution and service fees--Class B....................................... 3,845
Distribution and service fees--Class C....................................... 526
Directors' fees and expenses................................................. 22,739
Audit fees................................................................... 21,525
Legal fees................................................................... 20,066
Reports to shareholders...................................................... 58,845
Registration and filing fees................................................. 111,820
Miscellaneous................................................................ 13,559
-----------
Total expenses............................................................ 4,357,387
-----------
NET INVESTMENT INCOME........................................................ 18,614,115
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $18,614,115
===========
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 61
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended May 31
-----------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.......................... $ 463,827,313 $ 279,344,078
--------------- ---------------
Operations
Increase from net investment income...................... 18,614,115 7,722,464
--------------- ---------------
Distributions to shareholders from net investment income
Class A............................................... (18,623,009) (7,713,417)
Class B............................................... (15,317) --
Class C............................................... (2,167) --
--------------- ---------------
(18,640,493) (7,713,417)
--------------- ---------------
Capital transactions
Proceeds from shares sold
Class A............................................... 3,148,142,161 2,733,962,738
Class B............................................... 21,754,203 --
Class C............................................... 3,049,049 --
--------------- ---------------
3,172,945,413 2,733,962,738
--------------- ---------------
Proceeds from shares issued for distributions reinvested
Class A............................................... 18,623,009 7,713,418
Class B............................................... 15,317 --
Class C............................................... 2,167 --
--------------- ---------------
18,640,493 7,713,418
--------------- ---------------
Cost of shares redeemed
Class A............................................... (3,310,885,859) (2,557,201,968)
Class B............................................... (17,579,714) --
Class C............................................... (2,462,729) --
--------------- ---------------
(3,330,928,302) (2,557,201,968)
--------------- ---------------
Increase (decrease) in net assets resulting from
capital transactions................................ (139,342,396) 184,474,188
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS........................ (139,368,774) 184,483,235
--------------- ---------------
NET ASSETS, end of period................................ $ 324,458,539 $ 463,827,313
=============== ===============
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 62
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
Year Ended May 31
--------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Income from operations
Investment income............................... .0535 .0329 .0353 .052 .0758
Expenses........................................ (.0101) (.0100) (.0109) (.0105) (.0094)
------ ------ ------ ------ ------
Net investment income............................ .0434 .0229 .0244 .0415 .0664
------ ------ ------ ------ ------
Distributions from net investment income......... (.0434) (.0229) (.0244) (.0415) (.0664)
------ ------ ------ ------ ------
Net asset value, end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
TOTAL RETURN..................................... 4.43% 2.32% 2.44% 4.20% 6.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $319.7 $463.8 $279.3 $329.2 $402.3
Average net assets (millions).................... $434.4 $326.8 $306.7 $377.5 $482.6
Ratios to average net assets
Expenses........................................ 1.00% 1.03% 1.09% 1.05% .94%
Net investment income........................... 4.28% 2.36% 2.44% 4.19% 6.68%
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 63
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
------------------ -----------------
April 18, 1995(1) April 18, 1995(1)
through through
May 31, 1995 May 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................... $ 1.00 $ 1.00
------ ------
Income from investment operations
Investment income....................................... .0073 .0076
Expenses................................................ (.0026) (.0027)
------ ------
Net investment income.................................... .0047 .0049
------ ------
Distributions from net investment income................. (.0047) (.0049)
------ ------
Net asset value, end of period........................... $ 1.00 $ 1.00
====== ======
TOTAL RETURN(2).......................................... .47% .49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................... $ 4.2 $ 0.6
Average net assets (millions)............................ $ 2.3 $ 0.3
Ratios to average net assets (annualized)(3)
Expenses................................................ 1.76% 1.76%
Net investment income................................... 3.52% 3.52%
</TABLE>
(1) Commencement of operations
(2) Total return has not been annualized and does not consider the effect of
sales charges.
(3) Ratios based on the class of shares being in effect for the entire fiscal
year.
See Notes to Financial Statements
F-6
<PAGE> 64
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Reserve Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
A. INVESTMENT VALUATIONS--Investments are valued at amortized cost, which
approximates market value. The cost of investments for federal income tax
purposes is substantially the same as for financial reporting purposes.
B. REPURCHASE AGREEMENTS--A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser"),
the daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund will
make payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Fund.
C. FEDERAL INCOME TAXES--No provision for federal income taxes is required
because the Fund has elected to be taxed as a "regulated investment company"
under the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized gains to its shareholders. Additionally, approximately $18,000 of
financial statement losses are deferred for federal income tax purposes to the
1996 fiscal year.
D. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--Investment
transactions are accounted for on the trade date. Realized gains and losses on
investments are determined on the basis of amortized cost. Interest income is
accrued daily.
E. DIVIDENDS--The Fund records daily dividends from net investment income. These
dividends are automatically reinvested in additional shares of the Fund at net
asset value. Shares purchased by daily reinvestments are liquidated at net asset
value on the last business day of the month and the proceeds of such redemptions
paid to the shareholders electing to receive dividends in cash. The Fund
distributes tax basis earnings in accordance with the minimum
F-7
<PAGE> 65
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
distribution requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such distributions may result in
dividends in excess of financial statement net investment income.
F. DEBT DISCOUNT AND PREMIUM--For financial and tax reporting purposes, all
discounts and premiums are amortized over the life of the security.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are
calculated monthly, based on the average daily net assets of the Fund at an
annual rate of .50% of the first $150 million; .45% of the next $100 million;
.40% of the next $100 million; and .35% of the amount in excess of $350 million.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allocated
among investment companies advised by the Adviser. During the period, these
charges included $12,498 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services expense
was paid to the Adviser in reimbursement of personnel, facilities and equipment
costs attributable to the provision of accounting services to the Fund. The
services provided by the Adviser are at cost.
ACCESS Investors Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. During the period, such fees aggregated $1,266,690.
Under the Distribution Plans, each class of shares pays up to .15% per annum
of its average daily net assets to reimburse the Distributor for expenses and
service fees incurred. Class B and Class C shares pay an additional fee of up to
.75% per annum of their average daily net assets to reimburse Van Kampen
American Capital Distributors, Inc. (the "Distributor") for its distribution
expenses. Actual distribution expenses incurred by the Distributor for Class B
and Class C shares may exceed the amounts reimbursed to the Distributor by the
Fund. At the end of the period, the unreimbursed expenses incurred by the
Distributor under the Class B and Class C plans aggregated approximately $9,000
and $3,000, respectively, and may be carried forward and reimbursed through
either the collection of the contingent deferred sales charges from share
redemptions or, subject to the annual renewal of the plans, future Fund
reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor and the shareholder service agent.
F-8
<PAGE> 66
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,440 plus a fee of $35 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $540. During the period, such fees aggregated $19,263.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered by the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund on
its short-term investments or equal to the total return of the Fund.
NOTE 4--CAPITAL
The Fund offers three classes of shares at their respective net asset values per
share. Class B and Class C shares are subject to a sales charge imposed at the
time of redemption on a contingent deferred basis. All classes of shares have
the same rights, except that Class B and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B and Class C shares
automatically convert to Class A shares six years and ten years after purchase,
respectively, subject to certain conditions. The offering of Class B and Class C
shares commenced April 18, 1995, at which time all previously outstanding shares
became Class A shares.
F-9
<PAGE> 67
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Fund has 1 billion of Class A shares, and 500 million each of Class B
and Class C shares of $.01 par value capital stock authorized. Transactions in
shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended May 31
---------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A................................................. 3,148,142,161 2,733,962,738
Class B................................................. 21,754,203 --
Class C 3,049,049 --
-------------- --------------
3,172,945,413 2,733,962,738
============== ==============
Shares issued for distributions reinvested
Class A................................................. 18,623,009 7,713,418
Class B................................................. 15,317 --
Class C................................................. 2,167 --
-------------- --------------
18,640,493 7,713,418
============== ==============
Shares redeemed
Class A................................................. (3,310,885,862) (2,557,202,100)
Class B................................................. (17,579,714) --
Class C................................................. (2,462,729) --
-------------- --------------
(3,330,928,305) (2,557,202,100)
-------------- --------------
Increase (decrease) in shares outstanding.................. (139,342,399) 184,474,056
============== ==============
</TABLE>
F-10
<PAGE> 68
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL RESERVE FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of American Capital Reserve Fund, Inc.
at May 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
June 30, 1995
F-11
