THE EXPLORER
INSTITUTIONAL
TRUST (SM)
Semi-Annual Report
June 30, 1998
_ ACTIVE CORE FUND
_ LIMITED DURATION FUND
<PAGE>
TABLE OF CONTENTS
Letter to Shareholders....................... 1
Active Core Funds
Portfolio of Investments................ 3
Statement of Assets and Liabilities..... 6
Statement of Operations................. 7
Statement of Changes in Net Assets...... 8
Financial Highlights.................... 9
Limited Duration Fund
Portfolio of Investments................ 10
Statement of Assets and Liabilities..... 11
Statement of Operations................. 12
Statement of Changes in Net Assets...... 13
Financial Highlights.................... 14
Note to Financial Statements................. 15
EXPI ANR 8/98
<PAGE>
LETTER TO SHAREHOLDERS
June 30, 1998
Dear Shareholder,
We are pleased to provide you our semiannual report for the six months
ended June 30, 1998. The U.S. fixed-income sector produced another solid
six-month return of approximately 3.9 percent as measured by the Lehman
Aggregate Bond Index. The low-inflation environment, coupled with a strong
demand for U.S. dollar-based assets, drove long (30-year) interest rates to a
record low of 5.57 percent before closing the period at 5.63 percent.
ECONOMIC REVIEW
The U.S. economy continued to be characterized by solid growth with low
inflation. For the first quarter of 1998, real GDP expanded at a robust 5.4
percent annual rate while the Consumer Price Index rose only 1.7 percent.
Despite the strong first quarter growth and low inflation, however, signs of
economic slowing appeared in the second quarter. Indeed, second quarter GDP
growth now is expected to approximate only 1 percent. A major contributing
factor to this softening has been the slowing of U.S. exports as the
recessionary conditions in Japan and Southeast Asia have significantly reduced
demand in the region. As a result, the U.S. trade deficit grew by $49.3 billion
in the first four months of 1998 compared with the $37.1 billion deficit in the
first four months of 1997. Partly reflecting this deterioration, corporate
profits fell 2 percent in the first quarter representing the worst
year-over-year period since 1992.
MARKET OVERVIEW AND OUTLOOK
The U.S. fixed-income market benefited from the low-inflation
environment, the uncertainty in Japan, Southeast Asia, and Russia, and the
resulting global flight-to-safety. For the six months ended June 30, 1998, the
asset-backed sector contributed the strongest relative performance followed by
the U.S. government agency and mortgage-backed securities sectors. The only
sector to fare worse than the treasury sector was the corporate sector as
concerns about the slowdown in corporate profits caused yield premiums to rise.
The Federal Reserve is likely to continue to hold short-term interest rates
steady as domestic inflation remains under control and uncertainty remains
regarding the extent of effect the Asian crisis will have on the U.S. economy.
ACTIVE CORE FUND -- PORTFOLIO STRATEGY AND OVERVIEW
As of June 30, 1998, the Active Core Fund was structured with a
portfolio duration of 4.61 years, which was comparable to the Fund's benchmark,
the Lehman Brothers Aggregate Bond Index, with a duration of 4.55 years.
During the reporting period, the Fund's portfolio had overweight
positions in the asset-backed and agency sectors. We reduced the portfolio's
weighting in mortgage-backed securities as the lower interest rate environment
triggered increased mortgage prepayments. We maintained an underweight position
in the corporate sector.
The Active Core Fund generated a total return of 3.68 percent for the
six months ended June 30, 1998.
1
Continued on page two
<PAGE>
LIMITED DURATION FUND -- PORTFOLIO STRATEGY AND OVERVIEW
As of June 30, 1998, the Limited Duration Fund was structured with a
portfolio duration of 1.69 years, which was comparable to the Fund's benchmark,
the Lehman Brothers 1- to 3-Year Government Bond Index, with a duration of 1.66
years. This index is comprised of U.S. Treasury and U.S. government agency
securities.
During the reporting period, the Fund held 72.5 percent of its assets
in U.S. Treasuries and U.S. government agencies, as high quality remained the
focus. We intend to maintain a portfolio comprised of modest positions
diversified among various sectors. The short end of the yield curve has remained
relatively stable in the wake of the Asian financial crisis, and we expect this
to continue in the absence of any Federal Reserve action.
The Limited Duration Fund generated a total return of 2.82 percent for
the six months ended June 30, 1998.
SUMMARY
We believe 1998 will continue to be a challenging year for fixed-income
investors, and we look forward to meeting the challenge. We have provided
additional details about the Funds in the balance of the report. We appreciate
your investment in the Explorer Trust Funds and your confidence in our
institutional asset management team.
Sincerely,
/s/Edward A. Treichel
Edward A. Treichel
Director of Institutional Asset Management
2
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Securities 9.1%
<S> <C> <C> <C> <C>
$ 75 American Express Credit Account Master Trust 6.400% 04/15/05 $ 76,436
100 Citibank Credit Card Master Trust 5.800 02/07/05 99,346
100 Equicredit Funding Trust 6.855 10/15/28 102,091
200 Ford Credit Auto Owner Trust 5.650 10/15/01 200,162
100 Green Tree Financial Corp. 6.330 09/01/27 100,455
75 Household Affinity Credit Card Master Trust 5.600 05/15/02 74,738
175 Premier Auto Trust 5.820 02/06/02 174,911
250 Toyota Auto Lease Trust 6.350 04/26/04 251,863
-----------
Total Asset-Backed Securities 1,080,002
-----------
Corporate Bonds 16.9%
Aerospace/Defense 1.0%
115 McDonnell Douglas Corp. 6.875 11/01/06 121,218
-----------
Consumer Services 0.6%
75 Hertz Corp. 7.000 07/01/04 77,380
-----------
Finance 5.6%
100 American Express Credit Corp. 6.500 08/01/00 101,215
50 Ameritech Capital Funding Corp. 6.150 01/15/08 49,691
70 Bankamerica Corp. 6.250 04/01/08 69,693
125 BancOne Corp. 7.000 03/25/02 128,575
20 Capital One Bank 6.375 02/15/03 20,018
75 Chase Manhattan Corp. 7.125 06/15/09 79,295
100 Commercial Credit Group, Inc. 6.625 11/15/06 102,279
60 Finova Capital Corp. 6.150 03/31/03 59,912
50 Travelers Group, Inc. 6.875 2/15/2098 50,540
-----------
661,218
-----------
Raw Materials/Processing Industries 4.2%
75 Du Pont (E.I.) de Nemours & Co. 6.750 09/01/07 78,005
60 Goodyear Tire & Rubber Co. 6.375 03/15/08 59,891
100 Nalco Chemical Co. 6.250 05/15/08 101,112
150 Tyson Foods, Inc. 7.000 05/01/18 152,385
100 Union Pacific Resources Group, Inc. 7.000 10/15/06 102,079
-----------
493,472
-----------
Retail 0.6%
25 Nordstrom, Inc. 6.950 03/15/28 25,993
50 Sears Roebuck Acceptance Corp. 7.000 06/15/07 52,131
-----------
78,124
-----------
Telecommunications 2.2%
100 AT&T Corp. 7.750 03/01/07 110,199
50 GTE North, Inc. 6.730 02/15/28 49,970
100 MCI Communications Corp. 6.500 04/15/10 99,205
-----------
259,374
-----------
Utilities 2.7%
15 Florida Power & Light Co. 7.050 12/01/26 15,491
25 Florida Power Corp. 6.750 02/01/28 25,739
100 Pacific Gas & Electric Co. 6.250 08/01/03 100,955
125 Pacificorp 6.375 05/15/08 125,333
50 Wisconsin Electric Power Co. 6.625 11/15/06 51,435
-----------
318,953
-----------
Total Corporate Bonds 2,009,739
-----------
3
<PAGE>
<CAPTION>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government Agency Obligations 34.5%
$ 100 Federal Home Loan Bank 5.905% 12/23/02 $ 100,567
665 Federal Home Loan Mortgage Corp. 5.630 01/10/03 662,280
73 Federal Home Loan Mortgage Corp. Gold Convertible 15 Year
Pool #G10270 8.500 09/01/09 75,935
84 Federal Home Loan Mortgage Corp. Gold Convertible 15 Year
Pool #G10592 6.500 10/01/11 84,973
123 Federal Home Loan Mortgage Corp. Gold Pool #G00602 6.000 02/01/28 119,949
125 Federal National Mortgage Association Dwarf 15 Year
Pool #250649 6.500 07/01/11 126,132
100 Federal National Mortgage Association Medium Term Note 5.280 03/01/99 99,845
80 Federal National Mortgage Association Medium Term Note 6.800 04/08/02 82,963
100 Federal National Mortgage Association Medium Term Note 6.520 07/11/07 104,891
100 Federal National Mortgage Association PAC 7.000 10/25/09 102,679
230 Federal National Mortgage Association PAC 6.500 04/18/20 231,101
134 Federal National Mortgage Association Pool #124561 7.500 11/01/22 137,578
162 Federal National Mortgage Association Pool #303828 6.500 04/01/26 161,298
138 Federal National Mortgage Association Pool #250569 6.000 05/01/26 134,741
180 Federal National Mortgage Association Pool #429249 7.000 05/01/28 182,406
86 Government National Mortgage Association Platinum 15 Year
Pool #780419 7.500 12/15/09 88,666
118 Government National Mortgage Association Platinum
Pool #780440 8.500 11/15/17 125,855
60 Government National Mortgage Association Pool #780157 9.500 08/15/22 65,060
607 Government National Mortgage Association Pools 6.500 04/15/26 to 04/15/28 605,483
330 Government National Mortgage Association Pools 7.000 04/15/28 to 06/15/28 336,973
440 Tennessee Valley Authority 6.375 06/15/05 455,255
-----------
Total United States Government Agency Obligations 4,084,630
-----------
United States Treasury Obligations 34.2%
255 United States Treasury Bonds 8.125 08/15/19 329,220
2,325 United States Treasury Notes 5.875 11/15/99 to 11/30/01 2,342,771
550 United States Treasury Notes 6.000 08/15/00 560,544
100 United States Treasury Notes 6.250 02/15/03 102,902
1,800 United States Treasury STRIPS (a) * 08/15/02 to 05/15/18 713,679
-----------
Total United States Treasury Obligations 4,049,116
-----------
Total Long Term Investments 94.7%
(Cost $11,044,682) 11,223,487
Short Term Investments 4.1%
(Cost $483,925) 483,925
-----------
Total Investments 98.8%
(Cost $11,528,607) 11,707,412
Other Assets in Excess of Liabilities 1.2% 139,951
-----------
Net Assets 100.0% $11,847,363
===========
*Zero coupon bond
(a) U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal
of Securities) are securities issued by the U.S. Treasury Department which
evidence ownership in either the bond principal or interest payments.
These securities are used by the Fund to manage the portfolio's duration.
</TABLE>
4
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
The following table summarizes the portfolio composition at June 30, 1998, based
upon the higher of the quality rating issued by Standard & Poor's or Moody's.
Portfolio Composition by Credit Quality **
U.S. Government and Government Agency Obligations 72.5%
AAA 9.6
AA 7.6
A 8.7
BBB 1.6
100.0%
** As a Percentage of Long-Term Investments
5
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS:
<S> <C>
Total Investments (Cost $11,528,607) $ 11,707,412
Cash 106
Receivables:
Interest 116,458
Expense Reimbursement from Adviser 5,828
Unamortized Organizational Costs 27,107
----------------
Total Assets 11,856,911
LIABILITIES:
Trustees' Deferred Compensation and Retirement Plans 9,311
Income and Capital Gain Distributions Payable 237
----------------
Total Liabilities 9,548
----------------
NET ASSETS $ 11,847,363
================
NET ASSETS CONSIST OF:
Capital $ 11,652,966
Net Unrealized Appreciation 178,805
Accumulated Net Realized Gain 19,197
Accumulated Distributions in Excess of Net Investment Income (3,605)
----------------
NET ASSETS $ 11,847,363
================
Net Asset Value Per Share (Based on net assets of $11,847,363
and 1,157,628 shares of beneficial
interest issued and outstanding) $ 10.23
================
See Notes to Financial Statements
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
INVESTMENT INCOME:
<S> <C>
Interest $ 305,812
---------
EXPENSES:
Investment Advisory Fee 15,196
Legal 10,227
Custody 9,432
Shareholder Services 8,109
Accounting 6,954
Audit 6,100
Amortization of Organizational Costs 4,758
Trustees' Fees and Expenses 3,760
Shareholder Reports 3,220
Registration and Filing Fees 1,195
Other 185
---------
Total Expenses 69,136
Less: Fees Deferred and Expenses Reimbursed
($15,196 and $26,409, respectively) 41,605
Credits Earned on Cash Balances 7,268
---------
Net Expenses 20,263
---------
NET INVESTMENT INCOME $ 285,549
=========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 19,379
---------
Unrealized Appreciation/Depreciation:
Beginning of the Period 153,237
End of the Period 178,805
---------
Net Unrealized Appreciation During the Period 25,568
---------
NET REALIZED AND UNREALIZED GAIN $ 44,947
=========
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 330,496
=========
See Notes to Financial Statements
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and the
Year Ended December 31, 1998 (Unaudited)
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
FROM INVESTMENT ACTIVITIES:
Operations:
<S> <C> <C>
Net Investment Income $ 285,549 $ 387,370
Net Realized Gain 19,379 97,464
Net Unrealized Appreciation During the Period 25,568 71,773
---------------- ----------------
Change in Net Assets from Operations 330,496 556,607
---------------- ----------------
Distributions from Net Investment Income (285,549) (387,370)
Distributions in Excess of Net Investment Income (7) (29)
---------------- ----------------
Distributions from and in Excess of Net Investment Income (285,556) (387,399)
Distributions from Net Realized Gain (25,486) (77,231)
Total Distributions (311,042) (464,630)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 19,454 91,977
---------------- ----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 7,015,143 1,850,000
Net Asset Value of Shares Issued Through Dividend
Reinvestment 309,493 451,896
Cost of Shares Repurchased (435,000) (3,095,946)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 6,889,636 (794,050)
TOTAL INCREASE/DECREASE IN NET ASSETS 6,909,090 (702,073)
NET ASSETS:
Beginning of the Period 4,938,273 5,640,346
---------------- ----------------
End of the Period (Including accumulated
distributions in excess of net
investment income of $3,605 and $3,598, respectively) $ 11,847,363 $ 4,938,273
================ ===============
See Notes to Financial Statements
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
April 23, 1996
Six Months Year (Commencement
Ended Ended of Investment
June 30, December 31, Operations) to
1998 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 10.171 $ 10.085 $ 10.000
--------------- --------------- ------------
Net Investment Income 0.292 0.626 0.409
Net Realized and Unrealized Gain 0.080 0.249 0.095
--------------- --------------- ------------
Total from Investment Operations 0.372 0.875 0.504
--------------- --------------- ------------
Less:
Distributions from and in Excess of Net Investment Inc 0.287 0.626 0.409
Distributions from Net Realized Gain 0.022 0.163 0.010
--------------- --------------- ------------
Total Distributions 0.309 0.789 0.419
--------------- --------------- ------------
Net Asset Value, End of the Period $ 10.234 $ 10.171 $ 10.085
=============== =============== ============
Total Return * 3.68%** 8.93% 5.20%**
Net Assets at End of the Period (In millions) $11.8 $4.9 $5.6
Ratio of Expenses to Average Net Assets* (a) 0.54% 0.60% 0.40%
Ratio of Net Investment Income to Average Net Assets* 5.64% 6.19% 5.98%
Portfolio Turnover 64%** 109% 84%**
*If certain expenses had not been assumed by Van Kampen,
total return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets (a) 1.36% 2.01% 1.81%
Ratio of Net Investment Income to Average Net Assets 4.82% 4.78% 4.57%
** Non-Annualized
(a)The Ratios of Expenses to Average Net Assets do not reflect credits
earned on overnight cash balances. If these credits were reflected as a
reduction of expenses, the ratios would decrease by .14% and .20% for the
periods ended June 30, 1998, and December 31, 1997, respectively.
See Notes to Financial Statements
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS
June 30,1998 (Unaudited)
Par
Amount
(000) Description Coupon Maturity Market Value
----------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Securities 5.1%
<S> <C> <C> <C> <C>
$30 American Express Credit Account Master Trust 6.400% 04/15/05 $ 30,574
10 Equicredit Funding Trust 6.855 10/15/28 10,209
10 Ford Credit Auto Owner Trust 5.650 10/15/01 10,008
30 Household Affinity Credit Card Master Trust 5.600 05/15/02 29,895
30 MBNA Credit Card Master Trust 6.600 11/15/04 30,707
20 Toyota Auto Lease Trust 6.350 04/26/04 20,149
-----------
Total Asset-Backed Securities 131,542
-----------
Corporate Bonds 20.7%
Finance 12.7%
150 American Express Credit Corp. 6.500 08/01/00 151,823
175 Ford Motor Credit Co. 5.750 01/25/01 173,778
-----------
325,601
-----------
Raw Materials/Processing Industries 6.0%
150 Du Pont (E.I.) de Nemours & Co. 6.750 10/15/02 154,079
-----------
Utilities 2.0%
50 Pacific Gas & Electric Co. 6.250 08/01/03 50,478
-----------
Total Corporate Bonds 530,158
-----------
United States Government Agency Obligations 5.1%
100 Federal National Mortgage Association Medium Term Note 5.280 03/01/99 99,845
30 Federal National Mortgage Association Medium Term Note 6.800 04/08/02 31,111
-----------
Total United States Government Agency Obligations 130,956
-----------
United States Treasury Obligations 40.9%
610 United States Treasury Notes 5.875 11/15/99 to 11/30/01 614,230
100 United States Treasury Notes 6.250 02/15/03 102,902
325 United States Treasury Notes 6.750 04/30/00 331,968
-----------
Total United States Treasury Obligations 1,049,100
-----------
Total Long-Term Investments 71.8%
(Cost $1,823,962) 1,841,756
-----------
Short-Term Investments 26.5%
Federal Home Loan Mortgage Corp. Discount Note ($681,000 par, yielding 5.552%, 07/01/98 maturity)
(Cost $680,895) 680,895
-----------
Total Investments 98.3%
(Cost $2,504,857) 2,522,651
Other Assets in Excess of Liabilities 1.7% 42,983
-----------
Net Assets 100.0% $ 2,565,634
===========
The following table summarizes the portfolio composition at June 30, 1998, based
on the higher of the quality ratings issued by Standard & Poor's or Moody's.
Portfolio Composition by Credit Quality **
U.S. Government and Government Agency Obligations 64.1%
AAA 7.1
AA 19.4
A 9.4
------
100.0%
======
** As a percentage of Long-Term Investments
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS:
<S> <C>
Total Investments (Cost $2,504,857) $ 2,522,651
Cash 645
Receivables:
Interest 23,615
Expense Reimbursement from Adviser 584
Unamortized Organizational Expenses 27,676
-------------
Total Assets 2,575,171
-------------
LIABILITIES:
Trustees' Deferred Compensation and Retirement Plans 9,311
Income Distributions Payable 226
-------------
Total Liabilities 9,537
-------------
NET ASSETS $ 2,565,634
=============
NET ASSETS CONSIST OF:
Capital $ 2,461,612
Accumulated Net Realized Gain 87,769
Net Unrealized Appreciation 17,794
Accumulated Distributions in Excess of Net
Investment Income (1,541)
-------------
NET ASSETS $ 2,565,634
=============
Net Asset Value Per Share (Based on net assets of
$2,565,634 and 255,481 shares of
beneficial interest issued and outstanding) $ 10.04
=============
See Notes to Financial Statements
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
INVESTMENT INCOME:
<S> <C>
Interest $ 119,373
-------------
EXPENSES:
Legal 10,221
Audit 9,000
Custody 8,099
Shareholder Services 8,095
Investment Advisory Fee 6,014
Amortization of Organizational Costs 4,858
Accounting 4,748
Trustees' Fees and Expenses 3,761
Shareholder Reports 3,219
Registration and Filing Fees 1,195
Other 242
-------------
Total Expenses 59,452
Less Fees Deferred and Expenses Reimbursed
($6,014 and $38,248, respectively) 44,262
Credits Earned on Cash Balances 7,170
-------------
Net Expenses 8,020
-------------
NET INVESTMENT INCOME $ 111,353
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 87,769
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period 79,004
End of the Period 17,794
-------------
Net Unrealized Depreciation During the Period (61,210)
-------------
NET REALIZED AND UNREALIZED GAIN $ 26,559
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 137,912
=============
See Notes to Financial Highlights
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and the
Year Ended December 31, 1997 (Unaudited)
Six Months End Year Ended
June 30, 1998 December 31, 1997
-------------- --------------
FROM INVESTMENT ACTIVITIES:
Operations:
<S> <C> <C>
Net Investment Income $ 111,353 $ 471,577
Net Realized Gain 87,769 25,119
Net Unrealized Appreciation/Depreciation
During the Period (61,210) 872
-------------- --------------
Change in Net Assets from Operations 137,912 497,568
-------------- --------------
Distributions from Net Investment Income (111,353) (471,639)
DIstributions from Net Realized Gain 0 (14,667)
-------------- --------------
Total Distributions (111,353) (486,306)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 26,559 11,262
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 300,033 705,000
Net Asset Value of Shares Issued Through
Dividend Reinvestment 94,883 483,346
Cost of Shares Repurchased (6,087,927) (2,720,306)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS (5,693,011) (1,531,960)
-------------- --------------
TOTAL DECREASE IN NET ASSETS (5,666,452) (1,520,698)
NET ASSETS:
Beginning of the Period 8,232,086 9,752,784
-------------- --------------
End of the Period (Including accumulated
distributions in excess of
net investment income of $1,541 and
$1,541 respectively) $ 2,565,634 $ 8,232,086
============== ==============
See Notes to Financial Statements
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the period indicated. (Unaudited)
April 23, 1996
Six Months Year (Commencement
Ended Ended of Investment
June 30, December 31, Operations) to
1998 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 10.037 $ 10.019 $ 10.000
----------- ----------- -------------
Net Investment Income 0.276 0.574 0.386
Net Realized and Unrealized Gain 0.009 0.036 0.019
----------- ----------- -------------
Total from Investment Operations 0.285 0.610 0.405
----------- ----------- -------------
Less:
Distributions from Net Investment Income 0.280 0.574 0.386
Distributions from Net Realized Gain -0- 0.018 -0-
----------- ----------- -------------
Total Distributions 0.280 0.592 0.386
----------- ----------- -------------
Net Asset Value, End of the Period $ 10.042 $ 10.037 $ 10.019
=========== =========== =============
Total Return * 2.82%** 6.29% 4.14%**
Net Assets at End of the Period (In millions) $2.6 $8.2 $9.8
Ratio of Expenses to Average Net Assets* (a) 0.76% 0.56% 0.40%
Ratio of Net Investment Income to
Average Net Assets* 5.55% 5.74% 5.68%
Portfolio Turnover 54%** 41% 16%**
*If certain expenses had not been assumed
by Van Kampen, total return would have
been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net Assets (a) 2.97% 1.86% 1.40%
Ratio of Net Investment Income to
Average Net Assets 3.35% 4.59% 4.68%
** Non-Annualized
(a)The ratios of Expenses to Average Net Assets do not reflect credits
earned on overnight cash balances. If these credits were reflected as a
reduction of expenses, the ratios would decrease by .36% and .16%, for the
periods ended June 30, 1998, and December 31, 1997, respectively.
See Notes to Financial Statements
</TABLE>
14
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Explorer Institutional Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company comprised of two funds: 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 June 30, 1998, 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 COSTS - The Funds will reimburse Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Funds' organization in the amount of $47,718 for Active Core Fund and $48,676
for Limited Duration Fund. These costs are being amortized on a straight line
basis over the 60 month period ending April 22, 2001. Van Kampen Management Inc.
(the "Adviser") has agreed that in the event any of the initial shares of the
Funds originally purchased by Van Kampen are redeemed during the amortization
period, the Funds will be reimbursed for any unamortized organizational costs 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.
The following table presents the identified cost of investments at June
30, 1998 for federal income tax purposes with the associated gross unrealized
appreciation, gross unrealized depreciation and net unrealized
appreciation/depreciation.
ACTIVE CORE LIMITED
FUND DURATION FUND
Cost of long-term and
short-term investments $11,528,607 $2,504,857
=============== ==================
Aggregate gross
unrealized appreciation 188,477 18,031
Aggregate gross
unrealized depreciation 9,672 237
--------------- ------------------
Net unrealized
appreciation $178,805 $17,794
=============== ==================
F. DISTRIBUTION OF INCOME AND GAINS - Each Fund
declares daily and pays monthly dividends 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 interest income 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 for a particular period. These differences are
temporary in nature, but may result in book basis distributions in excess of net
investment income for certain periods.
G. EXPENSE REDUCTIONS - During the six months ended June 30, 1998, the custody
fees for Active Core Fund and Limited Duration Fund were reduced by $7,268 and
$7,170,
15
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
respectively, as a result of credits earned on overnight cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of each of the Fund's Investment Advisory Agreements, the
Adviser will provide investment advice and facilities to the Funds for an annual
fee payable monthly as follows:
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------- ----------------------
First $1 billion .300 of 1%
Over $1 billion .250 of 1%
Van Kampen 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 Van Kampen without causing that
funds' expense ratio to exceed 0.40%, that fund may be required to reimburse Van
Kampen for fees waived and/or expenses assumed within the previous four years.
Therefore, these cumulative expense subsidies totaling $178,930 and $195,796 for
Active Core Fund and Limited Duration Fund, respectively, could become
liabilities of each respective Fund at a future date.
For the six months ended June 30, 1998, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $100 and $200, respectively,
representing legal expenses provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Funds, of which a trustee of the Funds is an
affiliated person. All of this expense has been assumed by Van Kampen.
For the six months ended June 30, 1998, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $7,000 and $4,700,
respectively, representing Van Kampen's cost of providing accounting services to
the Funds. All of this expense has been assumed by Van Kampen.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Funds. For the six months
ended June 30, 1998, Active Core Fund and Limited Duration Fund recognized
expenses of approximately $7,500 each. Beginning in 1998, the transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks. All of this expense has been assumed
by Van Kampen.
Certain officers and trustees of the Funds are also officers and
directors of Van Kampen. The Funds do not compensate their officers or trustees
who are officers of Van Kampen.
The Funds provide deferred compensation and retirement plans for their
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Funds. The maximum
annual benefit per trustee under the plan is $2,500.
At June 30, 1998, 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 six months ended June 30, 1998,
transactions in common shares were as follows:
ACTIVE LIMITED
CORE DURATION FUND
FUND
---------------- -----------------
Beginning Shares 485,509 820,195
Shares Sold 684,404 29,810
Shares Issued
through 30,365 9,437
Dividend Reinvestment
Shares Repurchased (42,650) (603,961)
================ =================
Ending Shares 1,157,628 255,481
================ =================
Capital at 06/30/98 $11,652,966 $2,461,612
================ =================
For the period ended December 31, 1997, transactions in common shares were as
follows:
ACTIVE LIMITED
CORE FUND DURATION FUND
-------------- -----------------
Beginning Shares 559,271 973,451
Shares Sold 183,711 70,461
Shares Issued
through 44,685 48,307
Dividend Reinvestment
Shares Repurchased (302,158) (272,024)
-------------- -----------------
Ending Shares 485,509 820,195
============== =================
Capital at 12/31/97 $4,763,330 $8,154,623
============== =================
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
including principal paydowns and excluding forward commitment transactions and
short-term investments, were $12,400,319 and $6,034,560 for Active Core Fund and
$1,637,466 and $6,484,942 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).
16
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
A Collateralized Mortgage Obligation (CMO) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics. For instance, a PAC
(Planned Amortization Class) is a specific class of mortgages which over its
life will generally have the most stable cash flows and the lowest prepayment
risk.
17
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
BOARD OF TRUSTEES INVESTMENT ADVISER
DAVID C. ARCH
ROD DAMMEYER VAN KAMPEN MANAGEMENT INC.
HOWARD J KERR One Parkview Plaza
DENNIS J. MCDONNELL* - Chairman Oakbrook Terrace, Illinois 60181
THEODORE A. MEYERS
STEVEN MULLER DISTRIBUTOR
DON G. POWELL*
HUGO F. SONNENSCHEIN VAN KAMPEN FUNDS INC.
WAYNE W. WHALEN* One Parkview Plaza
Oakbrook Terrace, Illinois 60181
OFFICERS
SHAREHOLDER SERVICING AGENT
DENNIS J. MCDONNELL*
President VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
RONALD A. NYBERG* Kansas City, Missouri 64141-9256
Vice President and Secretary
EDWARD C. WOOD, III* CUSTODIAN
Vice President and Chief
Financial Officer STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
CURTIS W. MORELL* P.O. Box 1713
Vice President and Chief Boston, Massachusetts 02105
Accounting Officer
JOHN L. SULLIVAN* LEGAL COUNSEL
Treasurer
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
(ILLINOIS)
TANYA M. LODEN* 333 West Wacker Drive
Controller Chicago, Illinois 60606
PETER W. HEGEL* INDEPENDENT ACCOUNTANTS
MICHAEL P. KAMRADT*
JOHN M. MCCAREINS* KPMG PEAT MARWICK LLP
EDWARD A. TREICHEL* Peat Marwick Plaza
Vice Presidents 303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment
Company Act of 1940.
Van Kampen Funds Inc., 1998
All Rights Reserved.
SM denotes a service mark of Van Kampen Funds Inc.
<PAGE>
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