<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders.............................. 1
Putting Your Fund's Performance in Perspective...... 3
Active Core Fund....................................
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 7
Statement of Operations.......................... 8
Statement of Changes in Net Assets............... 9
Financial Highlights............................. 10
Limited Duration Fund...............................
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements....................... 17
Report of Independent Accountants................... 20
</TABLE>
EXPI SAR 2/98
<PAGE> 2
LETTER TO SHAREHOLDERS
February 1, 1998
Dear Shareholder,
We are pleased to provide you our annual report for the 12 months ended
December 31, 1997. The recent six-month period proved to be a volatile yet
rewarding period for U.S. fixed income investors. The low inflation environment,
coupled with the demand for high quality U.S. Treasury securities during the
Asian financial crisis, drove long (30 years) interest rates below 6 percent for
the first time in four years.
The Asian crisis highlighted the difficulty in predicting significant
market swings as well as the benefit of maintaining a diversified portfolio. The
crisis highlighted the benefit of the stability provided by The Explorer
Institutional Trust Funds (Funds). The Funds provide a diversified portfolio of
investment grade fixed income securities with durations ranging between one and
six years.
ECONOMIC REVIEW
The U.S. economy continued to be characterized by solid growth with low
inflation. For the last 12 months real gross domestic product (GDP) expanded at
a healthy 3.8 percent and the Consumer Price Index expanded rose a meager 1.7
percent. As a result of the solid economic growth and low-inflation environment,
consumer confidence remained high. In the fourth quarter, however, the Asian
financial crisis partly offset what would have been a spectacular 1997, as
emergency loans and the financial stability of various Asian countries became
the focus. The Asian crisis resulted in significant currency devaluations for
the former "Asian Tiger" countries (Thailand, Indonesia, Malaysia and South
Korea). In addition, the financial collapse has lead to an unprecedented slowing
in the Asian economies. This slowdown, coupled with the strong dollar will
result in a slowing of U.S. exports to the region and detract from U.S. GDP in
1998. For the first quarter in 1998, real GDP is expected to slow to a 2.5
percent annual rate.
MARKET OVERVIEW
The low-inflation environment combined with the Asian financial turmoil
drove yields to a four-year low. The U.S. treasury market benefited most as
investors sought refuge in high-quality, liquid notes and bonds. For the fourth
quarter, other sectors of the fixed income market (agencies, corporates and
mortgages) underperformed Treasuries as the demand for Treasuries surged.
However, for the 12-month period, mortgage securities and US government agency
securities outperformed comparable Treasury securities by 1.21 and 0.48
percentage points respectively. Corporate securities were impacted more
significantly by the Asian crisis and underperformed comparable Treasury
securities for the 12-month period.
OUTLOOK
The Asian financial crisis raised the need for global liquidity,
requiring the Federal Reserve Board to maintain a neutral stance despite its
existing bias towards a higher federal funds rate. Price stability remains the
Fed's primary objective, but it must be careful not to exacerbate the situation
in the financial system. While the monetary authority still appears to be biased
towards higher rates due to the robust level of economic activity, the slowdown
resulting from the Asian crisis may be sufficient to keep the Fed on hold for
the time being.
1 Continued on page two
<PAGE> 3
ACTIVE CORE FUND -- PORTFOLIO STRATEGY AND OVERVIEW
As of December 31, 1997, the Active Core Fund was structured with
portfolio duration of 4.37 years, which was comparable to the Fund's benchmark,
the Lehman Brothers Aggregate Bond Index, with a duration of 4.42 years.
During the reporting period, the Fund's portfolio remained overweighted
in the mortgage-backed security sector. However, we adjusted the mix of mortgage
coupons as the sharp decline in interest rates, caused premium-priced mortgages
to experience increased pre-payment risk. We intend to continue to closely
monitor the composition of our mortgage holdings (i.e., the mix of premium,
discount, and current coupon mortgages) as we enter 1998.
We feel that the corporate bond sector will continue to be under
pressure from both a fundamental and technical perspective. Fundamentally, a
slow down in earnings growth and concerns about the spread of the Asian crisis
may continue to hinder corporate bond performance. Technically, a large amount
of bond issuance is expected to occur as a result of the low interest rate
environment. As a result, we will monitor our corporate weighting closely.
The Active Core Fund generated a total return of 6.17 percent for the
six months and 8.93 percent for the 12 months ended December 31, 1997.
LIMITED DURATION FUND -- PORTFOLIO STRATEGY AND OVERVIEW
As of December 31, 1997, the Limited Duration Fund was structured with
a portfolio duration of 1.66 years, which was comparable to the Fund's
benchmark, the Lehman Brothers 1- to 3-Year Government Bond Index, with a
duration of 1.67 years. This index is comprised of U.S. Treasury and U.S.
government agency securities.
During the reporting period, we maintained the Fund's weightings in the
corporate, mortgage, and asset-backed sectors. 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 additional
Fed action.
The Limited Duration Fund generated a total return of 3.59 percent for
the six months and 6.29 percent for the 12 months ended December 31, 1997.
SUMMARY
We believe 1998 will 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,
[SIG]
Edward A. Treichel
Director of Institutional Asset Management
2
<PAGE> 4
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over
the period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Aggregate Bond
Index over time. This index is an unmanaged statistical composite and does not
reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Explorer Institutional Active Core Fund vs. Lehman Brothers Aggregate Bond
Index (April 23, 1996 through December 31, 1997)
[GRAPH]
<TABLE>
<CAPTION>
Lehman Brothers Explorer Institutional
Aggregate Bond Index Active Core Fund
<S> <C> <C>
Apr-96 $10,000.00 $10,000.00
May-96 9,980.00 9,950.00
Jun-96 10,113.73 10,061.00
Jul-96 10,141.04 10,080.00
Aug-96 10,123.80 10,040.00
Sep-96 10,299.95 10,214.00
Oct-96 10,528.61 10,432.00
Nov-96 10,708.65 10,610.00
Dec-96 10,609.06 10,520.00
Jan-97 10,641.95 10,545.00
Feb-97 10,668.55 10,567.00
Mar-97 10,550.13 10,455.00
Apr-97 10,708.39 10,595.00
May-97 10,810.11 10,684.00
Jun-97 10,938.76 10,793.00
Jul-97 11,234.10 11,086.00
Aug-97 11,138.61 10,990.00
Sep-97 11,303,46 11,142.00
Oct-97 11,467.36 11,309.00
Nov-97 11,520.11 11,343.00
Dec-97 11,636.47 11,459.00
- --------------------------------
Fund's Total Return
1 Year Avg. Annual = 8.93%
Inception Avg. Annual = 8.39%
- --------------------------------
</TABLE>
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular
intervals. A good starting point is a comparison of your investment holdings to
an applicable benchmark, such as a broad-based market index. Such a comparison
can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult
market conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over
the period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers 1- to 3-year
Government Bond Index over time. This index is an unmanaged statistical
composite and does not reflect any commissions or fees which would be incurred
by an investor purchasing the securities it represents. Similarly, its
performance does not reflect any sales charges or other costs which would be
applicable to an actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Explorer Institutional Limited Duration Fund vs. Lehman Brothers 1- to
3-year Government Bond
Index (April 23, 1996 through December 31, 1997)
[GRAPH]
<TABLE>
<CAPTION>
Lehman Brothers
1 - to 3-year Explorer Institutional
Government Bond Index Limited Duration Fund
<S> <C> <C>
Apr-96 $10,000.00 $10,000.00
May-96 10,022.00 9,993.00
Jun-96 10,095.16 10,071.00
Jul-96 10,134.53 10,109.00
Aug-96 10,172.03 10,117.00
Sep-96 10,264.59 10,215.00
Oct-96 10,380.58 10,337.00
Nov-96 10,457.40 10,426.00
Dec-96 10,459.49 10,414.00
Jan-97 10,509.70 10,454.00
Feb-97 10,534.92 10,480.00
Mar-97 10,526.49 10,458.00
Apr-97 10,612.81 10,551.00
May-97 10,687.10 10,614.00
Jun-97 10,760.84 10,686.00
Jul-97 10,878.13 11,802.00
Aug-97 10,889.01 10,811.00
Sep-97 10,971.77 10,893.00
Oct-97 11,052.96 10,956.00
Nov-97 11,080.59 10,996.00
Dec-97 11,154.83 11,069.00
- --------------------------------
Fund's Total Return
1 Year Avg. Annual = 6.29%
Inception Avg. Annual = 6.19%
- --------------------------------
</TABLE>
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES 5.1%
$ 75 American Express Credit Account Master Trust................. 6.400 % 04/15/05 $ 75,636
125 Citibank Credit Card Master Trust............................ * 02/07/03 103,466
75 Household Affinity Credit Card Master Trust.................. 5.600 05/15/02 74,098
----------
TOTAL ASSET-BACKED SECURITIES................................ 253,200
----------
CORPORATE BONDS 26.2%
Aerospace/Defense 0.8%
40 McDonnell Douglas Corp....................................... 6.875 11/01/06 41,469
----------
CONSUMER DISTRIBUTION 3.7%
100 Wal Mart Stores, Inc......................................... 5.500 03/01/98 99,902
80 Wal Mart Stores, Inc......................................... 8.625 04/01/01 85,686
----------
185,588
----------
CONSUMER DURABLES 2.1%
100 Polaroid Corp................................................ 6.750 01/15/02 101,029
----------
CONSUMER SERVICES 3.6%
75 Hertz Corp................................................... 7.000 07/01/04 76,547
100 Walt Disney Co............................................... 6.750 03/30/06 103,210
----------
179,757
----------
FINANCE 6.7%
100 American Express Credit Corp................................. 6.500 08/01/00 100,845
100 Commercial Credit Group, Inc................................. 6.625 11/15/06 101,000
125 BancOne Corp................................................. 7.000 03/25/02 128,196
----------
330,041
----------
RAW MATERIALS/PROCESSING INDUSTRIES 3.7%
75 Du Pont (E.I.) de Nemours & Co............................... 6.750 09/01/07 77,604
100 Union Pacific Resources Group, Inc........................... 7.000 10/15/06 102,728
----------
180,332
----------
TELECOMMUNICATIONS 2.2%
100 AT&T Corp.................................................... 7.750 03/01/07 109,640
----------
UTILITIES 3.4%
15 Florida Power & Light Co..................................... 7.050 12/01/26 15,043
100 Pacific Gas & Electric Co.................................... 6.250 08/01/03 100,270
50 Wisconsin Electric Power Co.................................. 6.625 11/15/06 51,107
----------
166,420
----------
TOTAL CORPORATE BONDS 1,294,276
----------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 57.2%
165 Federal Home Loan Mortgage Corp.............................. 5.630 01/10/03 162,674
142 Federal Home Loan Mortgage Corp. Gold Pool #G00559........... 7.000 10/01/26 142,807
76 Federal Home Loan Mortgage Corp. Gold Convertible 15 Year
Pool #G10270............................................ 8.500 09/01/09 79,854
90 Federal Home Loan Mortgage Corp. Gold Convertible 15 Year
Pool #G10592............................................ 6.500 09/01/11 90,034
26 Federal National Mortgage Association Dwarf 15 Year
Pool #250589............................................ 7.000 06/01/11 26,076
45 Federal National Mortgage Association Dwarf 15 Year
Pool #250649............................................ 6.500 08/01/11 45,101
100 Federal National Mortgage Association Medium Term Note....... 5.280 03/01/99 99,426
270 Federal National Mortgage Association Medium Term Note....... 6.060 06/21/99 270,980
80 Federal National Mortgage Association Medium Term Note....... 6.800 04/08/02 82,528
100 Federal National Mortgage Association Medium Term Note....... 6.520 07/11/07 103,246
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
<S> <C> <C> <C> <C>
$ 100 Federal National Mortgage Association PAC................. 7.000 % 10/25/09 $ 102,438
170 Federal National Mortgage Association PAC................. 6.500 04/18/20 171,108
132 Federal National Mortgage Association Pool #124561........ 7.500 11/01/22 134,714
192 Federal National Mortgage Association Pool #313047........ 8.500 12/01/25 200,805
123 Federal National Mortgage Association Pool #303828........ 6.500 04/01/26 121,396
143 Federal National Mortgage Association Pool #250569........ 6.000 05/01/26 137,915
139 Federal National Mortgage Association Pool #358471........ 7.000 10/01/26 140,473
122 Government National Mortgage Association Platinum
Pool #780440......................................... 8.500 11/15/17 131,078
83 Government National Mortgage Association Platinum 15 Year
Pool #780419......................................... 7.500 12/15/09 86,023
74 Government National Mortgage Association Pool #780157..... 9.500 08/15/22 80,883
266 Government National Mortgage Association Pools............ 6.500 04/15/26 to 02/15/27 263,081
150 Tennessee Valley Authority................................ 6.375 06/15/05 152,684
----------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS........................................ 2,825,324
----------
UNITED STATES TREASURY OBLIGATIONS 8.7%
125 United States Treasury Bonds.............................. 8.125 08/15/19 156,465
600 United States Treasury STRIPS (a)......................... * 02/15/07 to 05/15/15 270,588
----------
TOTAL UNITED STATES TREASURY OBLIGATIONS................................................. 427,053
----------
TOTAL INVESTMENTS 97.2%
(Cost $4,646,616).............................................................................. 4,799,853
OTHER ASSETS IN EXCESS OF LIABILITIES 2.8%....................................................... 138,420
----------
NET ASSETS 100.0%................................................................................ $4,938,273
==========
</TABLE>
* 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
The following table summarizes the portfolio composition at December 31, 1997,
based upon the higher of the quality rating issued by Standard & Poor's or
Moody's.
<TABLE>
<S> <C>
PORTFOLIO COMPOSITION BY CREDIT QUALITY **
U.S. Government and Government Agency Obligations...... 67.8%
AAA.................................................... 5.2
AA..................................................... 16.9
A...................................................... 8.0
BBB.................................................... 2.1
-----
100.0%
=====
** AS A PERCENTAGE OF LONG-TERM ASSETS
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $4,646,616).................................. $4,799,853
Cash................................................................. 79,676
Interest Receivable.................................................. 51,634
Unamortized Organizational Costs..................................... 31,865
----------
Total Assets..................................................... 4,963,028
----------
LIABILITIES:
Accrued Expenses..................................................... 14,366
Trustees' Deferred Compensation and Retirement Plans................. 9,311
Income and Capital Gain Distributions Payable........................ 1,078
----------
Total Liabilities................................................ 24,755
----------
NET ASSETS........................................................... $4,938,273
==========
NET ASSETS CONSIST OF:
Capital.............................................................. 4,763,330
Net Unrealized Appreciation.......................................... 153,237
Accumulated Net Realized Gain........................................ 25,304
Accumulated Distributions in Excess of Net Investment Income......... (3,598)
----------
NET ASSETS........................................................... $4,938,273
==========
NET ASSET VALUE PER SHARE (Based on net assets of $4,938,273 and
485,509 shares of beneficial interest issued and outstanding)...... $ 10.17
==========
</TABLE>
See Note to Financial Statements
7
<PAGE> 9
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................. $ 412,409
---------
EXPENSES:
Shareholder Services..................................... 19,235
Investment Advisory Fee.................................. 18,786
Legal.................................................... 18,439
Audit.................................................... 17,476
Trustees' Fees and Expenses.............................. 14,043
Custody.................................................. 12,346
Amortization of Organizational Costs..................... 10,484
Accounting............................................... 9,754
Registration and Filing Fees............................. 3,600
Shareholder Reports...................................... 1,000
Other.................................................... 363
---------
Total Expenses 125,526
Less: Fees Waived and Expenses Reimbursed ($18,786
and $69,355, respectively).................... 88,141
Credits Earned on Cash Balances.................. 12,346
---------
Net Expenses........................................... 25,039
---------
NET INVESTMENT INCOME.................................... $ 387,370
=========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain...................................... $ 97,464
---------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................ 81,464
End of the Period...................................... 153,237
---------
Net Unrealized Appreciation During the Period............ 71,773
---------
NET REALIZED AND UNREALIZED GAIN......................... $ 169,237
=========
NET INCREASE IN NET ASSETS FROM OPERATIONS............... $ 556,607
</TABLE> =========
See Notes to Financial Statements
8
<PAGE> 10
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1997 and the Period April 23, 1996
(Commencement of Investment Operations) to December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................................................... $ 387,370 $ 208,898
Net Realized Gain.......................................................... 97,464 6,691
Net Unrealized Appreciation During the Period.............................. 71,773 81,464
-------------- -----------------
Change in Net Assets from Operations....................................... 556,607 297,053
-------------- -----------------
Distributions from Net Investment Income................................... (387,370) (208,862)
Distributions in Excess of Net Investment Income........................... (29) -0-
Distributions from Net Realized Gain....................................... (77,231) (5,225)
-------------- -----------------
Total Distributions........................................................ (464,630) (214,087)
-------------- -----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........................ 91,977 82,966
-------------- -----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.................................................. 1,850,000 6,748,576
Net Asset Value of Shares Issued Through Dividend Reinvestment............. 451,896 149,654
Cost of Shares Repurchased................................................. (3,095,946) (1,390,850)
-------------- -----------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS......................... (794,050) 5,507,380
-------------- -----------------
TOTAL INCREASE/DECREASE IN NET ASSETS...................................... (702,073) 5,590,346
NET ASSETS:
Beginning of the Period.................................................... 5,640,346 50,000
-------------- -----------------
End of the Period (Including accumulated distributions in excess
of net investment income of $3,598 and $537, respectively)............... $ 4,938,273 $ 5,640,346
============== =================
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 23, 1996
Year (Commencement
Ended of Investment
December 31, Operations) to
1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period................................. $ 10.085 $ 10.000
----------- ---------------
Net Investment Income.................................................... 0.626 0.409
Net Realized and Unrealized Gain......................................... 0.249 0.095
----------- ---------------
Total from Investment Operations......................................... 0.875 0.504
----------- ---------------
Less:
Distributions from and in Excess of Net Investment Income.............. 0.626 0.409
Distributions from Net Realized Gain................................... 0.163 0.010
----------- ---------------
Total Distributions...................................................... 0.789 0.419
----------- ---------------
Net Asset Value, End of the Period....................................... $ 10.171 $ 10.085
=========== ===============
Total Return *........................................................... 8.93% 5.20%**
Net Assets at End of the Period (In millions)............................ $4.9 $5.6
Ratio of Expenses to Average Net Assets* (a)............................. 0.60% 0.40%
Ratio of Net Investment Income to Average Net Assets*.................... 6.19% 5.98%
Portfolio Turnover....................................................... 109% 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 (a).............................. 2.01% 1.81%
Ratio of Net Investment Income to Average Net Assets..................... 4.78% 4.57%
</TABLE>
** 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 .20% for the period ended
December 31, 1997.
See Notes to Financial Statements
10
<PAGE> 12
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES 2.0%
$ 30 American Express Credit Account Master Trust............. 6.400 % 04/15/05 $ 30,254
125 Citibank Credit Card Master Trust........................ * 02/07/03 103,466
30 Household Affinity Credit Card Master Trust.............. 5.600 05/15/02 29,639
------------
TOTAL ASSET-BACKED SECURITIES............................ 163,359
------------
CORPORATE BONDS 11.3%
CONSUMER DISTRIBUTION 2.4%
200 Wal-Mart Stores, Inc..................................... 5.500 03/01/98 199,804
------------
FINANCE 4.6%
150 American Express Credit Corp............................. 6.500 08/01/00 151,268
175 Ford Motor Credit Co..................................... 5.750 01/25/01 172,578
50 Sears Roebuck Acceptance Corp............................ 7.000 06/15/07 51,765
------------
375,611
------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.8%
150 Du Pont (E.I.) de Nemours & Co........................... 6.750 10/15/02 152,904
------------
TECHNOLOGY 1.9%
150 Lucent Technologies, Inc................................. 6.900 07/15/01 153,881
------------
UTILITIEs 0.6%
50 Pacific Gas & Electric Co................................ 6.250 08/01/03 50,135
------------
TOTAL CORPORATE BONDS.................................... 932,335
------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 18.2%
100 Federal Home Loan Bank................................... 5.905 12/23/02 99,980
500 Federal Home Loan Mortgage Corp.......................... 5.630 01/10/03 492,950
44 Federal Home Loan Mortgage Corp. Gold 30 Year Pools...... 7.000 10/01/26 to 11/01/27 44,223
12 Federal Home Loan Mortgage Corp. Gold Convertible
15 Year Pool #G10270..................................... 8.500 09/01/09 12,026
26 Federal National Mortgage Association Dwarf 15 Year
Pool # 250589............................................ 7.000 06/01/11 26,076
90 Federal National Mortgage Association Dwarf 15 Year
Pool # 250649............................................ 6.500 08/01/11 90,202
60 Federal National Mortgage Association PAC................ 6.500 04/18/20 60,391
49 Federal National Mortgage Association Pool #303828....... 6.500 04/01/26 48,558
22 Federal National Mortgage Association Pool #124561....... 7.500 11/01/22 22,452
100 Federal National Mortgage Association Medium Term Note... 5.280 03/01/99 99,426
150 Federal National Mortgage Association Medium Term Note... 6.060 06/21/99 150,545
30 Federal National Mortgage Association Medium Term Note... 6.800 04/08/02 30,948
12 Government National Mortgage Association Platinum
15 Year Pool #780419..................................... 7.500 12/15/09 12,650
16 Government National Mortgage Association Platinum
Pool #780440............................................. 8.500 11/15/17 17,361
290 Tennessee Valley Authority............................... 6.375 06/15/05 295,188
------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS........ 1,502,976
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES TREASURY OBLIGATIONS 49.3%
$ 500 United States Treasury Notes ........................ 4.750 % 08/31/98 $ 497,110
1,925 United States Treasury Notes ........................ 5.125 02/28/98 to 11/30/98 1,920,175
700 United States Treasury Notes ........................ 5.875 04/30/98 to 11/30/01 701,368
555 United States Treasury Notes ........................ 6.000 08/15/00 559,074
275 United States Treasury Notes ........................ 6.250 08/31/00 278,652
130 United States Treasury STRIPS (a) ................... * 08/15/02 99,683
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS ............................................................. 4,056,062
------------
TOTAL LONG-TERM INVESTMENTS 80.8%
(Cost $6,575,728) ........................................................................................... 6,654,732
------------
SHORT-TERM INVESTMENTS 18.2%
Federal Home Loan Mortgage Corp. Discount Note ($105,000 par, yielding 5.75%, 01/02/98 maturity) ............ 104,966
Federal National Mortgage Association Discount Note ($500,000 par, yielding 5.55%, 01/26/98 maturity) ....... 496,277
Federal National Mortgage Association Discount Note ($900,000 par, yielding 5.73%, 02/18/98 maturity) ....... 896,295
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,497,538) ........................................................................................... 1,497,538
TOTAL INVESTMENTS 99.0%
(Cost $8,073,266) ........................................................................................... 8,152,270
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0% ................................................................ 79,816
------------
NET ASSETS 100.0% ........................................................................................ $ 8,232,086
============
</TABLE>
*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.
The following table summarizes the portfolio composition at December 31, 1997,
based on the higher of the quality ratings issued by Standard & Poor's or
Moody's.
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION BY CREDIT QUALITY **
<S> <C>
U.S. Government and Government Agency Obligations .... 83.5%
AAA .................................................. 2.5
AA ................................................... 5.3
A .................................................... 8.7
-----
100.0%
=====
** AS A PERCENTAGE OF LONG-TERM ASSETS
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $8,073,266) ................................................. $ 8,152,270
Cash ................................................................................ 570
Interest Receivable ................................................................. 88,125
Unamortized Organizational Expenses ................................................. 32,533
------------
Total Assets 8,273,498
------------
LIABILITIES:
Accrued Expenses .................................................................... 31,768
Trustees' Deferred Compensation and Retirement Plans ................................ 9,311
Income and Capital Gains Distributions Payable ...................................... 333
------------
Total Liabilities ............................................................... 41,412
------------
NET ASSETS ............................................................................ $ 8,232,086
============
NET ASSETS CONSIST OF:
Capital ............................................................................. $ 8,154,623
Net Unrealized Appreciation ......................................................... 79,004
Accumulated Distributions in Excess of Net Investment Income ........................ (1,541)
------------
NET ASSETS ............................................................................ $ 8,232,086
============
Net Asset Value Per Share (Based on net assets of $8,232,086 and 820,195 shares of
beneficial interest issued and outstanding) ........................................... $ 10.04
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 504,464
------------
EXPENSES:
Investment Advisory Fee..................................... 24,651
Legal....................................................... 22,091
Shareholder Services........................................ 18,677
Audit....................................................... 17,601
Trustees' Fees and Expenses................................. 14,043
Custody..................................................... 12,978
Amortization of Organizational Costs........................ 10,775
Accounting.................................................. 10,124
Printing.................................................... 5,682
Registration and Filing Fees................................ 3,000
Other....................................................... 250
------------
Total Expenses............................................ 139,872
Less: Fees Waived and Expenses Reimbursed ($24,651 and
$69,356, respectively).......................... 94,007
Credits Earned on Cash Balances.................... 12,978
------------
Net Expenses.............................................. 32,887
------------
NET INVESTMENT INCOME....................................... $ 471,577
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 25,119
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 78,132
End of the Period......................................... 79,004
------------
Net Unrealized Appreciation During the Period............... 872
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 25,991
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 497,568
============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1997 and the Period April 23, 1996
(Commencement of Investment Operations) to December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................................... $ 471,577 $ 327,591
Net Realized Gain/Loss.............................................. 25,119 (11,993)
Net Unrealized Appreciation During the Period....................... 872 78,132
----------- ------------
Change in Net Assets from Operations................................ 497,568 393,730
----------- ------------
Distributions from Net Investment Income............................ (471,639) (327,529)
DIstributions from Net Realized Gain................................ (14,667) 0
----------- ------------
Total Distributions................................................. (486,306) (327,529)
----------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES................. 11,262 66,201
----------- ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................................... 705,000 10,323,057
Net Asset Value of Shares Issued Through Dividend Reinvestment...... 483,346 305,526
Cost of Shares Repurchased.......................................... (2,720,306) (992,000)
----------- ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.................. (1,531,960) 9,636,583
----------- ------------
TOTAL INCREASE/DECREASE IN NET ASSETS............................... (1,520,698) 9,702,784
NET ASSETS:
Beginning of the Period............................................. 9,752,784 50,000
----------- ------------
End of the Period (Including accumulated undistributed
net investment income of ($1,541) and $62, respectively........... $ 8,232,086 $ 9,752,784
=========== ============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
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
Year Ended Operations) to
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period ...................................... $ 10.019 $ 10.000
------------ ---------------
Net Investment Income ......................................................... 0.574 .386
Net Realized and Unrealized Gain .............................................. 0.036 .019
------------ ---------------
Total from Investment Operations .............................................. 0.610 .405
Less:
Distributions from Net Investment Income .................................... 0.574 .386
Distributions from Net Realized Gain ........................................ 0.018 -0-
------------ ---------------
Total Distributions ........................................................... 0.592 .386
------------ ---------------
Net Asset Value, End of the Period ............................................ 10.037 $ 10.019
============ ===============
Total Return * ................................................................ 6.29% 4.14%**
Net Assets at End of the Period (In millions) ................................. $8.2 $9.8
Ratio of Expenses to Average Net Assets* (a) .................................. 0.56% 0.40%
Ratio of Net Investment Income to Average Net Assets* ......................... 5.74% 5.68%
Portfolio Turnover ............................................................ 41% 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 (a) ................................... 1.86% 1.40%
Ratio of Net Investment Income to Average Net Assets .......................... 4.59% 4.68%
</TABLE>
** 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 .16% for the period ended
December 31, 1997.
See Notes to Financial Statements
16
<PAGE> 18
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
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, 1997, 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 American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") 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
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 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
December 31, 1997 for federal income tax purposes with the associated gross
unrealized appreciation, gross unrealized depreciation and net unrealized
appreciation/depreciation.
<TABLE>
<CAPTION>
ACTIVE CORE LIMITED
FUND DURATION FUND
--------------- ------------------
<S> <C> <C>
Cost of long term and
short-term investments ....... $4,646,616 $8,073,266
--------------- ------------------
Aggregate gross
unrealized appreciation....... 153,505 79,544
Aggregate gross
unrealized depreciation ...... 268 540
--------------- ------------------
Net unrealized
appreciation ................. $153,237 $79,004
=============== ==================
</TABLE>
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 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.
Permanent book and tax basis differences relating to the recognition of net
realized losses on paydowns of mortgaged backed obligations totaling $3,032 for
Active Core Fund and $1,541 for Limited
17
<PAGE> 19
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
Duration Fund have been reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income.
For federal income tax purposes, the following information is furnished
with respect to the distributions paid by the Funds during their taxable year
ended December 31, 1997. Active Core Fund designated $19,775 as a 28% rate
capital gain distribution and $2,800 as a 20% rate capital gain distribution.
Limited Duration Fund designated $126 as a 28% rate capital gain distribution
and $8,495 as a 20% rate capital gain distribution. Shareholders were sent a
1997 Form 1099-DIV in January, 1998 representing their proportionate share of
the capital gain distribution to be reported on their income tax returns.
G. EXPENSE REDUCTIONS -- During the year ended December 31, 1997, the custody
fees for Active Core Fund and Limited Duration Fund were reduced by $12,346 and
$12,978, 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:
<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 funds' 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
expense subsidies totaling $88,141 and $94,007 for Active Core Fund and Limited
Duration Fund, respectively, could become liabilities of each respective Fund at
a future date.
For the year ended December 31, 1997, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $600 and $500, respectively,
representing legal expenses provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Funds, of which a trustee of the Fund is an
affiliated person. All of this expense has been assumed by VKAC.
For the year ended December 31, 1997, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $9,800 and $10,100,
respectively, representing VKAC's cost of providing accounting 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 year ended
December 31, 1997, Active Core Fund and Limited Duration Fund recognized
expenses of approximately $17,500 each, 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 provides deferred compensation and retirement plans for their
trustees who are not officers of VKAC. 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 equal to the trustee's annual retainer,
which is currently $2,500. Due to the size of the Funds, the trustees are
currently waiving their retainer fee.
At December 31, 1997, 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 year ended December 31, 1997, transactions in common shares were
as follows:
<TABLE>
<CAPTION>
ACTIVE LIMITED
CORE FUND DURATION FUND
-------------- -----------------
<S> <C> <C>
Beginning Shares ............... 559,271 973,451
Shares Sold .................... 183,711 70,461
Shares Issued through
Dividend Reinvestment ........ 44,685 48,307
Shares Repurchased ............. (302,158) (272,024)
============= ================
Ending Shares .................. 485,509 820,195
============= ================
Capital at 12/31/97 ............ $4,763,330 $8,154,623
============= ================
</TABLE>
18
<PAGE> 20
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
For the period ended December 31, 1996, transactions in common shares were as
follows:
<TABLE>
<CAPTION>
ACTIVE LIMITED
CORE FUND DURATION 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
============= ================
Capital at 12/31/96 ........... $5,557,380 $9,686,583
============= ================
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
including principal paydowns, excluding forward commitment transactions and
short-term investments, were $6,428,852 and $7,269,582 for Active Core Fund and
$3,074,911 and $5,398,346 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).
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.
19
<PAGE> 21
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, 1997, the related statements of
operations for the year then ended, the statements of changes in net assets and
financial highlights for the year then ended and for the period from April 23,
1996 (commencement of investment operations) through 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, 1997, 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, 1997, the results of their operations for the year then ended, and
the changes in their net assets and financial highlights for the year then
ended and for the period from April 23, 1996 (commencement of investment
operations) through December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 10, 1998
20
<PAGE> 22
THE EXPLORER INSTITUTIONAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
THEODORE A. MEYERS
STEVEN MULLER
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
MICHAEL P. KAMRADT*
JOHN M. MCCAREINS*
EDWARD A. TREICHEL*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in
the Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998
All Rights Reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> ACTIVE CORE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,646,616
<INVESTMENTS-AT-VALUE> 4,799,853
<RECEIVABLES> 51,634
<ASSETS-OTHER> 31,865
<OTHER-ITEMS-ASSETS> 79,676
<TOTAL-ASSETS> 4,963,028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,755
<TOTAL-LIABILITIES> 24,755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,763,330
<SHARES-COMMON-STOCK> 485,509
<SHARES-COMMON-PRIOR> 559,271
<ACCUMULATED-NII-CURRENT> (3,598)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25,304
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 153,237
<NET-ASSETS> 4,938,273
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 412,409
<OTHER-INCOME> 0
<EXPENSES-NET> (25,039)
<NET-INVESTMENT-INCOME> 387,370
<REALIZED-GAINS-CURRENT> 97,464
<APPREC-INCREASE-CURRENT> 71,773
<NET-CHANGE-FROM-OPS> 556,607
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (387,399)
<DISTRIBUTIONS-OF-GAINS> (77,231)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 183,711
<NUMBER-OF-SHARES-REDEEMED> (302,158)
<SHARES-REINVESTED> 44,685
<NET-CHANGE-IN-ASSETS> (702,073)
<ACCUMULATED-NII-PRIOR> (537)
<ACCUMULATED-GAINS-PRIOR> 2,039
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,786
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 125,526
<AVERAGE-NET-ASSETS> 6,259,666
<PER-SHARE-NAV-BEGIN> 10.085
<PER-SHARE-NII> 0.626
<PER-SHARE-GAIN-APPREC> 0.249
<PER-SHARE-DIVIDEND> (0.626)
<PER-SHARE-DISTRIBUTIONS> (0.163)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.171
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> LIMITED DURATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 8,073,266
<INVESTMENTS-AT-VALUE> 8,152,270
<RECEIVABLES> 88,125
<ASSETS-OTHER> 32,533
<OTHER-ITEMS-ASSETS> 570
<TOTAL-ASSETS> 8,273,498
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,412
<TOTAL-LIABILITIES> 41,412
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,154,623
<SHARES-COMMON-STOCK> 820,195
<SHARES-COMMON-PRIOR> 973,451
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<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> (32,887)
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<REALIZED-GAINS-CURRENT> 25,119
<APPREC-INCREASE-CURRENT> 872
<NET-CHANGE-FROM-OPS> 497,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (471,639)
<DISTRIBUTIONS-OF-GAINS> (14,667)
<DISTRIBUTIONS-OTHER> 0
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<NUMBER-OF-SHARES-REDEEMED> (272,024)
<SHARES-REINVESTED> 48,307
<NET-CHANGE-IN-ASSETS> (1,520,698)
<ACCUMULATED-NII-PRIOR> 62
<ACCUMULATED-GAINS-PRIOR> (11,993)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 139,872
<AVERAGE-NET-ASSETS> 8,221,780
<PER-SHARE-NAV-BEGIN> 10.019
<PER-SHARE-NII> 0.574
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<PER-SHARE-DIVIDEND> (0.574)
<PER-SHARE-DISTRIBUTIONS> (0.018)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.037
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
