VAM SHORT DURATION GOVERNMENT AGENCY FUND
ANNUAL REPORT
Dated October 31, 1996
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
VAM Institutional Funds, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of VAM Short Duration
Government Agency Fund, a portfolio within VAM Institutional Funds, Inc., as of
October 31, 1996, the related statement of operations for the year then ended,
the statements of changes in net assets and the financial highlights for the
year ended October 31, 1996 and the period from January 12, 1995, inception of
Fund, to October 31, 1995. These financial statements and the financial
highlights are the responsibility of Fund management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of VAM
Short Duration Government Agency Fund at October 31, 1996, and the results of
its operations, changes in its net assets and financial highlights for the
periods stated in the first paragraph above, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 12, 1996
VAM SHORT DURATION GOVERNMENT AGENCY FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
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Assets:
Investments in securities, (note 1)
(identified cost: $99,955) ........................... $100,125
Cash in bank on demand deposit ......................... 2,889
Accrued interest receivable ............................ 1,875
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Assets applicable to outstanding capital stock ............ $104,889
========
Represented by (note 1):
Capital stock - $.01 par value ......................... $ 100
Additional paid-in capital ............................. 99,900
Undistributed net investment income .................... 4,719
Unrealized appreciation on investments ................. 170
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Total net assets ..................................... $104,889
========
Net assets applicable to outstanding
Institutional Class Shares ............................. $104,889
========
Shares outstanding and net asset value per share
Institutional Class Shares outstanding: 10,000 (note 1) $ 10.49
========
See accompanying notes to financial statements.
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VAM SHORT DURATION GOVERNMENT AGENCY FUND
STATEMENT OF OPERATIONS OCTOBER 31, 1996
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<S> <C>
Investment income:
Interest ............................................................. $5,711
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Unrealized gain on investments:
Net change in unrealized appreciation or depreciation of investment... 39
------
Net gain on investments ............................................ 39
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $5,750
======
See accompanying notes to financial statements.
</TABLE>
<TABLE>
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VAM SHORT DURATION GOVERNMENT AGENCY FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR PERIOD
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1996 1995
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<S> <C> <C>
Operations:
Investment income - net ................................... $ 5,711 $ 1,875
Net change in unrealized appreciation or
depreciation of investments ............................. 39 131
--------- ---------
Net increase in net assets resulting from operations... 5,750 2,006
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Distributions to shareholders from:
Investment income - net:
Institutional class ..................................... (2,867) --
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Share transactions (note 1):
Proceeds from sale of shares:
Institutional Class (note 3) ............................ -- 100,000
Institutional Service Class ............................. -- 1,000
Payments for redemption of shares:
Institutional Class ..................................... -- --
Institutional Service Class ............................. -- (1,000)
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Increase in net assets from share transactions ............ -- 100,000
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Total increase in net assets ............................ 2,883 102,006
Net assets at beginning of period ............................ 102,006 --
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Net assets at end of period (including undistributed
net investment income of $4,719 and $1,875, respectively).. $ 104,889 $ 102,006
========= =========
See accompanying notes to financial statements.
</TABLE>
VAM SHORT DURATION GOVERNMENT AGENCY FUND
NOTES TO FINANCIAL STATEMENTS
1) Organization
VAM Short Duration Government Agency Fund (the Fund), a Fund within VAM
Institutional Funds, Inc. which was incorporated in January 1995, is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. Pursuant to its
articles of incorporation, VAM Institutional Funds, Inc. has 10 trillion
shares of authorized capital stock that may be issued. The Fund offers two
classes of shares - the Institutional Class Shares and the Institutional
Service Class Shares. Each of which is sold pursuant to different sales
arrangements and bear different expenses.
The investment objective of the Fund is to seek as high a level of current
income as is consistent with preservation of principal and the average
portfolio duration ranging from zero to three years. The Fund will invest
exclusively in securities issued or guaranteed by the United States
government or its agencies or instrumentalities.
The only share transactions of the Fund since its formation were the
initial sale (at $10 per share) on January 12, 1995 of 10,000 shares of
Institutional Class Shares and 100 shares of Institutional Service Class
Shares to Voyageur Fund Managers, Inc. (Voyageur) and redemptions of 100
Institutional Service Class Shares by Voyageur. Except for the investment
of the initial capital proceeds, the fund has not commenced operations as
of October 31, 1996.
The values of fixed-income securities are determined using pricing services
or prices quoted by independent brokers. When market quotations are not
readily available, securities are valued at fair value according to methods
selected in good faith by the Board of Directors or Trustees. Short-term
securities with maturities less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued at amortized cost
which approximates market value.
Security transactions are accounted for on the trade date. Securities gains
and losses are calculated on the identified cost basis. Interest income,
including level yield amortization of premium and discount is accrued
daily. Dividends declared daily from net investment income are payable
monthly in cash or may be reinvested in additional shares of the Fund at
net asset value. Net realized short-term capital gains, when available, may
be distributed throughout the year. Net realized long-term capital gains,
when available, are distributed annually.
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 net increases (decreases)
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2) Federal Taxes
The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute taxable
income to the shareholders of the Fund in amounts that will avoid or
minimize federal income or excise taxes for the Fund.
3) Fees and Expenses
The Fund has an investment advisory agreement with Voyageur, under which
Voyageur manages the Fund's assets and furnishes related office facilities,
equipment, research and personnel. The Fund pays a monthly fee to Voyageur
equal to an annual rate of .50% of average daily net assets.
The Fund has a distribution agreement with Voyageur Fund Distributors, Inc.
(Fund Distributors). No compensation is paid by the Fund under the
Distribution Agreements.
Institutional Service Class Shares of the Fund also have an agreement with
Fund Distributors to compensate service organizations who provide
additional administrative, record keeping, and other shareholder services
to their customers who are beneficial owners of service shares. The Fund is
obligated to pay Fund Distributors a service fee at an annual rate up to
.25% of the Fund's average daily net assets applicable to Institutional
Service Class Shares.
The Fund will also pay a fee to Voyageur for acting as the Fund's dividend
disbursing, transfer, administrative and accounting services agent. The fee
is paid monthly and is equal to an annual rate of .10% of average daily net
assets. The Fund is also responsible for reimbursing Voyageur's
out-of-pocket expenses in connection with the performance of dividend
disbursing, transfer, administrative and accounting services.
In addition to the fees above, the Fund is responsible for paying most
other operating expenses including director's fees, registrations fees,
printing of shareholder reports, legal and auditing services,
organizational costs and other miscellaneous expenses. Under the investment
advisory agreement, Voyageur is obligated to pay all expenses and fees
(excluding interest, taxes, distribution fees and brokerage commissions)
which exceed 1.00% of the Fund's average daily net assets, on an annual
basis, up to the combined amount of its investment advisory and management
fee and its dividend-disbursing, transfer, administrative and accounting
service fees. As of October 31, 1996, no expenses have been recognized.
Expenses will not be recognized until the commencement of operations.
(4) FINANCIAL HIGHLIGHTS
Per share data (rounded to the nearest cent) for a share of beneficial
interest outstanding and selected information for each period are as
follows:
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INSTITUTIONAL CLASS
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YEAR PERIOD FROM
ENDED JANUARY 12, 1995(c)
OCTOBER 31, TO
1996 OCTOBER 31, 1995
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Net asset value:
Beginning of period ......................... $ 10.20 $ 10.00
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Operations:
Net investment income ....................... .57 .19
Net unrealized gain (loss) on investments ... .01 .01
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Total from operations ..................... .58 .20
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Distributions to shareholders:
From net investment income .................. (.29) --
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Total from distributions .................. (.29) --
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Net asset value:
End of period ............................... $ 10.49 $ 10.20
======= =======
Total investment return (a) ................... 5.69% 2.00%
Net assets at end of period (000's omitted) ... $ 105 $ 102
Ratios:
Ratio of expenses to average daily net assets --% --%
Ratio of net investment income to average
daily net assets .......................... 5.52% 2.31%(b)
Portfolio turnover rate
(excluding short-term securities) ........... --% --%
See accompanying notes to Financial Highlights.
</TABLE>
Notes to Financial Highlights
(a) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(b) Adjusted to an annual basis.
(c) Inception date.
<TABLE>
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VAM SHORT DURATION GOVERNMENT AGENCY FUND
INVESTMENTS IN SECURITIES OCTOBER 31, 1996
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PRINCIPAL MARKET
NAME OF ISSUER AMOUNT VALUE (a)
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Bonds (95.5% of total net assets)
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<S> <C> <C>
U.S. Treasury Note, 5.625% due 06/30/97 $100,000 $100,125
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Total Investments in Securities (cost: $99,955)(b) $100,125
========
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in note 1 to the Financial
Statements.
(b) The cost of securities for federal income tax purposes was $99,955. The
aggregate gross unrealized appreciation and depreciation of securities
based on this cost was as follows:
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ ------------
$170 -- $170
