Table of Contents
Letter to Shareholders 1
Active Core Fund
Portfolio of Investments 4
Statement of Assets and Liabilities 5
Statement of Operations 6
Statement of Changes in Net Assets 7
Financial Highlights 8
Limited Duration Fund
Portfolio of Investments 9
Statement of Assets and Liabilities 10
Statement of Operations 11
Statement of Changes in Net Assets 12
Financial Highlights 13
Notes to Financial Statements 14
Letter to Shareholders
August 26, 1996
Dear Shareholder,
We are pleased to provide you with our first semi-annual report
for the inaugural period of the Explorer Institutional Funds. In
addition to the excitement of launching our first series of
institutional mutual funds, we are pleased to have reached an
agreement in late June for VK/AC Holding, Inc., the parent
company of Van Kampen American Capital, Inc., to be acquired by
Morgan Stanley Group Inc. We believe this affiliation will
provide our institutional customers with a stronger and deeper
global organization. The new ownership will not affect our
commitment to pursuing excellence in all aspects of our
business, including client service.
A proxy will be mailed to you shortly explaining the
acquisition and asking for your vote of approval. Please read it
carefully and return your response for inclusion in the
shareholder vote. We value our relationship with you and look
forward to communicating more details, as the transaction is
anticipated to be completed in November.
Economic Review and Outlook
During the first six months of 1996, the economy demonstrated
surprisingly strong growth. The economy grew 2.0 percent for the
first quarter and 4.2 percent for the second quarter ended June
30, 1996. As a result, interest rates have risen over 100 basis
points since the end of 1995. Strong consumer spending contributed
to the robust economic growth, however, the rise in interest rates
should dampen spending in the second half of 1996.
We anticipate that reasonably strong economic growth will
continue during the balance of 1996, albeit at more moderate
rates than the second quarter's swift pace. Despite volatile
and rising commodity prices, the growth rate of wages remains
tolerable, and we expect rates of inflation to remain near
current levels. That suggests yields on long-term bonds may
remain near current levels. In particular, we expect 10-year
Treasury yields to remain within a trading range of 6.50 to 7.25
percent.
Sector Review
Among the primary market sectors, asset-backed and
mortgage-backed securities had the strongest performance during
the past six months. Both of these sectors benefited from the
defensive nature of their securities, which typically have short
durations and high coupon rates.
1 Continued on page two
Yield spreads between corporate bonds and Treasuries were
mixed, as economic uncertainties coupled with the strong supply
of new corporate bond issues, placed moderate pressure on that
sector. Despite the favorable current economic environment,
corporate yield spreads may continue to face pressure from the
steady supply of new corporate bond issuance and the possibility
of a more restrictive monetary policy.
Meanwhile, yield spreads on U.S. government agency securities
remained relatively stable compared to the narrow spreads of
other sectors, which helped government securities to perform
well.
Active Core Fund - Overview
As of June 30, the Active Core Fund was structured with a
portfolio duration of 4.70 years, which was comparable to the Fund's
benchmark, the Lehman Brothers Aggregate Bond Index. Relative to the
benchmark, the Fund had overweight positions in the Treasury, agency
and asset-backed sectors and an underweight position in the mortgage
and corporate sectors. Looking ahead, we anticipate adding to
the mortgage-backed sector and reducing the Treasury sector, as
a relative value sector rotation.
The Active Core Fund generated a cumulative total return of
0.61 percent since its inception on April 23, 1996 through June
30, 1996.
Limited Duration Fund - Overview
We believe it is very difficult to consistently add value
through market timing or trying to predict interest rate
changes. We seek to add value through proper sector weightings,
security selection, and yield curve posture. As of June 30,
1996, the Limited Duration Fund was structured with a portfolio
duration of approximately 1.75 years, which was comparable to the
Lehman Brothers 1- to 3-year Government Bond Index, the Fund's
benchmark. Relative to the benchmark, the Fund had a small
overweight position in corporate, mortgage-backed and asset-backed
securities and a modest underweight position in Treasury
securities. The balance of the Fund's portfolio was invested in U.S.
Treasury securities.
The Limited Duration Fund generated a cumulative total return
of 0.71 percent since its inception on April 23, 1996 through
June 30, 1996.
2 Continued on page three
Summary
While the economy continues to grow at a reasonable pace, we
believe the current environment offers substantial opportunities
across most fixed-income market sectors. In particular, we
believe fixed-income securities with short to intermediate
maturities are currently attractive, due in part to the
relatively steep slope of the yield curve out to about the
five-year maturity range.
Finally, we look forward to communicating with you on a regular
basis, providing information about your fund's performance and
new investment opportunities. If you have any questions or
would like additional information, please feel free to contact
your institutional asset management representative.
Sincerely,
/s/ Edward A. Treichel
Edward A. Treichel
Director of Institutional Asset Management
3
Explorer Institutional Active Core Fund
<TABLE>
Portfolio of Investments
June 30, 1996 (Unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities 2.5%
$150 AMXCA, FL 1996-1A 6.800% 12/15/03 $ 149,954
----------
Finance 3.2%
100 Ford Motor Credit Co. 5.750 01/25/01 95,500
100 Morgan J.P. & Co. Sub Note 6.250 12/15/05 93,200
----------
188,700
----------
Pollution Control 0.4%
25 WMX Technologies, Inc. 6.375 12/01/03 23,995
----------
U.S. Government Agency Obligations 12.4%
500 Federal National Mortgage Association Medium Term Not 6.625 05/21/01 499,295
30 Federal National Mortgage Association 15 year DWARF,
Pool #250589 7.000 12/31/23 29,165
50 Federal National Mortgage Association 15 year July DW 6.500 12/31/23 48,344
150 Government National Mortgage Association 6.500 12/31/23 139,454
35 Government National Mortgage Association Pool #004195 8.500 06/15/26 35,614
----------
751,872
----------
U.S. Government Obligations 77.1%
500 U.S. Treasury Bonds 8.125 08/15/19 560,315
650 U.S. Treasury Notes 7.500 11/15/01 678,945
350 U.S. Treasury Notes 6.375 01/15/99 351,148
250 U.S. Treasury Notes 6.375 08/15/02 248,048
50 U.S. Treasury Notes 5.750 08/15/03 47,578
100 U.S. Treasury Notes 4.750 10/31/98 96,906
50 U.S. Treasury Notes 4.375 11/15/96 49,789
100 U.S. Treasury Notes 5.125 11/30/98 97,578
200 U.S. Treasury Notes 7.500 10/31/99 206,626
100 U.S. Treasury Notes 7.500 02/15/05 105,125
200 U.S. Treasury Notes 6.750 04/30/00 202,218
225 U.S. Treasury Notes 6.000 08/31/97 225,175
125 U.S. Treasury Notes 5.625 11/30/00 121,074
650 U.S. Treasury Notes 9.000 05/15/98 682,909
450 U.S. Treasury Notes 5.875 04/30/98 448,240
225 U.S. Treasury Notes 6.875 05/15/06 227,531
150 U.S. Treasury Notes 6.500 05/31/01 150,046
800 U.S. Treasury Strip <F1> 05/15/18 169,600
----------
4,668,851
----------
Utilities 1.5%
100 Pacific Gas & Electric, 1st Mortgage, Ser 1993C 6.250 08/01/03 94,910
----------
Total Long-Term Investments 97.1%
(Cost $5,851,384) <F2> 5,878,282
Short-Term Investments at Amortized Cost 4.9% 294,875
Liabilities In Excess of Other Assets (2.0%) (117,754)
----------
Net Assets 100.0% $6,055,403
==========
<FN>
<F1> Zero coupon bond
<F2> At June 30, 1996, cost for federal income tax purposes is $5,851,384; the aggregate gross unrealized
appreciation is $34,190, and the aggregate gross unrealized depreciation is $7,292, resulting in net
unrealized appreciation of $26,898.
See Notes to Financial Statements
</TABLE>
4
<TABLE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<CAPTION>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $5,851,384) (Note 1) $ 5,878,282
Short-Term Investments (Note 1) 294,875
Cash 4,074
Receivables:
Interest 76,767
Distributor (Note 2) 294
Unamortized Organizational Expenses (Note 1) 38,663
-------------
Total Assets 6,292,955
-------------
LIABILITIES:
Payables:
Securities Purchased 184,871
Organizational Expenses (Note 1) 40,000
Income Distributions 11,181
Deferred Compensation and Retirement Plans (Note 2) 1,500
-------------
Total Liabilities 237,552
-------------
NET ASSETS $ 6,055,403
=============
NET ASSETS CONSIST OF:
Capital (Note 3) $ 6,031,816
Net Unrealized Appreciation on Securities 26,898
Accumulated Distributions in Excess of Net Investment Income (Note 1) (306)
Net Realized Loss on Securities (3,005)
-------------
NET ASSETS $ 6,055,403
=============
Net Asset Value Per Share (Based on net assets of $6,055,403 and 607,944
shares of capital stock issued and outstanding) (Note 3) $9.96
=============
See Notes to Financial Statements
</TABLE>
5
<TABLE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF OPERATIONS
For the Period April 23, 1996 (Commencement of Investment
Operations) to June 30, 1996 (Unaudited)
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest $ 35,038
-------------
EXPENSES:
Audit 5,050
Registration and Filing Fees 2,062
Investment Advisory Fee (Note 2) 1,727
Trustees Fees and Expenses (Note 2) 1,500
Accounting (Note 2) 1,500
Amortization of Organizational Expenses (Note 1) 1,337
Custody 1,000
Shareholder Services (Note 2) 500
Printing 500
Legal (Note 2) 200
-------------
Total Expenses 15,376
Less Fees Deferred and Expenses Reimbursed ($1,727 and
$11,106, respectively) (Note 2) 12,833
-------------
Net Expenses 2,543
-------------
NET INVESTMENT INCOME $ 32,495
=============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Loss on Investments $ (3,005)
-------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period 0
End of the Period:
Investments 26,898
-------------
Net Unrealized Appreciation on Securities During the Period 26,898
-------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES $ 23,893
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 56,388
=============
See Notes to Financial Statements
</TABLE>
6
<TABLE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 23, 1996 (Commencement of Investment
Operations) to June 30, 1996 (Unaudited)
<CAPTION>
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income $ 32,495
Net Realized Loss on Securities (3,005)
Net Unrealized Appreciation on Securities During the Period 26,898
--------------
Change in Net Assets from Operations 56,388
--------------
Distributions from Net Investment Income (32,495)
Distributions in Excess of Net Investment Income (Note 1) (306)
--------------
Distributions from and in Excess of Net Investment Income (32,801)
--------------
NET CHANGE IN NET ASSETS FROM INVESMENT TRANSACTIONS 23,587
--------------
FROM CAPITAL TRANSACTIONS (Note 3):
Proceeds of Shares Sold 5,966,436
Net Asset Value of Shares Issued Through Dividend Reinvestment 15,380
--------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 5,981,816
--------------
TOTAL INCREASE IN NET ASSETS 6,005,403
NET ASSETS:
Beginning of the Period 50,000
--------------
End of the Period (Including undistributed net investment inco $ 6,055,403
==============
See Notes to Financial Statements
</TABLE>
7
<TABLE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the period indicated. (Unaudited)
<CAPTION>
April 23, 1996
(Commencement
of Investment
Operations) to
June 30, 1996
<S> <C>
Net Asset Value, Beginning of the Period $ 10.000
--------------
Net Investment Income 0.100
Net Realized and Unrealized Loss on Securities (0.040)
--------------
Total from Investment Operations 0.060
Less Distributions from and in Excess of Net Investment
Income (Note 1) 0.100
--------------
Net Asset Value, End of the Period $ 9.960
==============
Total Return<F1> 0.61%**
Net Assets at End of the Period (In millions) $6.1
Ratio of Expenses to Average Net Assets <F1> 0.40%
Ratio of Net Investment Income to Average Net Assets <F1> 5.11%
Portfolio Turnover 1%**
<F1> If certain expenses had not been assumed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets 2.42%
Ratio of Net Investment Income to Average Net Assets 3.09%
** Non-Annualized
See Notes to Financial Statements
</TABLE>
8
Explorer Institutional Limited Duration Fund
<TABLE>
Portfolio of Investments
June 30, 1996 (Unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities 1.1%
$110 AMXCA, FL 1996-1A 6.800% 12/15/03 $ 109,966
----------
Finance 1.6%
175 Ford Motor Credit Co. 5.750 01/25/01 167,125
----------
Pollution Control 0.2%
25 WMX Technologies, Inc. 6.375 12/01/03 23,995
----------
U.S. Government Agency Obligations 1.2%
30 Federal National Mortgage Association 15 year DWARF,
Pool #250589 7.000 12/31/23 29,165
100 Federal National Mortgage Association 15 year 6.500 12/31/23 96,688
----------
125,853
----------
U.S. Government Obligations 78.3%
200 U.S. Treasury Notes 7.000 09/30/96 200,782
150 U.S. Treasury Notes 4.375 11/15/96 149,367
500 U.S. Treasury Notes 6.500 11/30/96 501,875
600 U.S. Treasury Notes 6.250 01/31/97 602,250
300 U.S. Treasury Notes 5.625 08/31/97 299,016
700 U.S. Treasury Notes 6.000 08/31/97 700,546
500 U.S. Treasury Notes 7.375 11/15/97 508,985
100 U.S. Treasury Notes 5.375 11/30/97 99,172
150 U.S. Treasury Notes 5.000 01/31/98 147,657
500 U.S. Treasury Notes 5.125 02/28/98 492,655
500 U.S. Treasury Notes 5.125 04/30/98 491,720
550 U.S. Treasury Notes 5.875 04/30/98 547,850
100 U.S. Treasury Notes 5.125 06/30/98 98,156
500 U.S. Treasury Notes 4.750 08/31/98 485,860
100 U.S. Treasury Notes 4.750 10/31/98 96,906
500 U.S. Treasury Notes 5.125 11/30/98 487,890
600 U.S. Treasury Notes 6.375 01/15/99 601,968
500 U.S. Treasury Notes 6.375 07/15/99 501,015
500 U.S. Treasury Notes 7.750 12/31/99 521,250
200 U.S. Treasury Notes 5.625 11/30/00 193,718
300 U.S. Treasury Notes 5.500 12/31/00 289,173
150 U.S. Treasury Notes 6.500 05/31/01 150,046
----------
8,167,857
----------
Utilities 0.5%
50 Pacific Gas & Electric, 1st Mortgage, Ser 199 6.250 08/01/03 47,455
----------
Total Long-Term Investments 82.9%
(Cost $8,616,056) (a) 8,642,251
----------
Short-Term Investments 16.6%
720 Federal Home Loan Bank (yielding 5.10%, 07/01/96 maturity) 719,694
500 Federal Home Loan Bank (yielding 5.50%, 11/25/96 maturity) 488,915
45 Federal Home Loan Mortgage Corp. (yielding 5.27%, 07/17/96 maturity) 44,889
40 Federal Home Loan Mortgage Corp. (yielding 5.38%, 08/01/96 maturity) 39,815
450 Federal National Mortgage Association (yielding 5.27%, 09/26/96 maturity) 444,060
----------
Total Short-Term Investments
(Cost $1,737,498) (a) 1,737,373
Other Assets in Excess of Liabilites 0.5% 50,601
-----------
Net Assets 100% $10,430,225
===========
(a) At June 30, 1996, cost for federal income taxes purposes, including short-term investments, is $10,353,554;
the aggregate gross unrealized appreciation is $30,377, and the aggregate gross unrealized depreciation is
$4,307, resulting in net unrealized appreciation of $26,070.
See Notes to Financial Statements
</TABLE>
9
<TABLE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<CAPTION>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $8,616,056) (Note 1) $ 8,642,251
Short-Term Investments (Cost $1,737,498) (Note 1) 1,737,373
Cash 4,491
Receivables:
Interest 150,620
Unamortized Organizational Expenses (Note 1) 38,663
-------------
Total Assets 10,573,398
-------------
LIABILITIES:
Payables:
Securities Purchased 96,226
Organizational Expenses 40,000
Income Distributions 5,048
Deferred Compensation and Retirement Plans (Note 2) 1,500
Accrued Expenses 399
-------------
Total Liabilities 143,173
-------------
NET ASSETS $ 10,430,225
-------------
NET ASSETS CONSIST OF:
Capital (Note 3) $ 10,406,656
Net Unrealized Appreciation on Securities 26,070
Accumulated Distributions in Excess of Net Investment Income (Note 1) (209)
Accumulated Net Realized Loss on Securities (2,292)
-------------
NET ASSETS $ 10,430,225
=============
Net Asset Value Per Share (Based on net assets of $10,430,225 and
1,046,254 shares of capital stock issued and outstanding) (Note 3) $ 9.97
=============
See Notes to Financial Statements
</TABLE>
10
<TABLE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF OPERATIONS
For the Period April 23, 1996 (Commencement of
Investment Operations) to June 30, 1996 (Unaudited)
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest $ 47,197
-------------
EXPENSES:
Audit 5,050
Registration and Filing Fees 3,571
Investment Advisory Fee (Note 2) 2,238
Trustees Fees and Expenses (Note 2) 1,500
Accounting (Note 2) 1,500
Amortization of Organizational Expenses (Note 1) 1,337
Custody 1,000
Shareholder Services (Note 2) 500
Printing 500
Legal (Note 2) 200
-------------
Total Expenses 17,396
Less Fees Deferred and Expenses Reimbursed ($2,238 and
$11,922, respectively) (Note 2) 14,160
-------------
Net Expenses 3,236
-------------
NET INVESTMENT INCOME $ 43,961
=============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Loss on Investments $ (2,292)
-------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period 0
End of the Period:
Investments 26,070
-------------
Net Unrealized Appreciation on Securities During the Period 26,070
-------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES $ 23,778
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 67,739
=============
See Notes to Financial Statements
</TABLE>
11
<TABLE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 23, 1996 (Commencement of
Investment Operations) to June 30, 1996 (Unaudited)
<CAPTION>
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income $ 43,961
Net Realized Loss on Securities (2,292)
Net Unrealized Appreciation on Securities During the Period 26,070
-------------
Change in Net Assets from Operations 67,739
-------------
Distributions from Net Investment Income (43,961)
Distributions in Excess of Net Investment Income (Note 1) (209)
-------------
Distributions from and in Excess of Net Investment Income (44,170)
-------------
NET CHANGE IN NET ASSETS FROM INVESTMENT TRANSACTIONS 23,569
-------------
FROM CAPITAL TRANSACTIONS (Note 3):
Proceeds from Shares Sold 10,323,057
Net Asset Value of Shares Issued Through Dividend Reinvestment 33,599
-------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 10,356,656
-------------
TOTAL INCREASE IN NET ASSETS 10,380,225
NET ASSETS:
Beginning of the Period 50,000
-------------
End of the Period (Including undistributed net investment
income of ($209)) $ 10,430,225
=============
See Notes to Financial Statements
</TABLE>
12
<TABLE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the period indicated. (Unaudited)
<CAPTION>
April 23, 1996
(Commencement
of Investment
Operations) to
June 30, 1996
<S> <C>
Net Asset Value, Beginning of the Period $ 10.000
-------------
Net Investment Income 0.101
Net Realized and Unrealized Loss on Securities (0.031)
-------------
Total from Investment Operations 0.070
Less Distributions from and in Excess of Net Investment
Income (Note 1) 0.101
-------------
Net Asset Value, End of the Period $ 9.969
=============
Total Return <F1> 0.71%<F2>
Net Assets at End of the Period (In millions) $ 10.4
Ratio of Expenses to Average Net Assets <F1> 0.40%
Ratio of Net Investment Income to Average Net Assets <F1> 5.43%
Portfolio Turnover 0%<F2>
<FN>
<F1> If certain expenses had not been assumed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets 2.15%
Ratio of Net Investment Income to Average Net Assets 3.68%
<F2>Non-Annualized
See Notes to Financial Statements
</TABLE>
13
Explorer Institutional Trust
Notes to Financial Statements
June 30, 1996 (Unaudited)
1. Significant Accounting Policies
The Explorer Institutional Trust (the "Trust") is registered
under the Investment Company Act of 1940, as amended, as an
open-end management investment company comprised of two Funds:
the Explorer Institutional Active Core Fund ("Active Core Fund")
and the Explorer Institutional Limited Duration Fund ("Limited
Duration Fund"). Each Fund is accounted for as a separate
entity.
The Active Core Fund's investment objective is to provide
an enhanced level of total return as compared to an investment
in an unmanaged portfolio consisting primarily of investment
grade intermediate- and long-term income securities of U.S.
issuers. The Limited Duration Fund's investment objective 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 the preservation of capital.
The Funds commenced investment operations on April 23, 1996.
The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its
financial statements. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
A. Security Valuation - Investments are stated at value using
market quotations or, if such valuations are not available,
estimates 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.
Short-term securities with remaining maturities of less than 60
days are valued at amortized cost.
B. Security Transactions - Security transactions are recorded
on a trade date basis. Realized gains and losses are determined
on an identified cost basis. The Funds may purchase and sell
securities on a "when issued" or "delayed delivery" basis, with
settlement to occur at a later date. The value of the security
so purchased is subject to market fluctuations during this
period. The Funds will maintain, in a segregated account with
its custodian, assets having an aggregate value at least equal
to the amount of the when issued or delayed delivery purchase
commitments until payment is made. At June 30, 1996, there were
no when issued or delayed delivery purchase commitments.
C. Investment Income - Interest income is recorded on an
accrual basis. Bond discount and premium are amortized over the
life of each applicable security.
D. Organizational Expenses - The Funds will reimburse Van
Kampen American Capital Distributors, Inc. or its affiliates
("collectively VKAC") for costs incurred in connection with the
Funds' organization in the amount of $40,000 for each Fund.
These costs are being amortized on a straight line basis over
the 60 month period ending April 22, 2001. Van Kampen American
Capital Management, Inc. (the "Adviser") has agreed that in the
event any of the initial shares of the Funds originally
purchased by VKAC are redeemed during the amortization period,
the Funds will be reimbursed for any unamortized organizational
expenses in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of
redemption.
E. Federal Income Taxes - It is the Funds' policy to comply
with the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially
all of its taxable income and gains to its shareholders.
Therefore, no provision for federal income taxes is required.
F. Distribution of Income and Gains - Each Fund declares
dividends daily and pays dividends monthly from net investment
income. Net realized gains, if any, are distributed annually.
Due to inherent differences in the recognition of certain
expenses under generally accepted accounting principles and
federal income tax purposes, the amount of distributed net
investment income may differ for a particular period. These
differences are temporary in nature, but may result in book
basis distribution in excess of net investment income for
certain periods.
2. Investment Advisory Agreement and Other Transactions with
Affiliates
Under the terms of each of the Fund's Investment Advisory
Agreement, the Adviser will provide facilities and investment
advice to the Fund for an annual fee payable monthly as follows:
Average Net Assets % Per Annum
- ------------------ -----------
First $1 billion .300 of 1%
Over $1 billion .250 of 1%
Certain legal expenses are paid to Skadden, Arps, Slate,
Meagher & Flom, counsel to the Funds, of which a trustee of the
Funds is an affiliated person.
For the period ended June 30, 1996, the Funds recognized
expenses representing VKAC's cost of providing accounting and
legal services to the Fund. These services are provided by VKAC
at cost.
14
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate
of the Adviser, serves as the shareholder servicing agent for
the Funds. For the period ended June 30, 1996, the Funds
recognized expenses representing ACCESS' cost of providing
transfer agency and shareholder services plus a profit.
VKAC has agreed to waive fees or reimburse certain
expenses such that the net expenses of each Fund will not exceed
0.40% of average net assets. Should the assets of a particular
fund increase sufficiently to allow for reimbursement of prior
year's excess expenses to VKAC without causing that fund's
expense ratio to exceed 0.40%, that fund may be required to
reimburse VKAC for fees waived and/or expenses assumed within
the last four years. Therefore, these expenses should be
considered contingent liabilities of each respective Fund.
Certain officers and trustees of the Funds are also officers
and directors of VKAC. The Funds do not compensate their
officers or trustees who are officers of VKAC.
The Funds have implemented deferred compensation and
retirement plans for their trustees. Under the deferred
compensation plan, trustees may elect to defer all or a portion
of their compensation to a later date. The retirement plan
covers those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 105,000 shares of each of
the Funds.
3. Capital Transactions
There are an unlimited number of shares of each Fund without par
value authorized.
At June 30, 1996, capital aggregated $6,031,816
and $10,406,656 for the Active Core Fund and Limited Duration
Fund, respectively. For the period ended June 30, 1996
transactions in common shares were as follows:
Active Limited
Core Duration
Fund Fund
------- ---------
Beginning Shares 5,000 5,000
Shares Sold 601,400 1,037,883
Shares Issued through
Dividend Reinvestment 1,544 3,371
------- ---------
Ending Shares 607,944 1,046,254
======= =========
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales
of investments, excluding short-term investments and U.S.
Government securities, were $423,891 and $49,725 for the Active
Core Fund and $442,467 and $0 for the Limited Duration Fund.
5. Mortgage Backed Securities
A Mortgage Backed Security (MBS) is a pass-through security
created by pooling mortgages and selling participations in the
principal and interest payments received from borrowers. Most
of these securities are guaranteed by federally sponsored
agencies - Government National Mortgage Association (GNMA),
Federal Mortgage Association (FNMA) or Federal Home Loan
Mortgage Corporation (FHLMC).
15
Explorer Institutional Trust
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Rod Dammeyer
Howard J Kerr
Theodore A. Meyers
Hugo F. Sonnenschein
Wayne W. Whalen*
Trustees
Peter W. Hegel*
Michael P. Kamradt*
John M. McCareins*
Edward A. Treichel*
Vice Presidents
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
J. Christopher Jackson*
Scott E. Martin*
Weston B. Wetherell*
Nicholas Dalmaso*
Assistant Secretaries
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
Investment Adviser
Van Kampen American Capital Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing
Agent ACCESS Investor Services, Inc.
Explorer Institutional Funds
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Attn: Explorer Institutional Funds
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive Chicago, Illinois 60606
Independent Accountants
KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IIlinois 60601
*"Interested" persons of the Trust as defined in the Investment
Company Act of 1940
16
