<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PORTFOLIO AT A GLANCE
Q&A WITH YOUR PORTFOLIO MANAGERS 4
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 7
FINANCIAL STATEMENTS 9
NOTES TO FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT AUDITORS 20
FUND OFFICERS AND IMPORTANT ADDRESSES 21
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
June 20, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation
and rising interest rates, and now a technology revolution. We
have managed money long enough to understand short-term market
volatility and the value of investing for the long term.
As we head into the second half of 2000, count on us to continue to draw on the
wisdom of our 76 years of experience. Along those lines, Van Kampen's
"Generations of Experience" is the theme of a national advertising campaign that
kicked off this spring. The message emphasizes our depth of
investment-management history, as well as our firm belief that with the right
investments, anyone can realize life's true wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH CONTINUED TO BE STRONG WITH THE GROSS DOMESTIC PRODUCT (GDP),
THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASING TO A 5.5 ANNUALIZED
PERCENTAGE RATE IN THE FIRST QUARTER OF 2000. THIS WAS THE THIRD CONSECUTIVE
QUARTER IN WHICH THE ECONOMY GREW FASTER THAN 5 PERCENT. HIGH LEVELS OF CONSUMER
CONFIDENCE, LOW LEVELS OF UNEMPLOYMENT, AND INCREASING PRODUCTIVITY WERE PRIMARY
FACTORS UNDERLYING THE HEALTHY ECONOMY.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION FEARS CONTINUED TO MOUNT BECAUSE OF STRONG CONSUMER SPENDING AND THE
TIGHT LABOR MARKET. FOR MOST OF THE REPORTING PERIOD, RISING INTEREST RATES DID
LITTLE TO REIN IN ROBUST CONSUMER SPENDING. ALTHOUGH RETAIL SALES GROWTH
MODERATED IN APRIL AND MAY, THE FACTORS UNDERPINNING CONSUMER ACTIVITY--RISING
WAGES AND LOW UNEMPLOYMENT--REMAINED LARGELY UNCHANGED.
IN ADDITION, THE JOBLESS RATE HOVERED NEAR ITS LOWEST LEVEL IN THREE DECADES.
THE EMPLOYMENT COST INDEX ACCELERATED SHARPLY IN THE FIRST QUARTER OF 2000,
REFLECTING RISING WAGES AS EMPLOYERS VIED TO ATTRACT AND RETAIN SKILLED WORKERS.
THESE WAGE PRESSURES, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO
RAISE THE COST OF GOODS AND SERVICES TO COMPENSATE FOR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP NUMBERS PROMPTED THE FEDERAL RESERVE BOARD TO RAISE INTEREST RATES
AND REMAIN ACTIVE IN GUARDING AGAINST INFLATION AND TEMPERING ECONOMIC GROWTH.
THE CONSUMER PRICE INDEX (CPI) ALSO ROSE TO HIGHER LEVELS DURING THE REPORTING
PERIOD. BOTH GDP AND CPI DATA WARRANTED AN INCREASE OF SHORT-TERM RATES BY 0.25
PERCENT IN NOVEMBER AND FEBRUARY AND BY 0.50 PERCENT IN MAY.
THE PERSONAL CONSUMPTION EXPENDITURES PRICE INDEX, A MEASURE OF INFLATION
WATCHED BY FEDERAL RESERVE POLICY MAKERS, ROSE TO 3.1 PERCENT IN THE FIRST
QUARTER OF 2000. GIVEN THE FEDERAL RESERVE'S AIM TO ACHIEVE AN ECONOMIC GROWTH
RATE BETWEEN 3 AND 4 PERCENT, A RANGE THAT WOULD BE CONSIDERED LESS LIKELY TO
PROMPT HIGHER INFLATION, FURTHER INTEREST RATE HIKES MAY BE LIKELY BEFORE THE
END OF THE YEAR.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(March 31, 1998 - March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Mar 98 6.7
Jun 98 2.1
Sep 98 3.8
Dec 98 5.9
Mar 99 3.7
Jun 99 1.9
Sep 99 5.7
Dec 99 7.3
Mar 00 5.5
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(May 31, 1998 - May 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
May 98 5.5 1.7
5.5 1.7
5.5 1.7
Aug 98 5.5 1.6
5.25 1.5
5 1.5
Nov 98 4.75 1.5
4.75 1.6
4.75 1.7
Feb 99 4.75 1.6
4.75 1.7
4.75 2.3
May 99 4.75 2.1
5 2
5 2.1
Aug 99 5.25 2.3
5.25 2.6
5.25 2.6
Nov 99 5.5 2.6
5.5 2.7
5.5 2.7
Feb 00 5.75 3.2
6 3.7
6 3
May 00 6.5 3.1
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN RESERVE FUND ABOUT
THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS DURING THE FUND'S
FISCAL YEAR. THE TEAM IS LED BY MICHAEL BIRD, PORTFOLIO MANAGER, WHO HAS MANAGED
THE FUND SINCE AUGUST 1999 AND WORKED IN THE INVESTMENT INDUSTRY SINCE 1993. THE
FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE DURING THE
12-MONTH PERIOD ENDED MAY 31, 2000.
Q HOW WOULD YOU CHARACTERIZE THE
ECONOMIC AND MARKET CONDITIONS IN WHICH THE FUND OPERATED DURING THE PAST 12
MONTHS?
A Concerns that a continuing strong
economy might ignite inflation spurred generally higher interest rates during
the fund's fiscal year. Rising employment costs, strong consumer spending, and
spikes in commodities prices contributed to several rate hikes--six since June
1999--approved by the Federal Reserve Board. With the most recent increase in
May 2000, the federal funds rate, a key short-term lending rate, ended the
period at 6.5 percent.
A volatile equity market didn't help the fixed-income market, which
struggled with the challenges of rising interest rates and, mid-year, the
effects of the year 2000 (Y2K) computer scare. Concerns that Y2K might make it
difficult for investors to liquidate their investments in the final weeks of the
year ultimately led yield spreads to widen between Treasuries and other types of
bonds, such as corporate, high-yield, and mortgage-backed securities. However,
these fears proved to be unfounded at the start of the new year.
Q HOW DID YOU MANAGE THE FUND
IN LIGHT OF THESE CONDITIONS?
A With the exception of some
defensive maneuvering toward the end of the year in preparation for Y2K, we
continued to pursue a portfolio allocation of at least half of the fund's assets
invested in commercial paper, approximately one-third of the fund's assets in
bank notes and CDs (certificates of deposit), and the remainder allocated
between agency discount notes and repurchase agreements ("repos").
In the fourth quarter of 1999, our defensive investment strategies included
a heightened focus on extremely liquid investments and a short average maturity.
This position served the fund well in light of increased Fed activity and rising
interest rates. During the last six months of the reporting period, we renewed
our focus on commercial paper, which tended to provide the greatest yield
advantage among the fund's investments. Correspondingly,
4
<PAGE> 6
PORTFOLIO COMPOSITION BY INVESTMENT TYPE
(as a percentage of total investments)
<TABLE>
<CAPTION>
As of May 31, 2000
<S> <C> <C>
- Commercial Paper... 64.7%
- Certificates of
Deposit............ 18.3%
- Agencies........... 9.4%
- Repurchase
Agreements......... 6.3%
- Notes.............. 1.3%
[PIE CHART]
<CAPTION>
As of May 31, 1999
<S> <C> <C>
- Commercial Paper... 38.0%
- Certificates of
Deposit............ 15.0%
- Agencies........... 14.2%
- Repurchase
Agreements......... 28.1%
- Notes.............. 4.7%
[PIE CHART]
</TABLE>
we decreased the fund's emphasis on bank notes and CDs during the last six
months of the reporting period, because these securities provided less value. At
the end of the reporting period, market conditions enabled us to shift more
assets from repos to commercial paper, creating a slight overweighting in that
sector.
Within the commercial paper sector, we continued to select high-rated,
short-term corporate securities with ratings of at least A-1/P-1 from Moody's
and Standard & Poor's. These corporate securities provided income without
assuming excessive risk. We also continued to favor commercial paper with an
average maturity of 90 days or less. In the current interest-rate environment,
we believe there is little benefit in extending the portfolio's risk by
investing in longer-term paper, which provides only a minimally higher return
than shorter-term paper.
Q HOW DID THE FUND PERFORM
DURING THE REPORTING PERIOD?
A The Van Kampen Reserve Fund
continued to provide shareholders with relative stability, daily liquidity at
$1.00 per share, and a competitive level of current income.(1) As of May 31,
2000, the seven-day average yield was 5.39 percent for Class A shares, 4.62
percent for Class B shares, and 4.62 percent for Class C shares, with an
effective annual yield of 5.53 percent for Class A shares, 4.73 percent for
Class B shares, and 4.72 percent for Class C shares.
For the 12-month period ended May 31, 2000, the fund achieved a total return
at net asset value of 4.92 percent(2) for Class A shares and 4.14 percent(2) for
Class B and Class C
(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, 2000.
5
<PAGE> 7
shares. Including sales charges, the fund's total return for Class B and C
shares was 0.14 percent and 3.14 percent, respectively. (Sales charges do not
apply for Class A shares.) Please note that the yield quotation more closely
reflects the current earnings of the fund than the total return quotation. Of
course, past performance is no guarantee of future results.
The average total return for money market funds, as measured by Lipper
Analytical Services, was 5.12 percent over the same period. This return reflects
the performance of 30 qualifying funds, assuming reinvestment of all
distributions during the 12-month period ended May 31, 2000.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET OVER THE COMING MONTHS?
A With an eye on the Fed, we'll
continue to monitor key economic statistics for signs of an economic slowdown
and clues about the Fed's interest-rate bias. If inflationary pressures
continue, even at a moderate level, it's anticipated that the Fed will continue
to increase rates toward the end of the summer.
If the Fed moves away from its tightening bias, we'll look for opportunities
to extend the fund's maturity and explore higher-yielding securities. Because we
don't see evidence of a shift yet, we will continue to maintain our focus on the
allocation described earlier in this report and hold a short portfolio duration.
At the same time, we'll look to add value to the portfolio through careful
security selection as we continue to seek to achieve the fund's objectives of
protection of capital and high current income.
6
<PAGE> 8
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
May 31, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR YIELD ON
AMOUNT DATE OF AMORTIZED
(000) DESCRIPTION PURCHASE MATURITY COST
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT 16.1%
$ 9,000 Bank of America........................... 6.433% 10/16/00 $ 8,996,668
16,000 Bank of America........................... 6.974 10/16/00 16,000,000
25,000 BNP Paribas............................... 6.608 06/27/00 25,000,000
25,000 Canadian Imperial Bank.................... 6.728 08/08/00 24,998,436
25,000 Northern Trust Co. ....................... 6.242 06/21/00 25,000,274
15,000 SunTrust Bank............................. 6.284 07/06/00 15,000,343
25,000 UBS, AG................................... 5.673 07/17/00 24,990,362
------------
Total Certificates of Deposit................................. 139,986,083
------------
COMMERCIAL PAPER 57.2%
25,000 Abbott Labs............................... 6.595 06/30/00 24,869,701
12,500 American Express Credit Corp. ............ 6.572 06/02/00 12,497,750
25,000 American Express Credit Corp. ............ 6.594 06/29/00 24,874,194
25,000 American General Finance Corp. ........... 6.855 08/28/00 24,593,611
25,000 Associates Corp. of North America......... 6.855 06/01/00 25,000,000
25,000 Bank of Nova Scotia....................... 6.192 06/26/00 24,894,445
25,000 Chevron USA, Inc. ........................ 6.575 06/13/00 24,946,083
25,000 CIT Group Holdings, Inc. ................. 6.190 06/05/00 24,983,056
25,000 Citicorp.................................. 6.487 06/16/00 24,933,542
25,000 Coca Cola Co. ............................ 6.618 07/10/00 24,824,500
25,000 DaimlerChrysler Corp. .................... 6.329 06/02/00 24,995,667
12,500 DaimlerChrysler Corp. .................... 6.629 06/07/00 12,486,396
25,000 Ford Motor Credit Corp. .................. 6.693 07/13/00 24,808,958
13,000 General Electric Capital Corp. ........... 6.815 06/01/00 13,000,000
25,000 General Electric Capital Corp. ........... 6.348 06/19/00 24,922,000
25,000 General Motors Acceptance Corp. .......... 6.220 06/14/00 24,944,750
25,000 IBM Credit Corp. ......................... 6.196 06/01/00 25,000,000
25,000 Merrill Lynch & Co. Inc. ................. 6.748 07/24/00 24,757,451
25,000 Norwest Financial, Inc. .................. 6.126 06/12/00 24,953,938
25,000 Prudential Funding Corp. ................. 6.672 07/12/00 24,814,076
10,000 Societe Generale North America Inc. ...... 6.402 11/09/00 9,725,406
25,000 State Street Boston Corp. ................ 6.040 06/07/00 24,975,208
------------
Total Commercial Paper........................................ 495,800,732
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
YOUR FUND'S INVESTMENTS
May 31, 2000
<TABLE>
<CAPTION>
PAR YIELD ON
AMOUNT DATE OF AMORTIZED
(000) DESCRIPTION COUPON PURCHASE COST
<C> <S> <C> <C> <C>
NOTE 1.2%
$10,000 LaSalle National Bank..................... 6.571% 11/03/00 $ 10,000,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 8.3%
15,000 Federal Home Loan Mortgage Association
Discount Note............................. 6.379 06/06/00 14,986,906
15,000 Federal Home Loan Mortgage Association
Discount Note............................. 6.151 07/06/00 14,912,062
20,000 Federal National Mortgage Association
Discount Note............................. 5.331 07/07/00 19,895,400
15,000 Student Loan Marketing Medium Term Note... 6.063 08/03/00 15,010,738
7,500 Student Loan Marketing Short Term Note.... 6.265 09/21/00 7,495,739
------------
Total U.S. Government Agency Obligations...................... 72,300,845
------------
REPURCHASE AGREEMENT 5.6%
BankAmerica Securities ($48,200,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated
05/31/00, to be sold on 06/01/00 at $48,208,663).............. 48,200,000
------------
TOTAL INVESTMENTS 88.4% (A)............................................. 766,287,660
OTHER ASSETS IN EXCESS OF LIABILITIES 11.6%............................. 100,515,526
------------
NET ASSETS 100.0%....................................................... $866,803,186
============
</TABLE>
(a) At May 31, 2000, cost is identical for both book and federal income tax
purposes.
See Notes to Financial Statements
8
<PAGE> 10
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
May 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments, at amortized cost which approximates
market.................................................... $766,287,660
Receivables:
Fund Shares Sold.......................................... 109,644,921
Interest.................................................. 2,497,971
Other....................................................... 75,504
------------
Total Assets............................................ 878,506,056
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 10,031,082
Distributor and Affiliates................................ 464,206
Income Distributions...................................... 399,641
Investment Advisory Fee................................... 260,244
Custodian Bank............................................ 192,610
Trustees' Deferred Compensation and Retirement Plans........ 223,756
Accrued Expenses............................................ 131,331
------------
Total Liabilities....................................... 11,702,870
------------
NET ASSETS.................................................. $866,803,186
============
NET ASSETS CONSIST OF:
Capital (par value of $.01 per share with an unlimited
number of shares authorized).............................. $866,865,574
Accumulated Undistributed Net Investment Income............. 2,508
Accumulated Net Realized Loss............................... (64,896)
------------
NET ASSETS.................................................. $866,803,186
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net Asset Value, Offering Price and Redemption Price per
share (Based on net assets of $573,291,949 and
573,331,156 shares of beneficial interest issued and
outstanding)............................................ $ 1.00
============
Class B Shares:
Net Asset Value and Offering Price per share (Based on
net assets of $238,838,956 and 238,842,750 shares of
beneficial interest issued and outstanding)............. $ 1.00
============
Class C Shares:
Net Asset Value and Offering Price per share (Based on
net assets of $54,672,281 and 54,696,056 shares of
beneficial interest issued and outstanding)............. $ 1.00
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
Statement of Operations
For the Year Ended May 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $51,966,920
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,651,499
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,019,761, $1,790,460, and $371,357,
respectively)............................................. 3,181,578
Shareholder Services........................................ 1,954,495
Custody..................................................... 130,847
Legal....................................................... 63,250
Trustees' Fees and Related Expenses......................... 45,422
Other....................................................... 545,968
-----------
Total Expenses.......................................... 9,573,059
Less Credits Earned on Cash Balances.................... 80,482
-----------
Net Expenses............................................ 9,492,577
-----------
NET INVESTMENT INCOME....................................... $42,474,343
===========
NET REALIZED LOSS........................................... $ (2,832)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $42,471,511
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
Statement of Changes in Net Assets
For the Years Ended May 31, 2000, and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 2000 MAY 31, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 42,474,343 $ 34,857,720
Net Realized Gain/Loss......................... (2,832) 31,626
---------------- ----------------
Change in Net Assets from Operations........... 42,471,511 34,889,346
---------------- ----------------
Distributions from Net Investment Income:
Class A Shares............................... (32,587,988) (28,300,866)
Class B Shares............................... (8,191,882) (5,631,517)
Class C Shares............................... (1,735,136) (934,371)
---------------- ----------------
Total Distributions............................ (42,515,006) (34,866,754)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (43,495) 22,592
---------------- ----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...................... 20,201,171,990 22,546,743,249
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 36,993,767 34,866,754
Cost of Shares Repurchased..................... (20,057,635,316) (22,668,497,361)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 180,530,441 (86,887,358)
---------------- ----------------
TOTAL INCREASE/DECREASE IN NET ASSETS.......... 180,486,946 (86,864,766)
NET ASSETS:
Beginning of the Period........................ 686,316,240 773,181,006
---------------- ----------------
End of the Period (Including accumulated
undistributed net investment income of $2,508
and $43,171, respectively)................... $ 866,803,186 $ 686,316,240
================ ================
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
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 ---------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------
<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................ .0482 .0449 .0467 .0440 .0465
Less Distributions from Net
Investment Income.................. (.0482) (.0449) (.0467) (.0440) (.0465)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return......................... 4.92% 4.55% 4.78% 4.52% 4.75%
Net Assets at End of the Period (In
millions).......................... $ 573.3 $ 529.6 $ 634.1 $ 451.3 $ 440.3
Ratio of Expenses to Average Net
Assets*(a)......................... 0.82% 0.84% 1.02% 1.02% 1.07%
Ratio of Net Investment Income to
Average Net Assets*................ 4.71% 4.38% 4.60% 4.38% 4.62%
</TABLE>
*For the years ended May 31, 1996 and 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(a) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended May 31,
1999.
See Notes to Financial Statements
12
<PAGE> 14
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 B SHARES ---------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------
<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................ .0406 .0374 .0391 .0363 .0388
Less Distributions from Net
Investment Income.................. (.0406) (.0374) (.0391) (.0363) (.0388)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return (a)..................... 4.14% 3.78% 3.99% 3.71% 3.95%
Net Assets at End of the Period (In
millions).......................... $ 238.8 $ 129.8 $ 123.0 $ 103.0 $ 81.5
Ratio of Expenses to Average Net
Assets*(b)......................... 1.57% 1.63% 1.79% 1.77% 1.86%
Ratio of Net Investment Income to
Average Net Assets*................ 3.96% 3.71% 3.91% 3.70% 3.75%
</TABLE>
* For the years ended May 31, 1996 and 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within the first and second year of
purchase and declining thereafter to 0% after the fifth year. If the sales
charge was included, total returns would be lower.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended May 31,
1999.
See Notes to Financial Statements
13
<PAGE> 15
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 C SHARES ---------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------
<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................ .0406 .0373 .0392 .0362 .0387
Less Distributions from Net
Investment Income.................. (.0406) (.0373) (.0392) (.0362) (.0387)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return (a)..................... 4.14% 3.77% 3.99% 3.72% 3.94%
Net Assets at End of the Period (In
millions).......................... $ 54.7 $ 26.9 $ 16.1 $ 8.4 $ 9.7
Ratio of Expenses to Average Net
Assets*(b)......................... 1.57% 1.63% 1.78% 1.78% 1.87%
Ratio of Net Investment Income to
Average Net Assets*................ 3.96% 3.73% 3.91% 3.64% 3.81%
</TABLE>
* For the years ended May 31, 1996 and 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended May 31,
1999.
See Notes to Financial Statements
14
<PAGE> 16
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Reserve Fund (the "Fund") is organized as a Delaware business trust.
The Fund is an open-end diversified management investment company registered
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek protection of capital and high current income through
investments in U.S. dollar denominated money market securities. The Fund
commenced investment operations on July 12, 1974. The distribution of the Fund's
Class B and Class C shares commenced on April 18, 1995.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Investments are valued at amortized cost, which
approximates market. Under this valuation method, a portfolio instrument is
valued at cost and any discount or premium is accreted or amortized to the
maturity of the instrument.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Income
and expenses of the Fund are allocated on a pro rata basis to each class of
shares,
15
<PAGE> 17
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
except for distribution and service fees and transfer agency costs which are
unique to each class of shares.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At May 31, 2000, the Fund had an accumulated capital loss carryforward
for tax purposes of $64,398 which will expire between May 31, 2001 and May 31,
2008, of this amount $6,782 will expire on May 31, 2001.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which may not be
recognized for tax purposes until the first day of the following fiscal year.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares dividends daily from net
investment income and capital gains, if any, and automatically reinvests such
dividends daily. Shareholders can elect to receive the cash equivalent of their
daily dividends at each month end.
F. EXPENSE REDUCTIONS During the year ended May 31, 2000, the Fund's custody fee
was reduced by $80,482 as a result of credits earned on overnight cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $150 million.......................................... .50 of 1%
Next $100 million........................................... .45 of 1%
Next $100 million........................................... .40 of 1%
Over $350 million........................................... .35 of 1%
</TABLE>
For the year ended May 31, 2000, the Fund recognized expenses of
approximately $63,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
16
<PAGE> 18
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
For the year ended May 31, 2000, the Fund recognized expenses of
approximately $38,200 representing Van Kampen Funds Inc.'s, or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended May 31, 2000,
the Fund recognized expenses of approximately $1,494,900. The transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At May 31, 2000, capital aggregated $573,317,572, $238,852,191 and $54,695,811
for Classes A, B and C, respectively. For the year ended May 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A........................................ 18,409,830,894 $ 18,409,830,894
Class B........................................ 1,333,924,471 1,333,924,471
Class C........................................ 457,416,625 457,416,625
--------------- ----------------
Total Sales...................................... 20,201,171,990 $ 20,201,171,990
=============== ================
Dividend Reinvestment:
Class A........................................ 28,255,055 $ 28,255,055
Class B........................................ 7,247,047 7,247,047
Class C........................................ 1,491,665 1,491,665
--------------- ----------------
Total Dividend Reinvestment...................... 36,993,767 $ 36,993,767
=============== ================
Repurchases:
Class A........................................ (18,394,381,792) $(18,394,381,792)
Class B........................................ (1,232,117,711) (1,232,117,711)
Class C........................................ (431,135,813) (431,135,813)
--------------- ----------------
Total Repurchases................................ (20,057,635,316) $(20,057,635,316)
=============== ================
</TABLE>
17
<PAGE> 19
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
At May 31, 1999, capital aggregated $529,613,415, $129,798,384, and
$26,923,334 for Classes A, B and C, respectively. For the year ended May 31,
1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A........................................ 20,964,963,416 $ 20,964,963,502
Class B........................................ 1,241,941,716 1,241,941,716
Class C........................................ 339,838,031 339,838,031
--------------- ----------------
Total Sales...................................... 22,546,743,163 $ 22,546,743,249
=============== ================
Dividend Reinvestment:
Class A........................................ 28,300,866 $ 28,300,866
Class B........................................ 5,631,517 5,631,517
Class C........................................ 934,371 934,371
--------------- ----------------
Total Dividend Reinvestment...................... 34,866,754 $ 34,866,754
=============== ================
Repurchases:
Class A........................................ (21,097,762,520) $(21,097,762,520)
Class B........................................ (1,240,799,799) (1,240,799,799)
Class C........................................ (329,935,042) (329,935,042)
--------------- ----------------
Total Repurchases................................ (22,668,497,361) $(22,668,497,361)
=============== ================
</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. Class B shares purchased on or after June 1, 1996, and
any dividend reinvestment plan Class B shares received thereon, automatically
convert to Class A shares eight years after the end of the calendar month in
which the shares were purchased. Class B shares purchased before June 1, 1996,
and any dividend reinvestment plan Class B shares received thereon,
automatically convert to Class A shares six years after the end of the calendar
month in which the shares were purchased. For the year ended May 31, 2000, no
Class B shares converted to Class A shares. Class C shares purchased before
January 1, 1997, and any dividend reinvestment plan Class C shares received
thereon, automatically convert to Class A shares ten years after the end of the
calendar month in which the shares were purchased. Class C shares purchased on
or after January 1, 1997 do not possess a
18
<PAGE> 20
NOTES TO
FINANCIAL STATEMENTS
May 31, 2000
conversion feature. For the year ended May 31, 2000, no Class C shares converted
to Class A shares.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO CHARGE
---------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <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
</TABLE>
For the year ended May 31, 2000, Van Kampen, as Distributor for the Fund,
received commissions on redeemed shares which were subject to a CDSC of
approximately $1,533,200. Sales charges do not represent expenses of the Fund.
4. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12B-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .15% of average daily net assets of
Class A shares and .90% each of Class B and Class C shares are accrued daily.
Included in these fees for the year ended May 31, 2000, are payments retained by
Van Kampen of approximately $1,711,700.
19
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen Reserve Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Van Kampen Reserve Fund, as of May 31, 2000,
and the related statement of operations, changes in net assets and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audit. The
statement of changes in net assets of Van Kampen Reserve Fund for the year ended
May 31, 1999, and the financial highlights for each of the four years in the
period then ended were audited by other auditors whose report dated July 1,
1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 2000, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen Reserve Fund at May 31, 2000, the results of its
operations, changes in its net assets and the financial highlights for the year
then ended, in conformity with accounting principles generally accepted in the
United States.
[ERNST & YOUNG LLP SIG]
Chicago, IL
July 14, 2000
20
<PAGE> 22
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN RESERVE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors.
PricewaterhouseCoopers LLP has ceased being the Fund's independent auditors
effective May 18, 2000. The cessation of the client-auditor relationship
between the Fund and PricewaterhouseCoopers was based solely on a possible
future business relationship by PricewaterhouseCoopers with an affiliate of
the Fund's investment adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds 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 charges on
shares of the Fund, and other pertinent data.
21
