<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1995
FILE NO. 33-84942
811-8808
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. 2 /X/
Post-Effective Amendment No. / /
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 2 /X/
</TABLE>
THE EXPLORER
INSTITUTIONAL TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Offices)
(708) 684-6000
(Registrant's Telephone Number)
Dennis J. McDonnell
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<S> <C>
Wayne W. Whalen, Esq. Louis A. Goodman, Esq.
Thomas A. Hale, Esq. Skadden, Arps, Slate, Meagher & Flom
Skadden, Arps, Slate, Meagher & Flom One Beacon Street
333 West Wacker Drive Boston, Massachusetts 02108
Chicago, Illinois 60606 (617) 573-4800
(312) 407-0700
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
DECLARATION PURSUANT TO RULE 24F-2
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES AND WILL FILE A
RULE 24F-2 NOTICE WITH THE COMMISSION FOR ITS FISCAL YEAR ENDING DECEMBER 31,
1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE EXPLORER INSTITUTIONAL TRUST
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A IN PROSPECTUS
- ---------------------------------- -----------------------------------------------------------
PART A INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
Item 1. Cover Page............. Cover Page
Item 2. Synopsis............... SUMMARY OF FUND EXPENSES
Item 3. Condensed Financial
Information.......... Not Applicable
Item 4. General Description of
Registrant........... THE FUNDS' INVESTMENT OBJECTIVES; HOW THE FUNDS SEEK THEIR
INVESTMENT OBJECTIVES
Item 5. Management of the
Fund................. HOW THE FUNDS ARE MANAGED
Item 6. Capital Stock and Other
Securities........... ORGANIZATION; DISTRIBUTIONS AND TAXES
Item 7. Purchase of Securities
Being Offered........ HOW TO BUY SHARES; HOW THE FUNDS VALUE THEIR SHARES
Item 8. Redemption or
Repurchase........... HOW TO SELL SHARES; HOW THE FUNDS VALUE THEIR SHARES
Item 9. Pending Legal
Proceedings.......... Not Applicable
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION OR CAPTION
ITEM NUMBER OF IN STATEMENT OF
FORM N-1A ADDITIONAL INFORMATION
- ---------------------------------- -----------------------------------------------------------
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<S> <C> <C>
Item 10. Cover Page............. Cover Page
Item 11. Table of Contents...... Table of Contents
Item 12. General Information
and History.......... The Funds and the Trust
Item 13. Investment Objectives
and Policies......... Investment Policies and Restrictions; Income Securities
Item 14. Management of the
Fund................. Officers and Trustees
Item 15. Control Persons and
Principal Holders of
Securities........... The Funds and the Trust; Officers and Trustees
Item 16. Investment Advisory and
Other Services....... Contained in Prospectus under captions: HOW THE FUNDS ARE
MANAGED; Legal Counsel; Investment Advisory and Other
Services; Officers and Trustees; The Distributor; Notes to
Financial Statements
Item 17. Brokerage Allocation... Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities..... The Funds and the Trust
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered.............. Contained in Prospectus under captions: HOW TO BUY SHARES;
HOW TO SELL SHARES; HOW THE FUNDS VALUE THEIR SHARES
Item 20. Tax Status............. Taxation; How to Buy Shares; Contained in Prospectus under
captions: INVESTMENTS BY TAX-SHELTERED; RETIREMENT PLANS;
HOW TO BUY SHARES
Item 21. Underwriters........... The Distributor; Notes to Financial Statements
Item 22. Calculations of
Performance Data..... Contained in Prospectus under caption: FUND PERFORMANCE;
Performance Information
Item 23. Financial Statements... Independent Auditors' Report; Statement of Assets and
Liabilities; Notes to Financial Statements; Officers and
Trustees
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
ii
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. AN
AMENDMENT TO THE REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME SUCH
AMENDMENT TO THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED NOVEMBER 13, 1995
THE EXPLORER
INSTITUTIONAL
FUNDS(SM)
- Enhanced Benchmark Fund
- Enhanced Limited Duration Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
November , 1995
The Explorer Institutional Trust (the "Trust") is a professionally managed
no-load, open-end management investment company consisting of two separate
investment portfolios ("Funds" or "Explorer Institutional Funds(SM)"), each with
its own investment objective and policies.
The Trust is primarily designed to provide pension and profit sharing plans,
employee benefit trusts, endowments, foundations, other institutions,
corporations and high net worth individuals with access to the professional
investment management services offered by Van Kampen American Capital
Management, Inc. (the "Adviser"), the investment adviser to the Funds. The two
Explorer Institutional Funds(SM) are The Explorer Institutional Enhanced
Benchmark Fund ("Enhanced Benchmark Fund") and The Explorer Institutional
Enhanced Limited Duration Fund ("Enhanced Limited Duration Fund").
In managing the Funds, the Adviser seeks to enhance total return as compared to
an unmanaged portfolio of income securities by identifying value and opportunity
through extensive market and credit research, identifying and taking advantage
of market inefficiencies and, within a well defined portfolio duration range for
each respective Fund, adjusting duration from time to time based on the
Adviser's view of market conditions.
SHARES OF THE FUNDS ARE NOT INSURED BY THE FEDERAL GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY OR INSTRUMENTALITY NOR ARE THEY DEPOSITS IN OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK. Additional information about the Trust and
the Funds is contained in a Statement of Additional Information dated November
, 1995, which has been filed with the Securities and Exchange Commission, a
copy of which may be obtained without charge by calling: 1-800-996-2588.
This Prospectus, which incorporates by reference the entire Statement of
Additional Information, concisely sets forth certain information about the Trust
and the Funds that a prospective shareholder should know before investing.
Shareholders should read this Prospectus carefully and retain it for future
reference.
<PAGE> 5
SUMMARY OF FUND EXPENSES
Shareholder Transaction Expenses
<TABLE>
<S> <C>
Maximum sales load imposed on purchases.................... None
Maximum sales load imposed on reinvested dividends......... None
Deferred sales load........................................ None
Redemption fees............................................ None
Exchange fees.............................................. None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
As of the date of this Prospectus, neither of the Funds had commenced investment
operations. Accordingly, the following information represents estimates of
expenses expected for the Funds' first year of operations.
<TABLE>
<CAPTION>
ENHANCED ENHANCED
BENCHMARK LIMITED DURATION
FUND FUND
--------- ----------------
<S> <C> <C>
Management Fees(1)............... .30 .30
Other expenses(2)................ .10 .10
Total(2)......................... .40 .40
</TABLE>
Example
A $1,000 investment would have the following transaction costs and operating
expenses assuming a 5% annual return. This example should not be considered
indicative of actual or expected Fund performance or expenses, both of which
will vary.
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
Enhanced Benchmark Fund........................ $4 $13
Enhanced Limited Duration Fund................. $4 $13
</TABLE>
Expenses are one of several factors to consider when you invest in a Fund. The
expense summary format above is used by all mutual funds and is provided here to
help you make your investment decision.
- ---------------
(1) Reduced as to each Fund to 0.25% with respect to net assets over one billion
dollars. See "How the Funds are Managed."
(2) The Adviser has agreed to waive fees or reimburse certain expenses of the
Funds such that management fees and certain other expenses for each Fund do
not exceed 0.40% per annum. See "How the Funds are Managed." Estimated total
expenses for the first year of operations of each Fund, before giving effect
to such agreement, are .70%.
2
<PAGE> 6
THE FUNDS' INVESTMENT OBJECTIVES
The Trust is primarily designed to provide pension and profit sharing plans,
employee benefit trusts, endowments, foundations, other institutions,
corporations and high net worth individuals with access to the professional
investment management services offered by Van Kampen American Capital
Management, Inc., the investment adviser to the Funds. The Trust currently
consists of two separate Funds, each of which is registered as a diversified
investment company. Additional Funds may be added in the future.
Each Fund has its own investment objective. The investment objective of the
Enhanced Benchmark Fund is to provide an enhanced level of total return as
compared to investment in an unmanaged portfolio consisting primarily of
investment grade intermediate-and long-term income securities of U.S. issuers.
The investment objective of the Enhanced Limited Duration Fund is to provide an
enhanced level of total return as compared to an investment in an unmanaged
portfolio consisting primarily of investment grade short- and intermediate-term
income securities of U.S. issuers, consistent with preservation of capital.
These objectives are fundamental and cannot be changed without shareholder
approval. There are market risks inherent in all securities investments and
there can be no assurance that the Funds will achieve their objectives.
HOW THE FUNDS SEEK THEIR INVESTMENT OBJECTIVES
Each Fund will seek to achieve its investment objective by investing
substantially all of its total assets in a professionally managed, diversified
portfolio of income securities. For a discussion of the various types of income
securities in which the Funds may invest, see "Income Securities" below. The
Funds differ primarily in the length of their portfolio duration. For a
discussion of the concept of duration, see "Duration" below. The Funds will not
invest in income securities rated at the time of investment below investment
grade. Investment grade rated securities are securities rated in one of the four
highest rating categories by at least one nationally recognized rating
organization, such as Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"). For a description of S&P and Moody's
ratings, see the Statement of Additional Information. Each Fund will invest at
least 75% of its assets in securities rated AA/Aa or higher.
ENHANCED BENCHMARK FUND. The Enhanced Benchmark Fund invests substantially all
of its assets in a diversified portfolio of investment grade income securities
having various maturities and will maintain a portfolio duration of 3 to 6
years. The Fund will invest at least 75% of its assets in securities rated AA/Aa
or higher. The Enhanced Benchmark Fund will not invest in securities rated below
BBB/Baa. The Fund may not invest in securities of foreign issuers. The Enhanced
Benchmark Fund has not commenced investment operations and shares of the
Enhanced Benchmark Fund are not available for investment at this time.
ENHANCED LIMITED DURATION FUND. The Enhanced Limited Duration Fund invests
substantially all of its assets in a diversified portfolio of investment grade
income securities having various maturities and will maintain a portfolio
duration of 1 to 3 years. The Fund will invest at least 75% of its assets in
securities rated AA/Aa or higher. The Enhanced Limited Duration Fund will not
invest in securities rated below A. The Fund may not invest in securities of
foreign issuers. The total return of the Enhanced Limited Duration Fund is
expected to exhibit less volatility than that of the Enhanced Benchmark Fund
because its duration will be shorter while its other investment policies are
similar to those of the Enhanced Benchmark Fund.
DURATION. Duration is a measure of the expected life of an income security
that was developed as a more precise alternative to the concept of "term to
maturity." Duration incorporates a security's yield, coupon interest payments,
final maturity and call features into one measure. Duration is an important
criteria used by the Adviser in portfolio selection for the Funds.
Most debt obligations provide interest ("coupon") payments in addition to a
final ("par") payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments, the market values of debt
obligations may respond differently to changes in interest rates.
3
<PAGE> 7
Traditionally, a debt security's "term to maturity" has been used as a measure
of the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security's payments prior to
maturity. Duration is a measure of the expected life of an income security on a
present value basis. Duration takes the length of the time intervals between the
present time and the time that the interest and principal payments are scheduled
or, in the case of a callable security, expected to be received, and weights
them by the present values of the cash to be received at each future point in
time. For an income security with interest payments occurring prior to the
payment of principal, duration is less than maturity. In general, all other
things being equal, the lower the stated or coupon rate of interest of a fixed
income security, the longer the duration of the security; conversely, the higher
the stated or coupon rate of interest of a fixed income security, the shorter
the duration of the security.
There are some situations where the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where interest rate exposure is not properly captured by
duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is frequently 30 years, but prepayment rates are
more critical in determining the securities' interest rate exposure. In these
and other similar situations, in determining portfolio duration the Adviser will
use more sophisticated analytical techniques that incorporate the anticipated
economic life of a security into the determination of its interest rate
exposure.
The change in market value of investment grade income securities is largely a
function of changes in the prevailing level of interest rates. When interest
rates are falling, a portfolio with a shorter duration generally will not
generate as high a level of total return as a portfolio with a longer duration.
When interest rates are flat, shorter duration portfolios generally will not
generate as high a level of total return as longer duration portfolios (assuming
that long-term interest rates are higher than short-term rates, which is
commonly the case). When interest rates are rising, a portfolio with a shorter
duration will generally outperform longer duration portfolios. With respect to
the composition of an income portfolio, the longer the duration of the
portfolio, the greater the anticipated potential for total return, with,
however, greater attendant interest rate risk and price volatility than for a
portfolio with a shorter duration.
PORTFOLIO CREDIT QUALITY. Each Fund will invest at least 75% of its assets in
securities rated AA/Aa or higher. A Fund's investments may range in quality from
securities rated in the lowest category in which the Fund is permitted to invest
to securities rated in the highest category.
The Enhanced Limited Duration Fund may invest in securities rated in the third
highest rating category by a nationally recognized rating organization (e.g. A
by S&P or Moody's). Securities rated A by S&P are regarded by S&P as having a
strong capacity to pay interest and repay principal although they are in S&P's
view somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than higher rated securities. Securities
rated A by Moody's in Moody's view possess many favorable investment attributes
and are considered by Moody's as upper medium grade obligations. Factors giving
security to principal and interest are considered by Moody's to be adequate but
elements may be present which suggest a susceptibility to impairment sometime in
the future.
The Enhanced Benchmark Fund may invest in securities rated in the fourth
highest rating category by a nationally recognized rating organization (e.g.,
BBB by S&P or Baa by Moody's). Securities rated BBB are regarded by S&P as
having adequate capacity to pay interest and repay principal. Whereas in S&P's
view such securities normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for securities in this
category than for securities in higher rated categories. Securities rated Baa
are regarded by Moody's as medium grade obligations (i.e. neither highly
protected
4
<PAGE> 8
nor poorly secured). In Moody's view, interest payments and principal security
for such securities appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. In Moody's view, such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
The percentage of a Fund's assets invested in securities in a particular
rating category will vary from time to time.
INCOME SECURITIES. Each Fund will invest substantially all of its total assets
in U.S. dollar denominated income securities of U.S. issuers. Income securities
include securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); mortgage and other asset-
backed securities; corporate debt securities; variable and floating rate debt
securities; commercial paper; certificates of deposit, time deposits and bankers
acceptances; other instruments having investment characteristics substantially
similar to any of the foregoing and repurchase agreements and reverse repurchase
agreements with respect to any of the foregoing. The Funds will not invest in
securities of foreign issuers. Prior to investing in any category of instruments
not identified in this Prospectus, the Funds intend to revise this Prospectus to
identify such categories. Certain of the Funds' investments may be considered
derivative instruments. A derivative is a financial instrument whose performance
is derived at least in part from the performance of an underlying index,
security or asset. The values of certain derivatives can be affected
dramatically by even small market movements, sometimes in ways that are
difficult to predict. There are many different types of derivatives, with many
different uses.
U.S. Government Securities. U.S. Government Securities are considered among
the most creditworthy of fixed income investments; however, the yields on U.S.
Government securities generally are lower than yields available from most other
types of income securities having comparable duration. U.S. Government
Securities include (1) U.S. Treasury obligations; (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities ("Agencies") which
are supported by: (a) the full faith and credit of the U.S. Government; (b) the
right of the issuer or guarantor to borrow an amount from a line of credit with
the U.S. Treasury; (c) discretionary power of the U.S. Government to purchase
obligations of the Agencies or (d) the credit of the Agencies; (3) certain real
estate mortgage investment conduits, certain collateralized mortgage obligations
and other mortgage-backed securities and (4) "when-issued" commitments relating
to the foregoing.
Mortgage-Backed Securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. The yield characteristics
of mortgage-backed securities differ from traditional debt securities. Interest
and principal payments are made more frequently and principal may be prepaid at
any time because the underlying mortgage loans generally may be prepaid at any
time. Faster or slower prepayments than expected on underlying mortgage loans
can dramatically alter the yield to maturity and duration of a mortgage-backed
security. The value of most mortgage-backed securities, like traditional debt
securities, tends to vary inversely with changes in interest rates; however,
mortgage-backed securities may benefit less than traditional debt securities
from declining interest rates because prepayment of mortgages tend to accelerate
during periods of declining interest rates. When mortgage loans underlying
mortgage-backed securities held by a Fund are prepaid, the Fund reinvests the
prepaid amounts in other income-producing securities, the yields of which will
reflect interest rates prevailing at the time. Therefore, a Fund's ability to
maintain a portfolio of higher-yielding mortgage-backed securities will be
adversely affected to the extent that prepayments must be reinvested in
securities which have lower yields.
Mortgage-backed securities may be structured with various classes of holders
that can receive different proportions of the interest and principal
distributions from the same pool of underlying mortgage assets. The yield to
maturity, duration and market value of such classes may be substantially more
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets. If the underlying
5
<PAGE> 9
mortgage assets experience greater than anticipated prepayments of principal, a
Fund may fail to fully recoup its initial investment in certain of these
securities even if held to final maturity. A more complete description of
mortgage-backed securities is contained in the Statement of Additional
Information.
Collateralized Mortgage Obligations. CMOs are debt obligations collateralized
by mortgage loans or mortgage pass-through securities and multiclass
pass-through securities, which are equity interests in a trust composed of
mortgage assets. Payments of principal of and interest on the mortgage assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multiclass pass-through
securities. In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche", is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the mortgage assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. The principal of and interest on the mortgage assets may be
allocated among the several classes of a series of a CMO in innumerable ways,
some of which bear substantially more risk than others.
Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now also applied to a broad range of assets,
primarily automobile and credit card receivables. Other types of asset-backed
securities may be developed in the future. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. Asset-backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of the same security interest in the
related collateral as do mortgage-backed securities.
Corporate Income Securities. Corporate income securities in which a Fund may
invest include adjustable and fixed rate bonds, debentures and notes and will
generally be unsecured. A Fund may also invest in income securities with
floating or variable rates of interest.
Zero-Coupon Securities. Zero-coupon bonds pay no cash interest but are sold at
substantial discounts from their value at maturity. When a zero-coupon bond is
held to maturity, its entire investment return comes from the difference between
its purchase price and its maturity value.
Stripped Income Securities. Stripped income securities are obligations
representing an interest in all or a portion of the income or principal
components of an underlying or related security, a pool of securities or other
assets. The Funds do not intend to invest in interest only (IO) or principal
only (PO) classes. The market values of stripped income securities tend to be
more volatile in response to changes in interest rates than are those of
conventional income securities.
Premium Securities. A Fund may at times invest in securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. If an issuer were to redeem securities held by a Fund during a time of
declining interest rates, the Fund may not be able to reinvest the proceeds in
securities providing the same investment return as the securities redeemed. If
securities purchased by a Fund at a premium are called or sold prior to
maturity, the Fund generally will recognize a capital loss to the extent the
call or sale price is less than the Fund's adjusted tax basis in such
securities. Similarly, the Fund generally will recognize a capital loss in the
event that such securities are held to maturity.
6
<PAGE> 10
Adjustable and Floating Rate Securities. Adjustable and floating rate
securities are securities having interest rates which are adjusted or reset at
periodic intervals ranging, in general, from one day to several years, based on
a spread over a specific interest rate or interest rate index or on the results
of periodic auctions. Adjustable and floating rate securities allow a Fund to
participate in all or a portion of increases in interest rates through periodic
upward adjustments of the coupon rates of such securities, resulting in higher
yields. During periods of declining interest rates, however, coupon rates may
readjust downward resulting in lower yields. The Funds will not invest in
"inverse-floaters" (securities whose coupon rates vary inversely with changes in
market rates of interest).
CERTAIN INVESTMENT PRACTICES. In connection with the investment policies
described above, the Funds may also purchase and sell securities on a "when
issued" and "delayed delivery" basis, enter into repurchase agreements and, for
cash management purposes only, enter into reverse repurchase agreements and
borrow money from banks, in each case subject to the limitations set forth
below. Certain of these investment practices involve special risks.
The Funds may purchase and sell securities on a "when issued" and "delayed
delivery" basis. A Fund accrues no income on purchases of such securities until
the Fund actually takes delivery of such securities. These transactions are
subject to market fluctuation; the value of the securities at delivery may be
more or less than their purchase price. The yields generally available on
comparable securities when delivery occurs may be higher than yields on the
securities obtained pursuant to such transactions. Because a Fund relies on the
buyer or seller to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. A Fund will engage in
when issued and delayed delivery transactions for the purpose of acquiring
securities consistent with the Fund's investment objective and policies and not
for the purpose of investment leverage.
A Fund may enter into repurchase agreements whereby the Fund purchases
securities and agrees to resell the securities at an agreed upon time and at an
agreed upon price. The difference between the purchase amount and resale amount
is accrued as interest in the Fund's net income. Failure of the seller to
repurchase the securities may cause losses for a Fund. Thus, a Fund must
consider the credit-worthiness of such party. In the event of default by such
party, a Fund may not have a right to the underlying security and there may be
possible delays and expenses in liquidating the security purchased, resulting in
a decline in its value and loss of interest. A Fund generally will not invest
more than 15% of its total assets in repurchase agreements with a maturity of
seven days or more.
Each Fund may borrow money from banks and engage in reverse repurchase
agreements for cash management purposes only (such as clearance of portfolio
transactions, meeting share redemption requests and the payments of dividends
and distributions), although no Fund expects to do so in an aggregate amount
exceeding 10% of its respective total assets (after giving effect to any such
borrowing). As a matter of fundamental policy, no Fund may issue senior
securities, enter into reverse repurchase agreements with banks or engage in
dollar rolls in the aggregate in excess of 33 1/3% of the Fund's total assets
(after giving effect to any such borrowing), which amount excludes no more than
5% in bank borrowings and reverse repurchase agreements with any entity for
temporary purposes. No Fund will borrow money or engage in reverse repurchase
agreements in an aggregate amount exceeding 10% of its total assets (after
giving effect to any such borrowing) unless it first notifies shareholders of
its intention to do so and amends this prospectus to reflect such intention.
Interest expenses and other costs from these transactions may exceed the
interest income and other revenues earned from portfolio assets, and the net
income of the Fund may be less than if these transactions were not used. Reverse
repurchase agreements are transactions whereby a Fund sells certain securities
concurrently with an agreement to repurchase the same securities at a later date
at a fixed price. During the reverse repurchase agreement period, the Fund
continues to receive principal and interest payments on these securities.
Reverse repurchase agreements involve the risk that the market value of the
7
<PAGE> 11
securities retained by the Fund may decline below the price of the securities
the Fund has sold but is obligated to repurchase under the agreement. The
foregoing transactions constitute financial leveraging. Leveraging is a
speculative technique and generally increases the volatility of a Fund's net
asset value as a result of fluctuations in market interest rates and increases
the risk of loss.
HOW TO BUY SHARES
Shares of each Fund are offered at a price equal to net asset value per share,
without a sales charge. The minimum initial investment is $500,000. The minimum
subsequent investment is $25,000. The Enhanced Benchmark Fund has not commenced
investment operations and shares of the Enhanced Benchmark Fund are not
available for investment at this time.
The Funds offer their shares to the public on a continuous basis through Van
Kampen American Capital Distributors, Inc. ("VKAC Distributors"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. VKAC Distributors receives no compensation for this service. VKAC
Distributors will compensate its registered representatives out of its own
assets, not out of the assets of the Funds, for sales of shares of the Funds.
Investments may be made either by wire transfer or by mail as follows:
(1) By Wire. The Explorer Institutional FundsSM will accept investments by
wire. An investor must first telephone The Explorer Institutional FundsSM
at 1-800-996-2588 and, in the case of initial investments, provide the
account registration, address, tax identification number, the Fund in
which the investment is being made, and the amount being wired. Investors
will then be assigned an account number and should instruct their bank or
broker to wire federal funds to State Street Bank and Trust Company,
Custody, ABA-011000028, Re: The Explorer Institutional Funds(SM) for
further credit to Account Name , Account Number .
Investors will be responsible for the charges, if any, that the bank,
broker, dealer or financial intermediary may make to handle the wire
transfer. A completed Account Application must then be forwarded to The
Explorer Institutional Funds(SM). Subsequent investments by wire may be
made by instructing a bank or broker to wire the specified amount in
accordance with the above instructions. Please call to advise The
Explorer Institutional FundsSM before wiring monies.
Investments made by federal funds wire (up to ten million dollars) without
approval by The Explorer Institutional Funds(SM) received prior to 12:00
p.m. Eastern time will be invested at the next determined net asset value
and begin receiving dividends on that day. Investments made by federal
funds wire received after 12:00 p.m. Eastern time will be invested at the
next determined net asset value and begin receiving dividends on the next
business day.
(2) By Mail. The Explorer Institutional Funds(SM) will also accept investments
by mail. Investments by mail may be made by sending a check payable to
"The Explorer Institutional Funds(SM)" and identifying the Fund in which
such investment is being made. A completed Account Application,
indicating the Fund in which the investment is being made, must accompany
the check in the case of initial investments. Checks and applications
should be mailed to the transfer agent of The Explorer Institutional
Funds(SM), ACCESS Investor Services, Inc., The Explorer Institutional
FundsSM, P.O. Box 418256, Kansas City, Missouri, 64141-9256 (the
"Transfer Agent"), a wholly-owned subsidiary of Van Kampen American
Capital, Inc. Subsequent investments by mail may be made directly to The
Explorer Institutional Fund(SM) in which such initial investment was made
accompanied by either the detachable form which is part of the Account
Statement or by a letter indicating the dollar amount of the investment,
the account number, and registration. Investments made by check will
begin receiving dividends on the next business day after The Explorer
Institutional FundsSM received good funds. For checks drawn on
8
<PAGE> 12
foreign banks, monies must be collected before shares will be purchased.
In addition, investors may, subject to the approval of the Trust, purchase
shares of a Fund with liquid securities that are eligible for purchase by the
Fund (consistent with such Fund's investment policies and restrictions) and that
have a value that is readily ascertainable. These transactions will be effected
only if the Adviser intends to retain the securities in such Fund as an
investment. Assets so purchased by a Fund will be valued in the same manner as
they would be valued for purposes of pricing the Fund's shares if such assets
were included in the Fund's assets at the time of purchase. The Funds reserve
the right to amend or terminate this practice at any time.
OTHER PURCHASE INFORMATION. Purchases of a Fund's shares will be made in full
and fractional shares. In the interest of economy and convenience, certificates
for shares will generally not be issued.
The Trust reserves the right, in its sole discretion, to suspend the offering
of shares of any Fund or to reject purchase orders when, in the judgment of
management, such suspension or rejection is in the best interests of the Fund;
to waive the minimum investment requirements for certain investors; and to
redeem shares if information provided in the Application should prove to be
incorrect in any material respect.
Shares of the Trust may not be offered or sold in any state unless registered
or qualified in that jurisdiction or unless an exemption from registration or
qualification is available. The Funds are not registered or qualified for sale
in all jurisdictions. Potential investors should contact VKAC Distributors at
One Parkview Plaza, Oakbrook Terrace, IL 60181 or call The Explorer
Institutional FundsSM at 1-800-996-2588 to determine whether a Fund is
registered or qualified for sale in their particular jurisdiction.
Shares of the Trust may be purchased by customers of broker-dealers or other
financial intermediaries ("service agents") which interact with the Trust on
behalf of their customers. Service agents may impose additional or different
conditions on the purchase or redemption of Trust shares by their customers and
may charge their customers transaction or other account fees on the purchase and
redemption of Trust shares. Each service agent is responsible for transmitting
to its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Shareholders who are customers of service agents should consult their service
agent for information regarding these fees and conditions.
DIVIDEND REINVESTMENT PROGRAM. Each Fund will automatically credit monthly and
annual distributions to a shareholder's account in additional shares of the
Fund, without a sales charge, unless a shareholder elects another treatment for
such distributions. An election to receive distributions in cash may be made by
calling 1-800-996-2588 or by writing the Transfer Agent.
DISTRIBUTIONS AND TAXES
Each Fund will declare distributions on a daily basis and will pay such
distributions from net investment income and net realized short-term capital
gains on a monthly basis. Each Fund will also distribute annually any remaining
net realized short-term capital gains together with net realized long-term
capital gains, if any.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended, and to distribute substantially all
of its net investment income and net realized capital gains at least annually.
Any distributions in excess of a Fund's net investment income and capital gains
will be a tax-free return of capital, to the extent of the investor's tax basis
in its shares. Distributions of a Fund's net investment income are taxable to
shareholders as ordinary dividend income whether received in shares or in cash.
Distributions of a Fund's net capital gains ("capital gains dividends") are
taxable to shareholders as long-term capital gains regardless of the length of
time the shares of the Fund have been held by such shareholders. Shareholders
not subject to federal income tax on their income generally will not be required
to pay federal income tax on amounts distributed to them. Interest on certain
U.S. government securities is exempt from state income taxes when received by an
individual
9
<PAGE> 13
and may be exempt when received by a Fund. Each Fund will inform shareholders
annually of the amount and nature of its income and gains and the percentage of
the Fund invested over the year in U.S. government securities.
Redemption or resale of shares of a Fund will be a taxable transaction for
federal income tax purposes. For further information with respect to taxes, see
the Statement of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value per share of a Fund is determined by calculating the total
value of the Fund's assets, deducting the total liabilities of the Fund, and
dividing the result by the number of shares of the Fund outstanding. Generally,
net asset value is computed once daily as of 5:00 p.m. Eastern time Monday
through Friday.
Portfolio securities are valued by using market quotations, prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust.
HOW TO SELL SHARES
Shareholders may sell shares without charge at any time by mailing a written
redemption request in proper form to the Trust or by calling the Trust at 1-800-
996-2588 before 4:00 p.m. Central Standard time to request a redemption.
Shareholders will receive the net asset value next determined after such
shareholder places the sell order. A Fund will not honor a request for
redemption until it has confirmed receipt of good funds with respect to the
purchase of such shares.
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem shares in any Fund account for their then-current
value (which will be promptly paid to the investor) if at any time, due to
redemption by the investor, the shares in the account do not have a value of at
least $250,000. A shareholder will receive advance notice of a mandatory
redemption and will be given at least 30 days to bring the value of its account
up to at least $250,000.
Neither the Trust nor its Transfer Agent will be liable for any loss, cost or
expense for acting on instructions (whether in writing or by telephone) believed
by the party receiving such instructions to be genuine and in accordance with
the procedures described in this Prospectus. The Funds, the Trust, VKAC
Distributors and the Transfer Agent seek to employ procedures reasonably
believed to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring a person attempting to redeem shares by
telephone to provide, on a recorded line, the name on the account, a social
security number or tax identification number and such additional information as
may be included in the Authorization. An investor agrees that no such person
will be liable for any loss, liability, cost or expense arising out of any
request, including any fraudulent or unauthorized request.
The Trust agrees to redeem shares of each Fund solely in cash up to the lesser
of $2,000,000 or 1% of the respective Fund's net assets during any 90-day period
for any one shareholder. In consideration of the best interests of the remaining
shareholders of each Fund, the Trust reserves the right to pay any redemption
price exceeding this amount in whole or in part by a distribution in kind of
securities held by the respective Fund in lieu of cash. It is unlikely that
shares will be redeemed in kind. If shares are redeemed in kind, however, the
redeeming shareholder should expect to incur transaction costs upon the
disposition of the securities received in the distribution. For more information
regarding selling shares, please see the Statement of Additional Information.
HOW THE FUNDS ARE MANAGED
THE ADVISER. Van Kampen American Capital Management, Inc. (the "Adviser") is
the investment adviser for the Funds. The Adviser provides investment advice to
a wide variety of institutional, individual and investment company clients and,
together with its affiliates, had aggregate assets under management or
supervision as of June 30, 1995, of approximately $53.7 billion.
The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which is a wholly-owned subsidiary of VKAC Holding, Inc. VKAC Holding, Inc. is
controlled, through the ownership of a
10
<PAGE> 14
substantial majority of its common stock, by The
Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a
Connecticut limited partnership. C&D L.P. is managed by Clayton, Dubilier &
Rice, Inc. a New York based private investment firm. The General Partner of C&D
L.P. is Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates
L.P."). The general partners of C&D Associates L.P. are Joseph L. Rice, III, B.
Charles Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J.
Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of Van Kampen American Capital, Inc. own, in the
aggregate, not more than 7% of the common stock of VKAC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
11% of the common stock of VKAC Holding, Inc.
ADVISORY AGREEMENT. The business and affairs of the Funds will be managed by
the Adviser under the direction of the Board of Trustees of the Trust. Subject
to the Trustees' authority, the Adviser and the Funds' officers supervise and
implement the Funds' investment activities. The Funds pay the Adviser a fee
(accrued daily and paid monthly) equal to a percentage of their respective
average daily net assets as follows:
<TABLE>
<CAPTION>
AVERAGE
DAILY % PER
FUND NET ASSETS ANNUM
- ------------------------------------ ----------------- -----
<S> <C> <C>
Enhanced Benchmark Fund............. Up to one billion
dollars .30%
Thereafter .25%
Enhanced Limited Duration Fund...... Up to one billion
dollars .30%
Thereafter .25%
</TABLE>
Under each Fund's investment advisory agreement with the Adviser dated
September , 1995, and approved by the sole shareholder of each Fund on
November 14, 1994, subject to the expense limitations discussed below, each Fund
has agreed to assume and pay the charges and expenses of its operations,
including the compensation of the Trustees of the Trust (other than those who
are affiliated persons, as defined in the Investment Company Act of 1940, of the
Trust, the Adviser or VKAC Distributors), the charges and expenses of
independent accountants, legal counsel, any transfer or dividend disbursing
agent and the custodian (including fees for safekeeping of securities), costs of
calculating net asset value, costs of acquiring and disposing of portfolio
securities, interest (if any) on obligations incurred by the Fund, costs of
share certificates, membership dues in the Investment Company Institute or any
similar organization, costs of trustee and officer errors and omissions
insurance, reports and notices to shareholders, costs of registering shares of
the Fund under the federal securities laws, miscellaneous expenses and all taxes
and fees to federal, state or other governmental agencies.
EXPENSE LIMITATION. In the interest of limiting the expenses of the Funds, the
Adviser has agreed to waive fees or reimburse certain expenses such that the
expenses of each Fund, including the advisory fees (but excluding interest,
taxes, brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles and any extraordinary costs and expenses) will not exceed
the following amounts (expressed as a percentage of average net assets on an
annual basis).
<TABLE>
<S> <C>
Enhanced Benchmark Fund.................... .40%
Enhanced Limited Duration Fund............. .40%
</TABLE>
Fees foregone or payments made by the Adviser with respect to a Fund pursuant
to the expense limitation are contingent liabilities of such Fund which are
subject to potential reimbursement by that Fund to the Adviser, provided the
Fund's assets reach a sufficient size to permit such reimbursement to be made
without causing the annual expense ratio of the Fund to exceed the applicable
limitation set forth above, or such lower amount as may be imposed by any state
expense limitation to which the Fund is subject, and provided such reimbursement
is made within four years of the recognition of the contingent liability by the
Fund. If a reimbursement appears probable, it will be accounted for as an
expense of the Fund regardless of the time period over which the reimbursement
may actually be paid by the Fund.
11
<PAGE> 15
HOW THE FUNDS EXECUTE PORTFOLIO TRANSACTIONS
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions. Many securities in which
the Funds invest are traded principally in the over-the-counter market.
Over-the-counter securities are generally traded on a net basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a mark-up to the dealer. Securities
purchased in underwritten offerings generally include, in the price, a fixed
amount of compensation for the financial advisers, underwriters and dealers. The
Funds may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid. Purchases and sales
of securities on a stock exchange are effected through brokers who charge a
commission for their services. Day to day management of the portfolios of each
Fund is the responsibility of a committee of officers of the Adviser.
The Adviser's primary considerations in selecting the manner of executing
securities transactions for the Funds will be prompt execution of orders, the
size and breadth of the market for the security, the reliability, integrity and
financial condition and execution capability of the firm, the size of and
difficulty in executing the order, and the best net price. There are many
instances when, in the judgment of the Adviser, more than one firm can offer
comparable execution services. In selecting among such firms, consideration is
given to those firms which supply research and other services in addition to
execution services. See "Portfolio Transactions and Brokerage Allocation" in the
Statement of Additional Information for more information.
In effecting purchases and sales of the Funds' portfolio securities, the
Adviser and the Funds may place orders with and pay brokerage commissions to
brokers which may be affiliated with the Funds, the Adviser or VKAC
Distributors.
SHAREHOLDER SERVICES
Shareholders of the Funds are automatically enrolled in or may elect to
participate in certain shareholder programs available to shareholders of The
Explorer Institutional Funds(SM). These programs include Dividend Reinvestment
Programs and Exchange Programs. For more information regarding these shareholder
services and programs, please see the Statement of Additional Information. The
Exchange Program will not become operational until such time as more than one
Explorer Institutional Fund has commenced investment operations and is available
for investment. Shareholder inquiries should be directed to the Funds c/o The
Explorer Institutional Funds(SM), One Parkview Plaza, Oakbrook Terrace, Illinois
60181 or by calling 1 (800) 996-2588.
ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO 64141-9256,
transfer agent for the Funds, performs bookkeeping, data processing and
administrative services related to the maintenance of shareholder accounts.
FUND PERFORMANCE
From time to time advertisements and other sales materials for the Funds may
include information concerning the historical performance of the Funds. Any such
information will include the average total return calculated on a compounded
basis for specified periods of time. Such advertisements and sales material may
also include a yield quotation as of a current period. In each case, such total
return and yield information, if any, will be calculated pursuant to rules
established by the SEC. In addition, the Funds may include in advertisements or
other sales literature information regarding the past performance of certain
types of investments or market indices. In lieu of or in addition to total
return and yield calculations, such information may include performance rankings
and similar information from independent organizations such as Lipper Analytical
Services, Inc., Morningstar, Business Week, Forbes or other industry
publications. From time to time, a Fund may compare its performance to certain
securities and unmanaged indices which may have different risk/reward
characteristics than the Fund. Such
12
<PAGE> 16
characteristics may include, but are not limited to, tax
features, guarantees, insurance and the fluctuation of principal and/or return.
In addition, from time to time, the Funds may utilize sales literature that
includes hypotheticals.
From time to time, the Funds may include in sales literature and shareholder
reports a quotation of the current "distribution rate." Distribution rate is a
measure of the level of income and short-term capital gain dividends, if any,
distributed for a specified period. Distribution rate is determined by
annualizing the distributions per share for a stated period and dividing the
result by the public offering price for the same period. It differs from yield,
which is a measure of the income actually earned by a Fund's investments, and
from total return, which is a measure of the income actually earned by, plus the
effect of any realized and unrealized appreciation or depreciation of, such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of a Fund's performance. Distribution rate may
sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by a
Fund.
Please consult the Statement of Additional Information for more information
regarding Fund performance.
ORGANIZATION
Each Fund is a series of The Explorer Institutional Trust, a Massachusetts
business trust organized on September 30, 1994 (the "Trust"). To date, the Funds
are the only series of the Trust, although the Trustees of the Trust are
empowered to designate other series. Shares of the Trust entitle their holders
to one vote per share; however, separate votes are taken by each series on
matters affecting an individual series. The Trust does not contemplate holding
regular meetings of shareholders to elect Trustees or otherwise. However, the
holders of 10% or more of the outstanding shares may by written request require
a meeting to consider the removal of Trustees by vote of shareholders holding
not less than two thirds of the shares then outstanding. The Trust will assist
such holders in communicating with other shareholders of the Trust to the extent
required by applicable law. As of the date of this prospectus, VKAC
Distributors, an affiliate of the Adviser, owned a majority of the outstanding
shares of each Fund and accordingly controlled the Funds and the Trust. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any series, requires inclusion of a clause to that
effect in every agreement entered into by the Trust or any of its series and
indemnifies shareholders against any such liability.
The authorized capitalization of each Fund consists of an unlimited number of
shares of beneficial interest, without par value.
The fiscal year of each Fund ends on December 31.
More detailed information concerning the Trust is set forth in the Statement
of Additional Information.
ADDITIONAL INFORMATION
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Trust with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
13
<PAGE> 17
EXISTING SHAREHOLDERS--
THE EXPLORER
FOR INFORMATION ON YOUR INSTITUTIONAL FUNDS(SM)
One Parkview Plaza
EXISTING ACCOUNT PLEASE CALL Oakbrook Terrace, Illinois 60181
THE TRUST'S TOLL-FREE Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
NUMBER--1-800-996-2588. MANAGEMENT, INC.
One Parkview Plaza
PROSPECTIVE INVESTORS--CALL Oakbrook Terrace, Illinois 60181
1-800-822-3699. Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
The Explorer Institutional Funds(SM)
P.O. Box 418256
Kansas City, MO 64141-9256
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: The Explorer Institutional
Funds(SM)
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
One Beacon Street
Boston, MA 02108
---------------------------------------------------
333 West Wacker Drive
Chicago, IL 60606
Independent Auditors
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 18
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY ANY FUND, THE TRUST, THE ADVISER, OR VKAC
DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY FUND, THE
TRUST, THE ADVISER OR VKAC DISTRIBUTORS TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Of Fund Expenses........................ 2
The Funds' Investment Objectives................ 3
How The Funds Seek Their Investment
Objectives.................................... 3
How To Buy Shares............................... 8
Distributions And Taxes......................... 9
How The Funds Value Their Shares................ 10
How To Sell Shares.............................. 10
How The Funds Are Managed....................... 10
How The Funds Execute Portfolio Transactions.... 12
Shareholder Services............................ 12
Fund Performance................................ 12
Organization.................................... 13
Additional Information.......................... 13
</TABLE>
(SM) Service Mark of Van Kampen American Capital Distributors, Inc.
- ---------------------------------------
THE EXPLORER
INSTITUTIONAL FUNDS(SM)
Enhanced Benchmark Fund
Enhanced Limited Duration Fund
- ---------------------------------------
PROSPECTUS
NOVEMBER , 1995
<PAGE> 19
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. AN
AMENDMENT TO THE REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME SUCH
AMENDMENT TO THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT
OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED NOVEMBER 13, 1995
STATEMENT OF ADDITIONAL INFORMATION
THE EXPLORER INSTITUTIONAL FUNDS(SM)
The Explorer Institutional Trust (the "Trust") is a professionally managed
no-load, open-end management investment company consisting of two separate
investment portfolios ("Funds" or "The Explorer Institutional Funds(SM)"), each
with its own investment objectives and policies. The Trust is primarily designed
to provide pension and profit sharing plans, employee benefit trusts,
endowments, foundations, other institutions, corporations and high net worth
individuals with access to the professional investment management services
offered by Van Kampen American Capital Management, Inc. (the "Adviser"), the
investment adviser to the Funds. The net asset value and the return of the Funds
will fluctuate depending on market conditions and other factors.
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for The Explorer Institutional FundsSM
dated November , 1995 (the "Prospectus"). A copy of the Prospectus may be
obtained without charge by calling the Trust's toll-free number: 1-800-996-2588.
The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. (the "SEC"). These items
may be obtained from the SEC upon payment of the fee prescribed, or inspected at
the SEC's office at no charge. Capitalized terms used but not defined herein
shall have the meanings set forth in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds and the Trust.................................................................. B-2
Investment Policies and Restrictions..................................................... B-3
Income Securities........................................................................ B-4
Investment Practices..................................................................... B-10
Description of Securities Ratings........................................................ B-11
Officers and Trustees.................................................................... B-17
Investment Advisory and Other Services................................................... B-21
Portfolio Transactions and Brokerage Allocation.......................................... B-24
Taxation................................................................................. B-25
The Distributor.......................................................................... B-27
Legal Counsel............................................................................ B-28
Performance Information.................................................................. B-28
How to Buy Shares........................................................................ B-29
Instructions Regarding Backup Withholding................................................ B-33
Independent Auditors' Report relating to The Explorer Institutional Enhanced Benchmark
Fund................................................................................... B-35
Financial Statements relating to The Explorer Institutional Enhanced Benchmark Fund...... B-36
Independent Auditors' Report relating to The Explorer Institutional Enhanced Limited
Duration Fund.......................................................................... B-38
Financial Statements relating to The Explorer Institutional Enhanced Limited Duration
Fund................................................................................... B-39
Account Application...................................................................... B-41
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED NOVEMBER , 1995
<PAGE> 20
THE FUNDS AND THE TRUST
The Trust is a professionally managed no-load, open-end management investment
company. Each of The Explorer Institutional Funds(SM) is a separate, diversified
series of the Trust. The Trust is an unincorporated business trust established
under the laws of the State of Massachusetts by an Agreement and Declaration of
Trust dated September 30, 1994 and amended on November , 1995. The Declaration
of Trust permits the Trustees to issue an unlimited number of full and
fractional shares, $.01 par value, in separate series. To date, The Explorer
Institutional Enhanced Benchmark Fund (the "Enhanced Benchmark Fund") and The
Explorer Institutional Enhanced Limited Duration Fund (the "Enhanced Limited
Duration Fund") (collectively, "The Explorer Institutional Funds(SM)" or the
"Funds"), which were each established pursuant to a Designation of Series on
September 30, 1994, are the only series of the Trust, although the Trustees are
empowered by the Declaration of Trust to designate additional series and issue
shares thereof.
Shares of each Fund represent an equal proportionate interest in the assets of
the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights other than
those described in the Prospectus or this Statement of Additional Information.
The Trust does not contemplate holding regular meetings of shareholders to elect
Trustees or otherwise. However, the holders of 10% or more of the outstanding
shares may by written request require a meeting to consider the removal of
Trustees by a vote of a majority of the shares present and voting at such
meeting. As of the date of this Statement of Additional Information, Van Kampen
American Capital Distributors, Inc., an affiliate of the Adviser, owned a
majority of the outstanding shares of each Fund and accordingly controlled the
Funds and the Trust.
The Trustees may amend the Declaration of Trust (including with respect to any
series) in any manner without shareholder approval, except that the Trustees may
not adopt any amendment adversely affecting the rights of shareholders of any
series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the Investment Company Act of 1940, as amended (the "1940 Act") or other
applicable law) and except that the Trustees cannot amend the Declaration of
Trust to impose any liability on shareholders, make any assessment on shares or
impose liabilities on the Trustees without approval from each affected
shareholder or Trustee, as the case may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
B-2
<PAGE> 21
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund has its own investment objective, policies and restrictions. The
investment objective of the Enhanced Benchmark Fund is to provide an enhanced
level of total return as compared to investment in an unmanaged portfolio
consisting primarily of investment grade medium- and long-term U.S. income
securities. The investment objective of the Enhanced Limited Duration Fund is to
provide an enhanced level of total return as compared to an investment in an
unmanaged portfolio consisting primarily of investment grade short- and
intermediate-term U.S. income securities, consistent with preservation of
capital. These objectives are fundamental and cannot be changed without
shareholder approval. There are market risks inherent in all securities
investments and there can be no assurance that the Funds will achieve their
respective objectives.
Each of the Funds will seek to achieve its investment objective by investing
substantially all of its total assets in a professionally managed, diversified
portfolio of income securities. The Funds may also make other investments
described in the Prospectus. Each Fund may also make any investment not
inconsistent with the following investment restrictions in connection with a
work-out or restructuring of a security held in such Fund's portfolio if such
investment is believed by the Adviser to be in the best interest of the Fund.
The net asset value and return of the Funds may vary.
Fundamental investment restrictions limiting the investments of the Funds
provide that each Fund may not:
1. With respect to 75% of its total assets, purchase any securities
(other than obligations guaranteed by the United States Government or by
its agencies or instrumentalities), if, as a result, more than 5% of the
Fund's total assets (determined at the time of investment) would then be
invested in securities of a single issuer or, if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of an issuer.
2. Invest 25% or more of the value of its total assets in any single
industry. (Neither the U.S. government nor any of its agencies or
instrumentalities will be considered an industry for purposes of this
restriction.)
3. Issue senior securities, enter into reverse repurchase agreements
with banks or engage in dollar rolls in the aggregate in excess of 33 1/3%
of the Fund's total assets (after giving effect to any such borrowing);
which amount excludes no more than 5% in borrowings with any entity for
temporary purposes. The Fund will not mortgage, pledge or hypothecate any
assets other than in connection with issuances of senior securities,
borrowings, delayed delivery and when issued transactions and risk
management and hedging transactions.
4. Make loans of money or property to any person, except (i) to the
extent the securities in which the Fund may invest are considered to be
loans, (ii) through the loan of portfolio securities, and (iii) to the
extent that the Fund may lend money or property in connection with
maintenance of the value of, or the Fund's interest with respect to, the
securities owned by the Fund.
5. Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with risk management and hedging
transactions nor short term credits as may be necessary for the clearance
of transactions is considered the purchase of a security on margin.
B-3
<PAGE> 22
6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other financial
futures or index contracts or related options, except in connection with
risk management and hedging transactions.
7. Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
8. Make investments for the purpose of exercising control or
participation in management, except to the extent that exercise by the Fund
of its rights under agreements related to portfolio securities would be
deemed to constitute such control or participation.
9. Invest in securities of other investment companies, except as part
of a merger, consolidation or other acquisition and except as permitted
under the Investment Company Act of 1940.
10. Invest in oil, gas or mineral leases or in equity interests in
oil, gas, or other mineral exploration or development programs except
pursuant to the exercise by the Fund of its rights under agreements
relating to portfolio securities.
11. Purchase or sell real estate (including real estate limited
partnership interests), commodities or commodity contracts, except to the
extent that the securities that the Fund may invest in are considered to be
interests in real estate, commodities or commodity contracts or to the
extent the Fund exercises its rights under agreements relating to portfolio
securities (in which case the Fund may liquidate real estate acquired as a
result of a default on a mortgage), and except to the extent that risk
management and hedging transactions the Fund may engage in are considered
to be commodities or commodities contracts.
No Fund may change any of these investment restrictions as they apply to such
Fund without the approval of the lesser of (i) more than 50% of the Fund's
outstanding shares or (ii) 67% of the Fund's outstanding shares present at a
meeting at which the holders of more than 50% of the outstanding shares are
present in person or by proxy. As long as the percentage restrictions described
above are satisfied at the time of the investment or borrowing, a Fund will be
considered to have abided by those restrictions even if, at a later time, a
change in values or net assets causes an increase or decrease in percentage
beyond that allowed.
The Funds generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but may adjust their portfolios as
deemed advisable in view of prevailing or anticipated market conditions in an
effort to accomplish their respective investment objectives. For example, a Fund
may sell portfolio securities in anticipation of a movement in interest rates.
Frequency of portfolio turnover will not be a limiting factor if a Fund
considers it advantageous to purchase or sell securities. Each Fund anticipates
that its annual portfolio turnover rate will normally be less than 100%.
Portfolio turnover will be calculated by dividing the lesser of purchases or
sales of portfolio securities by the monthly average value of the securities in
the portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less will be
excluded from such calculation.
INCOME SECURITIES
Income securities include securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities");
mortgage and other asset-backed securities; corporate debt securities; variable
and floating rate debt securities; commercial paper; certificates of deposit,
B-4
<PAGE> 23
time deposits and bankers acceptances; other instruments having investment
characteristics substantially similar to any of the foregoing and repurchase
agreements and reverse repurchase agreements with respect to any of the
foregoing. Corporate income securities in which a Fund may invest include
adjustable and fixed rate bonds, debentures and notes and will generally be
unsecured. A Fund may also invest in debt securities with floating or variable
rates of interest.
U.S. Treasury Securities. U.S. Treasury securities include bills, notes and
bonds issued by the U.S. Treasury. These instruments are direct obligations of
the U.S. Government and, as such, are backed by the full faith and credit of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
Obligations Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. Obligations issued by agencies of the U.S. Government or
instrumentalities established or sponsored by the U.S. Government include those
that are guaranteed by federal agencies or instrumentalities and may or may not
be backed by the full faith and credit of the United States. Obligations of the
Government National Mortgage Association ("GNMA"), the Farmers Home
Administration and the Export-Import Bank are backed by the full faith and
credit of the United States. U.S. Government Securities that are not backed by
the full faith and credit of the United States include, among others,
obligations issued by the Tennessee Valley Authority, the Resolution Trust
Corporation, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the United States Postal Service,
each of which has the right to borrow from the United States Treasury to meet
its obligations, and obligations of the Federal Farm Credit Bank and the Federal
Home Loan Bank, the obligations of which may be satisfied only by the individual
credit of the issuing agency. Investments in FHLMC, FNMA and other obligations
may include collateralized mortgage obligations and real estate mortgage
investment conduits issued or guaranteed by such entities. In the case of
securities not backed by the full faith and credit of the United States, a Fund
must look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the U.S. if the
agency or instrumentality does not meet its commitments.
Mortgage-Backed Securities Issued or Guaranteed by U.S. Government
Instrumentalities. Mortgage-backed securities may be issued or guaranteed by
U.S. Government agencies such as GNMA, FNMA or FHLMC and represent undivided
ownership interests in pools of mortgages. The mortgages backing these
securities may include conventional 30-year fixed rate mortgages, 15-year fixed
rate mortgages, graduated payment mortgages and adjustable rate mortgages. The
U.S. Government or the issuing agency guarantees the payment of the interest on
and principal of these securities. However, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of a
Fund's shares. These securities are in most cases "pass-through" instruments,
through which the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees. Because the
principal amounts of such underlying mortgages may generally be prepaid in whole
or in part by the mortgagees at any time without penalty and the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through securities.
Mortgage-backed securities are subject to more rapid repayment than their stated
maturity date would indicate as a result of the pass-through of prepayments of
principal on the underlying mortgage obligations. The remaining maturity of a
mortgage-backed security will be deemed to be equal to the average maturity of
the mortgages underlying such security determined by the Adviser on the basis of
assumed prepayment rates with respect to such mortgages. The remaining expected
B-5
<PAGE> 24
average life of a pool of mortgages underlying a mortgage-backed security is a
prediction of when the mortgages will be repaid and is based upon a variety of
factors such as the demographic and geographic characteristics of the borrowers
and the mortgaged properties, the length of time that each of the mortgages has
been outstanding, the interest rates payable on the mortgages and the current
interest rate environment. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the prepayment
experience of graduated payment mortgages is basically the same as that of the
conventional mortgages of the same maturity dates over the life of the pool.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, a Fund reinvests the prepaid amounts in other income
producing securities, the yields of which reflect interest rates prevailing at
the time. Therefore, a Fund's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgage-backed securities. Moreover, prepayments of
mortgages which underlie securities purchased by a Fund at a premium would
result in capital losses.
Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the Ginnie Mae,
Fannie Mae and Freddie Mac mortgage pass-through securities described above and
are issued by originators of and investors in mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Private Pass-Throughs are usually
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
Since Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of Ginnie Mae, Fannie Mae or Freddie Mac, such securities
generally are structured with one or more types of credit enhancement.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates,
but also may be collateralized by whole loans or private pass-through securities
(such collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Unless the context indicates otherwise, all references herein
to CMOs include multiclass pass-through securities. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs deemed to be U.S. government securities
are those issued or guaranteed as to principal and interest by a person
controlled or supervised by and acting as an agency or instrumentality of the
U.S. government. The issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest typically is paid or accrues on a monthly, quarterly or
semi-annual basis. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in innumerable ways. In
one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution
B-6
<PAGE> 25
dates, so that no payment of principal will be made on any class of CMOs until
all other classes having an earlier stated maturity or final distribution date
have been paid in full.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier. Planned
Amortization Class CMOs ("PAC Bonds") generally require payments of a specified
amount of principal on each payment date. PAC Bonds are always parallel pay CMOs
with the required principal payment on such securities having the highest
priority after interest has been paid to all classes.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multiclass mortgage securities. SMBS usually are
structured with two classes that receive different proportions of the interest
and principal distribution on a pool of Mortgage Assets. A common type of SMBS
will have one class receiving some of the interest and most of the principal
from the Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. SMBS deemed to be U.S. government
securities are those issued or guaranteed as to principal and interest by an
agency or instrumentality of the U.S. government. The yield to maturity,
duration and market value of such classes may be substantially more sensitive to
the rate of principal payments (including prepayments) on the related underlying
Mortgage Assets. If the underlying Mortgage Assets experience greater than
anticipated prepayments of principal, the Fund may fail to recoup fully its
initial investment in certain of these securities even if held to final
maturity.
RTC Securities. The Resolution Trust Corporation ("RTC") was organized by the
U.S. Government in connection with the savings and loan crisis. RTC holds assets
of failed savings and loans either as conservator or receiver for such
institutions or acquires such assets in its corporate capacity. These assets
include, among other things, single family and multifamily mortgage loans as
well as commercial mortgage loans. In order to dispose of such assets in an
orderly manner, RTC has established a vehicle through which it sells
credit-enhanced mortgage-backed securities ("RTC Securities"). These securities
represent pro rata interests in pools of single family, multifamily and
commercial mortgage loans which RTC holds or has acquired as described above.
Credit enhancement of RTC Securities is obtained from external sources
(including pool insurance policies, letters of credit and surety guarantees),
internal sources, (including subordination and spread accounts) and independent
sources (including reserve funds and cash collateral accounts).
Types of Credit Support. Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures ultimate payment of the obligations on
at least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the
B-7
<PAGE> 26
payment of principal thereof and interest thereon, with the result that defaults
on the underlying assets are borne first by the holders of the subordinated
class), creation of "reserve funds" (where cash or investments, sometimes funded
from a portion of the payments on the underlying assets, are held in reserve
against future losses) and "overcollateralization" (where the scheduled payments
on, or the principal amount of, the underlying assets exceeds that required to
make payment of the securities and pay any servicing or other fees). The degree
of credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now also applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, primarily automobile and credit card receivables, are being securitized
in pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure.
Other types of asset-backed securities may be developed in the future.
In general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. As with mortgage-backed securities, asset-backed securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques. Asset-backed
securities present certain risks that are not presented by mortgage-backed
securities. Primarily, these securities do not have the benefit of the same
security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of
asset-backed securities backed by automobile receivables may not have a proper
security interest in all of the obligations backing such receivables. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.
Zero-coupon securities. Zero-coupon bonds pay no cash interest but are sold
at substantial discounts from their value at maturity. When a zero-coupon bond
is held to maturity, its entire investment return comes from the difference
between its purchase price and its maturity value. The market values of such
securities are generally subject to greater fluctuations in response to market
rates of interest than bonds that pay interest currently. Because such
securities allow an issuer to avoid the need to generate cash to meet current
interest payments, such bonds may involve greater credit risk than bonds paying
cash interest currently.
Premium securities. A Fund may at times invest in securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. If an issuer were to redeem securities held by a Fund during a time of
declining interest rates, the Fund may not be able to reinvest the proceeds in
securities providing the same investment return as the securities redeemed. If
securities purchased by a Fund at a premium
B-8
<PAGE> 27
are called or sold prior to maturity, the Fund generally will recognize a
capital loss to the extent the call or sale price is less than the Fund's
adjusted tax basis in such securities. Additionally, a Fund generally will
recognize a capital loss if it holds such securities to maturity.
Adjustable and Floating Rate Securities. Adjustable rate securities are
securities having interest rates which are adjusted or reset at periodic
intervals ranging, in general, from one day to several years, based on a spread
over a specific interest rate or interest rate index or on the results of
periodic auctions. There are three main categories of indices: (i) those based
on U.S. Government Securities; (ii) those derived from a calculated measure such
as a cost of funds index; and (iii) those based on a moving average of interest
rates, including mortgage rates. Commonly utilized indices include, for example,
the One Year Constant Maturity Treasury Index, the London Interbank Offered Rate
(LIBOR), the Federal Home Loan Bank Cost of Funds, the prime rate and commercial
paper rates.
Adjustable rate securities allow a Fund to participate in all or a portion of
increases in interest rates through periodic upward adjustments of the coupon
rates of such securities, resulting in higher yields. During periods of
declining interest rates, however, coupon rates may readjust downward resulting
in lower yields to the Fund. During periods of rising interest rates, changes in
the coupon rate of adjustable rate securities will lag behind changes in the
market interest rate, which may result in such security having a lower value
until the coupon resets to reflect more closely market interest rates.
Adjustable rate securities frequently limit the maximum amount the rate may be
adjusted during any adjustment period, in any one year or during the term of the
security.
Defensive Strategies. In certain circumstances market conditions may, in the
Adviser's judgment, make pursuing a Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Adviser may use alternative strategies primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these "defensive" strategies,
a Fund may invest to a substantial degree in high-quality, short-term
obligations. Such obligations may include: obligations of the U.S. Government,
its agencies or instrumentalities; other debt securities rated within the three
highest grades by either S&P or Moody's (or comparably rated by any other
nationally recognized statistical rating organization); commercial paper rated
in the highest grade by either rating service (or comparably rated by any other
nationally recognized statistical rating organization); certificates of deposit
and bankers' acceptances; repurchase agreements with respect to any of the
foregoing investments; or any other fixed-income securities that the Adviser
considers consistent with such strategy.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale. Restricted securities salable
among qualified institutional buyers without restriction pursuant to Rule 144A
under the Securities Act of 1933 that are determined to be liquid by the Adviser
under guidelines adopted by the Board of Trustees of the Trust (under which
guidelines the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Funds.
B-9
<PAGE> 28
INVESTMENT PRACTICES
REVERSE REPURCHASE AGREEMENTS AND BORROWINGS
Each Fund may borrow money from banks and engage in reverse repurchase
agreements for cash management purposes only (such as clearance of portfolio
transactions, meeting share redemption requests and the payment of dividends and
distributions, although no Fund expects to do so in an aggregate amount
exceeding 10% of its respective total assets (after giving effect to any such
borrowing). As a matter of fundamental policy, no Fund may issue senior
securities, enter into reverse repurchase agreements with banks or engage in
dollar rolls in the aggregate in excess of 33 1/3% of the Fund's total assets
(after giving effect to any such borrowing), which amount excludes no more than
5% in bank borrowings and reverse repurchase agreements with any entity for
temporary purposes. No Fund will borrow money or engage in reverse repurchase
agreements in an aggregate amount exceeding 10% of its total assets (after
giving effect to any such borrowing) unless it first notifies shareholders of
its intention to do so and amends this prospectus to reflect such intention.
Reverse repurchase agreements involve sales by a Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price which is greater than the sales price. Each Fund
intends generally to invest only in reverse repurchase agreements with
maturities of less than 7 days. During the reverse repurchase agreement period,
a Fund would continue to receive principal and interest payments on these
securities. Reverse repurchase agreements involve the risk that the market value
of the securities retained by a Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the agreement.
In the event the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, a Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities.
Borrowing by a Fund creates the opportunity for increased income, but, at the
same time, borrowing creates special risk considerations such as changes in the
net asset value of the shares and in the yield on the Fund's portfolio. Although
the principal of such borrowings will be fixed, a Fund's assets may change in
value during the time the borrowing is outstanding. Borrowing will create
interest expenses for a Fund which can exceed the income from the assets
retained. To the extent the income derived from any securities purchased with
borrowed funds exceeds the interest a Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of a Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
Each Fund may purchase and sell portfolio securities on a "when issued" and
"delayed delivery" basis. No income accrues to or is earned by a Fund on
purchases of portfolio securities in connection with such transactions prior to
the date the Fund actually takes delivery of such securities. These transactions
are subject to market fluctuation; the value of such securities at delivery may
be more or less than their purchase price, and yields generally available on
such securities when delivery occurs may be higher than yields on the such
securities obtained pursuant to such transactions. Because a Fund relies on the
buyer or seller, as the case may be, to consummate the transaction, failure by
the other party to complete the transaction may result in the Fund missing the
opportunity of obtaining a price or
B-10
<PAGE> 29
yield considered to be advantageous. When a Fund is the buyer in such a
transaction, however, it will maintain, in a segregated account with its
custodian, cash or high-grade portfolio securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. A Fund
will make commitments to purchase securities on such basis only with the
intention of actually acquiring these securities, but a Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent a Fund engages in "when issued" and "delayed delivery"
transactions, it will do so for the purpose of acquiring securities for the
Fund's portfolio consistent with the Fund's investment objectives and policies
and not for the purposes of investment leverage. No specific limitation exists
as to the percentage of a Fund's assets which may be used to acquire securities
on a "when issued" or "delayed delivery" basis.
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by Standard & Poor's Ratings Group) follows:
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely
on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditor's rights.
LONG-TERM DEBT--INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
B-11
<PAGE> 30
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
LONG-TERM DEBT--SPECULATIVE GRADE
BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal . "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B: Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
CC: The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
C: The rating 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
B-12
<PAGE> 31
C: The letter 'C' indicates that the holder's option to tender this security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.
L: The letter 'L' indicates that the rating pertains to the principal amount
of these bonds in the extent that the undersigning deposit collateral is
federally insured and interest is adequately collateralized. In the cast of
certificates of deposit, the letter 'L' indicates that the deposit, combined
with other deposits being held in the same right and capacity, will be honored
for principal and accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured institution or, in the event
that the deposit is assumed by a successor insured institution, upon maturity.
P: The letter 'P' indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.
NR: Not rated.
Debt Obligations of Issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ('AAA', 'AA', 'A,' 'BBB', commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
COMMERCIAL PAPER
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity
for timely payment.
B-13
<PAGE> 32
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period.
A commercial paper rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
Standard & Poor's by the issuer or obtained from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information.
VARIABLE RATE DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a variable rate demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, 'AAA/A-1') or if the nominal maturity is short, a rating of
'SP-1+/AAA' is assigned.
NOTES
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assignment:
-- Amortization schedule (the longer the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
B-14
<PAGE> 33
MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service rating symbols and their meanings (as published by Moody's
Investor Service) follows:
LONG-TERM DEBT
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may by lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies the numerical modifiers 1, 2, and 3 in each generic
rating classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
B-15
<PAGE> 34
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.
Among the obligations covered are commercial paper, Eurocommercial paper, bank
deposits, banker's acceptances and obligations to deliver foreign exchange.
Obligations relying upon support mechanisms such as letters-of-credit and bonds
of indemnity are excluded unless explicitly rated.
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
--Leading market positions in well-established industries.
--High rates of return on funds employed.
--Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while around, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characterizations and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
B-16
<PAGE> 35
Obligations of a branch of a bank are considered to be domiciled in the
country in which the branch is located. Unless noted as an exception, Moody's
rating on a bank's ability to repay senior obligations extends only to branches
located in countries which carry a Moody's Sovereign Rating for Bank Deposits.
Such branch obligations are rated at the lower of the bank's rating or Moody's
Sovereign Rating for Bank Deposits for the country in which the branch is
located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of hue obligation will be
attended by actions of the government controlling the currency of denomination.
In addition, risks associated with bilateral conflicts between an investor's
home country and either the issuer's home country or the country where an
issuer's branch is located are not incorporated into Moody's short-term debt
ratings.
Moody's makes no representation that rated bank or insurance company
obligations are exempt from the registration under the U.S. Securities Act of
1933 or issued in conformity with any other applicable law or regulation. Nor
does Moody's represent that any specific bank or insurance company obligation is
legally enforceable or a valid senior obligation of a rated issuer.
If an issuer represents to Moody's that its short-term debt obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within the parentheses beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody's evaluates the financial strength of hue affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment. Moody's
makes no representation and gives no opinion on the legal validity or
enforceability of any support arrangement.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
OFFICERS AND TRUSTEES
The officers and trustees of the Fund, their principal occupations for the
last five years and their affiliations, if any, with the Adviser, Van Kampen
American Capital Investment Advisory Corp. ("Advisory Corp."), Van Kampen
American Capital Asset Management, Inc. ("Asset Management"), McCarthy, Crisanti
& Maffei, Inc. (a financial credit research firm), MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc., Van Kampen American
Capital, Inc. or VKAC Holding, Inc. (affiliates of the Adviser), are as follows:
DON G. POWELL,* 56, CHAIRMAN AND TRUSTEE. Mr. Powell is Chief Executive Officer,
President and a Director of VKAC Holding, Inc. and Van Kampen American Capital,
Inc. Chairman, Chief Executive Officer and a Director of Distributor, the
Adviser, Advisory Corp. and Asset Management, Chairman and Chief Executive
Officer of Van Kampen American Capital Advisors, Inc., Chairman and President of
Van Kampen American Capital Exchange Corp. Director and Executive Vice President
of Advantage Capital Corporation, and Chairman of ACCESS Investor Services, Inc.
and Van Kampen American Capital Trust Company. Director of McCarthy, Crisanti &
Maffei, Inc. President and Director, Trustee or Managing General Partner of each
of the funds advised by Asset Management and Trustee of each of the funds
advised by Advisory Corp. He is also Chairman of the Board of the Van Kampen
Merritt
B-17
<PAGE> 36
Series Trust and closed-end investment companies advised by the VK Adviser. His
address is 2800 Post Oak Boulevard, 45th Floor, Houston, TX 77056.
DENNIS J. MCDONNELL,* 53, PRESIDENT, CHIEF EXECUTIVE OFFICER AND TRUSTEE. Mr.
McDonnell is President, Chief Operating Officer and a Director of the Adviser,
Advisory Corp. and Asset Management. He is also a Director and Executive Vice
President of VKAC Holding, Inc. and Van Kampen American Capital, Inc., Director
and CEO of McCarthy, Crisanti & Maffei, Inc. and Chairman and Director of MCM
Asia Pacific Company, Limited. His address is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181. Mr. McDonnell is the President, Chief Executive Officer
and a Trustee of each of the funds advised by the Advisory Corp. Mr. McDonnell
is Vice President of each of the funds advised by Asset Management. Prior to
December, 1991, Mr. McDonnell was Senior Vice President of Van Kampen Merritt,
Inc.
HOWARD J KERR, 59, TRUSTEE. Mr. Kerr is President and Chief Executive Officer of
Pocklington Corporation, Inc., an investment holding company. His address is 736
North Western Ave., P.O. Box 317, Lake Forest, IL 60045. Prior to 1991, Mr. Kerr
was President, Chief Executive Officer and Chairman of the Board of Directors of
Grabill Aerospace Industries, Ltd. Mr. Kerr is also a Director of Canbra Goods,
Ltd., a Canadian oilseed crushing, refining, processing and packaging operation.
Mr. Kerr is a Trustee of other investment companies advised by the Adviser.
WAYNE W. WHALEN,* 56, TRUSTEE. Mr. Whalen is a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom. His address is 333 West Wacker Drive,
Chicago, Illinois 60606. Mr. Whalen is also a Trustee of other investment
companies advised by Advisory Corp. and Asset Management.
RONALD A. NYBERG,* 42, VICE PRESIDENT AND SECRETARY. Mr. Nyberg is Executive
Vice President, General Counsel and Secretary of Van Kampen American Capital,
Inc. and VKAC Holding, Inc., and Executive Vice President, General Counsel and
Director of the Adviser, Advisory Corp., Asset Management, and Van Kampen
American Capital Distributors, Inc. His address is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181. Mr. Nyberg is a Vice President and Secretary of other
investment companies advised by Advisory Corp. and is a Director of ICI Mutual
Insurance Co., a provider of insurance to members of the Investment Company
Institute. Prior to March, 1990, Mr. Nyberg was also Secretary of Van Kampen
Merritt, Inc., the Adviser, Advisory Corp. and McCarthy, Crisanti & Maffei,
Inc., a financial credit research firm.
PETER W. HEGEL,* 39, VICE PRESIDENT. Mr. Hegel is Executive Vice President and
Portfolio Manager of the Adviser, Advisory Corp. and Asset Management. His
address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Hegel is
Executive Vice President of other investment companies advised by the Adviser.
EDWARD C. WOOD, III,* 39, VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL
OFFICER. Mr. Wood is Senior Vice President of the Adviser, Advisory Corp. and
Asset Management. His address is One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Mr. Wood is Vice President, Treasurer and Chief Financial Officer of
other investment companies advised by Advisory Corp. and Asset Management.
SCOTT E. MARTIN,* 39, ASSISTANT SECRETARY. Mr. Martin is Senior Vice President,
Deputy General Counsel and Assistant Secretary of Van Kampen American Capital,
Inc., VKAC Holding, Inc., Van Kampen American Capital Distributors, Inc., the
Adviser, Advisory Corp. and Asset Management, and Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei, Inc., a financial credit research
firm. His address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr.
Martin is an Assistant Secretary of other investment companies advised by
Advisory Corp. and Asset Management.
B-18
<PAGE> 37
THEODORE A. MYERS, 65, TRUSTEE. Mr. Myers is an executive vice president and
chief financial officer of Qualitech Steel Corporation, a producer of high
quality engineered steels for automotive, transportation and capital goods
industries. He is also a Director of McClouth Steel, and a member of the Arthur
Andersen Chief Financial Officer Advisory Committee. His address is 1940 East
6th Street, Cleveland, Ohio 44114. Prior to August, 1993, Mr. Myers was Senior
Vice President, Chief Financial Officer and a Director of Doskocil Companies,
Inc., a food processing and distribution company. Prior to January, 1990, Mr.
Myers was Vice President and Chief Financial Officer of Inland Steel Industries.
Prior to October, 1989 he was a Director of First National Bank of East Chicago.
Mr. Myers is also a Trustee of other investment companies advised by the
Adviser.
ROD DAMMEYER, 54, TRUSTEE. Mr. Dammeyer is President, Chief Executive Officer
and a Director of Anixter International Inc. (formerly known as Itel
Corporation), a value-added provider of integrated networking and cabling
solutions that support business information and network infrastructure
requirements; and Great American Management & Investment, Inc., a diversified
manufacturing company. He is also a Director of Lukens, Inc., Falcon Building
Products, Inc., Revco D.S., Inc., Jacor Communications, Inc., Kent State
University Foundation, National Advisory Board of Chemical Bank, Capsure
Holdings Corp., The Vigoro Corporation and Antec Corporation. Prior to June
1995, Mr. Dammeyer was a Director of Santa Fe Energy Resources, Inc., Lomas
Financial Corporation, Santa Fe Pacific Corporation, Q-Tel, S.A. de C.V. and
Servicios Financieros Quadrum, S.A. Prior to 1985, Mr. Dammeyer was senior vice
president and chief financial officer of Household International, Inc.,
executive vice president and chief financial officer of Northwest Industries,
Inc., and managing partner of Arthur Andersen & Co. in Seattle, Washington and
Greensboro, North Carolina. His address is Two North Riverside Plaza, Chicago,
Illinois 60606. Mr. Dammeyer is also a Trustee of other investment companies
advised by the Adviser.
DAVID C. ARCH, 50, TRUSTEE. Mr. Arch is Chairman and Chief Executive Officer of
Blistex Inc., a consumer health care products manufacturer. His address is 1800
Swift Drive, Oak Brook, Illinois 60521. Mr. Arch is also a Trustee of other
investment companies advised by the Adviser.
HUGO F. SONNENSCHEIN, 54, TRUSTEE. Mr. Sonnenschein is President of the
University of Chicago. Mr. Sonnenschein is a member of the Board of Trustees of
the University of Rochester and a member of its investment committee. Prior to
July, 1993, Mr. Sonnenschein was Provost of Princeton University, and, from 1988
to 1991, Mr. Sonnenschein was Dean of the School of Arts and Sciences at the
University of Pennsylvania. Mr. Sonnenschein is a member of the National Academy
of Sciences and a fellow of the American Academy of Arts and Sciences. His
address is 5801 South Ellis Avenue, suite 502, Chicago, Illinois 60637. Mr.
Sonnenschein is also a trustee of other investment companies advised by the
Adviser.
WESTON B. WETHERELL,* 39, ASSISTANT SECRETARY. Mr. Wetherell is Vice President,
Associate General Counsel and Assistant Secretary of Van Kampen American
Capital, Inc., Van Kampen American Capital Distributors, Inc. and the Adviser
and an Assistant Secretary of McCarthy, Crisanti & Maffei, Inc., a financial
credit research firm. His address is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181. Mr. Wetherell is an Assistant Secretary of other investment
companies advised by the Adviser.
NICHOLAS DALMASO,* 30, ASSISTANT SECRETARY. Mr. Dalmaso is Assistant Vice
President of Van Kampen American Capital, Inc. His address is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. Mr. Dalmaso is an Assistant Secretary
of other investment companies advised by the Adviser. Prior to 1992, Mr. Dalmaso
was an attorney with the law firm of Cantwell & Cantwell in Chicago.
B-19
<PAGE> 38
JOHN L. SULLIVAN,* 40, CONTROLLER. Mr. Sullivan is First Vice President of the
Adviser. His address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Mr. Sullivan is an Assistant Treasurer of other investment companies advised by
Advisory Corp. and Asset Management. Prior to September, 1988, he was an Audit
Manager of Price Waterhouse.
STEVEN M. HILL,* 31, ASSISTANT TREASURER. Mr. Hill is Assistant Vice President
of the Adviser, Advisory Corp. and Asset Management. His address is One Parkview
Plaza, Oakbrook Terrace, IL 60181. Prior to September of 1989, Mr. Hill was a
Senior Auditor of Ernst & Young.
EDWARD A. TREICHEL,* 52, VICE PRESIDENT. Mr. Treichel is Senior Vice President
of the Adviser and Senior Vice President of Advisory Corp. His address is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Prior to 1992, Mr. Treichel
was a consultant with G.P. Lawter & Associates, a financial consulting firm.
JOHN M. MCCAREINS,* 46, VICE PRESIDENT. Mr. McCareins is First Vice President of
the Adviser and Advisory Corp. and an agent of Van Kampen American Capital
Distributors, Inc. His address is One Parkview Plaza, Oakbrook Terrace, Illinois
60181.
MICHAEL P. KAMRADT,* 39, VICE PRESIDENT. Mr. Kamradt is First Vice President of
the Adviser and Advisory Corp. and an agent of Van Kampen American Capital
Distributors, Inc. His address is One Parkview Plaza, Oakbrook Terrace, Illinois
60181.
J. CHRISTOPHER JACKSON,* 44, ASSISTANT SECRETARY. Mr. Jackson is Vice President,
Associate General Counsel and Assistant Secretary of Van Kampen American
Capital, Inc., the Adviser, Advisory Corp., Asset Management and Van Kampen
American Capital Distributors, Inc. Mr. Jackson is Assistant Secretary of other
investment companies advised by Advisory Corp. and Asset Management.
* Interested persons of each Fund as defined in the Investment Company Act of
1940.
Each of the foregoing trustees of the Funds acts as a trustee for other
investment companies advised by the Adviser or its affiliates, and each of the
foregoing officers may hold the same position(s) with other investment companies
advised by the Adviser or its affiliates.
The compensation of the officers and directors who are affiliated persons (as
defined in the 1940 Act) of the Adviser or Van Kampen American Capital
Distributors, Inc. is paid by the respective entity. Each Fund pays the
compensation of all other officers and trustees. During the next year, the Trust
expects to pay trustees who are not affiliated persons of the Adviser, Van
Kampen American Capital Distributors, Inc. or the Funds $2,500 (which amount
will only be payable after the Funds have combined net assets of at least $25
million), plus $250 per meeting of the Board of Trustees, plus expenses. Such
amounts will be allocated among the Funds as the Board of Trustees shall in
their discretion deem appropriate. Under each Fund's respective retirement plan,
trustees who are not affiliated with the Adviser, Van Kampen American Capital
Distributors, Inc. or Van Kampen American Capital, Inc., have at least ten years
of service and retire at or after attaining the age of 62 are eligible to
receive a retirement benefit equal to the annual retainer for each of the ten
years following such trustee's retirement. Under certain conditions, reduced
benefits are available for early retirement. Under each Fund's respective
deferred compensation plan, a trustee who is not affiliated with the Adviser,
Van Kampen American Capital Distributors, Inc. or Van Kampen American Capital,
Inc. can elect to defer receipt of all or a portion of the trustee's fees earned
by such trustee until such trustee's retirement. The deferred compensation earns
a rate of return determined by reference to the respective Fund or other
open-end funds advised by the Adviser as selected by the trustee. To the extent
permitted by the Investment Company Act, the respective Fund may invest in
securities of other open-end investment companies advised by the Adviser in
order to match the deferred compensation obligation. The deferred compensation
plan is not funded and
B-20
<PAGE> 39
obligations thereunder represent general unsecured claims against the general
assets of the respective Fund.
The Trustees and Officers as a group hold less than 1% percent of the shares
of each Fund as of October 30, 1995.
As of the date of this Statement of Additional Information, Van Kampen
American Capital Distributors, Inc., an affiliate of the Adviser, owned a
majority of the outstanding shares of each Fund and accordingly controlled the
Funds and the Trust.
No officer or trustee of any Fund owns or would be able to acquire 5% or more
of the common stock of the Adviser or VKAC Holding, Inc., the indirect parent
company of the Adviser.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
Van Kampen American Capital Management, Inc. (the "Adviser") is the investment
adviser for each of the Funds. The Adviser provides investment advice to a wide
variety of institutional, individual and investment company clients and,
together with its affiliates, had aggregate assets under management or
supervision as of June 30, 1995, of $53.7 billion. The Adviser was incorporated
as a Delaware corporation in 1990.
The Adviser's principal office is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181. The Adviser is a wholly-owned subsidiary of Van Kampen
American Capital, Inc., which in turn is a wholly-owned subsidiary of VKAC
Holding, Inc. VKAC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital, Inc. own, in the aggregate, not more than 7% of the
common stock of VKAC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 11% of the common stock of VKAC
Holding, Inc.
The investment advisory agreement between the Adviser and each Fund provides
that the Adviser will supply investment research and portfolio management,
including the selection of securities for the Fund to purchase, hold or sell and
the selection of brokers and dealers through whom the Fund's portfolio
transactions are executed. The Adviser also administers the business affairs of
each Fund, furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as officers of the Fund and trustees of the Trust if duly elected
to such positions. Day to day management of the portfolios of each Fund is the
responsibility of a committee of officers of the Adviser.
The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by a Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
B-21
<PAGE> 40
The Adviser's activities are subject to the review and supervision of the
Board of Trustees of the Trust, of which each Fund is a series, to whom the
Adviser renders periodic reports of each Fund's investment activities. Each Fund
pays the Adviser a fee (accrued daily and paid monthly) equal to a percentage of
its respective average daily net assets as follows:
<TABLE>
<CAPTION>
AVERAGE
DAILY % PER
FUND NET ASSETS ANNUM
-------------------------------------- -------------------------- -----
<S> <C> <C>
Enhanced Benchmark Fund............... Up to one billion dollars .30%
Thereafter .25%
Enhanced Limited Duration Fund........ Up to one billion dollars .30%
Thereafter .25%
</TABLE>
Each Fund's investment advisory agreement with the Adviser dated September ,
1995 was approved by the sole shareholders of each respective Fund on November
14, 1994. Each agreement will continue until , 1996, and will
remain in effect from year to year if specifically approved by the Trustees of
the Trust or the Fund's shareholders and by the disinterested Trustees of the
Trust in compliance with the requirements of the Investment Company Act of 1940.
Each agreement may be terminated without penalty upon 60 days written notice by
either party and will automatically terminate in the event of assignment.
Subject to the expense limitations discussed below, each Fund has agreed to
assume and pay the charges and expenses of its operations, including the
compensation of the Trustees of the Trust (other than those who are affiliated
persons, as defined in the Investment Company Act of 1940, of the Trust, the
Adviser or Van Kampen American Capital Distributors, Inc.), the charges and
expenses of independent accountants, legal counsel, any transfer or dividend
disbursing agent and the custodian (including fees for safekeeping of
securities), costs of calculating net asset value, costs of acquiring and
disposing of portfolio securities, interest (if any) on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, costs of trustee and officer errors and
omissions insurance, reports and notices to shareholders, costs of registering
shares of the Funds under the federal securities laws, miscellaneous expenses
and all taxes and fees to federal, state, foreign or other governmental
agencies.
EXPENSE LIMITATION. In the interest of limiting the expenses of the Funds, the
Adviser has agreed to waive fees or reimburse each Fund for certain expenses,
such that certain expenses of each Fund, including the advisory fees (but
excluding interest, taxes, brokerage commissions and other portfolio transaction
expenses, other expenditures which are capitalized in accordance with generally
accepted accounting principles, and any extraordinary costs and expenses) will
not exceed the following amounts (expressed as a percentage of average net
assets on an annual basis).
<TABLE>
<S> <C>
Enhanced Benchmark Fund............................................ .40%
Enhanced Limited Duration Fund..................................... .40%
</TABLE>
Fees foregone or payments made by the Adviser with respect to a Fund pursuant
to the expense limitation are contingent liabilities of a Fund which are subject
to potential reimbursement by that Fund to the Adviser, provided that such
reimbursement may be made without causing the annual expense ratio of the Fund
to exceed the applicable limitation set forth above, or such lower amount as may
be imposed by any state expense limitation to which the Trust is subject, and
provided such reimbursement is made within four years of the recognition of the
contingent liability by the Fund. If a reimbursement
B-22
<PAGE> 41
appears probable, it will be accounted for as an expense of the Fund regardless
of the time period over which the reimbursement may actually be paid by the
Fund.
Each Advisory agreement specifies that the Adviser will reimburse the Fund for
annual expenses of the Fund which exceed the most stringent limits prescribed by
any State in which the Fund shares are offered for sale. The most stringent
limit as of the date of this Statement of Additional Information, as affecting
any Fund, requires the Adviser to reimburse a Fund to the extent that aggregate
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund.
In addition to making any required reimbursements, the Adviser may in its
discretion, but is not obligated to, waive all or any portion of its fee or
assume all or any portion of the expenses of a Fund.
OTHER AGREEMENTS
SUPPORT SERVICES AGREEMENT. Under a support services agreement with Van
Kampen American Capital Distributors, Inc. each Fund receives support services
for shareholders, including the handling of all written and telephonic
communications, except initial order entry and other distribution related
communications. Upon entering into such agreement, the Funds realized a
reduction in the fee which would have been paid to the Transfer Agent if the
Transfer Agent had provided such services. Payment by the Funds for such
services is made on a cost basis for the employment of the personnel and the
equipment necessary to render the support services. The Funds, and the other
mutual funds distributed by Van Kampen American Capital Distributors, Inc.,
share such costs proportionately among themselves based upon their respective
net asset values.
ACCOUNTING SERVICES AGREEMENT. Each Fund has also entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Funds to more closely monitor and maintain their accounts and
records. The Funds share together with the other mutual funds distributed by Van
Kampen American Capital Distributors, Inc. in the cost of employment to provide
such services, with 25% of such costs shared proportionately based on the number
of outstanding classes of securities per fund and with the remaining 75% of such
cost being paid by the Funds and such other funds based proportionally on their
respective net assets.
LEGAL SERVICES AGREEMENT. Each Fund has entered into a Legal Services
Agreement pursuant to which Van Kampen American Capital, Inc. provides legal
services, including without limitation: maintenance of the Funds' minute books
and records, preparation and oversight of the Funds' regulatory reports, and
other information provided to shareholders, as well as responding to day-to-day
legal issues on behalf of the Funds. Payment by the Funds for such services is
made on a cost basis for the salary and salary related benefits, including but
not limited to bonuses, group insurances and other regular wages for the
employment of personnel, as well as overhead and the expenses related to the
office space and the equipment necessary to render the legal services. The
Funds, and the other mutual funds from whom Van Kampen American Capital
Distributors, Inc. acts as distributor, share one half (50%) of such costs
equally. The remaining one half (50%) of such costs are allocated to specific
funds based on specific time allocations, or in the event services are
attributable only to types of funds (i.e. closed-end or open-
B-23
<PAGE> 42
end), the relative amount of time spent on each type of fund and then further
allocated between funds of that type based upon their respective net asset
values.
CUSTODIAN AND INDEPENDENT AUDITORS
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of each Fund and has custody of all
securities and cash of each Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by each respective Fund.
The independent auditors for each Fund are KPMG Peat Marwick LLP, 303 East
Wacker Drive, Chicago, IL 60601. The selection of independent auditors will be
subject to ratification by the shareholders of each Fund at any annual meeting
of shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser will place orders for portfolio transactions for a Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund and the Adviser, including quotations necessary
to determine the value of a Fund's net assets. Any research benefits derived are
available for all clients of the Adviser. Since statistical and other research
information is only supplementary to the research efforts of the Adviser and
still must be analyzed and reviewed by its staff, the receipt of research
information is not expected to materially reduce its expenses. In selecting
among the firms believed to meet the criteria for handling a particular
transaction, the Adviser may take into consideration that certain firms provide
market, statistical or other research information to the Funds and the Adviser,
and may select firms that are affiliated with the Funds, its Adviser or its
distributor.
If it is believed to be in the best interests of a Fund, the Adviser may place
portfolio transactions with brokers who provide the types of service described
above, even if it means the Fund will have to pay a higher commission, (or, if
the broker's profit is part of the cost of the security, will have to pay a
higher price for the security) than would be the case if no weight were given to
the broker's furnishing of those services. This will be done, however, only if,
in the opinion of the Adviser, the amount of additional commission or increased
cost is reasonable in relation to the value of the services.
If purchases or sales of securities of a Fund and of one or more other
investment companies or clients supervised by the Adviser are considered at or
about the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective sizes of the accounts and the
amount of securities to be purchased or sold. Although it is possible that in
some cases this procedure could have a detrimental effect on the price or volume
of the security as far as a Fund is concerned, it is also possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to a Fund.
Day to day management of the portfolios of each Fund is the responsibility of
the Adviser. While the Adviser will be primarily responsible for the placement
of the Funds' business, the policies and practices in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Trustees.
B-24
<PAGE> 43
The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act which requires that the commissions
paid to Van Kampen American Capital Distributors, Inc. and other affiliates of a
Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
will be reduced by all or a portion of the brokerage commission given to
affiliated brokers.
State securities laws may differ from the interpretations of federal law
expressed herein.
TAXATION
TAXATION OF THE FUNDS
The following federal income tax discussion is based on the advice of Skadden,
Arps, Slate, Meagher & Flom, and reflects applicable tax laws as of the date of
this Statement of Additional Information.
Each Fund intends to qualify each year and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, each Fund must
comply with certain requirements of the Code relating to, among other things,
the source of its income and the diversification of its assets. If a Fund so
qualifies and distributes to its shareholders at least 90% of its net investment
income (which includes net short-term capital gains, but not net capital gains,
which are the excess of net long-term capital gains over net short-term capital
losses) in each year, it will not be required to pay federal income taxes on any
income distributed to its shareholders. Each Fund intends to distribute at least
the minimum amount of net investment income necessary to satisfy the 90%
distribution requirement. Each Fund will not be subject to federal income tax on
any net capital gains distributed to its shareholders.
In order to avoid a 4% excise tax, a Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income for such year and
at least 98% of its capital gain net income determined in general on an October
31 year end, plus any amounts that were not distributed in previous taxable
years. For purposes of the excise tax, any ordinary income or capital gains net
income retained by, and subject to federal income tax in the hands of, a Fund
will be treated as having been distributed.
If a Fund failed to qualify as a regulated investment company, the Fund would
be subject to tax on its income at corporate tax rates, without deduction for
any distribution to its shareholders, thereby materially reducing the amount of
any cash available for distribution to its shareholders. In addition, among
other things, capital gains of the Fund would not pass through to the
shareholders, and distributions to shareholders would be treated as dividends,
return of capital (to the extent of a shareholder's tax basis in its shares)
and/or gain derived from the sale or exchange of property.
Some of the Funds' investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of a Fund
and affect the holding period of the securities held by a Fund and the character
of the gains or losses realized by a Fund. These provisions may also require a
Fund to mark-to-market some of the positions in its portfolio (i.e., treat them
as if they were sold for fair market value at the end of the taxable year),
which may cause a Fund to recognize income
B-25
<PAGE> 44
without receiving the cash necessary to satisfy the 90% distribution requirement
and the distribution requirements for avoiding federal income and excise taxes.
Each Fund will monitor its transactions and may make certain tax elections in
order to mitigate the effect of these rules and prevent disqualification of the
Fund as a regulated investment company.
Investments of a Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, a
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, a Fund may have
to dispose of securities that it would otherwise have continued to hold.
A Fund's ability to liquidate portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.
Income from certain foreign securities may be subject to income, withholding
or other taxes imposed by foreign countries. Shareholders of a Fund will not be
able to claim any deduction or foreign tax credit with respect to such taxes.
TAXATION OF SHAREHOLDER DISTRIBUTIONS
Distributions of a Fund's net investment income are taxable to shareholders as
ordinary income, whether paid in cash or shares. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each share equal to the value thereof on the distribution
date. Distributions of a Fund's net capital gains ("capital gain dividends"), if
any, are taxable to a shareholder as long-term capital gains regardless of the
length of time the shares have been held by such holder. Distributions in excess
of a Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset).
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid during January of the
following year, will be treated as having been distributed by a Fund and
received by the shareholders on December 31 of the year in which the dividend
was declared. In addition, certain other distributions made after the close of a
taxable year of a Fund may be "spilled back" and treated as having been paid by
the Fund (except for purposes of the 4% excise tax) during such taxable year. In
such case, shareholders will be treated as having received such dividends in the
taxable year in which the distribution is actually made.
Distributions attributable to any dividend income earned by a Fund will be
eligible for the dividends-received deduction for corporations if certain
requirements of the Code are satisfied. A Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of each
quarter of the Fund's taxable year, at least 50% of the total value of the
Fund's assets consist of securities the interest on which is exempt from federal
income tax. However, neither Fund expects to invest a sufficient amount of its
assets in such securities so as to be qualified to pay exempt-interest
dividends.
B-26
<PAGE> 45
Each Fund will inform its shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
Each Fund is required, in certain circumstances, to withhold 31% of ordinary
income and certain other payments, including redemptions, paid to shareholders
who do not furnish to the Fund their correct taxpayer identification numbers (in
the case of any individual, his or her social security number) together with
certain required certifications or who are otherwise subject to backup
withholding.
REDEMPTION OF SHARES
Redeeming shareholders will recognize gain or loss in an amount equal to the
difference between their basis in such redeemed shares and the amount received.
If such shares are held as a capital asset, the gain or loss will be a capital
gain or loss and will be long-term if such shares have been held for more than
one year. Any loss realized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain dividends received with respect to such shares. For purposes of
determining whether shares have been held for six months or less, the holding
period is suspended for any periods during which the shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.
GENERAL
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own advisers regarding the
specific federal tax consequences of holding and disposing of shares, as well as
the effects of state, local and foreign tax laws.
THE DISTRIBUTOR
Shares of each Fund are offered on a continuous basis through Van Kampen
American Capital Distributors, Inc., One Parkview Plaza, Oakbrook Terrace, IL
60181. Van Kampen American Capital Distributors, Inc. is a wholly owned
subsidiary of Van Kampen American Capital, Inc., which is a subsidiary of VKAC
Holding Inc., a Delaware corporation that is controlled through an ownership of
a substantial majority of its common stock by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C & D L.P."), a Connecticut limited
partnership. In addition, certain officers, directors and employees of Van
Kampen American Capital, Inc., and its subsidiaries own, in the aggregate not
more than 7% of the common stock of VKAC Holding, Inc. and have the right to
acquire, upon the exercise of options, approximately an additional 11% of the
common stock of VKAC Holding, Inc. C & D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C & D
Associates L.P.") is the general partner of C & D L.P. Pursuant to a
distribution agreement, Van Kampen American Capital Distributors, Inc. will
purchase shares of the Funds for resale to the public, and is obligated to
purchase only those shares for which it has received purchase orders. A
discussion of how to purchase and redeem the Funds' shares and how the Funds'
shares are priced is contained in the Prospectus and below under the caption
"How to Buy Shares."
B-27
<PAGE> 46
LEGAL COUNSEL
Counsel to the Funds is Skadden, Arps, Slate, Meagher & Flom, Boston,
Massachusetts and Chicago, Illinois.
PERFORMANCE INFORMATION
From time to time advertisements and other sales materials for the Funds may
include information concerning the historical performance of the Funds. Any such
information will include the average total return calculated on a compounded
basis for specified periods of time.
Such advertisements and sales literature may also include a yield quotation,
which is determined on a daily basis with respect to the immediately preceding
30 day period; yield is computed by first dividing the Fund's net investment
income per share earned during such period by a Fund's maximum offering price
per share on the last day of such period. A Fund's net investment income per
share is determined by taking the interest attributable to shares earned by a
Fund during the period, subtracting the expenses attributable to shares accrued
for the period (net of any reimbursements), and dividing the result by the
average daily number of shares outstanding during the period that were entitled
to receive dividends. The yield calculation formula assumes net investment
income is earned and reinvested at a constant rate and annualized at the end of
a six month period. In each case, such total return and yield information, if
any, will be calculated pursuant to rules established by the SEC.
In addition, the Funds may include in advertisements or other sales literature
information regarding the past performance of certain types of investments or
market indices. In lieu of or in addition to total return and yield
calculations, such information may include performance rankings and similar
information from independent organizations such as Lipper Analytical Services,
Inc., Business Week, Forbes or other industry publications. From time to time, a
Fund may compare its performance to certain securities and unmanaged indices
which may have different risk/reward characteristics than the Fund. Such
characteristics may include, but are not limited to, tax features, guarantees,
insurance and the fluctuation of principal and/or return. In addition, from time
to time, the Funds may utilize sales literature that includes hypotheticals.
Each Fund calculates average compounded total return by determining the
redemption value at the end of specified periods (after adding back all
dividends and other distributions made during the period) of a $1,000 investment
in a given Fund at the beginning of the period, annualizing the increase or
decrease over the specified period with respect to such initial investment and
expressing the result as a percentage.
Total return figures utilized by the Funds are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share can be expected to fluctuate over time, and accordingly upon
redemption a shareholder's shares may be worth more or less than their original
cost.
The Funds may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
the Funds from a given date to a subsequent given date. Cumulative total return
is calculated by measuring the value of an initial investment in a given Fund at
a given time, determining the value of all subsequent reinvested distributions,
and dividing the net change in the value of the investment as of the end of the
period by the amount of the initial investment and expressing the result as a
percentage.
B-28
<PAGE> 47
From time to time, the Funds may include in sales literature and shareholder
reports a quotation of the current "distribution rate." Distribution rate is a
measure of the level of income and short-term capital gain dividends, if any,
distributed for a specified period. Distribution rate is determined by
annualizing the distributions per share for a stated period and dividing the
result by the public offering price for the same period. It differs from yield,
which is a measure of the income actually earned by a Fund's investments, and
from total return, which is a measure of the income actually earned by, plus the
effect of any realized and unrealized appreciation or depreciation of, such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of a Fund's performance. Distribution rate may
sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund.
Performance information with respect to shares of the Funds is not provided
herein because such shares were not outstanding prior to the date hereof.
HOW TO BUY SHARES
Shares of each Fund are offered at a price equal to net asset value per share,
without a sales charge. The minimum initial investment is $500,000. The minimum
subsequent investment is $25,000. The Funds offer their shares to the public on
a continuous basis through Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors"), as principal underwriter, which is located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. VKAC Distributors receives no
compensation for this service.
In addition, investors may, subject to the approval of the Trust, purchase
shares of a Fund with liquid securities that are eligible for purchase by the
Fund (consistent with such Fund's investment policies and restrictions) and that
have a value that is readily ascertainable. These transactions will be effected
only if the Adviser intends to retain the securities in the Fund as an
investment. Assets so purchased by a Fund will be valued in the same manner as
they would be valued for purposes of pricing the Fund's shares, if such assets
were included in the Fund's assets at the time of purchase. The Trust reserves
the right to amend or terminate this practice with respect to any Fund at any
time.
OTHER PURCHASE INFORMATION. Purchases of a Fund's shares will be made in full
and fractional shares. In the interest of economy and convenience, certificates
for shares will generally not be issued.
The Trust reserves the right, in its sole discretion and without prior notice,
to suspend the offering of shares of any Fund or to reject purchase orders when,
in the judgment of management, such suspension or rejection is in the best
interests of the Fund; to waive the minimum investment requirement for certain
investors; and to redeem shares if information provided in the Application
should prove to be incorrect in any material manner.
Shares of the Trust may not be offered or sold in any state unless registered
or qualified in that jurisdiction or unless an exemption from registration or
qualification is available. The Funds are not registered or qualified for sale
in all jurisdictions. Potential investors should contact VKAC Distributors at
One Parkview Plaza, Oakbrook Terrace, IL 60181 or call The Explorer
Institutional FundsSM at 1-800-996-2588 to determine whether a Fund is
registered or qualified for sale in their particular jurisdiction.
WRITTEN REDEMPTION REQUEST. Shareholders may sell shares without charge at any
time by mailing a written redemption request in proper form to the Transfer
Agent. This request should be sent to
B-29
<PAGE> 48
ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO 64141-9256 Re:
The Explorer Institutional FundsSM. The request should indicate the number of
shares to be redeemed of a particular Fund and identify the account number and
be signed exactly as the shares are registered. If the amount being redeemed is
in excess of $50,000 or if the redemption proceeds will be sent to an address
other than the address of record, the signature(s) must be guaranteed by a
member firm of a principal stock exchange, a commercial bank or trust company
which is a member of the Federal Deposit Insurance Corporation (the "FDIC"), a
credit union or a savings association. The guarantee must state the words
"Signature Guaranteed" along with the name of the granting institution.
Shareholders should verify with the institution that it is an eligible guarantor
prior to signing. A guarantee from a notary public is not acceptable. If
certificates are held for the shares being redeemed, such certificates must be
sent and endorsed for transfer or accompanied by an endorsed stock power. Share
certificates should be sent by registered mail to ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256. Shareholders will receive the net asset value per
share next computed after the Transfer Agent receives the redemption request and
certificates (if any) in proper form.
TELEPHONE REDEMPTIONS. Shareholders may sell shares without charge by calling
their Fund at 1-800-996-2588 before 4:00 p.m. Central time to request a
redemption. There is a $50,000 minimum per request if the redemption proceeds
are to be mailed to the shareholder or wired to a bank. Prior to redeeming
shares by telephone the "Expedited Telephone Redemption" section of either the
Account Application or Expedited Telephone Redemption and Exchange Request Form
(the "Authorization") must be completed by the shareholder and be on file with
the Transfer Agent. The signature(s) on the Authorization must be guaranteed by
a member firm of a principal stock exchange, a commercial bank or trust company
which is a member of the FDIC, a credit union or a savings association unless
the Authorization is completed at the time an account is originally established.
The guarantee must state the words "Signature Guaranteed" along with the name of
the granting institution. Shareholders should verify with the institution that
it is an eligible guarantor prior to signing. A guarantee from a notary public
is not acceptable. A redemption requested by telephone will be processed at the
net asset value next determined after the request is received. The proceeds
would then be made payable to the registered shareowner(s) and mailed to the
address registered on the account or wired to a bank, as requested on the
Authorization. Shareholders cannot redeem shares by telephone if certificates
are held for those shares. This service is not available with respect to shares
held in an Individual Retirement Account for which State Street Bank and Trust
Company acts as custodian. In addition, this service is not available with
respect to shares purchased by check until 15 days after purchase.
By establishing the telephone redemption service, a shareholder authorizes a
Fund, the Trust or the Transfer Agent to act upon the instructions of any person
by telephone to redeem shares for any account for which such service has been
authorized to the address of record of such account or such other address as is
listed in the Authorization. The Funds, the Trust, VKAC Distributors and the
Transfer Agent employ procedures reasonably believed to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring a person attempting to redeem shares by telephone to provide, on a
recorded line, the name on the account, a social security number or tax
identification number and such additional information as may be included in the
Authorization. An investor agrees that no such person will be liable for any
loss, liability, cost or expense arising out of any request, including any
fraudulent or unauthorized request. This service may be amended or terminated at
any time by the Transfer Agent, the Trust or a Fund. If an investor is unable to
reach a Fund by telephone, he or she may redeem shares pursuant to the
procedures set forth above under the caption "Written
B-30
<PAGE> 49
Redemption Request." During periods of extreme economic or market changes, it
may be difficult for investors to reach the Fund by telephone and to effect
telephone redemptions.
A Fund will not honor a request for redemption, whether in writing or by
telephone, until it has confirmed receipt of good funds with respect to the
purchase of such shares.
GENERAL. When shares are redeemed by a Fund, a check for the proceeds (net of
any required tax withholding) ordinarily will be mailed to shareholders within
one business day after a redemption request or repurchase order and share
certificates (if any) are received in proper form as set forth above. Wire
transfers from a Fund of redemption proceeds, in the manner described above,
ordinarily will be transmitted to the shareholder within one business day. In
each case, the Trust reserves the right to take up to seven days to mail or wire
redemption proceeds. If any shares are redeemed or repurchased shortly after
purchase, a Fund will not mail the proceeds until checks received for the
purchase of shares have cleared, which may take 10 days or more. The proceeds,
of course, may be more or less than the cost of the shares.
The right of redemption or resale to a Fund may be suspended or the date of
payment postponed during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), when an emergency exists as
defined by rules and regulations of the Securities and Exchange Commission, or
during any period when the Securities and Exchange Commission has by order
permitted such suspension or postponement.
Due to the relatively high cost of maintaining small accounts, the Funds
reserve the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to redemption
by the investor, the shares in the account do not have a value of at least
$250,000. A shareholder will receive advance notice of a mandatory redemption
and will be given at least 30 days to bring the value of its account up to at
least $250,000.
Neither the Trust nor its Transfer Agent will be liable for any loss, cost or
expense for acting on instructions (whether in writing or by telephone) believed
by the party receiving such instructions to be genuine and in accordance with
the procedures described in the Prospectus or this Statement of Additional
Information.
The Trust agrees to redeem shares of each Fund solely in cash up to the lesser
of $2,000,000 or 1% of the respective Fund's net assets during any 90-day period
for any one shareholder. In consideration of the best interests of the remaining
shareholders of each Fund, the Trust reserves the right to pay any redemption
price exceeding this amount in whole or in part by a distribution in kind of
securities held by the respective Fund in lieu of cash. It is unlikely that
shares will be redeemed in kind. If shares are redeemed in kind, however, the
redeeming shareholder should expect to incur transaction costs upon the
disposition of the securities received in the distribution.
EXCHANGE PRIVILEGE. Any shares of a Fund which have been registered in a
shareholder's name for at least 15 days may be exchanged for shares of any other
of The Explorer Institutional FundsSM shares of which are then available for
sale. Under the exchange privilege, the Funds offer to exchange their respective
shares for each others shares on the basis of relative net asset value per
share.
In order to qualify for the exchange privilege, it is required that the shares
being exchanged have a net asset value of at least $250,000 (unless prior
approval has been obtained from the Trust). Shareholders will be able to effect
an exchange by telephone by calling a Fund at 1-800-996-2588 prior to 4:00 p.m.
B-31
<PAGE> 50
Central Standard time and requesting the exchange. The exchange will be
processed at the net asset value next determined after receipt of such request.
By utilizing the telephone exchange service, a shareholder authorizes the Trust
or the Transfer Agent to act upon the instructions of any person by telephone to
exchange shares from any account for which such service has been authorized to
any identically registered account(s) with any other Fund. The Funds, the Trust,
VKAC Distributors and the Transfer Agent employ procedures reasonably believed
to confirm that instructions communicated by telephone are genuine. Such
procedures include requiring a person attempting to exchange shares by telephone
to provide, on a recorded line, the name on the account, a social security or
tax identification number and such additional information as may be necessary or
appropriate. An investor agrees that no such person will be liable for any loss,
liability, cost or expense arising out of any request, including any fraudulent
or unauthorized request. This service may be amended or terminated at any time
by the Transfer Agent or the Trust. If a shareholder has certificates for any
shares being exchanged, such certificates must be surrendered prior to the
exchange in the same manner as in redemption of such shares. See "Redemption of
Shares--Telephone Redemptions." Any shares exchanged between a Fund and any of
the other Funds will begin earning dividends on the next business day after the
exchange is effected. Before effecting an exchange, shareholders in a Fund
should obtain and read a current prospectus of the Fund into which the exchange
is to be made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
An exchange between Funds pursuant to the exchange privilege is treated as a
sale for federal income tax purposes and, depending upon the circumstances, a
short- or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time, subject to
the requirement that the Funds give prominent notice thereof at least 60 days
prior to the effective date of the modification or termination in certain
circumstances. The Funds reserve the right to limit the number of times a
shareholder may exercise the exchange privilege.
TAX SHELTERED RETIREMENT PLANS. Shares of the Funds are available for purchase
in connection with certain types of tax-sheltered retirement plans, including:
- Individual Retirement Accounts (IRA's) for individuals.
- Simplified Employee Pension Plans (SEP's) for employees.
- Qualified plans for self-employed individuals.
- Qualified corporate pension and profit-sharing plans for employees.
The purchase of shares of the Funds may be limited by the plans' provisions
and does not itself establish such plans.
IRA's are available for individuals under age 70 1/2 whether or not they are
active participants in any other tax-qualified employer plan. Generally,
individuals who are not active participants in a tax-qualified employer plan may
deduct from gross income their IRA contributions which do not exceed 100% of
compensation received during a year or $2,000 ($2,250 for a spousal account),
whichever is less. If an employee or the employee's spouse is an active
participant in a tax-qualified employer plan the IRA deduction is phased out
above certain income levels. Individuals may, however, make non-deductible
contributions to their IRA up to the lesser of 100% of annual compensation or
$2,000 ($2,250 for a spousal account) without being subject to an excise tax on
excessive contributions.
B-32
<PAGE> 51
All contributions to an IRA made to a Fund through a broker must be settled by
April 15 in any year in order to be deemed a valid contribution for the
preceding year. Contributions made directly to a Fund via the mail must be
postmarked by April 15 in any year in order to be deemed a valid contribution
for the preceding year. Generally, earnings on investments held in an IRA are
not taxable until withdrawn. Subject to certain exceptions, substantial tax
penalties apply to withdrawals before age 59 1/2. A request for distributions
from an IRA for which State Street Bank and Trust Company acts as custodian must
be made in writing.
A SEP is a retirement program established by an employer (including
individuals) for the benefit of its eligible employees. Generally, any employee
who has attained age 21, worked for the employer during three of the past five
years and earned a specified amount from the employer in the current year will
be eligible to participate. Under a SEP, each participant establishes an IRA to
which the sponsoring employer makes annual calendar year contributions.
Generally, these contributions cannot exceed the lesser of $30,000 or 15% of the
participant's compensation for the year. A participating employee may also make
his or her IRA contribution to the same account. Generally, earnings on accounts
held in an IRA established pursuant to a SEP are not taxable until withdrawn.
Subject to certain exceptions, substantial tax penalties apply to withdrawals
before age 59 1/2.
Shares of a Fund may also be purchased by all types of employer sponsored
tax-qualified retirement plans which allow for investments in mutual funds. A
standardized VKAC Distributors plan is available through the Funds or VKAC
Distributors for employers (including individuals) who desire to start or amend
a retirement plan. The form of this standardized plan has been determined to be
"qualified" under the Internal Revenue Code. An employer may use this prototype
to establish a profit sharing plan, a money purchase pension plan or both for
its eligible employees. The cost for the use of the prototype plan is $50, and
there are no annual fees. The adopting employer determines within the prescribed
limits the eligibility standards, rate of contributions and other significant
provisions of the prototype plan. VKAC Distributors, as sponsor of this
prototype plan, reserves the right to amend such plan from time to time to
assure its continued qualification under the Internal Revenue Code or for other
reasons. Employers adopting this prototype plan will be bound by such
amendments.
Investors considering establishing a retirement plan or purchasing shares of a
Fund in connection with a retirement plan should consult with their attorney or
tax advisor with respect to plan requirements and tax aspects pertaining to
them.
INSTRUCTIONS REGARDING BACKUP WITHHOLDING
You may be, or may have been, notified that you are subject to backup
withholding under section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"), because you have under-reported interest or dividends or
you were required to but failed to file a return which would have included a
reportable interest or dividend payment. IF YOU HAVE BEEN SO NOTIFIED AND YOU
HAVE NOT RECEIVED A SUBSEQUENT NOTICE FROM THE INTERNAL REVENUE SERVICE ADVISING
YOU THAT BACKUP WITHHOLDING HAS BEEN TERMINATED, YOU MUST STRIKE OUT THE
LANGUAGE ON THIS APPLICATION FORM CERTIFYING THAT YOU ARE NOT SUBJECT TO BACKUP
WITHHOLDING.
Caution: There are other situations where you may be subject to backup
withholding. Please read these instructions carefully.
B-33
<PAGE> 52
BACKUP WITHHOLDING
The Fund must generally withhold 31% of taxable interest, dividend, and
certain other payments if you are subject to backup withholding. You are subject
to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the
Fund, OR
(2) The Internal Revenue Service notifies the Fund that you furnished
an incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding (under
section 3406(a)(1)(C) of the Code), OR
(4) You fail to certify to the Fund that you are not subject to backup
withholding under (3) above, or fail to certify your taxpayer
identification number.
To prevent backup withholding on these payments be sure to notify the Fund of
your correct taxpayer identification number and properly certify that you are
not subject to backup withholding under section 3406(a)(1)(C) of the Code. You
should use this application form for this purpose.
If you are subject to backup withholding and you strike out the language on
this application form certifying that you are not subject to backup withholding,
you should nonetheless provide your correct taxpayer identification number to
the Fund and certify that it is correct.
TAXPAYER IDENTIFICATION NUMBER
The taxpayer identification number is the social security number or employer
identification number of the record owner of the account. If the account belongs
to you as an individual, give your social security number. If you have any
questions about what number to provide, contact the Transfer Agent at the
address or telephone number set forth at the top of this application form.
Certain entities and certain payments are exempted from backup withholding. If
you think you may be exempt, contact the Transfer Agent at the address or
telephone number set forth at the top of this application form.
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write "applied for" in place of your number. When you get a number,
submit a new application form to the Fund. If you do not provide your taxpayer
identification number to the Fund within 60 days, backup withholding will begin
and continue until you furnish your taxpayer identification number to the Fund.
You may be subject to penalties if you fail to furnish your taxpayer
identification number, provide false information or falsify information with
respect to backup withholding.
B-34
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholder of
The Explorer Institutional Enhanced Benchmark Fund:
We have audited the accompanying statement of assets and liabilities of The
Explorer Institutional Enhanced Benchmark Fund (the "Fund") as of December 31,
1994. This financial statement is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of December 31,
1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 17, 1995
B-35
<PAGE> 54
THE EXPLORER INSTITUTIONAL ENHANCED BENCHMARK FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
Assets:
Cash........................................................................ $50,000
Unamortized Organizational Expenses and Initial Registration Costs (Note
2)....................................................................... 40,000
-------
Total Assets............................................................. 90,000
-------
Liabilities:
Payable for Organizational Expenses and Initial Registration Costs.......... 40,000
-------
Net Assets.................................................................... $50,000
=======
Net Assets Consist of:
Paid in Surplus............................................................. $50,000
=======
Maximum Offering Price per Share:
Net Asset Value and Redemption Price per Share (based upon net assets of
$50,000 and 5,000 shares of beneficial interest issued and
outstanding)............................................................. $10.00
======
</TABLE>
Note 1: The Fund was organized as a Massachusetts business trust on September
30, 1994, and has had no operations since that date other than relating to
organization matters and the issuance of 5,000 shares of beneficial interest for
$50,000 to Van Kampen American Capital Distributors, Inc., an affiliated
company. There are an unlimited number of shares authorized.
Note 2: The Adviser of the Fund will incur approximately $40,000 of expenses in
connection with the organization and initial registration of the Fund. These
expenses will be reimbursed to the Adviser and will be charged against
operations over a period of 60 months from the commencement of investment
operations by the Fund.
B-36
<PAGE> 55
THE EXPLORER INSTITUTIONAL ENHANCED BENCHMARK FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
UNAUDITED
<TABLE>
<S> <C>
Assets:
Cash........................................................................ $50,000
Unamortized Organizational Expenses and Initial Registration Costs (Note
2)....................................................................... 40,000
-------
Total Assets............................................................. 90,000
-------
Liabilities:
Payable for Organizational Expenses and Initial Registration Costs.......... 40,000
-------
Net Assets.................................................................... $50,000
=======
Net Assets Consist of:
Paid in Surplus............................................................. $50,000
=======
Maximum Offering Price per Share:
Net Asset Value and Redemption Price per Share (based upon net assets of
$50,000 and 5,000 shares of beneficial interest issued and
outstanding)............................................................. $10.00
======
</TABLE>
Note 1: The Fund was organized as a Massachusetts business trust on September
30, 1994, and has had no operations since that date other than relating to
organization matters and the issuance of 5,000 shares of beneficial interest for
$50,000 to Van Kampen American Capital Distributors, Inc., an affiliated
company. There are an unlimited number of shares authorized.
Note 2: The Adviser of the Fund will incur approximately $40,000 of expenses in
connection with the organization and initial registration of the Fund. These
expenses will be reimbursed to the Adviser and will be charged against
operations over a period of 60 months from the commencement of investment
operations by the Fund.
The Fund believes that the fact that it has not yet commenced operations would
result in more extensive interim Financial Statements not being indicative of
the Funds ongoing operations. The Fund believes that such Financial Statements
may be misleading to potential investors and, accordingly, believes that
inclusion of such Financial Statements would be inappropriate.
B-37
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholder of
The Explorer Institutional Enhanced Limited Duration Fund:
We have audited the accompanying statement of assets and liabilities of The
Explorer Institutional Enhanced Limited Duration Fund (the "Fund") as of
December 31, 1994. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of December 31,
1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 17, 1995
B-38
<PAGE> 57
THE EXPLORER INSTITUTIONAL ENHANCED LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
Assets:
Cash........................................................................ $50,000
Unamortized Organizational Expenses and Initial Registration Costs (Note
2)....................................................................... 40,000
-------
Total Assets............................................................. 90,000
-------
Liabilities:
Payable for Organizational Expenses and Initial Registration Costs.......... 40,000
-------
Net Assets.................................................................... $50,000
=======
Net Assets Consist of:
Paid in Surplus............................................................. $50,000
=======
Maximum Offering Price per Share:
Net Asset Value and Redemption Price per Share (based upon net assets of
$50,000 and 5,000 shares of beneficial interest issued and
outstanding)............................................................. $10.00
======
</TABLE>
Note 1: The Fund was organized as a Massachusetts business trust on September
30, 1994, and has had no operations since that date other than relating to
organization matters and the issuance of 5,000 shares of beneficial interest for
$50,000 to Van Kampen American Capital Distributors, Inc., an affiliated
company. There are an unlimited number of shares authorized.
Note 2: The Adviser of the Fund will incur approximately $40,000 of expenses in
connection with the organization and initial registration of the Fund. These
expenses will be reimbursed to the Adviser and will be charged against
operations over a period of 60 months from the commencement of investment
operations by the Fund.
B-39
<PAGE> 58
THE EXPLORER INSTITUTIONAL ENHANCED LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
UNAUDITED
<TABLE>
<S> <C>
Assets:
Cash........................................................................ $50,000
Unamortized Organizational Expenses and Initial Registration Costs (Note
2)....................................................................... 40,000
-------
Total Assets............................................................. 90,000
-------
Liabilities:
Payable for Organizational Expenses and Initial Registration Costs.......... 40,000
-------
Net Assets.................................................................... $50,000
=======
Net Assets Consist of:
Paid in Surplus............................................................. $50,000
=======
Maximum Offering Price per Share:
Net Asset Value and Redemption Price per Share (based upon net assets of
$50,000 and 5,000 shares of beneficial interest issued and
outstanding)............................................................. $10.00
======
</TABLE>
Note 1: The Fund was organized as a Massachusetts business trust on September
30, 1994, and has had no operations since that date other than relating to
organization matters and the issuance of 5,000 shares of beneficial interest for
$50,000 to Van Kampen American Capital Distributors, Inc., an affiliated
company. There are an unlimited number of shares authorized.
Note 2: The Adviser of the Fund will incur approximately $40,000 of expenses in
connection with the organization and initial registration of the Fund. These
expenses will be reimbursed to the Adviser and will be charged against
operations over a period of 60 months from the commencement of investment
operations by the Fund.
The Fund believes that the fact that it has not yet commenced operations would
result in more extensive interim Financial Statements not being indicative of
the Funds ongoing operations. The Fund believes that such Financial Statements
may be misleading to potential investors and, accordingly, believes that
inclusion of such Financial Statements would be inappropriate.
B-40
<PAGE> 59
<TABLE>
<S><C>
APPLICATION
-------------------------------------------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION All shaded areas must
be completed
INITIAL INVESTMENT($500,000 Minimum) Mail Application to:
Enclosed is (are) check(s) payable to EXPLORER INSTITUTIONAL FUNDS (SM)
The Explorer Institutional Enhanced Benchmark c/o Mutual Funds Order Desk
Fund Amount: $________ One Parkview Plaza
The Explorer Institutional Enhanced Limited Duration Fund Amount: $________ Oakbrook, Terrace, IL 60181
-------------------------------------------------------------------------------------------------------------------
A. CORPORATION, ORGANIZATION, PARTNERSHIP, FIDUCIARY, TRUST, ETC.
-
-------------------------------------------------------------------------------- -------------------------------
NAME TAX IDENTIFICATION NUMBER
- -
--------------------------------------------------------------------------------- --------------------------
NAME(S) OF TRUSTEES/BENEFICIARY(IES) TO BE INCLUDED IN REGISTRATION DATE OF TRUST AGREEMENT
B. INDIVIDUAL OR JOINT TENANTS SOCIAL SECURITY NUMBER
- -
-------------------------------------------------------------------------------- --------------------------
FIRST MIDDLE LAST Registration will be "Joint
Tenants with Right of Survivorship"
-------------------------------------------------------------------------------- unless otherwise specified here:
FIRST MIDDLE LAST --------------------------
C. ADDRESS
- -
-------------------------------------------------------------------------------- --------------------------
STREET OR P.O. BOX TELEPHONE (DURING THE DAY)
-------------------------------------------------------------------------------- --------------------------
CITY STATE ZIP CODE CITIZEN OF
---------------------------------------------------------------------------------------------------------------------------
2 DISTRIBUTIONS All distributions are reinvested in shares of the Fund unless you elect otherwise.
/ / All Distributions will be paid in cash.
/ / Dividends will be paid in cash and capital gains distributions reinvested.
/ / Payment Order. Dividends and redemptions should be wired to the following bank(s) rather than the registered owner:
Make checks payable to:
------------------------------------------------------------
NAME(s)
------------------------------------------------------------
------------------------------------------------------------
ADDRESS
------------------------------------------------------------
CITY STATE ZIP CODE
---------------------------------------------------------------------------------------------------------------------------
3 AUTOMATED ACCOUNT SERVICES
A. EXPEDITED TELEPHONE REDEMPTIONS
/ / I authorize the Fund, upon receipt of instructions received by telephone from any person, to redeem shares from
my account; to make check payable as account is registered and mail to address of record or wire the proceeds of redemptions
to my commercial bank account as follows. I understand, as set forth in the prospectus, that shareholders bear the risk of
loss with respect to fraudulent telephone redemptions (subject to the terms and conditions set forth in the prospectus).
Checks: minimum $ Wires: minimum $ (include voided check or deposit slip for wire privileges).
B. AUTOMATED DIVIDEND PROGRAMS
I authorize the Fund to:
/ / Deposit distributions from my Fund Account into the bank account indicated on the attached voided check or
deposit slip (subject to the terms and conditions outlined in the Prospectus). NOTE: IF NAME OF BANK ACCOUNT IS OTHER THAN
THE REGISTERED OWNER OF THE FUND ACCOUNT, THE SIGNATURE GUARANTEE IN #6 MUST BE COMPLETED.
---------------------------------------------------------------------------------------------------------------------------
PLEASE COMPLETE BOTH SIDES OF THE APPLICATION.
</TABLE>
B-41
<PAGE> 60
- --------------------------------------------------------------------------------
4 SIGNATURE AND BACKUP WITHHOLDING CERTIFICATE
I certify that I am of legal age and have received and read the Fund's
current prospectus. Under penalty of perjury, I certify that (1) the number
shown on this application form is the correct taxpayer identification number
and (2) I am not subject to backup withholding because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or
the IRS has notified me that I am no longer subject to backup withholding.
<TABLE>
<S> <C>
---------------------------------------
SIGNATURE DATE
--------------------------------------- Signature Guarantee (if required)
--------------------------------------------
JOINT OWNER DATE
--------------------------------------------
</TABLE>
You must cross out item (2) above if you have been notified by the IRS that
you are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
5 DEALER INFORMATION Completed By Account Executive
<TABLE>
<S> <C>
-------------------------------------------------
NAME OF VAN KAMPEN AMERICAN CAPITAL ACCOUNT ------------
EXECUTIVE VKAC DEALER NUMBER IF KNOWN
-------------------------------------------------
BRANCH OFFICE - -
------------------------------
TELEPHONE
-------------------------------------------------
ACCOUNT EXECUTIVE LAST NAME AND REPRESENTATIVE
NUMBER
-------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
B-42
<PAGE> 61
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Included in the Prospectus:
None.
Included in Statement of Additional Information:
Independent Auditors' Reports
Statements of Assets and Liabilities
Notes to Financial Statements
(B) EXHIBITS:
<TABLE>
<S> <C>
(1)(a) Agreement and Declaration of Trust of the Registrant.(1)
(1)(b) Form of Amendment to the Agreement and Declaration of Trust of the
Registrant.+
(1)(c) Form of Certificate of Designation -- Enhanced Benchmark Fund.(1)
(1)(d) Form of Certificate of Designation -- Enhanced Limited Duration Fund.(1)
(2) By-Laws of the Registrant.(1)
(4) Form of Specimen of Share Certificate.
(4)(a) Enhanced Benchmark Fund.(1)
(4)(b) Enhanced Limited Duration Fund.(1)
(5) Form of Investment Advisory Agreement.
(5)(a) Enhanced Benchmark Fund.(1)
(5)(b) Enhanced Limited Duration Fund.(1)
(6) Form of Distribution Agreement.
(6)(a) Enhanced Benchmark Fund.(1)
(6)(b) Enhanced Limited Duration Fund.(1)
(8)(a) Form of Custodian Agreement.(1)
(8)(b) Form of Transfer Agency Agreement.(1)
(9)(a) Form of Amended Support Service Agreement.(1)
(9)(b) Form of Fund Pricing Agreement.(1)
(9)(c) Form of Amended Accounting Service Agreement.(1)
(9)(d) Form of Amended Legal Services Agreement.(1)
(10) Opinion and Consent of Counsel.
(10)(a) Enhanced Benchmark Fund.(1)
(10)(b) Enhanced Limited Duration Fund.(1)
(11) Consent of KPMG Peat Marwick LLP.+
(13) Form of Letter Agreement.(1)
(14)(a) Copy of Proposed Model Simplified Employee Pension Plan.(1)
(14)(b) Copy of Proposed Model Individual Retirement Account Plan.(1)
(14)(c) (i) Copy of Proposed Profit-Sharing Adoption Agreement for Prototype
Paired Defined Contribution Plan.(1)
(ii) Copy of Proposed Money Purchase Pension Adoption Agreement for
Prototype Paired Defined Contribution Plan.(1)
(16) Schedule for Computation of Performance Quotations.(1)
(17) Investment Companies for which Van Kampen American Capital Distributors, Inc.
acts as principal underwriter or depositor.+
(18) List of Officers and Directors of Van Kampen American Capital Distributors,
Inc.+
Powers of Attorney+
</TABLE>
- -------------------------
(1) Incorporated by reference to the Trust's Registration Statement on Form
N-1A, File No. 33-84942, filed on October 11, 1994.
+ Filed herewith.
C-1
<PAGE> 62
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
As of October 30, 1995, Van Kampen American Capital Distributors, Inc. was
the beneficial owner of 100% of the outstanding voting securities of the
Registrant and thus was considered to control the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES:
As of October 30, 1995:
<TABLE>
<CAPTION>
(2)
(1) NUMBER
OF
RECORD
TITLE OF CLASS HOLDERS
-------
<S> <C>
Shares of Beneficial Interest no par value
Enhanced Benchmark Fund.................... 1
Enhanced Limited Duration Fund............. 1
</TABLE>
ITEM 27. INDEMNIFICATION:
Reference is made to Article 8 Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8 Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the involved
in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers or
trustees protecting such person from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met; (1) the trustee or officer provides security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under Securities Act of
1933 (the "Act") may be permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-2
<PAGE> 63
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
See "How the Funds Are Managed" in the Prospectus and "Officers and
Trustees" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation or employment of a substantial nature of each of the officers and
Directors of Van Kampen American Capital Management, Inc., reference is made to
the Adviser's current Form ADV filed under the Investment Advisers Act of 1940,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc. which acts as a principal underwriter for the investment
companies and the unit investment trusts set forth in Exhibit (17) hereto.
(b) Van Kampen American Capital Distributors, Inc., the only principal
underwriter for Registrant, is an affiliated person of an affiliated person of
the Fund. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the officers thereof
are set forth in Exhibit (18). Except as disclosed under the heading, "Officers
and Trustees" in Part B of this Registration Statement, none of such persons has
any position or office with Registrant.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS:
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, or at ACCESS Investors Services, Inc., 7501
Tiffany Springs Parkway, Kansas City, Missouri 64153 or at State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by Van Kampen American Capital Distributors, Inc., the
principal underwriter, will be maintained at its offices located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181 or Mellon Bank Center, Suite 1300, 1735
Market Street, Philadelphia, PA 19103.
ITEM 31. MANAGEMENT SERVICES:
Not applicable.
ITEM 32. UNDERTAKINGS:
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
either the commencement of operations or the effective date of this registration
statement under the Securities Act of 1933.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
(d) Registrant has undertaken that if it does not hold annual meetings it
will abide by Section 16(c) of the 1940 Act which provides certain rights to
shareholders.
C-3
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE EXPLORER INSTITUTIONAL
TRUST, has duly caused this Amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized in the City of
Oakbrook Terrace, and the State of Illinois, on November 13, 1995.
THE EXPLORER INSTITUTIONAL TRUST
By: /s/ Ronald A. Nyberg
---------------------------------
Ronald A. Nyberg
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to this Registration Statement has been signed on November 13, 1995
by the following persons in the capacities indicated:
Signature Title
--------- -----
/s/ Don G. Powell* Chairman of the Board and Trustee
-------------------------------
Don G. Powell
Chief Executive Officer
/s/ Dennis J. McDonnell* President, Chief Executive Officer
------------------------------- and Trustee
Dennis J. McDonnell
Chief Financial and Accounting Officer
/s/ Edward C. Wood* Vice President, Treasurer and
------------------------------- Chief Financial Officer
Edward C. Wood
Trustees
/s/ David C. Arch* Trustee
-------------------------------
David C. Arch
/s/ Rod Dammeyer* Trustee
-------------------------------
Rod Dammeyer
/s/ Howard J Kerr* Trustee
-------------------------------
Howard J Kerr
/s/ Theodore A. Myers* Trustee
-------------------------------
Theodore A. Myers
/s/ Hugo Sonnenschein* Trustee
-------------------------------
Hugo Sonnenschein
/s/ Wayne W. Whalen* Trustee
-------------------------------
Wayne W. Whalen
* Signed by Ronald A. Nyberg pursuant to power of attorney.
/s/ Ronald A. Nyberg
-------------------------------
Ronald A. Nyberg
Attorney-in-fact
C-4
<PAGE> 65
THE EXPLORER INSTITUTIONAL TRUST
SCHEDULE OF EXHIBITS TO PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM N-1A SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON
NOVEMBER 13, 1995
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------ ---------------------------------------------------------------------- ---
<S> <C> <C>
(1)(a) Agreement and Declaration of Trust of the Registrant.(1)
(1)(b) Form of Amendment to the Agreement and Declaration of Trust+
(1)(c) Form of Certificate of Designation -- Enhanced Benchmark Fund.(1)
(1)(d) Form of Certificate of Designation -- Enhanced Limited Duration
Fund.(1)
(2) By-Laws of the Registrant.(1)
(4) Form of Specimen of Share Certificate.
(4)(a) Enhanced Benchmark Fund.(1)
(4)(b) Enhanced Limited Duration Fund.(1)
(5) Form of Investment Advisory Agreement.
(5)(a) Enhanced Benchmark Fund.(1)
(5)(b) Enhanced Limited Duration Fund.(1)
(6) Form of Distribution Agreement.
(6)(a) Enhanced Benchmark Fund.(1)
(6)(b) Enhanced Limited Duration Fund.(1)
(8)(a) Form of Custodian Agreement.(1)
(8)(b) Form of Transfer Agency Agreement.(1)
(9)(a) Form of Amended Support Service Agreement.(1)
(9)(b) Form of Fund Pricing Agreement.(1)
(9)(c) Form of Amended Accounting Service Agreement.(1)
(9)(d) Form of Amended Legal Services Agreement.(1)
(10) Opinion and Consent of Counsel.
(10)(a) Enhanced Benchmark Fund.(1)
(10)(b) Enhanced Limited Duration Fund.(1)
(11) Consent of KPMG Peat Marwick LLP.+
(13) Form of Letter Agreement.(1)
(14)(a) Copy of Proposed Model Simplified Employee Pension Plan.(1)
(14)(b) Copy of Proposed Model Individual Retirement Account Plan.(1)
(14)(c) (i) Copy of Proposed Profit-Sharing Adoption Agreement for Prototype
Paired Defined Contribution Plan.(1)
(ii) Copy of Proposed Money Purchase Pension Adoption Agreement for
Prototype Paired Defined Contribution Plan.(1)
(16) Schedule for Computation of Performance Quotations.(1)
(17) Investment Companies for which Van Kampen American Capital
Distributors, Inc. acts as principal underwriter or depositor.+
(18) List of Officers and Directors of Van Kampen American Capital
Distributors, Inc.+
Powers of Attorney+
</TABLE>
- -------------------------
(1) Incorporated by reference to the Fund's Registration Statement on Form N-1A,
File No. 33-84942, filed on October 11, 1994.
+ Filed herewith.
C-5
<PAGE> 1
Exhibit (1)(b)
FORM OF
CERTIFICATE OF TRUSTEES
OF
THE EXPLORER INSTITUTIONAL TRUST
November ____, 1995
The undersigned, constituting all of the Trustees of The Explorer
Institutional Trust (the "Trust"), hereby adopt the following resolution for
the purpose of amending and restating Section 2.3 of the Trust's Agreement and
Declaration of Trust (the "Trust Instrument") and execute this instrument in
writing pursuant to Section 11.3 of the Trust Instrument, as in effect on the
date hereof. This certificate may be executed in counterpart.
RESOLVED, that pursuant to Sections 11.3 and 2.3 of the Trust
Instrument, Section 2.3 shall be, and hereby is, amended and restated by
deleting it in its entirety and replacing it with the following:
2.3 Resignation and Removal. Any Trustee may resign his trust (without
need for prior or subsequent accounting except in the event of removal for
cause) by an instrument in writing signed by him and delivered or mailed to the
Chairman, if any, the President or the Secretary and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number
of Trustees after such removal shall not be less than the minimum number
requried by Section 2.1 hereof) with or without cause at any time: (i) by
written instrument, signed by at least two thirds (2/3) of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding not less than
two thirds (2/3) of the Shares then outstanding. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees
any Trust Property held in the name of the resigning or removed Trustee. Upon
the incapacity or death of any Trustee, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustees shall
require as provided in the preceding sentence.
- --------------------------- ---------------------------
David C. Arch Wayne W. Whalen
- --------------------------- ---------------------------
Dennis J. McDonnell Don G. Powell
- --------------------------- ---------------------------
Howard J Kerr Theodore A. Myers
- --------------------------- ---------------------------
Hugo F. Sonnenschein Rod Dammeyer
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
The Explorer Institutional Enhanced Benchmark Fund:
We consent to the use of our report included herein and to the reference to our
Firm in the Statement of Additional Information under the heading "Custodian and
Independent Auditors".
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
November 2, 1995
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
The Explorer Institutional Enhanced Limited Duration Fund:
We consent to the use of our report included herein and to the reference to our
Firm in the Statement of Additional Information under the heading "Custodian and
Independent Auditors".
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
November 2, 1995
<PAGE> 1
EXHIBIT 17
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
NOVEMBER 9, 1995
Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Limited Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Emerging Markets Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Balanced Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen Merritt Series Trust
Van Kampen American Capital Quality Income Portfolio
Van Kampen American Capital High Yield Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Stock Index Portfolio
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Common Stock Fund
Van Kampen American Capital Domestic Strategic Income Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Government Fund
Van Kampen American Capital Money Market Fund
Van Kampen American Capital Multiple Strategy Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Texas Tax Free Income Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
<PAGE> 2
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 360
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1 through 1009
Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . . . . Series 5 through 85
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . Series 9 through 82
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 92
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 147
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . Series 1 through 22
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 28
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 97
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . . . Series 1 through 13
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 56
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 74
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 132
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 57
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 93
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 106
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust-Intermediate . . . . . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 129
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 84
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 99
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 210
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 79
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-33
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 67
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 5
</TABLE>
<PAGE> 1
EXHIBIT 18
OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX
William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Douglas B. Gehrman Sr. Vice President Houston, TX
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Debra A. Nichols Sr. Vice President Houston, TX
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
Howard A. Doss Vice President Tampa, FL
Jonathan Eckhard Vice President Boulder, CO
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Nori L. Gabert Vice President, Assoc. General Houston, TX
Counsel & Asst. Secretary
Erich P. Gerth Vice President Dallas, TX
Daniel Hamilton Vice President Houston, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Lowell Jackson Vice President Norcross, GA
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Ruth L. McKeel Vice President Oakbrook Terrace, IL
John Mills Vice President Kenner, LA
Robert Muller, Jr. Vice President Houston, TX
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Lynbrook, NY
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL
James J. Boyne Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Rocco Fiordelisi III Asst. Vice President St. Louis, MO
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Hunter Knapp Asst. Vice President Laguna, CA
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
Gary Steele Asst. Vice President Philadelphia, PA
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX
David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace, IL
Laticia George Officer Houston, TX
Gina Grippo Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
Francis McGarvey Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Becky Newman Officer Houston, TX
Rosemary Pretty Officer Houston, TX
Colette Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickray Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<PAGE> 4
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd
Houston, TX 77056
William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181
William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
The undersigned, being officers and trustees of The Explorer
Institutional Trust, a Massachusetts business trust (the "Trust"), do hereby,
in the capacities shown below, individually appoint Dennis J. McDonnell and
Ronald A. Nyberg, each of Oakbrook Terrace, Illinois, and each of them, as the
agents and attorneys-in-fact with full power of substitution and
resubstitution, for each of the undersigned, to execute and deliver, for and on
behalf of the undersigned, any and all amendments to the Registration Statement
filed by the Trust with the Securities and Exchange Commission pursuant to the
provisions of the Securities Act of 1933 and the Investment Company Act of
1940.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: November 10, 1995
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Don G. Powell Chairman of the Board and Trustee 11/10/95
-------------------------------
Don G. Powell
Chief Executive Officer
/s/ Dennis J. McDonnell President, Chief Executive Officer 11/10/95
------------------------------- and Trustee
Dennis J. McDonnell
Chief Financial and Accounting Officer
/s/ Edward C. Wood Vice President, Treasurer and 11/10/95
------------------------------- Chief Financial Officer
Edward C. Wood
Trustees
/s/ David C. Arch Trustee 11/10/95
-------------------------------
David C. Arch
/s/ Rod Dammeyer Trustee 11/10/95
-------------------------------
Rod Dammeyer
/s/ Howard J Kerr Trustee 11/10/95
-------------------------------
Howard J Kerr
/s/ Theodore A. Myers Trustee 11/10/95
-------------------------------
Theodore A. Myers
/s/ Hugo Sonnenschein Trustee 11/10/95
-------------------------------
Hugo Sonnenschein
/s/ Wayne W. Whalen Trustee 11/10/95
-------------------------------
Wayne W. Whalen
</TABLE>
