THE EXPLORER
INSTITUTIONAL
TRUST SM
Semiannual Report
June 30, 1999
o ACTIVE CORE FUND
o LIMITED DURATION FUND
<PAGE>
Table of Contents
Letter to Shareholders................................................. 1
Active Core Fund
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............................... 12
Statement of Operations........................................... 13
Statement of Changes in Net Assets................................ 14
Financial Highlights.............................................. 15
Notes to Financial Statements.......................................... 16
EXPI SAR 8/99
<PAGE>
Letter to Shareholders
June 30, 1999
Dear Shareholder,
We are pleased to provide you our semiannual report for the six-month
period ended June 30, 1999. The first half of 1999 has been a difficult period
for the U.S. fixed-income market. As global financial stability materialized
early in the year, the market focused on the strength of the U.S. economy and
the prospects for emerging inflationary pressures. Consequently, the Federal
Reserve Board (the Fed) began to signal its desire to mute inflationary
pressures through short-term interest rate hikes. The Fed acted on June 30,
1999, and raised the federal funds rate from 4.75 percent to 5.00 percent.
Financial markets reacted positively to this action and the bond market reversed
its negative trend. Despite the June 30 bounce in bond prices, the 30-year U.S.
Treasury bond yield ended the period at 5.96 percent significantly lower in
price than at the end of the year when it yielded 5.09 percent.
Economic Review
The U.S. economy continued to be characterized by solid growth and low
inflation. U.S. demand remained strong despite concerns about rising trade
deficits and rising interest rates. The interest rate hike of 25 basis points on
June 30 was intended to be proactive in order to forestall inflation. The higher
rate environment will increase the financial cost of doing business and may
contribute to a slowing in economic growth.
Market Overview
The Lehman Brothers Aggregate Index returned -1.37 percent for the six
months ended June 30, 1999. For the same six-month period, U.S. Treasuries
returned -2.50 percent. In contrast to the final six months of 1998,
non-Treasuries outperformed U.S. Treasuries as higher yields contributed to
higher returns. The best performing sector was the mortgage-backed sector, which
returned .53 percent, while asset-backed securities followed with a .42 percent
total return. Finally, investment-grade corporate bonds returned -2.26 percent
and U.S. Government agency securities returned -1.29 percent.
Outlook
We expect economic expansion to continue despite the rising interest
rate environment. Through 1999, the market appears to be expecting at least one
more .25 percent federal funds rate increase, as the Fed attempts to maintain a
balance between economic growth and low inflation.
Active Core Fund--Portfolio Strategy and Overview
As of June 30, 1999, the Fund had a duration of 5.0 years, which was
comparable to the 5.0-year duration of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index. During the period, we increased our exposure to corporate
securities as larger risk premiums increased the value in the sector. In
addition, we reduced our exposure to asset-backed securities and U.S. Government
agency securities.
The Active Core Fund generated a total return of -1.75 percent for the
six-month period (not including sales charges).
1
Continued on page 2
<PAGE>
Limited Duration Fund--Portfolio Strategy and Overview
As of June 30, 1999, the Fund had a duration of 1.5 years, which was
comparable to the 1.7-year duration of the Fund's benchmark, the Lehman Brothers
1- to 3-Year Government Bond Index.
As always, we expect to maintain a portfolio composed of modest
positions diversified among various sectors.
The Limited Duration Fund generated a total return of .85 percent for
the six-month period (not including sales charges).
Summary
We believe 1999 will continue to present challenges for fixed-income
portfolios. We expect to continue to meet these challenges through appropriate
risk management and our disciplined investment style. The balance of the report
provides additional details about the funds. We appreciate your investment in
the Explorer Institutional 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>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset-Backed Securities 12.1%
$ 125 American Express Credit Account Master Trust 5.900% 04/15/04 $ 123,742
75 American Express Credit Account Master Trust 6.400 04/15/05 75,556
100 Citibank Credit Card Master Trust 5.800 02/07/05 98,656
200 CoMed Transitional Funding Trust 5.390 06/25/05 194,450
100 Equicredit Funding Trust 6.855 10/15/28 100,500
140 First NBC Credit Card Master Trust 6.150 09/15/04 139,387
150 First USA Credit Card Master Trust 6.420 03/17/05 151,783
100 Green Tree Financial Corp. 6.330 09/01/27 96,946
150 Green Tree Financial Corp. 7.290 03/15/28 150,615
125 Greenpoint Manufactured Housing 6.110 11/15/18 122,054
100 MBNA Credit Card Master Trust 5.250 02/15/06 96,576
100 Nationsbank Credit Card Master Trust 6.000 12/15/05 98,849
75 Peco Energy Transition Trust 5.800 03/01/07 71,860
175 Premier Auto Trust 5.820 02/06/02 174,879
125 Standard Credit Card Master Trust 5.950 10/07/04 123,545
250 Toyota Auto Lease Trust 6.350 04/26/04 251,018
125 Vanderbilt Mortgage Finance 6.080 12/07/15 122,246
----------
Total Asset-Backed Securities 2,192,662
----------
Corporate Bonds 23.6%
Aerospace/Defense 0.6%
115 McDonnell Douglas Corp. 6.875 11/01/06 113,838
----------
Automobile 2.0%
125 Dana Corp. 6.500 03/01/09 118,620
255 Delphi Auto Systems Corp. 7.125 05/01/29 236,361
----------
354,981
----------
Beverage, Food, & Tobacco 0.7%
125 Earthgrains Co. 6.500 04/15/09 117,938
----------
Consumer Services 0.5%
100 Hertz Corp. 6.250 03/15/09 93,369
----------
Finance 8.7%
100 American Express Credit Corp. 6.500 08/01/00 100,482
50 Ameritech Capital Funding Corp. 6.150 01/15/08 47,611
310 Associates Corp. NA 5.800 04/20/04 299,594
70 BankAmerica Corp. 6.250 04/01/08 66,551
125 BankAmerica Corp. 5.875 02/15/09 114,865
125 Bank One Corp. 7.000 03/25/02 126,019
20 Capital One Bank 6.375 02/15/03 19,622
175 Chase Manhattan Corp. 5.750 04/15/04 169,627
75 Chase Manhattan Corp. 7.125 06/15/09 74,920
50 Citigroup, Inc. 6.875 02/15/2098 44,991
100 Commercial Credit Group, Inc. 6.625 11/15/06 97,803
150 Deere (John) Capital Corp. 5.350 10/23/01 146,901
60 Finova Capital Corp. 6.150 03/31/03 58,882
100 First Union Corp. 6.400 04/01/08 95,366
120 General Motors Acceptance Corp. 6.150 04/05/07 115,003
----------
1,578,237
----------
3
See Notes to Financial Statements
</TABLE>
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Bonds (Continued)
Oil & Gas 1.6%
$ 315 Conoco, Inc. 6.950 % 04/15/29 $ 295,104
----------
Raw Materials/Processing Industries 2.6%
75 Du Pont (E. I.) de Nemours & Co. 6.750 09/01/07 75,524
60 Goodyear Tire Rubber Co. 6.375 03/15/08 57,118
100 Nalco Chemical Co. 6.250 05/15/08 94,534
150 Tyson Foods, Inc. 7.000 05/01/18 143,538
100 Union Pacific Resources Group, Inc. 7.000 10/15/06 95,752
----------
466,466
----------
Retail 0.4%
25 Nordstrom, Inc. 6.950 03/15/28 23,650
50 Sears Roebuck Acceptance Corp. 7.000 06/15/07 49,959
----------
73,609
----------
Telecommunications 3.2%
150 AT&T Corp. 6.000 03/15/09 139,500
50 GTE North, Inc. 6.730 02/15/28 46,761
200 MCI Communications Corp. 6.500 04/15/10 191,303
100 Sprint Capital Corp. 6.125 11/15/08 93,357
110 Sprint Capital Corp. 6.875 11/15/28 100,456
----------
571,377
----------
Transportation 0.6%
100 CSX Corp. 7.450 05/01/07 101,417
----------
Utilities 2.7%
15 Florida Power & Light Co. 7.050 12/01/26 14,185
25 Florida Power Corp. 6.750 02/01/28 23,509
100 Pacific Gas & Electric Co. 6.250 08/01/03 99,391
125 PacifiCorp 6.375 05/15/08 120,907
200 South Carolina Electric & Gas Co. 6.125 03/01/09 190,243
50 Wisconsin Electric Power Co. 6.625 11/15/06 49,660
----------
497,895
----------
Total Corporate Bonds 23.6% 4,264,231
----------
United States Government Agency Obligations 31.9%
300 Federal Home Loan Banks 5.690 06/19/03 295,700
225 Federal Home Loan Mortgage Corp. 6.000 12/31/23 213,257
117 Federal Home Loan Mortgage Corp. Gold
30 Year Pool #C00602 6.000 02/01/28 110,020
497 Federal Home Loan Mortgage Corp. Gold
30 Year Pool #C00781 6.500 04/01/29 480,916
66 Federal Home Loan Mortgage Corp. Gold Convertible
15 Year Pool #G10592 6.500 10/01/11 65,078
48 Federal Home Loan Mortgage Corp. Gold Convertible
15 Year Pool #G10270 8.500 09/01/09 49,443
500 Federal National Mortgage Association 4.625 10/15/01 487,105
500 Federal National Mortgage Association 4.750 11/14/03 473,755
4
See Notes to Financial Statements
</TABLE>
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States Government Agency Obligations (Continued)
$ 500 Federal National Mortgage Association 6.000 % 05/15/08 $ 484,190
300 Federal National Mortgage Association CMO 6.000 06/25/24 284,907
100 Federal National Mortgage Association PAC 7.000 10/25/09 101,241
230 Federal National Mortgage Association PAC 6.500 04/18/20 229,354
87 Federal National Mortgage Association Pool #124561 7.500 11/01/22 88,435
171 Federal National Mortgage Association Pool #429249 7.000 05/01/28 168,934
101 Federal National Mortgage Association Pool #250649 6.500 07/01/11 99,916
297 Federal National Mortgage Association Pool #490079 6.500 03/01/29 287,225
119 Federal National Mortgage Association Pool #250569 6.000 05/01/26 112,347
273 Federal National Mortgage Association Pool #429250 5.500 12/01/28 248,289
64 Government National Mortgage Association Platinum
15 Year Pool #780419 7.500 12/15/09 65,651
81 Government National Mortgage Association Platinum
Pool #780440 8.500 11/15/17 85,743
38 Government National Mortgage Association
Pool #780157 9.500 08/15/22 40,783
551 Government National Mortgage Association Pools 6.500 04/15/26 - 04/15/28 531,649
314 Government National Mortgage Association
Pool #462630 7.000 04/15/28 316,735
440 Tennessee Valley Authority 6.375 06/15/05 443,168
----------
Total United States Government Agency Obligations 31.9% 5,763,841
----------
United States Treasury Obligations 31.1%
470 United States Treasury Bonds 8.125 08/15/19 567,525
1,000 United States Treasury Notes 6.250 02/15/03 1,017,560
1,000 United States Treasury Notes 6.125 08/15/07 1,012,020
1,255 United States Treasury Notes 6.000 08/15/00 1,263,810
1,125 United States Treasury Notes 5.875 11/30/01 1,132,234
1,985 United States Treasury STRIPS (a) * 05/15/15 - 05/15/18 628,535
----------
Total United States Treasury Obligations 5,621,684
----------
Total Investments 98.7%
(Cost $18,183,197) 17,842,418
Other Assets in Excess of Liabilities 1.3% 238,014
----------
Net Assets 100.0% $ 18,080,432
===========
</TABLE>
*Zero coupon bond
(a) U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal
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 June 30, 1999, 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 63.8%
AAA 12.3
AA 7.5
A 13.4
BBB 3.0
------
100.0%
======
** As a Percentage of Long-Term Investments
5
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS:
Total Investments (Cost $18,183,197) $ 17,842,418
Cash 82,417
Receivables:
Interest 206,341
Fund Shares Sold 84,923
Unamortized Organizational Costs 17,511
Other 632
-----------
Total Assets 18,234,242
================
LIABILITIES:
Payables:
Income and Capital Gain Distributions 85,156
Distributor and Affiliates 23,734
Accrued Expenses 27,602
Trustees' Deferred Compensation and Retirement Plans 17,318
-----------
Total Liabilities 153,810
-----------
NET ASSETS $ 18,080,432
================
NET ASSETS CONSIST OF:
Capital $ 18,390,710
Accumulated Net Realized Gain 35,907
Accumulated Distributions in Excess of Net Investment Income (5,406)
Net Unrealized Depreciation (340,779)
-----------
NET ASSETS $ 18,080,432
================
Net Asset Value Per Share (Based on net assets of $18,080,432
and 1,825,909 shares of beneficial interest issued
and outstanding) $ 9.90
================
6
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999 (Unaudited)
INVESTMENT INCOME:
Interest $ 403,329
-----------
EXPENSES:
Investment Advisory Fee 20,136
Custody 9,602
Audit 8,378
Shareholder Services 7,736
Trustees' Fees and Expenses 7,621
Legal 6,135
Accounting 5,837
Amortization of Organizational Costs 4,759
Shareholder Reports 2,237
Other 654
-----------
Total Expenses 73,095
Expense Reduction ($20,136 Investment Advisory
Fee and $26,063 Other) 46,199
-----------
Net Expenses 26,896
-----------
NET INVESTMENT INCOME $ 376,433
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 32,083
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period 343,175
End of the Period (340,779)
-----------
Net Unrealized Depreciation During the Period (683,954)
-----------
NET REALIZED AND UNREALIZED LOSS $ (651,871)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (275,438)
============
7
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999, and the Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
FROM INVESTMENT ACTIVITIES:
Operations:
<S> <C> <C>
Net Investment Income $ 376,433 $ 611,855
Net Realized Gain 32,083 58,523
Net Unrealized Appreciation/Depreciation During the Period (683,954) 189,938
------------ ------------
Change in Net Assets from Operations (275,438) 860,316
------------ ------------
Distributions from Net Investment Income (376,430) (611,855)
Distributions in Excess of Net Investment Income 0 (4)
------------ ------------
Distributions from and in Excess of Net Investment Income (376,430) (611,859)
Distributions from Net Realized Gain 0 (81,810)
------------ ------------
Total Distributions (376,430) (693,669)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES (651,868) 166,647
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 6,865,500 7,055,143
Net Asset Value of Shares Issued Through Dividend Reinvestment 375,023 690,436
Cost of Shares Repurchased (362,000) (996,722)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 6,878,523 6,748,857
------------ ------------
TOTAL INCREASE IN NET ASSETS 6,226,655 6,915,504
NET ASSETS:
Beginning of the Period 11,853,777 4,938,273
------------ ------------
End of the Period (Including accumulated distributions
in excess of net investment income of $5,406 and $5,409
respectively) $ 18,080,432 $ 11,853,777
=============== ===============
</TABLE>
8
See Notes to Financial Statements
<PAGE>
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)
<TABLE>
<CAPTION>
April 23, 1996
Year Year (Commencement
Six Months Ended Ended Ended of Investment
June 30, 1999 December 31, December 31, Operations) to
1998 1997 December 31, 1996
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 10.362 $ 10.171 $ 10.085 $ 10.000
------------- ------------ ------------ -------------
Net Investment Income 0.283 0.579 0.626 0.409
Net Realized and Unrealized Gain/Loss (0.462) 0.258 0.249 0.095
------------- ------------ ------------ -------------
Total from Investment Operations (0.179) 0.837 0.875 0.504
------------- ------------ ------------ -------------
Less:
Distributions from and in Excess of
Net Investment Income 0.281 0.574 0.626 0.409
Distributions from Net Realized Gain 0.000 0.072 0.163 0.010
------------- ------------ ------------ -------------
Total Distributions 0.281 0.646 0.789 0.419
------------- ------------ ------------ -------------
Net Asset Value, End of the Period $ 9.902 $ 10.362 $ 10.171 $ 10.085
=============== ============== ============== ===============
Total Return * (1.75%)** 8.45% 8.93% 5.20%**
Net Assets at End of the Period (In millions) $ 18.1 $ 11.9 $ 4.9 $ 5.6
Ratio of Expenses to Average Net Assets* (a) 0.40% 0.47% 0.60% 0.40%
Ratio of Net Investment Income to Average Net Assets* 5.60% 5.56% 6.19% 5.98%
Portfolio Turnover 20%** 79% 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) 1.09% 1.33% 2.01% 1.81%
Ratio of Net Investment Income to Average Net Assets 4.91% 4.70% 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 .07% and .20% for the periods
ended December 31, 1998, and December 31, 1997, respectively.
9
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset-Backed Securities 5.7%
$ 30 American Express Credit Account Master Trust 6.400% 04/15/05 $ 30,222
10 CoMed Transitional Funding Trust 5.390 06/25/05 9,723
10 Equicredit Funding Trust 6.855 10/15/28 10,050
10 First NBC Credit Card Master Trust 6.150 09/15/04 9,956
15 First USA Credit Card Master Trust 6.420 03/17/05 15,178
30 MBNA Credit Card Master Trust 6.600 11/15/04 30,480
10 Nationsbank Credit Card Master Trust 6.000 12/15/05 9,885
30 Peco Energy Transition Trust 5.800 03/01/07 28,744
10 Standard Credit Card Master Trust 5.950 10/07/04 9,884
20 Toyota Auto Lease Trust 6.350 04/26/04 20,081
------------
Total Asset-Backed Securities 174,203
------------
Corporate Bonds 18.6%
Finance 14.6%
150 American Express Credit Corp. 6.500 08/01/00 150,724
100 Associates Corp. NA 5.800 04/20/04 96,643
25 Deere (John) Capital Corp. 5.350 10/23/01 24,483
175 Ford Motor Credit Co. 5.750 01/25/01 174,061
------------
445,911
------------
Raw Materials/Processing Industries 2.3%
70 Du Pont (E. I.) de Nemours & Co. 6.750 10/15/02 71,030
------------
Utilities 1.7%
50 Pacific Gas & Electric Co. 6.250 08/01/03 49,695
------------
Total Corporate Bonds 566,636
------------
United States Government Agency Obligations 4.2%
100 Federal Home Loan Banks 5.690 06/19/03 98,567
30 Federal National Mortgage Association
Medium Term Note 6.800 04/08/02 30,605
------------
Total United States Government Agency Obligations 129,172
------------
United States Treasury Obligations 47.3%
325 United States Treasury Notes 6.750 04/30/00 328,933
300 United States Treasury Notes 6.000 08/15/00 302,106
685 United States Treasury Notes 5.875 11/15/99 - 11/30/01 688,863
30 United States Treasury Notes 5.750 08/15/03 30,010
120 United States Treasury STRIPS (a) * 05/15/03 96,179
------------
Total United States Treasury Obligations 1,446,091
------------
Total Long-Term Investments 75.8%
(Cost $2,330,604) 2,316,102
10
See Notes to Financial Statements
</TABLE>
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Description Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Investments 24.5%
Federal Home Loan Banks Discount Note ($749,000 par, maturing 07/01/99, yielding 4.68%)
(Cost $748,904) $ 748,904
------------
Total Investments 100.3%
(Cost $3,079,508) 3,065,006
Liabilities in Excess of Other Assets (0.3)% (10,528)
------------
Net Assets 100.0% $ 3,054,478
================
</TABLE>
*Zero coupon bond
(a) U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal
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 June 30,1999, 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 68.1%
AAA 7.5
AA 13.7
A 10.7
-------
100.0%
=======
** As a Percentage of Long-Term Investments
11
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS:
Total Investments (Cost $3,079,508) $ 3,065,006
Cash 8,991
Receivables:
Interest 27,954
Fund Shares Sold 12,649
Unamortized Organizational Expenses 17,879
Other 131
-----------
Total Assets 3,132,610
-----------
LIABILITIES:
Payables:
Distributor and Affiliates 24,116
Income and Capital Gain Distributions 12,852
Accrued Expenses 23,847
Trustees' Deferred Compensation and Retirement Plans 17,317
-----------
Total Liabilities 78,132
-----------
NET ASSETS $ 3,054,478
=================
NET ASSETS CONSIST OF:
Capital $ 3,073,436
Accumulated Net Realized Gain 6,087
Accumulated Distributions in Excess of
Net Investment Income (10,543)
Net Unrealized Depreciation (14,502)
-----------
NET ASSETS $ 3,054,478
=================
Net Asset Value Per Share (Based on net assets of $3,054,478 and
317,847 shares of beneficial interest
issued and outstanding) $ 9.61
=================
12
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999 (Unaudited)
INVESTMENT INCOME:
Interest $ 80,860
-----------
EXPENSES:
Custody 9,034
Audit 8,412
Shareholder Services 7,843
Trustees' Fees and Expenses 7,618
Accounting 6,614
Legal 5,105
Amortization of Organizational Costs 4,858
Investment Advisory Fee 4,466
Shareholder Reports 2,183
Other 579
-----------
Total Expenses 56,712
Expense Reduction ($4,466 Investment Advisory Fee and
$46,289 Other) 50,755
-----------
Net Expenses 5,957
-----------
NET INVESTMENT INCOME $ 74,903
=================
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 5,404
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period 41,696
End of the Period (14,502)
-----------
Net Unrealized Depreciation During the Period (56,198)
NET REALIZED AND UNREALIZED LOSS $ (50,794)
=================
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 24,109
=================
13
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999, and the Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
FROM INVESTMENT ACTIVITIES:
Operations:
<S> <C> <C>
Net Investment Income $ 74,903 $ 182,967
Net Realized Gain 5,404 91,400
Net Unrealized Appreciation/Depreciation During the Period (56,198) (37,308)
-------------- ---------------
Change in Net Assets from Operations 24,109 237,059
-------------- ---------------
Distributions from Net Investment Income (74,900) (182,967)
Distributions in Excess of Net Investment Income 0 (9,017)
-------------- ---------------
Distributions from and in Excess of Net Investment Income (74,900) (191,984)
DIstributions from Net Realized Gain 0 (90,705)
-------------- ---------------
Total Distributions (74,900) (282,689)
-------------- ---------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES (50,791) (45,630)
-------------- ---------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 300,371 410,033
Net Asset Value of Shares Issued Through Dividend Reinvestment 73,696 262,640
Cost of Shares Repurchased 0 (6,127,927)
-------------- ---------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 374,067 (5,455,254)
-------------- ---------------
TOTAL INCREASE/DECREASE IN NET ASSETS 323,276 (5,500,884)
NET ASSETS:
Beginning of the Period 2,731,202 8,232,086
-------------- ---------------
End of the Period (Including accumulated distributions in excess of
net investment income of $10,543 and $10,546 respectively) $ 3,054,478 $ 2,731,202
================= ==================
</TABLE>
14
See Notes to Financial Statements
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
April 23, 1996
Year Year (Commencement
Six Months Ended Ended of Investment
Ended December 31, December 31, Operations) to
June 30, 1999 1998 1997 December 31, 1996
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 9.773 $ 10.037 $ 10.019 $ 10.000
----------- ----------- ----------- ------------
Net Investment Income 0.246 0.547 0.574 0.386
Net Realized and Unrealized Gain/Loss (0.167) 0.110 0.036 0.019
----------- ----------- ----------- ------------
Total from Investment Operations 0.079 0.657 0.610 0.405
----------- ----------- ----------- ------------
Less:
Distributions from and in Excess of Net
Investment Income 0.242 0.583 0.574 0.386
Distributions from Net Realized Gain 0.000 0.338 0.018 0.000
----------- ----------- ----------- ------------
Total Distributions 0.242 0.921 0.592 0.386
----------- ----------- ----------- ------------
Net Asset Value, End of the Period $ 9.610 $ 9.773 $ 10.037 $ 10.019
============== ============== ============== ===============
Total Return* 0.85%** 6.65% 6.29% 4.14%**
Net Assets at End of the Period (In millions) $ 3.1 $ 2.7 $ 8.2 $ 9.8
Ratio of Expenses to Average Net Assets* (a) 0.40% 0.61% 0.56% 0.40%
Ratio of Net Investment Income to Average Net Assets* 5.03% 5.44% 5.74% 5.68%
Portfolio Turnover 14%** 76% 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) 3.81% 3.67% 1.86% 1.40%
Ratio of Net Investment Income to Average Net Assets 1.62% 2.38% 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 .21% and .16%, for the periods
ended December 31, 1998, and December 31, 1997, respectively.
15
See Notes to Financial Statements
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (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,
indications of value obtained from an independent pricing service, 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, 1999, 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,
1999 for federal income tax purposes with the associated aggregate gross
unrealized appreciation, aggregate gross unrealized depreciation and net
unrealized appreciation/depreciation.
ACTIVE CORE LIMITED
FUND DURATION FUND
-------------- -------------------
Cost of long and
short-term investments $ 18,183,197 $ 3,079,508
-------------- -------------------
Aggregate gross
unrealized appreciation $ 45,750 $ 8,265
Aggregate gross
unrealized depreciation $ 386,529 $ 22,767
-------------- -------------------
Net unrealized
depreciation $ 340,779 $ 14,502
============== ===================
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.
16
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1999 (Unaudited)
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 $278,463 and $305,124 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, 1999, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $100 each, 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, 1999, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $11,900 and $11,600,
respectively, representing Van Kampen's cost of providing accounting and legal
services to the Funds. All of this expense has been assumed by Van Kampen.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Funds. For the six months ended June 30,
1999, Active Core Fund and Limited Duration Fund recognized expenses of
approximately $7,300 each. 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, 1999, Van Kampen owned 5,000 shares of each Fund.
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, 1999, transactions in common shares
were as follows:
ACTIVE LIMITED
CORE DURATION
FUND FUND
------------- ------------
Beginning Shares 1,143,960 279,454
Shares Sold 681,119 30,776
Shares Issued through
Dividend Reinvestment 37,159 7,617
Shares Repurchased (36,329) 0
------------- ------------
Ending Shares 1,825,909 317,847
============= ============
Capital at 06/30/99 $18,390,710 $3,073,436
============= ============
For the period ended December 31, 1998, transactions in common shares were as
follows:
ACTIVE LIMITED
CORE DURATION
FUND FUND
------------- ------------
Beginning Shares 485,509 820,195
Shares Sold 688,318 40,755
Shares Issued through
Dividend Reinvestment 67,072 26,390
Shares Repurchased (96,939) (607,886)
------------- ------------
Ending Shares 1,143,960 279,454
============= ============
Capital at 12/31/98 $11,512,187 $2,699,369
============= ============
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 $9,782,993 and $2,608,217 for Active Core Fund and
$777,267 and $316,708 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.
17
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
<TABLE>
<CAPTION>
<S> <C>
BOARD OF TRUSTEES INVESTMENT ADVISER
David C. Arch Van Kampen Management Inc.
Rod Dammeyer 1 Parkview Plaza
Howard J Kerr P.O. Box 5555
Dennis J. McDonnell* Oakbrook Terrace, Illinois 60181-5555
Steven Muller
Theodore A. Myers DISTRIBUTOR
Don G. Powell*
Hugo F. Sonnenschein Van Kampen Funds Inc.
Wayne W. Whalen* 1 Parkview Plaza
P.O. Box 5555
OFFICERS Oakbrook Terrace, Illinois 60181-5555
Dennis J. McDonnell* SHAREHOLDER SERVICING AGENT
President
Van Kampen Investor Services Inc.
A. Thomas Smith III* P.O. Box 218256
Vice President and Secretary Kansas City, Missouri 64121-8256
John L. Sullivan* CUSTODIAN
Vice President, Treasurer, and
Chief Financial Officer State Street Bank and Trust Company
225 Franklin Street
Curtis W. Morell* P.O. Box 1713
Vice President and Chief Accounting Officer Boston, Massachusetts 02105
Tanya M. Loden* LEGAL COUNSEL
Controller
Skadden, Arps, Slate, Meagher & Flom (Illinois)
Peter W. Hegel* 333 West Wacker Drive
Michael P. Kamradt* Chicago, Illinois 60606
John M. McCareins*
Edward A. Treichel* INDEPENDENT ACCOUNTANTS
Edward C. Wood, III*
Vice Presidents KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
</TABLE>
* "Interested" persons of the Fund, as defined in the Investment
Company Act of 1940.
(C)Van Kampen Funds Inc., 1999
All Rights Reserved.
SM denotes a service mark of Van Kampen Funds Inc.
18
<PAGE>
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest which, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act which may limit the legal rights regarding the use of such
statements in the case of dispute.
19
