<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1997
FILE NO. 33-84942
811-8808
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 1 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4 [X]
</TABLE>
THE EXPLORER
INSTITUTIONAL TRUST
(Exact Name of Registrant as Specified in the Declaration of Trust)
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Offices)
(630) 684-6000
(Registrant's Telephone Number)
Ronald A. Nyberg, Esq.
Executive Vice President, General Counsel and Secretary
Van Kampen American Capital, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<C> <C>
Wayne W. Whalen, Esq. Louis A. Goodman, Esq.
Thomas A. Hale, Esq. Skadden, Arps, Slate, Meagher & Flom LLP
Skadden, Arps, Slate, Meagher & Flom One Beacon Street
(Illinois) Boston, Massachusetts 02108
333 West Wacker Drive (617) 573-4800
Chicago, Illinois 60606
(312) 407-0700
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
following effectiveness of this Registration Statement.
It is proposed that this filing will become effective: (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate check the following:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24F-2
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940 AND INTENDS TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION A RULE
24F-2 NOTICE FOR ITS FISCAL YEAR ENDING DECEMBER 31, 1997 ON OR ABOUT MARCH 30,
1998.
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<PAGE> 2
THE EXPLORER INSTITUTIONAL TRUST
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)
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<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A IN PROSPECTUS
-------------- -------------------
<S> <C> <C>
PART A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page.................. Cover Page
Item 2. Synopsis.................... SUMMARY OF FUND EXPENSES
Item 3. Condensed Financial
Information............... FINANCIAL HIGHLIGHTS
Item 4. General Description of
Registrant................ THE FUNDS' INVESTMENT OBJECTIVES; HOW THE FUNDS SEEK THEIR
INVESTMENT OBJECTIVES; ORGANIZATION
Item 5. Management of the
Fund...................... HOW THE FUNDS ARE MANAGED; SHAREHOLDER SERVICES
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;
SHAREHOLDER SERVICES
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
-------------- ----------------------
<S> <C> <C>
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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;
Investment Practices
Item 14. Management of the
Fund...................... Trustees and Officers
Item 15. Control Persons and
Principal Holders of
Securities................ The Funds and the Trust; Trustees and Officers
Item 16. Investment Advisory and
Other Services............ Contained in Prospectus under captions: HOW THE FUNDS ARE
MANAGED; Legal Counsel; Investment Advisory and Other
Services; Trustees and Officers; The Distributor; Notes to
Financial Statements
Item 17. Brokerage Allocation and
Other Practices........... 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................... How to Buy Shares; How to Sell Shares, Shareholder
Services; 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
caption: HOW TO BUY SHARES
Item 21. Underwriters................ The Distributor; Notes to Financial Statements
Item 22. Calculations of
Performance Data.......... Performance Information; Contained in Prospectus under
caption: FUND PERFORMANCE
Item 23. Financial Statements........ Report of Independent Accountants; Financial Statements;
Notes to Financial Statements; Trustees and Officers
</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
EXPLORER
INSTITUTIONAL
FUNDS(SM)
[ ] Active Core Fund
[ ] Limited Duration Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
April 30, 1997
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 FundsSM"), 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 FundsSM are the Explorer Institutional Active Core Fund
("Active Core Fund") and the Explorer Institutional Limited Duration Fund
("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, quantitative 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.
Additional information about the Trust and the Funds is contained in a Statement
of Additional Information dated April 30, 1997, a copy of which has been filed
with the Securities and Exchange Commission ("SEC") and is available along with
other related Trust materials at the SEC's internet web site
(http://www.sec.gov), or may be obtained without charge by calling:
1-800-822-3699.
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
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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
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Annual Fund Operating Expenses
(as a percentage of average daily net assets)
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ACTIVE CORE FUND LIMITED DURATION FUND
---------------- ---------------------
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Management Fees(1).......................................... 0.30% 0.30%
Other expenses(2)........................................... 0.10% 0.10%
Total(2).................................................... 0.40% 0.40%
</TABLE>
- ---------------
(1) Reduced to 0.25% on the respective Fund's net assets in excess of one
billion dollars. See "How the Funds are Managed."
(2) The Adviser has agreed to waive fees or reimburse certain expenses of each
Fund such that the respective Fund's management fees and certain other
expenses do not exceed 0.40% per annum. See "How the Funds are Managed."
Total expenses for the period ended December 31, 1996 were 1.81% and 1.40%
for the Active Core Fund and Limited Duration Fund, respectively, before
giving effect to such agreement.
Example
A $1,000 investment would have the following transaction costs and operating
expenses assuming a 5% annual return and reinvestment of all dividends and
distributions. This example should not be considered indicative of actual or
expected Fund performance or expenses, both of which will vary.
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ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
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<S> <C> <C> <C> <C>
Active Core Fund............................................ $4 $13 $22 $51
Limited Duration Fund....................................... $4 $13 $22 $51
</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.
2
<PAGE> 6
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following schedule presents financial highlights for one share of each Fund
outstanding throughout the period indicated. The financial highlights have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, for
the period indicated and their report thereon appears in the Trust's related
Statement of Additional Information. This information should be read in
conjunction with the financial statements and related notes thereto included in
the related Statement of Additional Information.
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<CAPTION>
ACTIVE CORE FUND LIMITED DURATION FUND
---------------- ---------------------
APRIL 23, 1996 APRIL 23, 1996
(COMMENCEMENT OF (COMMENCEMENT OF
INVESTMENT OPERATIONS) INVESTMENT OPERATIONS)
TO DECEMBER 31, 1996 TO DECEMBER 31, 1996
---------------------- ----------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period.................... $10.000 $10.000
-------- --------
Net Investment Income..................................... .409 .386
Net Realized and Unrealized Gain on Investments........... .095 .019
-------- --------
Total from Investment Operations............................ .504 .405
-------- --------
Less:
Distributions From Net Investment Income.................. .409 .386
Distributions From Net Realized Gain on Investments....... .010 --
-------- --------
Total Distributions......................................... .419 .386
-------- --------
Net Asset Value, End of the Period.......................... $10.085 $10.019
======== ========
Total Return*............................................... 5.20%** 4.14%**
Net Assets at End of Period (In millions)................... $ 5.6 $ 9.8
Ratio of Expenses to Average Net Assets*.................... .40% 0.40%
Ratio of Net Investment Income to Average Net Assets*....... 5.98% 5.68%
Portfolio Turnover.......................................... 84%** 16%**
</TABLE>
* If certain expenses had not been reimbursed by the Adviser, total return
would have been lower and the ratios would have been as follows:
<TABLE>
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Ratio of Expenses to Average Net Assets..................... 1.81% 1.40%
Ratio of Net Investment Income to Average Net Assets........ 4.57% 4.68%
</TABLE>
** Non-Annualized
See Financial Statements and Notes Thereto.
3
<PAGE> 7
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,
open-end management investment company. Additional Funds may be added in the
future.
Each Fund has its own investment objective. The investment objective of the
Active Core 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 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. Total return
includes income together with realized and unrealized capital appreciation or
depreciation. U.S. issuers include the U.S. Government, states and territories
of the United States, agencies, instrumentalities and other political
subdivisions of any of the above and corporations, partnerships, trusts and
other organizations and entities. 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.
ACTIVE CORE FUND. The Active Core 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 three to six years. The
Fund will invest at least 75% of its assets in securities rated AA/Aa or higher.
The Active Core Fund will not invest in securities rated below BBB/Baa. The Fund
may not invest in securities of foreign issuers.
LIMITED DURATION FUND. The 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 one to three
years. The Fund will invest at least 75% of its assets in securities rated AA/Aa
or higher. The 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 Limited Duration Fund is expected to exhibit less volatility than that of
the Active Core Fund because its duration will be shorter while its other
investment policies are similar to those of the Active Core 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.
4
<PAGE> 8
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 Active Core 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
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 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
5
<PAGE> 9
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 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; and other instruments having investment characteristics
substantially similar to any of the foregoing and repurchase agreements. 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 mortgage assets experience
greater than anticipated
6
<PAGE> 10
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 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 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 securities 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 Treasury Securities. Stripped Treasury securities are obligations
representing an interest in all or a portion of the income or principal
components of an underlying Treasury or pool of Treasury securities. Stripped
Treasury securities include obligations entitled to receive all of the interest
component but none of the principal component (IOs) and obligations entitled to
receive all of the principal component but none of the interest component (POs).
The market values of stripped Treasury securities tend to be more volatile in
response to changes in interest rates than are those of conventional Treasury
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.
7
<PAGE> 11
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 for temporary emergency purposes only
(such as meeting share redemption requests), although no Fund expects to do so
in an amount exceeding 5% of its respective total assets (after giving effect to
any such borrowing). 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.
As a matter of fundamental policy that may not be changed without shareholder
approval, the Funds may not 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 for risk management,
hedging or any other purpose.
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. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. The Distributor receives no compensation for this service. The Adviser
may compensate the Distributor's registered representatives for sales of shares
of the Funds out of its own assets, not out of the assets of the Funds.
8
<PAGE> 12
Investments may be made either by wire transfer or by mail as follows:
(1) By Wire. Explorer Institutional Funds(SM) will accept investments by wire.
An investor must first telephone the Explorer Institutional Funds(SM) at
1-800-822-3699 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 ACCESS Investor Services, Inc., 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 Funds(SM)
before wiring monies.
Investments made by federal funds wire (up to ten million dollars)
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
"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., Explorer Institutional Funds(SM), P.O. Box
418256, Kansas City, Missouri, 64141-9256 (ACCESS Investor Services, Inc.
"ACCESS"). ACCESS is 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 Funds(SM) received good funds. For checks drawn on 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 without notice.
Investors should consult their own tax adviser as to the tax consequences of
such transactions.
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
9
<PAGE> 13
information provided in the Account 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 the Adviser at One
Parkview Plaza, Oakbrook Terrace, IL 60181 or call the Explorer Institutional
FundsSM at 1-800-822-3699 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 1-800-822-3699 or by writing the Explorer Institutional FundsSM at One
Parkview Plaza, Oakbrook Terrace, IL 60181.
DISTRIBUTIONS AND TAXES
Each Fund will declare distributions on a daily basis and will pay such
distributions from net investment income on a monthly basis. Each Fund will also
distribute annually any 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 tax-basis 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 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 4:00 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.
10
<PAGE> 14
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
1-800-822-3699 before 4:00 p.m. Central 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, the Funds, the Distributor nor ACCESS 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, the Distributor and ACCESS 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
necessary. 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 1.00% 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 of more than $57 billion.
The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("Van Kampen American Capital"). Van Kampen American Capital is a wholly-owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is a wholly-owned
subsidiary of MSAM Holdings II, Inc. which, in turn, is a wholly-owned
subsidiary of Morgan Stanley Group Inc. The Adviser's principal office is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, the Adviser will be an indirect subsidiary of Morgan Stanley, Dean
Witter, Discover & Co.
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
11
<PAGE> 15
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>
Active Core Fund............... Up to one billion
dollars............ 0.30%
Thereafter......... 0.25%
Limited Duration Fund.......... Up to one billion
dollars............ 0.30%
Thereafter......... 0.25%
</TABLE>
Under each Fund's investment advisory agreement with the Adviser dated October
31, 1996, 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 the Distributor), 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>
Active Core Fund........................... 0.40%
Limited Duration Fund...................... 0.40%
</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.
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
12
<PAGE> 16
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 team 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 the Distributor.
The Funds and the Adviser have adopted Codes of Ethics designed to recognize
the fiduciary relationship between each Fund and the Adviser and its employees.
The Codes permit directors, trustees, officers and employees to buy and sell
securities for their personal accounts subject to certain restrictions. Persons
with access to certain sensitive information are subject to pre-clearance and
other procedures designed to prevent conflicts of interest.
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 FundsSM. 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.
Shareholder inquiries should be directed to the Funds c/o the Explorer
Institutional FundsSM, One Parkview Plaza, Oakbrook Terrace, Illinois 60181 or
by calling 1-800-822-3699.
ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO 64141-9256,
an affiliated 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 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 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
13
<PAGE> 17
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 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. 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 end of each Fund is 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, examined, without charge,
at the office of the SEC in Washington, D.C. or located on the SEC's internet
web site (http://www.sec.gov).
14
<PAGE> 18
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE TRUST'S TOLL-FREE
NUMBER--1-800-822-3699.
PROSPECTIVE INVESTORS--CALL
1-800-822-3699.
EXPLORER
INSTITUTIONAL FUNDSSM
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
Explorer Institutional FundsSM
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: Explorer Institutional FundsSM
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
One Beacon Street
Boston, MA 02108
---------------------------------------------------
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 19
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 THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY FUND, THE
TRUST, THE ADVISER OR THE DISTRIBUTOR 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
Financial Highlights........................ 3
The Funds' Investment Objectives............ 4
How the Funds Seek Their Investment
Objectives................................ 4
How to Buy Shares........................... 8
Distributions and Taxes..................... 10
How the Funds Value Their Shares............ 10
How to Sell Shares.......................... 11
How the Funds Are Managed................... 11
How the Funds Execute Portfolio
Transactions.............................. 12
Shareholder Services........................ 13
Fund Performance............................ 13
Organization................................ 14
Additional Information...................... 14
</TABLE>
SM Service Mark of Van Kampen American Capital Distributors, Inc.
EXPLORER
INSTITUTIONAL FUNDS(SM)
- - Active Core Fund
- - Limited Duration Fund
- -----------------------
(Prospectus)
APRIL 30, 1997
()
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
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 "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 Funds(SM)
dated April 30, 1997 (the "Prospectus"). A copy of the Prospectus may be
obtained without charge by calling the Trust's toll-free number: 1-800-822-3699.
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, inspected at
the SEC's office at no charge or located on the SEC's internet web site
(http//www.sec.gov). 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-9
Description of Securities Ratings........................... B-10
Trustees and Officers....................................... B-13
Investment Advisory and Other Services...................... B-23
Portfolio Transactions and Brokerage Allocation............. B-26
Taxation.................................................... B-27
The Distributor............................................. B-29
Legal Counsel............................................... B-29
Performance Information..................................... B-29
How to Buy Shares........................................... B-31
How to Sell Shares.......................................... B-31
Shareholder Services........................................ B-33
Instructions Regarding Backup Withholding................... B-34
Report of Independent Accountants........................... B-36
Financial Statements -- Explorer Institutional Active Core
Fund...................................................... B-37
Financial Statements -- Explorer Institutional Limited
Duration Fund............................................. B-43
Notes to Financial Statements............................... B-49
Account Applications........................................ B-51
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1997
<PAGE> 21
THE FUNDS AND THE TRUST
The Trust is a professionally managed no-load, open-end management investment
company. Each of the Explorer Institutional FundsSM 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 14, 1995. The Declaration
of Trust permits the Trustees to issue an unlimited number of full and
fractional shares, without par value, in separate series. To date, the Explorer
Institutional Active Core Fund (the "Active Core Fund"), formerly known as the
Explorer Institutional Enhanced Benchmark Fund, and Explorer Institutional
Limited Duration Fund (the "Enhanced Limited Duration Fund"), formerly known as
the Explorer Institutional Enhanced Limited Duration Fund, (collectively,
"Explorer Institutional FundsSM" 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 series 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.
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 vote of the shares of each affected series
present at a meeting of shareholders of such series (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.
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INVESTMENT POLICIES AND RESTRICTIONS
Each Fund has its own investment objective, policies and restrictions. The
investment objective of the Active Core 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 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. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 5% of the total asset value of the Fund, or
mortgage, pledge, or hypothecate any assets except in connection with a
borrowing and in amounts not in excess of 5% of the total asset value of
the Fund. Borrowings may not be made for investment leverage, but only to
enable the Fund to satisfy redemption requests where liquidation of
portfolio securities is considered disadvantageous or inconvenient. In this
connection, the Fund will not purchase portfolio securities during any
period that such borrowings exceed 5% of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when
issued and delayed delivery transactions as described in the Prospectus.
4. Make loans of money or property to any person, except to the extent
the securities in which the Fund may invest are considered to be loans.
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.
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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.
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 1940 Act.
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,
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<PAGE> 24
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.
Stripped Treasury Securities. Stripped Treasury securities are obligations
representing an interest in all or a portion of the income or principal
components of an underlying Treasury or pool of Treasury securities. Stripped
Treasury securities include obligations entitled to receive all of the interest
component but none of the principal component (IOs) and obligations entitled to
receive all of the principal component but none of the interest component (POs).
The market values of stripped Treasury securities tend to be more volatile in
response to changes in interest rates than are those of conventional Treasury
securities.
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
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<PAGE> 25
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
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.
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 GNMA, FNMA and FHLMC 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 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 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.
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<PAGE> 26
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.
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 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
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<PAGE> 27
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 securities 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 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
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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.
INVESTMENT PRACTICES
BORROWINGS
Each Fund may borrow money from banks for temporary, emergency purposes only
(such as meeting share redemption requests), although no Fund expects to do so
in an amount exceeding 5% of its respective total assets (after giving effect to
any such borrowing). 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. Borrowing will create interest expenses for a Fund which can exceed
the income from the assets retained.
"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 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 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.
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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.
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.
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.
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',
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<PAGE> 30
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 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.
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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.
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.
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.
B-12
<PAGE> 32
-- 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 Not Prime do not fall within any of the Prime rating categories.
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.
TRUSTEES AND OFFICERS
The Declaration of Trust of the Funds provides that the Board of Trustees
shall consist of not less than three nor more than eleven trustees. The Funds do
not contemplate holding regular meetings of shareholders to elect Trustees or
otherwise. In the event a vacancy occurs on the Board of Trustees by reason of
death, resignation or a reason other than removal by the shareholders, the
remaining Trustees shall appoint a person to fill the vacancy for the entire
unexpired term.
B-13
<PAGE> 33
The following sets forth the names, ages, principal occupations and other
information respecting the Trustees.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
David C. Arch........................ Trustee. Mr. Arch is Chairman and Chief Executive Officer
1800 Swift Drive of Blistex Inc., a consumer health care products
Oak Brook, IL 60521 manufacturer. Mr. Arch is also a Trustee of the Van
Age: 51 Kampen American Capital Prime Rate Income Trust.
Rod Dammeyer......................... Trustee. Mr. Dammeyer is President, Chief Executive
Two North Riverside Plaza Officer and Director of Anixter International Inc.
Chicago, IL 60606 (formerly known as Itel Corporation), a value-added
Age: 56 provider of integrated networking and cabling solutions
that support business information and network
infrastructure requirements. He is Managing Director of
EGI Corporate Investments, a division of Equity Group
Investments, Inc., a company that makes private equity
investments in other companies. Mr. Dammeyer is also a
Trustee of the Van Kampen American Capital Prime Rate
Income Trust.
Howard J Kerr........................ Trustee. Mr. Kerr is President and Chief Executive
736 North Western Ave. Officer of Pocklington Corporation, Inc., an investment
P.O. Box 317 holding company. Mr. Kerr is also a Director of Canbra
Lake Forest, IL 60045 Foods, Ltd., a Canadian oilseed crushing, refining,
Age: 61 processing and packaging operation. Mr. Kerr is a Trustee
of the Van Kampen American Capital Prime Rate Income
Trust.
Dennis J. McDonnell*................. Chairman, President, Chief Executive Officer and Trustee.
One Parkview Plaza Mr. McDonnell is President, Chief Operating Officer and a
Oakbrook Terrace, IL 60181 Director of Advisory Corp., Management Inc., Van Kampen
Age: 54 American Capital Asset Management, Inc. ("Asset
Management") and Van Kampen American Capital Advisors,
Inc. ("Advisors Inc.") He is also an Executive Vice
President of VKAC. Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to November 1996,
Executive Vice President and a Director of VKAC Holdings.
Mr. McDonnell is the Chairman, President, Chief Execu-
tive Officer and Trustee of Van Kampen American Capital
Prime Rate Income Trust. Trustee, Chief Executive Officer
and Executive Vice President of certain open-end
investment companies advised by Advisory Corp. and Asset
Management.
</TABLE>
B-14
<PAGE> 34
<TABLE>
<S> <C>
Theodore A. Myers................... Trustee. Mr. Myers is the Senior Financial Advisor (and prior to 1997,
1940 East 6th Street an Executive Vice President and Chief Financial Officer) of Qualitech
Cleveland, OH 44114 Steel Corporation, a producer of high quality engineered steels for
Age: 66 automotive, transportation and capital goods industries. Prior to 1997,
a Director of McLouth Steel. A member of the Arthur Andersen Chief
Financial Officer Advisory Committee. Prior to August, 1993, Mr. Myers
was Senior Vice President, Chief Financial Officer and a Director of
Food Brands America (formerly known as Doskocil Companies, Inc.), a
food processing and distribution company. Mr. Myers is also a Trustee
of the Van Kampen American Capital Prime Rate Income Trust and is a
trustee of COVA Series Trust.
Hugo F. Sonnenschein................ Trustee. Mr. Sonnenschein is President of the University of Chicago.
5801 South Ellis Avenue Mr. Sonnenschein is a member of the Board of Trustees of the University
Suite 502 of Rochester and a member of its investment committee. Prior to July,
Chicago, IL 60637 1993, Mr. Sonnenschein was Provost of Princeton University and Dean of
Age: 56 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. Mr. Sonnenschein
is also a Trustee of the Van Kampen American Capital Prime Rate Income
Trust.
Wayne W. Whalen*.................... Trustee. Mr. Whalen is a partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal counsel to the funds in the
Chicago, IL 60606 Fund Complex and certain open-end investment companies advised by the
Age: 57 Adviser and Asset Management. Mr. Whalen is also a Trustee of the Van
Kampen American Capital Prime Rate Income Trust and certain open-end
investment companies advised by the Adviser and Asset Management.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). McDonnell is an interested person of the Adviser and the
Funds by reason of his position with the Adviser. Mr. Whalen is an interested
person of the Funds by reason of his firm acting as legal counsel for the
Funds.
The Fund's audit committee consists of Messrs. Arch, Dammeyer, Kerr, Myers and
Sonnenschein, who are not "interested persons" of the Funds as defined in the
1940 Act. The committee is primarily responsible for supervision of the Funds'
independent auditors and the annual review of the investment advisory agreement
and any other matters requiring the approval of the Trustees who are not
"interested persons" of the Funds pursuant to the 1940 Act.
For the fiscal year of each Closed-End Fund ended in 1996, the retirement plan
committee consisted of Messrs. Arch, Dammeyer and Sonnenschein. The retirement
plan committee is responsible for reviewing the terms of each Fund's retirement
plan and reviews any administrative matters with respect thereto. The retirement
plan committee does not meet on a regular basis, but does meet on an ad hoc
basis as necessary to administer the retirement plan.
B-15
<PAGE> 35
The Trustees select and nominate trustees to fill any vacancies in
trusteeships and are prepared to review nominations from shareholders.
Nominations from shareholders should be in writing and addressed to the Trustees
at the Funds' office. The Trustees expect to be able to identify from their own
resources an ample number of qualified candidates.
Each of the trustees herein holds the same position with each of 36 other Van
Kampen American Capital investment companies (together with the Funds, the "Fund
Complex"). Each trustee who is not an affiliated person of the Adviser, the
Distributor or Van Kampen American Capital (each a "Non-Affiliated Trustee") is
compensated by an annual retainer and meeting fees for services to the funds in
the Fund Complex. Each fund in the Fund Complex provides a deferred compensation
plan to its Non-Affiliated Trustees that allows trustees to defer receipt of his
compensation and earn a return on such deferred amounts based upon the return of
the common shares of the funds in the Fund Complex as more fully described
below.
The compensation of each Non-Affiliated Trustee includes a retainer from each
Fund in an amount equal to $2,500 per calendar year, due in four quarterly
installments on the first business day of each calendar quarter. Each
Non-Affiliated Trustee receives a per meeting fee from each Fund in the amount
of $250 per meeting attended by the Non-Affiliated Trustee, due on the date of
such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in
connection with his services as a trustee.
Each Non-Affiliated Trustee can elect to defer until retirement receipt of all
or a portion of the compensation earned by such Non-Affiliated Trustee. Amounts
deferred are retained by the Funds and earn a rate of return determined by
reference to the return on common shares of each Fund or other funds in the Fund
Complex as selected by the respective Non-Affiliated Trustee. To the extent
permitted by the 1940 Act, each Fund anticipates it will invest in securities of
those mutual funds selected by the Non-Affiliated Trustees in order to match the
deferred compensation obligation. The deferred compensation plan is not funded
and obligations thereunder represent general unsecured claims against the
general assets of each Fund.
Under each Fund's retirement plan, a Non-Affiliated Trustee who is receiving
trustee's fees from the Funds prior to such Non-Affiliated Trustee's retirement,
has at least ten years of service and retires at or after attaining the age of
60 is eligible to receive a retirement benefit equal to $2,500 per year for each
of the ten years following such trustee's retirement. Under certain conditions,
reduced benefits are available for early retirement provided the trustee has
served at least five years.
B-16
<PAGE> 36
Additional information regarding compensation before deferral from the Trust
and the other funds in the Fund Complex is set forth in the table below.
1996 COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Compensation
Compensation Benefits Estimated before
before Accrued Annual Deferral
Deferral As Part Benefits from the Fund
from the of Fund Upon Complex Paid
Trustee(2) Registrant(3) Expenses Retirement(5) to Trustees(6)
---------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Theodore A. Myers.......................... $2,500 (4) $5,000 $138,500
Rod Dammeyer............................... 2,500 (4) 5,000 138,500
David C. Arch.............................. 2,500 (4) 5,000 138,500
Howard J Kerr.............................. 2,500 (4) 5,000 138,500
Hugo F. Sonnenschein....................... 2,500 (4) 5,000 138,500
Wayne W. Whalen............................ 2,500 (4) 5,000 138,500
</TABLE>
- ---------------
(1) The "Registrant" is the Trust which currently has two operating sub-trusts.
(2) Mr. McDonnell, trustee of the Trust, is an affiliated person of the Adviser
and is not eligible for compensation or retirement benefits from the
Registrant.
(3) The amounts shown in this column are estimates of the Aggregate Compensation
before Deferral from the two sub-trusts of the Registrant assuming a full
fiscal year of operations. Trustees may defer all or a portion of their
compensation pursuant to the Trust's deferred compensation plan. Amounts
deferred are retained by the respective fund for which they are deferred and
earn a rate of return determined by reference to the return on the common
shares of such fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act,
it is anticipated that each fund will invest in securities of those funds
selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation.
(4) No expense has been accrued under the plan as the retirement benefit is
equal to the annual retainer of $2,500. No retainer is paid as the Funds
were less than $25 million and the Trustees waive their retainer if assets
are below $25 million.
(5) The amounts shown in this column are the maximum Estimated Annual Benefit
payable per year for the 10-year period commencing in the year of such
trustee's retirement by the Trust assuming: the trustee has 10 or more years
of service on the Board and retires at or after attaining the age of 60.
Trustees retiring prior to the age of 60 or with fewer than 10 years but
more than five years of service may receive reduced retirement benefits.
(6) The amounts shown in this column are accumulated from the Aggregate
Compensation before Deferral of each of the 36 funds in the Fund Complex as
of December 31, 1995. The Adviser and its affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell and Whalen, the trustees were not trustees of
such investment companies. Combining the Fund Complex with other investment
companies advised by the Adviser and its affiliates, Mr. Whalen received
Total Compensation of $243,375 during the calendar year ended December 31,
1996. The following trustees deferred aggregate compensation from the
Registrant and the Fund Complex during the calendar year ended December 31,
1996 as follows:
B-17
<PAGE> 37
Mr. Dammeyer, $129,500; Mr. Kerr, $129,500; Mr. Hugo, $129,500; and Mr.
Whalen, $129,500. Amounts deferred are retained by the respective fund for
which they are deferred and earn a rate of return determined by reference to
the return of the common shares of such fund or other funds in the Fund
Complex as selected by the respective Non-Affiliated Trustee. To the extent
permitted by the 1940 Act, it is anticipated that each fund will invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation.
The following table sets forth certain information (other than information
concerning Mr. McDonnell, which is set forth above) concerning the executive
officers of the Funds, each of whom holds the same office with each of the other
open-end and closed-end investment companies advised by the Adviser. The
officers serve for one year or until their respective successors are chosen and
qualified. Each Fund's officers receive no compensation from the Fund but are
officers of the Adviser or Van Kampen American Capital and receive compensation
in such capacities.
OFFICERS
The address for Curtis W. Morell, Tanya M. Loden and M. Robert Sullivan is
2800 Post Oak Blvd., Houston, TX 77056. The address for Peter W. Hegel, Ronald
A. Nyberg, Edward C. Wood III, John L. Sullivan, Nicholas Dalmaso, Scott E.
Martin, Weston B. Wetherell, Steven M. Hill, Edward A. Treichel, John M.
McCareins and Michael P. Kamradt is One Parkview Plaza, Oakbrook Terrace, IL
60181.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Peter W. Hegel.............. Vice President Executive Vice President of the VK
Date of Birth: 06/25/56 Adviser, AC Adviser, Van Kampen
American Capital Management, Inc. and
Van Kampen American Capital Advisors,
Inc. Prior to September 1996, Director
of McCarthy, Crisanti & Maffei, Inc.
Prior to July 1996, Director of VSM
Inc. Vice President of each of the Van
Kampen American Capital Funds and
other investment companies advised by
the VK Adviser and the AC Adviser.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the VK
Date of Birth: 08/04/46 Accounting Officer Adviser and the AC Adviser. Vice
President and Chief Accounting Officer
of each of the Van Kampen American
Capital Funds and other investment
companies advised by the VK Adviser
and AC Adviser.
</TABLE>
B-18
<PAGE> 38
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General
Date of Birth: 07/29/53 Counsel and Secretary of Van Kampen
American Capital and VK/AC Holding,
Inc. Executive Vice President, General
Counsel and a Director of the
Distributor, the VK Adviser, the AC
Adviser, Van Kampen American Capital
Management, Inc., Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp.
Executive Vice President, General
Counsel and Assistant Secretary of Van
Kampen American Capital Advisors,
Inc., American Capital Contractual
Services, Inc., Van Kampen American
Capital Exchange Corporation, Van
Kampen American Capital Services, Inc.
and ACCESS. Executive Vice President,
General Counsel, Assistant Secretary
and Director of Van Kampen American
Capital Trust Company. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to September
1996, General Counsel of McCarthy,
Crisanti & Maffei, Inc. Prior to July
1996, Executive Vice President and
General Counsel of VSM Inc. and VCJ
Inc. Vice President and Secretary of
each of the Van Kampen American
Capital Funds and other investment
companies advised by the VK Adviser
and AC Adviser.
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the VK
Date of Birth: 01/11/56 Financial Officer Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc. Vice
President and Chief Financial Officer
of each of the Van Kampen American
Capital Funds and other investment
companies advised by the VK Adviser
and the AC Adviser.
John L. Sullivan............ Treasurer First Vice President of the VK Adviser
Date of Birth: 08/20/55 and the AC Adviser. Treasurer of each
of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser.
</TABLE>
B-19
<PAGE> 39
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Tanya M. Loden.............. Controller Vice President of the VK Adviser and
Date of Birth: 11/19/59 the AC Adviser. Controller of each of
the Van Kampen American Capital Funds
and other investment companies advised
by the VK Adviser and AC Adviser.
Nicholas Dalmaso............ Assistant Secretary Assistant Vice President and Senior
Date of Birth: 03/01/65 Attorney of Van Kampen American
Capital. Assistant Vice President and
Assistant Secretary of the
Distributor, the VK Adviser, the AC
Adviser and Van Kampen American
Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant
Secretary of each of the Van Kampen
American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser. Prior to
May 1992, attorney for Cantwell &
Cantwell, a Chicago law firm.
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of Van
Kampen American Capital and VK/AC
Holding, Inc. Senior Vice President,
Deputy General Counsel and Secretary
of the VK Adviser, the AC Adviser, the
Distributor, Van Kampen American
Capital Management, Inc., Van Kampen
American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital
Exchange Corporation, Van Kampen
American Capital Services, Inc.,
ACCESS, Van Kampen Merritt Equity
Advisors Corp. and Van Kampen Merritt
Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel
and Secretary of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996,
Senior Vice President, Deputy General
Counsel and Secretary of VSM Inc. and
VCJ Inc. Assistant Secretary of each
of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser.
</TABLE>
B-20
<PAGE> 40
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICE WITH FUND DURING PAST 5 YEARS
<S> <C> <C>
Weston B. Wetherell.......... Assistant Secretary Vice President, Associate General Counsel and
Date of Birth: 06/15/56 Assistant Secretary of Van Kampen American
Capital, the VK Adviser, the AC Adviser, the
Distributor, Van Kampen American Capital
Management, Inc. and Van Kampen American Capital
Advisors, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and other
investment companies advised by the VK Adviser
and the AC Adviser.
Steven M. Hill............... Assistant Treasurer Assistant Vice President of the VK Adviser and
Date of Birth: 10/16/64 AC Adviser. Assistant Treasurer of each of the
Van Kampen American Capital Funds and other
investment companies advised by the VK Adviser
and the AC Adviser.
M. Robert Sullivan........... Assistant Controller Assistant Vice President of the VK Adviser and
Date of Birth: 03/30/33 the AC Adviser. Assistant Controller of each of
the Van Kampen American Capital Funds and other
investment companies advised by the VK Adviser
and the AC Adviser.
Edward A. Treichel........... Vice President Mr. Treichel is Senior Vice President of the
Date of Birth: 08/21/43 Adviser and Senior Vice President of Advisory
Corp. and an agent of Van Kampen American
Capital Distributors, Inc. Prior to 1992, Mr.
Treichel was a consultant with G.P. Lauter &
Associates, a financial consulting firm.
John M. McCareins............ Vice President Mr. McCareins is First Vice President of the
Date of Birth: 01/31/49 Adviser and Advisory Corp. and an agent of Van
Kampen American Capital Distributors, Inc.
Michael P. Kamradt........... Vice President Mr. Kamradt is First Vice President of the
Date of Birth: 05/14/56 Adviser and Advisory Corp. and an agent of Van
Kampen American Capital Distributors, Inc.
</TABLE>
With respect to each Fund, as of April 4, 1997, the trustees and officers as a
group owned less than 1% of the outstanding shares of the Fund. At such date,
the "interested persons" of the Fund as a group owned an aggregate of less than
5% of the outstanding shares of the Fund and no person owned 5% or more of the
outstanding shares of the Fund except as noted below.
B-21
<PAGE> 41
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF PERCENT OF
FUND BENEFICIAL OWNER BENEFICIAL OWNERSHIP FUND
---- ------------------- -------------------- ----------
<S> <C> <C> <C>
ACTIVE CORE FUND Wendel & Co. 199,062 35.04%
A/C # 200226
FBO Klukwan Inc Permanent Fund
C/O Bank of NY Mutual FD Reorg Dept
PO Box 1066
Wall Street Station
New York, NY 10286
Harry C Brousaides TR Boston 176,177 31.01%
Plasterers & Cement Masons Local 534
Deferred Income Fund
7 Frederika St
Boston, MA 02124-5113
Wendel & Co. 145,180 25.55%
A/C # 2002300
FBO Klukwan Inc Educational TR
C/O Bank of NY Mutual FD Reorg Dept
PO Box 1066
Wall Street Station
New York, NY 10286
Wendel & CO. 42,699 7.52%
A/C # 200232
FBO Klukwan Inc
Long Island Dir Hld
C/O Bank of NY Mutual FD Reorg Dept
PO Box 1066
Wall Street Station
New York, NY 10286
LIMITED DURATION FUND Wendel & Co. 678,572 82.82%
A/C # 200229
FBO General Income Trust
C/O Bank of NY Mutual FD Reorg Dept
PO Box 1066
Wall Street Station
New York, NY 10286
Jerry McCall TR 135,761 16.57%
Plumbers Local Union Number 68
Group Protection PL DTD 1981
PO Box 8746
Houston, TX 77249-8746
</TABLE>
Those entities which own more than 25% of the outstanding shares of any Fund
would be deemed to control the Fund within the meaning of 1940 Act. 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.
B-22
<PAGE> 42
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 of more than $57 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 VK/AC
Holding, Inc. VK/AC Holding, Inc. is a wholly-owned subsidiary of MSAM Holdings
II, Inc. which, in turn, is a wholly-owned subsidiary of Morgan Stanley Group
Inc. The principal office of the Fund, the Adviser, the Distributor and VKAC is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, Van Kampen American Capital Asset Management, Inc. will be an
indirect subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.
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 team 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.
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
B-23
<PAGE> 43
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>
Active Core Fund...................... Up to one billion dollars 0.30%
Thereafter 0.25%
Limited Duration Fund................. Up to one billion dollars 0.30%
Thereafter 0.25%
</TABLE>
Each Fund's investment advisory agreement with the Adviser dated October 31,
1996 was approved by the shareholders of each respective Fund on October 28,
1996. Each agreement will continue until October 31, 1998, 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 1940 Act. 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 1940 Act, 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>
Active Core Fund............................................ 0.40%
Limited Duration Fund....................................... 0.40%
</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 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
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<PAGE> 44
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, 2.00% 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.
The Adviser 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 the Adviser without causing
that fund's expense ratio to exceed 0.40%, that fund may be required to
reimburse the Adviser for fees waived and/or expenses assumed within the
previous four years. Therefore, these expenses totaling $49,184 and $57,527 for
Active Core Fund and Limited Duration Fund, respectively, could become
liabilities of each respective Fund at a future date.
OTHER AGREEMENTS
FUND ACCOUNTING AGREEMENT. The Fund has also entered into a Fund accounting
agreement pursuant to which the Adviser provides accounting services. Such
services are expected to enable the Funds to more closely monitor and maintain
its accounts and records. The Fund shares together with the other Van Kampen
American Capital mutual funds advised by the Adviser, Van Kampen American
Capital Investment Advisory Corp., and distributed by the Distributor in the
cost of providing such services, with 25% of such costs shared proportionately
based on the respective number of classes of securities issued per fund and the
remaining 75% of such cost based proportionally on their respective net assets
per fund.
For the period ended December 31, 1996, the Adviser waived its cost of
providing accounting services for each Fund.
LEGAL SERVICES AGREEMENT. The Funds and each of the Van Kampen American
Capital funds advised by Van Kampen American Capital Investment Advisory Corp.,
and distributed by the Distributor have entered into Legal Services Agreements
pursuant to which Van Kampen American Capital, Inc. provides legal services,
including without limitation: accurate 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. It is expected that Van Kampen American
Capital, Inc. can render such legal services on a more cost effective basis than
other providers of such services. Payment by the Fund for such services is made
on a cost basis for the employment of personnel as well as the overhead and the
equipment necessary to render such services. Other funds distributed by the
Distributor also receive legal services from Van Kampen American Capital, Inc.
Of the total costs for legal services provided to funds distributed by the
Distributor, one half of such costs are allocated equally to each fund and the
remaining one half of such costs are allocated to specific funds based on
monthly time records.
For the period ended December 31, 1996, Van Kampen American Capital waived its
cost of providing legal services for each Fund.
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<PAGE> 45
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
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 accountants for each Fund are KPMG Peat Marwick LLP, 303 East
Wacker Drive, Chicago, IL 60601. The selection of independent accountants 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.
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
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<PAGE> 46
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.
Each Fund placed brokerage transactions with brokers that were considered
affiliated persons of the Adviser such as Morgan Stanley Group Inc. The
negotiated commission paid to an affiliated broker on any transaction would be
comparable to that payable to a non-affiliated broker in a similar transaction.
Neither Fund paid commissions to Morgan Stanley Group Inc. during the fiscal
period ended 1996.
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, (Illinois) 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
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<PAGE> 47
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 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.
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.
Each Fund will inform its shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
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<PAGE> 48
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 wholly-owned
subsidiary of VK/AC Holding Inc.
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 captions "How to Buy Shares," "How to Sell Shares" and "Shareholder
Services."
LEGAL COUNSEL
Counsel to the Funds is Skadden, Arps, Slate, Meagher & Flom LLP, Boston,
Massachusetts and Skadden, Arps, Slate, Meagher & Flom (Illinois) 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.
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<PAGE> 49
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.
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
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<PAGE> 50
amortization of bond premiums, and may include non-recurring short-term capital
gains and premiums from futures transactions engaged in by the Fund.
The non-standardized cumulative total return for the Active Core Fund for the
approximately eight month period from April 23, 1996 (the commencement of
investment operations of the Fund) through December 31, 1996 was 5.20%.
The non-standardized cumulative total return for the Limited Duration Fund for
the approximately eight month period from April 23, 1996, (the commencement of
investment operations of the Fund) through December 31, 1996 was 4.14%.
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. (the
"Distributor"), as principal underwriter, which is located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. The Distributor 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 without notice.
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 Account
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 the Distributor at One
Parkview Plaza, Oakbrook Terrace, IL 60181 or call the Explorer Institutional
FundsSM at 1-800-822-3699 to determine whether a Fund is registered or qualified
for sale in their particular jurisdiction.
HOW TO SELL SHARES
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" ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO
64141-9256 Re: Explorer Institutional FundsSM. The request should indicate the
number of shares to be redeemed of a particular Fund and identify the account
number and
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<PAGE> 51
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 Investor Services,
Inc., 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 1-800-822-3699 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,
the Trust, the Funds, the Distributor or ACCESS Investor Services, Inc.
("ACCESS") 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, the Distributor and ACCESS 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 Trust, the
Funds, the Distributor or ACCESS. 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 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.
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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, the Funds, the Distributor nor ACCESS 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 1.00% 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.
SHAREHOLDER SERVICES
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
Fund of the Explorer Institutional FundsSM which are then available for sale.
Under the exchange privilege, the Funds offer to exchange their respective
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 1-800-822-3699 prior to 4:00 p.m.
B-33
<PAGE> 53
Central Standard time and requesting the exchange. The exchange will be
processed at the net asset values of the respective Fund next determined after
receipt of such request. By utilizing the telephone exchange service, a
shareholder authorizes the Trust or ACCESS to act upon the instructions of any
person by telephone to exchange shares from any account of a Fund for which such
service has been authorized to any identically registered account(s) with any
other Fund. The Funds, the Trust, the Distributor and ACCESS 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 ACCESS 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 "How to
Sell 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.
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.
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
B-34
<PAGE> 54
(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-35
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
The Explorer Institutional Trust:
We have audited the accompanying statements of assets and liabilities of The
Explorer Institutional Trust (comprising the Active Core Fund and Limited
Duration Fund, collectively referred to as the "Funds"), including the
portfolios of investments, as of December 31, 1996, and the related statements
of operations, the statements of changes in net assets, and the financial
highlights for the period from April 23, 1996 (commencement of investment
operations) to December 31, 1996. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting The Explorer Institutional Trust as of
December 31, 1996, the results of its operations, the changes in its net assets,
and the financial highlights for the period from April 23, 1996 (commencement of
investment operations) to December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 12, 1997
B-36
<PAGE> 56
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES 4.4%
$150 American Express Credit, 1996-1, Class A 6.800 % 12/15/03 $151,875
125 Citibank Credit Card, 1996-1, Class A * 02/07/03 96,016
---------
TOTAL ASSET BACKED SECURITIES 247,891
---------
CORPORATE BONDS 11.7%
CONSUMER SERVICES 1.8%
100 Walt Disney Global Bond 6.750 03/30/06 99,170
---------
ENERGY 1.8%
100 Union Pacific Resources Group 7.000 10/15/06 100,760
---------
FINANCE 3.5%
100 First Chicago NBD 7.000 10/16/06 97,920
100 Ford Motor Credit Co. 5.750 01/25/01 96,880
---------
194,800
---------
POLLUTION CONTROL 0.4%
25 WMX Technologies, Inc. 6.375 12/01/03 24,475
---------
PRODUCER MANUFACTURING 2.5%
125 Deere & Co. 8.950 06/15/19 141,538
---------
UTILITIES 1.7%
100 Pacific Gas & Electric, First Mortgage, Ser 1993C 6.250 08/01/03 97,420
---------
TOTAL CORPORATE BONDS 658,163
---------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 47.8%
98 Federal Home Loan Mortgage Corp. Gold Convertible 15 Year
Pool #G10592 6.500 09/01/11 96,239
99 Federal Home Loan Mortgage Corp. Gold Convertible 15 Year
Pool #G10270 8.500 09/01/09 103,598
149 Federal Home Loan Mortgage Corp. Gold 30 Year
Pool #G00559 7.000 10/01/26 146,460
165 Federal Home Loan Mortgage Corp. 5.630 01/10/03 158,174
100 Federal National Mortgage Association Medium Term 5.280 03/01/99 98,500
500 Federal National Mortgage Association Medium Term 6.625 05/21/01 505,480
48 Federal National Mortgage Association 15 Year Dwarf
Pool #250649 6.500 08/01/11 47,607
29 Federal National Mortgage Association 15 Year Dwarf
Pool #250589 7.000 06/01/11 28,661
150 Federal National Mortgage Association Pool #25056 6.000 05/01/26 138,926
150 Federal National Mortgage Association Pool #35847 7.000 10/01/26 146,404
294 Federal National Mortgage Association Pools 7.500 11/01/22 to 11/01/26 293,970
147 Federal National Mortgage Association Pool #25073 8.000 10/01/26 150,153
97 Government National Mortgage Association Platinum 15 Year
Pool #780419 7.500 12/15/09 99,325
145 Government National Mortgage Association Platinum
Pool #780440 8.500 11/15/17 152,980
147 Government National Mortgage Association Pool #39 6.500 04/15/26 140,302
33 Government National Mortgage Association Pool #42 8.500 06/15/26 34,114
98 Government National Mortgage Association Pool #42 9.000 08/15/26 103,317
96 Government National Mortgage Association Pool #78 9.500 08/15/22 104,211
150 Tennessee Valley Authority 6.375 06/15/05 147,470
---------
Total United States Government Agency Obligations 2,695,891
---------
</TABLE>
B-37 See Notes to Financial Statements
<PAGE> 57
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES TREASURY OBLIGATIONS 32.7%
$250 United States Treasury Bonds 8.125 % 08/15/19 $289,103
100 United States Treasury Notes 5.125 11/30/98 98,688
600 United States Treasury Notes 6.375 01/15/99 to 08/15/02 605,224
305 United States Treasury Notes 6.500 05/31/01 308,575
200 United States Treasury Notes 6.750 04/30/00 203,968
225 United States Treasury Notes 6.875 05/15/06 232,137
100 United States Treasury Notes 7.500 02/15/05 107,047
----------
TOTAL UNITED STATES TREASURY OBLIGATIONS 1,844,742
----------
TOTAL LONG-TERM INVESTMENTS 96.6%
(Cost $5,365,223) (a) 5,446,687
SHORT-TERM INVESTMENTS AT AMORTIZED COST 1.8% 99,967
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6% 93,692
----------
NET ASSETS 100.0% $5,640,346
==========
</TABLE>
* Zero coupon bond
(a) At December 31, 1996, for federal income tax purposes, cost is $5,365,223,
the aggregate gross unrealized appreciation is $85,641 and the
aggregate gross unrealized depreciation is $4,177, resulting in net
unrealized appreciation of $81,464.
The following table summarizes the portfolio composition at December 31, 1996,
based upon quality ratings issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION BY CREDIT QUALITY
<S> <C>
U.S. Govt. and Agency Obligations 83.4 %
AAA 4.5
A 12.1
-----
100.0 %
=====
</TABLE>
B-38 See Notes to Financial Statements
<PAGE> 58
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Long-Term Investments, at Market Value (Cost $5,365,223) (Note 1) $ 5,446,687
Short-Term Investments (Note 1) 99,967
Cash 4,378
Receivables:
Interest 63,596
Fund Shares Sold 34,679
Unamortized Organizational Expenses (Note 1) 34,632
-----------
Total Assets 5,683,939
-----------
LIABILITIES:
Income and Capital Gain Distributions Payable 34,995
Accrued Expenses 7,537
Deferred Compensation and Retirement Plans (Note 2) 1,061
-----------
Total Liabilities 43,593
-----------
NET ASSETS $ 5,640,346
-----------
NET ASSETS CONSIST OF:
Capital (Note 3) $ 5,557,380
Net Unrealized Appreciation on Investments 81,464
Accumulated Net Realized Gain on Investments 2,039
Accumulated Distributions is Excess of Net Investment Income (Note 1) (537)
-----------
NET ASSETS $ 5,640,346
===========
Net Asset Value Per Share (Based on net assets of $5,640,346 and 559,271 shares of
beneficial interest issued and outstanding) $10.09
===========
</TABLE>
B-39 See Notes to Financial Statements
<PAGE> 59
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 23, 1996 (COMMENCEMENT OF INVESTMENT
OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $ 222,864
---------
EXPENSES:
Audit 18,500
Accounting (Note 2) 11,660
Investment Advisory Fee (Note 2) 10,365
Legal (Note 2) 9,596
Amortization of Organizational Expenses (Note 1) 5,368
Shareholder Services (Note 2) 2,800
Registration and Filing Fees 1,700
Printing 1,600
Trustees Fees and Expenses (Note 2) 1,561
---------
Total Expenses 63,150
Less Fees Waived and Expenses Reimbursed ($10,365 and
$38,819, respectively) (Note 2) 49,184
---------
Net Expenses 13,966
---------
NET INVESTMENT INCOME $ 208,898
=========
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net Realized Gain on Investments $ 6,691
---------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period 0
End of the Period 81,464
---------
Net Unrealized Appreciation on Investments During the Period 81,464
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 88,155
=========
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 297,053
=========
</TABLE>
B-40 See Notes to Financial Statements
<PAGE> 60
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD APRIL 23, 1996 (COMMENCEMENT OF INVESTMENT
OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
FROM INVESTMENT ACTIVITIES:
<S> <C>
Operations:
Net Investment Income $ 208,898
Net Realized Gain on Investments 6,691
Net Unrealized Appreciation on Investments During the Period 81,464
------------
Change in Net Assets from Operations 297,053
------------
Distributions from Net Investment Income (208,862)
Distributions from Net Realized Gain on Investments (Note 1) (5,225)
------------
Total Distributions (214,087)
------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 82,966
------------
FROM CAPITAL TRANSACTIONS (Note 3):
Proceeds from Shares Sold 6,748,576
Net Asset Value of Shares Issued Through Dividend Reinvestment 149,654
Cost of Shares Repurchased (1,390,850)
------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 5,507,380
------------
TOTAL INCREASE IN NET ASSETS 5,590,346
NET ASSETS:
Beginning of the Period 50,000
------------
End of the Period (Including accumulated distributions in excess
of net investment income of $537 $ 5,640,346
============
</TABLE>
See Notes to Financial Statements
B-41
<PAGE> 61
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE
OF THE FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
April 23, 1996
(Commencement
of Investment
Operations) to
December 31, 1996
- ---------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period $ 10.000
----------
Net Investment Income 0.409
Net Realized and Unrealized Gain on Investments 0.095
----------
Total from Investment Operations 0.504
----------
Less:
Distributions from Net Investment Income 0.409
Distributions from Net Realized Gain on Investments 0.010
----------
Total Distributions 0.419
----------
Net Asset Value, End of the Period $ 10.085
==========
Total Return * 5.20% **
Net Assets at End of the Period (In millions) $5.6
Ratio of Expenses to Average Net Assets* 0.40%
Ratio of Net Investment Income to Average Net Assets* 5.98%
Portfolio Turnover 84% **
*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 1.81%
Ratio of Net Investment Income to Average Net Assets 4.57%
** Non-Annualized
</TABLE>
See Notes to Financial Statements
B-42
<PAGE> 62
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET BACKED SECURITIES 2.1%
$110 American Express Credit,1996-1, Class A 6.800 % 12/15/03 $111,375
125 Citibank Credit Card, 1996-1, Class A * 02/07/03 96,016
----------
TOTAL ASSET BACKED SECURITIES 207,391
----------
CORPORATE BONDS 2.5%
FINANCE 1.7%
175 Ford Motor Credit Co. 5.750 01/25/01 169,540
----------
POLLUTION CONTROL 0.3%
25 WMX Technologies, Inc. 6.375 12/01/03 24,475
----------
UTILITIES 0.5%
50 Pacific Gas & Electric, First Mortgage, Ser 1993 6.250 08/01/03 48,710
----------
TOTAL CORPORATE BONDS 242,725
----------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 12.6%
500 Federal Home Loan Mortgage Corp. 5.630 01/10/03 479,315
15 Federal Home Loan Mortgage Corp. Convertible 15 Year
Pool #G10270 8.500 09/01/09 15,602
20 Federal Home Loan Mortgage Corp. Gold 30 Year
Pool #G00559 7.000 10/01/26 19,529
97 Federal National Mortgage Association 15 Year Dwarf
Pool #250649 6.500 07/01/11 95,214
29 Federal National Mortgage Association 15 Year Dwarf
Pool #250589 7.000 12/31/23 28,661
100 Federal National Mortgage Association Medium Ter 5.280 03/01/99 98,500
49 Federal National Mortgage Association Pool 7.500 11/01/22 to 12/01 49,243
20 Federal National Mortgage Association Pool #2507 8.000 10/01/26 20,020
14 Government National Mortgage Association Platinum 15 Year
Pool #780419 7.500 12/15/09 14,607
19 Government National Mortgage Association Platinum
Pool #780440 8.500 11/15/17 20,262
98 Government National Mortgage Association Pool #4 9.000 08/15/26 103,317
290 Tennessee Valley Authority 6.375 06/15/05 285,108
---------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 1,229,378
---------
UNITED STATES TREASURY OBLIGATIONS 74.2%
500 United States Treasury Notes 4.750 08/31/98 491,485
150 United States Treasury Notes 5.000 01/31/98 148,922
1,925 United States Treasury Notes 5.125 02/28/98 to 11/30 1,906,160
100 United States Treasury Notes 5.375 11/30/97 99,797
300 United States Treasury Notes 5.500 12/31/00 293,343
300 United States Treasury Notes 5.625 08/31/97 300,093
550 United States Treasury Notes 5.875 04/30/98 550,946
700 United States Treasury Notes 6.000 08/31/97 701,750
600 United States Treasury Notes 6.250 01/31/97 600,282
1,100 United States Treasury Notes 6.375 01/15/99 to 07/15 1,110,579
500 United States Treasury Notes 7.375 11/15/97 507,110
500 United States Treasury Notes 7.750 12/31/99 523,045
---------
TOTAL UNITED STATES TREASURY OBLIGATIONS 7,233,512
---------
</TABLE>
See Notes to Financial Statements
B-43
<PAGE> 63
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 91.4%
(Cost $8,834,970) (a) $8,913,006
----------
SHORT-TERM INVESTMENTS 7.1%
Federal Farm Credit Bank Discount Note ($195,000 par, yielding 6.0%, 01/02/97 maturity) 194,935
Federal National Mortgage Association Discount Note ($500,000 par, yielding 5.3%,
03/27/97 maturity) 493,705
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $688,544) (a) 688,640
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5% 151,138
----------
NET ASSETS 100.0% $9,752,784
==========
</TABLE>
* Zero coupon bond
(a) At December 31, 1996, for federal income tax purposes cost, including
short-term investments, is $9,523,514, the aggregate gross unrealized
appreciation is $79,816 and the aggregate gross unrealized depreciation is
$1,684, resulting in net unrealized appreciation of $78,132.
The following table summarizes the portfolio composition at December 31, 1996,
based upon quality ratings issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
<TABLE>
<S> <C>
PORTFOLIO COMPOSITION BY CREDIT QUALITY
US Government and Agency Obligations 95.0 %
AAA 2.3
A 2.7
-----
100.0 %
=====
</TABLE>
See Notes to Financial Statements
B-44
<PAGE> 64
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Long-Term Investments, at Market Value (Cost $8,834,970) (Note 1) $ 8,913,006
Short-Term Investments (Cost $688,544) (Note 1) 688,640
Cash 3,926
Receivables:
Interest 130,533
Fund Shares Sold 46,477
Unamortized Organizational Expenses (Note 1) 34,632
---------------
Total Assets 9,817,214
---------------
LIABILITIES:
Income Distributions Payable 46,718
Accrued Expense 16,651
Deferred Compensation and Retirement Plans (Note 2) 1,061
---------------
Total Liabilities 64,430
---------------
NET ASSETS $ 9,752,784
===============
NET ASSETS CONSIST OF:
Capital (Note 3) $ 9,686,583
Net Unrealized Appreciation on Investments 78,132
Accumulated Undistributed Net Investment Income 62
Accumulated Net Realized Loss on Investments (11,993)
---------------
NET ASSETS $ 9,752,784
===============
Net Asset Value Per Share (Based on net assets of $9,752,784
and 973,451 shares of beneficial interest issued and outstanding) $10.02
===============
</TABLE>
B-45 See Notes to Financial Statements
<PAGE> 65
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 23, 1996 (COMMENCEMENT OF INVESTMENT
OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $ 350,669
----------
EXPENSES:
Accounting (Note 2) 19,500
Audit 18,375
Investment Advisory Fee (Note 2) 17,245
Legal (Note 2) 11,211
Amortization of Organizational Expenses (Note 1) 5,368
Shareholder Services (Note 2) 2,800
Registration and Filing Fees 2,947
Printing 1,598
Trustees Fees and Expenses (Note 2) 1,561
----------
Total Expenses 80,605
Less Fees Waived and Expenses Reimbursed ($17,245 and
$40,282, respectively) (Note 2) 57,527
----------
Net Expenses 23,078
----------
NET INVESTMENT INCOME $ 327,591
==========
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net Realized Loss on Investments $ (11,993)
----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period 0
End of the Period 78,132
----------
Net Unrealized Appreciation on Investments During the Period 78,132
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 66,139
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 393,730
==========
</TABLE>
B-46 See Notes to Financial Statements
<PAGE> 66
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD APRIL 23, 1996 (COMMENCEMENT OF INVESTMENT
OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income $ 327,591
Net Realized Loss on Investments (11,993)
Net Unrealized Appreciation on Investments During the Period 78,132
----------------
Change in Net Assets from Operations 393,730
Distributions from Net Investment Income (327,529)
----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 66,201
----------------
FROM CAPITAL TRANSACTIONS (Note 3):
Proceeds from Shares Sold 10,323,057
Net Asset Value of Shares Issued Through Dividend Reinvestment 305,526
Cost of Shares Repurchased (992,000)
----------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 9,636,583
----------------
TOTAL INCREASE IN NET ASSETS 9,702,784
NET ASSETS:
Beginning of the Period 50,000
----------------
End of the Period (Including accumulated undistributed net
investment income of $62 $ 9,752,784
================
</TABLE>
B-47 See Notes to Financial Statements
<PAGE> 67
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE
OF THE FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
April 23, 1996
(Commencement
of Investment
Operations) to
December 31, 1996
- ---------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period $ 10.000
--------
Net Investment Income .386
Net Realized and Unrealized Gain on Investments .019
--------
Total from Investment Operations .405
Less Distributions from Net Investment Investment Income .386
--------
Net Asset Value, End of the Period $ 10.019
========
Total Return * 4.14% **
Net Assets at End of the Period (In millions) $9.8
Ratio of Expenses to Average Net Assets* 0.40%
Ratio of Net Investment Income to Average Net Assets* 5.68%
Portfolio Turnover 16% **
*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 1.40%
Ratio of Net Investment Income to Average Net Assets 4.68%
</TABLE>
**Non-Annualized
B-48 See Notes to Financial Statements
<PAGE> 68
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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: Explorer Institutional Active Core
Fund ("Active Core Fund") and Explorer Institutional Limited Duration Fund
("Limited Duration Fund"). Each Fund is accounted for as a separate entity.
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. 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 60 days or less
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 December 31,
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.
Limited Duration Fund intends to utilize provisions of the federal income
tax laws which allow it to carry a realized capital loss forward for eight
years following the year of the loss and offset such losses against any future
realized capital gains. At December 31, 1996, Limited Duration Fund had an
accumulated capital loss carryforward for tax purposes of $11,993, which will
expire on December 31, 2004.
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. Distributions from net realized gains for book
purposes may include short-term capital gains which are included in ordinary
income for tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and
federal income tax purposes, the amount of distributable net investment income
may differ between book and federal income tax purposes causing book basis
distributions in excess of net investment income for a particular period.
Additionally, permanent book and tax basis differences for Active Core Fund
relating to the recognition of net realized losses on paydowns of mortgage
backed obligations totaling $573 have been reclassified from accumulated net
realized gain on investments to accumulated undistributed net investment
income.
B-49
<PAGE> 69
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ------------------------- -------------------
<S> <C>
First $1 billion .300 of 1%
Over $1 billion .250 of 1%
</TABLE>
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 previous four years.
Therefore, these expenses totaling $49,184 and $57,527 for Active Core Fund and
Limited Duration Fund, respectively, could become liabilities of each
respective Fund at a future date.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Funds, of which a trustee of the Funds is an
affiliated person.
For the period ended December 31, 1996, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $20,700 and $30,100,
respectively, representing VKAC's cost of providing accounting and legal
services to the Funds. These services are provided by VKAC at cost. All of
this expense has been assumed by VKAC.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Funds. For the period ended
December 31, 1996, Active Core Fund and Limited Duration Fund recognized
expenses of approximately $2,500 and $2,500, respectively, representing ACCESS'
cost of providing transfer agency and shareholder services plus a profit. All
of this expense has been assumed by VKAC.
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 December 31, 1996, VKAC owned 5,000 shares of each of the Funds.
3. CAPITAL TRANSACTIONS
There are an unlimited number of shares of beneficial interest of each Fund
without par value authorized.
For the period ended December 31, 1996, transactions in common shares were
as follows:
<TABLE>
<CAPTION>
ACTIVE LIMITED
CORE DURATION
FUND FUND
-------- ---------
<S> <C> <C>
Beginning Shares 5,000 5,000
Shares Sold 680,125 1,037,883
Shares Issued through
Dividend Reinvestment 14,916 30,568
Shares Repurchased (140,770) (100,000)
-------- ---------
Ending Shares 559,271 973,451
======== =========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of
investments, excluding forward commitment transactions and short-term
investments, were $9,354,955 and $3,997,735 for Active Core Fund and $9,964,256
and $1,132,758 for 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, such as Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage
Corporation (FHLMC).
B-50
<PAGE> 70
INDIVIDUAL APPLICATION
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION
<TABLE>
<S> <C>
INITIAL INVESTMENT($500,000 Minimum) Mail Application to:
Wire instructions will be supplied upon receipt of Edward Treichel, Sr., VP
application EXPLORER INSTITUTIONAL FUNDS(SM)
Explorer Institutional Active Core Institutional Asset Management
Fund Amount: 4th Floor
$________________ One Parkview Plaza
Explorer Institutional Limited Duration Fund Amount: Oakbrook Terrace, IL 60181
$________________ Phone # 1-800-822-3699
------------------------------------------------------------
</TABLE>
A. 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
B. 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.
[ ] Payment Order. Dividends and redemptions should be wired to the
following bank rather than the registered owner.
<TABLE>
<S> <C>
------------------------------------------------------------ ------------------------------------
BANK NAME ACCOUNT NUMBER
============================================================
ADDRESS
------------------------------------------------------------
CITY STATE ZIP
CODE
</TABLE>
- --------------------------------------------------------------------------------
3 AUTOMATED ACCOUNT SERVICES (This section must be completed or redemption
requests can only be accepted in writing)
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 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).
Wires: Minimum $
--------------.
B. AUTOMATED DIVIDEND PROGRAMS
I authorize the Fund to:
[ ] Deposit distributions from my Fund Account into the bank account
indicated (subject to the terms and conditions outlined in the
Prospectus). NOTE: IF NAME OF BANK ACCOUNT IS OTHER THAN THE
REGISTRATION OWNER OF THE FUND ACCOUNT, THE SIGNATURE GUARANTEE IN #4
MUST BE COMPLETED.
- --------------------------------------------------------------------------------
B-51
<PAGE> 71
- --------------------------------------------------------------------------------
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 COMPLETED BY ACCOUNT EXECUTIVE
<TABLE>
<S> <C>
----------------------------------------------------- ---------------------------------
NAME OF VAN KAMPEN AMERICAN CAPITAL ACCOUNT EXECUTIVE TELEPHONE
-----------------------------------------------------
OFFICE LOCATION
VKAC Account Number/Date
================================================
</TABLE>
B-52
<PAGE> 72
INSTITUTIONAL APPLICATION
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION
<TABLE>
<S> <C>
INITIAL INVESTMENT($500,000 Minimum) Mail Application to:
Wire instructions will be supplied upon receipt of Edward Treichel, Sr., VP
application EXPLORER INSTITUTIONAL FUNDS(SM)
Explorer Institutional Active Core Fund Institutional Asset Management
(7481) Amount: 4th Floor
$________________ One Parkview Plaza
Explorer Institutional Limited Duration Fund (7482) Amount: Oakbrook Terrace, IL 60181
$________________ Phone # 1-800-822-3699
------------------------------------------------------------
</TABLE>
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
- --------------------------------------------------------------------------------
2 DISTRIBUTIONS All distributions are reinvested in shares of the Fund unless
you elect otherwise.
[ ] Payment Order. Dividends and redemptions should be wired to the
following bank rather than the registered owner.
<TABLE>
<S> <C>
------------------------------------------------------------ ------------------------------------
BANK NAME ACCOUNT NUMBER
------------------------------------------------------------
ADDRESS
------------------------------------------------------------
CITY STATE ZIP
CODE
</TABLE>
- --------------------------------------------------------------------------------
3 AUTOMATED ACCOUNT SERVICES (This section must be completed or redemption
requests can only be accepted in writing)
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 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).
Wires: minimum $
--------------.
B. AUTOMATED DIVIDEND PROGRAMS
I authorize the Fund to:
[ ] Deposit distributions from my Fund Account into the bank account
indicated (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 #4 MUST BE
COMPLETED.
- --------------------------------------------------------------------------------
B-53
<PAGE> 73
- --------------------------------------------------------------------------------
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 COMPLETED BY ACCOUNT EXECUTIVE
<TABLE>
<S> <C>
----------------------------------------------------- ---------------------------------
NAME OF VAN KAMPEN AMERICAN CAPITAL ACCOUNT EXECUTIVE TELEPHONE
-----------------------------------------------------
OFFICE LOCATION
VKAC Account Number/Date
================================================
</TABLE>
- --------------------------------------------------------------------------------
B-54
<PAGE> 74
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
<TABLE>
<S> <S> <C>
Included in the Prospectus:
Financial Highlights
Included in Statement of Additional Information:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
</TABLE>
(B) EXHIBITS:
<TABLE>
<S> <C> <C>
(1)(a) Agreement and Declaration of Trust.(1)
(b) Form of Amendment to the Agreement and Declaration of Trust.(2)
(c) Amended Certificate of Designation -- Active Core Fund.+
(d) Amended Certificate of Designation -- Limited Duration Fund.+
(2) By-Laws of the Registrant.(1)
(4) Form of Specimen of Share Certificate.
(a) Active Core Fund.(1)
(b) Limited Duration Fund.(1)
(5) Investment Advisory Agreement.
(a) Active Core Fund.+
(b) Limited Duration Fund.+
(6) Distribution Agreement.
(a) Active Core Fund.+
(b) Limited Duration Fund.+
(8)(a) Custodian Agreement.(3)
(b) Transfer Agency and Service Agreement.+
(9)(a) Fund Accounting Agreement.+
(b) Amended and Restated Legal Services Agreement.+
(10) Opinion and Consent of Counsel.
(a) Active Core Fund.(1)
(b) Limited Duration Fund.(1)
(11) Consents of KPMG Peat Marwick LLP.+
(13) Form of Letter Agreement.(1)
(14)(a) Copy of Proposed Model Simplified Employee Pension Plan.(1)
(b) Copy of Proposed Model Individual Retirement Account Plan.(1)
(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.+
(17)(a) Investment Companies for which Van Kampen American Capital
Distributors, Inc. acts as principal underwriter or depositor.+
(b) List of Officers and Directors of Van Kampen American Capital
Distributors, Inc.+
(24) Power of Attorney(2)
(27) Financial Data Schedules.+
</TABLE>
- -------------------------
(1) Incorporated by reference to the Trust's Registration Statement on Form
N-1A, File No. 33-84942, filed on October 11, 1994.
(2) Incorporated by reference to the Trust's Registration Statement on Form
N-1A, File No. 33-84942, filed on November 13, 1995.
(3) Incorporated by reference to Post-Effective Amendment No. 13 to Van Kampen
American Capital Equity Trust, File Nos. 33-8122 and 811-4805 filed on June
8, 1993.
+ Filed herewith.
C-1
<PAGE> 75
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
Please refer to the section of the Statement of Additional Information
captioned "Trustees and Officers."
ITEM 26. NUMBER OF HOLDERS OF SECURITIES:
As of April 4, 1997:
<TABLE>
<CAPTION>
(2)
(1) NUMBER
OF
RECORD
HOLDERS
TITLE OF CLASS -------
<S> <C>
Shares of Beneficial Interest no par value
Active Core Fund................................ 5
Limited Duration Fund........................... 3
</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 duties
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 a 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> 76
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
See "How the Funds Are Managed" in the Prospectus and "Trustees and
Officers" 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)(a) 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 (17)(b). Except as disclosed under the heading,
"Trustees and Officers" 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.
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> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE EXPLORER INSTITUTIONAL
TRUST, certifies that it meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and 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 April 28, 1997.
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 April 28, 1997
by the following persons in the capacities indicated:
Signature Title
--------- -----
Chief Executive Officer
/s/ Dennis J. McDonnell* Chairman of the Board, President
------------------------------- Chief Executive Officer and
Dennis J. McDonnell Trustee
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, as previously
filed.
/s/ Ronald A. Nyberg
-------------------------------
Ronald A. Nyberg
Attorney-in-fact
C-4
<PAGE> 78
THE EXPLORER INSTITUTIONAL TRUST
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM N-1A SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON
APRIL 28, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
(1)(c) Amended Certificate of Designation -- Active Core Fund
(d) Amended Certificate of Designation -- Limited Duration Fund
(5)(a) Investment Advisory Agreement -- Active Core Fund
(b) Investment Advisory Agreement -- Limited Duration Fund
(6)(a) Distribution Agreement -- Active Core Fund
(b) Distribution Agreement -- Limited Duration Fund
(8)(b) Transfer Agency and Service Agreement
(9)(a) Fund Accounting Agreement
(b) Amended and Restated Legal Services Agreement
(11) Consents of KPMG Peat Marwick LLP
(16) Schedule of Computation of Performance Quotations
(17)(a) Investment Companies for which Van Kampen American Capital
Distributors, Inc. acts as principal underwriter or
depositor.
(b) List of Officers and Directors of Van Kampen American
Capital Distributors, Inc.
(27) Financial Data Schedules
</TABLE>
C-5
<PAGE> 1
EXHIBIT (1)(c)
THE EXPLORER INSTITUTIONAL TRUST
Amended
Designation of Sub-Trust
of
Explorer Institutional Active Core Fund
as of April 15, 1996
The undersigned, being one of the Trustees of The Explorer
Institutional Trust, a Massachusetts business trust (the "Trust"), acting on
behalf of the other Trustees of the Trust pursuant to a resolution duly adopted
pursuant to Section 6.2, 6.5 and 11.3(a) of the Agreement and Declaration of
Trust of the Trust, does hereby divide the shares of beneficial interest of the
Trust, without par value ("Shares"), to create a separate series and sub-trust
thereof, within the meaning of said Section 6.2, as follows:
Section 1. The series and sub-trust is designated Explorer
Institutional Active Core Fund (referred to herein as the "Fund").
Section 2. The initial purchase price of shares of beneficial interest of
the Fund, the method of determination of net asset value of such shares, the
price, terms and manner of redemption of shares and the dividend rights of
holders of such shares shall be established by the Trustees of the Trust in
accordance with the provisions of the Declaration of Trust and shall be set
forth in the currently effective prospectus of the Fund, as amended from time to
time, under the Securities Act of 1933, as amended.
<PAGE> 1
EXHIBIT (1)(d)
THE EXPLORER INSTITUTIONAL TRUST
Amended
Designation of Sub-Trust
of
Explorer Institutional Limited Duration Fund
as of April 15, 1996
The undersigned, being one of the Trustees of The Explorer Institutional
Trust, a Massachusetts business trust (the "Trust"), acting on behalf of the
other Trustees of the Trust pursuant to a resolution duly adopted pursuant to
Section 6.2, 6.5 and 11.3(a) of the Agreement and Declaration of Trust of the
Trust, does hereby divide the shares of beneficial interest of the Trust,
without par value ("Shares"), to create a separate series and sub-trust
thereof, within the meaning of said Section 6.2, as follows:
Section 1. The series and sub-trust is designated Explorer
Institutional Limited Duration Fund (referred to herein as the "Fund").
Section 2. The initial purchase price of shares of beneficial interest
of the Fund, the method of determination of net asset value of such shares, the
price, terms and manner of redemption of shares and the dividend rights of
holders of such shares shall be established by the Trustees of the Trust in
accordance with the provisions of the Declaration of Trust and shall be set
forth in the currently effective prospectus of the Fund, as amended from time
to time, under the Securities Act of 1933, as amended.
<PAGE> 1
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of October 31, 1996, by and
between THE EXPLORER INSTITUTIONAL ACTIVE CORE FUND (the "Fund"), on behalf of
its sub-trust THE EXPLORER INSTITUTIONAL TRUST, a Massachusetts business trust
(the "Trust"), and VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC. (the
"Adviser"), a Delaware corporation.
1. (a) Retention of Adviser by Fund. The Fund hereby employs the Adviser
to act as the investment adviser for and to manage the investment and
reinvestment of the assets of the Fund in accordance with the Fund's investment
objective and policies and limitations, and to administer its affairs to the
extent requested by, and subject to the review and supervision of, the Board of
Trustees of the Fund for the period and upon the terms herein set forth. The
investment of funds shall be subject to all applicable restrictions of
applicable law and of the Declaration of Trust and By-Laws of the Trust, and
resolutions of the Board of Trustees of the Fund as may from time to time be in
force and delivered or made available to the Adviser.
(b) Adviser's Acceptance of Employment. The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation the
selection of securities for the Fund to purchase, hold or sell and the
selection of brokers through whom the Fund's portfolio transactions are
executed, in accordance with the policies adopted by the Fund and its Board of
Trustees), to administer the business affairs of the Fund, to furnish offices
and necessary facilities and equipment to the Fund, to provide administrative
services for the Fund, to render periodic reports to the Board of Trustees of
the Fund, and to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
(c) Independent Contractor. The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Fund in any way or otherwise be deemed as agent of the Fund.
(d) Non-Exclusive Agreement. The services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
2. (a) Fee. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee equal to a percentage of the average daily net
assets of the Fund as follows:
AVERAGE DAILY
NET ASSETS % PER ANNUM
------------- ------------
Up to one billion dollars 0.30%
Thereafter 0.25%
(b) Expense Limitation. The Adviser's compensation for any fiscal year
of the Fund shall be reduced by the amount, if any, by which the Fund's expense
for such fiscal year exceeds the most restrictive applicable expense limitation
in any jurisdiction in which the Fund's shares are qualified for offer and
sale, as such limitations set forth in the most recent notice thereof furnished
by the Adviser to the Fund. For purposes of this paragraph there shall be
excluded from computation of the Fund's expenses any amount borne directly or
indirectly by the Fund which is permitted to be excluded from the computation
of such limitation by such statute or regulatory authority. If for any month
expenses of the Fund properly included in such calculation exceed 1/12 of the
amount permitted annually by the most restrictive applicable expense
limitation, the payment to the Adviser for that month shall be reduced, and, if
necessary, the Adviser shall make a refund payment to the Fund, so that the
total net expense for
<PAGE> 2
the month will not exceed 1/12 of such amount. As of the end of the Fund's
fiscal year, however, the computations and payments shall be readjusted so that
the aggregate compensation payable to the Adviser for the year is equal to the
fee set forth in subsection (a) of this Section 2, diminished to the extent
necessary so that the expenses for the year do not exceed those permitted by
the applicable expense limitation.
In addition to the expense limitation described above, during the term of
this Agreement, the Adviser may determine to waive or reimburse to the Fund all
or a portion of its fees, in order to insure that the total expenses of the
Fund, exclusive of extraordinary costs or expenses such as legal, accounting or
other costs of expenses not incurred in the course of the Fund's ongoing
operations, and expenditures which are capitalized in accordance with generally
accepted accounting principles, but including fees paid to the Adviser pursuant
to subsection 2(a) above, shall not exceed such expense limitation as may be
set forth in the Fund's prospectus from time to time. Interest, taxes,
Brokers' commissions and other charges relating to the purchase and sale of
securities are not regarded as expenses for this purpose. The Fund agrees that
any waiver or reimbursement to the Fund by the Adviser pursuant to this
paragraph shall be deemed a contingent liability of the Fund which shall be
subject to potential reimbursement by the 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
expense limitation set forth in the Fund's prospectus from time to time, 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 (4)
years of recognition of the contingent liability by the Fund.
(c) Determination of Net Asset Value. The net asset value of the Fund
shall be calculated as of the close of the New York Stock Exchange on each day
the Exchange is open for trading or such other time or times as the trustees
may determine in accordance with the provisions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as from time to time in force. For the purpose of the
foregoing computations, on each such day when net asset value is not
calculated, the net asset value of a share of beneficial interest of the Fund
shall be deemed to be the net asset value of such share as of the close of
business of the last day on which such calculation was made.
(d) Proration. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in
effect during such month and year, respectively.
3. Expenses. In addition to the fee of the Adviser, the Fund shall
assume and pay any expenses for services rendered by a custodian for the
safekeeping of the Fund's securities or other property, for keeping its books
of account, for any other charges of the custodian and for calculating the net
asset value of the Fund as provided above. The Adviser shall not be required
to pay, and the Fund shall assume and pay, the charges and expenses of its
operations, including compensation of the trustees (other than those who are
interested persons of the Adviser and other than those who are interested
persons of the distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and expenses of
independent accountants, of legal counsel and of any transfer or dividend
disbursing agent, 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 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 on account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not pay or incur
any obligation for any management or administrative expenses for which the Fund
intends to seek reimbursement from the Adviser without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by law.
2
<PAGE> 3
4. Interested Persons. Subject to applicable statutes and regulations,
it is understood that trustees, officers, shareholders and agents of the Fund
are or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents
of the Adviser may be interest in the Fund as trustees, officers, shareholders,
agents or otherwise.
5. Liability. The Adviser shall not be liable for any error of judgment
or of law, or for any loss suffered by the Fund in connection with the matters
to which this 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 this Agreement.
6. (a) Term. This Agreement shall become effective on the date hereof
and shall remain in full force until the second anniversary of the date hereof
unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter, but only as long as such
continuance is specifically approved as least annually in the manner required
by the Investment Company Act of 1940, as amended.
(b) Termination. This Agreement shall automatically terminate in
the event of its assignment. This Agreement may be terminated at any time
without the payment of any penalty by the Fund or by the Adviser on sixty (60)
days written notice to the other party. The Fund may effect termination by
action of the Board of Trustees or by vote of a majority of the outstanding
shares of stock of the Fund, accompanied by appropriate notice. This Agreement
may be terminated at any time without the payment of any penalty and without
advance notice by the Board of Trustees or by vote of a majority of the
outstanding shares of the Fund in the event that it shall have been established
by a court of competent jurisdiction that the Adviser or any officer or
director of the Adviser has taken any action which results in a breach of the
covenants of the Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement shall
not affect the right of the Adviser to receive payment on any unpaid balance of
the compensation described in Section 2 earned prior to such termination.
7. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
shall not be thereby affected.
8. Notices. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
9. Disclaimer. The Adviser acknowledges and agrees that, as provided in
the Declaration of Trust of the Trust, the shareholders, trustees, officers,
employees and other agents of the Trust and the Fund shall not personally be
bound by or liable hereunder, nor shall resort be had to their private property
for the satisfaction of any obligation or claim hereunder.
10. Use of the Name "Explorer Institutional". Van Kampen Merritt Inc.
("Van Kampen") has consented to the use by the Trust of the identifying word
or name "Explorer Institutional" in the name of the Trust and its Sub-trusts.
Such consent is conditioned upon the employment of Van Kampen, its successors
or any affiliate thereof, as investment advisor and distributor of the Trust
and each of its Sub-trusts. As between the Trust and itself, Van Kampen
controls the use of the name of the Trust insofar as such name contains
"Explorer Institutional". The name or identifying word "Explorer
Institutional" may be used from time to time in other connections and for other
purposes by Van Kampen or affiliated entities. Van Kampen may require the
Trust to cease using "Explorer Institutional" in the name of the Trust if the
Trust ceases to employ, for any reason, Van Kampen, an affiliate, or any
successor as investment advisor and distributor of the Trust and each of its
Sub-trusts.
3
<PAGE> 4
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
By: /s/ Dennis J. McDonnell
----------------------------------------------
Dennis J. McDonnell, President
THE EXPLORER INSTITUTIONAL TRUST, on behalf of its
sub-trust
THE EXPLORER INSTITUTIONAL ACTIVE CORE FUND
By: /s/ Dennis J. McDonnell
----------------------------------------------
Dennis J. McDonnell, President
4
<PAGE> 1
EXHIBIT 5(b)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of October 31,1996, by and
between THE EXPLORER INSTITUTIONAL LIMITED DURATION FUND (the "Fund"), on
behalf of its sub-trust THE EXPLORER INSTITUTIONAL TRUST, a Massachusetts
business trust (the "Trust"), and VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
(the "Adviser"), a Delaware corporation.
1. (a) Retention of Adviser by Fund. The Fund hereby employs the
Adviser to act as the investment adviser for and to manage the investment and
reinvestment of the assets of the Fund in accordance with the Fund's investment
objective and policies and limitations, and to administer its affairs to the
extent requested by, and subject to the review and supervision of, the Board of
Trustees of the Fund for the period and upon the terms herein set forth. The
investment of funds shall be subject to all applicable restrictions of
applicable law and of the Declaration of Trust and By-Laws of the Trust, and
resolutions of the Board of Trustees of the Fund as may from time to time be in
force and delivered or made available to the Adviser.
(b) Adviser's Acceptance of Employment. The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation the
selection of securities for the Fund to purchase, hold or sell and the
selection of brokers through whom the Fund's portfolio transactions are
executed, in accordance with the policies adopted by the Fund and its Board of
Trustees), to administer the business affairs of the Fund, to furnish offices
and necessary facilities and equipment to the Fund, to provide administrative
services for the Fund, to render periodic reports to the Board of Trustees of
the Fund, and to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
(c) Independent Contractor. The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Fund in any way or otherwise be deemed as agent of the Fund.
(d) Non-Exclusive Agreement. The services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
2. (a) Fee. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee equal to a percentage of the average daily net
assets of the Fund as follows:
AVERAGE DAILY
NET ASSETS % PER ANNUM
------------------------- ------------
Up to one billion dollars 0.30%
Thereafter 0.25%
(b) Expense Limitation. The Adviser's compensation for any fiscal
year of the Fund shall be reduced by the amount, if any, by which the Fund's
expense for such fiscal year exceeds the most restrictive applicable expense
limitation in any jurisdiction in which the Fund's shares are qualified for
offer and sale, as such limitations set forth in the most recent notice thereof
furnished by the Adviser to the Fund. For purposes of this paragraph there
shall be excluded from computation of the Fund's expenses any amount borne
directly or indirectly by the Fund which is permitted to be excluded from the
computation of such limitation by such statute or regulatory authority. If for
any month expenses of the Fund properly included in such calculation exceed
1/12 of the amount permitted annually by the most restrictive applicable
expense limitation, the payment to the Adviser for that month shall be reduced,
<PAGE> 2
and, if necessary, the Adviser shall make a refund payment to the Fund, so that
the total net expense for the month will not exceed 1/12 of such amount. As of
the end of the Fund's fiscal year, however, the computations and payments shall
be readjusted so that the aggregate compensation payable to the Adviser for the
year is equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the year do not
exceed those permitted by the applicable expense limitation.
In addition to the expense limitation described above, during the term of
this Agreement, the Adviser may determine to waive or reimburse to the Fund all
or a portion of its fees, in order to insure that the total expenses of the
Fund, exclusive of extraordinary costs or expenses such as legal, accounting or
other costs of expenses not incurred in the course of the Fund's ongoing
operations, and expenditures which are capitalized in accordance with generally
accepted accounting principles, but including fees paid to the Adviser pursuant
to subsection 2(a) above, shall not exceed such expense limitation as may be
set forth in the Fund's prospectus from time to time. Interest, taxes,
Brokers' commissions and other charges relating to the purchase and sale of
securities are not regarded as expenses for this purpose. The Fund agrees that
any waiver or reimbursement to the Fund by the Adviser pursuant to this
paragraph shall be deemed a contingent liability of the Fund which shall be
subject to potential reimbursement by the 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
expense limitation set forth in the Fund's prospectus from time to time, 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 (4)
years of recognition of the contingent liability by the Fund.
(c) Determination of Net Asset Value. The net asset value of the
Fund shall be calculated as of the close of the New York Stock Exchange on each
day the Exchange is open for trading or such other time or times as the
trustees may determine in accordance with the provisions of applicable law and
of the Declaration of Trust and By-Laws of the Trust, and resolutions of the
Board of Trustees of the Fund as from time to time in force. For the purpose
of the foregoing computations, on each such day when net asset value is not
calculated, the net asset value of a share of beneficial interest of the Fund
shall be deemed to be the net asset value of such share as of the close of
business of the last day on which such calculation was made.
(d) Proration. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in
effect during such month and year, respectively.
3. Expenses. In addition to the fee of the Adviser, the Fund
shall assume and pay any expenses for services rendered by a custodian for the
safekeeping of the Fund's securities or other property, for keeping its books
of account, for any other charges of the custodian and for calculating the net
asset value of the Fund as provided above. The Adviser shall not be required
to pay, and the Fund shall assume and pay, the charges and expenses of its
operations, including compensation of the trustees (other than those who are
interested persons of the Adviser and other than those who are interested
persons of the distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and expenses of
independent accountants, of legal counsel and of any transfer or dividend
disbursing agent, 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 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 on account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not pay or incur
any obligation for any management or administrative expenses for which the Fund
intends to seek reimbursement from the Adviser without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by law.
2
<PAGE> 3
4. Interested Persons. Subject to applicable statutes and
regulations, it is understood that trustees, officers, shareholders and agents
of the Fund are or may be interested in the Adviser as directors, officers,
shareholders, agents or otherwise and that the directors, officers,
shareholders and agents of the Adviser may be interest in the Fund as trustees,
officers, shareholders, agents or otherwise.
5. Liability. The Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which this 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 this Agreement.
6. (a) Term. This Agreement shall become effective on the date hereof
and shall remain in full force until the second anniversary of the date hereof
unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter, but only as long as such
continuance is specifically approved as least annually in the manner required
by the Investment Company Act of 1940, as amended.
(b) Termination. This Agreement shall automatically terminate in
the event of its assignment. This Agreement may be terminated at any time
without the payment of any penalty by the Fund or by the Adviser on sixty (60)
days written notice to the other party. The Fund may effect termination by
action of the Board of Trustees or by vote of a majority of the outstanding
shares of stock of the Fund, accompanied by appropriate notice. This Agreement
may be terminated at any time without the payment of any penalty and without
advance notice by the Board of Trustees or by vote of a majority of the
outstanding shares of the Fund in the event that it shall have been established
by a court of competent jurisdiction that the Adviser or any officer or
director of the Adviser has taken any action which results in a breach of the
covenants of the Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement shall
not affect the right of the Adviser to receive payment on any unpaid balance of
the compensation described in Section 2 earned prior to such termination.
7. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
shall not be thereby affected.
8. Notices. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
9. Disclaimer. The Adviser acknowledges and agrees that, as provided in
the Declaration of Trust of the Trust, the shareholders, trustees, officers,
employees and other agents of the Trust and the Fund shall not personally be
bound by or liable hereunder, nor shall resort be had to their private property
for the satisfaction of any obligation or claim hereunder.
10. Use of the Name "Explorer Institutional". Van Kampen Merritt Inc.
("Van Kampen") has consented to the use by the Trust of the identifying word
or name "Explorer Institutional" in the name of the Trust and its Sub-trusts.
Such consent is conditioned upon the employment of Van Kampen, its
successors or any affiliate thereof, as investment advisor and distributor of
the Trust and each of its Sub-trusts. As between the Trust and itself, Van
Kampen controls the use of the name of the Trust insofar as such name
contains "Explorer Institutional". The name or identifying word "Explorer
Institutional" may be used from time to time in other connections and for
other purposes by Van Kampen or affiliated entities. Van Kampen may require
the Trust to cease using "Explorer Institutional" in the name of the Trust if
the Trust ceases to employ, for any reason, Van Kampen, an affiliate, or any
successor as investment advisor and distributor of the Trust and each of its
Sub-trusts.
3
<PAGE> 4
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
THE EXPLORER INSTITUTIONAL TRUST, on behalf of its
sub-trust
THE EXPLORER INSTITUTIONAL LIMITED DURATION FUND
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
4
<PAGE> 1
EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT dated as of October 31, 1996 (the "Agreement")
by and between the THE EXPLORER INSTITUTIONAL TRUST, a Massachusetts business
trust (the "Trust"), on behalf of its sub-trust, the EXPLORER INSTITUTIONAL
ACTIVE CORE FUND (the "Fund"), and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS,
INC., a Delaware corporation (the "Distributor").
1. Appointment of Distributor. The Fund appoints the Distributor as a
principal underwriter and exclusive distributor of each class of its shares of
beneficial interest (the "Shares") offered for sale from time to time pursuant
to the then current prospectus of the Fund. The Fund reserves the right to
refuse at any time or times to sell Shares hereunder for any reason deemed
adequate by the Board of Trustees of the Fund.
The Distributor will use its best efforts to sell, through its
organization and through other dealers and agents, the Shares which the
Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares.
The Distributor agrees that it will not take any long or short positions
in the Shares, except for long positions in those Shares purchased by the
Distributor in accordance with any systematic sales plan described in the then
current Prospectus of the Fund and except as permitted by Section 2 hereof, and
that so far as it can control the situation, it will prevent any of its
trustees, officers or shareholders from taking any long or short positions in
the Shares, except for legitimate investment purposes.
2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth.
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission and cancellation of
orders) to fill unconditional orders for Shares received by the Distributor
from dealers, agents and investors during each period when particular net asset
values and public offering prices are in effect as provided in Section 3
hereof; and the price which the Distributor shall pay for the Shares so
purchased shall be the respective net asset value used in determining the
public offering price on which such orders were based. The Distributor shall
notify the Fund at the end of each such period, or as soon thereafter on that
business day as the orders received in such period have been compiled, of the
number of Shares of each class that the Distributor elects to purchase
hereunder.
3. Public Offering Price. The public offering price per Share shall be
determined in accordance with the then current Prospectus of the Fund. In no
event shall the public offering price exceed the net asset value per Share.
The net asset value per share for each class of Shares, respectively, shall be
determined in the manner provided in the Declaration of Trust and By-Laws of
the Trust as then amended, the Certificate of Designation with respect to the
Fund, as amended, and in accordance with the then current Prospectus of the
Fund. The Fund will cause immediate notice to be given to the Distributor of
each change in net asset value as soon as it is determined.
4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund Shares,
the Distributor will in all respects duly comply with all state and federal
laws relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including without limitation the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., and all
applicable rules and regulations of the Securities and Exchange Commission
under the 1940 Act, and will indemnify and save the Fund harmless from any
damage or expense on account of any unlawful act by the Distributor or its
agents or employees. The Distributor is not, however, to be responsible for
the acts of other dealers or agents, except to the extent that they shall be
acting for the Distributor or under its direction or authority. None of
the Distributor, any dealer, any agent or any other person is authorized by the
Fund to give any
1
<PAGE> 2
information or to make any representations, other than those contained in the
Registration Statement or Prospectus heretofore or hereafter filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act") (as any such Registration Statement and Prospectus may have
been or may be amended from time to time), covering the Shares, and in any
supplemental information to any such Prospectus approved by the Fund in
connection with the offer or sale of Shares. None of the Distributor, any
dealer, any broker or any other person is authorized to act as agent for the
Fund in connection with the offering or sale of Shares to the public or
otherwise. All such sales shall be made by the Distributor as principal for
its own account.
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration
of Shares under the federal securities laws, and the Fund will
exercise its best efforts to obtain said registration and
qualification;
(ii) all expenses in connection with the printing of
any notices of shareholders' meetings, proxy and proxy
statements and enclosures therewith, as well as any other
notice or communication sent to shareholders in connection
with any meeting of the shareholders or otherwise, any annual,
semiannual or other reports or communications sent to the
shareholders, and the expenses of sending prospectuses
relating to the Shares to existing shareholders;
(iii) all expenses of any federal or state original-issue tax or
transfer tax payable upon the issuance, transfer or delivery
of Shares from the Fund to the Distributor; and
(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.
(b) The Distributor will pay the costs and expenses of qualifying
and maintaining qualification of the Shares for sale under the securities laws
of various states. The Distributor will also permit its officers and employees
to serve without compensation as trustees and officers of the Fund if duly
elected to such positions.
6. Redemption of Shares. In connection with the Fund's redemption of its
Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal and
state legislation, any applicable rules of the National Association of
Securities Dealers, Inc., and any applicable rules and regulations of the
Securities and Exchange Commission under the 1940 Act, the Distributor may
accept offers of holders of Shares to resell such Shares to the Fund on such
terms and conditions and at such prices as described and provided for in the
then current Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times as
the Fund may specify of the number of each class of Shares repurchased for the
Fund's account and the time or times of such repurchases, and the Fund shall
notify the Distributor of the prices applicable to repurchases of Shares of
such class.
(c) The Fund shall have the right to suspend or revoke the
foregoing authorization at any time; unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by telegraph or by written instrument from any of the Fund's officers.
In the event that the Distributor's authorization is, by the terms of such
notice, suspended for more than
2
<PAGE> 3
twenty-four hours or until further notice, the authorization given by this
Section 6 shall not be revived except by vote of the Board of Trustees of the
Fund.
(d) The Distributor agrees that all repurchases of Shares made by
the Distributor shall be made only as agent for the Fund's account and pursuant
to the terms and conditions herein set forth.
(e) The Fund agrees to authorize and direct its Custodian to pay,
for the Fund's account, the repurchase price (together with any applicable
contingent deferred sales charge) of any Shares so repurchased for the Fund
against the authorized transfer of book shares from an open account and against
delivery of any other documentation required by the Board of Trustees of the
Fund or, in the case of certificated Shares, against delivery of the
certificates representing such Shares in proper form for transfer to the Fund.
(f) The Distributor shall receive no commissions or other
compensation in respect of any repurchases of Shares for the Fund under the
foregoing authorization and appointment as agent.
7. Indemnification. The Fund agrees to indemnify and hold harmless the
Distributor and each of its trustees and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any Shares, based upon the ground
that the registration statement, Prospectus, shareholder reports or other
information filed or made public by the Fund (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading under the 1933 Act or any other statute or the common law. However,
the Fund does not agree to indemnify the Distributor or hold it harmless to the
extent that the statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund by or on behalf of the
Distributor. In no case (i) is the indemnity of the Fund in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor
or any person against any liability to the Fund or its securityholders to which
the Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Fund to be liable under its indemnity agreement
contained in this Section with respect to any claim made against the
Distributor or any person indemnified unless the Distributor or any such person
shall have notified the Fund in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Distributor or any such
person (or after the Distributor or the person shall have received notice of
service on any designated agent). However, failure to notify the Fund of any
claim shall not relieve the Fund from any liability which it may have to the
Distributor or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund shall
be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense, of any suit brought to enforce any claims, but
if the Fund elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any suit and retain counsel, the Distributor, officers or
trustees or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them.
If the Fund does not elect to assume the defense of any suit, it will reimburse
the Distributor, officers or trustees or controlling person or persons,
defendant or defendants in the suit for the reasonable fees and expenses of any
counsel retained by them. The Fund agrees to notify the Distributor promptly
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any of the
Shares.
The Distributor also covenants and agrees that it will indemnify and hold
harmless the Fund and each of its trustees and officers and each person, if
any, who controls the Fund within the meaning of Section 15 of the 1933 Act
against any loss, liability, damage, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damage, claim
or expense and
3
<PAGE> 4
reasonable counsel fees incurred in connection therewith) arising by reason of
any person acquiring any Shares, based upon the 1933 Act or any other statute
or common law, alleging any wrongful act of the Distributor or any of its
employees or alleging that the registration statement, Prospectus, shareholder
reports or other information filed or made public by the Fund (as from time to
time amended) included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, insofar as the statement or omission was made in reliance upon,
and in conformity with, information furnished to the Fund by or on behalf of
the Distributor. In no case (i) is the indemnity of the Distributor in favor
of the Fund or any person indemnified to be deemed to protect the Fund or any
such person against any liability to which the Fund or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligation and duties under this Amended Agreement, or (ii) is
the Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Fund or person (or after the Fund or
such person shall have received notice of service on any designated agent).
However, failure to notify the Distributor of any claim shall not relieve the
Distributor from any liability which it may have to the Fund or any person
against whom the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to the
Distributor, it shall be entitled to participate, at its own expense, in the
defense, or, if it so elects, to assume the defense, of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by it and satisfactory to the
Fund, to its officers and trustees and to any controlling person or persons,
defendant or defendants in the suit. In the event that the Distributor elects
to assume the defense of any suit and retain counsel, the Fund or controlling
persons, defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the Fund, officers and
trustees or controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The
Distributor agrees to notify the Fund promptly of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any of the Shares.
8. Continuation, Amendment or Termination of This Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the
Fund, on written notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment; and (c) this Agreement
may be terminated by the Distributor on ninety (90) days' written notice to the
Fund. Upon termination of this Agreement with respect to either class of
Shares of the Fund, the obligations of the parties hereunder shall cease and
terminate with respect to such class of Shares as of the date of such
termination, except for any obligation to respond for a breach of this
Agreement committed prior to such termination.
This Agreement may be amended with respect to either class of Shares at
any time by mutual consent of the parties, provided that such consent on the
part of the Fund shall have been approved (i) by the Board of Trustees of the
Fund, or by a vote of the majority of the outstanding voting securities of the
respective class of Shares of the Fund, and (ii) by vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall
have the meanings defined in the 1940 Act, as amended.
4
<PAGE> 5
9. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
10. Notice. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office
of such party or at such other address as such party shall have designated in
writing.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
THE EXPLORER INSTITUTIONAL TRUST, on behalf of
its sub-trust, the EXPLORER INSTITUTIONAL ACTIVE
CORE FUND
By: /s/ Dennis J. McDonnell
------------------------------------
Name: Dennis J. McDonnell
Title: President
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By: /s/ Ronald A. Nyberg
------------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President
5
<PAGE> 1
EXHIBIT 6(b)
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT dated as of October 31, 1996 (the "Agreement")
by and between the THE EXPLORER INSTITUTIONAL TRUST, a Massachusetts business
trust (the "Trust"), on behalf of its sub-trust, the EXPLORER INSTITUTIONAL
LIMITED DURATION FUND (the "Fund"), and VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
1. Appointment of Distributor. The Fund appoints the Distributor as a
principal underwriter and exclusive distributor of each class of its shares of
beneficial interest (the "Shares") offered for sale from time to time pursuant
to the then current prospectus of the Fund. The Fund reserves the right to
refuse at any time or times to sell Shares hereunder for any reason deemed
adequate by the Board of Trustees of the Fund.
The Distributor will use its best efforts to sell, through its
organization and through other dealers and agents, the Shares which the
Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares.
The Distributor agrees that it will not take any long or short positions
in the Shares, except for long positions in those Shares purchased by the
Distributor in accordance with any systematic sales plan described in the then
current Prospectus of the Fund and except as permitted by Section 2 hereof, and
that so far as it can control the situation, it will prevent any of its
trustees, officers or shareholders from taking any long or short positions in
the Shares, except for legitimate investment purposes.
2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth.
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission and cancellation of
orders) to fill unconditional orders for Shares received by the Distributor
from dealers, agents and investors during each period when particular net asset
values and public offering prices are in effect as provided in Section 3
hereof; and the price which the Distributor shall pay for the Shares so
purchased shall be the respective net asset value used in determining the
public offering price on which such orders were based. The Distributor shall
notify the Fund at the end of each such period, or as soon thereafter on that
business day as the orders received in such period have been compiled, of the
number of Shares of each class that the Distributor elects to purchase
hereunder.
3. Public Offering Price. The public offering price per Share shall be
determined in accordance with the then current Prospectus of the Fund. In no
event shall the public offering price exceed the net asset value per Share.
The net asset value per share for each class of Shares, respectively, shall be
determined in the manner provided in the Declaration of Trust and By-Laws of
the Trust as then amended, the Certificate of Designation with respect to the
Fund, as amended, and in accordance with the then current Prospectus of the
Fund. The Fund will cause immediate notice to be given to the Distributor of
each change in net asset value as soon as it is determined.
4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund Shares,
the Distributor will in all respects duly comply with all state and federal
laws relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including without limitation the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., and all
applicable rules and regulations of the Securities and Exchange Commission
under the 1940 Act, and will indemnify and save the Fund harmless from any
damage or expense on account of any unlawful act by the Distributor or its
agents or employees. The Distributor is not, however, to be responsible for
the acts of other dealers or agents, except to the extent that they shall be
acting for the Distributor or under its direction or authority. None of the
Distributor, any dealer, any agent or any other person is authorized by the
Fund to give any
1
<PAGE> 2
information or to make any representations, other than those contained in the
Registration Statement or Prospectus heretofore or hereafter filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act") (as any such Registration Statement and Prospectus may have
been or may be amended from time to time), covering the Shares, and in any
supplemental information to any such Prospectus approved by the Fund in
connection with the offer or sale of Shares. None of the Distributor, any
dealer, any broker or any other person is authorized to act as agent for the
Fund in connection with the offering or sale of Shares to the public or
otherwise. All such sales shall be made by the Distributor as principal for
its own account.
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of Shares
under the federal securities laws, and the Fund will exercise
its best efforts to obtain said registration and
qualification;
(ii) all expenses in connection with the printing of any notices
of shareholders' meetings, proxy and proxy statements and
enclosures therewith, as well as any other notice or
communication sent to shareholders in connection with any
meeting of the shareholders or otherwise, any annual,
semiannual or other reports or communications sent to the
shareholders, and the expenses of sending prospectuses
relating to the Shares to existing shareholders;
(iii) all expenses of any federal or state original-issue tax or
transfer tax payable upon the issuance, transfer or delivery
of Shares from the Fund to the Distributor; and
(iv) the cost of preparing and issuing any Share certificates
which may be issued to represent Shares.
(b) The Distributor will pay the costs and expenses of qualifying
and maintaining qualification of the Shares for sale under the securities laws
of various states. The Distributor will also permit its officers and employees
to serve without compensation as trustees and officers of the Fund if duly
elected to such positions.
6. Redemption of Shares. In connection with the Fund's redemption of its
Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal and
state legislation, any applicable rules of the National Association of
Securities Dealers, Inc., and any applicable rules and regulations of the
Securities and Exchange Commission under the 1940 Act, the Distributor may
accept offers of holders of Shares to resell such Shares to the Fund on such
terms and conditions and at such prices as described and provided for in the
then current Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times as
the Fund may specify of the number of each class of Shares repurchased for the
Fund's account and the time or times of such repurchases, and the Fund shall
notify the Distributor of the prices applicable to repurchases of Shares of
such class.
(c) The Fund shall have the right to suspend or revoke the
foregoing authorization at any time; unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by telegraph or by written instrument from any of the Fund's officers.
In the event that the Distributor's authorization is, by the terms of such
notice, suspended for more than
2
<PAGE> 3
twenty-four hours or until further notice, the authorization given by this
Section 6 shall not be revived except by vote of the Board of Trustees of the
Fund.
(d) The Distributor agrees that all repurchases of Shares made by
the Distributor shall be made only as agent for the Fund's account and pursuant
to the terms and conditions herein set forth.
(e) The Fund agrees to authorize and direct its Custodian to pay,
for the Fund's account, the repurchase price (together with any applicable
contingent deferred sales charge) of any Shares so repurchased for the Fund
against the authorized transfer of book shares from an open account and against
delivery of any other documentation required by the Board of Trustees of the
Fund or, in the case of certificated Shares, against delivery of the
certificates representing such Shares in proper form for transfer to the Fund.
(f) The Distributor shall receive no commissions or other
compensation in respect of any repurchases of Shares for the Fund under the
foregoing authorization and appointment as agent.
7. Indemnification. The Fund agrees to indemnify and hold harmless the
Distributor and each of its trustees and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any Shares, based upon the ground
that the registration statement, Prospectus, shareholder reports or other
information filed or made public by the Fund (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading under the 1933 Act or any other statute or the common law. However,
the Fund does not agree to indemnify the Distributor or hold it harmless to the
extent that the statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund by or on behalf of the
Distributor. In no case (i) is the indemnity of the Fund in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor
or any person against any liability to the Fund or its securityholders to which
the Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Fund to be liable under its indemnity agreement
contained in this Section with respect to any claim made against the
Distributor or any person indemnified unless the Distributor or any such person
shall have notified the Fund in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Distributor or any such
person (or after the Distributor or the person shall have received notice of
service on any designated agent). However, failure to notify the Fund of any
claim shall not relieve the Fund from any liability which it may have to the
Distributor or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund shall
be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense, of any suit brought to enforce any claims, but
if the Fund elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any suit and retain counsel, the Distributor, officers or
trustees or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them.
If the Fund does not elect to assume the defense of any suit, it will reimburse
the Distributor, officers or trustees or controlling person or persons,
defendant or defendants in the suit for the reasonable fees and expenses of any
counsel retained by them. The Fund agrees to notify the Distributor promptly
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any of the
Shares.
The Distributor also covenants and agrees that it will indemnify and hold
harmless the Fund and each of its trustees and officers and each person, if
any, who controls the Fund within the meaning of Section 15 of the 1933 Act
against any loss, liability, damage, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damage, claim
or expense and
3
<PAGE> 4
reasonable counsel fees incurred in connection therewith) arising by reason of
any person acquiring any Shares, based upon the 1933 Act or any other statute
or common law, alleging any wrongful act of the Distributor or any of its
employees or alleging that the registration statement, Prospectus, shareholder
reports or other information filed or made public by the Fund (as from time to
time amended) included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, insofar as the statement or omission was made in reliance upon,
and in conformity with, information furnished to the Fund by or on behalf of
the Distributor. In no case (i) is the indemnity of the Distributor in favor
of the Fund or any person indemnified to be deemed to protect the Fund or any
such person against any liability to which the Fund or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligation and duties under this Amended Agreement, or (ii) is
the Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Fund or person (or after the Fund or
such person shall have received notice of service on any designated agent).
However, failure to notify the Distributor of any claim shall not relieve the
Distributor from any liability which it may have to the Fund or any person
against whom the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to the
Distributor, it shall be entitled to participate, at its own expense, in the
defense, or, if it so elects, to assume the defense, of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by it and satisfactory to the
Fund, to its officers and trustees and to any controlling person or persons,
defendant or defendants in the suit. In the event that the Distributor elects
to assume the defense of any suit and retain counsel, the Fund or controlling
persons, defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the Fund, officers and
trustees or controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The
Distributor agrees to notify the Fund promptly of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any of the Shares.
8. Continuation, Amendment or Termination of This Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the
Fund, on written notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment; and (c) this Agreement
may be terminated by the Distributor on ninety (90) days' written notice to the
Fund. Upon termination of this Agreement with respect to either class of
Shares of the Fund, the obligations of the parties hereunder shall cease and
terminate with respect to such class of Shares as of the date of such
termination, except for any obligation to respond for a breach of this
Agreement committed prior to such termination.
This Agreement may be amended with respect to either class of Shares at
any time by mutual consent of the parties, provided that such consent on the
part of the Fund shall have been approved (i) by the Board of Trustees of the
Fund, or by a vote of the majority of the outstanding voting securities of the
respective class of Shares of the Fund, and (ii) by vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall
have the meanings defined in the 1940 Act, as amended.
4
<PAGE> 5
9. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
10. Notice. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office
of such party or at such other address as such party shall have designated in
writing.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
THE EXPLORER INSTITUTIONAL TRUST, on behalf of
its sub-trust, the EXPLORER INSTITUTIONAL LIMITED
DURATION FUND
By: /s/ Dennis J. McDonnell
-------------------------------------
Name: Dennis J. McDonnelll
Title: President
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By: /s/ Ronald A. Nyberg
-------------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President
5
<PAGE> 1
EXHIBIT (8)(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 23rd day of April, 1996 by and between THE
EXPLORER INSTITUTIONAL TRUST which is organized under the laws of the State of
Massachusetts (the "Trust") and has its principal office and place of business
at Oakbrook Terrace, Illinois, acting on behalf of its series listed on Schedule
"A" hereto (collectively, the "Funds" and each a "Fund"), and ACCESS INVESTOR
SERVICES, INC., a Massachusetts corporation, having its principal office at
Houston, Texas, and its principal place of business at Kansas City, Missouri
("ACCESS").
RECITAL:
WHEREAS, the Trust desires to appoint ACCESS as its transfer agent,
dividend disbursing agent and shareholder service agent for the Funds, and
ACCESS desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF ACCESS.
1.01 Subject to the terms and conditions set forth in this Agreement,
the Trust hereby employs and appoints ACCESS as transfer agent, dividend
disbursing agent and shareholder service agent for the Funds.
1.02 ACCESS hereby accepts such employment and appointments and
agrees that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder service agent for the
Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence in
accordance with reasonable industry practice, and that the necessary facilities,
equipment and personnel for such performance will be provided.
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<PAGE> 2
1.04 In order to assure compliance with section 1.03 and to implement
a cooperative effort to improve the quality of transfer agency and shareholder
services received by the Funds and their shareholders, ACCESS agrees to provide
and maintain quantitative performance objectives, including maximum target
turn-around times and maximum target error rates, for the various services
provided hereunder. ACCESS also agrees to provide a reporting system designed
to provide the Board of Trustees of the Trust (the "Board") on a quarterly basis
with quantitative data comparing actual performance for the period with the
performance objectives. The foregoing procedures are designed to provide a
basis for continuing monitoring by the Board of the quality of services rendered
hereunder.
ARTICLE 2. FEES AND EXPENSES.
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, the Funds agree to pay ACCESS the fees provided in the fee schedules
agreed upon from time to time by the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each
Fund agrees to reimburse ACCESS promptly for the Fund's reasonable out-of-pocket
expenses or advances paid on its behalf by ACCESS in connection with its
performance under this Agreement for postage, freight, envelopes, checks,
drafts, continuous forms, reports and statements, telephone, telegraph, costs of
outside mailing firms, necessary outside record storage costs, media for storage
of records (e.g., microfilm, microfiche and computer tapes) and printing costs
incurred due to special requirements of the Fund. In addition, any other
special out-of-pocket expenses paid by ACCESS at the specific request of the
Fund will be promptly reimbursed by the Fund. Postage for mailings of
dividends, proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to ACCESS by the Fund three business days prior to the mailing
date of such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS.
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Massachusetts.
3.02 It is duly qualified to carry on its business in the states of
Texas and Maryland.
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<PAGE> 3
3.03 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this
Agreement access to the necessary facilities, equipment and personnel to perform
its duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as
follows:
(a) Each "as of" transaction effected at a price other than
that in effect on the day of processing for which an estimate has not
been given to the Fund and which is necessitated by ACCESS' error, or
delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for a Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month.
If, on any day during the month, the cumulative net effect upon the Fund
is negative and exceeds an amount equivalent to 1/2 of 1 cent per share
of the Fund, ACCESS shall promptly make a payment to the Fund (in cash
or through use of a credit as described in paragraph (c) below) in such
amount as necessary to reduce the negative cumulative net effect to less
than 1/2 of 1 cent per share of the Fund. If on the last business day of
the month the cumulative net effect (adjusted by the amount of any
payments pursuant to the preceding sentence) upon the Fund is negative,
the Fund shall be entitled to a reduction in the monthly transfer agency
fee next payable by an equivalent amount, except as provided in
paragraph (c) below. If on the last business day of the month the
cumulative net effect (similarly adjusted) upon the Fund is positive,
ACCESS shall be entitled to recover certain past payments and reductions
in fees, and to a credit against all future payments and fee reductions
made under this paragraph to the Fund, as describe in paragraph (c)
below.
(c) At the end of each month, any positive cumulative net
effect upon the Fund shall be deemed to be a credit to ACCESS which
shall first be applied to recover any payments and fee reductions made
by ACCESS to the Fund under paragraph (b) above during the calendar
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<PAGE> 4
year by increasing the amount of the monthly transfer agency fee next
payable in an amount equal to prior payments and fee reductions made
during such year, but not exceeding the sum of that month's credit and
credits arising in prior months during such year to the extent such
prior credits have not previously been utilized as contemplated by this
paragraph (c). Any portion of a credit to ACCESS not so used shall
remain as a credit to be used as payment against the amount of any
future negative cumulative net effects that would otherwise require a
payment or fee reduction to the Fund pursuant to paragraph (b) above.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE TRUST.
The Trust hereby represents and warrants that:
4.01 It is duly organized and existing and in good standing under
the laws of the State of Massachusetts.
4.02 It is empowered under applicable laws and regulations and by its
Agreement and Declaration of Trust and by-laws to enter into and perform this
Agreement.
4.03 All requisite proceedings have been taken by its Board to
authorize it to enter into and perform this Agreement.
4.04 It is an open-end, management investment company registered
under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate state
securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
ARTICLE 5. INDEMNIFICATION.
5.01 ACCESS shall not be responsible for and the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses, damages,
costs, charges, reasonable counsel fees, payments, expenses and liabilities
arising out of or attributable to:
(a) All actions of ACCESS required to be taken by ACCESS for
the benefit of the Fund pursuant to this Agreement, provided ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.
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<PAGE> 5
(b) The reasonable reliance by ACCESS on, or reasonable
use by ACCESS of, information, records and documents which have been
prepared or maintained by or on behalf of the Fund have been furnished
to ACCESS by or on behalf of the Fund.
(c) The reasonable reliance on ACCESS on, or the carrying
out be ACCESS of, any instructions or requests of the Fund.
(d) The offer or sale of the Fund's shares in violation of
any requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any
state with respect to the offer or sale of such shares in such state
unless such violation results from any failure by ACCESS to comply with
written instructions of the Fund that no offers or sales of the Fund's
shares be made in general or to the residents of a particular state.
(e) The Fund's refusal or failure to comply with the terms
of this Agreement, or the Fund's lack of good faith, negligence or
willful misconduct or the breach of any representation or warranty of
the Fund hereunder.
5.02 ACCESS shall indemnify and hold the Funds harmless from and
against any and all losses, damages, costs, charges, reasonable counsel fees,
payments, expenses and liability arising out of or attributable to ACCESS'
refusal or failure to comply with the terms of this Agreement, or ACCESS' lack
of good faith, negligence or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of a Fund
for instructions, and may consult with the Fund's legal counsel, at the expense
of the Fund, with respect to any matter arising in connection with the services
to be performed by ACCESS under this Agreement, and ACCESS shall not be liable
and shall be indemnified by the Fund for any action taken or omitted by it in
good faith in reasonable reliance upon such instructions or upon the opinion of
such counsel. ACCESS shall be protected and indemnified in acting upon any
paper or document reasonably believed by ACCESS to be genuine and to have been
signed by the proper person or persons and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the Fund. ACCESS shall also be protected and indemnified in recognizing
stock certificates which ACCESS reasonably
5
<PAGE> 6
believe to bear the proper manual or facsimile signatures of the officers of the
Fund, and the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
5.04 In the event any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment, or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall
developments concerning such claim. The party who may be required to indemnify
shall have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior written
consent.
ARTICLE 6. COVENANTS OF THE TRUST AND ACCESS.
6.01 The Trust shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of its Board
authorizing the appointment of ACCESS and the execution and delivery of this
Agreement.
(b) Certified copies of its Agreement and Declaration of
Trust and by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to the Funds for safekeeping of share certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other
6
<PAGE> 7
records of the Funds (hereinafter referred to as "Fund Records") prepared or
maintained by ACCESS prepared or maintained by ACCESS hereunder shall be
maintained and kept current in compliance with Section 31 of the Investment
Company Act of 1940 and the Rules thereunder (such Section and Rules being
hereinafter referred to as the "1940 Act Requirements"). To the extent required
by the 1940 Act Requirements, ACCESS agrees that all Fund Records prepared or
maintained by ACCESS hereunder are the property of the Fund and shall be
preserved and made available in accordance with the 1940 Act Requirements, and
shall be surrendered promptly to a Fund on its request. ACCESS agrees at such
reasonable times as may be requested by the Board and at least quarterly to
provide (i) written confirmation to the Board that all Fund Records are
maintained and kept current in accordance with the 1940 Act Requirements, and
(ii) such other reports regarding its performance hereunder as may be reasonably
requested by the Board.
6.04 ACCESS and the Funds agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall mot be voluntarily disclosed to any other person,
except as may be required by law.
6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such inspection.
ACCESS reserves the right, however, to exhibit such Fund Records to any person
whenever it is advised by its counsel that it may be held liable for the failure
to exhibit such Fund Records to such person.
ARTICLE 7. TERM AND TERMINATION OF AGREEMENT.
7.01 This Agreement shall remain in effect from the date hereof
through December 31, 1997; provided, however, that this Agreement may be
terminated by any party with respect to that party for good and reasonable cause
at any time by giving written notice to the other party at least 120 days prior
to the date on which such termination is to be effective. Any unpaid fees or
reimbursable expenses payable to ACCESS shall be due on any such termination
date. ACCESS agrees to use its best efforts to cooperate with the Trust and the
successor transfer agent or agents in accomplishing an orderly transition.
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<PAGE> 8
7.02 Subject to the prior approval of the Board, this Agreement shall
be renewed and extended for periods of not more than one year each, unless and
until this Agreement is terminated in accordance with section 7.01 above.
ARTICLE 8. MISCELLANEOUS.
8.01 Except as provided in section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by any party without the
written consent of ACCESS or the Trust, as the case may be; provided, however,
that no consent shall be required for any merger of a Fund with, or any sale of
all or substantially all the assets of a Fund to, another investment company.
8.02 The Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 ACCESS may, without further consent on the part of a Fund,
subcontract with DST, Inc., a Missouri corporation, or any other qualified
servicer, for the performance of data processing activities; provided, however,
that ACCESS shall be as fully responsible to the Fund for the acts and omissions
of DST, Inc., or other qualified servicer, as it is for its own acts and
omissions.
8.04 ACCESS may, without further consent on the part of a Fund,
provide services to its affiliated companies. Such services may be provided at
cost.
8.05 The Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes any
prior agreement with respect thereto, whether oral or written, and this
Agreement may not be modified except by written instrument executed by the
affected parties.
8.06 The execution of this Agreement has been authorized by the
Trust's Trustees. This Agreement is executed on behalf of the Trust's or the
Trustees of the Trust's as Trustees and not individually and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust's individually but are binding only upon the assets
and property of the Trust's. An Agreement and Declaration of Trust in respect
of the Trust's is on file with the Secretary of State of Massachusetts.
8.07 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties hereto
agree to renegotiate such affected portions in good faith.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.
THE EXPLORER INSTITUTIONAL TRUST
BY: /s/ Dennis J. McDonnell
------------------------------
NAME: Dennis J. McDonnell
----------------------------
ITS: President
----------------------------
ATTEST:
/s/ Nicholas Dalmaso
- ---------------------------
Assistant Secretary
ACCESS INVESTOR SERVICES, INC.
BY: /s/ Paul Wolkenberg
------------------------------
Paul R. Wolkenberg, President and
Chief Executive Officer
ATTEST:
/s/ Nicholas Dalmaso
- ------------------------
Assistant Secretary
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<PAGE> 10
PRICING SCHEDULE
FUND NAME ANNUAL CHARGE(1)
The Explorer Institutional Active Core Fund $15,000 Plus Out of Pockets
The Explorer Institutional Limited Duration Fund $15,000 Plus Out of Pockets
- --------------------------------------------------------------------------------
(1) Minimum annual charge based on reimbursement, profit margin expense not
applied.
New funds, when added, will have an annual charge of $15,000 after a six
months zero fee grace period.
10
<PAGE> 1
EXHIBIT (9)(a)
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, dated October 31, 1996, by and between the parties set
forth in Schedule A hereto (designated collectively hereafter as the "Funds")
and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware
corporation ("Advisory Corp.").
W I T N E S S E T H:
WHEREAS, each of the Funds is registered as a management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Advisory Corp. has the capability of providing certain accounting
services to the Funds; and
WHEREAS, each desires to utilized Advisory Corp. in the provision of such
accounting services; and
WHEREAS, Advisory Corp. intends to maintain its staff in order to
accommodate the provision of all such services.
NOW THEREFORE, in consideration of the premises and the mutual covenants
spelled out herein, it is agreed between the parties hereto as follows:
1. Appointment of Advisory Corp.. As agent, Advisory Corp. shall provide each
of the Funds the accounting services ("Accounting Services") as set forth in
Paragraph 2 of this Agreement. Advisory Corp. accepts such appointment and
agrees to furnish the Accounting Services in return for the compensation
provided in Paragraph 3 of this Agreement.
2. Accounting Services to be Provided. Advisory Corp. will provide to each
respective Fund accounting related services in connection with the maintenance
of the financial records of such Fund, including without limitation: (i)
maintenance of the general ledger and other financial books and records; (ii)
processing of portfolio transactions; (iii) coordination of the valuation of
portfolio securities; (iv) calculation of the Fund's net asset value; (v)
coordination of financial and regulatory reporting; (vi) preparation of
financial reports for each Fund's Board of Trustees; (vii) coordination of tax
and financial compliance issues; (viii) the establishment and maintenance of
accounting policies; (ix) recommendations with respect to dividend policies;
(x) preparation of each Fund's financial reports and other accounting and tax
related notice information to shareholders; and (xi) the assimilation and
interpretation of accounting data for meaningful management review. Advisory
Corp. shall provide accurate maintenance of each Fund's financial books and
records as required by the applicable securities statutes and regulations, and
shall hire persons (collectively the "Accounting Service Group") as needed to
provide such Accounting Services.
<PAGE> 2
3. Expenses and Reimbursements. Advisory Corp. shall be reimbursed by the
Funds for all costs and services incurred in connection with the provision of
the aforementioned Accounting Services ("Accounting Service Expenses"),
including but not limited to all salary and related benefits paid to the
personnel of the Accounting Service Group, overhead and expenses related to
office space and related equipment and out-of-pocket expenses.
The Accounting Services Expenses will be paid by Advisory Corp. and
reimbursed by the Funds. Advisory Corp. will tender to each Fund a monthly
invoice as of the last business day of each month which shall certify the total
support service expenses expended. Except as provided herein, Advisory Corp.
will receive no other compensation in connection with Accounting Services
rendered in accordance with this Agreement.
4. Payment for Accounting Service Expenses Among the Funds. As to one quarter
(25%) of the Accounting Service Expenses incurred under the Agreement, the
expense shall be allocated between all Funds based on the number of classes of
shares of beneficial interest that each respective Fund has issued. As to the
remaining three quarters (75%) of the Accounting Service Expenses incurred
under the Agreement, the expense shall be allocated between all Funds based on
their relative net assets. For purposes of determining the percentage of
expenses to be allocated to any Fund, the liquidation preference of any
preferred shares issued by any such Fund shall not be considered a liability of
such Fund for the purposes of calculating relative net assets of such Fund.
5. Maintenance of Records. All records maintained by Advisory Corp. in
connection with the performance of its duties under this Agreement will remain
the property of each respective Fund and will be preserved by Advisory Corp.
for the periods prescribed in Section 31 of the 1940 Act and the rules
thereunder or such other applicable rules that may be adopted from time to time
under the act. In the event of termination of the Agreement, such records will
be promptly delivered to the respective Funds. Such records may be inspected
by the respective Funds at reasonable times.
6. Liability of Advisory Corp. Advisory Corp. shall not be liable to any Fund
for any action taken or thing done by it or its agents or contractors on behalf
of the fund in carrying out the terms and provisions of the Agreement if done
in good faith and without gross negligence or misconduct on the part of
Advisory Corp., its agents or contractors.
7. Indemnification By Funds. Each Fund will indemnify and hold Advisory Corp.
harmless from all lost, cost, damage and expense, including reasonable expenses
for legal counsel, incurred by Advisory Corp. resulting from: (a) any claim,
demand, action or suit in connection with Advisory Corp.'s acceptance of this
Agreement; (b) any action or omission by Advisory Corp. in the performance of
its duties hereunder; (c) Advisory Corp.'s acting upon instructions believed by
it to have been executed by a duly authorized officer of the Fund; or (d)
Advisory Corp.'s acting upon information provided by the Fund in form and under
policies agreed to by Advisory Corp. and the Fund. Advisory Corp. shall not be
entitled to such indemnification in respect of actions or omissions
constituting gross negligence or willful misconduct of Advisory Corp. or its
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, Advisory Corp. shall give the Fund reasonable
opportunity to defend against said claim in its own name or in the name of
Advisory Corp.
8. Indemnification By Advisory Corp. Advisory Corp. will indemnify and hold
harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Advisory Corp.'s failure to comply
with the terms of this Agreement or which arises out of the gross negligence or
willful misconduct of Advisory Corp. or its agents or contractors; provided
that such negligence or misconduct is not attributable to the Funds, their
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, the Fund shall give Advisory Corp. reasonable
opportunity to defend against said claim in its own name or in the name of such
Fund.
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<PAGE> 3
9. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Dual Interests. It is understood that some person or persons may be
directors, trustees, officers or shareholders of both the Funds and Advisory
Corp. (including Advisory Corp.'s affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
11. Execution, Amendment and Termination. The term of this Agreement shall
begin as of the date first above written, and unless sooner terminated as
herein provided, this Agreement shall remain in effect through May, 1998, and
thereafter from year to year, if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. This Agreement may be modified or
amended from time to time by mutual agreement between the parties hereto and
may be terminated after May, 1998, by at least sixty (60) days' written notice
given by one party to the others. Upon termination hereof, each Fund shall pay
to Advisory Corp. such compensation as may be due as of the date of such
termination and shall likewise reimburse Advisory Corp. for its costs, expenses
and disbursements payable under this Agreement to such date. This Agreement
may be amended in the future to include as additional parties to the Agreement
other investment companies for with Advisory Corp., any subsidiary or affiliate
serves as investment advisor or distributor if such amendment is approved by
the President of each Fund.
12. Assignment. Any interest of Advisory Corp. under this Agreement shall not
be assigned or transferred, either voluntarily or involuntarily, by operation
of law or otherwise, without the prior written consent of the Funds. This
Agreement shall automatically and immediately terminate in the event of its
assignment without the prior written consent of the Funds.
13. Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt
of such notices. Until further notice to the other parties, it is agreed that
for this purpose the address of each Fund is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181, Attention: President and that of Advisory Corp. for
this purpose is One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attention: President.
14. Personal Liability. As provided for in the Agreement and Declaration of
Trust of the various Funds, under which the Funds are organized as
unincorporated trusts, the shareholders, trustees, officers, employees and
other agents of the Fund shall not personally be found by or liable for the
matters set forth hereto, nor shall resort be had to their private property for
the satisfaction of any obligation or claim hereunder.
15. Interpretative Provisions. In connection with the operation of this
Agreement, Advisory Corp. and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement.
16. State Law. This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Illinois.
17. Captions. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this amended and restated
Agreement to be executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ RONALD A. NYBERG
-----------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ DENNIS J. McDONNELL
-----------------------------------
Dennis J. McDonnell, President
4
<PAGE> 5
SCHEDULE A
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
CLOSED END FUNDS
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital Intermediate Term High Income Trust
Van Kampen American Capital Limited Term High Income Trust
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania
Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
INSTITUTIONAL FUNDS
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
("MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
5
<PAGE> 6
OPEN END FUNDS
III. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL
FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed
Assets Funds")
Van Kampen American Capital Government Securities Fund ("Government
Securities Fund")
Van Kampen American Capital Government Target Fund ("Government Target
Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income
Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment
Trust" or "LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities
Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small
Capitalization Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust")
on behalf of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
6
<PAGE> 7
IV. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY
CORP. ("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government
Trust") on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust")
on behalf of its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax
Free Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High
Income Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income
Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund
("Florida Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax
Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California
Tax Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income
Fund")
Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Balanced Fund ("Balanced Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great
American Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth
Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities
Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund");
and
7
<PAGE> 1
EXHIBIT (9)(b)
AMENDED AND RESTATED
LEGAL SERVICES AGREEMENT
THIS AGREEMENT, dated as of October 31, 1996, by and between the parties
as set forth in Schedule 1, attached hereto and incorporated by reference
(designated collectively hereafter as the "Funds"), and VAN KAMPEN AMERICAN
CAPITAL, INC., a Delaware corporation ("Van Kampen").
W I T N E S S E T H:
WHEREAS, each of the Funds is registered as a management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Van Kampen has the capability of providing certain legal services
to the Funds; and
WHEREAS, each Fund desires to utilize Van Kampen in the provision of such
legal services; and
WHEREAS, Van Kampen intends to increase its staff in order to accommodate
the provision of all such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
spelled out herein, it is agreed between the parties hereto as follows:
1. Appointment of Van Kampen. As agent, Van Kampen shall provide each of the
Funds the legal services (the "Legal Services") as set forth in Paragraph 2 of
this Agreement. Van Kampen accepts such appointments and agrees to furnish the
Legal Services in return for the compensation provided in Paragraph 3 of this
Agreement.
2. Legal Services to be Provided. Van Kampen will provide to the Funds the
following legal services, including without limitation: accurate maintenance of
the Funds' Corporate Minute books and records, preparation and oversight of
each Fund's regulatory reports and other information provided to shareholders
as well as responding to day-to-day legal issues on behalf of the Funds. Van
Kampen shall hire persons (collectively the "Legal Services Group") as needed
to provide such Legal Services and in such numbers as may be agreed from time
to time.
3. Expenses and Reimbursement. The Legal Services expenses (the "Legal
Services Expenses") for which Van Kampen may be reimbursed are salary and
salary related benefits, including but not limited to bonuses, group insurance
and other regular wages paid to the personnel of the Legal Services Group, as
well as overhead
1
<PAGE> 2
and expenses related to office space and necessary equipment. The Legal
Services Expenses will be paid by Van Kampen and reimbursed by the Funds. Van
Kampen will tender to each Fund a monthly invoice as of the last business day
of each month which shall certify the total Legal Service Expenses expended.
Except as provided herein, Van Kampen will receive no other compensation in
connection with Legal Services rendered in accordance with this Agreement, and
Van Kampen will be responsible for all other expenses relating to the providing
of Legal Services.
4. Payment for Legal Services Expense Among the Funds. One half (50%) of the
Legal Services Expenses incurred under the Agreement shall be attributable
equally to each respective Fund and all other funds to whom Van Kampen provides
Legal Services, including all other Funds for which Van Kampen serves as
investment adviser and distributor and the Govett Funds (the Non-Participating
Funds"). Van Kampen shall assume the costs of Legal Services for the
Non-Participating Funds for which reimbursement is not received. The remaining
one half (50%) of the Legal Services Expenses shall be in allocated (a) in the
event services are attributable to specific funds (including the
Non-Participating Funds) based on such specific time allocations; and (b) in
the event services are attributable only to types of funds (i.e. closed-end and
open-end funds), the relative amount of time spent on each type of fund and
then further allocated between funds of that type on the basis of relative net
assets at the end of the period.
5. Maintenance of Records. All records maintained by Van Kampen in connection
with the performance of its duties under this Agreement will remain the
property of each respective Fund and will be preserved by Van Kampen for the
periods prescribed in Section 31 of the 1940 Act and the rules thereunder or
such other applicable rules that may be adopted from time to time under the
Act. In the event of termination of the Agreement, such records will be
promptly delivered to the respective Funds. Such records may be inspected by
the respective Funds at reasonable times.
6. Liability of Van Kampen. Van Kampen shall not be liable to any Fund for any
action taken or thing done by it or its agents or contractors on behalf of the
Fund in carrying out the terms and provisions of the Agreement if done in good
faith and without negligence or misconduct on the part of Van Kampen, its
agents or contractors.
7. Indemnification By Funds. Each Fund will indemnify and hold Van Kampen
harmless from all loss, cost, damage and expense, including reasonable expenses
for legal counsel, incurred by Van Kampen resulting from (a) any claim, demand,
action or suit in connection with Van Kampen's acceptance of this Agreement;
(b) an action or omission by Van Kampen in the performance of its duties
hereunder; (c) Van Kampen's acting upon instructions believed by it to have
been executed by a duly authorized office of the Fund; or (d) Van Kampen's
acting upon information provided by the Fund in form and under policies agreed
to by Van Kampen and the Fund. Van Kampen shall not be entitled to such
indemnification in respect of action or omissions constituting negligence or
willful misconduct of Van Kampen or its agents or contractors. Prior to
2
<PAGE> 3
confessing any claim against it which may be subject to this indemnification,
Van Kampen shall give the Fund reasonable opportunity to defend against said
claim on its own name or in the name of Van Kampen.
8. Indemnification By Van Kampen. Van Kampen will indemnify and hold harmless
each Fund from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by the Fund resulting from any claim,
demand, action or suit arising out of Van Kampen's failure to comply with the
terms of this Agreement or which arises out of the negligence or willful
misconduct of Van Kampen or its agents or contractors; provided, that such
negligence or misconduct is not attributable to the Funds, their agents or
contractors. Prior to confessing any claim against it which may be subject to
this indemnification, the Fund shall give Van Kampen reasonable opportunity to
defend against said claim in its own name or in the name of such Fund.
9. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as necessary to effectuate the purposes hereof.
10. Dual Interests. It is understood that some person or persons may be
directors, trustees, officers, or shareholders of both the Funds and Van Kampen
(including Van Kampen's affiliates), and that the existence of any such dual
interest shall not affect the validity hereof or of any transactions hereunder
except as otherwise provided by a specific provision of applicable law.
11. Execution, Amendment and Termination. The term of this Agreement shall
begin as of the date first above written, and unless sooner terminated as
herein provided, this Agreement shall remain in effect through May 31, 1997,
and thereafter from year to year if such continuation is specifically approved
at least annually by the Board of Trustees of each Fund, including a majority
of the independent Trustees of each Fund. The Agreement may be modified or
amended from time to time by mutual agreement between the and shall likewise
reimburse Van Kampen for its costs, expenses and disbursements payable under
this Agreement to such date. This Agreement may be amended in the future to
include as additional parties to the Agreement other investment companies for
which Van Kampen, any subsidiary or affiliate serves as investment advisor or
distributor.
12. Assignment. Any interest of Van Kampen under this Agreement shall not be
assigned or transferred, either voluntarily or involuntarily, by operation of
law or otherwise, without the prior written consent of the Fund. This Agreement
shall automatically and immediately terminate in the event of its assignment
without the prior written consent of the Fund.
13. Notice. Any notice under this agreement shall be in writing, addressed and
delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt
of such notices. Until further notice to the other parties, it is agreed that
for this purpose the address of each
3
<PAGE> 4
Fund is One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attention:
President and the address of Van Kampen. for this purpose is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, Attention: General Counsel.
14. Personal Liability. As provided for in the Declaration of Trust of the
various Funds, under which the Funds are organized as unincorporated trust
under the laws of the State of Delaware and Pennsylvania, as the case may be,
the shareholders, trustees, officers, employees and other agents of the Fund
shall not personally be found by or liable for the matters set forth hereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder.
15. Interpretative Provisions. In connection with the operation of this
agreement, Van Kampen and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their opinion be consistent with the general tenor of this Agreement.
16. State Law. This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Illinois.
17. Captions. The captions in the Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction effect.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO
By: /s/ RONALD A. NYBERG
-----------------------------
Ronald A. Nyberg
Executive Vice President
VAN KAMPEN AMERICAN CAPITAL, INC.
By: /s/ DENNIS J. McDONNELL
-----------------------------
Dennis J. McDonnell
Executive Vice President
5
<PAGE> 6
SCHEDULE 1
1. VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST, on behalf of its
series, Van Kampen American Capital U.S. Government Fund
2. VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, on behalf of its series, 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 Intermediate Term Municipal Income Fund, Van
Kampen American Capital New York Tax Free Income Fund, Van Kampen American
Capital New Jersey Tax Free Income Fund, Van Kampen American Capital
Florida Insured Tax Free Income Fund, Van Kampen American Capital
California Tax Free Income Fund, Van Kampen American Capital Michigan Tax
Free Income Fund, Van Kampen American Capital Missouri Tax Free Income
Fund and Van Kampen American Capital Ohio Tax Free Income Fund
3. VAN KAMPEN AMERICAN CAPITAL TRUST, on behalf of its series, Van Kampen
American Capital High Yield Fund, Van Kampen American Capital Short-Term
Global Income Fund and Van Kampen American Capital Strategic Income Fund
4. VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, on behalf of its series, Van
Kampen American Capital Utility Fund, Van Kampen American Capital Balanced
Fund, Van Kampen American Capital Value Fund, Van Kampen American Capital
Growth Fund, Van Kampen American Capital Great American Companies Fund,
Van Kampen American Capital Prospector Fund and Van Kampen American
Capital Aggressive Growth Fund
5. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
6. VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
7. VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
8. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
9. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
10. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
11. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
12. VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
13. VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
14. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
15. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
16. VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
17. VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
18. VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
19. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
6
<PAGE> 7
20. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
21. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
22. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
MUNICIPALS
23. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
24. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
MUNICIPALS
25. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
MUNICIPALS
26. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
MUNICIPALS
27. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
28. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
29. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
30. VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
31. VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
32. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
33. VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
34. VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
35. VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
36. VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
37. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
38. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
39. VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
40. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
41. VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
42. THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts, Explorer
Institutional Active Core Fund and Explorer Institutional Limited Duration
Fund
7
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Explorer Institutional Active Core Fund:
We consent to the use of our report included in the Statement of Additional
Information which is incorporated by reference into the Prospectus and to the
reference to our Firm under the headings "Financial Highlights" in the
Prospectus and "Investment Advisory and Other Services -- Custodian and
Independent Accountants" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
April 22, 1997
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholder
Explorer Institutional Limited Duration Fund:
We consent to the use of our report included in the Statement of Additional
Information which is incorporated by reference into the Prospectus and to the
reference to our Firm under the headings "Financial Highlights" in the
Prospectus and "Investment Advisory and Other Services -- Custodian and
Independent Accountants" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
April 22, 1997
<PAGE> 1
EXHIBIT 16
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1996
Formula ERV - P
-------
P = T
Net Asset Value $10.09
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,052.00 = ERV
TOTAL RETURN FOR THE PERIOD 5.20% = T
<PAGE> 2
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1996
Formula ERV-P
-----
P = T
Net Asset Value $10.02
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,041.41 = ERV
TOTAL RETURN FOR THE PERIOD 4.14% = T
<PAGE> 1
EXHIBIT 17(a)
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
APRIL 4, 1997
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 Intermediate 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 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 Merritt Quality Income Portfolio
Van Kampen Merritt High Yield Portfolio
Van Kampen Merritt Growth and Income Portfolio
Van Kampen Merritt Money Market Portfolio
Van Kampen Merritt 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
<PAGE> 2
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 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
Internet Trust
Michigan Real Estate Income and Growth Trust
Van Kampen American Capital Insured Income Trust
Strategic Ten Trust, United States
Strategic Ten Trust, United Kingdom
Strategic Ten Trust, Hong Kong
Strategic Five Trust, United States
Van Kampen American Capital Equity Opportunity Trust
Principal Trust Princor Emerging Growth and Treasury
International Assets Advisory Corporation Global Blue Chip Trust
<PAGE> 1
EXHIBIT 17 (b)
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 & Assistant Secretary
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
D. Bruce Johnston Sr. Vice President Oakbrook Terrace, IL
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Mark T. McGannon Sr. Vice President Oakbrook Terrace, IL
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace,
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
Patrick J. Woelfel 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Sheldon Barker Vice President Moon, PA
Patricia A. Bettlach Vice President Chesterfield, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
James J. Boyne Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Brooksley Burke Vice President Marina Del Ray, CA
William F Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Christine Cleary Byrum Vice President Tampa, FL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Richard J. Charlino Vice President Houston, TX
Deanna Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Oakbrook Terrace, IL
Ken DeFrancesca Vice President Oakbrook Terrace, IL
Daniel R. DeJong Vice President Oakbrook Terrace, IL
Tracey M. DeLusant Vice President New York, NY
Mark B. Doremus Vice President Houston, TX
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Jonathan Eckard Vice President Tampa, FL
Charles Edward Fisher Vice President Naperville, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Erich P. Gerth Vice President Piedmont, CA
Richard G. Golod Vice President Annapolis, MD
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John A. Hanhauser Vice President Philadelphia, PA
John G. Hansen Vice President Oakbrook Terrace, IL
Eric J. Hargens Vice President Orlando, FL
Calvin B. Hays Vice President Richmond, VA
Joseph Hays Vice President Cherry Hill, NJ
Gregory Heffington Vice President Ft. Collins, CO
Scott F. Heyer Vice President Tampa, FL
Susan J. Hill Vice President Oakbrook Terrace, IL
David S. Hogaboom Vice President Oakbrook Terrace, IL
Bryn M. Hoggard Vice President Houston, TX
Robert S. Hunt Vice President Phoenix, MD
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Jeffrey S. Kinney Vice President Overland Park, KS
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
Richard D. Kozlowski Vice President Atlanta, GA
Thomas W. Knowles Vice President Cary, NC
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Statten Island, NY
S. William Lehew III Vice President Charlotte, NC
Tony E. Leal Vice President Daphne, AL
Eric Levinson Vice President San Francisco, CA
Jonathan Linstra Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Ted Morrow Vice President Dallas, TX
Robert Muller, Jr. Vice President Cypress, TX
Michael D. Ossmen Vice President Oakbrook Terrace, IL
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Anthony Piazza Vice President Old Bridge, NJ
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Fairlawn, OH
Daniel D. Reams Vice President Royal Oak, MI
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Thomas Rowley Vice President St. Louis, MO
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Bedford Corners, NY
Ronald J. Schuster Vice President Tampa, FL
Jeffrey C. Shirk Vice President Swampscott, MA
Kimberly M. Spangler Vice President Fairfax, VA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Gary R. Steele Vice President Philadelphia, PA
Richard Stefanec Vice President Los Angeles, CA
James D. Stevens Vice President North Andover, MA
William C. Strafford Vice President Granger, IN
Eric Studer Vice President Flemington, NJ
David A. Tabone Vice President Scottsdale, AZ
James C. Taylor Vice President Naperville, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Todd Volkman Vice President Austin, TX
Christopher Walsh Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Kirk Wiggins Vice President Arlington, TX
James R. Yount Vice President Mercer Island, WA
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Nicholas Dalmaso Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Walter C. Gray Asst. Vice President Houston, TX
Michael B. Kollins Asst. Vice President Oakbrook Terrace, IL
Laurie L. Jones Asst. Vice President Houston, TX
Ivan R. Lowe Asst. Vice President Houston, TX
Linda S. MacAyeal Asst. Vice President Oakbrook Terrace, IL
Stuart R. Moehlman Asst. Vice President Houston, TX
Gregory S. Parker Asst. Vice President Houston, TX
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
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Thomas J. Sauerborn Asst. Vice President New York, NY
Bruce Saxon Asst. Vice President Oakbrook Terrace, IL
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Traci T. Tighe Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Robert A. Watson Asst. Vice President Oakbrook Terrace, IL
Natalie Wilson Asst. Vice President New York, NY
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Gina M. Costello Asst. Secretary Oakbrook Terrace, IL
Cathy Napoli Asst. Secretary Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Offcer Oakbrook Terrace. IL
Leticia George Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
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 Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> EXPLORER INSTITUTIONAL ACTIVE CORE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-23-1996
<PERIOD-END> DEC-31-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> EXPLORER INSTITUTIONAL LIMITED DURATION FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 9,523,514
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<PAID-IN-CAPITAL-COMMON> 9,686,583
<SHARES-COMMON-STOCK> 973,451
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 62
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<ACCUMULATED-NET-GAINS> (11,993)
<OVERDISTRIBUTION-GAINS> 0
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<GROSS-ADVISORY-FEES> 17,245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 80,605
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</TABLE>
