VAM Mid-Cap Stock Fund
ANNUAL REPORT
Dated October 31, 1997
<PAGE>
DEAR SHAREHOLDER:
We at the VAM Mid-Cap Stock Fund thank you for entrusting us with a portion of
your investment assets over these initial two months of fund operation.
As you may well know, it has been a volatile period for equity investments.
Investment success, of course, requires a long-term perspective. We are pleased
in these times to have the significant experience of fund manager Tony Elavia,
Ph.D., and great depth in our team of investment professionals. Seasoned
professionals are critical to diligent application of the fund's philosophy and
investment strategy.
Appearing below is a summary of the results for the Fund through its fiscal
year-end, including NAV, dividends paid, and total net assets for the reporting
period. On the page that follows, fund manager Tony Elavia provides an update on
Fund performance, the economy and markets, and an outlook for coming months.
<TABLE>
<CAPTION>
Net Asset Net Asset
Value Value Dividends Total Net
Period September 1, 1997 through Beginning of End of Paid Per Assets
October 31, 1997 Period Period Share End of Period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VAM Mid-Cap Stock Fund $10.00 $9.69 $0.00 $643,818
</TABLE>
Once again, thank you for your confidence in the VAM Mid-Cap Stock Fund and the
opportunity to serve your investment needs.
Sincerely,
John G. Taft, President
VAM Mid-Cap Stock Fund
<PAGE>
VAM INSTITUTIONAL FUNDS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
TONY H. ELAVIA, PH.D.
PORTFOLIO MANAGER, VAM MID-CAP STOCK FUND
Over the past two months, the VAM Mid-Cap Stock Fund has been managed against a
volatile investment backdrop shared by all investors-gut-wrenching worldwide
swings in equity and fixed income markets. Garnering the most media attention
were a 554 point single-day drop in the Dow Jones 30 Industrials during October
and more recent currency-based woes in Asia. For the period September 1, 1997
(commencement of operations) through October 31, 1997, the VAM Mid-Cap Stock
Fund posted a total return of -3.10%*.
We believe that markets will continue to show day-to-day volatility. However, we
do not believe that a 7% stock market fluctuation like that of the Dow in
October is terribly significant when coupled with the fact that underlying U.S.
economic fundamentals remain strong. And we believe, because U.S. fundamental
conditions remain strong, Asian woes for the most part will impact U.S. equities
only in a peripheral sense (although increased globalization means we must watch
developments carefully).
Our strategy is to remain fully invested throughout all but the most volatile
segments of a full market cycle. Over the past two months, the VAM Mid-Cap Stock
Fund has remained fully-invested in its traditional themes of telecommunications
and electronic technology stocks. As can be expected in the market
capitalization range we utilize, some holdings have performed exceptionally
well, some have suffered, and others have suffered then recovered.
We have confidence in our philosophy and strategies over the long term, and
confidence in a continuing moderate growth model for the U.S. economy, but
remain mindful of economic turbulence in Asia.
* PAST RESULTS ARE NOT AN INDICATOR OF FUTURE PERFORMANCE.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
VAM Institutional Funds, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of VAM Mid-Cap Stock Fund
(a fund within VAM Institutional Funds, Inc.) as of October 31, 1997, and the
related statement of operations, the statement of changes in net assets and the
financial highlights for the period from September 1, 1997, commencement of
operations, to October 31, 1997. 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 financial highlights based
on our audit.
We conducted our audit 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and the financial
highlights. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all respects, the financial position of VAM Mid-Cap Stock Fund and
the results of its operations, changes in its net assets and the financial
highlights for the period stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 19, 1997
<PAGE>
<TABLE>
<CAPTION>
VAM MID-CAP STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997
- --------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at market value (note 1)
(identified cost: $664,100)............................................. $644,720
Cash in bank on demand deposit............................................. 1
Dividends and interest receivable.......................................... 115
Due from adviser........................................................... 3,610
--------
Total assets............................................................ 648,446
--------
LIABILITIES
Accrued expenses........................................................... 4,628
--------
Total liabilities....................................................... 4,628
--------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK......................... $643,818
========
Represented by:
Capital Stock - $.01 par value (note 1)................................ $ 664
Additional paid-in capital.............................................. 662,722
Accumulated net realized loss on investments............................ (188)
Unrealized depreciation on investments.................................. (19,380)
---------
TOTAL NET ASSETS...................................................... $643,818
========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Shares of capital stock outstanding: 66,414 (note 4).................... $9.69
========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
VAM MID-CAP STOCK FUND
STATEMENT OF OPERATIONS PERIOD ENDED OCTOBER 31, 1997
- -------------------------------------------------------------------------------------------------
PERIOD FROM
SEPTEMBER 1, 1997* TO
OCTOBER 31,1997
---------------
<S> <C>
Investment income:
Dividends............................................................... $ 798
Interest................................................................ 97
----------
Total investment income............................................... 895
----------
Expenses (note 2):
Investment advisory and management fee.................................. 764
Dividend disbursing, administrative and accounting services fees........ 153
Printing, postage and supplies.......................................... 101
Legal fees.............................................................. 198
Custodian fees.......................................................... 310
Audit and accounting fees............................................... 2,000
Registration fees....................................................... 352
Other expenses.......................................................... 750
----------
Total expenses........................................................ 4,628
Less:
Expenses waived or absorbed............................................. (3,610)
----------
Total net expenses......................................................... 1,018
----------
Investment loss - net................................................. (123)
----------
Realized and unrealized gain on investments:
Net realized loss on investments (note 3)............................. (313)
Net increase in unrealized appreciation or depreciation of
investments......................................................... (19,380)
----------
Net loss on investments............................................... (19,693)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $ (19,816)
==========
</TABLE>
- -----------------------------------------
* Commencement of operations
See accompanying notes to financial statements.
<PAGE>
VAM MID-CAP STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
PERIOD FROM
SEPTEMBER 1, 1997*
TO
OCTOBER 31, 1997
----------------
Operations:
Investment income loss - net........................... $ (123)
Realized loss on investments - net..................... (313)
Net change in unrealized appreciation or depreciation
of investments....................................... (19,380)
--------
Net decrease in net assets resulting from operations... (19,816)
--------
Capital share transactions (note 4):
Proceeds from sale of shares........................... 663,634
Increase in net assets from capital share transactions. 663,634
--------
Total increase in net assets......................... 643,818
Net assets at beginning of period......................... 0
--------
Net assets at end of period............................... $643,818
========
- -----------------------------------------
* Commencement of operations
See accompanying notes to financial statements.
<PAGE>
VAM MID-CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The VAM Mid Cap Stock Fund (the Fund), a series within VAM Institutional
Funds, Inc., is registered under the Investment Company Act of 1940 (as amended)
as a diversified open-end management investment company. The Fund's investment
objective is long-term capital appreciation. The Fund seeks to achieve this
objective by investing in a diversified portfolio of securities including common
stock, preferred stock, convertible securities, and warrants and rights to
purchase common stock.
VAM Institutional Funds, Inc. has 10 trillion shares of authorized capital
stock that may be issued.
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
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 resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges are valued at the last sales price on that exchange; securities traded
in the over-the-counter market and listed securities for which no sale was
reported on the valuation date are valued on the basis of the last current bid
price. When market quotations are not readily available, or in certain other
circumstances, securities are valued at fair value according to methods selected
in good faith by the Board of Directors. Investments in short-term securities
with maturities of more than 60 days from the valuation date are valued at the
last bid price or at fair value as determined by a pricing service approved by
the Board of Directors. Short-term securities with maturities of less than 60
days are valued at amortized cost which approximates market value.
Security transactions are accounted for on trade date. Realized gains and
losses are calculated on the identified cost basis. Dividend income is
recognized on the ex-dividend date.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders in amounts that will avoid or minimize federal
income or excise taxes for the Fund.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of losses deferred for
tax purposes due to "wash sale" transactions. The character of distributions
made during the year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax purposes. Also, due
to the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains (losses)
were recorded by the Fund.
On the statements of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments have been made to increase
undistributed net investment income by $123, to increase accumulated net
realized loss by $125 and to decrease additional paid-in-capital by $248.
For federal income tax purposes, as of October 31, 1997, the Fund has a
capital loss carryover of $313 that will expire in 2005 if not offset by
subsequent capital gains. It is unlikely the Board of Directors will authorize a
distribution of any net realized capital gains until the available capital loss
carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income, if any, are
declared and paid annually. Net realized capital gains, if any, are also
distributed annually. All distributions are payable in cash or reinvested in
additional shares of each Fund.
<PAGE>
VAM MID-CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(2) EXPENSES AND SALES CHARGES
The Fund has an investment advisory agreement with Voyageur Asset Management
LLC (Voyageur). Under the investment advisory agreement, Voyageur provides the
Fund with investment management, office facilities, equipment and personnel, and
monitors the performance of various organizations performing services for the
Fund. The investment advisory agreement provides for the payment on a monthly
basis of a fee equal to an annual rate of .75% of the Fund's average daily net
assets.
The Fund also pays a fee to Voyageur for acting as the Fund's transfer agent,
dividend-disbursing and accounting services agent. The fee for the Fund is based
on the level of the Fund's average daily net assets and is equal on an annual
basis to 0.15%.
In addition to the advisory fee and the transfer agency, dividend disbursing
and accounting services fees, the Fund is responsible for paying most other
operating expenses including outside directors' fees and expenses, custodian
fees, registration fees, printing and shareholder reports, legal and auditing
fees and other miscellaneous expenses.
Voyageur has voluntarily agreed to pay all expenses (excluding fees paid
indirectly, stock transfer fees, taxes, interest and brokerage commissions)
which exceed 1.00% of average daily net assets of the Fund, for the period
ending October 31, 1997. During the period ended October 31, 1997, Voyageur
voluntarily absorbed $3,610 for the Fund.
(3) INVESTMENT SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (other
than short-term securities) aggregated $623,799 and $16,687 for the Fund during
the period ended October 31, 1997.
(4) SHARE TRANSACTIONS
Transactions in shares during the period shown were as follows:
PERIOD FROM
SEPTEMBER 1, 1997* TO
OCTOBER 31, 1997
----------------
Shares sold.......................... 66,414
---------
Increase in shares outstanding...... 66,414
=========
- ----------------------------------
* Commencement of operations
<PAGE>
VAM MID-CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(5) FINANCIAL HIGHLIGHTS
Per share data (rounded to the next cent) for a share of capital stock
outstanding and selected information for each period are as follows:
PERIOD FROM
SEPTEMBER 1, 1997* TO
OCTOBER 31, 1997
----------------
Net asset value:
Beginning of period................ $10.00
------
Operations:
Net investment income (loss)....... -
Net realized and unrealized gain on
investments...................... (.31)
------
Total from operations.......... (.31)
------
Net asset value:
End of period...................... $9.69
======
Total investment return (b)........... (3.10%)
Net assets at end of
period (000's omitted)............. $644
Ratios:
Expenses to average net assets(a).. 1.00%
Net investment income (loss) to
average net assets (a)........... (.12%)
Assuming no voluntary waivers and
reimbursements and expense
reductions:
Expenses (a)............ 4.40%
Net investment (loss)(a) (3.55%)
Portfolio turnover rate (excluding
short-term securities)............. 2.8%
Average commission rate............... $0.06
- -----------------------------------
* Commencement of operations
Notes to Financial Highlights
(a) Annualized.
(b) Total investment return is based on the change in net asset value of a share
during the period.
<PAGE>
<TABLE>
<CAPTION>
VAM MID-CAP STOCK FUND
INVESTMENTS IN SECURITIES (CONTINUED) OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.2%):
BASIC MATERIALS (2.8%):
- ----------------------------------------------------------------------------------------------------------------
Sealed Air Corporation (c) 350 $ 18,047
---------
CAPITAL GOODS (5.0%):
- ----------------------------------------------------------------------------------------------------------------
Applied Materials Incorporated (c) 500 16,688
Corning Incorporated 350 15,794
---------
32,482
---------
COMMERCIAL SERVICES (12.5%):
- ----------------------------------------------------------------------------------------------------------------
Cambridge Technology Partner (c) 600 21,900
Gartner Group Incorporated (c) 600 16,950
Keane Incorporated (c) 700 20,737
Omnicom Group 300 21,187
---------
80,774
---------
ENERGY (3.9%):
- ----------------------------------------------------------------------------------------------------------------
Diamond Offshore Drilling 400 24,900
---------
FINANCIAL (13.3%):
- ----------------------------------------------------------------------------------------------------------------
Associates First Capital 350 22,269
Hartford Life Incorporated 500 18,469
Northern Trust Corporation 400 23,400
Sunamerica Incorporated 600 21,562
---------
85,700
---------
OTHER (27.3%):
- ----------------------------------------------------------------------------------------------------------------
S&P Midcap 400 Index Depository Receipts (d) 1,500 93,094
S&P 500 Index Depository Receipts (d) 900 82,462
---------
175,556
---------
TECHNOLOGY (17.2%):
- ----------------------------------------------------------------------------------------------------------------
Altera Corporation (c) 350 15,531
Analog Devices (c) 650 19,866
BMC Software (c) 400 24,150
Parametric Technology Corporation (c) 400 17,650
Vitesse Semiconductor (c) 500 21,688
Xilinx Incorporated (c) 350 11,944
---------
110,829
---------
TELECOMMUNICATIONS (9.2%):
- ----------------------------------------------------------------------------------------------------------------
ADC Telecommunications Incorporated (c) 650 21,531
Genesys Telecomm Labs Incorporated (c) 500 16,000
Tellabs Incorporated (c) 400 21,600
---------
59,131
---------
TOTAL INVESTMENTS IN COMMON STOCK (cost: $606,799) 587,419
---------
See accompanying notes to investments in securities.
<PAGE>
VAM MID-CAP STOCK FUND
INVESTMENTS IN SECURITIES (CONTINUED) OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
SHORT-TERM INVESTMENTS (8.9%)
- ----------------------------------------------------------------------------------------------------------------
First American Money Market, 5.31% 57,301 57,301
---------
TOTAL INVESTMENTS IN SHORT-TERM INVESTMENTS (cost: $57,301) 57,301
---------
TOTAL INVESTMENTS IN SECURITIES (cost: $664,100)(b) $644,720
=========
</TABLE>
VAM MID-CAP STOCK FUND
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 for the Fund is
$556,673. The aggregate gross unrealized appreciation and depreciation on
investments based on this cost is:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation
------------ -------------- ------------
$95,822 $(7,775) $88,047
(c) Presently non-income producing security.
(d) Security is a depository receipt, traded as a common stock, consisting of
the securities held by the named index.
