<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders.............................................. 1
Portfolio of Investments............................................ 4
Statement of Assets and Liabilities................................. 6
Statement of Operations............................................. 7
Statement of Changes in Net Assets.................................. 8
Financial Highlights................................................ 9
Notes to Financial Statements.......................................12
Report of Independent Accountants...................................17
</TABLE>
RES ANR 7/97
<PAGE>
Letter to Shareholders
[PHOTO]
June 27, 1997
Dear Shareholder,
The past year in the financial markets has been both thrilling and
troublesome. As we navigate our way through one of the sturdiest economic
expansions in recent history, we are encouraged by each new milestone we pass.
At the same time, we must remain wary of the signals that point to more
challenging conditions ahead, lest we drop our guard and be taken by surprise.
It is exactly this kind of investment environment that highlights the value
of an investment option such as the Van Kampen American Capital Reserve Fund. A
professionally managed money market fund gives the individual investor a vehicle
in which to invest for short-term needs, a "parking place" for assets which may
be allocated in another fashion in the weeks or months ahead, and a "quiet
place" where funds can earn income outside the volatility of the day's stock and
bond markets.
We are pleased to offer our shareholders an investment alternative which we
consider to be a valuable--and perhaps, necessary--tool for virtually every
investor. Below, we outline the events and results of the Fund's most recent
fiscal year ended May 31, 1997.
Performance Summary
The Van Kampen American Capital Reserve Fund continues to provide
shareholders with relative stability, daily liquidity at $ 1.00 per share/1/ and
a competitive level of current income. As of May 31, 1997, the seven-day average
yield on the Fund's Class A shares was 4.82 percent, with an effective annual
yield of 4.94 percent. Over the past fiscal year (through May 31, 1997), the
Fund's Class A shares achieved a total return of 4.52 percent/2/ (Class A shares
at net asset value). The average total return for money market funds, as
measured by Lipper Analytical Services, was 4.79 percent over the same 12-month
period.
Our portfolio management team has pursued the Fund's investment
objectives--protection of capital and a high level of current income--in a
characteristically cautious fashion. They have been carefully gauging
anticipated shifts in Federal Reserve Board policy, which is the single most
important determinant of the direction of short-term interest rates. The Fed
chose not to increase key short-term rates at its May Federal Open Market
Committee (FOMC) meeting, prompting speculation that they expect economic growth
to slow over the summer.
In response, the Fund continues to maintain its holdings in high-grade,
short-term corporate securities (e.g., commercial paper which has been issued an
A-I/P-I short-term rating), which helps provide income without excessive risk.
At the same time, approximately two-thirds of the
/1/Fund shares are not guaranteed or insured by the U.S. government, and there
is no assurance that the Fund will be able to maintain a stable net asset value
of $1.00 per share.
/2/Total return assumes reinvestment of all distributions for the 12-month
period ended May 31, 1997.
1
Continued on page two
<PAGE>
[PIE CHART APPEAR HERE]
Fund's net assets have been invested in securities issued and/or guaranteed by
federal agencies, combined with repurchase agreements collateralized by U.S.
government securities.
The portfolio's average maturity is relatively short-approximately 29 days, as
of May 31, 1997-to enable the Fund to react more swiftly to changes in Federal
Reserve policy. In fact, the portfolio's duration is at its lowest point for the
fiscal year.
Economic Overview
Your Fund has been operating in an economic environment characterized by
relatively low rates of inflation, unemployment, and GDP growth. On the whole,
economic growth has been subdued since the first quarter, with a slowdown in
housing starts and retail spending appearing for the first time this year.
The federal budget deficit has been reduced, which has enabled the government
to slow the issuance of debt instruments, such as Treasury bills. At the same
time, however, foreign demand for Treasury securities remains strong enough to
provide price support in the marketplace. The rate on the six-month Treasury
bill began and ended the fiscal year at approximately 5.40 percent; in between,
it rose to a high of 5.66 percent in April, due to the weakening of the U.S.
dollar and the Federal Reserve's action to increase short-term rates in late
March. Expectations of slower growth and an improvement in the federal deficit
number helped to bring rates back down to current levels.
Of course, uncertainty still centers around the potential for stronger
economic growth. Many market watchers point to the low unemployment rate as a
possible trigger of price inflation, as employers compete for qualified workers
in a tight labor market, forcing them to push wages higher. In a highly
competitive global marketplace, however, passing along the cost of higher wages
to the consumer (in the form of higher prices) could prove difficult.
Economic Outlook
While we do not anticipate a significant upturn, we will continue to watch the
horizon for signs of surging economic activity, particularly in the latter part
of the year.
One factor that warrants our close attention is economic activity overseas.
Rising interest rates in the European bloc, spurred by policies designed to
align these countries with the requirements of the proposed European Monetary
Union, could exert pressure on our markets. However, with its
2
Continued on page three
<PAGE>
short duration, our Fund is poised to make adjustments which would take
advantage of potentially higher interest rates.
On the other hand, our interpretation of the most recent decisions by the Fed
to leave short-term rates unchanged is that they expect economic growth to slow
as we head into the summer. Not raising rates now has given them the latitude to
tighten rates at a later date, should growth begin to accelerate. Our approach
to managing the Fund will mirror these expectations.
We will strive to meet your expectations as well. Please keep in mind that we
always welcome your suggestions and comments pertaining to the operations of
your Fund. We look forward to hearing from you, and to serving your investment
needs.
Corporate News
As you know, VK/AC Holding, Inc., the parent company of Van Kampen American
Capital, Inc., was acquired by Morgan Stanley Group Inc., a world leader in
asset management. More recently, on February 5, 1997, Morgan Stanley Group Inc.
and Dean Witter, Discover & Co. agreed to merge. The merger was completed on May
31, 1997, creating the combined company of Morgan Stanley, Dean Witter, Discover
& Co. Additionally, we are very pleased to announce that Philip N. Duff,
formerly of Morgan Stanley, has joined Van Kampen American Capital as president
and chief executive officer. I will continue as chairman. And, we are confident
that our partnership with Morgan Stanley will continue to work to the benefit of
our fund shareholders.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
3
<PAGE>
Portfolio of Investments
May 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Par Discount Yield
Amount on Date of Amortized
(000) Description Purchase Maturity Cost
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Agency Obligations 62.6%
$ 10,000 Federal Farm Credit Bank .............. 5.385% 06/03/97 $ 9,995,516
10,000 Federal Farm Credit Bank .............. 5.481 06/03/97 9,995,466
5,000 Federal Farm Credit Bank .............. 5.402 07/29/97 4,956,897
10,000 Federal Home Loan Bank ................ 5.446 06/19/97 9,971,500
10,000 Federal Home Loan Bank ................ 5.451 06/23/97 9,965,500
10,000 Federal Home Loan Bank ................ 5.577 07/03/97 9,949,583
10,000 Federal Home Loan Bank ................ 5.326 07/11/97 9,940,664
10,295 Federal Home Loan Bank ................ 5.377 08/21/97 10,172,123
10,000 Federal Home Loan Bank ................ 5.701 09/23/97 9,822,708
75,000 Federal Home Loan Mortgage Corp. ...... 5.553 06/02/97 74,965,313
20,000 Federal Home Loan Mortgage Corp. ...... 5.576 07/01/97 19,905,278
21,000 Federal Home Loan Mortgage Corp. ...... 5.589 07/02/97 20,897,147
15,000 Federal Home Loan Mortgage Corp. ...... 5.614 08/15/97 14,824,725
12,000 Federal National Mortgage Assn. ....... 5.281 06/10/97 11,982,867
13,000 Federal National Mortgage Assn. ....... 5.310 06/12/97 12,977,597
3,000 Federal National Mortgage Assn. ....... 5.373 06/16/97 2,992,987
10,000 Federal National Mortgage Assn. ....... 5.462 06/24/97 9,963,933
3,000 Federal National Mortgage Assn. ....... 5.373 07/08/97 2,983,438
5,000 Federal National Mortgage Assn. ....... 5.390 07/18/97 4,964,733
7,000 Federal National Mortgage Assn. ....... 5.422 08/07/97 6,929,922
15,000 Federal National Mortgage Assn. ....... 5.629 08/08/97 14,841,300
10,000 Federal National Mortgage Assn. ....... 5.495 08/15/97 9,885,367
10,000 Federal National Mortgage Assn. ....... 5.518 08/18/97 9,880,403
15,000 Federal National Mortgage Assn. ....... 5.618 08/22/97 14,809,446
10,000 Federal National Mortgage Assn. ....... 5.418 08/25/97 9,873,867
7,000 Federal National Mortgage Assn. ....... 5.535 08/26/97 6,907,635
3,000 Federal National Mortgage Assn. ....... 5.479 09/24/97 2,949,057
15,000 Tennessee Valley Authority ............ 5.487 06/26/97 14,941,175
------------
Total U.S. Agency Obligations .................................. 352,246,147
------------
Commercial Paper 36.3%
29,000 Associates Corp. of North America ..... 5.573 06/04/97 28,982,117
24,000 Bank of Nova Scotia ................... 5.423 06/03/97 23,989,300
22,000 Chevron Oil Finance Co. ............... 5.493 06/06/97 21,979,907
</TABLE>
See Notes to Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
May 31, 1997
===============================================================================================
Par
Amount Discount Yield
(000) Description on Date of Purchase Maturity Amortized Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper (Continued)
$23,000 Ford Motor Credit Co. ....................... 5.654% 07/07/97 $ 22,867,622
22,000 General Electric Capital Corp. .............. 5.524 06/12/97 21,960,400
34,000 General Electric Co. ........................ 5.680 07/21/97 33,730,267
22,000 MetLife Funding Inc. ........................ 5.577 07/16/97 21,844,545
29,000 Toronto Dominion Holdings.................... 5.567 06/09/97 28,959,835
-------------
Total Commercial Paper............................................. 204,313,993
-------------
Repurchase Agreements 21.8%
BankAmerica Securities ($60,350,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 05/30/97,
to be sold on 06/02/97 at $60,377,962)......................................... 60,350,000
Prudential Securities Inc. ($62,000,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 05/30/97,
to be sold on 06/02/97 at $62,028,778)......................................... 62,000,000
-------------
Total Repurchase Agreements........................................ 122,350,000
-------------
Total Investments 120.7% (a)................................................... 678,910,140
-------------
Liabilities in Excess of Other Assets (20.7%).................................. (116,234,809)
-------------
Net Assets 100.0%.............................................................. $ 562,675,331
=============
(a) At May 31, 1997, cost is identical for both book and federal income tax
purposes.
See Notes to Financial Statements
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1997
===================================================================================
<S> <C>
Assets:
Investments, at Amortized Cost which Approximates Market............. $556,560,140
Repurchase Agreements, at Amortized Cost............................. 122,350,000
Cash................................................................. 349,772
Receivable for Fund Shares Sold...................................... 1,323,985
Other................................................................ 33,989
------------
Total Assets....................................................... 680,617,886
------------
Liabilities:
Payables:
Fund Shares Repurchased............................................ 117,127,578
Distributor and Affiliates......................................... 252,904
Investment Advisory Fee............................................ 195,718
Income Distributions............................................... 101,666
Accrued Expenses..................................................... 152,887
Deferred Compensation and Retirement Plans........................... 111,802
------------
Total Liabilities.................................................. 117,942,555
------------
Net Assets........................................................... $562,675,331
============
Net Assets Consist of:
Capital.............................................................. $562,718,838
Accumulated Undistributed Net Investment Income...................... 26,309
Accumulated Net Realized Loss on Securities.......................... (69,816)
------------
Net Assets........................................................... $562,675,331
============
Maximum Offering Price Per Share:
Class A Shares:
Net Asset Value, Offering Price and Redemption Price per share
(Based on net assets of $451,260,769 and 451,309,332
shares of beneficial interest issued and outstanding)............ $ 1.00
============
Class B Shares:
Net Asset Value and Offering Price per share
(Based on net assets of $103,031,346 and 103,028,995
shares of beneficial interest issued and outstanding)............ $ 1.00
============
Class C Shares:
Net Asset Value and Offering Price per share
(Based on net assets of $8,383,216 and 8,382,947
shares of beneficial interest issued and outstanding)............ $ 1.00
============
See Notes to Financial Statements
6
</TABLE>
<PAGE>
Statement of Operations
For the Year Ended May 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest................................................................. $27,897,844
-----------
Expenses:
Investment Advisory Fee.................................................. 2,170,578
Shareholder Services..................................................... 1,701,438
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C
of $616,795, $713,515 and $83,878, respectively)........................ 1,414,188
Legal.................................................................... 48,195
Trustees Fees and Expenses............................................... 24,010
Custody.................................................................. 301
Other.................................................................... 578,052
-----------
Total Expenses......................................................... 5,936,762
Less Expenses Reimbursed............................................... 11,000
-----------
Net Expenses........................................................... 5,925,762
-----------
Net Investment Income.................................................... $21,972,082
===========
Net Realized Loss on Securities.......................................... $ (7,692)
===========
Net Increase in Net Assets from Operations............................... $21,964,390
===========
</TABLE>
7 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Years Ended May 31, 1997 and 1996
====================================================================================================
Year Ended Year Ended
May 31, 1997 May 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................ $ 21,972,082 $ 19,032,684
Net Realized Loss on Securities.................................. (7,692) ---
--------------- ---------------
Change in Net Assets from Operations............................. 21,964,390 19,032,684
--------------- ---------------
Distributions from Net Investment Income:
Class A Shares................................................. (18,710,328) (17,616,820)
Class B Shares................................................. (2,925,963) (1,250,566)
Class C Shares................................................. (339,500) (188,995)
--------------- ---------------
Total Distributions........................................... (21,975,791) (19,056,381)
--------------- ---------------
Net Change in Net Assets
from Investment Activities..................................... (11,401) (23,697)
--------------- ---------------
From Capital Transactions:
Proceeds from Shares Sold:
Class A Shares................................................. 7,336,713,031 5,916,701,540
Class B Shares................................................. 648,076,384 402,157,689
Class C Shares................................................. 141,950,181 99,265,824
--------------- ---------------
8,126,739,596 6,418,125,053
--------------- ---------------
Value Received for Shares Issued in Business Combination:
Class A Shares................................................. --- 20,714,880
Class B Shares................................................. --- 5,651,573
Class C Shares................................................. --- ---
--------------- ---------------
--- 26,366,453
--------------- ---------------
Net Asset Value of Shares Issued Through Dividend Reinvestment:
Class A Shares................................................. 18,710,328 17,616,820
Class B Shares................................................. 2,925,963 1,250,566
Class C Shares................................................. 339,500 188,995
--------------- ---------------
21,975,791 19,056,381
--------------- ---------------
Cost of Shares Repurchased:
Class A Shares................................................. (7,344,457,086) (5,834,380,999)
Class B Shares................................................. (629,443,280) (331,779,955)
Class C Shares................................................. (143,617,542) (90,332,522)
--------------- ---------------
(8,117,517,908) (6,256,493,476)
--------------- ---------------
Net Change in Net Assets from Capital Transactions............... 31,197,479 207,054,411
--------------- ---------------
Total Increase in Net Assets..................................... 31,186,078 207,030,714
Net Assets:
Beginning of the Period.......................................... 531,489,253 324,458,539
--------------- ---------------
End of the Period (Including accumulated undistributed net
investment income of $26,309 and $11,822, respectively)........ $ 562,675,331 $ 531,489,253
=============== ===============
8 See Notes to Financial Statements
</TABLE>
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Ended May 31
-----------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net Investment Income.......................... .0440 .0465 .0434 .0229 .0244
Less Distributions from Net Investment Income.. (.0440) (.0465) (.0434) (.0229) (.0244)
------- ------- ------- ------- -------
Net Asset Value, End of the Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return................................... 4.52% 4.75% 4.43% 2.32% 2.44%
Net Assets at End of the Period (in millions).. $ 451.3 $ 440.3 $ 319.7 $ 463.8 $ 279.3
Ratio of Expenses to Average Net Assets*....... 1.02% 1.07% 1.00% 1.03% 1.09%
Ratio of Net Investment Income to Average
Net Assets*.................................... 4.38% 4.62% 4.28% 2.36% 2.44%
</TABLE>
* The impact on the Ratios of Expenses and Net Investment Income to Average Net
Assets due to VKAC reimbursement of expenses was less than 0.01%.
9
See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
April 18, 1995
Year Ended May 31, (Commencement of
------------------ Distribution) to
Class B Shares 1997 1996 May 31, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period ................. $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Net Investment Income .................................... .0363 .0388 .0047
Less Distributions from Net Investment Income ............ (.0363) (.0388) (.0047)
------- ------- -------
Net Asset Value, End of the Period ....................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return (a) ......................................... 3.71% 3.95% .47%*
Net Assets at End of the Period (in millions) ............ $ 103.0 $ 81.5 $ 4.2
Ratio of Expenses to Average Net Assets** ................ 1.77% 1.86% 1.76%
Ratio of Net Investment Income to Average Net Assets** ... 3.70% 3.75% 3.52%
</TABLE>
* Non-Annualized
** The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
(a) Total return is based upon net asset value which does not include payment
of the contingent deferred sales charge.
See Notes to Financial Statements
10
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 18, 1995
Year Ended May 31, (Commencement
---------------------- of Distribution) to
Class C Shares 1997 1996 May 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Net Investment Income.......................... .0362 .0387 .0049
Less Distributions from Net
Investment Income........................... (.0362) (.0387) (.0049)
------- ------- -------
Net Asset Value, End of the Period............. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return (a)............................... 3.72% 3.94% .49%*
Net Assets at End of the Period (in millions).. $ 8.4 $ 9.7 $ 0.6
Ratio of Expenses to Average Net Assets**...... 1.78% 1.87% 1.76%
Ratio of Net Investment Income to Average
Net Assets**................................ 3.64% 3.81% 3.52%
</TABLE>
* Non-Annualized
** The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
(a) Total return is based upon net asset value which does not include payment of
the contingent deferred sales charge.
11 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
May 31, 1997
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen American Capital Reserve Fund ( the "Fund") is organized as a
Delaware business trust. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek protection of capital and
high current income through investments in U.S. dollar denominated money market
securities. The Fund commenced investment operations on July 12, 1974. The
distribution of the Fund's Class B and Class C shares commenced on April 18,
1995.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation-Investments are valued at amortized cost, which
approximates market. Under this valuation method, a portfolio instrument is
valued at cost and any discount or premium is amortized on a straight-line basis
to the maturity of the instrument.
B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
Interest income is recorded on an accrual basis.
The Fund invests in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser") or
its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. The Fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of the custodian
bank. The seller is required to maintain the value of the underlying security at
not less than the repurchase proceeds due the Fund.
C. Federal Income Taxes-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
12
<PAGE>
Notes to Financial Statements (Continued)
- -------------------------------------------------------------------------------
May 31, 1997
===============================================================================
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At May 31, 1997, the Trust had an accumulated capital loss carryforward
for tax purposes of $62,624 which will expire between May 31, 1998 and May 31,
2005. Of this amount, $2,038 will expire in 1998. Permanent book and tax
differences of $9,915 relating to the expiration of capital loss carryforward
during fiscal 1997 was reclassified from accumulated net realized loss to
capital.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which may not be
recognized for tax purposes until the first day of the following fiscal year.
D. Distribution of Income and Gains-The Fund declares dividends from net
investment income daily and automatically reinvests such dividends daily. Net
realized gains, if any, are distributed annually. Shareholders can elect to
receive the cash equivalent of their daily dividends at each month end.
2. Investment Advisory Fees and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Asset Management, Inc. ( the "Adviser") will provide facilities and
investment advice to the Fund for an annual fee payable monthly as follows:
Average Net Assets % Per Annum
- ----------------------------------------------------------
First $150 million............................. .50 of 1%
Next $100 million.............................. .45 of 1%
Next $100 million.............................. .40 of 1%
Over $350 million.............................. .35 of 1%
The Adviser agreed to reimburse the Fund for certain trustees' compensation
in connection with the July, 1995 increase in the number of trustees of the
Fund. This reimbursement was effective through December 31, 1996.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the year ended May 31, 1997, the Fund recognized expenses of
approximately $90,200 representing Van Kampen American Capital Distributors,
Inc.'s, or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
13
<PAGE>
Notes to Financial Statements (Continued)
May 31, 1997
- --------------------------------------------------------------------------------
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended May
31, 1997, the Fund recognized expenses of approximately $1,374,100, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit under the plan is $2,500.
At May 31, 1997, VKAC owned 4,074 Class A shares of the Fund.
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest,
Classes A, B and C. There are an unlimited number of shares of each class with a
par value of $0.01 per share.
14
<PAGE>
Notes to Financial Statements (Continued)
May 31, 1997
- --------------------------------------------------------------------------------
Transactions in shares and ending capital were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1997 May 31, 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Shares Sold:
Class A..................................... 7,336,711,667 5,916,698,879
Class B..................................... 648,076,624 402,157,689
Class C..................................... 141,950,203 99,265,826
--------------- ---------------
Total Sold.................................... 8,126,738,494 6,418,122,394
=============== ===============
Shares Issued in Business Combination
Class A..................................... - 20,714,880
Class B..................................... - 5,651,573
Class C..................................... - -
--------------- ---------------
Total Business Combination.................... - 26,366,453
=============== ===============
Shares Issued Through Dividend Reinvestment:
Class A..................................... 18,710,328 17,616,820
Class B..................................... 2,926,008 1,250,566
Class C..................................... 339,500 188,995
--------------- ---------------
Total Dividend Reinvestment................... 21,975,836 19,056,381
=============== ===============
Shares Repurchased:
Class A..................................... (7,344,457,086) (5,834,380,999)
Class B..................................... (629,443,316) (331,779,955)
Class C..................................... (143,617,542) (90,332,522)
--------------- ---------------
Total Repurchased............................. (8,117,517,944) (6,256,493,476)
=============== ===============
Capital:
Class A..................................... $ 451,297,333 $ 440,339,270
Class B..................................... 103,038,760 81,481,218
Class C..................................... 8,382,745 9,710,786
--------------- ---------------
Total Capital................................. $ 562,718,838 $ 531,531,274
=============== ===============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
15
<PAGE>
Notes to Financial Statements (Continued)
May 31, 1997
================================================================================
Contingent Deferred
Sales Charge
--------------------
Year of Redemption Class B Class C
================================================================================
First................................................... 4.00% 1.00%
Second.................................................. 4.00% None
Third................................................... 3.00% None
Fourth.................................................. 2.50% None
Fifth................................................... 1.50% None
Sixth and Thereafter.................................... None None
For the year ended May 31, 1997, VKAC, as Distributor for the Fund,
received commissions on CDSC redeemed shares of approximately $414,900. Sales
charges do not represent expenses of the Fund.
4. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12B-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .15% of average daily net assets of
Class A shares and .90% each of Class B and Class C shares are accrued daily.
Included in these fees for the year ended May 31, 1997, are payments to VKAC of
approximately $684,300.
5. Business Combination
On September 22, 1995, the Fund acquired the net assets of Van Kampen American
Capital Money Market Fund ("VKMM") pursuant to a plan of reorganization approved
by VKMM shareholders on September 21, 1995. The acquisition resulted in a tax-
free exchange of 26,366,453 shares of the Fund for the 26,366,453 shares of VKMM
outstanding on September 22, 1995. VKMM's net assets at that date were
$26,366,453; the Fund's net assets were $422,227,929. After the acquisition, the
combined net assets of the Fund were $448,594,382.
See Notes to Financial Statements
16
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Van Kampen American Capital Reserve Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, 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 Van Kampen American Capital Reserve
Fund (the "Fund") at May 31, 1997, and the results of its operations, the
changes in its net assets and the financial highlights for each of the 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,
1997 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
July 14, 1997
17
<PAGE>
Funds Distributed by Van Kampen American Capital
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m.
Central time at 1-800-341-2911 for Van Kampen American Capital funds, or 1-800-
282-4404 for Morgan Stanley retail funds.
18
<PAGE>
Results of Shareholder Votes
Reserve Fund
A Special Meeting of Shareholders of the Fund was held on May 28, 1997,
where shareholders voted on a new investment advisory agreement, the election of
Trustees, and the selection of Price Waterhouse LLP as independent public
accountants for its current fiscal year. With regard to the approval of a new
investment advisory agreement between Van Kampen American Capital Asset
Management Inc. and the Fund, 328,563,944 shares voted for the proposal,
7,083,419 shares voted against and 23,015,003 shares abstained. With regard to
the election of Trustees, J. Miles Branagan received 347,378,307 affirmative
votes and 11,284,058 shares withheld; Richard M. DeMartini received 347,297,804
affirmative votes and 11,364,561 shares withheld; Linda Hutton Heagy received
347,400,106 affirmative votes and 11,262,260 shares withheld; R. Craig Kennedy
received 347,477,072 affirmative votes and 11,185,293 shares withheld; Jack E.
Nelson received 347,466,518 affirmative votes and 11,195,848 shares withheld;
Jerome L. Robinson received 347,347,943 affirmative votes and 11,314,422
withheld; Phillip B. Rooney received 347,406,434 affirmative votes and
11,255,931 shares withheld; Fernando Sisto received 347,353,524 affirmative
votes and 11,308,841 shares withheld; and, Wayne W. Whalen received 347,465,883
affirmative votes and 11,196,482 shares withheld. With regard to the
ratification of the selection of Price Waterhouse LLP as independent public
accountants for its current fiscal year, 335,448,080 shares voted for the
proposal, 3,047,030 shares voted against and 20,167,255 shares abstained.
19
<PAGE>
Van Kampen American Capital Reserve Fund
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Jerome L. Robinson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen*-- Chairman
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen American Capital
Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, Texas 77002
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
/SM/ denotes a service mark of
Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data.
20
