<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
FILE NO. 33-84942
811-8808
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 4 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 7 [X]
</TABLE>
THE EXPLORER
INSTITUTIONAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THE DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(630) 684-6000
(REGISTRANT'S TELEPHONE NUMBER)
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
following effectiveness of this Registration Statement.
It is proposed that this filing will become effective: (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate check the following:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR
VALUE $0.01 PER SHARE.
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<PAGE> 2
EXPLORER INSTITUTIONAL FUNDS(SM)
* Active Core Fund
* Limited Duration Fund
Shares of the Funds have not been approved or
disapproved by the Securities and Exchange
Commission (SEC) or any state regulators, and
neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this
prospectus. It is a criminal offense to state
otherwise.
This prospectus is dated APRIL 30, 1999.
<PAGE> 3
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Funds, the Funds' investment adviser or the
Funds' distributor. This prospectus does not constitute an offer by the Funds or
by the Funds' distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Funds to make such an offer in such jurisdiction.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summaries:
Active Core Fund................................. 3
Limited Duration Fund............................ 5
Summary of Fund Expenses........................... 6
The Funds' Investment Objectives................... 7
How the Funds Seek Their Investment Objectives..... 7
How to Buy Shares.................................. 12
Distributions and Taxes............................ 13
How the Funds Value Their Shares................... 13
How to Sell Shares................................. 14
How the Funds Are Managed.......................... 14
Shareholder Services............................... 15
Financial Highlights............................... 16
</TABLE>
<PAGE> 4
RISK/RETURN SUMMARIES
The Explorer Institutional Funds(SM) currently consist of two separate
professionally managed, no-load investment portfolios, the Active Core Fund and
the Limited Duration Fund. Each Fund has its own investment objective, policies
and restrictions.
The Funds are primarily designed to provide pension and profit sharing plans,
employee benefit trusts, endowments, foundations, other institutions,
corporations and high net worth individuals with the professional investment
management services offered by the Funds' investment adviser. In managing the
Funds, the investment adviser seeks to enhance total return as compared to an
unmanaged portfolio of income securities by identifying value and opportunity
through extensive market, quantitative and credit research, identifying and
taking advantage of market inefficiencies and, within a well defined portfolio
duration for each Fund, adjusting duration from time to time based on the
investment adviser's view of market conditions.
ACTIVE CORE FUND
INVESTMENT OBJECTIVE
The Active Core Fund is a mutual fund with an investment objective to provide an
enhanced level of total return as compared to investment in an unmanaged
portfolio consisting primarily of investment grade intermediate- and long-term
income securities of U.S. issuers. Total return includes income, together with
realized and unrealized capital appreciation and depreciation. There can be no
assurance that the Fund will achieve its investment objective.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by investing
substantially all of its total assets in a professionally managed, diversified
portfolio of intermediate- and long-term income securities of U.S. issuers.
Under normal market conditions, the Fund's investment adviser seeks to maintain
a dollar-weighted average portfolio duration between three to six years. The
Fund invests in income securities rated as investment grade at the time of
investment. Investment grade securities are securities rated BBB or higher by
Standard & Poor's ("S&P") or rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's"). The Fund invests at least 75% of its assets in securities
rated AA or higher by S&P or rated Aa or higher by Moody's.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund.
MARKET RISK. The prices of income securities tend to fall as interest rates
rise. This market risk is usually greater among income securities with longer
durations. Because the Fund's investment adviser seeks to maintain a
dollar-weighted average portfolio duration between three to six years, the Fund
will be subject to greater market risk than a fund investing solely in
shorter-term securities but less market risk than a fund investing solely in
longer-term securities. The yields and market prices of the Fund's income
securities may move differently and adversely compared to the yields and market
prices of the overall securities markets. When-issued and delayed delivery
transactions are subject to changes in market conditions from the time of the
commitment until settlement. This may adversely affect the prices or yields of
the securities being purchased, as well as any portfolio securities held for
payment of such commitments. The greater the Fund's outstanding commitment for
these securities, the greater the Fund's exposure to market price fluctuation.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Fund because it
invests in investment grade quality income securities.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short and long term. If interest rates
drop, your income from the Fund may drop as well.
PREPAYMENT RISK. If interest rates fall, the principal on income securities held
by the Fund may be paid earlier than expected. If this happens, the proceeds
from a prepaid security would be reinvested by the Fund in securities bearing
the new, lower interest rates, resulting in a possible decline in the Fund's
income and distributions to shareholders.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
3
<PAGE> 5
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Active Core Fund is to look at
how the Fund's performance varies from year to year. The following chart shows
the annual returns of the Active Core Fund over the past two calendar years
prior to the date of this prospectus. Remember that the past performance of the
Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1997 8.93
1998 8.45
</TABLE>
The Active Core Fund commenced investment operations on April 23, 1996. The
return from April 23, 1996 to December 31, 1996 was 5.20%.
During the two-year period shown in the bar chart, the highest quarterly return
for the Active Core Fund was 4.37% (for the quarter ended September 30, 1998)
and the lowest quarterly return was -0.62% (for the quarter ended March 31,
1997).
COMPARATIVE PERFORMANCE
This table shows how the Active Core Fund's performance compares with a
broad-based market index that the Fund's management believes is an applicable
benchmark for the Fund. Average annual total returns and are shown for the
periods ended December 31, 1998 (the most recently completed calendar year prior
to the date of this prospectus). Remember that the past performance of the Fund
is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1998 1 Year Inception
- ---------------------------------------------
<S> <C> <C>
Active Core Fund 8.45% 8.41%(1)
.............................................
Lehman Brothers
Aggregate Bond
Index 8.69% 9.20%(2)
.............................................
</TABLE>
Inception dates: (1) 4/23/96, (2) 4/30/96.
4
<PAGE> 6
LIMITED DURATION FUND
INVESTMENT OBJECTIVE
The Limited Duration Fund is a mutual fund with an investment objective to
provide an enhanced level of total return as compared to investment in an
unmanaged portfolio consisting primarily of investment grade short- and
intermediate-term income securities of U.S. issuers, consistent with
preservation of capital. Total return includes income, together with realized
and unrealized capital appreciation and depreciation. There can be no assurance
that the Fund will achieve its investment objective.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by investing
substantially all of its total assets in a professionally managed, diversified
portfolio of short- and intermediate-term income securities of U.S. issuers.
Under normal market conditions, the Fund's investment adviser seeks to maintain
a dollar-weighted average portfolio duration between one to three years. The
Fund invests at least 75% of its total assets in securities rated AA or higher
by S&P or rated Aa or higher by Moody's. The Fund does not invest in securities
rated below A by S&P or Moody's.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund.
MARKET RISK. The prices of income securities tend to fall as interest rates
rise. This market risk is usually greater among income securities with longer
durations. Because the Fund's investment adviser seeks to maintain a
dollar-weighted average portfolio duration between one to three years, the Fund
will be subject to less market risk than a fund investing solely in longer-term
securities. The yields and market prices of the Fund's income securities may
move differently and adversely compared to the yields and market prices of the
overall securities markets. When-issued and delayed delivery transactions are
subject to changes in market conditions from the time of the commitment until
settlement. This may adversely affect the prices or yields of the securities
being purchased, as well as any portfolio securities held for payment of such
commitments. The greater the Fund's outstanding commitment for these securities,
the greater the Fund's exposure to market price fluctuation.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Fund because it
invests in investment grade quality income securities.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short and long term. If interest rates
drop, your income from the Fund may drop as well.
PREPAYMENT RISK. If interest rates fall, the principal on income securities held
by the Fund may be paid earlier than expected. If this happens, the proceeds
from a prepaid security would be reinvested by the Fund in securities bearing
the new, lower interest rates, resulting in a possible decline in the Fund's
income and distributions to shareholders.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Limited Duration Fund is to
look at how the Fund's performance varies from year to year. The following chart
shows the annual returns of the Limited Duration Fund over the past two calendar
years prior to the date of this prospectus. Remember that the past performance
of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1997 6.29
1998 6.65
</TABLE>
The Limited Duration Fund commenced investment operations on April 23, 1996. The
return from April 23, 1996 to December 31, 1996 was 4.14%.
During the two-year period shown in the bar chart, the highest quarterly return
for the Limited Duration
5
<PAGE> 7
Fund was 2.97% (for the quarter ended September 30, 1998) and the lowest
quarterly return was 0.42% (for the quarter ended March 31, 1997).
COMPARATIVE PERFORMANCE
This table shows how the Limited Duration Fund's performance compares with a
broad-based market index that the Fund's management believes is an applicable
benchmark for the Fund. Average annual total returns are shown for the periods
ended December 31, 1998 (the most recently completed calendar year prior to the
date of this prospectus). Remember that the past performance of the Fund is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns for the
Periods Ended Past Since
December 31, 1998 1 Year Inception
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Limited Duration Fund 6.65% 6.36%(1)
..............................................................
Lehman Brothers 1 to
3 Year Government
Bond Index 6.97% 6.85%(2)
..............................................................
..............................................................
</TABLE>
Inception dates: (1) 4/23/96, (2) 4/30/96.
SUMMARY OF FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Active Limited
Core Duration
Fund Fund
- --------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering None None
price)
..................................................
Maximum deferred sales
charge (load) (as a
percentage of the lesser
of original purchase None None
price or redemption
proceeds)
..................................................
Maximum sales charge
(load) imposed on
reinvested dividends (as
a percentage of offering None None
price)
..................................................
Redemption fees (as a
percentage of amount None None
redeemed)
..................................................
Exchange fee None None
..................................................
</TABLE>
ANNUAL FUND
OPERATING EXPENSES
(expenses that are deducted from each Fund's assets)
<TABLE>
<CAPTION>
Active Limited
Core Duration
Fund Fund
- ------------------------------------------------------
<S> <C> <C> <C>
Management Fees(1) 0.30 % 0.30 %
......................................................
Other Expenses(1) 1.03 % 3.37 %
......................................................
Total Annual Fund 1.33 % 3.67 %
Operating Expenses(1)
......................................................
</TABLE>
(1) The investment adviser is currently waiving or reimbursing all or a portion
of each Fund's Management Fees and Other Expenses such that actual Total
Annual Fund Operating Expenses for the fiscal period ended December 31, 1998
were 0.40% for each Fund.
Example:
The following examples are intended to help you compare the costs of investing
in the Funds with the costs of investing in other mutual funds.
Each example assumes that you invest $10,000 in such Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% annual return each year and
that each Fund's operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Active Core Fund $135 $421 $729 $1,601
.......................................................................
Limited Duration Fund $369 $1,123 $1,897 $3,924
.......................................................................
</TABLE>
6
<PAGE> 8
THE FUNDS' INVESTMENT OBJECTIVES
ACTIVE CORE FUND
The investment objective of the Active Core Fund is to provide an enhanced level
of total return as compared to investment in an unmanaged portfolio consisting
primarily of investment grade intermediate- and long-term income securities of
U.S. issuers.
LIMITED DURATION FUND
The investment objective of the Limited Duration Fund is to provide an enhanced
level of total return as compared to investment in an unmanaged portfolio
consisting primarily of investment grade short- and intermediate-term income
securities of U.S. issuers, consistent with preservation of capital.
Each Fund's investment objective is a fundamental policy and may not be changed
without shareholder approval of the holders of a majority of such Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). Total return includes income together with realized
and unrealized capital appreciation or depreciation. U.S. issuers include the
U.S. government, states and territories of the U.S., agencies, instrumentalities
and other political subdivisions of any of the above and corporations,
partnerships, trusts and other organizations and entities. There are risks
inherent in all investments in securities; accordingly there can be no assurance
that the Funds will achieve their investment objectives.
HOW THE FUNDS SEEK THEIR INVESTMENT OBJECTIVES
Each Fund seeks to achieve its investment objective by investing substantially
all of its total assets in a professionally managed, diversified portfolio of
income securities. For a discussion of the various types of income securities in
which the Funds may invest, see "Income Securities" below. The Funds differ
primarily in the length of their portfolio duration. For a discussion of the
concept of duration, see "Duration" below. The Funds invest in income securities
rated investment grade at the time of investment, and the Limited Duration Fund
only invests in investment grade income securities rated A or better by S&P or
Moody's at the time of investment. Each Fund will invest at least 75% of its
assets in securities rated AA/Aa or higher. For a further discussion of credit
quality, see "Portfolio Credit Quality" below.
ACTIVE CORE FUND
Under normal market conditions, the Active Core Fund invests substantially all
of its assets in a diversified portfolio of investment grade income securities
having various maturities and seeks to maintain a portfolio duration of three to
six years. The Fund invests at least 75% of its total assets in securities rated
AA/Aa or higher. The Active Core Fund does not invest in securities rated below
BBB/Baa. The Fund does not invest in securities of foreign issuers.
LIMITED DURATION FUND
Under normal markets conditions, the Limited Duration Fund invests substantially
all of its assets in a diversified portfolio of investment grade income
securities having various maturities and seeks to maintain a portfolio duration
of one to three years. The Fund invests at least 75% of its total assets in
securities rated AA/Aa or higher. The Limited Duration Fund does not invest in
securities rated below A. The Fund does not invest in securities of foreign
issuers. The total return of the Limited Duration Fund is expected to exhibit
less volatility than that of the Active Core Fund because its duration will be
shorter while its other investment policies are similar to those of the Active
Core Fund.
------------------------------------
DURATION. The value of income securities tends to vary inversely with changes in
interest rates, and the amount of such variance tends to be greater among income
securities with longer durations. Duration is a measure of the expected life of
an income security that was developed as a more precise alternative to the
concept of "term to maturity." Duration incorporates a security's yield, coupon
interest payments, final maturity and call features into one measure. Duration
is an important criteria used by the Fund's investment adviser in portfolio
selection for the Funds.
Most debt obligations provide interest ("coupon") payments in addition to a
final ("par") payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments, the market values of debt
obligations may respond differently to changes in interest rates.
7
<PAGE> 9
Traditionally, an income security's "term to maturity" has been used as a
measure of the sensitivity of the security's price to changes in interest rates.
However, "term to maturity" measures only the time until an income security
provides its final payment, taking no account of the pattern of the security's
payments prior to maturity. Duration is a measure of the expected life of an
income security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For an income security with interest payments
occurring prior to the payment of principal, duration is less than maturity. In
general, all other things being equal, the lower the stated or coupon rate of
interest of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed income
security, the shorter the duration of the security.
There are some situations where the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where interest rate exposure is not properly captured by
duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is frequently 30 years, but prepayment rates are
more critical in determining the securities' interest rate exposure. In these
and other similar situations, in determining portfolio duration the Funds'
investment adviser will use more sophisticated analytical techniques that
incorporate the anticipated economic life of a security into the determination
of its interest rate exposure.
The change in market value of investment grade income securities is largely a
function of changes in the prevailing level of interest rates. When interest
rates are falling, a portfolio with a shorter duration generally will not
generate as high a level of total return as a portfolio with a longer duration.
When interest rates are flat, shorter duration portfolios generally will not
generate as high a level of total return as longer duration portfolios (assuming
that long-term interest rates are higher than short-term rates, which is
commonly the case). When interest rates are rising, a portfolio with a shorter
duration will generally outperform longer duration portfolios. With respect to
the composition of an income securities portfolio, the longer the duration of
the portfolio, the greater the anticipated potential for total return, with,
however, greater attendant interest rate risk and price volatility than for a
portfolio with a shorter duration. In purchasing income securities for the
Funds, the investment adviser is not limited by the maturities of individual
income securities, but the investment adviser does limit purchases to seek to
maintain the portfolio duration ranges outlined herein for each Fund.
PORTFOLIO CREDIT QUALITY. Investment grade rated securities are securities rated
in one of the four highest rating categories by at least one nationally
recognized rating organization, such as S&P or Moody's. For a description of S&P
and Moody's ratings, see the Funds' Statement of Additional Information. Each
Fund will invest at least 75% of its assets in securities rated AA/Aa or higher.
A Fund's other investments may range in quality from securities rated in the
lowest category in which the Fund is permitted to invest to securities rated in
the highest category.
The Active Core Fund invests in securities rated within the four highest rating
categories by a nationally recognized rating organization (e.g., BBB or better
by S&P or Baa or better by Moody's). Securities rated BBB are regarded by S&P as
having adequate capacity to pay interest and repay principal. Whereas in S&P's
view such securities normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for securities in this
category than for securities in higher rated categories. Securities rated Baa
are regarded by Moody's as medium grade obligations (i.e. neither highly
protected nor poorly secured). In Moody's view, interest payments and principal
security for such securities appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. In Moody's view, such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
The Limited Duration Fund invests in securities rated within the three highest
rating categories by a nationally recognized rating organization (e.g. A by S&P
or Moody's). Securities rated A by S&P are regarded by S&P as having a strong
capacity to pay interest and repay principal although they are in S&P's view
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than higher rated securities. Securities rated A by Moody's
in Moody's view possess many
8
<PAGE> 10
favorable investment attributes and are considered by Moody's as upper medium
grade obligations. Factors giving security to principal and interest are
considered by Moody's to be adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
The percentage of a Fund's assets invested in securities in a particular rating
category will vary from time to time.
INCOME SECURITIES. Each Fund will invest substantially all of its total assets
in U.S. dollar denominated income securities of U.S. issuers. Income securities
include securities issued or guaranteed by the U.S. government, its agencies or
its instrumentalities ("U.S. Government Securities"); mortgage-backed or other
asset-backed securities; corporate debt securities; zero-coupon or stripped
securities; variable and floating rate debt securities; commercial paper;
certificates of deposit, time deposits and bankers acceptances; and other
instruments having investment characteristics substantially similar to any of
the foregoing and repurchase agreements. The Funds will not invest in securities
of foreign issuers. Prior to investing in any category of instruments not
identified in this Prospectus, the Funds intend to revise this Prospectus to
identify such categories. Certain of the Funds' investments may be considered
derivative instruments. A derivative is a financial instrument whose performance
is derived at least in part from the performance of an underlying index,
security or asset. The values of certain derivatives can be affected
dramatically by even small market movements, sometimes in ways that are
difficult to predict.
U.S. Government Securities. U.S. Government Securities are considered among the
most creditworthy of fixed income investments; however, the yields on U.S.
Government Securities generally are lower than yields available from most other
types of income securities having comparable duration. U.S. Government
Securities include (1) U.S. Treasury obligations; (2) obligations issued or
guaranteed by U.S. government agencies and instrumentalities ("Agencies") which
are supported by: (a) the full faith and credit of the U.S. government; (b) the
right of the issuer or guarantor to borrow an amount from a line of credit with
the U.S. Treasury; (c) discretionary power of the U.S. government to purchase
obligations of the agencies or (d) the credit of the agencies; (3) real estate
mortgage investment conduits, collateralized mortgage obligations and other
mortgage-backed securities which are issued or guaranteed by agencies or
instrumentalities of the U.S. government; and (4) "when-issued" commitments
relating to the foregoing.
Mortgage-Backed Securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. The yield characteristics
of mortgage-backed securities differ from traditional debt securities. Interest
and principal payments are made more frequently and principal may be prepaid at
any time because the underlying mortgage loans generally may be prepaid at any
time. Faster or slower prepayments than expected on underlying mortgage loans
can dramatically alter the yield to maturity and duration of a mortgage-backed
security. The value of most mortgage-backed securities, like traditional debt
securities, tends to vary inversely with changes in interest rates; however,
mortgage-backed securities may benefit less than traditional debt securities
from declining interest rates because prepayment of mortgages tend to accelerate
during periods of declining interest rates. When mortgage loans underlying
mortgage-backed securities held by a Fund are prepaid, the Fund reinvests the
prepaid amounts in other income-producing securities, the yields of which will
reflect interest rates prevailing at the time. Therefore, a Fund's ability to
maintain a portfolio of higher-yielding mortgage-backed securities will be
adversely affected to the extent that prepayments must be reinvested in
securities which have lower yields. Alternatively, during periods of rising
interest rates, mortgage-backed securities are often more susceptible to
extension risk (i.e. rising interest rates could cause property owners to prepay
their mortgage loans more slowly than expected when the security was purchased
by the Fund which may further reduce the market value of such security and
lengthen the duration of such security) than traditional debt securities.
Mortgage-backed securities may be structured with various classes of holders
that can receive different proportions of the interest and principal
distributions from the same pool of underlying mortgage assets. The yield to
maturity, duration and market value of such classes may be substantially more
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in certain of these securities even if held to
final maturity. A more complete description of mortgage-backed securities is
contained in the Statement of Additional Information.
9
<PAGE> 11
Collateralized Mortgage Obligations. CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities and multiclass pass-through
securities, which are equity interests in a trust composed of mortgage assets.
Payments of principal and interest on the mortgage assets, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs or make
scheduled distributions on the multiclass pass-through securities. In a CMO, a
series of bonds or certificates is issued in multiple classes. Each class of
CMOs, often referred to as a "tranche", is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Faster or slower principal prepayments on the mortgage assets may significantly
impact the yield, duration and market value of such securities. The principal
and interest on the mortgage assets may be allocated among the several classes
of a series of a CMO in innumerable ways, some of which bear substantially more
risk than others.
Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now also applied to a broad range of assets,
primarily automobile and credit card receivables. Other types of asset-backed
securities may be developed in the future. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. Asset-backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of the same security interest in the
related collateral as do mortgage-backed securities.
Corporate Income Securities. Corporate income securities in which a Fund may
invest include adjustable and fixed rate bonds, debentures and notes and will
generally be unsecured. A Fund may also invest in income securities with
floating or variable rates of interest.
Zero-Coupon Securities. Zero-coupon securities pay no cash interest but are sold
at substantial discounts from their value at maturity. When a zero-coupon bond
is held to maturity, its entire investment return comes from the difference
between its purchase price and its maturity value. The value of zero-coupon
securities tend to fluctuate more in response to changing interest rates than
securities making current interest payments.
Stripped Treasury Securities. Stripped Treasury securities are obligations
representing an interest in all or a portion of the income or principal
components of an underlying Treasury or pool of Treasury securities. Stripped
Treasury securities include obligations entitled to receive all of the interest
component but none of the principal component (IOs) and obligations entitled to
receive all of the principal component but none of the interest component (POs).
The market values of stripped Treasury securities tend to be more volatile in
response to changes in interest rates than are those of conventional Treasury
securities.
Premium Securities. A Fund may at times invest in securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. If an issuer were to redeem securities held by a Fund during a time of
declining interest rates, the Fund may not be able to reinvest the proceeds in
securities providing the same investment return as the securities redeemed. If
securities purchased by a Fund at a premium are called or sold prior to
maturity, the Fund generally will recognize a capital loss to the extent the
call or sale price is less than the Fund's adjusted tax basis in such
securities. Similarly, the Fund generally will recognize a capital loss in the
event that such securities are held to maturity.
Adjustable and Floating Rate Securities. Adjustable and floating rate securities
are securities having interest rates which are adjusted or reset at periodic
intervals ranging, in general, from one day to several years, based on a spread
over a specific interest rate or interest rate index or on the results of
periodic auctions. Adjustable and floating rate securities allow a Fund to
participate in all or a portion of increases in interest rates through periodic
upward adjustments of the coupon rates of such securities, resulting in higher
yields. During periods of declining interest rates, however, coupon rates may
readjust downward resulting in lower yields. The Funds will not invest in
"inverse-floaters" (securities whose coupon rates vary inversely with changes in
market rates of interest).
OTHER INVESTMENT PRACTICES. In connection with the investment policies described
above, the Funds may also purchase and sell securities on a "when-issued" and
"delayed delivery" basis, enter into repurchase agreements and, for cash
management purposes only, enter into reverse repurchase agreements and borrow
money from banks, in each case subject to the limitations set forth below.
Certain of these investment practices involve special risks.
The Funds may purchase and sell securities on a "when-issued" and "delayed
delivery" basis. A Fund accrues no income on purchases of such securities
10
<PAGE> 12
until the Fund actually takes delivery of such securities. These transactions
are subject to market fluctuation; the value of the securities at delivery may
be more or less than their purchase price. The yields generally available on
comparable securities when delivery occurs may be higher than yields on the
securities obtained pursuant to such transactions. Because a Fund relies on the
buyer or seller to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. A Fund will engage in
when issued and delayed delivery transactions for the purpose of acquiring
securities consistent with the Fund's investment objective and policies and not
for the purpose of investment leverage.
A Fund may enter into repurchase agreements whereby the Fund purchases
securities and agrees to resell the securities at an agreed upon time and at an
agreed upon price. The difference between the purchase amount and resale amount
is accrued as interest in the Fund's net income. Failure of the seller to
repurchase the securities may cause losses for a Fund. Thus, a Fund must
consider the credit-worthiness of such party. In the event of default by such
party, a Fund may not have a right to the underlying security and there may be
possible delays and expenses in liquidating the security purchased, resulting in
a decline in its value and loss of interest. Each Fund will not invest more than
15% of its respective total assets in repurchase agreements with a maturity of
seven days or more.
Each Fund may borrow money from banks for temporary emergency purposes only
(such as meeting share redemption requests), although no Fund expects to do so
in an amount exceeding 5% of its respective total assets (after giving effect to
any such borrowing). Interest expenses and other costs from these transactions
may exceed the interest income and other revenues earned from portfolio assets,
and the net income of the Fund may be less than if these transactions were not
used.
As a matter of fundamental policy that may not be changed without shareholder
approval, the Funds may not sell any securities "short," write, purchase or sell
puts, calls or combinations thereof, or purchase or sell interest rate or other
financial futures or index contracts or related options for risk management,
hedging or any other purpose.
Further information about these types of investments and other investment
practices that may be used by the Funds is contained in the Statement of
Additional Information.
Although the Funds do not intend to engage in substantial short-term trading,
they may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Funds' investment adviser believes the potential for total return has lessened
or otherwise. Each Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rates may be expected to vary
from year to year. A high portfolio turnover rate (100% or more) increases a
fund's transactions costs, including brokerage commissions or dealer costs, and
may result in the realization of more short-term capital gains than if a fund
had lower portfolio turnover. The turnover rate will not be a limiting factor,
however, if the Funds' investment adviser considers portfolio changes
appropriate.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Funds could be adversely affected if the
computer systems used by the Funds' 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 Funds' 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 Funds' 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 Funds. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Funds may invest which, in
turn, may adversely affect the net asset value of the Funds. 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 Funds' investments
may be adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
11
<PAGE> 13
HOW TO BUY SHARES
Shares of each Fund are offered at a price equal to net asset value per share,
without a sales charge. The minimum initial investment is $500,000. The minimum
subsequent investment is $25,000.
The Funds offer their shares to the public on a continuous basis through Van
Kampen Funds Inc. (the "Distributor"), as principal underwriter, which is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
The Distributor receives no compensation for this service. The Funds' investment
adviser may compensate the Distributor's registered representatives for sales of
shares of the Funds out of its own assets, not out of the assets of the Funds.
Investments may be made either by wire transfer or by mail as follows:
(1) By Wire. Explorer Institutional FundsSM will accept investments by wire. An
investor must first telephone the Explorer Institutional FundsSM at (800)
822-3699 and, in the case of initial investments, provide the account
registration, address, tax identification number, the Fund in which the
investment is being made, and the amount being wired. Investors will then be
assigned an account number and should instruct their bank or broker to wire
federal funds to Van Kampen Investor Services Inc., Attn: Explorer
Institutional FundsSM for further credit to Account ________ Name
__________ , Account Number ________ . Investors will be responsible for
the charges, if any, that the bank, broker, dealer or financial intermediary
may make to handle the wire transfer. A completed Account Application must
then be forwarded to the Explorer Institutional FundsSM. Subsequent
investments by wire may be made by instructing a bank or broker to wire the
specified amount in accordance with the above instructions. Please call to
advise the Explorer Institutional FundsSM before wiring monies.
Investments made by federal funds wire (up to ten million dollars) received
prior to 12:00 p.m. Eastern time will be invested at the next determined net
asset value and begin receiving dividends on that day. Investments made by
federal funds wire received after 12:00 p.m. Eastern time will be invested at
the next determined net asset value and begin receiving dividends on the next
business day.
(2) By Mail. The Explorer Institutional FundsSM will also accept investments by
mail. Investments by mail may be made by sending a check payable to
"Explorer Institutional FundsSM" and identifying the Fund in which such
investment is being made. A completed Account Application, indicating the
Fund in which the investment is being made, must accompany the check in the
case of initial investments. Checks and applications should be mailed to the
transfer agent of the Explorer Institutional FundsSM, Van Kampen Investor
Services Inc. ("Investor Services"), Explorer Institutional FundsSM, PO Box
418256, Kansas City, Missouri, 64141-9256. Investor Services is a wholly
owned subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments").
Subsequent investments by mail may be made directly to the Explorer
Institutional FundSM in which such initial investment was made accompanied
by either the detachable form which is part of the Account Statement or by a
letter indicating the dollar amount of the investment, the account number,
and registration. Investments made by check will begin receiving dividends
on the next business day after the Explorer Institutional FundsSM received
good funds. For checks drawn on foreign banks, monies must be collected
before shares will be purchased.
In addition, investors may, subject to the approval of the Explorer
Institutional Funds(SM), purchase shares of a Fund with liquid securities that
are eligible for purchase by the Fund (consistent with such Fund's investment
policies and restrictions) and that have a value that is readily ascertainable.
These transactions will be effected only if the Fund's investment adviser
intends to retain the securities in such Fund as an investment. Assets so
purchased by a Fund will be valued in the same manner as they would be valued
for purposes of pricing the Fund's shares if such assets were included in the
Fund's assets at the time of purchase. The Funds reserve the right to amend or
terminate this practice at any time without notice. Investors should consult
their own tax adviser as to the tax consequences of such transactions.
OTHER PURCHASE INFORMATION. Purchases of a Fund's shares will be made in full
and fractional shares. In the interest of economy and convenience, certificates
for shares generally will not be issued.
The Explorer Institutional Funds(SM) reserves the right, in its sole discretion,
to suspend the offering of shares of any Fund or to reject purchase orders when,
in the judgment of management, such suspension or
12
<PAGE> 14
rejection is in the best interests of a Fund; to waive the minimum investment
requirements for certain investors; and to redeem shares if information provided
in the Account Application should prove to be incorrect in any material respect.
Shares of the Explorer Institutional Funds(SM) may not be offered or sold in any
state unless registered or qualified in that jurisdiction or unless an exemption
from registration or qualification is available. The Funds are not registered or
qualified for sale in all jurisdictions. Potential investors should contact Van
Kampen Management Inc. at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555 or call the Explorer Institutional FundsSM at (800) 822-3699 to
determine whether a Fund is registered or qualified for sale in their particular
jurisdiction.
Shares of the Explorer Institutional Funds(SM) may be purchased by customers of
broker-dealers or other financial intermediaries ("service agents") which
interact with the Explorer Institutional Funds(SM) on behalf of their customers.
Service agents may impose additional or different conditions on the purchase or
redemption of Fund shares by their customers and may charge their customers
transaction or other account fees on the purchase and redemption of Fund shares.
Each service agent is responsible for transmitting to its customers a schedule
of any such fees and information regarding any additional or different
conditions regarding purchases and redemptions. Shareholders who are customers
of service agents should consult their service agent for information regarding
these fees and conditions.
DIVIDEND REINVESTMENT PROGRAM. Each Fund will automatically credit any monthly
and annual distributions to a shareholder's account in additional shares of the
Fund, without a sales charge, unless a shareholder elects another treatment for
such distributions. An election to receive distributions in cash may be made by
calling (800) 822-3699 or by writing the Explorer Institutional FundsSM at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555.
DISTRIBUTIONS AND
TAXES
Each Fund will declare distributions on a daily basis and will pay such
distributions from net investment income on a monthly basis. Each Fund will also
distribute annually any net realized short-term capital gains together with net
realized long-term capital gains, if any.
Each Fund has elected and qualified and intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, and to distribute substantially all of its net investment income and
net realized capital gains at least annually. Any distributions in excess of a
Fund's tax-basis, net investment income and capital gains will be a tax-free
return of capital, to the extent of the investor's tax basis in its shares.
Distributions of a Fund's net investment income are taxable to shareholders as
ordinary dividend income whether received in shares or in cash. Distributions of
a Fund's net capital gains ("capital gains dividends") are taxable to
shareholders as long-term capital gains regardless of the length of time the
shares of the Fund have been held by such shareholders. Shareholders not subject
to federal income tax on their income generally will not be required to pay
federal income tax on amounts distributed to them. Interest on certain U.S.
Government Securities is exempt from state income taxes when received by an
individual and may be exempt when received by a Fund. Each Fund will inform
shareholders annually of the amount and nature of its income and gains and the
percentage of the Fund invested over the year in U.S. Government Securities.
Redemption, resale or exchange of shares of a Fund will be a taxable transaction
for federal income tax purposes. For further information with respect to taxes,
see the Statement of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value per share of a Fund is determined by calculating the total
value of the Fund's assets, deducting the total liabilities of the Fund, and
dividing the result by the number of shares of the Fund outstanding. Generally,
net asset value is computed once daily as of 4:00 p.m. Eastern time Monday
through Friday, each day the New York Stock Exchange is open for trading.
Portfolio securities are valued by using market quotations, prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established from time to time by the Board of Trustees of the Funds.
13
<PAGE> 15
HOW TO SELL SHARES
Shareholders may sell shares without charge at any time by mailing a written
redemption request in proper form to the Fund or by calling the Fund at (800)
822-3699 before 4:00 p.m. Central time to request a redemption. Shareholders
will receive the net asset value per share next determined after such
shareholder places the sell order. A Fund will not honor a request for
redemption until it has confirmed receipt of good funds with respect to the
purchase of such shares. Payment for shares redeemed ordinarily will be mailed
or wire transferred to shareholders within one business day after a redemption
in proper form is accepted by Investor Services. The Funds reserve the right to
take up to seven days to mail or wire redemption proceeds, and any redemption
payment may be postponed or the right of redemption suspended as provided by
rules of the SEC.
Due to the relatively high cost of maintaining small accounts, each Fund
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to redemption
by the investor, the shares in the account do not have a value of at least
$250,000. A shareholder will receive advance notice of a mandatory redemption
and will be given at least 30 days to bring the value of its account up to at
least $250,000.
Neither the Funds, the Distributor nor Investor Services will be liable for any
loss, cost or expense for acting on instructions (whether in writing or by
telephone) believed by the party receiving such instructions to be genuine and
in accordance with the procedures described in this Prospectus. The Funds, the
Distributor and Investor Services seek to employ procedures reasonably believed
to confirm that instructions communicated by telephone are genuine. Such
procedures include requiring a person attempting to redeem shares by telephone
to provide, on a recorded line, the name on the account, a social security
number or tax identification number and such additional information as may be
necessary. An investor agrees that no such person will be liable for any loss,
liability, cost or expense arising out of any request, including any fraudulent
or unauthorized request.
Each Fund agrees to redeem shares solely in cash up to the lesser of $2,000,000
or 1.00% of the respective Fund's net assets during any 90-day period for any
one shareholder. In consideration of the best interests of the remaining
shareholders of each Fund, the Fund reserves the right to pay any redemption
price exceeding this amount in whole or in part by a distribution in kind of
securities held by the respective Fund in lieu of cash. It is unlikely that
shares will be redeemed in kind. If shares are redeemed in kind, however, the
redeeming shareholder should expect to incur transaction costs upon the
disposition of the securities received in the distribution.
For more information regarding selling shares, please see the Statement of
Additional Information.
HOW THE FUNDS
ARE MANAGED
THE ADVISER. Van Kampen Management Inc. (the "Adviser") is the investment
adviser for the Funds. The Adviser provides investment advice to a wide variety
of institutional, individual and investment company clients and, together with
its affiliates, had aggregate assets under management or supervision of more
than $75 billion.
The Adviser is a wholly owned subsidiary of Van Kampen Investments. Van Kampen
Investments is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter
& Co. The Adviser's principal office is located at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555.
The Funds' day-to-day portfolio management is the responsibility of a team of
officers of the Adviser.
ADVISORY AGREEMENT. The business and affairs of the Funds are managed by the
Adviser under the direction of the Board of Trustees of the Funds. Subject to
the Trustees' authority, the Adviser and the Funds' officers supervise and
implement the Funds' investment activities. The Funds pay the Adviser a fee
(accrued daily and paid monthly) equal to a percentage of their respective
average daily net assets as follows:
<TABLE>
<CAPTION>
Average
Daily % Per
Fund Net Assets Annum
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Up to one
Active Core Fund billion dollars 0.30%
...................................
Thereafter 0.25%
.............................................................
Up to one
Limited Duration Fund billion dollars 0.30%
...................................
Thereafter 0.25%
.............................................................
</TABLE>
After the Adviser's fee waiver, the Active Core Fund and the Limited Duration
Fund paid the Adviser an
14
<PAGE> 16
advisory fee at the effective rate of 0.00% and 0.00%, respectively, of each
Fund's average daily net assets for such Fund's fiscal year ended December 31,
1998.
Under each Fund's investment advisory agreement with the Adviser, subject to the
expense limitations discussed below, each Fund has agreed to assume and pay the
charges and expenses of its operations, including the compensation of the
trustees of the Fund (other than those who are interested persons of the Adviser
and other than those who are interested persons of the Distributor but not of
the Adviser, if the Distributor has agreed to pay such compensation), the
charges and expenses of independent accountants, legal counsel, any transfer or
dividend disbursing agent and the custodian (including fees for safekeeping of
securities), costs of calculating net asset value, costs of acquiring and
disposing of portfolio securities, interest (if any) on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, costs of trustee and officer errors and
omissions insurance, reports and notices to shareholders, costs of registering
shares of the Fund under the federal securities laws, miscellaneous expenses and
all taxes and fees to federal, state or other governmental agencies.
The Funds and the Adviser have adopted Codes of Ethics designed to recognize the
fiduciary relationship between each Fund and the Adviser and its employees. The
Codes permit directors, trustees, officers and employees to buy and sell
securities for their personal accounts subject to certain restrictions. Persons
with access to certain sensitive information are subject to pre-clearance and
other procedures designed to prevent conflicts of interest.
EXPENSE LIMITATION. In the interest of limiting the overall expenses of the
Funds, the Adviser voluntarily has agreed to waive fees or reimburse certain
expenses such that the expenses of each Fund, including the advisory fees (but
excluding interest, taxes, brokerage commissions and other portfolio transaction
expenses, other expenditures which are capitalized in accordance with generally
accepted accounting principles and any extraordinary costs and expenses) will
not exceed the following amounts (expressed as a percentage of average net
assets on an annual basis).
<TABLE>
<S> <C> <C> <C>
Active Core Fund 0.40%
...................................................
Limited Duration Fund 0.40%
...................................................
</TABLE>
Fees foregone or payments made by the Adviser with respect to a Fund pursuant to
the expense limitation are contingent liabilities of such Fund which are subject
to potential reimbursement by that Fund to the Adviser, provided the Fund's
assets reach a sufficient size to permit such reimbursement to be made without
causing the annual expense ratio of the Fund to exceed the applicable limitation
set forth above, or such lower amount as may be imposed by any state expense
limitation to which the Fund is subject, and provided such reimbursement is made
within four years of the recognition of the contingent liability by the Fund. If
a reimbursement appears probable, it will be accounted for as an expense of the
Fund regardless of the time period over which the reimbursement may actually be
paid by the Fund.
SHAREHOLDER SERVICES
Shareholders of the Funds automatically are enrolled in or may elect to
participate in certain shareholder programs available to shareholders of the
Explorer Institutional FundsSM. These programs include Dividend Reinvestment
Programs and Exchange Programs. For more information regarding these shareholder
services and programs, please see the Statement of Additional Information.
Shareholder inquiries should be directed to the Funds c/o the Explorer
Institutional FundsSM, 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois
60181-5555 or by calling (800) 822-3699.
15
<PAGE> 17
FINANCIAL HIGHLIGHTS
The financial highlights are intended to help you understand your Fund's
financial performance. Certain information reflects financial results for a
single share of each Fund. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in the respective
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, independent certified public
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained without
charge by calling the telephone number on the back cover of this prospectus.
This information should be read in conjunction with the financial statements and
related notes thereto included in the Statement of Additional Information.
<TABLE>
<CAPTION>
Active Core Fund Limited Duration Fund
April 23, 1996
April 23, 1996 (Commencement of
Year Ended (Commencement of Year Ended Investment
December 31, Investment Operations) December 31, Operations) to
1998 1997 to December 31, 1996 1998 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $10.171 $10.085 $10.000 $10.037 $10.019 $10.000
------- ------- ------- ------- ------- -------
Net Investment Income...... 0.579 0.626 0.409 0.547 0.574 0.386
Net Realized and Unrealized
Gain.................... 0.258 0.249 0.095 0.110 0.036 0.019
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. 0.837 0.875 0.504 0.657 0.610 0.405
------- ------- ------- ------- ------- -------
Less:
Distributions From Net
Investment Income....... 0.574 0.626 0.409 0.583 0.574 0.386
Distributions From Net
Realized Gain........... 0.072 0.163 0.010 0.338 0.018 - 0 -
------- ------- ------- ------- ------- -------
Total Distributions.......... 0.646 0.789 0.419 0.921 0.592 0.386
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $10.362 $10.171 $10.085 $9.773 $10.037 $10.019
======= ======= ======= ======= ======= =======
Total Return*................ 8.45% 8.93% 5.20%** 6.65% 6.29% 4.14%**
Net Assets at End of Period
(In millions).............. $11.9 $4.9 $5.6 $2.7 $8.2 $9.8
Ratio of Expenses to Average
Net Assets*(a)............. 0.47% 0.60% 0.40% 0.61% 0.56% 0.40%
Ratio of Net Investment
Income to Average Net
Assets*.................... 5.56% 6.19% 5.98% 5.44% 5.74% 5.68%
Portfolio Turnover........... 79% 109% 84%** 76% 41% 16%**
</TABLE>
* If certain expenses had not been reimbursed by the Adviser, total return
would have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets(a).............. 1.33% 2.01% 1.81% 3.67% 1.86% 1.40%
Ratio of Net Investment
Income to Average Net
Assets..................... 4.70% 4.78% 4.57% 2.38% 4.59% 4.68%
</TABLE>
(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 0.07% and 0.21% for the year ended
December 31, 1998 for the Active Core Fund and Limited Duration Fund,
respectively and by 0.20% and 0.16% for the year ended December 31, 1997 for
the Active Core Fund and Limited Duration Fund, respectively.
** Non-Annualized
See Financial Statements and Notes Thereto.
16
<PAGE> 18
FOR MORE INFORMATION
EXISTING SHAREHOLDERS
OR PROSPECTIVE INVESTORS
For information please call the
Trust's toll-free number 1-800-822-3699.
EXPLORER INSTITUTIONAL FUNDSSM
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, Illinois 60181-5555
Investment Adviser
VAN KAMPEN MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, Illinois 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, Illinois 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256
Attn: Explorer Institutional FundsSM
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Explorer Institutional FundsSM
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, IL 60606
Independent Accountants
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 19
Investment Company Act File No.
811-8808.
EXP PRO 4/99
EXPLORER INSTITUTIONAL FUNDS(SM)
* Active Core Fund
* Limited Duration Fund
PROSPECTUS
APRIL 30, 1999
A Statement of Additional Information, which
contains more details about the Funds, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Funds in their annual and semiannual reports,
which explain the market conditions and
investment strategies affecting each Fund's
recent performance.
You can ask questions or obtain a free copy of
the Funds' reports or their Statement of
Additional Information by calling (800)
822-3699 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Information about the Funds, including their
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov). For
more information, please call the SEC at (800)
SEC-0330. You can also request these materials
by writing the Public Reference Section of the
SEC, Washington DC, 20549-6009, and paying a
duplication fee.
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
EXPLORER INSTITUTIONAL FUNDS(SM)
The Explorer Institutional Trust (the "Trust") is a professionally managed
no-load, open-end management investment company consisting of two separate
diversified investment portfolios, the Active Core Fund and the Limited Duration
Fund (each a "Fund" and together the "Funds"). Each Fund has its own investment
objective, policies and restrictions. The Funds are primarily designed to
provide pension and profit sharing plans, employee benefit trusts, endowments,
foundations, other institutions, corporations and high net worth individuals
with access to the professional investment management services offered by Van
Kampen Management Inc. (the "Adviser"), the investment adviser to the Funds. In
managing the Funds, the investment adviser seeks to enhance total return as
compared to an unmanaged portfolio of income securities by identifying value and
opportunity through extension market, quantitative and credit research,
identifying and taking advantage of market inefficiencies and, within a well
defined portfolio duration for each Fund, adjusting duration from time to time
based on the investment adviser's view of market condition. The net asset value
and the return of the Funds will fluctuate depending on market conditions and
other factors.
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Funds'
prospectus (the "Prospectus") dated as of the same date as this Statement of
Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Funds. Investors should obtain and read the Prospectus
prior to purchasing shares of the Funds. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 822-3699.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds and the Trust..................................... B-2
Investment Policies and Restrictions........................ B-3
Income Securities........................................... B-4
Investment Practices........................................ B-9
Description of Securities Ratings........................... B-10
Trustees and Officers....................................... B-16
Investment Advisory and Other Services...................... B-26
Portfolio Transactions and Brokerage Allocation............. B-28
Taxation.................................................... B-31
The Distributor............................................. B-33
Transfer Agent.............................................. B-34
Legal Counsel............................................... B-34
Performance Information..................................... B-34
How to Buy Shares........................................... B-36
How to Sell Shares.......................................... B-36
Shareholder Services........................................ B-38
Instructions Regarding Backup Withholding................... B-39
Report of Independent Accountants........................... F-1
Financial Statements -- Explorer Institutional Active Core
Fund...................................................... F-2
Financial Statements -- Explorer Institutional Limited
Duration Fund............................................. F-9
Notes to Financial Statements............................... F-15
Account Applications........................................ X-1
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1999
<PAGE> 21
THE FUNDS AND THE TRUST
The Trust is an unincorporated business trust established under the laws of
the State of Massachusetts by an Agreement and Declaration of Trust dated
September 30, 1994 and amended on November 14, 1995. The Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional shares,
without par value, in separate series. To date, the Explorer Institutional
Active Core Fund (the "Active Core Fund"), formerly known as the Explorer
Institutional Enhanced Benchmark Fund, and Explorer Institutional Limited
Duration Fund (the "Limited Duration Fund"), formerly known as the Explorer
Institutional Enhanced Limited Duration Fund, (each a "Fund" and together the
"Funds"), which were each established pursuant to respective Designations of
Series on September 30, 1994, are the only series of the Trust, although the
Trustees are empowered by the Declaration of Trust to designate additional
series and issue shares thereof.
Shares of each series represent an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights other than
those described in the Prospectus or this Statement of Additional Information.
The Trust does not contemplate holding regular meetings of shareholders to elect
Trustees or otherwise. However, the holders of 10% or more of the outstanding
shares may by written request require a meeting to consider the removal of
Trustees by a vote of a majority of the shares present and voting at such
meeting.
The Trustees may amend the Declaration of Trust (including with respect to any
series) in any manner without shareholder approval, except that the Trustees may
not adopt any amendment adversely affecting the rights of shareholders of any
series without approval by a majority vote of the shares of each affected series
present at a meeting of shareholders of such series (or such higher vote as may
be required by the Investment Company Act of 1940, as amended (the "1940 Act"),
or other applicable law) and except that the Trustees cannot amend the
Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
Van Kampen Management Inc. (the "Adviser" or "Management Inc."), Van Kampen
Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc. ("Investor
Services") are wholly owned subsidiaries of Van Kampen Investments Inc. ("Van
Kampen Investments"), which is an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co. The principal office of the Fund, the Adviser, the
Distributor and Van Kampen Investments is located at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Dean Witter Investment Management
Inc., an investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include
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securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund has adopted the following fundamental investment restrictions which
may not be changed without approval by the vote of a majority of such Fund's
outstanding voting securities which is defined by the 1940 Act as the lesser of
(i) 67% or more of the voting securities present at a meeting, if the holders of
more than 50% of the outstanding voting securities of such Fund are present or
represented by proxy; or (ii) more than 50% of such Fund's outstanding voting
securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities.
Fundamental investment restrictions limiting the investments of the Funds
provide that each Fund may not:
1. With respect to 75% of its total assets, purchase any securities
(other than obligations guaranteed by the United States government or by
its agencies or instrumentalities), if, as a result, more than 5% of the
Fund's total assets (determined at the time of investment) would then be
invested in securities of a single issuer or, if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of an issuer.
2. Invest 25% or more of the value of its total assets in any single
industry. (Neither the U.S. government nor any of its agencies or
instrumentalities will be considered an industry for purposes of this
restriction.)
3. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 5% of the total asset value of the Fund, or
mortgage, pledge, or hypothecate any assets except in connection with a
borrowing and in amounts not in excess of 5% of the total asset value of
the Fund. Borrowings may not be made for investment leverage, but only to
enable the Fund to satisfy redemption requests where liquidation of
portfolio securities is considered disadvantageous or inconvenient. In this
connection, the Fund will not purchase portfolio securities during any
period that such borrowings exceed 5% of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when
issued and delayed delivery transactions as described in the Prospectus.
4. Make loans of money or property to any person, except to the extent
the securities in which the Fund may invest are considered to be loans.
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5. Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with risk management and hedging
transactions nor short term credits as may be necessary for the clearance
of transactions is considered the purchase of a security on margin.
6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other financial
futures or index contracts or related options.
7. Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
8. Make investments for the purpose of exercising control or
participation in management, except to the extent that exercise by the Fund
of its rights under agreements related to portfolio securities would be
deemed to constitute such control or participation.
9. Invest in securities of other investment companies, except as part
of a merger, consolidation or other acquisition and except as permitted
under the 1940 Act.
10. Invest in oil, gas or mineral leases or in equity interests in
oil, gas, or other mineral exploration or development programs except
pursuant to the exercise by the Fund of its rights under agreements
relating to portfolio securities.
11. Purchase or sell real estate (including real estate limited
partnership interests), commodities or commodity contracts, except to the
extent that the securities that the Fund may invest in are considered to be
interests in real estate, commodities or commodity contracts or to the
extent the Fund exercises its rights under agreements relating to portfolio
securities (in which case the Fund may liquidate real estate acquired as a
result of a default on a mortgage), and except to the extent that risk
management and hedging transactions the Fund may engage in are considered
to be commodities or commodities contracts.
INCOME SECURITIES
Income securities include securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities ("U.S. Government
Securities"); mortgage-backed or asset-backed securities; corporate debt
securities; zero-coupon or stripped securities; variable and floating rate debt
securities; commercial paper; certificates of deposit, time deposits and bankers
acceptances; other instruments having investment characteristics substantially
similar to any of the foregoing and repurchase agreements with respect to any of
the foregoing. The following disclosure supplements disclosure in the Prospectus
and does not, standing alone, present a complete or accurate explanation of the
matters disclosed.
U.S. Treasury Securities. U.S. Treasury securities include bills, notes and
bonds issued by the U.S. Treasury. These instruments are direct obligations of
the U.S. government and, as such, are backed by the full faith and credit of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
Stripped Treasury Securities. Stripped Treasury securities are obligations
representing an interest in all or a portion of the income or principal
components of an underlying Treasury or pool of Treasury securities. Stripped
Treasury securities include obligations entitled to receive all of the interest
component but none of the principal component (IOs) and obligations entitled to
receive all of the principal component but none of the interest component (POs).
The market values of stripped
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<PAGE> 24
Treasury securities tend to be more volatile in response to changes in interest
rates than are those of conventional Treasury securities.
Obligations Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. Obligations issued by agencies of the U.S. government or
instrumentalities established or sponsored by the U.S. government include those
that are guaranteed by federal agencies or instrumentalities and may or may not
be backed by the full faith and credit of the United States. Obligations of the
Government National Mortgage Association ("GNMA"), the Farmers Home
Administration and the Export-Import Bank are backed by the full faith and
credit of the United States. U.S. Government Securities that are not backed by
the full faith and credit of the United States include, among others,
obligations issued by the Tennessee Valley Authority, the Resolution Trust
Corporation, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the United States Postal Service,
each of which has the right to borrow from the United States Treasury to meet
its obligations, and obligations of the Federal Farm Credit Bank and the Federal
Home Loan Bank, the obligations of which may be satisfied only by the individual
credit of the issuing agency. Investments in FHLMC, FNMA and other obligations
may include collateralized mortgage obligations and real estate mortgage
investment conduits issued or guaranteed by such entities. In the case of
securities not backed by the full faith and credit of the United States, a Fund
must look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the U.S. if the
agency or instrumentality does not meet its commitments.
Mortgage-Backed Securities Issued or Guaranteed by U.S. Government
Instrumentalities. Mortgage-backed securities may be issued or guaranteed by
U.S. government agencies such as GNMA, FNMA or FHLMC and represent undivided
ownership interests in pools of mortgages. The mortgages backing these
securities may include conventional 30-year fixed rate mortgages, 15-year fixed
rate mortgages adjustable rate mortgages. The U.S. government or the issuing
agency guarantees the payment of the interest on and principal of these
securities. However, the guarantees do not extend to the securities' yield or
value, which are likely to vary inversely with fluctuations in interest rates,
nor do the guarantees extend to the yield or value of a Fund's shares. These
securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the principal
amounts of such underlying mortgages may generally be prepaid in whole or in
part by the mortgagees at any time without penalty and the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through securities.
Mortgage-backed securities are subject to more rapid repayment than their stated
maturity date would indicate as a result of the pass-through of prepayments of
principal on the underlying mortgage obligations. The remaining maturity of a
mortgage-backed security will be deemed to be equal to the average maturity of
the mortgages underlying such security determined by the Adviser on the basis of
assumed prepayment rates with respect to such mortgages. The remaining expected
average life of a pool of mortgages underlying a mortgage-backed security is a
prediction of when the mortgages will be repaid and is based upon a variety of
factors such as the demographic and geographic characteristics of the borrowers
and the mortgaged properties, the length of time that each of the mortgages has
been outstanding, the interest rates payable on the mortgages and the current
interest rate environment. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. When the mortgage obligations are prepaid, a Fund reinvests the
prepaid amounts in other income producing securities, the yields of
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<PAGE> 25
which reflect interest rates prevailing at the time. Therefore, a Fund's ability
to maintain a portfolio of high-yielding mortgage- backed securities will be
adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid mortgage-
backed securities. Moreover, prepayments of mortgages which underlie securities
purchased by a Fund at a premium would result in capital losses. Alternatively,
during periods of rising interest rates, mortgage-backed securities are often
more susceptible to extension risk (i.e. rising interest rates could cause
property owners to prepay their mortgage loans more slowly than expected when
the security was purchased by the Fund which may further reduce the market value
of such security and lengthen the duration of such security) than traditional
debt securities.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by GNMA, FNMA and FHLMC certificates, but also may be
collateralized by whole loans or private pass-through securities (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Unless the context indicates otherwise, all references herein
to CMOs include multiclass pass-through securities. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs deemed to be U.S. government securities
are those issued or guaranteed as to principal and interest by a person
controlled or supervised by and acting as an agency or instrumentality of the
U.S. government. The issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest typically is paid or accrues on a monthly, quarterly or
semi-annual basis. The principal and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in innumerable ways. In
one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier. Planned
Amortization Class CMOs ("PAC Bonds") generally require payments of a specified
amount of principal on each payment date. PAC Bonds are always parallel pay CMOs
with the required principal payment on such securities having the highest
priority after interest has been paid to all classes.
Types of Credit Support. Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit
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support. Such credit support falls into two categories: (i) liquidity protection
and (ii) protection against losses resulting from ultimate default by an obligor
on the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "overcollateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in such issue.
Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now also applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, primarily automobile and credit card receivables, are being securitized
in pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure.
Other types of asset-backed securities may be developed in the future.
In general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. As with mortgage-backed securities, asset-backed securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques. Asset-backed
securities present certain risks that are not presented by mortgage-backed
securities. Primarily, these securities do not have the benefit of the same
security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of
asset-backed securities backed by automobile receivables may not have a proper
security interest in all of the obligations backing such receivables. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.
Zero-coupon securities. Zero-coupon securities pay no cash interest but are
sold at substantial discounts from their value at maturity. When a zero-coupon
bond is held to maturity, its entire
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investment return comes from the difference between its purchase price and its
maturity value. The market values of such securities are generally subject to
greater fluctuations in response to market rates of interest than bonds that pay
interest currently. Because such securities allow an issuer to avoid the need to
generate cash to meet current interest payments, such bonds may involve greater
credit risk than bonds paying cash interest currently.
Premium securities. A Fund may at times invest in securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. If an issuer were to redeem securities held by a Fund during a time of
declining interest rates, the Fund may not be able to reinvest the proceeds in
securities providing the same investment return as the securities redeemed. If
securities purchased by a Fund at a premium are called or sold prior to
maturity, the Fund generally will recognize a capital loss to the extent the
call or sale price is less than the Fund's adjusted tax basis in such
securities. Additionally, a Fund generally will recognize a capital loss if it
holds such securities to maturity.
Adjustable and Floating Rate Securities. Adjustable rate securities are
securities having interest rates which are adjusted or reset at periodic
intervals ranging, in general, from one day to several years, based on a spread
over a specific interest rate or interest rate index or on the results of
periodic auctions. There are three main categories of indices: (i) those based
on U.S. Government Securities; (ii) those derived from a calculated measure such
as a cost of funds index; and (iii) those based on a moving average of interest
rates, including mortgage rates. Commonly utilized indices include, for example,
the One Year Constant Maturity Treasury Index, the London Interbank Offered Rate
(LIBOR), the Federal Home Loan Bank Cost of Funds, the prime rate and commercial
paper rates.
Adjustable rate securities allow a Fund to participate in all or a portion of
increases in interest rates through periodic upward adjustments of the coupon
rates of such securities, resulting in higher yields. During periods of
declining interest rates, however, coupon rates may readjust downward resulting
in lower yields to the Fund. During periods of rising interest rates, changes in
the coupon rate of adjustable rate securities will lag behind changes in the
market interest rate, which may result in such security having a lower value
until the coupon resets to reflect more closely market interest rates.
Adjustable rate securities frequently limit the maximum amount the rate may be
adjusted during any adjustment period, in any one year or during the term of the
security.
Defensive Strategies. In certain circumstances market conditions may, in the
Adviser's judgment, make pursuing a Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Adviser may use alternative strategies primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these "defensive" strategies,
a Fund may invest to a substantial degree in high-quality, short-term
obligations. Such obligations may include: obligations of the U.S. Government,
its agencies or instrumentalities; other debt securities rated within the three
highest grades by either Standard and Poor's ("S&P") or Moody's Investor
Services, Inc. ("Moody's") (or comparably rated by any other nationally
recognized statistical rating organization ("NRSRO")); commercial paper rated in
the highest grade by either rating service (or comparably rated by any other
nationally recognized statistical rating organization); certificates of deposit
and bankers' acceptances; repurchase agreements with respect to any of the
foregoing investments; or any other fixed-income securities that the Adviser
considers consistent with such strategy.
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INVESTMENT PRACTICES
BORROWINGS
Each Fund may borrow money from banks for temporary, emergency purposes only
(such as meeting share redemption requests), although no Fund expects to do so
in an amount exceeding 5% of its respective total assets (after giving effect to
any such borrowing). Borrowing creates special risk considerations such as
increased volatility in the net asset value of the shares and in the yield on
the Fund's portfolio. Borrowing will create interest expenses for a Fund which
can exceed the income from the assets retained.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
Each Fund may purchase and sell portfolio securities on a "when issued" and
"delayed delivery" basis. No income accrues to or is earned by a Fund on
purchases of portfolio securities in connection with such transactions prior to
the date the Fund actually takes delivery of such securities. These transactions
are subject to market fluctuation; the value of such securities at delivery may
be more or less than their purchase price, and yields generally available on
such securities when delivery occurs may be higher than yields on such
securities obtained pursuant to such transactions. Because a Fund relies on the
buyer or seller, as the case may be, to consummate the transaction, failure by
the other party to complete the transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. When a
Fund is the buyer in such a transaction, however, it will maintain, in a
segregated account with its custodian, cash or liquid securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made. A Fund will make commitments to purchase securities on such basis only
with the intention of actually acquiring these securities, but a Fund may sell
such securities prior to the settlement date if such sale is considered to be
advisable. To the extent a Fund engages in "when issued" and "delayed delivery"
transactions, it will do so for the purpose of acquiring securities for the
Fund's portfolio consistent with the Fund's investment objectives and policies
and not for the purposes of investment leverage. No specific limitation exists
as to the percentage of a Fund's assets which may be used to acquire securities
on a "when issued" or "delayed delivery" basis.
PORTFOLIO TURNOVER
Each Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. Each
Fund's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Fund's portfolio excluding all securities whose maturities at acquisition
were one year or less) is shown in the table of "Financial Highlights" in the
Prospectus. A high portfolio turnover rate (100% or more) increases a Fund's
transaction costs, including brokerage commissions, and may result in the
realization of more short-term capital gains than if such Fund had a lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Adviser deems portfolio changes appropriate.
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DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small
degree. Capacity to meet its financial commitment on the obligation is very
strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. Capacity to meet its financial commitment on the obligation is
still strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
B-10
<PAGE> 30
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The 'D' rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
B-11
<PAGE> 31
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness
of an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
B-12
<PAGE> 32
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements under the laws of bankruptcy and other
laws affecting creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "B", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. PLUS (+) or MINUS (-): To
provide more detailed indications of preferred stock quality, ratings from "AA"
to "CCC" may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or
B-13
<PAGE> 33
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long- term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated a possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
B-14
<PAGE> 34
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins is earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
B-15
<PAGE> 35
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: As issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
BAA: An issue which is rated "BAA" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of the
Funds' Board of Trustees and officers appointed by the Board of Trustees. The
table below sets forth the trustees of the Fund, their principal occupations for
the last five years and their affiliations, if any, with the Adviser, Van Kampen
Investment Advisory Corp. ("Advisory Corp.") and Van Kampen Asset Management
Inc. ("Asset Management") (the Adviser, Advisory Corp. and Asset Management are
referred to herein collectively as the "Advisers"), Van Kampen Funds Inc. (the
"Distributor"), Van
B-16
<PAGE> 36
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Advisors Inc.,
Van Kampen Investor Services Inc. ("Investor Services"), Van Kampen Merritt
Equity Advisors Corp., Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc., Van Kampen Recordkeeping Services Inc., American Capital
Contractual Services, Inc., Van Kampen Trust Company and Van Kampen Exchange
Corp.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
David C. Arch........................ Trustee. Mr. Arch is Chairman and Chief Executive Officer
1800 Swift Drive of Blistex Inc., a consumer health care products
Oak Brook, IL 60521 manufacturer, a Director of Elmhurst College and the
Date of Birth 07/17/45 Illinois Manufacturers' Association. Mr. Arch is also a
Trustee or Managing General Partner of other investment
companies advised by the Advisers.
Rod Dammeyer......................... Trustee. Mr. Dammeyer is Managing Partner of Equity Group
Two North Riverside Plaza Corporate Investments, a company that makes private
Suite 600 equity investments in other companies, and Vice Chairman
Chicago, IL 60606 and Director of Anixter International Inc. (employed by
Date of Birth 11/05/40 Anixter since 1985). Founded in 1957, Anixter
International is the world-leading communication products
distribution company, with more than 5,000 employees
serving customers from 180 cities in 40 countries. He is
also a member of the Board of Directors of TeleTech
Holdings Inc., Matria Healthcare, Inc., Stericycle, Inc.,
Transmedia Networks, Inc., Jacor Communications, Inc.,
CNA Surety, Corp., IMC Global Inc., Antec Corporation,
Groupo Azucarero Mexico (GAM) and Kent State University
Foundation. Prior to April 1999, Mr. Dammeyer was a
member of the Board of Directors of Metal Management,
Inc. Prior to 1998, Mr. Dammeyer was a Director of
Lukens, Inc., Capsure Holdings Corp., Revco D.S., Inc.,
the Chase Manhattan Corporation National Advisory Board
and Sealy, Inc. Prior to 1997, Mr. Dammeyer was
President, Chief Executive Officer and a Director of
Great American Management & Investment, Inc., a
diversified manufacturing company and a Director of Santa
Fe Energy Resources, Inc., Falcon Building Products,
Inc., Lomas Financial Corporation, Santa Fe Pacific
Corporation, Q-Tel, S.A. de C.V. and Servicios
Financieros Quadrum, S.A. Mr. Dammeyer is also a Trustee
or Managing General Partner of other investment companies
advised by the Advisers.
Howard J Kerr........................ Trustee. Prior to 1998, Mr. Kerr was the President and
736 North Western Ave. Chief Executive Officer of Pocklington Corporation, Inc.,
P.O. Box 317 an investment holding company. Mr. Kerr is a Director of
Lake Forest, IL 60045 Canbra Foods, Ltd., a Canadian oilseed crushing,
Date of Birth 11/17/35 refining, processing and packaging operation. Mr. Kerr is
a Trustee or Managing General Partner of other investment
companies advised by the Advisers.
</TABLE>
B-17
<PAGE> 37
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Dennis J. McDonnell*................. President, Chairman of the Board and Trustee. President,
1 Parkview Plaza Chief Operating Officer and a Director of the Advisers
PO Box 5555 and Van Kampen Advisors Inc. ("Advisors Inc."). He is
Oakbrook Terrace, also an Executive Vice President and Director of Van
IL 60181-5555 Kampen Investments. Prior to July 1998, Executive Vice
Date of Birth 05/20/42 President and Director of VK/AC Holding, Inc. Prior to
April 1998, President and a Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April 1997,
Director of Van Kampen Merritt Equity Holding Corp. Prior
to September 1996, Mr. McDonnell was Chief Executive
Officer and Director of MCM Group, Inc. and McCarthy,
Crisanti & Maffei, Inc. and Chairman and Director of MCM
Asia Pacific Company, Limited and MCM (Europe) Limited.
Prior to July 1996, Mr. McDonnell was President, Chief
Operating Officer and Trustee of VSM Inc. and VCJ Inc.
Trustee, Chief Executive Officer and Executive Vice
President of certain open-end and closed-end investment
companies advised by the Advisers.
Dr. Steven Muller.................... Trustee. President Emeritus of The Johns Hopkins
The Johns Hopkins University University, Director of Beneficial Corporation (bank
1619 Massachusetts Avenue, N.W. holding company) and Millipore Corporation
Suite 711 (biotechnology). Prior to December 1997, Dr. Muller was a
Washington, D.C. 20036 Trustee of the Common Sense Trust and Chairman of The
Date of Birth 11/22/27 21(st) Century Foundation (public affairs). Prior to May
1997, he was a Director of BT Alex. Brown & Sons
(investment banking). Dr. Muller is also a Trustee or
Managing General Partner of other investment companies
advised by the Advisers.
Theodore A. Myers.................... Trustee. Mr. Myers is a financial consultant. Prior to
550 Washington Avenue 1998, he was a Senior Financial Advisor (and prior to
Glencoe, Illinois 60022 1997, an Executive Vice President, Chief Financial
Date of Birth 08/03/30 Officer and Director) of Qualitech Steel Corporation, a
producer of high quality engineered steels for auto-
motive, transportation and capital goods industries. Mr.
Myers is a Director of COVA Series Trust of COVA
Financial Life Insurance (formerly known as Xerox Life).
Prior to 1997, Mr. Myers was a Director of McLouth Steel
and a member of the Arthur Andersen Chief Financial
Officer Advisory Committee. Mr. Myers is also a Trustee
or Managing General Partner of other investment compa-
nies advised by the Advisers.
</TABLE>
B-18
<PAGE> 38
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Don G. Powell........................ Trustee. Mr. Powell is currently a member of the board of
3 Wexford Court governors and executive committee for the Investment
Houston, TX 77024 Company Institute, and a member of the Board of Trustees
Date of Birth 10/19/39 of the Houston Museum of Natural Science. Prior to
January 1999, Chairman of the Investment Company
Institute and Chairman and a Director of Van Kampen
Investments, the Advisers, the Distributor, Investor
Services, Van Kampen Advisors Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual
Services Inc., Van Kampen Merritt Equity Advisors Corp.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc., Van Kampen Trust Company, Van Kampen
Services Inc. and Van Kampen Exchange Corp. Prior to July
of 1998, Mr. Powell was Director and Chairman of VK/AC
Holding, Inc. Prior to April of 1997, Mr. Powell was
Chairman, President and Director of Van Kampen Merritt
Equity Holdings Corp. Prior to November 1996, President,
Chief Executive Officer and a Director of VK/AC Holding,
Inc. Prior to September 1996, Mr. Powell was Chairman and
Director of McCarthy, Crisanti & Maffei, Inc. and
McCarthy, Crisanti & Maffei Acquisition Corporation.
Prior to July 1996, he was Chairman and Director of VSM
Inc. and VCJ Inc., and Chairman, President and Director
of American Capital Shareholders Corporation. Mr. Powell
is also a Trustee or Director of other investment
companies advised by the Advisers and their affiliates.
Hugo F. Sonnenschein................. Trustee. Mr. Sonnenschein is President of the University
5801 South Ellis Avenue of Chicago. Mr. Sonnenschein is a member of the Board of
Suite 502 Trustees of the University of Rochester and a member of
Chicago, IL 60637 its investment committee. Mr. Sonnenschein is a member of
Date of Birth 11/14/40 the National Academy of Sciences and a fellow of the
American Academy of Arts and Sciences. Mr. Sonnenschein
is also a Trustee or Managing General Partner of other
investment companies advised by the Advisers.
Wayne W. Whalen*..................... Trustee. Mr. Whalen is a partner in the law firm of
333 West Wacker Drive Skadden, Arps, Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to certain open end and closed end investment
Date of Birth 08/22/39 companies advised by the Advisers. Mr. Whalen is also a
Trustee, Director or Managing General Partner of other
investment companies advised by the Advisers.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. McDonnell and Powell are interested persons of the
Adviser and the Funds by reason of their positions with the Adviser. Mr.
Whalen is an interested person of the Funds by reason of his firm acting as
legal counsel for the Funds.
The compensation of the officers and trustees who are affiliated persons (as
defined in the 1940 Act) of the Adviser, the Distributor or Van Kampen
Investments is paid by the respective entity. The Funds pay the compensation of
all other officers and trustees of the Funds. Funds in the Fund Complex (defined
below), including the Funds, pay the Trustees who are not affiliated persons of
the
B-19
<PAGE> 39
Adviser, the Distributor or Van Kampen Investments ("non-affiliated trustees"),
a Fund Complex annual retainer amount (equal to the product of $2,500 multiplied
by the number of Funds in the Fund Complex), which retainer is allocated among
the funds based on the relative net assets of such funds, and meeting fees of
$250 per fund per meeting of the Board of Trustees, as well as reimbursement of
expenses incurred in connection with such meetings. Each fund in the Fund
Complex (except the Van Kampen Exchange Fund) provides a deferred compensation
plan to its non-affiliated trustees that allow such trustees to defer receipt of
compensation and earn a return on such deferred amounts based upon the return of
the common shares of the funds in the Fund Complex as more fully described
below. Each fund in the Fund Complex (except the Van Kampen Exchange Fund) also
provides a retirement plan to its non-affiliated Trustees that provides non-
affiliated trustees with compensation after retirement, provided that certain
eligibility requirements are met as more fully described below.
Each non-affiliated trustee generally can elect to defer receipt of all or a
portion of the compensation earned by such non-affiliated trustee until
retirement. Amounts deferred are retained by the respective fund and earn a rate
of return determined by reference to the return on the common shares of such
fund or other funds in the Fund Complex as selected by the respective non-
affiliated trustee, with the same economic effect as if such non-affiliated
trustee had invested in one or more funds in the Fund Complex, including the
Funds. To the extent permitted by the 1940 Act, each Fund may invest in
securities of those funds selected by the non-affiliated trustees in order to
match the deferred compensation obligation. The deferred compensation plan is
not funded and obligations thereunder represent general unsecured claims against
the general assets of the respective Fund.
Each Fund has adopted a retirement plan. Under the retirement plan, a
non-affiliated Trustee who is receiving trustee's compensation from a fund prior
to such non-affiliated Trustee's retirement, has at least 10 years of service
(including years of service prior to adoption of the retirement plan) for such
fund and retires at or after attaining the age of 62, is eligible to receive a
retirement benefit equal to $2,500 per year for each of the ten years following
such trustee's retirement from such fund. Trustees retiring prior to the age of
62 or with fewer than 10 years but more than 5 years of service may receive
reduced retirement benefits from a fund. Each non-affiliated Trustee has served
as a member of each Fund's Board of Trustees as set forth in the table below.
B-20
<PAGE> 40
Additional information regarding compensation and benefits for trustees is set
forth below. As indicated in the notes accompanying the table, the amounts
relate to either the Fund's most recently completed fiscal year end on December
31, 1998 or the Fund Complex' most recently completed calendar year ended
December 31, 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
------------------------------------------------------
AGGREGATE
ESTIMATED
PENSION TOTAL
YEAR FIRST AGGREGATE OR RETIREMENT ESTIMATED COMPENSATION
APPOINTED OR COMPENSATION BENEFITS ACCRUED AGGREGATE ANNUAL BEFORE DEFERRAL
ELECTED TO BEFORE DEFERRAL AS PART OF BENEFITS UPON FROM FUND
NAME(1) THE BOARD FROM THE TRUST(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------ --------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
David C. Arch........ 1994 $3,024 $10,861 $97,500 $160,875
Rod Dammeyer......... 1994 3,024 19,532 97,500 161,125
Howard J Kerr........ 1994 3,024 37,215 96,250 161,125
Steven Muller........ 1998 3,024 22,683 7,500 161,125
Theodore A. Myers.... 1994 3,024 66,530 81,750 161,125
Hugo F.
Sonnenschein....... 1994 3,024 18,878 97,500 161,125
Wayne W. Whalen...... 1994 3,000 22,126 97,500 160,625
</TABLE>
- ---------------
(1) Messrs. McDonnell and Powell are affiliated person of the Adviser, the
Distributor or Van Kampen Investments and do not receive compensation or
retirement benefits from the Funds.
(2) The amounts shown in this column represent the Aggregate Compensation
before Deferral with respect to the Trust's fiscal year ended December 31,
1998. The details of Aggregate Compensation before Deferral for each series
are shown in Table A below. The following trustees deferred compensation
from the Trust during the fiscal year ended December 31, 1998 as follows:
Mr. Dammeyer, $3,024; Mr. Kerr, $2,012; Mr. Sonnenschein, $3,024 and Mr.
Whalen, $3,000. The details of amounts deferred for each series are shown
in Table B below. Amounts deferred are retained by the respective Fund and
earn a rate of return determined by reference to either the return on the
common shares of the Fund or other funds in the Fund Complex as selected by
the respective Non-Affiliated Trustee, with the same economic effect as if
such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Funds may invest in
securities of these funds selected by the trustees in order to match the
deferred compensation obligation. The cumulative deferred compensation
(including interest) accrued with respect to each trustee from the Trust as
of December 31, 1998 is as follows: Mr. Dammeyer, $9,720; Mr. Kerr, $7,626;
Mr. Sonnenschein, $8,342 and Mr. Whalen $8,259. The details of cumulative
deferred compensation (including interest) for each series are shown in
Table C. The deferred compensation plan is described above the Compensation
Table.
(3) The amounts shown in this column represent the sum of the estimated Pension
or Retirement Benefit Accruals expected to be accrued by the operating
funds in the Fund Complex for their respective fiscal years end in 1998.
The retirement plan is described above the table.
(4) The amounts shown in this column represent the sum of the estimated annual
benefits payable per year by the operating funds in the Fund Complex for
each year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The retirement plan is described above the
compensation table.
B-21
<PAGE> 41
(5) The "Fund Complex" currently consists of 42 investment companies (including
the Funds) advised by the Adviser or its affiliates that have the same
members on each investment company's Board of Trustees. The amounts shown
in this column are accumulated from the Aggregate Compensation of the 42
operating investment companies in the Fund Complex for the year ended
December 31, 1998 before deferral by the trustees under the deferred
compensation plan. Amounts deferred are retained by the respective Fund and
earn a rate of return determined by reference to either the return on the
Common Shares of such Fund or common shares of other funds in the Fund
Complex (as defined below) as selected by the respective trustee. To the
extent permitted by the 1940 Act, the respective fund may invest in
securities of the funds selected by the trustees in order to match the
deferred compensation obligation. The Adviser and its affiliates also serve
as investment adviser for other investment companies; however, with the
exception of Mr. Whalen, the Trustees are not trustees of other affiliated
investment companies. Combining the Fund Complex with other investment
companies advised by the Adviser or its affiliates, Mr. Whalen received
Total Compensation of $285,825 for the year ended December 31, 1998.
TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES
<TABLE>
<CAPTION>
SERIES NAME ARCH DAMMEYER KERR MULLER MYERS SONNENSCHEIN WHALEN
- ----------- ---- -------- ---- ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Active Core Fund................ 1,512 1,512 1,512 1,512 1,512 1,512 1,500
Limited Duration Fund........... 1,512 1,512 1,512 1,512 1,512 1,512 1,500
----- ----- ----- ----- ----- ----- -----
The Explorer Institutional
Trust...................... 3,024 3,024 3,024 3,024 3,024 3,024 3,000
===== ===== ===== ===== ===== ===== =====
</TABLE>
TABLE B
1998 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES
<TABLE>
<CAPTION>
SERIES NAME ARCH DAMMEYER KERR MULLER MYERS SONNENSCHEIN WHALEN
- ----------- ---- -------- ---- ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Active Core Fund................. 0 1,512 1,006 0 0 1,512 1,500
Limited Duration Fund............ 0 1,512 1,006 0 0 1,512 1,500
-- ----- ----- -- -- ----- -----
The Explorer Institutional
Trust....................... 0 3,024 2,012 0 0 3,024 3,000
== ===== ===== == == ===== =====
</TABLE>
TABLE C
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST AND EACH SERIES
<TABLE>
<CAPTION>
SERIES NAME ARCH DAMMEYER KERR MULLER MYERS SONNENSCHEIN WHALEN
----------- ---- -------- ---- ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Active Core Fund................. 0 4,860 3,813 0 0 4,171 4,130
Limited Duration Fund............ 0 4,860 3,813 0 0 4,171 4,130
-- ----- ----- -- -- ----- -----
The Explorer Institutional
Trust....................... 0 9,720 7,626 0 0 8,342 8,260
== ===== ===== == == ===== =====
</TABLE>
The following table sets forth certain information (other than information
concerning Messrs. McDonnell and Powell, which is set forth above) concerning
the executive officers of the Funds, each of whom holds the same office with
each of the other open-end and closed-end investment companies advised by the
Adviser, Advisory Corp. or Asset Management. The officers
B-22
<PAGE> 42
serve for one year or until their respective successors are chosen and
qualified. Each Fund's officers receive no compensation from the Fund but are
officers of the Adviser or Van Kampen Investments or its affiliates and receive
compensation in such capacities. Unless otherwise noted the address of each of
the Trustees and Officers is 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Peter W. Hegel.............. Vice President Executive Vice President of the
Date of Birth: 06/25/56 Advisers and Van Kampen Advisors Inc.
Prior to September 1996, Director of
McCarthy, Crisanti & Maffei, Inc.
Prior to July 1996, Director of VSM
Inc. Vice President of each of the Van
Kampen funds and other investment
companies advised by the Advisers or
their affiliates.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers
2800 Post Oak Blvd. Accounting Officer and Van Kampen Investments. Vice
Houston, TX 77056 President and Chief Accounting Officer
Date of Birth: 08/04/46 of each of the Van Kampen funds and
other investment companies advised by
the Advisers or their affiliates.
John L. Sullivan............ Vice President, Treasurer Senior Vice President of the Advisers
Date of Birth: 08/20/55 and Chief Financial Officer and Van Kampen Investments. Treasurer
and Chief Financial Officer of each of
the Van Kampen funds and other
investment companies advised by the
Advisers and their affiliates.
Edward C. Wood III.......... Vice President Senior Vice President of the Advisers,
Date of Birth: 01/11/56 Van Kampen Investments, and Van Kampen
Insurance Agency of Illinois Inc.
Senior Vice President and Chief
Operating Officer of the Distributor.
Vice President of each of the Van
Kampen funds and other investment
companies advised by the Advisers and
their affiliates.
Tanya M. Loden.............. Controller Vice President of the Advisers and Van
2800 Post Oak Blvd. Kampen Investments. Controller of each
Houston, TX 77056 of the Van Kampen funds and other
Date of Birth: 11/19/59 investment companies advised by the
Advisers and their affiliates.
</TABLE>
B-23
<PAGE> 43
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Nicholas Dalmaso............ Assistant Secretary Vice President, Associate General
Date of Birth: 03/01/65 Counsel and Assistant Secretary of Van
Kampen Investments, the Distributor,
the Advisers and Van Kampen Advisors
Inc. Assistant Secretary of each of
the Van Kampen funds and other
investment companies advised by the
Advisers and their affiliates.
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of Van
Kampen Investments. Senior Vice
President, Deputy General Counsel and
Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc.,
American Capital Contractual Services,
Inc., Van Kampen Exchange Corp., Van
Kampen Investor Services Inc., Van
Kampen Insurance Agency of Illinois
Inc., Van Kampen System Inc. and Van
Kampen Recordkeeping Services Inc.
Prior to July of 1998, Mr. Martin was
Senior Vice President, Deputy General
Counsel and Assistant Secretary of
VK/AC Holding, Inc. Prior to April of
1998, Senior Vice President, Deputy
General Counsel and Secretary of Van
Kampen Equity Advisors Corp. Prior to
April 1997, Senior Vice President,
Deputy General Counsel and Secretary
of Van Kampen American Capital
Services, Inc. and Van Kampen Merritt
Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel
and Secretary of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996,
Senior Vice President, Deputy General
Counsel and Secretary of VSM Inc. and
VCJ Inc. Assistant Secretary of each
of the Van Kampen funds and other
investment companies advised by the
Advisers and their affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General
Date of Birth: 06/15/56 Counsel and Assistant Secretary of Van
Kampen Investments, the Advisers, the
Distributor, and Van Kampen Advisors
Inc. Assistant Secretary of each of
the Van Kampen funds and other
investment companies advised by the
Advisers and their affiliates.
</TABLE>
B-24
<PAGE> 44
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Steven M. Hill.............. Assistant Treasurer Vice President of Advisers and Van
Date of Birth: 10/16/64 Kampen Investments. Assistant
Treasurer of each of the Van Kampen
funds and other investment companies
advised by the Advisers and their
affiliates.
M. Robert Sullivan.......... Assistant Controller Assistant Vice President of the
2800 Post Oak Blvd. Advisers and Van Kampen Investments.
Houston, TX 77056 Assistant Controller of each of the
Date of Birth: 03/30/33 Van Kampen funds and other investment
companies advised by the Advisers and
their affiliates.
Edward A. Treichel.......... Vice President Senior Vice President of the Advisers
Date of Birth: 08/21/43 and an Agent of Van Kampen Funds Inc.
John M. McCareins........... Vice President First Vice President of the Advisers
Date of Birth: 01/31/49 and an Agent of Van Kampen Funds Inc.
Michael P. Kamradt.......... Vice President First Vice President of the Advisers
Date of Birth: 05/14/56 and an agent of Van Kampen Funds Inc.
</TABLE>
With respect to each Fund, as of April 6, 1999, the trustees and officers as a
group owned less than 1% of the outstanding shares of the Fund. At such date,
the "interested persons" of the Fund as a group owned an aggregate of less than
5% of the outstanding shares of the Fund and no person owned 5% or more of the
outstanding shares of the Fund except as noted below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF PERCENT OF
FUND BENEFICIAL OWNER BENEFICIAL OWNERSHIP FUND
---- ------------------- -------------------- ----------
<S> <C> <C> <C>
ACTIVE CORE FUND Wendel & Co........................... 535,247 46.16%
FBO General Income Trust
C/O Bank of NY Mutual FD Reorg Dept
PO Box 1066 Wall Street Station
New York, NY 10286
Wendel & Co........................... 562,985 48.55%
FBO Klukwan Inc. Permanent Fund
C/O Bank of NY Mutual FD Reorg Dept
PO Box 1066 Wall Street Station
New York, NY 10286
LIMITED DURATION FUND Jerry McCall TR....................... 265,505 84.56%
Plumbers Local Union Number 68
Group Protection PL DTD 1981
PO Box 8746
Houston, TX 77249-8746
Jerry McCall TR....................... 43,465 13.84%
UA Plumbers Local Union 68
Apprenticeship Fund
DTD 03/29/56
PO Box 8746
Houston, TX 77249-8746
</TABLE>
B-25
<PAGE> 45
Those entities which own more than 25% of the outstanding shares of any Fund
would be deemed to control the Fund within the meaning of the 1940 Act.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
Van Kampen Management Inc. (the "Adviser") is the investment adviser for each
of the Funds. The Adviser provides investment advice to a wide variety of
institutional, individual and investment company clients and, together with its
affiliates, had aggregate assets under management or supervision of more than
$75 billion. The Adviser was incorporated as a Delaware corporation in 1990.
The investment advisory agreement between the Adviser and each Fund provides
that the Adviser will supply investment research and portfolio management,
including the selection of securities for the Fund to purchase, hold or sell and
the selection of brokers and dealers through whom the Fund's portfolio
transactions are executed. The Adviser also administers the business affairs of
each Fund, furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as officers of the Fund and trustees of the Trust if duly elected
to such positions. Day to day management of the portfolios of each Fund is the
responsibility of a team of officers of the Adviser.
The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by a Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
The Adviser's activities are subject to the review and supervision of the
Board of Trustees of the Trust, of which each Fund is a series, to whom the
Adviser renders periodic reports of each Fund's investment activities. Each Fund
pays the Adviser a fee (accrued daily and paid monthly) equal to a percentage of
its respective average daily net assets as follows:
<TABLE>
<CAPTION>
AVERAGE
DAILY % PER
FUND NET ASSETS ANNUM
---- ---------- -----
<S> <C> <C>
Active Core Fund...................... Up to one billion dollars 0.30%
Thereafter 0.25%
Limited Duration Fund................. Up to one billion dollars 0.30%
Thereafter 0.25%
</TABLE>
Each Fund's investment advisory agreement with the Adviser dated May 31, 1997
was approved by the shareholders of each respective Fund on May 28, 1997. Each
agreement will continue in effect from year to year if specifically approved by
the Trustees of the Trust or the Fund's shareholders and by the disinterested
Trustees of the Trust in compliance with the requirements of the 1940 Act. Each
agreement may be terminated without penalty upon 60 days written notice by
either party and will automatically terminate in the event of assignment.
Subject to the expense limitations discussed below, each Fund has agreed to
assume and pay the charges and expenses of its operations, including the
compensation of the Trustees of the Trust
B-26
<PAGE> 46
(other than those who are interested persons of the Adviser and other than who
are interested persons of the Distributor but not of the Adviser, if the
Distributor has agreed to pay such compensation), the charges and expenses of
independent accountants, legal counsel, any transfer or dividend disbursing
agent and the custodian (including fees for safekeeping of securities), costs of
calculating net asset value, costs of acquiring and disposing of portfolio
securities, interest (if any) on obligations incurred by the Fund, costs of
share certificates, membership dues in the Investment Company Institute or any
similar organization, costs of trustee and officer errors and omissions
insurance, reports and notices to shareholders, costs of registering shares of
the Funds under the federal securities laws, miscellaneous expenses and all
taxes and fees to federal, state, foreign or other governmental agencies.
EXPENSE LIMITATION. In the interest of limiting the overall expenses of the
Funds, the Adviser voluntarily has agreed to waive fees or reimburse each Fund
for certain expenses, such that certain expenses of each Fund, including the
advisory fees (but excluding interest, taxes, brokerage commissions and other
portfolio transaction expenses, other expenditures which are capitalized in
accordance with generally accepted accounting principles, and any extraordinary
costs and expenses) will not exceed the following amounts (expressed as a
percentage of average net assets on an annual basis).
<TABLE>
<S> <C>
Active Core Fund............................................ 0.40%
Limited Duration Fund....................................... 0.40%
</TABLE>
Fees foregone or payments made by the Adviser with respect to a Fund pursuant
to the expense limitation are contingent liabilities of a Fund which are subject
to potential reimbursement by that Fund to the Adviser, provided that such
reimbursement may be made without causing the annual expense ratio of the Fund
to exceed the applicable limitation set forth above, or such lower amount as may
be imposed by any state expense limitation to which the Trust is subject, and
provided such reimbursement is made within four years of the recognition of the
contingent liability by the Fund. If a reimbursement appears probable, it will
be accounted for as an expense of the Fund regardless of the time period over
which the reimbursement may actually be paid by the Fund.
Each Advisory Agreement specifies that the Adviser will reimburse the Fund for
annual expenses of the Fund which exceed the most stringent limits prescribed by
any State in which the Fund shares are offered for sale.
In addition to making any required reimbursements, the Adviser may in its
discretion, but is not obligated to, waive all or any portion of its fee or
assume all or any portion of the expenses of a Fund.
The Adviser has agreed to waive fees or reimburse certain expenses such that
the net expenses of each Fund will not exceed 0.40% of average net assets.
Should the assets of a particular fund increase sufficiently to allow for
reimbursement of prior year's excess expenses to the Adviser without causing
that Fund's expense ratio to exceed 0.40%, that Fund may be required to
reimburse the Adviser for fees waived or expenses assumed within the previous
four years. Therefore, these expenses totaling $232,264 and $254,369 for Active
Core Fund and Limited Duration Fund, respectively, could become liabilities of
each respective Fund at a future date.
B-27
<PAGE> 47
OTHER AGREEMENTS
FUND ACCOUNTING AGREEMENT. The Fund has also entered into a Fund accounting
agreement pursuant to which the Advisory Corp. provides accounting services.
Such services are expected to enable the Funds to more closely monitor and
maintain its accounts and records. The Funds shares together with the other Van
Kampen funds advised by the Advisers and distributed by the Distributor in the
cost of providing such services, with 25% of such costs shared proportionately
based on the respective number of classes of securities issued per fund and the
remaining 75% of such cost based proportionally on their respective net assets
per fund.
For the period ended December 31, 1998, after expense reimbursement the Funds
paid $-0- for the cost of providing accounting services for each Fund.
LEGAL SERVICES AGREEMENT. The Funds and each of the Van Kampen funds advised
by Van Kampen Investment Advisory Corp., and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen Investments
provides legal services, including without limitation: accurate maintenance of
the funds' minute books and records, preparation and oversight of the funds'
regulatory reports, and other information provided to shareholders, as well as
responding to day-to-day legal issues on behalf of the funds. It is expected
that Van Kampen Investments can render such legal services on a more cost
effective basis than other providers of such services. Payment by the Funds for
such services is made on a cost basis for the employment of personnel as well as
the overhead and the equipment necessary to render such services. Other funds
distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.
For the period ended December 31, 1998, Van Kampen Investments waived its cost
of providing legal services for each Fund.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, 225 West Franklin Street, PO Box 1713,
Boston, MA 02105-1713, is the custodian of each Fund and has custody of all
securities and cash of each Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by each respective Fund.
The independent accountants for each Fund are KPMG LLP, 303 East Wacker Drive,
Chicago, IL 60601. The selection of independent accountants will be subject to
ratification by the shareholders of each Fund at any annual meeting of
shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Funds'
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.
B-28
<PAGE> 48
Many securities in which the Funds invest are traded principally in the
over-the-counter market. Over-the-counter securities generally are traded on a
net basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a mark-up
to the dealer. Securities purchased in underwritten offerings generally include,
in the price, a fixed amount of compensation for the financial advisers,
underwriters and dealers. The Funds also may purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. Purchases and sales of securities on a stock exchange are effected
through brokers who charge a commission for their services. Day to day
management of the portfolios of each Fund is the responsibility of a team of
officers of the Adviser.
The Adviser is responsible for placing portfolio transactions and does so in a
manner deemed fair and reasonable to the Funds and not according to any formula.
The primary consideration in all portfolio transactions is prompt execution of
orders in an effective manner at the most favorable price. In selecting
broker/dealers and in negotiating prices and any brokerage commissions on such
transactions, the Adviser considers the firm's reliability, integrity and
financial condition and the firm's execution capability, the size and breadth of
the market for the security, the size of and difficulty in executing the order,
and the best net price. There are many instances when, in the judgment of the
Adviser, more than one firm can offer comparable execution services. In
selecting among such firms, consideration may be given to those firms which
supply research and other services in addition to execution services. The
Adviser is authorized to pay higher commissions to brokerage firms that provide
it with investment and research information than to firms which do not provide
such services if the Adviser determines that such commissions are reasonable in
relation to the overall services provided. No specific value can be assigned to
such research services which are furnished without cost to the Adviser. Since
statistical and other research information is only supplementary to the research
efforts of the Adviser to the Funds and still must be analyzed and reviewed by
its staff, the receipt of research information is not expected to reduce its
expenses materially. The investment advisory fee is not reduced as a result of
the Adviser's receipt of such research services. Services provided may include
(a) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; (b) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Funds effects its securities transactions may be used by the Adviser
in servicing all of its advisory accounts; not all of such services may be used
by the Adviser in connection with the Funds. The Adviser also may place
portfolio transactions, to the extent permitted by law, with brokerage firms
affiliated with the Funds, the Adviser or the Distributor and with brokerage
firms participating in the distribution of the Funds' shares if it reasonably
believes that the quality of execution and the commission are comparable to that
available from other qualified firms. Similarly, to the extent permitted by law
and subject to the same considerations on quality of execution and comparable
commission rates, the Adviser may direct an executing broker to pay a portion or
all of any commissions, concessions or discounts to a firm supplying research or
other services or to a firm participating in the distribution of the Funds'
shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Funds and
B-29
<PAGE> 49
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Funds. In
making such allocations among the Funds and other advisory accounts, the main
factors considered by the Adviser are the respective sizes of the Funds and
other advisory accounts, the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the commissions paid to
affiliates of the Funds must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Funds will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.
The Funds paid the following commissions to all brokers and affiliated brokers
during the periods shown:
ACTIVE CORE FUND
<TABLE>
<CAPTION>
Affiliated
Brokers
-----------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Commissions Paid:
Fiscal year ended December 31, 1998......................... $-0- $-0- $-0-
Fiscal year ended December 31, 1997......................... $-0- $-0- $-0-
Fiscal period ended December 31, 1996....................... $-0- $-0- $-0-
Fiscal year 1998 Percentages:
Commissions with affiliate to total commissions........... -0- -0-
Value of brokerage transactions with affiliate to total
transactions........................................... -0- -0-
</TABLE>
B-30
<PAGE> 50
LIMITED DURATION FUND
<TABLE>
<CAPTION>
Affiliated
Brokers
-----------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Commissions Paid:
Fiscal year ended December 31, 1998......................... $-0- $-0- $-0-
Fiscal year ended December 31, 1997......................... $-0- $-0- $-0-
Fiscal period ended December 31, 1996....................... $-0- $-0- $-0-
Fiscal year 1998 Percentages:
Commissions with affiliate to total commissions........... -0- -0-
Value of brokerage transactions with affiliate to total
transactions........................................... -0- -0-
</TABLE>
State securities laws may differ from the interpretations of federal law
expressed herein.
TAXATION
TAXATION OF THE FUNDS
The following federal income tax discussion is based on the advice of Skadden,
Arps, Slate, Meagher & Flom (Illinois) and reflects applicable tax laws as of
the date of this Statement of Additional Information.
Each Fund has elected and qualified and intends to continue to qualify each
year to be treated as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify as a regulated investment
company, each Fund must comply with certain requirements of the Code relating
to, among other things, the source of its income and the diversification of its
assets. If a Fund so qualifies and distributes to its shareholders at least 90%
of its net investment income (which includes net short-term capital gains, but
not net capital gains, which are the excess of net long-term capital gains over
net short-term capital losses) in each year, it will not be required to pay
federal income taxes on any income distributed to its shareholders. Each Fund
intends to distribute at least the minimum amount of net investment income
necessary to satisfy the 90% distribution requirement. Each Fund will not be
subject to federal income tax on any net capital gains distributed to its
shareholders.
In order to avoid a 4% excise tax, a Fund will be required to distribute, by
December 31 of each year, the sum of 98% of its ordinary income (not including
tax-exempt income) for such year and 98% of its capital gain net income
determined in general on an October 31 year end, plus any amounts that were not
distributed in previous taxable years. For purposes of the excise tax, any
ordinary income or capital gain net income retained by, and subject to federal
income tax in the hands of, a Fund will be treated as having been distributed.
If a Fund failed to qualify as a regulated investment company, the Fund would
be subject to tax on its income at corporate tax rates, without deduction for
any distribution to its shareholders, thereby materially reducing the amount of
any cash available for distribution to its shareholders. In addition, among
other things, capital gains of the Fund would not pass through to the
shareholders, and distributions to shareholders would be treated as dividends,
return of capital (to the extent of a shareholder's tax basis in its shares) or
gain derived from the sale or exchange of property. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
B-31
<PAGE> 51
pay an interest charge of 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Funds' investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of a Fund
and affect the holding period of the securities held by a Fund and the character
of the gains or losses realized by a Fund. These provisions may also require a
Fund to recognize income or gain without receiving the cash necessary to satisfy
the 90% distribution requirement and the distribution requirements for avoiding
federal income and excise taxes. Each Fund will monitor its transactions and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
Investments of a Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, a
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, a Fund may have
to dispose of securities that it would otherwise have continued to hold.
TAXATION OF SHAREHOLDER DISTRIBUTIONS
Distributions of a Fund's net investment income are taxable to shareholders as
ordinary income, whether paid in cash or shares. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each share equal to the value thereof on the distribution
date. Distributions of a Fund's net capital gains ("capital gain dividends"), if
any, are taxable to a shareholder as long-term capital gains regardless of the
length of time the shares have been held by such holder. Distributions in excess
of a Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates" below. Tax-exempt
shareholders not subject to federal income tax on their income generally will
not be taxed on distributions from the Fund.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid during January of the
following year, will be treated as having been distributed by a Fund and
received by the shareholders on December 31 of the year in which the dividend
was declared. In addition, certain other distributions made after the close of a
taxable year of a Fund may be "spilled back" and treated as having been paid by
the Fund (except for purposes of the 4%
B-32
<PAGE> 52
excise tax) during such taxable year. In such case, shareholders will be treated
as having received such dividends in the taxable year in which the distribution
is actually made.
Distributions attributable to any dividend income earned by a Fund will be
eligible for the dividends received deduction for corporations if certain
requirements of the Code are satisfied. A Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of each
quarter of the Fund's taxable year, at least 50% of the total value of the
Fund's assets consist of securities the interest on which is exempt from federal
income tax. However, neither Fund expects to invest a sufficient amount of its
assets in such securities so as to be qualified to pay exempt-interest
dividends.
Each Fund will inform its shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
Each Fund is required, in certain circumstances, to withhold 31% of ordinary
income and certain other payments, including redemptions, paid to shareholders
who do not furnish to the Fund their correct taxpayer identification numbers (in
the case of any individual, his or her social security number) together with
certain required certifications or who are otherwise subject to backup
withholding.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss and will be long-term if such shares have
been held for more than one year. Any loss recognized upon a taxable disposition
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends received with respect to such
shares. For purposes of determining whether shares have been held for six months
or less, the holding period is suspended for any periods during which the
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
CAPITAL GAINS RATES. The maximum tax rate applicable to net capital gains
recognized by individuals and other non-corporate taxpayers is (i) the same as
the maximum ordinary income tax rate for capital assets held for one year or
less, or (ii) 20% for capital assets held for more than one year. Shareholders
should consult their own tax advisers as to the application of the new capital
gains rates to their particular circumstances.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own advisers regarding the
specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax laws.
THE DISTRIBUTOR
Shares of each Fund are offered on a continuous basis through Van Kampen Funds
Inc., 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555. The
Distributor is a
B-33
<PAGE> 53
wholly owned subsidiary of Van Kampen Investments Inc., which is an indirect
wholly owned subsidiary of Morgan Stanley Dean Witter & Co.
Pursuant to a distribution agreement, the Distributor will purchase shares of
the Funds for resale to the public, and is obligated to purchase only those
shares for which it has received purchase orders. A discussion of how to
purchase and redeem the Funds' shares and how the Funds' shares are priced is
contained in the Prospectus and below under the captions "How to Buy Shares,"
"How to Sell Shares" and "Shareholder Services."
TRANSFER AGENT
The Funds' transfer agent, shareholder service agent and dividend disbursing
agent is Van Kampen Investor Services Inc., PO Box 418256, Kansas City, MO
64141-9256. During the fiscal years ended December 31, 1998, 1997 and 1996 for
the Active Core Fund, Investor Services received fees aggregating $-0-, $-0- and
$-0-, respectively, for these services. During the fiscal years ended December
31, 1998, 1997 and 1996 for the Limited Duration Fund, Investor Services
received fees aggregating $-0-, $-0- and $-0-, respectively for these services.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Fund's Board of Trustees and are based on competitive benchmarks.
LEGAL COUNSEL
Counsel to the Funds is Skadden, Arps, Slate, Meagher & Flom (Illinois).
PERFORMANCE INFORMATION
From time to time advertisements and other sales materials for the Funds may
include information concerning the historical performance of the Funds. Any such
information will include the average total return calculated on a compounded
basis for specified periods of time.
Such advertisements and sales literature may also include a yield quotation,
which is determined on a daily basis with respect to the immediately preceding
30 day period; yield is computed by first dividing the Fund's net investment
income per share earned during such period by a Fund's maximum offering price
per share on the last day of such period. A Fund's net investment income per
share is determined by taking the interest attributable to shares earned by a
Fund during the period, subtracting the expenses attributable to shares accrued
for the period (net of any reimbursements), and dividing the result by the
average daily number of shares outstanding during the period that were entitled
to receive dividends. The yield calculation formula assumes net investment
income is earned and reinvested at a constant rate and annualized at the end of
a six month period. In each case, such total return and yield information, if
any, will be calculated pursuant to rules established by the SEC.
In addition, the Funds may include in advertisements or other sales literature
information regarding the past performance of certain types of investments or
market indices. In lieu of or in addition to total return and yield
calculations, such information may include performance rankings and similar
information from independent organizations such as Lipper Analytical Services,
Inc., Business Week, Forbes or other industry publications. From time to time, a
Fund may compare its
B-34
<PAGE> 54
performance to certain securities and unmanaged indices which may have different
risk/reward characteristics than the Fund. Such characteristics may include, but
are not limited to, tax features, guarantees, insurance and the fluctuation of
principal or return. In addition, from time to time, the Funds may utilize sales
literature that includes hypotheticals.
Each Fund calculates average compounded total return by determining the
redemption value at the end of specified periods (after adding back all
dividends and other distributions made during the period) of an investment in a
given Fund at the beginning of the period, annualizing the increase or decrease
over the specified period with respect to such initial investment and expressing
the result as a percentage.
Total return figures utilized by the Funds are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share can be expected to fluctuate over time, and accordingly upon
redemption a shareholder's shares may be worth more or less than their original
cost.
The Funds may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
the Funds from a given date to a subsequent given date. Cumulative total return
is calculated by measuring the value of an initial investment in a given Fund at
a given time, determining the value of all subsequent reinvested distributions,
and dividing the net change in the value of the investment as of the end of the
period by the amount of the initial investment and expressing the result as a
percentage.
From time to time, the Funds may include in sales literature and shareholder
reports a quotation of the current "distribution rate." Distribution rate is a
measure of the level of income and short-term capital gain dividends, if any,
distributed for a specified period. Distribution rate is determined by
annualizing the distributions per share for a stated period and dividing the
result by the public offering price for the same period. It differs from yield,
which is a measure of the income actually earned by a Fund's investments, and
from total return, which is a measure of the income actually earned by, plus the
effect of any realized and unrealized appreciation or depreciation of, such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of a Fund's performance. Distribution rate may
sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund.
The average annual total return for the Active Core Fund for (i) the one year
period ended December 31, 1998 was 8.45% and (ii) the approximately two-year and
eight-month period from April 23, 1996 (the commencement of investment
operations of the Fund) through December 31, 1998 was 8.41%. The cumulative
non-standardized total return from the Fund's inception to December 31, 1998 was
24.28%.
The average annual total return for the Limited Duration Fund for (i) the
one-year period ended December 31, 1998 was 6.65% and (ii) the approximately
two-year and eight-month period from April 23, 1996, (the commencement of
investment operations of the Fund) through December 31, 1998 was 6.36%. The
cumulative non-standardized total return from the Fund's inception to December
31, 1998 was 18.06%.
B-35
<PAGE> 55
HOW TO BUY SHARES
Shares of each Fund are offered at a price equal to net asset value per share,
without a sales charge. The minimum initial investment is $500,000. The minimum
subsequent investment is $25,000. The Funds offer their shares to the public on
a continuous basis through Van Kampen Funds Inc. (the "Distributor"), as
principal underwriter, which is located at 1 Parkview Plaza, PO Box 5555,
Oakbrook Terrace, Illinois 60181-5555. The Distributor receives no compensation
for this service.
In addition, investors may, subject to the approval of the Trust, purchase
shares of a Fund with liquid securities that are eligible for purchase by the
Fund (consistent with such Fund's investment policies and restrictions) and that
have a value that is readily ascertainable. These transactions will be effected
only if the Adviser intends to retain the securities in the Fund as an
investment. Assets so purchased by a Fund will be valued in the same manner as
they would be valued for purposes of pricing the Fund's shares, if such assets
were included in the Fund's assets at the time of purchase. The Trust reserves
the right to amend or terminate this practice with respect to any Fund at any
time without notice.
OTHER PURCHASE INFORMATION. Purchases of a Fund's shares will be made in full
and fractional shares. In the interest of economy and convenience, certificates
for shares will generally not be issued.
The Trust reserves the right, in its sole discretion and without prior notice,
to suspend the offering of shares of any Fund or to reject purchase orders when,
in the judgment of management, such suspension or rejection is in the best
interests of the Fund; to waive the minimum investment requirement for certain
investors; and to redeem shares if information provided in the Account
Application should prove to be incorrect in any material manner.
Shares of the Trust may not be offered or sold in any state unless registered
or qualified in that jurisdiction or unless an exemption from registration or
qualification is available. The Funds are not registered or qualified for sale
in all jurisdictions. Potential investors should contact the Distributor at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555 or call the
Explorer Institutional FundsSM at (800) 822-3699 to determine whether a Fund is
registered or qualified for sale in their particular jurisdiction.
HOW TO SELL SHARES
WRITTEN REDEMPTION REQUEST. Shareholders may sell shares without charge at any
time by mailing a written redemption request in proper form to the "Transfer
Agent" Van Kampen Investor Services Inc., PO Box 418256, Kansas City, MO
64141-9256 Attn: Explorer Institutional FundsSM. The request should indicate the
number of shares to be redeemed of a particular Fund and identify the account
number and be signed exactly as the shares are registered. If the amount being
redeemed is in excess of $50,000 or if the redemption proceeds will be sent to
an address other than the address of record, the signature(s) must be guaranteed
by a member firm of a principal stock exchange, a commercial bank or trust
company which is a member of the Federal Deposit Insurance Corporation (the
"FDIC"), a credit union or a savings association. The guarantee must state the
words "Signature Guaranteed" along with the name of the granting institution.
Shareholders should verify with the institution that it is an eligible guarantor
prior to signing. A guarantee from a notary public
B-36
<PAGE> 56
is not acceptable. If certificates are held for the shares being redeemed, such
certificates must be sent and endorsed for transfer or accompanied by an
endorsed stock power. Share certificates should be sent by registered mail to
Van Kampen Investor Services Inc., PO Box 418256, Kansas City, MO 64141-9256.
Shareholders will receive the net asset value per share next computed after the
Transfer Agent receives the redemption request and certificates (if any) in
proper form.
TELEPHONE REDEMPTIONS. Shareholders may sell shares without charge by calling
their Fund at (800) 822-3699 before 4:00 p.m. Central time to request a
redemption. There is a $50,000 minimum per request if the redemption proceeds
are to be mailed to the shareholder or wired to a bank. Prior to redeeming
shares by telephone the "Expedited Telephone Redemption" section of either the
Account Application or Expedited Telephone Redemption and Exchange Request Form
(the "Authorization") must be completed by the shareholder and be on file with
the Transfer Agent. The signature(s) on the Authorization must be guaranteed by
a member firm of a principal stock exchange, a commercial bank or trust company
which is a member of the FDIC, a credit union or a savings association unless
the Authorization is completed at the time an account is originally established.
The guarantee must state the words "Signature Guaranteed" along with the name of
the granting institution. Shareholders should verify with the institution that
it is an eligible guarantor prior to signing. A guarantee from a notary public
is not acceptable. A redemption requested by telephone will be processed at the
net asset value next determined after the request is received. The proceeds
would then be made payable to the registered shareowner(s) and mailed to the
address registered on the account or wired to a bank, as requested on the
Authorization. Shareholders cannot redeem shares by telephone if certificates
are held for those shares. This service is not available with respect to shares
held in an Individual Retirement Account for which State Street Bank and Trust
Company acts as custodian. In addition, this service is not available with
respect to shares purchased by check until 15 days after purchase.
By establishing the telephone redemption service, a shareholder authorizes,
the Trust, the Funds, the Distributor or Van Kampen Investor Services Inc.
("Investor Services") to act upon the instructions of any person by telephone to
redeem shares for any account for which such service has been authorized to the
address of record of such account or such other address as is listed in the
Authorization. The Funds, the Trust, the Distributor and Investor Services
employ procedures reasonably believed to confirm that instructions communicated
by telephone are genuine. Such procedures include requiring a person attempting
to redeem shares by telephone to provide, on a recorded line, the name on the
account, a social security number or tax identification number and such
additional information as may be included in the Authorization. An investor
agrees that no such person will be liable for any loss, liability, cost or
expense arising out of any request, including any fraudulent or unauthorized
request. This service may be amended or terminated at any time by the Trust, the
Funds, the Distributor or Investor Services. If an investor is unable to reach a
Fund by telephone, he or she may redeem shares pursuant to the procedures set
forth above under the caption "Written Redemption Request." During periods of
extreme economic or market changes, it may be difficult for investors to reach
the Fund by telephone and to effect telephone redemptions.
A Fund will not honor a request for redemption, whether in writing or by
telephone, until it has confirmed receipt of good funds with respect to the
purchase of such shares.
GENERAL. When shares are redeemed by a Fund, a check for the proceeds (net of
any required tax withholding) ordinarily will be mailed to shareholders within
one business day after a redemption request or repurchase order and share
certificates (if any) are received in proper form as set forth
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<PAGE> 57
above. Wire transfers from a Fund of redemption proceeds, in the manner
described above, ordinarily will be transmitted to the shareholder within one
business day. In each case, the Trust reserves the right to take up to seven
days to mail or wire redemption proceeds. If any shares are redeemed or
repurchased shortly after purchase, a Fund will not mail the proceeds until
checks received for the purchase of shares have cleared, which may take 10 days
or more. The proceeds, of course, may be more or less than the cost of the
shares.
The right of redemption or resale to a Fund may be suspended or the date of
payment postponed during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), when an emergency exists as
defined by rules and regulations of the Securities and Exchange Commission, or
during any period when the Securities and Exchange Commission has by order
permitted such suspension or postponement.
Due to the relatively high cost of maintaining small accounts, the Funds
reserve the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to redemption
by the investor, the shares in the account do not have a value of at least
$250,000. A shareholder will receive advance notice of a mandatory redemption
and will be given at least 30 days to bring the value of its account up to at
least $250,000.
Neither the Trust, the Funds, the Distributor nor Investor Services will be
liable for any loss, cost or expense for acting on instructions (whether in
writing or by telephone) believed by the party receiving such instructions to be
genuine and in accordance with the procedures described in the Prospectus or
this Statement of Additional Information.
The Trust agrees to redeem shares of each Fund solely in cash up to the lesser
of $2,000,000 or 1.00% of the respective Fund's net assets during any 90-day
period for any one shareholder. In consideration of the best interests of the
remaining shareholders of each Fund, the Trust reserves the right to pay any
redemption price exceeding this amount in whole or in part by a distribution in
kind of securities held by the respective Fund in lieu of cash. It is unlikely
that shares will be redeemed in kind. If shares are redeemed in kind, however,
the redeeming shareholder should expect to incur transaction costs upon the
disposition of the securities received in the distribution.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE. Any shares of a Fund which have been registered in a
shareholder's name for at least 15 days may be exchanged for shares of any other
Fund of the Explorer Institutional FundsSM which are then available for sale.
Under the exchange privilege, the Funds offer to exchange their respective
shares on the basis of relative net asset value per share.
In order to qualify for the exchange privilege, it is required that the shares
being exchanged have a net asset value of at least $250,000 (unless prior
approval has been obtained from the Trust). Shareholders will be able to effect
an exchange by telephone by calling a Fund at (800) 822-3699 prior to 4:00 p.m.
Central Standard time and requesting the exchange. The exchange will be
processed at the net asset values of the respective Fund next determined after
receipt of such request. By utilizing the telephone exchange service, a
shareholder authorizes the Trust or Investor Services to act upon the
instructions of any person by telephone to exchange shares from any account of a
Fund for which such service has been authorized to any identically registered
account(s) with any other Fund. The Funds, the Trust, the Distributor and
Investor Services employ
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<PAGE> 58
procedures reasonably believed to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring a person attempting to
exchange shares by telephone to provide, on a recorded line, the name on the
account, a social security or tax identification number and such additional
information as may be necessary or appropriate. An investor agrees that no such
person will be liable for any loss, liability, cost or expense arising out of
any request, including any fraudulent or unauthorized request. This service may
be amended or terminated at any time by Investor Services or the Trust. If a
shareholder has certificates for any shares being exchanged, such certificates
must be surrendered prior to the exchange in the same manner as in redemption of
such shares. See "How to Sell Shares--Telephone Redemptions." Any shares
exchanged between a Fund and any of the other Funds will begin earning dividends
on the next business day after the exchange is effected. Before effecting an
exchange, shareholders in a Fund should obtain and read a current prospectus of
the Fund into which the exchange is to be made. SHAREHOLDERS MAY ONLY EXCHANGE
INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
An exchange between Funds pursuant to the exchange privilege is treated as a
sale for federal income tax purposes and, depending upon the circumstances, a
short- or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time, subject to
the requirement that the Funds give prominent notice thereof at least 60 days
prior to the effective date of the modification or termination in certain
circumstances. The Funds reserve the right to limit the number of times a
shareholder may exercise the exchange privilege.
INSTRUCTIONS REGARDING BACKUP WITHHOLDING
You may be, or may have been, notified that you are subject to backup
withholding under section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"), because you have under-reported interest or dividends or
you were required to but failed to file a return which would have included a
reportable interest or dividend payment. IF YOU HAVE BEEN SO NOTIFIED AND YOU
HAVE NOT RECEIVED A SUBSEQUENT NOTICE FROM THE INTERNAL REVENUE SERVICE ADVISING
YOU THAT BACKUP WITHHOLDING HAS BEEN TERMINATED, YOU MUST STRIKE OUT THE
LANGUAGE ON THIS APPLICATION FORM CERTIFYING THAT YOU ARE NOT SUBJECT TO BACKUP
WITHHOLDING.
Caution: There are other situations where you may be subject to backup
withholding. Please read these instructions carefully.
BACKUP WITHHOLDING
The Fund must generally withhold 31% of taxable interest, dividend, and
certain other payments if you are subject to backup withholding. You are subject
to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the
Fund, OR
(2) The Internal Revenue Service notifies the Fund that you furnished
an incorrect taxpayer identification number, OR
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<PAGE> 59
(3) You are notified that you are subject to backup withholding (under
section 3406(a)(1)(C) of the Code), OR
(4) You fail to certify to the Fund that you are not subject to backup
withholding under (3) above, or fail to certify your taxpayer
identification number.
To prevent backup withholding on these payments be sure to notify the Fund of
your correct taxpayer identification number and properly certify that you are
not subject to backup withholding under section 3406(a)(1)(C) of the Code. You
should use this application form for this purpose.
If you are subject to backup withholding and you strike out the language on
this application form certifying that you are not subject to backup withholding,
you should nonetheless provide your correct taxpayer identification number to
the Fund and certify that it is correct.
TAXPAYER IDENTIFICATION NUMBER
The taxpayer identification number is the social security number or employer
identification number of the record owner of the account. If the account belongs
to you as an individual, give your social security number. If you have any
questions about what number to provide, contact the Transfer Agent at the
address or telephone number set forth at the top of this application form.
Certain entities and certain payments are exempted from backup withholding. If
you think you may be exempt, contact the Transfer Agent at the address or
telephone number set forth at the top of this application form.
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write "applied for" in place of your number. When you get a number,
submit a new application form to the Fund. If you do not provide your taxpayer
identification number to the Fund within 60 days, backup withholding will begin
and continue until you furnish your taxpayer identification number to the Fund.
You may be subject to penalties if you fail to furnish your taxpayer
identification number, provide false information or falsify information with
respect to backup withholding.
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<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
The Explorer Institutional Trust:
We have audited the accompanying statement 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
portfolio of investments, as of December 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the periods presented. 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, 1998, 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, 1998, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 15, 1999
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<PAGE> 61
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------
Asset-Backed Securities 15.4%
<S> <C> <C> <C> <C>
$125 American Express Credit Account Master Trust 5.900% 04/15/04 $ 128,378
75 American Express Credit Account Master Trust 6.400 04/15/05 78,330
100 Citibank Credit Card Master Trust 5.800 02/07/05 101,400
200 CoMed Transitional Funding Trust 5.390 06/25/05 200,822
100 Equicredit Funding Trust 6.855 10/15/28 102,514
140 First NBC Credit Card Master Trust 6.150 09/15/04 144,280
150 First USA Credit Card Master Trust 6.420 03/17/05 155,586
100 Green Tree Financial Corp. 6.330 11/01/29 102,440
75 Household Affinity Credit Card 5.600 05/15/02 75,513
100 MBNA Credit Card Master Trust 5.250 02/15/06 99,637
100 Nationsbank Credit Card Master Trust 6.000 12/15/05 102,523
175 Premier Auto Trust 5.820 02/06/02 176,916
100 Standard Credit Card Master Trust 5.950 10/07/04 102,005
250 Toyota Auto Lease Trust 6.350 04/26/04 253,888
---------
Total Asset-Backed Securities 1,824,232
=========
Corporate Bonds 21.2%
Aerospace/Defense 1.0%
115 McDonnell Douglas Corp. 6.875 11/01/06 121,732
---------
Consumer Services 0.7%
75 Hertz Corp. 7.000 07/01/04 78,153
---------
Finance 7.8%
100 American Express Credit Corp. 6.500 08/01/00 101,713
50 Ameritech Capital Funding Corp. 6.150 01/15/08 51,907
70 BankAmerica Corp. 6.250 04/01/08 72,112
125 BancOne Corp. 7.000 03/25/02 130,479
20 Capital One Bank 6.375 02/15/03 19,567
75 Chase Manhattan Corp. 7.125 06/15/09 82,097
50 Citigroup, Inc. 6.875 02/15/2098 49,958
100 Commercial Credit Group, Inc. 6.625 11/15/06 105,000
150 Deere (John) Capital Corp. 5.350 10/23/01 149,172
60 Finova Capital Corp. 6.150 03/31/03 60,134
100 First Union Corp. 6.400 04/01/08 104,935
=========
927,074
---------
Raw Materials/Processing Industries 4.2%
75 Du Pont (E. I.) de Nemours & Co. 6.750 09/01/07 82,202
60 Goodyear Tire Rubber Co. 6.375 03/15/08 60,923
100 Nalco Chemical Co. 6.250 05/15/08 102,108
150 Tyson Foods, Inc. 7.000 05/01/18 151,727
100 Union Pacific Resources Group, Inc. 7.000 10/15/06 99,238
---------
496,198
---------
Retail 0.7%
25 Nordstrom, Inc. 6.950 03/15/28 26,324
50 Sears Roebuck Acceptance Corp. 7.000 06/15/07 53,607
=========
79,931
---------
</TABLE>
F-2
<PAGE> 62
<TABLE>
<CAPTION>
Corporate Bonds (Continued)
Telecommunications 3.1%
<S> <C> <C> <C> <C>
$ 100 AT&T Corp. 7.750% 03/01/07 $ 115,654
50 GTE North, Inc. 6.730 02/15/28 52,916
100 MCI Communications Corp. 6.500 04/15/10 105,709
100 Sprint Capital Corp. 6.125 11/15/08 102,165
----------
376,444
==========
Transportation 0.9%
100 CSX Corp. 7.450 05/01/07 109,050
----------
Utilities 2.8%
15 Florida Power & Light Co. 7.050 12/01/26 15,875
25 Florida Power Corp. 6.750 02/01/28 26,348
100 Pacific Gas & Electric Co. 6.250 08/01/03 103,456
125 PacifiCorp 6.375 05/15/08 130,165
50 Wisconsin Electric Power Co. 6.625 11/15/06 53,787
==========
329,631
==========
Total Corporate Bonds 21.2% 2,518,213
----------
United States Government Agency Obligations 36.2%
100 Federal Home Loan Banks 5.905 12/23/02 103,013
300 Federal Home Loan Banks 5.690 06/19/03 307,299
665 Federal Home Loan Mortgage Corp. 5.630 01/10/03 677,316
121 Federal Home Loan Mortgage Corp. Gold
30 Year Pool #C00602 6.000 02/01/28 119,394
60 Federal Home Loan Mortgage Corp. Gold
Convertible 15 Year Pool #G10270 8.500 09/01/09 62,439
76 Federal Home Loan Mortgage Corp. Gold
Convertible 15 Year Pool #G10592 6.500 10/01/11 77,480
100 Federal National Mortgage Association
Medium Term Note 5.280 03/01/99 100,117
80 Federal National Mortgage Association
Medium Term Note 6.800 04/08/02 84,272
100 Federal National Mortgage Association
Medium Term Note 6.520 07/11/07 108,026
100 Federal National Mortgage Association PAC 7.000 10/25/09 103,084
230 Federal National Mortgage Association PAC 6.500 04/18/20 230,283
114 Federal National Mortgage Association Pool
#250649 6.500 07/01/11 115,076
110 Federal National Mortgage Association Pool
#124561 7.500 11/01/22 113,459
147 Federal National Mortgage Association Pool
#303828 6.500 04/01/26 148,343
130 Federal National Mortgage Association Pool
#250569 6.000 05/01/26 128,288
177 Federal National Mortgage Association Pool
#429249 7.000 05/01/28 180,199
75 Government National Mortgage Association
Platinum 15 Year Pool #780419 7.500 12/15/09 77,628
100 Government National Mortgage Association
Platinum Pool #780440 8.500 11/15/17 107,613
48 Government National Mortgage Association Pool
#780157 9.500 08/15/22 52,370
588 Government National Mortgage Association Pools 6.500 04/15/26 - 04/15/28 593,509
322 Government National Mortgage Association Pool
#462630 7.000 04/15/28 331,494
440 Tennessee Valley Authority 6.375 06/15/05 465,181
----------
Total United States Government Agency Obligations 4,285,883
==========
</TABLE>
F-3
<PAGE> 63
<TABLE>
<CAPTION>
United States Treasury Obligations 22.6%
<S> <C> <C> <C> <C>
$ 85 United States Treasury Bonds 8.125% 08/15/19 $ 113,497
555 United States Treasury Notes 6.000 08/15/00 566,871
1,325 United States Treasury Notes 5.875 11/30/01 1,370,964
1,695 United States Treasury STRIPS (a) * 05/15/15 - 05/15/18 634,258
===========
Total United States Treasury Obligations 2,685,590
-----------
Total Long-Term Investments 95.4%
(Cost $10,970,743) 11,313,918
Short-Term Investments 3.9%
(Cost $461,779) 461,779
-----------
Total Investments 99.3%
(Cost $11,432,522) 11,775,697
Other Assets in Excess of Liabilities 0.7% 78,080
-----------
Net Assets 100.0% $11,853,777
===========
</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 December 31, 1998,
based upon the higher of the quality rating issued by Standard & Poor's or
Moody's.
Portfolio Composition by Credit Quality **
<TABLE>
<S> <C>
U.S. Government and Government Agency Obligations 61.6%
AAA 15.2
AA 8.7
A 10.6
BBB 3.0
NR 0.9
-------
100.0%
=======
</TABLE>
** As a Percentage of Long-Term Investments
F-4
<PAGE> 64
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Total Investments (Cost $11,432,522) $11,775,697
Cash 361
Interest Receivable 110,700
Unamortized Organizational Costs 22,269
-----------
Total Assets 11,909,027
-----------
LIABILITIES:
Payables:
Distributor and Affiliates 18,336
Income and Capital Gain Distributions 490
Accrued Expenses 21,873
Trustees' Deferred Compensation and Retirement Plans 14,551
-----------
Total Liabilities 55,250
-----------
NET ASSETS $11,853,777
===========
NET ASSETS CONSIST OF:
Capital $11,512,187
Net Unrealized Appreciation 343,175
Accumulated Net Realized Gain 3,824
Accumulated Distributions in Excess of Net Investment Income (5,409)
-----------
NET ASSETS $11,853,777
===========
Net Asset Value Per Share (Based on net assets of $11,853,777
and 1,143,960 shares of beneficial interest issued and outstanding) $ 10.36
===========
</TABLE>
F-5
<PAGE> 65
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $ 655,893
---------
EXPENSES:
Investment Advisory Fee 33,025
Legal 20,593
Audit 16,728
Custody 15,534
Shareholder Services 15,065
Accounting 14,419
Trustees' Fees and Expenses 13,188
Amortization of Organizational Costs 9,596
Shareholder Reports 6,113
Other 1,988
---------
Total Expenses 146,249
Less: Fees Waived and Expenses Reimbursed
($33,025 and $61,914, respectively) 94,939
Credits Earned on Cash Balances 7,272
---------
Net Expenses 44,038
---------
NET INVESTMENT INCOME $ 611,855
=========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 58,523
---------
Unrealized Appreciation/Depreciation:
Beginning of the Period 153,237
End of the Period 343,175
---------
Net Unrealized Appreciation During the Period 189,938
---------
NET REALIZED AND UNREALIZED GAIN $ 248,461
=========
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 860,316
=========
</TABLE>
F-6
<PAGE> 66
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
FROM INVESTMENT ACTIVITIES:
<S> <C> <C>
Operations:
Net Investment Income $ 611,855 $ 387,370
Net Realized Gain 58,523 97,464
Net Unrealized Appreciation During the Period 189,938 71,773
---------------- ----------------
Change in Net Assets from Operations 860,316 556,607
---------------- ----------------
Distributions from Net Investment Income (611,855) (387,370)
Distributions in Excess of Net Investment Income (4) (29)
---------------- ----------------
Distributions from and in Excess of
Net Investment Income (611,859) (387,399)
Distributions from Net Realized Gain (81,810) (77,231)
---------------- ----------------
Total Distributions (693,669) (464,630)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 166,647 91,977
---------------- ----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 7,055,143 1,850,000
Net Asset Value of Shares Issued Through
Dividend Reinvestment 690,436 451,896
Cost of Shares Repurchased (996,722) (3,095,946)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 6,748,857 (794,050)
---------------- ----------------
TOTAL INCREASE/DECREASE IN NET ASSETS 6,915,504 (702,073)
NET ASSETS:
Beginning of the Period 4,938,273 5,640,346
---------------- ----------------
End of the Period (Including accumulated
distributions in excess of net investment
income of $5,409 and $3,598, respectively) $ 11,853,777 $ 4,938,273
================= ================
</TABLE>
F-7
<PAGE> 67
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 Year (Commencement
Ended Ended of Investment
December 31, December 31, Operations) to
1998 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 10.171 $ 10.085 $ 10.000
------------ ------------- -------------
Net Investment Income 0.579 0.626 0.409
Net Realized and Unrealized Gain 0.258 0.249 0.095
------------ ------------- -------------
Total from Investment Operations 0.837 0.875 0.504
------------ ------------- -------------
Less:
Distributions from and in Excess
of Net Investment Income 0.574 0.626 0.409
Distributions from Net Realized Gain 0.072 0.163 0.010
------------ ------------- -------------
Total Distributions 0.646 0.789 0.419
------------ ------------- -------------
Net Asset Value, End of the Period $ 10.362 $ 10.171 $ 10.085
============ ============= =============
Total Return * 8.45% 8.93% 5.20%**
Net Assets at End of the Period
(In millions) $11.9 $4.9 $5.6
Ratio of Expenses to Average Net
Assets* (a) 0.47% 0.60% 0.40%
Ratio of Net Investment Income to
Average Net Assets* 5.56% 6.19% 5.98%
Portfolio Turnover 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) 1.33% 2.01% 1.81%
Ratio of Net Investment Income to
Average Net Assets 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.
F-8
<PAGE> 68
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Description Market Value
<S> <C> <C> <C> <C>
Asset-Backed Securities 6.6%
$ 30 American Express Credit Account Master Trust 6.400% 04/15/05 $ 31,332
10 CoMed Transitional Funding Trust 5.390 06/25/05 10,041
10 Equicredit Funding Trust 6.855 10/15/28 10,251
10 First NBC Credit Card Master Trust 6.150 09/15/04 10,306
15 First USA Credit Card Master Trust 6.420 03/17/05 15,559
30 Household Affinity Credit Card 5.600 05/15/02 30,205
30 MBNA Credit Card Master Trust 6.600 11/15/04 31,315
10 Nationsbank Credit Card Master Trust 6.000 12/15/05 10,252
10 Standard Credit Card Master Trust 5.950 10/07/04 10,200
20 Toyota Auto Lease Trust 6.350 04/26/04 20,311
----------
Total Asset-Backed Securities 179,772
----------
Corporate Bonds 20.6%
Finance 12.9%
150 American Express Credit Corp. 6.500 08/01/00 152,570
25 Deere (John) Capital Corp. 5.350 10/23/01 24,862
175 Ford Motor Credit Co. 5.750 01/25/01 176,323
----------
353,755
----------
Raw Materials/Processing Industries 5.8%
150 Du Pont (E. I.) de Nemours & Co. 6.750 10/15/02 157,542
----------
Utilities 1.9%
50 Pacific Gas & Electric Co. 6.250 08/01/03 51,728
----------
Total Corporate Bonds 563,025
----------
United States Government Agency Obligations 8.6%
100 Federal Home Loan Banks 5.690 06/19/03 102,433
100 Federal National Mortgage Association
Medium Term Note 5.280 03/01/99 100,117
30 Federal National Mortgage Association
Medium Term Note 6.800 04/08/02 31,602
----------
Total United States Government Agency Obligations 234,152
----------
United States Treasury Obligations 34.1%
385 United States Treasury Notes 5.875 11/15/99 - 11/30/01 394,124
325 United States Treasury Notes 6.750 04/30/00 333,645
100 United States Treasury Notes 6.250 02/15/03 105,820
120 United States Treasury STRIPS (a) * 05/15/03 97,940
----------
Total United States Treasury Obligations 931,529
----------
Total Long-Term Investments 69.9%
(Cost $1,866,782) 1,908,478
</TABLE>
F-9
<PAGE> 69
<TABLE>
<CAPTION>
<S> <C>
Short-Term Investments 30.4%
Federal Home Loan Banks Discount Note ($831,000 par, maturing 01/04/99, yielding 4.36%)
(Cost $830,603) $ 830,603
----------
Total Investments 100.3%
(Cost $2,697,385) 2,739,081
Liabilities in Excess of Other Assets (0.3)% (7,879)
----------
Net Assets 100.0% $2,731,202
==========
</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 December 31, 1998,
based upon the higher of the quality rating issued by Standard & Poor's or
Moody's.
Portfolio Composition by Credit Quality **
<TABLE>
<S> <C>
U.S. Government and Government Agency Obligations 61.1%
AAA 9.4
AA 19.0
A 10.5
----------
100.0%
----------
** As a Percentage of Long-Term Investments
</TABLE>
F-10
<PAGE> 70
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Total Investments (Cost $2,697,385) $ 2,739,081
Cash 977
Interest Receivable 23,055
Unamortized Organizational Expenses 22,737
----------
Total Assets 2,785,850
----------
LIABILITIES:
Payables:
Distributor and Affiliates 16,781
Income and Capital Gain Distributions 2,457
Accrued Expenses 20,859
Trustees' Deferred Compensation and Retirement Plans 14,551
----------
Total Liabilities 54,648
----------
NET ASSETS $ 2,731,202
==========
NET ASSETS CONSIST OF:
Capital $ 2,699,369
Net Unrealized Appreciation 41,696
Accumulated Net Realized Gain 683
Accumulated Distributions in Excess
of Net Investment Income (10,546)
----------
NET ASSETS $ 2,731,202
==========
Net Asset Value Per Share (Based on net assets
of $2,731,202 and 279,454 shares of
beneficial interest issued and outstanding) $ 9.77
==========
</TABLE>
F-11
<PAGE> 71
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $ 196,423
---------
EXPENSES:
Legal 20,457
Audit 19,628
Shareholder Services 16,822
Trustees' Fees and Expenses 13,188
Custody 13,026
Accounting 12,315
Investment Advisory Fee 10,092
Amortization of Organizational Costs 9,797
Shareholder Reports 6,113
Registration and Filing Fees 1,263
Other 760
---------
Total Expenses 123,461
Less: Fees Waived and Expenses Reimbursed
($10,092 and $92,743, respectively) 102,835
Credits Earned on Cash Balances 7,170
---------
Net Expenses 13,456
---------
NET INVESTMENT INCOME $ 182,967
=========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 91,400
---------
Unrealized Appreciation/Depreciation:
Beginning of the Period 79,004
End of the Period 41,696
---------
Net Unrealized Depreciation During the Period (37,308)
---------
NET REALIZED AND UNREALIZED GAIN $ 54,092
=========
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 237,059
=========
</TABLE>
F-12
<PAGE> 72
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Year Year
Ended Ended
December 31, December 31,
1998 1997
------------ ------------
FROM INVESTMENT ACTIVITIES:
Operations:
<S> <C> <C>
Net Investment Income $ 182,967 $ 471,577
Net Realized Gain 91,400 25,119
Net Unrealized Appreciation/Depreciation
During the Period (37,308) 872
------------ ------------
Change in Net Assets from Operations 237,059 497,568
------------ ------------
Distributions from Net Investment Income (182,967) (471,577)
Distributions in Excess
of Net Investment Income (9,017) (62)
------------ ------------
Distributions from and in Excess
of Net Investment Income
(191,984) (471,639)
DIstributions from Net Realized Gain (90,705) (14,667)
------------ ------------
Total Distributions (282,689) (486,306)
------------ ------------
NET CHANGE IN NET ASSETS
FROM INVESTMENT ACTIVITIES (45,630) 11,262
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 410,033 705,000
Net Asset Value of Shares Issued
Through Dividend Reinvestment 262,640 483,346
Cost of Shares Repurchased (6,127,927) (2,720,306)
------------ ------------
NET CHANGE IN NET ASSETS
FROM CAPITAL TRANSACTIONS (5,455,254) (1,531,960)
------------ ------------
TOTAL DECREASE IN NET ASSETS (5,500,884) (1,520,698)
NET ASSETS:
Beginning of the Period 8,232,086 9,752,784
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment
income of $10,546 and $1,541 respectively) $ 2,731,202 $ 8,232,086
============ ============
</TABLE>
F-13
<PAGE> 73
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
Year Year (Commencement
Ended Ended of Investment
December 31, December 31, Operations) to
1998 1997 December 31, 1996
----------- ------------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 10.037 $ 10.019 $ 10.000
Net Investment Income 0.547 0.574 0.386
Net Realized and Unrealized Gain 0.110 0.036 0.019
----------- ------------ -----------------
Total from Investment Operations 0.657 0.610 0.405
----------- ------------ -----------------
Less:
Distributions from and in Excess
of Net Investment Income 0.583 0.574 0.386
Distributions from Net Realized Gain 0.338 0.018 -0-
----------- ------------ -----------------
Total Distributions 0.921 0.592 0.386
----------- ------------ -----------------
Net Asset Value, End of the Period $ 9.773 $ 10.037 $ 10.019
=========== ============ =================
Total Return* 6.65% 6.29% 4.14%**
Net Assets at End of the Period (In millions) $2.7 $8.2 $9.8
Ratio of Expenses to Average Net Assets* (a) 0.61% 0.56% 0.40%
Ratio of Net Investment Income
to Average Net Assets* 5.44% 5.74% 5.68%
Portfolio Turnover 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) 3.67% 1.86% 1.40%
Ratio of Net Investment Income
to Average Net Assets 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.
F-14
<PAGE> 74
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 December 31, 1998, there were no
when issued or delayed delivery purchase commitments.
C. Investment Income - Interest income is recorded on an accrual basis. Bond
discount and premium are amortized over the life of each applicable security.
D. Organizational Costs - The Funds will reimburse Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Funds' organization in the amount of $47,718 for Active Core Fund and $48,676
for Limited Duration Fund. These costs are being amortized on a straight line
basis over the 60 month period ending April 22, 2001. Van Kampen Management Inc.
(the "Adviser") has agreed that in the event any of the initial shares of the
Funds originally purchased by Van Kampen are redeemed during the amortization
period, the Funds will be reimbursed for any unamortized organizational costs in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
E. Federal Income Taxes - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income and gains to
its shareholders. Therefore, no provision for federal income taxes is required.
Net realized gains differ for financial reporting purposes as a result of
the deferral for tax purposes of losses resulting from wash sales.
The following table presents the identified cost of investments at
December 31, 1998 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
Cost of long-term and
<S> <C> <C>
Short-term investments $11,432,522 $2,697,526
============== ==================
Aggregate gross
Unrealized appreciation $348,703 $42,381
Aggregate gross
Unrealized depreciation 5,528 826
-------------- ------------------
Net unrealized
Appreciation $343,175 $41,555
============== ==================
</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 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.
F-15
<PAGE> 75
Permanent book and tax basis differences relating to the recognition of
gains/losses on paydowns of mortgage pool obligations totaling $1,807 for Active
Core Fund and $12 for Limited Duration Fund have been reclassified from
accumulated net realized gain/loss to accumulated distributions in excess of net
investment income.
For federal income tax purposes, the following information is furnished
with respect to the distributions paid by the Trust during its taxable year
ended December 31, 1998. Active Core designated and paid $46,940 as a 20% rate
gain distribution for the fiscal year 1998. Limited Duration designated and paid
$69,954 as a 20% rate gain distribution for the fiscal year 1998. In January
1999, the Funds provided tax information to shareholders for the 1998 calendar
year.
G. Expense Reductions - During the year ended December 31, 1998, the custody
fees for Active Core Fund and Limited Duration Fund were reduced by $7,272 and
$7,170, respectively, as a result of credits earned on overnight cash balances.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of each of the Fund's Investment Advisory Agreements, the
Adviser will provide investment advice and facilities to the Funds for an annual
fee payable monthly as follows:
Average Net Assets % Per Annum
-------------------- -------------
First $1 billion .300 of 1%
Over $1 billion .250 of 1%
Van Kampen has agreed to waive fees or reimburse certain expenses such
that the net expenses of each Fund will not exceed 0.40% of average net assets.
Should the assets of a particular fund increase sufficiently to allow for
reimbursement of prior year's excess expenses to Van Kampen without causing that
funds' expense ratio to exceed 0.40%, that fund may be required to reimburse Van
Kampen for fees waived and/or expenses assumed within the previous four years.
Therefore, these cumulative expense subsidies totaling $232,264 and $254,369 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, 1998, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $200 and $100, respectively,
representing legal expenses provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Funds, of which a trustee of the Funds is an
affiliated person. All of this expense has been assumed by Van Kampen.
For the year ended December 31, 1998, Active Core Fund and Limited
Duration Fund recognized expenses of approximately $14,400 and $12,300,
respectively, representing Van Kampen's cost of providing accounting services to
the Funds. All of this expense has been assumed by Van Kampen.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Funds. For the year ended
December 31, 1998, Active Core Fund and Limited Duration Fund recognized
expenses of approximately $14,600 each. Beginning in 1998, the transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks. All of this expense has been assumed
by Van Kampen.
Certain officers and trustees of the Funds are also officers and
directors of Van Kampen. The Funds do not compensate their officers or trustees
who are officers of Van Kampen.
The Funds provide deferred compensation and retirement plans for their
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Funds. The maximum
annual benefit per trustee under the plan is $2,500.
At December 31, 1998, Van Kampen 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, 1998,
transactions in common shares were as follows:
<TABLE>
<CAPTION>
Active Limited
Core Duration Fund
Fund
--------------- ---------------
<S> <C> <C>
Beginning Shares 485,509 820,195
Shares Sold 688,318 40,755
Shares Issued
through 67,072 26,390
Dividend Reinvestment
Shares Repurchased (96,939) (607,886)
=============== ===============
Ending Shares 1,143,960 279,454
=============== ===============
Capital at 12/31/98 $11,512,187 $2,699,369
=============== ===============
</TABLE>
For the period 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>
F-16
<PAGE> 76
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 $14,388,882 and $8,146,061 for Active Core Fund and
$1,916,798 and $6,724,456 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.
F-17
<PAGE> 77
INDIVIDUAL APPLICATION
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION
<TABLE>
<S> <C>
Mail Application to:
INITIAL INVESTMENT($500,000 Minimum) Edward Treichel, Sr., VP
Wire instructions will be supplied upon receipt of EXPLORER INSTITUTIONAL FUNDS(SM)
application Explorer Institutional Institutional Asset Management
Active Core Fund Amount: $ 4th Floor
------------ 1 Parkview Plaza
Explorer Institutional Limited Duration Fund PO Box 5555
Amount: $ Oakbrook Terrace, IL 60181-5555
------------ Phone # 1-800-822-3699
-------------------------------------------------------------------------------------------------
A. INDIVIDUAL OR JOINT TENANTS SOCIAL SECURITY NUMBER
-------------------------------------------------- ------------------------------------------
FIRST MIDDLE LAST
Registration will be "Joint Tenants with
Right of Survivorship" unless otherwise
specified here:
-------------------------------------------------- ------------------------------------------
FIRST MIDDLE LAST
B. ADDRESS
-------------------------------------------------- ------------------------------------------
STREET OR P.O. BOX TELEPHONE (DURING THE DAY)
-------------------------------------------------- ------------------------------------------
CITY STATE ZIP CODE CITIZEN OF
===================================================================================================
2 DISTRIBUTIONS All distributions are reinvested in shares of the Fund unless you elect otherwise.
[ ] Payment Order. Dividends and redemptions should be wired to the following bank rather than the
registered owner.
-------------------------------------------------- ------------------------------------
BANK NAME ACCOUNT NUMBER
--------------------------------------------------
--------------------------------------------------
ADDRESS
--------------------------------------------------
CITY STATE ZIP CODE
</TABLE>
================================================================================
3 AUTOMATED ACCOUNT SERVICES (This section must be completed or redemption
requests can only be accepted in writing)
A. EXPEDITED TELEPHONE REDEMPTIONS
[ ] I authorize the Fund, upon receipt of instructions received by telephone
from any person, to redeem shares from my account to wire the proceeds
of redemptions to my commercial bank account as follows. I understand,
as set forth in the prospectus, that shareholders bear the risk of loss
with respect to fraudulent telephone redemptions (subject to the terms
and conditions set forth in the prospectus).
Wires: Minimum $
---------------.
B. AUTOMATED DIVIDEND PROGRAMS
I authorize the Fund to:
[ ] Deposit distributions from my Fund Account into the bank account
indicated (subject to the terms and conditions outlined in the
Prospectus). NOTE: IF NAME OF BANK ACCOUNT IS OTHER THAN THE
REGISTRATION OWNER OF THE FUND ACCOUNT, THE SIGNATURE GUARANTEE IN #4
MUST BE COMPLETED.
================================================================================
X-1
<PAGE> 78
- --------------------------------------------------------------------------------
4 SIGNATURE AND BACKUP WITHHOLDING CERTIFICATE
I certify that I am of legal age and have received and read the Fund's
current prospectus. Under penalty of perjury, I certify that (1) the number
shown on this application form is the correct taxpayer identification number
and (2) I am not subject to backup withholding because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or
the IRS has notified me that I am no longer subject to backup withholding.
<TABLE>
<S> <C>
Signature Guarantee (if required)
--------------------------------------- --------------------- ------------------------------------------------
SIGNATURE DATE
--------------------------------------- --------------------- ------------------------------------------------
JOINT OWNER DATE
</TABLE>
You must cross out item (2) above if you have been notified by the IRS that
you are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
5 COMPLETED BY ACCOUNT EXECUTIVE
<TABLE>
<S> <C>
----------------------------------------------------- ---------------------------------
NAME OF VAN KAMPEN ACCOUNT EXECUTIVE TELEPHONE
-----------------------------------------------------
OFFICE LOCATION
</TABLE>
<TABLE>
<S> <C>
VK Account Number/Date
------------------------------------------------
------------------------------------------------
</TABLE>
X-2
<PAGE> 79
INSTITUTIONAL APPLICATION
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION
<TABLE>
<S> <C>
Mail Application to:
INITIAL INVESTMENT($500,000 Minimum) Edward Treichel, Sr., VP
Wire instructions will be supplied upon receipt of EXPLORER INSTITUTIONAL FUNDS(SM)
application Institutional Asset Management
Explorer Institutional Active 4th Floor
Core Fund (7481) Amount: $_____________ 1 Parkview Plaza
PO Box 5555
Explorer Institutional Limited Oakbrook Terrace, IL 60181-5555
Duration Fund (7482) Amount:$______________ Phone # 1-800-822-3699
------------------------------------------------------------
</TABLE>
A. CORPORATION, ORGANIZATION, PARTNERSHIP, FIDUCIARY, TRUST, ETC.
- -------------------------------------------------- -------------------------
NAME TAX IDENTIFICATION NUMBER
- -------------------------------------------------- -----------------------
NAME(S) OF TRUSTEES/BENEFICIARY(IES) TO BE DATE OF TRUST AGREEMENT
INCLUDED IN REGISTRATION
- --------------------------------------------------------------------------------
2 DISTRIBUTIONS All distributions are reinvested in shares of the Fund unless
you elect otherwise.
[ ] Payment Order. Dividends and redemptions should be wired to the
following bank rather than the registered owner.
<TABLE>
<S> <C>
------------------------------------------------------------ ------------------------------------
BANK NAME ACCOUNT NUMBER
------------------------------------------------------------
ADDRESS
------------------------------------------------------------
CITY STATE ZIP CODE
</TABLE>
- --------------------------------------------------------------------------------
3 AUTOMATED ACCOUNT SERVICES (This section must be completed or redemption
requests can only be accepted in writing)
A. EXPEDITED TELEPHONE REDEMPTIONS
[ ] I authorize the Fund, upon receipt of instructions received by telephone
from any person, to redeem shares from my account to wire the proceeds
of redemptions to my commercial bank account as follows. I understand,
as set forth in the prospectus, that shareholders bear the risk of loss
with respect to fraudulent telephone redemptions (subject to the terms
and conditions set forth in the prospectus).
Wires: minimum $ ______________.
B. AUTOMATED DIVIDEND PROGRAMS
I authorize the Fund to:
[ ] Deposit distributions from my Fund Account into the bank account
indicated (subject to the terms and conditions outlined in the
Prospectus). NOTE: IF NAME OF BANK ACCOUNT IS OTHER THAN THE REGISTERED
OWNER OF THE FUND ACCOUNT, THE SIGNATURE GUARANTEE IN #4 MUST BE
COMPLETED.
- --------------------------------------------------------------------------------
X-3
<PAGE> 80
- --------------------------------------------------------------------------------
4 SIGNATURE AND BACKUP WITHHOLDING CERTIFICATE
I certify that I am of legal age and have received and read the Fund's
current prospectus. Under penalty of perjury, I certify that (1) the number
shown on this application form is the correct taxpayer identification number
and (2) I am not subject to backup withholding because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or
the IRS has notified me that I am no longer subject to backup withholding.
<TABLE>
<S> <C> <C>
Signature Guarantee (if required)
--------------------------------------- --------------------- ------------------------------------------------
SIGNATURE DATE
--------------------------------------- --------------------- ------------------------------------------------
JOINT OWNER DATE
</TABLE>
You must cross out item (2) above if you have been notified by the IRS that
you are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
----------------------------------------------------------------------------
5 COMPLETED BY ACCOUNT EXECUTIVE
<TABLE>
<S> <C>
----------------------------------------------------- ---------------------------------
NAME OF VAN KAMPEN ACCOUNT EXECUTIVE TELEPHONE
-----------------------------------------------------
OFFICE LOCATION
</TABLE>
<TABLE>
<S> <C>
VK Account Number/Date
------------------------------------------------
------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
X-4
<PAGE> 81
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<S> <C> <C>
(a)(1) Agreement and Declaration of Trust+
(2) Form of Amendment to the Agreement and Declaration of Trust(1)
(3) Amended Certificate of Designation -- Active Core Fund(2)
(4) Amended Certificate of Designation -- Limited Duration Fund(2)
(b) By-Laws of the Registrant+
(c) Specimen Share Certificate
(1) Active Core Fund+
(2) Limited Duration Fund+
(d) Investment Advisory Agreement
(1) Active Core Fund(5)
(2) Limited Duration Fund(5)
(e) Distribution Agreement
(1) Active Core Fund(5)
(2) Limited Duration Fund(5)
(f) (1) Form of Trustee Deferred Compensation Plan+
(2) Form of Trustee Retirement Plan+
(g)(1) Custodian Contract(3)
(2) Transfer Agency and Service Agreement(5)
(h)(1) Fund Accounting Agreement(4)
(2) Amended and Restated Legal Services Agreement(5)
(i) Opinion and Consent of Skadden, Arps, Meagher & Flom
(1) Active Core Fund+
(2) Limited Duration Fund+
(j) Consent of KPMG LLP+
(k) Not Applicable
(l) Investment Letter+
(m) Not Applicable
(n) Financial Data Schedules+
(o) Not Applicable
(p) Power of Attorney(6)
(z)(1) List of Certain Investment Companies in Response to Item 27(a)(7)
(2) List of Officers and Directors of Van Kampen Funds Inc. in Response
to Item 27(b)(7)
</TABLE>
- -------------------------
(1) Incorporated by reference to the Trust's Registration Statement on Form
N-1A, File No. 33-84942, filed on November 13, 1995.
(2) Incorporated by reference to the Trust's Registration Statement
Post-Effective Amendment No. 1 of Form N-1A, File No. 33-84942, filed on
April 28, 1997.
(3) Incorporated by reference to Van Kampen American Capital Growth and Income
Fund Registration Statement Post-Effective Amendment No. 25 of Form N-1A,
File No. 2-21657, filed on March 27, 1998.
(4) Incorporated by reference to Van Kampen American Capital Comstock Fund
Registration Post-Effective Amendment No. 50 of Form N-1A, File No. 2-27778,
filed on April 27, 1998.
(5) Incorporated by reference to the Trust's Registration Statement
Post-Effective Amendment No. 2 of Form N-1A, File No. 33-84942, filed on
April 30, 1998.
(6) Incorporated by reference to the Trust's Registration Statement
Post-Effective Amendment No. 3 of Form N-1A, File No. 33-84942, filed March
1, 1999.
(7) Incorporated herein by reference to Van Kampen Harbor Fund's Post-Effective
Amendment No. 81 to Registrant's Registration Statement on Form N-1A, File
Numbers 2-12685 and 811-734, filed on April 29, 1999.
+ Filed herewith.
C-1
<PAGE> 82
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
See the Statement of Additional Information.
ITEM 25. INDEMNIFICATION:
Reference is made to Article 8 Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8 Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers or
trustees protecting such person from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met; (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under Securities Act of
1933 (the "Act") may be permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
See "How the Funds Are Managed" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation or employment of a substantial nature of each of the officers and
Directors of Van Kampen Management Inc., reference is made to the Adviser's
current Form ADV filed under the Investment Advisers Act of 1940, incorporated
herein by reference.
C-2
<PAGE> 83
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The sole principal underwriter is Van Kampen Funds Inc. which acts as a
principal underwriter for the investment companies and the unit investment
trusts as set forth in Exhibit (z)(1) hereto.
(b) Van Kampen Funds Inc., the only principal underwriter for Registrant,
is an affiliated person of an affiliated person of the Fund. The name, principal
business address and positions and offices with Van Kampen Funds Inc. of each of
the officers and directors thereof are set forth in Exhibit (z)(2). Except as
disclosed under the heading, "Trustees and Officers" in Part B of this
Registration Statement, none of such persons has any position or office with
Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555, or at Van Kampen Investors
Services Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153 or at
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii)
by the Adviser, will be maintained at its offices, located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555; and (iii) by Van Kampen
Funds Inc., the principal underwriter, will be maintained at its offices located
at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES:
Not applicable.
ITEM 30. UNDERTAKINGS:
Not applicable.
C-3
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE EXPLORER INSTITUTIONAL
TRUST, certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Oakbrook Terrace, and the State of Illinois, on April 29, 1999.
THE EXPLORER INSTITUTIONAL TRUST
/S/ DENNIS J. MCDONNELL
By:
--------------------------------------
Dennis J. McDonnell
Chairman, Trustee and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on April 29, 1999 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Principal Executive Officer
/s/ DENNIS J. MCDONNELL Chairman, Trustee and President
- ------------------------------------------------------
Dennis J. McDonnell
Chief Financial and Accounting Officer
/s/ JOHN L. SULLIVAN* Vice President, Treasurer and Chief Financial
- ------------------------------------------------------ Officer
John L. Sullivan
Trustees
/s/ DAVID C. ARCH* Trustee
- ------------------------------------------------------
David C. Arch
/s/ ROD DAMMEYER* Trustee
- ------------------------------------------------------
Rod Dammeyer
/s/ HOWARD J KERR* Trustee
- ------------------------------------------------------
Howard J Kerr
/s/ STEVEN MULLER* Trustee
- ------------------------------------------------------
Steven Muller
/s/ THEODORE A. MYERS* Trustee
- ------------------------------------------------------
Theodore A. Myers
/s/ DON G. POWELL* Trustee
- ------------------------------------------------------
Don G. Powell
/s/ HUGO SONNENSCHEIN* Trustee
- ------------------------------------------------------
Hugo Sonnenschein
/s/ WAYNE W. WHALEN* Trustee
- ------------------------------------------------------
Wayne W. Whalen
</TABLE>
* Signed by Dennis J. McDonnell pursuant to power of attorney, as previously
filed.
<TABLE>
<C> <S>
/s/ DENNIS J. MCDONNELL April 29, 1999
- ------------------------------------------------------
Dennis J. McDonnell
Attorney-in-fact
</TABLE>
C-4
<PAGE> 85
THE EXPLORER INSTITUTIONAL TRUST
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 4 TO
FORM N-1A SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON
APRIL 29, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
(a) (1) Agreement and Declaration of Trust
(b) By-Laws of the Registrant
(c) Specimen Share Certificate
(1) Active Core Fund
(2) Limited Duration Fund
(f) (1) Form of Trustee Deferred Compensation Plan
(f) (2) Form of Trustee Retirement Plan
(i) Opinion and Consent of Skadden, Arps, Meagher & Flom
(1) Active Core Fund
(2) Limited Duration Fund
(j) Consent of KPMG LLP
(l) Investment Letter
(n) Financial Data Schedules
</TABLE>
C-5
<PAGE> 1
Exhibit (a)(1)
THE EXPLORER INSTITUTIONAL TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Oakbrook Terrace, Illinois,
this 30th day of September, 1994, by the Trustees hereunder, and by the holders
of shares of beneficial interest to be issued hereunder as hereinafter provided.
WHEREAS, this Trust has been formed to carry on business as set forth
more particularly hereinafter;
WHEREAS, this Trust is authorized to issue its shares of beneficial
interest in separate series, each separate series to be a sub-trust hereunder,
all in accordance with the provisions hereinafter set forth; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as Trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities, and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares of beneficial interest in this Trust or sub-trusts created
hereunder as hereinafter set forth.
ARTICLE I
The Trust
1.1 Name. This Trust shall be known as the "The Explorer Institutional
Trust" and the Trustees shall conduct the business of the Trust under that name
or any other name or names as they may from time to time determine.
1.2. Definitions. As used in this Declaration, the following terms shall
have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Majority Shareholder Vote", "Person" and "Principal Underwriter" shall
have the meanings given them in the 1940 Act.
"Declaration" shall mean this Declaration of Trust as amended from time
to time.
"Fundamental Policies" shall mean the investment policies and
restrictions as set forth from time to time in the Prospectus of the Trust or
any Series and designated as fundamental policies therein. "Person" shall mean
and include individuals, corporations, partnerships, trusts, associations, joint
ventures and other entities, whether or not all entities, and governments and
agencies and politic subdivisions thereof.
"Prospectus shall mean the currently effective Prospectus of the Trust
or of any Series under the Securities Act of 1933, as amended.
<PAGE> 2
"Series" shall mean the separate sub-trusts that may be established and
designated as series pursuant to Section 6.2 or any one of such sub-trusts.
"Shareholders" shall mean as of any particular time the holders of
record of outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of
interest into which the beneficial interest in any Series of the Trust shall be
divided from time to time and includes fractions of Shares as well as whole
Shares. All references to Shares shall be deemed to be Shares of any or all
Series as the context may require.
"Trust" shall mean the Trust established by this Declaration, as amended
from time to time, inclusive of each and every sub-trust established as a Series
hereunder.
"Trustees" shall mean the signatories to this Declaration, so long as
they shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly elected or appointed and have
qualified as trustees in accordance with the provisions hereof and are then in
office.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust, any Series thereof or the Trustees
in such capacity.
The "1940 Act" refers to the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, as amended from time to time.
ARTICLE 11
Trustees
2.1. Number and Qualification. The number of Trustees shall be given
from time to time by written instrument signed by a majority of the Trustees
then in office, provided, however, that the number of Trustees shall in no event
be less than three or more than eleven. No reduction in the number of Trustees
shall have the effect of removing any Trustee from office prior to the
expiration of his term. A Trustee shall be an individual at least 21 years of
age who is not under legal disability. Trustees need not own Shares and may
succeed themselves in office.
2.2 Term and Election. Except for the Trustees named herein or appointed
to fill vacancies pursuant to Section 2.4 hereof, the Trustees shall be elected
by written ballot at the initial meeting of Shareholders. Subject to Section 2.4
hereof, each Trustee named herein, or elected or appointed pursuant to the terms
hereof shall hold office until his successor has been elected at such meetings
and has qualified to serve as Trustee. Election of Trustees shall be by the
affirmative vote of the holders of a plurality of the Shares present in person
or by proxy. Each individual elected or appointed as a Trustee of the Trust
shall by such election or appointment also be elected or appointed, as the case
may be as a Trustee of each Series of the Trust then in existence. The election
or appointment of any Trustee (other than an individual who was serving as a
Trustee immediately prior thereto) shall not become effective unless and until
such person shall have in writing accepted his election and agreed to be bound
by the terms of this Declaration.
2
<PAGE> 3
2.3 Resignation and Removal. Any Trustee may resign his trust (without
need for prior or subsequent accounting except in the event of removal for
cause) by an instrument in writing signed by him and delivered or mailed to the
Chairman, if any, the President or the Secretary and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the minimum number required
by Section 2.1 hereof) with cause, by the action of two-thirds of the remaining
Trustees or the holders of two-thirds of the Shares. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
purpose of conveying to the Trust or the remaining Trustees any Trust Property
held in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and deliver on his
behalf such documents as the remaining Trustees shall require as provided in the
preceding sentence.
2.4 Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
this Declaration. Any vacancy created by an increase in Trustees may be filled
by the appointment of an individual having the qualifications described in this
Article made by a written instrument signed by a majority of the Trustees then
in office or by election by the Shareholders. However, if after filling the
vacancy, more than one-third of the Trustees have not been elected by the
Shareholders of the Trust, such appointment is subject to ratification by the
Shareholders of the Trust. Whenever a vacancy in the number of Trustees shall
occur, until such vacancy is filled as provided herein, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this
Declaration.
2.5. Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, if any, the President, the Secretary or any two
Trustees. Regular meetings of the Trustees may be held without call or notice at
a time and place fixed by the By-Laws or by resolution of the Trustees. Notice
of any other meeting shall be mailed not less than 4 hours before the meeting or
otherwise actually delivered orally or in writing not less than 24 hours before
the meeting, but may be waived in writing by any Trustee either before or after
such meeting. The attendance of a Trustee at a meeting shall constitute a waiver
of notice of such meeting except where a Trustee attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting has not been lawfully called or convened. The Trustees may act
with or without a meeting. a quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in this Declaration of
Trust, any action of The Trustees May be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without meeting by
written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
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With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons in any action to be taken may be
counted for quorum purposes under this Section and shall be entitled to vote to
the extent not prohibited by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in a meeting pursuant to any such
communications systems shall constitute presence in person at such meeting.
2.6. Officers. The Trustees shall annually elect a President, a
Secretary and a Treasurer and may elect a Chairman. The Trustees may elect or
appoint or may authorize the Chairman, if any, or President to appoint such
other officers or agents with such powers as the Trustees may deem to be
advisable. A Chairman shall, and the President, Secretary and Treasurer may, but
need not, be a Trustee.
ARTICLE III
Powers of Trustees
3.1 General. The Trustees shall have exclusive and absolute control over
the Trust Property and over the business of the Trust or any Series thereof to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion are proper for conducting the business of the Trust or any
Series thereof. The enumeration of any specific power herein shall not be
construed as limiting the aforesaid power. Such powers of the Trustees may be
exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power, subject to the
fundamental Policies in effect from time to time with respect to the Trust or a
particular sub-trust, to:
(a) manage, conduct, operate and carry on the business of a investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of any and all sorts of property, tangible
or intangible, including but not limited to securities of any type
whatsoever, whether equity or non-equity, of any issuer, evidences of
indebtedness of any person and any other rights, interests, instruments
or property of any sort and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such
investment of every kind and description, including, without limitation,
the right to consent and otherwise act with respect thereto, with power
to designate one or more Persons to exercise any of said rights, powers
and privileges in respect of any of said investments. The Trustees shall
not be limited by any law limiting the investments which may be made by
fiduciaries.
3.3. Legal Title. Legal title to all the Trust Property shall be vested
in the Trustees as joint tenants except that the Trustees shall have power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust or any Series thereof, or in
the name of any other Person as nominee, custodian or pledgee, on such terms as
the Trustees may
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determine, provided that the interest of the Trust or any Series thereof therein
is appropriately protected
The right, title and interest of the Trustees in the Trust property
shall vest automatically in each person who may hereafter become a Trustee upon
his due election and qualification. Upon the ceasing of any person to be a
Trustee for any reason, such person shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been, executed and delivered.
3.4. Issuance and Repurchase of Shares. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer, and otherwise deal in, Shares, including shares
in fractional denominations, and, subject to the more detailed provisions set
forth in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
applicable Series of the Trust whether capital or surplus or otherwise, to the
full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
3.5. Borrowing Money. Subject to the Fundamental Policies in effect from
time to time with respect to the Trust or a particular Series, the Trustees
shall have the power to borrow money or otherwise obtain credit and to secure
the same by mortgaging, pledging or otherwise subjecting a security the assets
of the Trust of any Series thereof, including the lending of portfolio of
securities, and to endorse, guarantee, or undertake the performance of any
obligation, contract or engagement of any other person, firm, association or
corporation; provided, however, that the assets of any particular Series shall
not be used as security for a credit extended to any other Series.
3.6. Delegation Committees. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Trust and
the Trust Property, to delegate from time to time to such their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of Trust or the names of the
Trustees or otherwise as the Trustees may deem expedient, to the same extent as
such delegation is permitted to directors of a Massachusetts business
corporation and is permitted by the 1940 Act.
3.7. Collection and Payment. The Trustees shall have power to collect
all property due to the Trust or any Series thereof; to pay claims, including
taxes, against the Trust Property, the Trust or any Series thereof, the Trustees
or any officer, employee or agent of Trust; to prosecute, defend, compromise or
abandon any claims relating to the Trust Property, the Trust or any Series
thereof, or the Trustees or any officer, employee or agent of the Trust; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust or any Series thereof; and to enter into releases,
agreements and other instruments. Except to the extent required for a
Massachusetts business corporation, the Shareholders shall have no power to vote
as to whether or not a court action, legal proceeding or claim should or should
not be brought or maintained derivatively or as a class action on behalf the
Trust or the Shareholders.
3.8. Expenses. The Trustees shall have power to incur and pay out the
assets or income of the Trust or the appropriate Series thereof, any expenses
which in the opinion of the Trustees are necessary or incidental to carry out
any of the purposes of this Declaration, and the business of the Trust, and to
pay reasonable compensation from the funds of the Trust to themselves as
Trustees. The
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Trustees shall fix the compensation of all officers, employees and Trustees. The
Trustees may pay themselves such compensation or special services, including
legal, underwriting, syndicating and brokerage services, as they in good faith
may deem reasonable and reimbursement for expenses reasonably incurred by
themselves on behalf of the Trust. The Trustees shall have the power, as
frequently as they may determine, to cause each Shareholder, or each Shareholder
on any particular Series, to pay directly, in advance or arrears, for charges to
the custodian or transfer, Shareholder servicing or similar agent of such
Series, a pro rata amount as defined from time to time by the Trustees, by
setting off such charges due from such Shareholder from declared but unpaid
dividends owed such Shareholder and/or by reducing the number of shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
3.9. By-Laws. The Trustees may adopt and from time to time amend or
repeal By-Laws for the conduct of the business of the Trust.
3.10. Miscellaneous Powers. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust or any Series thereof; (b) enter into
joint ventures, partnerships and any other combinations or associations; (c)
purchase, and pay for out of Trust Property, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisors,
distributors, selected dealers or independent contractors of the Trust or any
Series thereof against all claims arising by reason of holding any such position
or by reason of any action taken or omitted by any such Person in such capacity,
whether or not constituting negligence, or whether or not the Trust would have
the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing, share purchase, and other retirement, incentive and
benefit plans for any Trustees, officers, employees and agents of the Trust; (e)
make donations, irrespective of benefit to the Trust, for charitable, religious,
educational, scientific, civic or similar purposes; (f) to the extent permitted
by law, indemnify any Person with whom the Trust or any Series thereof has
dealings, including any advisor, administrator, manager, distributor or selected
dealer, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust and the method in which its accounts shall be kept; and
(i) adopt a seal for the Trust but the absence of such seal shall not impair the
validity of any instrument executed on behalf of the Trust.
3.11. Further Powers. The Trustees shall have power to conduct the
business of the Trust or any Series thereof and carry on its operations in any
and all of its branches and maintain offices both within and without the
Commonwealth of Massachusetts, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumental ties
of the United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust or any Series thereof
although such things at not herein specifically mentioned. Any determination as
to what is in the interests of the Trust or any Series thereof made by the
Trustees in good faith shall be conclusive. In construing the provisions of this
Declaration, the presumption shall be in favor of a grant of power of the
Trustees. The Trustees will nut be required to obtain any court order to deal
with the Trust Property.
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ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1. Advisory and Management Arrangements. Subject to a Majority
shareholder vote of the applicable Series, the Trustees may in their discretion
from time to time enter into advisory, administration, or management contracts
whereby the other party to such contract shall undertake to furnish the Trustees
such advisory, administrative and management services, with respect to a Series
as the Trustees shall from time to time consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration of Trust, the Trustees may
authorize any advisor, administrator or manager (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
investment transactions with respect to the assets of any Series on behalf of
the Trustees to the full extent of the power of the Trustees to effect such
transactions or may authorize any officer, employee or Trustee to effect such
transactions pursuant to recommendations of any such advisor administrator or
manager (and all without further action by the Trustees). Any such investment
transaction shall be deemed to have been authorized by all of the Trustees.
4.2. Distribution Arrangements. Subject to compliance with the 1940 Act,
the Trustees may adopt and amend or repeal from time to time and implement a
plan of distribution pursuant to Rule l2b-1 of the 1940 Act which plan will
provide for the payment of specified marketing, distribution and shareholder
relations expenses of the Trust and any or all Series and their agents and the
agents of such agents. The Trustees may in their discretion from time to time
enter into one or more contracts, providing for the sale of the Shares of the
Trust or any Series of the Trust to net the Trust not less than the par value
per Share, whereby the Trust may either agree to sell the Shares to the other
party to the contract or appoint such other party its sales agent for such
Shares. In either case, the contract shall be on such terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Article IV or the By-Laws; and such contract may also provide
for the repurchase or sale of Shares by such other party as principal or as
agent of the Trust and may provide that such other party may enter into selected
dealer agreements with registered securities dealers and brokers and servicing
and similar agreements with persons who are not registered securities dealers to
further the purpose of the distribution or repurchase of the Shares and any plan
of distribution adopted by the Trustees.
4.3. Parties to Contract. Any contract of the character described in
Section 4.1 and 4.2 of this Article IV or in Article VII hereof may be entered
into with any Person, although one or more of the Trustees, officers or
employees of the Trust may be an officer, director, Trustee, shareholder, or
member of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article IV
or the By-Laws. The same Person may be the other party to contracts entered into
pursuant to Section 4.1 and 4.2 above or Article VII, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.3.
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ARTICLE V
Limitations of Liability of
Shareholders, Trustees and Others
5.1. No Personal Liability of Shareholders, Trustees, etc. No
shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust or any Series thereof. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other than
the Trust or its Shareholders, in connection with Trust Property or the affairs
of the Trust or any Series thereof, save only that arising from his bad faith,
willful misfeasance, gross negligence or reckless disregard of his duty to such
Person; and all such Persons shall look solely to the Trust Property belonging
to the applicable Series for satisfaction of claims of any nature arising in
connection with the affairs of the Trust or any Series thereof. In any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability, he shall
not on account thereof, be held to any personal liability. The Trust shall
indemnify and hold each Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by reason of his being
or having been a Shareholder, and shall reimburse such Shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claims
or liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein. The rights accruing to Shareholder hereunder shall
not prevent the Trustees from requiring each Shareholder to pay his pro rata
portion of the applicable Series' custodian, transfer, shareholder servicing or
similar agent as permitted by Section 3.8 hereof.
5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust, any Series, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of Trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties.
5.3. Mandatory Indemnification. The Trust shall indemnify each of itsfp
Trustees, officers, employees, and agents (including persons who serve at its
request as directors, officers or Trustees of another organization in which it
has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or investigative body, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having been
such a Trustee, officer, employee or agent, except with respect to any matter as
to which he shall have been adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the Trust or the
Series in question and furthermore, in the case of any criminal proceeding, he
had no reasonable cause to believe that the conduct was unlawful, provided that
(1) no indemnitee shall be indemnified hereunder against any liability to the
Trust or any Series or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his position, (2) as to any matter disposed of by settlement or a
compromise payment by such indemnitee, pursuant to a consent decree or
otherwise, no indemnification either for said
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Payment or for any other expenses shall be provided unless there has been a
determination that such compromise is in the best interests of the Trust or the
Series involved and that such indemnitee appears to have acted in good faith in
the reasonable belief that his action was in the best interests of the Trust or
the Series involved and did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
position and (3) with respect to any action, suit or other proceeding
voluntarily prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding by
such indemnitee was authorized by a majority of the Trustee. All determinations
that the applicable standards of conduct have been met for indemnification
hereunder, or that advance payments in connection with the expense of defending
any action shall be authorized, shall be made (a) by a final decision on the
merits by a court or other body before whom the proceeding was brought that such
indemnitee is not liable by reason of disabling conduct or, (b) in the absence
of such a decision, by (i) a majority vote of a quorum consisting of Trustees
who are neither "interested persons" of the Trust (as defined in Section
2(a)(19) of the 1940 Act) nor parties to the proceeding ("disinterested
non-party Trustees"), or (ii) if such a quorum is not obtainable or even, if
obtainable, if a majority vote of such quorum so directs, independent legal
counsel in a written opinion. All determinations that advance payments in
connection with the expense of defending any proceeding shall be authorized and
shall be made in accordance with clause (b) above.
The rights accruing to any indemnitee under these provisions shall not
exclude any other right to which he may be lawfully entitled. The Trustee may
make advance payments in connection with the expense of defending any action
with respect to which indemnification might be sought under this Section,
provided that the Trustees shall receive a written affirmation of the
indemnified indemnitee's good faith belief that the standard of conduct
necessary for indemnification has been met and a written undertaking to
reimburse the Trust or the appropriate Series in the event it is subsequently
determined that he is not entitled to such indemnification and provided further
that the Trustees determine that the facts then known to them would not preclude
indemnification. In addition, at least one of the following conditions must be
met:
(a) the indemnitee shall provide a security for his undertaking,
(b) the Trust or applicable Series shall be insured against losses
arising by reason of any lawful advances; or
(c) a majority of a quorum of the disinterested non-party, Trustees or
an independent legal counsel in a written opinion, shall determine,
based on a review of readily available facts (as opposed to a full trial
type inquiry), that there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
5.4. No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or other security for the performance of any of his
duties hereunder
5.5 No Duty of Investigation: Notice in Trust Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the Trustees or
with any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
undertaking, instrument, certificate, Share, other security of the Trust or any
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Series, and every other act or thing whatsoever executed in connection with the
Trust or any Series shall be conclusively taken to have been executed or done by
the executors thereof only in their capacity as Trustees under this Declaration
or in their capacity as officers, employees or agents of the Trust. Every
written obligation, contract, undertaking, instrument, certificate, Share, other
security of the Trust or any Series made or issued by the Trustees or by any
officers, employees or agents of the Trust, in their capacity as such, shall
contain an appropriate recital to the effect that the Shareholders, Trustees,
officers, employees or agents of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim thereunder, and appropriate references
shall be made therein to this Declaration, and may contain any further recital
which they may deem appropriate, but the omission of such recital shall not
operate to impose personal liability on any of the Trustees, Shareholders,
officers, employees or agents of the Trust. The Trustees may maintain insurance
for the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort or other liability, and such other insurance as the Trustees in
their sole judgment shall deem advisable.
5.6. Reliance on Experts, etc. Each Trustee and officer or employee of
the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by any advisor, administrator, manager,
distributor, selected dealer, accountant, appraiser or other expert or
consultant selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE VI
Shares of Beneficial Interest
6.1. Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into an unlimited transferable shares of beneficial interest
without par value. All Shares issued in accordance with the terms hereof,
including, without limitation, Shares issued in connection with a dividend in
Shares or a split of Shares, shall be fully paid and, except as provided in the
last sentence of Section 3.8, nonassessable when, the consideration (if any)
therefor shall have been received by the Trust.
6.2. Series Designation. The Trustees, in their discretion from time to
time, may authorize the division of Shares into two or more Series, each Series
relating to a separate portfolio of investments and each of which Series shall
be a separate and distinct sub-trust of the Trust. Each Series so established
hereunder shall be deemed to be a separate Trust under the provisions of
Massachusetts law. The Trustees shall have exclusive power without the
requirement of Shareholder approval to establish and designate such separate and
distinct Series and to fix and determine the relative rights and preferences as
between the different Series. The Trustees shall have exclusive power to add to,
delete, replace or otherwise modify any provisions of this Declaration relating
to any Shares if prior to adopting any such change the Trustees shall have
determined that such change is consistent with the fair and equitable treatment
of the affected Shareholders and that Shareholder approval is not required by
this Declaration or applicable law or the Trustees shall have obtained
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Shareholder approval for such change. All references to Shares in this
Declaration shall be deemed to be Shares of any or all Series as the context may
require.
If the Trustees shall create sub-trusts and divide the Shares into one
or more Series, the following provisions shall be applicable:
(a) The number of Shares of each Series that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued Shares
or any Shares previously issued and reacquired of any Series into one or
more Series that may be established are designated from time to time.
The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may
determine, or cancel any shares of any Series reacquired by the Trust at
their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property
of each Series that may be established shall be governed by Section 3.2
of this Declaration.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits,
and proceeds thereof, including any proceeds derive from the sale,
exchange or liquidation of such assets, and any funds or payment derived
from any reinvestment of such proceeds in whatever form the same may be,
shall be held by the Trustees and Trust for the benefit of the
Shareholders of such Series and, subject to the rights of creditors of
such Series only, shall irrevocably belong to that Series for all
purposes, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series, the Trustees shall
allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they,
in their sole discretion, deem fair and equitable, and anything so
allocated to a Series shall belong to such Series. Each such allocation
by the Trustees shall be conclusive and binding upon the Shareholders of
all Series for all purposes.
(d) The assets belonging to each particular Series shall be charged with the
liabilities of the Trust in respect of that Series and all expenses, costs,
charges and reserves attributable to that Series and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. Under no circumstances shall the assets allocated
or belonging to a particular Series be charged with any liabilities attributable
to another Series. Any creditor may look only to the assets of the particular
Series with respect to which such person is a creditor for satisfaction of such
creditor's debt.
(e) The power of the Trustees to pay dividends and make distributions with
respect to any one or more Series shall be governed by Section 9.2 of this
Trust. Dividends and distributions on Shares of a
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particular Series may be paid with such frequency as the Trustees may determine,
which may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Series, from such of the income and
capital gains, accrued or realized, from the assets belonging to that Series, as
the Trustees may determine, after providing for actual and accrued liabilities
belonging to that Series. All dividends and distributions on Shares of a
particular Series shall be distributed pro rata to the holders of that Series in
proportion to the number of Shares of that Series held by such holders at the
date and time of record established for the payment of such dividends or
distributions. The establishment and designation of any Series of Shares shall
be effective upon the execution by a majority of the then Trustees of an
instrument setting forth the establishment and designation of such Series. Such
instrument shall also set forth any rights and preferences of such Series which
are in addition to the rights and preferences of Shares set forth in this
Declaration. Any time that there are no Shares outstanding of any particular
Series previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that Series and the establishment
and designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
6.3. Rights of Shareholders. The Shares shall be personal property
giving only the rights in this Declaration specifically set forth. The ownership
of the Trust Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than beneficial interest
conferred by their Shares with respect to a particular Series, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to share or assume
any losses of the Trust or, subject to the right of the Trustees to charge
certain expenses directly to Shareholders, as provided in the last sentence of
Section 3.8, suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall not entitle the holder to preference, preemptive,
appraisal, conversion or exchange rights (except for rights of appraisal
specified in Section 11.4). No Shares shall have any priority or preference over
any other Share of the same Series with respect to dividends or distributions or
upon termination of the Trust or of such Series.
6.4. Trust Only. It is the intention of the Trustees to create only the
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
6.5. Issuance of Shares. The Trustees, in their discretion, may from
time to time without vote of the Shareholders issue Shares with respect to any
series that may have been established pursuant to Section 6.2, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount not less than par value and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may determine, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses. The Trustees may from time to time
divide or combine the Shares of any Series into a greater or lesser number
without thereby changing the proportionate beneficial interest in such Series of
the Trust. Issuances and redemptions of Shares may be made in whole Shares
and/or 1/1,000ths of a Share or multiples thereof.
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6.6. Register of Shares. A register shall be kept at the Trust or any
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Separate registers shall be established and maintained for each Series
of the Trust. Each such registers shall be conclusive as to who are the holders
of the Shares of the applicable Series and who shall be entitled to receive
dividends or distributions or otherwise to exercise or enjoy the rights of
Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein provided,
until he has given his address to a transfer agent or such other officer or
agent of the Trustees as shall keep the register for entry thereon. It is not
contemplated that certificates will be issued for the Shares; however, the
Trustees, in their discretion, may authorize the issuance of share certificates
and promulgate appropriate rules and regulations as to their use.
6.7. Transfer Agent and Registrar. The Trustees shall have power to
employ a transfer agent or transfer agents, and a registrar or registrars, with
respect to the Shares of the various Series. The transfer agent or transfer
agents may keep the applicable register and record therein the original issues
and transfers, if any, of the said shares of the applicable Series. Any such
transfer agent and registrars shall perform the duties usually performed by
transfer agents and registrars of certificates of stock in a corporation, as
modified by the Trustees.
6.8. Transfer of Shares. Shares shall be transferable on the records of
the Trust only by the record holder thereof or by his agent thereto duly
authorized in writing, upon delivery to the Trustees or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on
the applicable register of the Trust. Until such record is made, the Shareholder
of record shall be deemed to be the holder of such Shares for all purposes
hereof and neither the Trustees nor any transfer agent or registrar nor any
officer, employee or agent of the Trust shall be affected by any notice of the
proposed transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the applicable register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or a
transfer agent of the Trust, but until such record is made, the shareholder of
record shall be deemed to be the holder of such for all purposes hereof, and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
6.9. Notices. Any and all notices to which any Shareholder hereunder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the applicable register of the Trust.
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ARTICLE VII
Custodians
7.1. Appointment and Duties. The Trustee shall at all times employ a
custodian or custodians, meeting the qualifications for custodians for portfolio
securities of investment companies contained in the 1940 Act, as custodian with
respect to each Series of the Trust. Any custodian, acting with respect to one
or more Series, shall have authority as agent of the Trust or the Series with
respect to which it is acting, but subject to such restrictions, limitations and
other requirements, if any, as may be contained in the By-Laws of the Trust and
the 1940 Act:
(1) to hold the securities owned by the Trust or the Series and deliver
the same upon written order;
(2) to receive and receipt for any moneys due to the Trust or the Series
and deposit the same in its own banking department (if a bank) or
elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts of the
Trust or the Series and furnish clerical and accounting services;
(5) if authorized to do so by the Trustees, to compute the net income or
net asset value of the Trust or the Series; and
(6) if authorized to do so by the Trustees, to perform any other
services permitted by applicable law to be performed by custodians;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote of the Series
with respect to which the custodian is acting, the custodian shall deliver and
pay over all property of the Trust held by it as specified in such vote.
The Trustees may also authorize each custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall meet the qualifications for custodians
contained in the 1940 Act.
7.2. Central Certificate System. Subject to such rules, regulations and
order as the commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust or the Series in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within, the system are treated as tangible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the trust.
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ARTICLE VIII
Redemption
8.1. Redemptions. All outstanding Shares of any Series of the Trust may
be redeemed at the option of the holders thereof, upon and subject to the terms
and conditions provided in this Article VIII. The Trust shall, upon application
by any Shareholder or pursuant to authorization from any Shareholder of a
particular Series, redeem or repurchase from such Shareholder outstanding Shares
of such Series for any amount per share determined by the application of a
formula adopted for such purpose by the Trustees with respect to such Series
(which formula shall be consistent with the 1940 Act): provided that (a) such
amount per Share shall not exceed the cash equivalent of the proportionate
interest of each Share in the assets of the Series of the Trust at the time of
the repurchase or redemption and (b) if so authorized by the Trustees, the Trust
may, at any time and from time to time, charge fees for effecting such
redemption, at such rates as the Trustees may establish, as and to the extent
permitted under the 1940 Act, and may, at any time and from time to time,
pursuant to such Act, suspend such right of redemption. The procedures for
effecting redemption shall be as set forth in the Prospectus with respect to the
applicable Series from time to time.
8.2. Disclosure of Holding. The holders of Shares or other securities of
the Trust shall upon demand disclose to the Trustees in writing such information
with respect to direct and indirect ownership of Shares of other securities of
the Trust as the Trustees deem necessary to comply with the provisions of the
Internal Revenue Code, or to comply with the requirements of any other taxing
authority.
8.3. Redemptions of Small Accounts. The Trustees shall have the power to
redeem Shares of any Series at a redemption price determined in accordance with
Section 8.1, (i) if at any time the total investment in such account does not
have a value of at least such minimum amount as may be specified in the
Prospectus for such Series from time to time (ii) as provided by Section 3.8,
or (iii) to the extent a Shareholder owns Shares equal to or in excess of a
percentage of Shares of the Trust or any Series determined from time to time by
the Trustees and specified in the applicable Prospectus. In the event the
Trustees determine to exercise their power to redeem Shares provided in this
Section 8.3(i), the Shareholder shall be notified that the value of his account
is less than the applicable minimum amount and shall be allowed at least 30 days
to make an appropriate investment before redemption is processed.
ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
9.1. Net Asset Value. The net asset value of each outstanding Share of
each Series of the Trust shall be determined at such time or times on such days
as the Trustees may determine, in accordance with the 1940 Act, with respect to
each Series. The method of determination of net asset value shall be determined
by the Trustees and shall be as set forth in the Prospectus with respect to the
applicable Series. The power and duty to make the net asset value calculations
for any Series may be delegated by the Trustees. The power and duty to make the
daily calculations for any Series may be delegated by the Trustees to the
adviser, administrator, manager, custodian, transfer agent or such other person
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as the Trustees may determine. The Trustees may suspend the daily determination
of net asset value to the extent permitted by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from time to time
distribute ratably among the Shareholders of any Series such proportion of the
net profits, surplus (including paid-in surplus), capital, or assets with
respect to such Series held by the Trustees as they may deem proper. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the Shareholders of any Series additional Shares of
such Series in such manner, at such times, and on such terms as the Trustees may
deem proper. Such distribution may be among the Shareholders of record at the
time of declaring a distribution or among the Shareholders of record at such
later date as the Trustees shall determine and specify at the time of
declaration. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
In as much as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books, the above
provision shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
9.3. Power to Modify Foregoing Procedures. Notwithstanding any of the
foregoing provisions of this Article IX, the Trustees may prescribe, in their
absolute discretion except as may be required by the 1940 Act, such other bases
and times for determining the per share asset value of the Trust's Shares or net
income, or the declaration and payment of dividends and distributions as they
deem necessary or desirable for any reason, including to enable the Trust to
comply with any provision of the 1940 Act, or any securities association
registered under the Securities Exchange Act of 1934, or any order of exemption
issued by said Commission, all as in effect now or hereafter amended or
modified.
ARTICLE X
Shareholders
10.1. Meetings of Shareholders. Meetings of the Shareholders shall be
held at such place within or without the Commonwealth of Massachusetts on such
day and at such time as the Trustees shall designate from time to time. It is
contemplated that the Trust will not hold annual meetings of the Shareholders. A
Special Meeting of Shareholders may be called at any time by a majority of the
Trustees and shall be called by any Trustee for any proper purpose upon written
request of Shareholders of the Trust or such Series holding in the aggregate:
not less than 51 % of the outstanding Shares of the Trust or Series having
voting rights, such request specifying the purpose or purposes for which such
meeting is to be called; or, in the case of a meeting for the purpose of voting
on the question of removal of any trustee or trustees, upon written request of
Shareholders of the Trust holding in the aggregate not less than 10% of the
outstanding Shares of the Trust.
10.2. Voting. Shareholders shall have no power to vote on any matter
except matters on which a vote of Shareholders is required by applicable law,
this Declaration or resolution of the Trustees. Any
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matter required to be submitted to shareholders and affecting one or more Series
shall require separate approval by the required vote of Shareholders of each
affected Series; provided, however, that to the extent required by the 1940 Act,
there shall be no separate Series votes on the election or removal of Trustees,
the selection of auditors for the Trust and its Series or approval of any
agreement or contract entered into by the Trust or any Series. Shareholders of a
particular Series shall not be entitled to vote on any matter that affects only
one or more other Series. There shall be no cumulative voting in the election or
removal of Trustees.
10.3. Notice of Meeting and Record Date. Notice of all meetings of
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder of record entitled to vote
thereat at his registered address, mailed at least 10 days and not more than 60
days before the meeting. Only the business stated in the notice of the meeting
shall be considered at such meeting. Any adjourned meeting may be held as
adjourned without further notice. For the purposes of determining the
Shareholders who are entitled to notice of and to vote at any meeting the
Trustees may, without closing the transfer books, fix a date not more than 60
days prior to the date of such meeting of Shareholders as a record date for the
determination of the Persons to be treated as Shareholders of record for such
purposes.
10.4. Quorum and Required Vote. The holders of a majority outstanding
Shares of the Trust present in person or by proxy shall constitute a quorum at
any meeting of the Shareholders for purposes of conducting business on which a
vote of Shareholders of the Trust is being taken, and the holders of a majority
of outstanding Shares of the applicable Series present in person or by proxy
shall constitute a quorum at any meeting of the Shareholders for purposes of
conducting business on which a vote of Shareholders of such Series is being
taken. Subject to any provision of applicable law, this Declaration or
resolution of the Trustees specifying a greater or lesser vote requirement for
the transaction of any item of business at any meeting of Shareholders, (i) the
affirmative vote of a majority of the Shares present in person or represented by
proxy and entitled to vote on the subject matter shall be the act of the
Shareholders with respect to such matter and (ii) where a separate vote of any
Series is also required or any matter, the affirmative vote of a majority of the
Shares of such Series present in person or represented by proxy at the meeting
shall be the act of the Shareholders of such Series with respect to such matter.
10.5. Proxies, etc. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by properly executed proxy, provided that no
proxy shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote
shall be taken. Pursuant to a resolution of a majority of the Trustees, proxies
may be solicited in the name of one or more Trustees or one or more of the
officers or employees of the Trust. Only Shareholders of record shall be
entitled to vote. Each full Share shall be entitled to one vote and fractional
Shares shall be entitled to a vote of such fractions. When any Share is held
jointly by several persons, any one of them may vote at any meeting in person or
by proxy in respect of such Share, but if more than one of them shall be present
at such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person as regards the charge
or management of such Share, he may vote by his guardian
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or such other person appointed or having such control, and such vote may be
given in person or by proxy.
10.6. Reports. The Trustees shall cause to be prepared with respect to
each Series at least annually and more frequently to the extent required by law
a report of operations containing a balance sheet and statement of income and
undistributed income of the applicable Series of the Trust prepared in
conformity with generally accepted accounting principals and an opinion of an
independent public accountant on such financial statements. It is contemplated
that separate reports may be prepared for the various Series. Copies of such
reports shall be mailed to all Shareholders of record of the applicable Series
within the time required by the 1940 Act. The Trustees shall, in addition,
furnish to the Shareholders at least semiannually to the extent required by law,
interim reports containing an unaudited balance sheet of the Series as of the
end of such period and an unaudited statement of income and surplus for the
period from the beginning of the current fiscal year to the end of such period.
10.7. Inspection of Records. The records of the Trust shall be open to
inspection by, Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
10.8. Shareholder Action by Written Consent. Any action which may be
taken by Shareholders by vote may be taken without a meeting if the holders
entitled to vote thereon of the proportion of Shares required for approval of
such action at a meeting of Shareholders pursuant to Section 10.4 consent to the
action in writing and the written consents be filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at meeting of Shareholders.
ARTICLE XI
Duration: Termination of Trust;
Amendment; Mergers, Etc.
11.1. Duration. Subject to possible termination in accordance with the
provisions of Section 11.2 hereof, the Trust created hereby shall continue
without limitation of time.
11.2. Termination.
(a) The Trust may be terminated, after a majority of the Trustees
have approved a resolution therefor, upon approval by
Shareholders. Any Series may be terminated, after a majority of
the Trustees thereof have approved a resolution therefor, upon
approval by Shareholders. Upon the termination of the Trust or
any Series,
(i) The Trust or such Series shall carry on no business
except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or such Series and all of the powers of the
Trustees under this Declaration shall continue until the
affairs of the Trust or such Series shall have been
wound up, including the power to fulfill or discharge
the contracts of the Trust or such Series, collect its
assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining
Trust Property to one or more persons at public or
private sale for consideration which may consist in
whole or in part in cash, securities or other property
of any kind, discharge or pay its
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liabilities, and do all other acts appropriate to
liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other
disposition of all or substantially all the Trust
Property of the Trust or any Series shall require
approval of the principal terms of the transaction and
the nature and amount of the consideration by
Shareholders.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases,
indemnitees and refunding agreements, as they deem
necessary for their protection, the Trustees may
distribute the remaining Trust Property of any Series,
in cash or in kind or party each, among the Shareholders
of such Series according to their respective rights.
(b) After termination of the Trust or any Series and distribution to
the Shareholders as herein provided, a majority of the Trustees
shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such
termination. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders
shall thereupon cease. Upon termination of any Series, the
Trustees shall thereunder be discharged from all further
liabilities and duties with respect to such Series, and the
rights and interests of all Shareholders of such Series shall
thereupon cease.
11.3. Amendment Procedure.
(a) This Declaration may be amended, after a majority of the
Trustees have approved a resolution therefor, by the affirmative
vote of the holders of not less than a majority of the affected
Shares. The Trustees may also amend this Declaration without any
vote of Shareholders to divide the Trust into one or more Series
or additional Series, to change the name of the Trust on any
Series thereof, to make any change that does not adversely
affect the relative rights or preferences of any Series or as
they may deem necessary to conform this Declaration to the
requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of
the Internal Revenue Code, but the Trustees shall not be liable
for failing to do so.
(b) No amendment may be made under Section 11.3(a) above, which
would change any rights with respect to any Shares of the Trust
or any Series thereof by reducing the amount payable thereon
upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote of
the holders of two-thirds of the Shares of the Trust or such
Series. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from
personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) A certification in recordable form signed by a majority of the
Trustees setting forth an amendment and reciting that it was
duly adopted by the Trustees and, if required, the shareholders
as aforesaid, or a copy of the Declaration, as amended, in
recordable form, and executed by a majority of the Trustees,
shall be conclusive evidence of such amendment when lodged among
the records of the Trust.
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Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be terminated or amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.
11.4. Merger, Consolidation and Sale of Assets. The Trust may merge or
consolidate with any other corporation, association, trust or other organization
or may sell, lease or exchange all or substantially all of the Trust Property,
including its good will, upon such terms and conditions and for such
consideration when and as authorized by the Trustees and approved by
shareholders and any such merger, consolidation, sale, lease or exchange shall
be determined for all purposes to have been accomplished under and pursuant to
the statutes of the Commonwealth of Massachusetts. Any Series may so merge,
consolidate or effect a sale or exchange of assets, where, and as authorized by
the Trustees and approved by Shareholders. In respect of any such merger,
consolidation, sale or exchange of assets, any Shareholder of the Trust or the
Series, as the case may be, who shall vote against such action shall be entitled
to rights of appraisal of his Shares to the same extent as a shareholder of a
Massachusetts business corporation in respect of a merger, consolidation, sale
or exchange of assets of a Massachusetts business corporation, and such rights
shall be his exclusive remedy of dissent from any such action
11.5. Incorporation. Upon approval by Shareholders, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the shares or securities thereof, or
otherwise, and to lend money to, subscribe for the shares of securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire shares or any
other interests. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporation, trusts, partnerships, associations
or other organizations and selling, conveying or transferring a portion of the
Trust Property to such organizations or entities.
ARTICLE XII
Miscellaneous
12.1. Filing. This Declaration and any amendment hereto shall be filed
in the office of the Secretary of the Commonwealth of Massachusetts and in such
other places as may be required in such other places as the Trustees deem
appropriate. Each amendment so filed shall be accompanied by a certificate
signed and acknowledged by a Trustee stating that such action was duly taken in
a manner provided herein, and unless such amendment or such certificate sets
forth some later time for the effectiveness of such amendment, such amendment
shall be effective upon its filing. A restated Declaration, containing the
original Declaration and all amendments theretofore made, may be executed from
time to time by a majority of the Trustees and shall, upon filing with the
Secretary of
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Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
12.2 Resident Agent. Trust shall maintain a resident agent in the
Commonwealth of Massachusetts, which agent shall initially be CT Corporation
System, 2 Oliver Street, Boston, Massachusetts 02109. The Trustees may designate
a successor resident agent, provided, however, that such appointment shall not
become effective until written notice thereof is delivered to the office of the
Secretary of the Commonwealth.
12.3. Governing Law. This Declaration is executed by the trustees and
delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to laws of
said State and reference shall be specifically made to the business corporation
law of the Commonwealth of Massachusetts as to the construction of matters not
specifically covered herein or as to which an ambiguity exists.
12.4. Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an Original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.5. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the name of the Trust or any Series thereof, (c) the
establishment of any Series, (d) the due authorization of the execution of any
instrument or writing, (e) the form of any vote passed at a meeting of Trustees
or Shareholders, (f) the fact that the number of Trustees or Shareholders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (g) the form of any By-Laws adopted by or the
identity of any officers elected by the Trustees, or (h) the existence of any
fact or facts which in any manner relate to the affairs of the Trust or any
Series, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
12.6. Provisions in Conflict With Law or Regulation.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any
of such provisions is in conflict with the 1940 Act, the
regulated investment company provisions of the Internal Revenue
Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions
of this Declaration or render invalid or improper any action
then or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provision
in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
/s/ Ronald A. Nyberg /s/ Scott E. Martin
- -------------------------------- ---------------------------------
Ronald A. Nyberg Scott E. Martin
/s/ J. Christopher Jackson
- --------------------------------
J. Christopher Jackson
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<PAGE> 23
THE EXPLORER INSTITUTIONAL TRUST
TRUSTEES
September 30, 1994
NAME BUSINESS ADDRESS
Ronald A. Nyberg One Parkview Plaza
Oakbrook Terrace, IL 60181
Scott E. Martin One Parkview Plaza
Oakbrook Terrace, IL 60181
J. Christopher Jackson One Parkview Plaza
Oakbrook Terrace, IL 60181
23
<PAGE> 1
EXHIBIT (b)
BY-LAWS
OF
THE EXPLORER INSTITUTIONAL TRUST
<PAGE> 2
BY-LAWS
These By-laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing THE EXPLORER INSTITUTIONAL TRUST dated
September 30, 1994 as from time to time amended (hereinafter called the
"Declaration"). All words and terms capitalized in these By-laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
Section 1.1 Chairman. The Chairman, if any, shall act as chairman at all
meetings of the Shareholders; in his absence, the Trustee or Trustees present at
each meeting may elect a temporary chairman for the meeting, who may be one of
themselves.
Section 1.2. Proxies; Voting. Shareholders may vote either in person or
by duly executed proxy and each full share represented at the meeting shall have
one vote, all as provided in Article 10 of the Declaration. No proxy shall be
valid after eleven (11) months from the date of its execution, unless a longer
period is expressly stated in such proxy.
Section 1.3. Closing of Transfer Books and Fixing Record Dates. For the
purpose of determining the Shareholders who are entitled to notice of or to vote
or act at any meeting, including any adjournment thereof, or who are entitled to
participate in any dividends, or for any other proper purpose, the Trustees may
from time to time close the transfer bonds or fix a record date in the manner
provided in Section 10.3 of the Declaration. If the Trustees do not prior to any
meeting of Shareholders so fix a record date or close the transfer books, then
the date of mailing notice of the meeting or the date upon which the dividend
resolution is adopted, as the case may be, shall be the record date.
Section 1.4. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election of
the meeting. The number of Inspectors shall be either one or three. If appointed
at the meeting on the request of one or more Shareholders or proxies, a majority
of Shares present shall determine whether one or three Inspectors are to be
appointed, but failure to allow such determination by the Shareholders shall not
affect the validity of the appointment of Inspectors of Election. In case any
person appointed as Inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the Trustees in advance of the
convening of the meeting or at the meeting by the person acting as chairman. The
Inspectors of Election shall determine the number of Shares outstanding, the
Shares represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising in connection
with right to vote, shall count and tabulate all votes or consents, determine
the results, and do such other acts as any be proper to conduct the election or
vote with fairness to all Shareholders. If there are three Inspectors of
Election, the decision, act or certificate of a majority is effective in all
respects as the decision, act or certificate of all. On request of the Chairman,
1
<PAGE> 3
if any of the meeting, or of any Shareholder or his proxy, the Inspectors of
Election shall make a report in writing of any challenge or question or matter
determined by them and shall execute a certificate of any facts found by them.
Section 1.5. Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last previous
Meeting of Shareholders of the Trust and a list of the Shareholders of the
Trust, certified to be true and correct by the Secretary or other proper agent
of the Trust, as of the record date of the meeting or the date of closing of
transfer books, as the case may be. Such list of Shareholders shall contain the
name of each Shareholder in alphabetical order and the address of Shares owned
by such Shareholder. Shareholders shall have such other rights and procedures of
inspection of the books and records of the Trust as are granted to shareholders
of a Massachusetts corporation.
ARTICLE II
Trustees
Section 2.1. Trustees Meeting. The Trustees shall hold an annual meeting
for the election of officers and the transaction of other business which may
come before such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of the Board of Trustees need be stated in the notice or
waiver of notice of such meeting, and no notice need be given of action proposed
to be taken by unanimous written consent.
Section 2.2. Chairman Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the Trustees present
shall elect one of their number to act as temporary chairman. The results of all
actions taken at a meeting of the Trustees, or by unanimous written consent of
the Trustees, shall be recorded by the secretary.
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person, except that the same person may not be both President and Secretary. The
Trustees may designate the order in which the other Vice Presidents may act. The
Chairman, if any, shall be a Trustee, but no other officer of the Trust need be
a Trustee.
Section 3.2 Election and Tenure. At the initial organization meeting and
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacancy in office or add any additional officers at
any time.
2
<PAGE> 4
Section 3.3. Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately upon receipt by
the Chairman, if any, President, or Secretary, or at a later date according to
the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustees may determine.
Section 3.5. Chairman, President, and Vice President. The Chairman, if
any, shall, if present, preside at all meetings of the Shareholders and of the
Trustees and shall exercise and perform such other powers and duties as may be
from time to time assigned to him by the Trustees. Subject to such supervisory
powers, if any, as may be given by the Trustees to the Chairman, if any, the
President shall be the chief executive officer of the Trust and, subject to the
control of the Trustees, shall have general supervision, direction and control
of the business of the Trust and of its employees and shall exercise such
general powers of management as are usually vested in the office of President of
a corporation. Subject to direction of the Trustees, the Chairman, if any, and
the President shall each have power in the name and on behalf of the Trust or
any of its Series to execute any and all loans, documents, contracts,
agreements, deeds, mortgages, registration statements application, requests,
filings and other instruments in writing, and to employ and discharge employees
and agents of the Trust. Unless otherwise directed by the Trustees, the
Chairman, if any, the President shall each have full authority and power, on
behalf of all of the Trustees, to attend and to act to vote, on behalf of the
Trust at any meetings of business organizations in which the Trust holds an
interest, or to confer such powers upon any other persons, by executing any
proxies duly authorizing such persons. The Chairman, if any, and the President
shall have such further authorities and duties as the Trustees shall from time
to time determine. In the absence or disability of the President, the Vice
Presidents in order of their rank as fixed by the Trustees or, if more than one
and not ranked, the Vice President designated by the Trustees, shall perform all
of the duties of the President, and when so acting shall have all the powers of
and be subject to all of the restrictions upon the President. Subject to the
direction of the Trustees, and of the President, each Vice President shall have
the power in the name and on behalf of the Trust to execute any and all
instruments in writing, and, in addition, shall have such other duties and
powers as shall be designated from time to time by the Trustees or by the
President.
Section 3.6. Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Shareholders, Trustees and the Executive
Committee, if any. He shall be custodian of the seal of the Trust, if any, and
he (and any other person so authorized by the Trustees) shall affix the seal or,
if permitted, facsimile thereof, to any instrument executed by the Trust which
would be sealed by a Massachusetts corporation executing the same or a similar
instrument and shall attest the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a Massachusetts corporation, and shall have such other authorities and duties
as the Trustees shall from time to time determine.
3
<PAGE> 5
Section 3.7. Treasurer. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust in
such depositories as the Trustees shall designate. He shall be responsible for
such disbursement of the funds of the Trust as may be ordered by the Trustees or
the President. He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which together with
all other property of the Trust in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the Trust. He
shall have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of the Trust.
Section 3.8. Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Trust shall have such other duties and authority as
may be conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
Miscellaneous
Section 4.1. Depositories. In accordance with Section 7.1 of the
Declaration, the funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including the adviser,
administrator or manager), as the Trustees may from time to time authorize.
Section 4.2. Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by its properly authorized officers, agent or
agents, as provided in the Declaration or By-laws or as the Trustees may from
time to time by resolution provide.
Section 4.3. Seal. The seal of the Trust, if any, may be affixed to any
instrument, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and affixed manually in the same manner and with the same force
and effect as if done by a Massachusetts corporation.
4
<PAGE> 6
ARTICLE V
Stock Transfers
Section 5.1. Transfer Agents, Registrars and the Like. As provided in
Section 6.6 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Shares of the
Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have power to employ and compensate such dividend disbursing
agents, warrant agents and agents for the reinvestment of dividends as they
shall deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.
Section 5.2. Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section 6.7
of the Declaration. The Trust, or its transfer agents, shall be authorized to
refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.
Section 5.3. Registered Shareholders. The Trust may deem and treat the
holder of record of any Shares the absolute owner thereof for all purposes and
shall not be required to take any notice of any right or claim of right of any
other person.
ARTICLE VI
Amendment of By-laws
Section 6.1. Amendment and Repeal of By-laws. In accordance with Section
3.9 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-laws or adopt new By-laws at any time; provided, however, that
By-laws adopted by the Shareholders may, if such By-laws so state, be altered,
amended or repealed only by the Shareholders and not the Trustees. Action by the
Trustees with respect to the By-laws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt By-laws which are
in conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
The Declaration of Trust establishing The Explorer Institutional Trust,
dated September 30, 1994, a copy of which, together with all amendments thereto
(the "Declaration") provides that the name The Explorer Institutional Trust
refers to the Trustees under the Declaration collectively as Trustees, but not
as individuals or personally; and no Trustee, Shareholder, officer, employee or
agent of The Explorer Institutional Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of The Explorer Institutional Trust but the Trust Property only shall be
liable.
5
<PAGE> 1
Exhibit (c)(1)
================================================================================
NUMBER [GRAPHIC] SHARES
- -------------- ---------------
THE EXPLORER INSTITUTIONAL ENHANCED BENCHMARK FUND
A SUB-TRUST OF THE EXPLORER INSTITUTIONAL TRUST, A MASSACHUSETTS BUSINESS TRUST
CERTIFICATE OF SHARES OF BENEFICIAL INTEREST
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
----------------------------------
CUSIP
----------------------------------
Shares of beneficial interest in The Explorer Institutional Enhanced Benchmark
Fund (the "Fund"), a sub-trust of The Explorer Institutional Trust, a
Massachusetts business trust (the "Trust") formed pursuant to an Agreement and
Declaration of Trust dated October __, 1994, transferable only on the books of
the Trust by the owner in person or by duly authorized attorney upon surrender
of this Certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the said Trust has caused this Certificate to be
signed by its duly authorized officers and the Fund's seal to be hereunder
affixed
DATED:
[MASSACHUSETTS
SEAL
SUB-TRUST]
- ---------------- -----------------
SECRETARY PRESIDENT
================================================================================
<PAGE> 2
This Certificate and the shares of beneficial interest represented
hereby are issued and shall be held subject to all the provisions of the
Agreement and Declaration of Trust dated October __ 1994, and By-Laws of the
Trust, and all amendments thereto, to all of which the holder by acceptance
hereof assents. Reference is made to the Agreement and Declaration of Trust and
By-Laws of the Trust and all amendments thereto, for a description of the rights
and obligations of the Trust, and its shareholders. The Trust will furnish to
the shareholder, without charge and upon written request made to the Transfer
Agent, a copy of the Agreement and Declaration of Trust.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIFORM GIFT MIN ACT -____ Custodian____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common under Uniform Gifts to Minors
Act_______________________
(State)
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED. I/We hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint_______________________________________
____________________________________________attorney to transfer the said Shares
on the books of the within named Massachusetts business trust with full power of
substitution in the premises.
Dated
--------------------------
Signature(s)
-------------------------------------
SIGNATURE GUARANTEED BY
-------------------------------------
<PAGE> 1
Exhibit(c)(2)
================================================================================
NUMBER [GRAPHIC] SHARES
- ------------- ------------
THE EXPLORER INSTITUTIONAL ENHANCED LIMITED DURATION FUND
A SUB-TRUST OF THE EXPLORER INSTITUTIONAL TRUST, A MASSACHUSETTS BUSINESS TRUST
CERTIFICATE OF SHARES OF BENEFICIAL INTEREST
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
----------------------------------
CUSIP
----------------------------------
Shares of beneficial interest in The Explorer Institutional Enhanced Limited
Duration Fund (the "Fund"), a sub-trust of The Explorer Institutional Trust, a
Massachusetts business trust (the "Trust") formed pursuant to an Agreement and
Declaration of Trust dated October __, 1994, transferable only on the books of
the Trust by the owner in person or by duly authorized attorney upon surrender
of this Certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the said Trust has caused this Certificate to be
signed by its duly authorized officers and the Fund's seal to be hereunder
affixed
DATED:
[MASSACHUSETTS
SEAL
SUB-TRUST]
- ---------------- -----------------
SECRETARY PRESIDENT
================================================================================
<PAGE> 2
This Certificate and the shares of beneficial interest represented
hereby are issued and shall be held subject to all the provisions of the
Agreement and Declaration of Trust dated October __ 1994, and By-Laws of the
Trust, and all amendments thereto, to all of which the holder by acceptance
hereof assents. Reference is made to the Agreement and Declaration of Trust and
By-Laws of the Trust and all amendments thereto, for a description of the rights
and obligations of the Trust, and its shareholders. The Trust will furnish to
the shareholder, without charge and upon written request made to the Transfer
Agent, a copy of the Agreement and Declaration of Trust.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIFORM GIFT MIN ACT -____ Custodian____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common under Uniform Gifts to Minors
Act_______________________
(State)
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED. I/We hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint ______________________________________
____________________________________________attorney to transfer the said Shares
on the books of the within named Massachusetts business trust with full power of
substitution in the premises.
Dated
--------------------------
Signature(s)
-------------------------------------
SIGNATURE GUARANTEED BY
-------------------------------------
<PAGE> 1
Exhibit (f)(l)
FORM OF
AMENDED AND RESTATED
DEFERRED COMPENSATION AGREEMENT
AGREEMENT, made on this 11th day of August, 1994, and as amended and
restated as of [DATE], by and between each of the funds listed on Schedule A
attached hereto as may- be amended from time to time, each a registered
investment company having its principal offices at 1 Parkview Plaza, P.O. Box
5555, Oakbrook Terrace, Illinois 60181-5555 (collectively the "Funds" or
individually the "Fund"), and [TRUSTEE NAME], residing at [TRUSTEE ADDRESS] (the
"Trustee").
WHEREAS, the Fund and the Trustee desire to enter into an agreement whereby
the Fund will provide to the Trustee a vehicle under which the Trustee can defer
receipt of trustees' fees payable by the Fund.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this Agreement, the Fund and the Trustee hereby agree as follows:
1. DEFINITION OF TERMS AND CONSTRUCTION
1.1 DEFINITIONS. Unless a different meaning is plainly implied by the
context, the following terms as used in this Agreement shall have the following
meanings:
(a) "BENEFICIARY" shall mean such person or persons designated
pursuant to Section 4.3 hereof to receive benefits after the death of the
Trustee.
(b) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Fund.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(d) "COMPENSATION" SHALL mean the amount of trustee's fees paid by
the Fund to the Trustee during a Deferral Year prior to reduction for
Compensation Deferrals made under this Agreement.
(e) "COMPENSATION DEFERRAL" shall mean the amount or amounts of the
Trustee's Compensation deferred under the provisions of Section 3 of this
Agreement.
(f) "DEFERRAL ACCOUNT" shall mean the account maintained to reflect
the Trustee's Compensation Deferral made pursuant to Section 3 hereof and
any other credits or debits thereto.
<PAGE> 2
(g) "DEFERRAL YEAR" shall mean each calendar year during which the
Trustee makes, or is entitled to make, a Compensation Deferral under
Section 3 hereof.
(h) "VALUATION DATE" shall mean any day upon which the Fund makes a
valuation of the Deferral Account and shall, at a minimum, be the last
business day of each calendar quarter.
1.2 PLURALS AND GENDER. Where appearing in this Agreement the singular
shall include the plural and the masculine shall include the feminine, and vice
versa, unless the context clearly indicates a different meaning.
1.3 HEADINGS. The headings and subheadings in this Agreement are inserted
for the convenience of reference only and are to be ignored in any construction
of the provisions hereof.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
2.1 COMMENCEMENT OF COMPENSATION DEFERRALS. The Trustee may elect, on a
form provided by, and submitted to, the President of the Fund, to commence
Compensation Deferrals under Section 3 hereof for the period beginning on the
later of (i) the date this Agreement is executed or (ii) the date such form is
submitted to the President of the Fund.
2.2 TERMINATION OF DEFERRALS. The Trustee shall not be eligible to make
Compensation Deferrals after the earlier of the following dates:
(a) The date of which he ceases to serve as a Trustee of the Fund; or
(b) The effective date of the termination of this Agreement.
3. COMPENSATION DEFERRALS
3.1 COMPENSATION DEFERRAL ELECTIONS.
(a) On or prior to the first day of any Deferral Year, the Trustee
may elect, on the form described in Section 2.1 hereof, to defer the
receipt of all or a portion of the Compensation for such Deferral Year.
Such writing shall set forth the amount of such Compensation Deferral (in
whole percentage amounts). Such election shall continue in effect for all
subsequent Deferral Years unless it is canceled or modified as provided
below.
(b) Compensation Deferrals shall be withheld from each
2
<PAGE> 3
payment of Compensation by the Fund to the Trustee based upon the
percentage amount elected by the Trustee under Section 3.1(a) hereof.
(c) The Trustee may cancel or modify the amount of his Compensation
Deferrals on a prospective basis by submitting to the President of the Fund
a revised Compensation Deferral election form. Such change will be
effective as of the first day of the Deferral Year following the date such
revision is submitted to the President of the Fund.
3.2 VALUATION OF DEFERRAL ACCOUNT.
(a) The Fund shall establish a bookkeeping Deferral Account to which
will be credited an amount equal to the Trustee's Compensation Deferrals
under this Agreement. Compensation Deferrals shall be allocated to the
Deferral Account on the first business day following the date such
Compensation Deferrals are withheld from the Trustee's Compensation. The
Deferral Account shall be debited to reflect any distributions from such
Account. Such debits shall be debited to the Deferral Account as of the
date such distributions are made.
(b) As of each Valuation Date, income, gain and loss equivalents
(determined as if the Deferral Account is invested in the manner set forth
under Section 3.3 below) attributable to the period following the next
preceding Valuation Date shall be credited to and/or deducted from the
Trustee's Deferral Account.
3.3 INVESTMENT OF DEFERRAL ACCOUNT BALANCE.
(a) (1) The Trustee may select, from various options made available
by the Fund, the investment media in which all or part of his Deferral
Account shall be deemed to be invested.
(2) The Trustee shall make an investment designation on a form
provided by the President of the Fund which shall remain effective until
another valid direction has been made by the Trustee as herein provided.
The Trustee may amend the investment designation as of the end of each
calendar quarter by giving written direction to the President of the Fund
at least 30 days prior to the end of such calendar quarter. A timely change
in a Trustee's investment designation shall become effective on the first
day of the calendar quarter following receipt by the President of the Fund.
(3) The investment media deemed to be made available to the
Trustee, and any limitation on the maximum or minimum percentages of the
Trustee's Deferral Account that may be invested in any particular medium,
shall be the same as from time to time communicated to the Trustee by the
President of the Fund.
(b) Except as provided below, the Trustee's Deferral Account shall be
deemed to be invested in accordance with the investment designations,
3
<PAGE> 4
provided such designations conform to the provisions of this Section. If:
(1) the Trustee does not furnish the President of the Fund with
written investment instructions,
(2) the written investment instructions from the Trustee are
unclear, or
(3) less than all of the Trustee's Deferral Account is covered
by such written investment instructions,
then the Trustee's Deferral Account shall be deemed to be invested in the Fund
until such time as the Trustee shall provide the President of the Fund with
complete investment instructions. Notwithstanding the above, the Board of
Directors, in its sole discretion, may disregard the Trustee's election and
determine that all Compensation Deferrals shall be deemed to be invested in the
Fund.
The Fund shall provide an annual statement to the Trustee showing such
information as is appropriate, including the aggregate amount in the Deferral
Account, as of a reasonably current date.
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
4.1 IN GENERAL. Distributions from the Trustee's Deferral Account shall be
paid in cash, in generally equal annual installments over a period of five (5)
years beginning on the date of the Trustee's retirement or disability, except
that the Board of Directors may, in its sole discretion, accelerate or, with the
consent of the Trustee, extend the distribution of such Deferral Account.
Notwithstanding the foregoing, in the event of the liquidation, dissolution or
winding up of the Fund or the distribution of all or substantially all of the
Fund's assets and property relating to one or more series of its shares to the
shareholders (for this purpose a sale, conveyance or transfer of the Fund's
assets to a trust, partnership, association or corporation in exchange for cash,
shares or other securities with the transfer being made subject to, or with the
assumption by the transferee of, the liabilities of the Fund shall not be deemed
a termination of the Fund or such a distribution), all unpaid amounts in the
Deferral Account as of the effective date thereof shall be paid in a lump sum on
such effective date.
4.2 DEATH PRIOR TO DISTRIBUTION OF DEFERRAL ACCOUNT. Upon the death of
the Trustee prior to the commencement of the distribution of the amounts
credited to the Deferral Account, the Deferral Account shall be distributed to
the Beneficiary over a period of five (5) years beginning as soon as practicable
after the Trustee's death. In the event of the death of the Trustee after the
commencement of such distribution, but prior to the complete distribution of the
Deferral Account, the balance of the amounts in the Deferral Account shall be
distributed to the Beneficiary over the remaining period during which such
amounts were distributable to the Trustee under Section 4.1 hereof. In the
event the Trustee survives the designated Beneficiary, the balance of such
4
<PAGE> 5
Deferral Account shall be paid in a lump sum to such Trustee's estate.
Notwithstanding the above, the Board of Directors may, in its sole discretion,
accelerate or, with the consent of the Beneficiary or the Trustee's estate, as
applicable, extend the distribution of the Deferral Account.
4.3 DESIGNATION OF BENEFICIARY. For purposes of Section 4.2 hereof, the
Trustee's Beneficiary shall be the person or persons so designated by the
Trustee in a written instrument submitted to the President of the Fund. In the
event the Trustee fails to properly designate a Beneficiary, the balance of such
Trustee's Deferred Account shall be paid in a lump sum to such Trustee's estate.
4.4 PAYMENTS DUE MISSING PERSONS. The Fund shall make a reasonable effort
to locate all persons entitled to benefits under this Agreement. However,
notwithstanding any provisions of this Agreement to the contrary, if, after a
period of five (5) years from the date such benefit shall be due, any such
persons entitled to benefits have not been located, their rights under this
Agreement shall stand suspended. Before this provision becomes operative, the
Fund shall send a certified letter to all such persons to their last known
address advising them that their benefits under this Agreement shall be
suspended. Any such suspended amounts shall be held by the Fund for a period of
three (3) additional years (or a total of eight (8) years from the time the
benefits first become payable) and thereafter, if unclaimed, such amounts shall
be forfeited.
5. AMENDMENTS AND TERMINATION
5.1 AMENDMENTS.
(a) The Fund and the Trustee may, by a written instrument signed by
both such parties, amend this Agreement at any time and in any manner.
(b) The Fund reserves the right to amend, in whole or in part, and in
any manner, any or all of the provisions of this Agreement by action of its
Board of Trustees for the purposes of complying with any provision of the Code
or any other technical or legal requirements, provided that:
(1) No such amendment shall make it possible for any part of
the Trustee's Deferral Account to be used for, or diverted to,
purposes other than for the exclusive benefit of the Trustee or the
Beneficiaries, except to the extent otherwise provided in this
Agreement; and
(2) No such amendment may reduce the amount of the Trustee's
Deferral Account as of the effective date of such amendment.
5.2 TERMINATION. The Trustee and the Fund may, by written instrument
signed by both such parties, terminate this Agreement at any time. The rights
of the
5
<PAGE> 6
Trustee to the Deferral Account shall become payable as of the Valuation Date
next following the effective date of the termination of this Agreement.
6. MISCELLANEOUS.
6.1 Rights of Creditors.
(a) This Agreement is unfunded. Neither the Trustee nor any other
persons shall have any interest in any specific asset or assets of the Fund by
reason of any Deferral Account hereunder, nor any rights to receive distribution
of the Deferral Account except and as to the extent expressly provided
hereunder. The Fund shall not be required to purchase, hold or dispose of any
investments pursuant to this Agreement; however, if in order to cover its
obligations hereunder the Fund elects to purchase any investments the same shall
continue for all purposes to be a part of the general assets and property of the
Fund, subject to the claims of its general creditors and no person other than
the Fund shall by virtue of the provisions of this Agreement have any interest
in such assets other than an interest as a general creditor.
(b) The rights of the Trustee and the Beneficiaries to the amounts
held in the Deferral Account are unsecured and shall be subject to the creditors
of the Fund. With respect to the payment of amounts held under the Deferral
Account, the Trustee and the Beneficiaries have the status of unsecured
creditors of the Fund. This Agreement is executed on behalf of the Fund by an
officer of the Fund as such and not individually. Any obligation of the Fund
hereunder shall be an unsecured obligation of the Fund and not of any other
person.
6.2 AGENTS. The Fund may employ agents and provide for such clerical,
legal, actuarial, accounting, advisory or other services as it deems necessary
to perform its duties under this Agreement. The Fund shall bear the cost of
such services and all other expenses it incurs in connection with the
administration of this Agreement.
6.3 LIABILITY AND INDEMNIFICATION. Except for its own gross negligence,
willful misconduct or willful breach of the terms of this Agreement, the Fund
shall be indemnified and held harmless by the Trustee against liability or
losses occurring by reason of any act or omission of the Fund or any other
person.
6.4 INCAPACITY. If the Fund shall receive evidence satisfactory to it
that the Trustee or any Beneficiary entitled to receive any benefit under the
Agreement is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to receive such benefit and to give a valid
release therefor, and that another person or an institution is then maintaining
or has custody of the Trustee or Beneficiary and that no guardian, committee or
other representative of the estate of the Trustee or Beneficiary shall have been
duly appointed, the Fund may make payment of such benefit otherwise payable to
the Trustee or Beneficiary to such other person or institution, including a
custodian under the Uniform Gifts to Minors Act or corresponding legislation
(such custodian shall be an adult, a guardian of the minor or a trust
6
<PAGE> 7
company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
6.5 COOPERATION OF PARTIES. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts
and execute any and all documents and papers which are necessary or desirable
for carrying out this Agreement or any of its provisions.
6.6 GOVERNING LAW. This Agreement is made and entered into in the
State of Illinois, and all matters concerning its validity, construction
and administration shall be governed by the laws of the State of Illinois.
6.7 NONGUARANTEE OF TRUSTEESHIP. Nothing contained in this Agreement
shall be construed as a contract or guarantee of the right of the Trustee to
be, or remain as, a trustee of the Fund or to receive any, or any particular
rate of, Compensation.
6.8 COUNSEL. The Fund may consult with legal counsel with respect
to the meaning or construction of this Agreement or its obligations or duties
hereunder or with respect to any action or proceeding or any question of law,
and it shall be fully protected with respect to any action taken or omitted by
it in good faith pursuant to the advice of legal counsel.
6.9 SPENDTHRIFT PROVISION. The Trustee's and Beneficiaries' interests
in the Deferral Account may not be anticipated, sold, encumbered, pledged,
mortgaged, charged, transferred, alienated, assigned nor become subject to
execution, garnishment or attachment, and any attempt to do so by any person
shall render the Deferral Amount immediately forfeitable.
6.10 NOTICES. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized overnight delivery service providing for a signed
return receipt, addressed to the Trustee at the home address set forth in the
Fund's records and to the Fund at the address set forth on the first page of
this Agreement, provided that all notices to the Fund shall be directed to the
attention of the President of the Fund or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
6.11 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the Fund and the Trustee with respect to the payment of non-qualified
elective deferred compensation by the Fund to the Trustee.
6.12 INTERPRETATION OF AGREEMENT. Interpretations of, and determinations
related to, this Agreement made by the Fund in good faith, including any
determinations of the amounts of the Deferral Account, shall be conclusive and
binding upon all parties;
7
<PAGE> 8
and the Fund shall not incur any liability to the Trustee for any such
interpretation or determination so made or for any other
action taken by it in connection with this Agreement in good faith.
6.13 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, the Fund and its successors and assigns and to
the Trustee and such Trustee's heirs, executors, administrators and personal
representatives.
6.14 SEVERABILITY. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions thereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
6.15 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Deferred
Compensation Agreement to be executed as of the day and year first above
written.
On behalf of the Funds listed on
Schedule A attached hereto:
By: ___________________________
Name: _________________________
Title: _________________________
On behalf of the Trustee listed on page 1 hereto
________________________________
[Trustee Name]
8
<PAGE> 1
Exhibit (f)(2)
FORM OF
RETIREMENT PLAN
Van Kampen ___________________________, a registered investment company
having its principal offices at 1 Parkview Plaza, P.O. Box 5555, Oakbrook
Terrace, Illinois 60181-5555 (the "Fund"), has adopted this Retirement Plan,
effective August 1, 1994 (the "Plan"), for its Eligible Trustees (as defined
herein) in order to recognize and reward the valued services provided by such
trustees to the Fund.
1. DEFINITION OF TERMS AND CONSTRUCTION
1.1 DEFINITIONS. Unless a different meaning is plainly implied by the
context, the following terms as used in this Plan shall have the following
meanings:
(a) "BENEFICIARY" shall mean such person or persons designated
pursuant to Section 6.4 hereof to receive benefits after the death of the
Eligible Trustee.
(b) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Fund.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(d) "COMPENSATION" shall mean an amount equal to the annual retainer
(excluding any fees relating to attending meetings) paid to an Eligible
Trustee by the Fund during the Fund's fiscal year preceding such trustee's
termination of service.
(e) "DISABILITY" shall have the meaning described in Section 5.1.
(f) "EARLY RETIREMENT BENEFIT" shall have the meaning described in
Section 3.3.
(g) "EFFECTIVE DATE" shall mean August 1, 1994.
<PAGE> 2
(h) "EFFECTIVE DATE TRUSTEE" means a person who is a trustee of the
Fund on the Effective Date.
(i) "ELIGIBLE RETIREMENT AGE" shall have the meaning described in
Section 4.1.
(j) "ELIGIBLE TRUSTEE" shall mean a person who: (i) is or becomes a
trustee of the Fund on or after the Effective Date, and (ii) is, prior to
the time of such trustee's termination of service, receiving trustee's fees
from the Fund.
(k) "MANDATORY RETIREMENT AGE" shall have the meaning described in
Section 4.1.
(l) "NORMAL DISTRIBUTION" shall have the meaning described in Section
6.1.
(m) "NORMAL RETIREMENT BENEFIT" shall have the meaning described in
Section 3.2.
(n) "PLAN COMMITTEE" shall have the meaning described in Section 8.2.
(o) "SERVICE REQUIREMENT" shall have the meaning described in Section
2.1.
(p) "YEARS OF SERVICE" shall mean full years of service as a trustee
for the Fund prior to such trustee's termination of service, including such
service performed prior to the adoption of this Plan.
1.2 PLURALS AND GENDER. Where appearing in this Plan the singular shall
include the plural and the masculine shall include the feminine, and vice versa,
unless the context clearly indicates a different meaning.
1.3 HEADINGS. The headings and subheadings in this Plan are inserted for
the convenience of reference only and are to be ignored in any construction of
the provisions hereof.
2
<PAGE> 3
2. SERVICE REQUIREMENT
2.1 SERVICE REQUIREMENT. Each Eligible Trustee that has completed five (5)
Years of Service as a trustee for the Fund shall be entitled to receive
retirement benefits from the Fund. An Eligible Trustee is not entitled to
benefits pursuant to the Plan merely because such trustee is an Eligible
Trustee; a trustee must meet the Years of Service requirement.
3. RETIREMENT BENEFIT
3.1 IN GENERAL. The retirement benefit amount for an Eligible Trustee
meeting the Service Requirement is determined at the time of such trustee's
termination of service as a trustee. An Eligible Trustee terminating service as
a trustee to the Fund prior to attaining the Eligible Retirement Age is eligible
for the Early Retirement Benefit as described in Section 3.3. An Eligible
Trustee terminating service as a trustee to the Fund after attaining the
Eligible Retirement Age is eligible for the Normal Retirement Benefit as
described in Section 3.2. An Eligible Trustee terminating service as a trustee
to the Fund after the Mandatory Retirement Age forfeits and is not entitled to
any retirement benefit under the Plan.
3.2 NORMAL RETIREMENT BENEFIT. The Normal Retirement Benefit shall be 50%
of the Compensation and such benefit shall increase by 10% for each Year of
Service by such trustee in excess of five (5) Years of Service up to a maximum
amount of 100% of the Compensation for any trustee who has completed ten (10) or
more Years of Service.
3
<PAGE> 4
<TABLE>
<CAPTION>
YEARS OF SERVICE PERCENTAGE OF COMPENSATION
---------------- --------------------------
<S> <C>
Less than 5 0%
5 50%
6 60%
7 70%
8 80%
9 90%
- ---
10 or more 100%
========== ====
</TABLE>
3.3 EARLY RETIREMENT BENEFIT. The Early Retirement Benefit shall be the
Normal Retirement Benefit for such trustee based upon such trustee's Years of
Service at the time of such trustee's termination of service reduced by 3% for
each year prior to the Eligible Retirement Age.
4. RETIREMENT AGE
4.1 RETIREMENT AGE. The Eligible Retirement Age shall be upon attaining
the age of 62. A trustee may elect to continue to serve as a trustee beyond the
Eligible Retirement Age to a Mandatory Retirement Age of 72; provided, however,
that for an Effective Date Trustee who was 67 years of age or more on the
Effective Date of the Plan, the Mandatory Retirement Age shall be December 31 of
the year in which such trustee attains the age of 75.
5. DISABILITY
5.1 DISABILITY. Disability shall have the meaning as set forth in the Code
under Section 22(e)(3). An Eligible Trustee who becomes disabled, as defined
herein, may be eligible to receive the applicable retirement benefit calculated
as described in Section 3 using the Disability date as the date of such
trustee's termination of service.
4
<PAGE> 5
6. PAYMENT OF RETIREMENT BENEFITS
6.1 RETIREMENT OR DISABILITY TERMINATING TRUSTEE'S SERVICE. Subject to
Sections 6.2 and 6.3, an Eligible Trustee shall receive the amount of the
applicable Normal Retirement Benefit or Early Retirement Benefit calculated
pursuant to Section 3 for each of the ten (10) years commencing in the fiscal
year of such trustee's termination of service (the "Normal Distribution").
Payment of benefits to an Eligible Trustee shall commence, and be paid annually
thereafter, at the end of the Fund's fiscal year. In the event of such Eligible
Trustee's death prior to complete distribution under the Plan, such trustee's
Beneficiary shall receive the remaining retirement benefits based upon the
Normal Distribution. In the event the Eligible Trustee survives the Beneficiary
or no Beneficiary has been named, the Fund shall pay a lump sum amount equal to
the actuarial present value of the remaining retirement benefits to the Eligible
Trustee's estate.
6.2 DEATH TERMINATING TRUSTEE'S SERVICE. Subject to Section 6.3, in the
event an Eligible Trustee's death causes the termination of service, the
Eligible Trustee's Beneficiary shall receive the amount of the applicable Normal
Retirement Benefit or Early Retirement Benefit calculated pursuant to Section 3
for each of the ten (10) years commencing in the fiscal year of such trustee's
death. Payment of benefits to such Beneficiary shall commence, and be paid
annually thereafter, at the end of the Fund's fiscal year. In the event the
Eligible Trustee survived the Beneficiary or no Beneficiary was named, the Fund
shall pay a lump sum amount equal to the actuarial present value of the
applicable retirement benefits to the Eligible Trustee's estate.
6.3 LIQUIDATION, DISSOLUTION, WINDING UP OR DISTRIBUTION OF SUBSTANTIALLY
ALL OF THE ASSETS OF THE FUND. Notwithstanding Sections 6.1 or 6.2, in the
event of a liquidation, dissolution or winding up of the Fund or distribution of
all or substantially all of the Fund's assets and property, the Fund shall pay
to each Eligible Trustee serving as a trustee of the Fund on the effective date
of such liquidation, dissolution, winding up or distribution a lump sum amount
equal to the actuarial present value of the applicable Normal Retirement Benefit
or Early Retirement Benefit calculated pursuant to Section 3 using the effective
date of such liquidation, dissolution, winding up or distribution as the date of
such trustee's termination of services. In the event an Eligible Trustee
terminates services prior to such liquidation, dissolution,
5
<PAGE> 6
winding up or distribution and such trustee (or such trustee's Beneficiary)
is then receiving payment of benefits pursuant to either Section 6.1 or 6.2
at the time of such liquidation, dissolution, winding up or distribution, the
Fund shall pay to such trustee (or Beneficiary) on the effective date of such
liquidation, dissolution, winding up or distribution a lump sum amount equal
to the actuarial present value of the remaining retirement benefits due to such
trustee (or Beneficiary).
6.4 DESIGNATION OF BENEFICIARY. The Eligible Trustee's Beneficiary shall
be the person or persons so designated by such trustee in a written instrument
submitted to the President of the Fund. In the event the Eligible Trustee
fails to properly designate a Beneficiary, the Fund shall pay a lump sum amount
equal to the actuarial present value of the applicable retirement benefits to
the Eligible Trustee's estate.
6.5 PAYMENTS DUE MISSING PERSONS. The Fund shall make a reasonable
effort to locate all persons entitled to benefits under this Plan. However,
notwithstanding any provisions of this Plan to the contrary, if, after a period
of five (5) years from the date such benefit shall be due, any such persons
entitled to benefits have not been located, their rights under this Plan shall
stand suspended. Before this provision becomes operative, the Fund shall send
a certified letter to all such persons to their last known address advising
them that their benefits under this Plan shall be suspended. Any such
suspended amounts shall be held by the Fund for a period of three (3)
additional years (or a total of eight (8) years from the time the benefits
first become payable) and thereafter, if unclaimed, such amounts shall be
forfeited.
6.6 ACTUARIAL PRESENT VALUE CALCULATIONS. For purposes of this Plan, the
"actuarial present value" of any benefits shall be computed using interest
factors and other reasonable assumptions chosen by the Plan Committee. The
Plan Committee shall have sole and uncontrolled discretion with respect to the
application of the provisions of this paragraph and such exercise of discretion
shall be conclusive and binding on the Eligible Trustee, any Beneficiary or
other person.
6
<PAGE> 7
7. AMENDMENTS AND TERMINATION
7.1 AMENDMENTS. The Fund anticipates the Plan to be permanent but the
Fund reserves the right to amend any or all of the provisions of this Plan by
action of its Board of Trustees when, in the sole opinion of the Board of
Trustees, such amendment is advisable, including for the purposes of complying
with any provision of the Code or any other technical or legal requirements.
7.2 TERMINATION. The Fund may by action of its Board of Trustees
terminate this Plan at any time.
8. MISCELLANEOUS.
8.1 FORFEITURE OF BENEFITS. Notwithstanding any other provision of the
Plan, future payment of any retirement benefit hereunder to an Eligible
Trustee, Beneficiary or other person will, at the discretion of the Plan
Committee, be discontinued and forfeited, and the Fund will have no further
obligation hereunder to such Eligible Trustee, Beneficiary or other person, if
any of the following circumstances occur:
(a) The Eligible Trustee is discharged from the Fund's Board of
Trustee For cause;
(b) The Eligible Trustee engages in competition with the Fund
following such trustee's termination of service with the Fund prior to such
trustee attaining the Normal Retirement Age; or
(c) The Eligible Trustee performs an act or acts of willful
malfeasance Or reckless disregard of duties in connection with the service
as a trustee for the Fund.
The Plan Committee shall have the sole and uncontrolled discretion with respect
to the application of the provisions of this paragraph and such exercise of
discretion shall be conclusive and binding on the Eligible Trustee, any
Beneficiary or other person.
7
<PAGE> 8
8.2 ADMINISTRATION. The Plan shall be administered by a Plan Committee
which shall be composed of three non-affiliated trustees and the controller of
the Fund.
8.3 AGENTS. The Fund may employ agents and provide for such clerical,
legal, actuarial, accounting, advisory or other services as it deems necessary
to perform its duties under this Plan. The Fund shall bear the cost of such
services and all other expenses it incurs in connection with the administration
of this Plan.
8.4 FUNDING AND RIGHTS OF CREDITORS. The obligations of the Fund under
this Agreement are unfunded. Neither the Eligible Trustees, the Beneficiaries
nor any other persons shall have any interest in any specific asset or assets
of the Fund for the benefits hereunder, nor any rights to receive distribution
of the benefits except and as to the extent expressly provided hereunder. The
rights of the Eligible Trustees, the Beneficiaries or any other person to the
benefits hereunder are unsecured and shall have no priority over the other
creditors of the Fund. Any obligation of the Fund hereunder shall be an
unsecured obligation of the Fund and not of any other person in relation to
this Plan.
8.5 LIABILITY AND INDEMNIFICATION. Except for its own gross negligence,
willful misconduct or willful breach of the terms of this Plan, the Fund shall
be indemnified and held harmless by the Eligible Trustee against liability or
losses occurring by reason of any act or omission of the Fund or any other
person.
8.6 INCAPACITY. If the Fund shall receive evidence satisfactory to it
that the Eligible Trustee or any Beneficiary entitled to receive any benefit
under the Plan is, at the time when such benefit becomes payable, a minor, or
is physically or mentally incompetent to receive such benefit and to give a
valid release therefor, and that another person or an institution is then
maintaining or has custody of the Eligible Trustee or Beneficiary and that no
guardian, committee or other representative of the estate of the Eligible
Trustee or Beneficiary shall have been duly appointed, the Fund may make
payment of such benefit otherwise payable to the Trustee or Beneficiary to such
other person or institution, including a custodian under the Uniform Gifts to
Minors Act or corresponding legislation (such custodian shall be an adult, a
guardian of the minor or a trust company), and the release of such
8
<PAGE> 9
other person or institution shall be a valid and complete discharge for the
payment of such benefit.
8.7 GOVERNING LAW. This Plan is established under laws of the State of
Illinois, and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Illinois.
8.8 NONGUARANTEE OF TRUSTEESHIP. Nothing contained in this Plan shall be
construed as a contract or guarantee of the right of the Eligible Trustee to be,
or remain as, a trustee of the Fund or to receive any, or any particular rate
of, Compensation.
8.9 SPENDTHRIFT PROVISION. The Eligible Trustee's and Beneficiaries'
interests in the benefits hereunder may not be anticipated, sold, encumbered,
pledged, mortgaged, charged, transferred, alienated, assigned nor become subject
to execution, garnishment or attachment, and any attempt to do so by any person
shall render the benefits immediately forfeitable.
8.10 DISCLOSURE AND NOTICES. The rights and benefits of Eligible Trustees
under the Plan shall not be represented or evidenced by any form of certificate
or other instrument. Each Eligible Trustee shall receive a copy of the Plan and
the Plan Committee will make available for inspection by any Eligible Trustee a
copy of the rules and regulations used by the Plan Committee in administering
the Plan. For purposes of this Plan, all notices and other communications
provided for in this Plan shall be in writing and shall be deemed to have been
duly given when delivered personally or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or by nationally
recognized overnight delivery service providing for a signed return receipt,
addressed to the Eligible Trustee at the home address set forth in the Fund's
records and to the Fund at the address set forth on the first page of this Plan,
provided that all notices to the Fund shall be directed to the attention of the
President of the Fund or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
8.11 INTERPRETATION OF PLAN. Interpretations of, and determinations related
to, this Plan made by the Plan Committee in good faith, including any
determinations of the amounts of the benefits, shall be
9
<PAGE> 10
conclusive and binding upon all parties; and the Fund shall not incur any
liability to the Eligible Trustee for any such interpretation or determination
so made or for any other action taken by it in connection with this Plan in good
faith.
8.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, the Fund and its successors and assigns and to
the Eligible Trustees and such trustees' heirs, executors, administrators and
personal representatives.
10
<PAGE> 1
EXHIBIT (i)(1)
[SKADDEN, ARPS, SLATE, MEAGHER & FLOM LETTERHEAD]
October 7, 1994
The Explorer Institutional Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: The Explorer Institutional Enhanced Bench-
mark Fund, a sub-trust of The Explorer In-
stitutional Trust -- Initial Registration
Statement on Form N-1A
------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to The Explorer Institutional Trust
(the "Trust"), a voluntary association with transferable shares organized and
existing under and by virtue of the laws of the Commonwealth of Massachusetts (a
"Massachusetts Business Trust"), in connection with the preparation of the
above-referenced Registration Statement on Form N-1A (the "Registration
Statement") under the Securities Act of 1933, as amended (the "1933 Act"), and
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
to be filed by the Trust with the Securities and Exchange Commission (the
"Commission") on October 7, 1994. The Registration Statement relates to the
registration under the 1933 Act of an indefinite number of shares of beneficial
interest, without par value (the "Shares"), of The Explorer Institutional
Enhanced Benchmark Fund (the "Fund"), a separate series of the Trust.
We understand that the Shares will be sold pursuant to a distribution
agreement to be entered into between the Trust, on behalf of the Fund, and Van
Kampen Merritt Inc. (the "Distribution Agreement").
<PAGE> 2
The Explorer Institutional Trust
October 7, 1994
Page 2
This opinion is delivered in accordance with the requirements of Item
24(b)(10) of Form N-1A under the 1933 Act and the Investment Company Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement, (ii) the Declaration of Trust and By-Laws of the Trust (the
"Declaration of Trust" and "By-Laws", respectively), (iii) the designation of
sub-trust with respect to the Fund, (iv) copies of the resolutions adopted by
the initial Board of Trustees of the Trust relating to the organization of the
Trust and the Fund, the authorization, issuance and sale of the Shares, the
filing of the Registration Statement and any amendments or supplements thereto
and related matters, (v) the form of Distribution Agreement, which is included
as an exhibit to the Registration Statement, and (vi) such other documents as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein. In such examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. We have also assumed that the
Distribution Agreement, when executed and delivered by the parties thereto, will
be in the form reviewed by us in connection with this opinion. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Trust and others.
Members of our firm are admitted to the practice of law in the
Commonwealth of Massachusetts, and we express no opinion as to the laws of any
other jurisdiction.
Pursuant to certain decisions of the Supreme Judicial Court of the
Commonwealth of Massachusetts, shareholders of a Massachusetts Business Trust
may, in certain circumstances, be assessed or held personally
<PAGE> 3
The Explorer Institutional Trust
October 7, 1994
Page 3
liable as partners for the obligations of such Massachusetts Business Trust.
Even if the Trust were held to be a partnership, however, the possibility of the
holders of common shares of beneficial interest of the Trust, including the
Shares, incurring personal liability for financial losses of the Trust appears
remote because (i) Article V, Section 5.1 of the Declaration of Trust contains
an express disclaimer of liability for holders of common shares of beneficial
interest of the Trust, including the Shares, for the obligations of the Trust
and provides that the Trust shall indemnify and hold each holder of common
shares of beneficial interest of the Trust harmless from and against all claims
and liabilities to which such holder may become subject by reason of his being
or having been a holder of common shares of beneficial interest of the Trust and
(ii) Article V, Section 5.5 of the Declaration of Trust requires that a
recitation of such disclaimer be included in every written obligation, contract,
instrument, certificate, common share of beneficial interest or other security
of the Trust or undertaking made or issued by the trustees of the Trust.
Based upon and subject to the foregoing and to the statements set forth
above with respect to the liability of a shareholder of a Massachusetts Business
Trust, we are of the opinion that when (i) the Registration Statement (and any
Pre- or Post-Effective Amendments to the Registration Statement relating to the
commencement of the public offering of the Shares) shall have become effective
under the 1933 Act, (ii) resolutions relating to the organization of the Trust
and the Fund, the authorization issuance and sale of the Shares, the filing of
the Registration Statement, the execution and delivery of the Distribution
Agreement and related matters have been duly adopted by a Board of Trustees of
the Trust the composition of which complies with the Investment Company Act,
(iii) the Distribution Agreement is duly executed and delivered by the Trust and
the other respective parties thereto and (iv) certificates representing the
Shares are duly executed, countersigned, registered and duly delivered and paid
for in accordance with the Distribution Agreement, the Shares will be
<PAGE> 4
The Explorer Institutional Trust
October 7, 1994
Page 4
validly issued, fully paid and, except as set forth in Article III, Section 3.8
of the Declaration of Trust, nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 10(viii) to the Registration Statement. We also consent to the reference
to our firm under the heading "Legal Counsel" in the Registration Statement. In
giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the rules
and regulations of the Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
----------------------------------------
Skadden, Arps, Slate, Meagher & Flom
<PAGE> 1
EXHIBIT (i)(2)
[SKADDEN, ARPS, SLATE, MEAGHER & FLOM LETTERHEAD]
October 7, 1994
The Explorer Institutional Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: The Explorer Institutional Enhanced Limited
Duration Fund, a sub-trust of the Explorer
Institutional Trust - - Initial
Registration Statement on Form N-1A
Ladies and Gentlemen:
We have acted as special counsel to The Explorer Institutional Trust
(the "Trust"), a voluntary association with transferable shares organized and
existing under and by virtue of the laws of the Commonwealth of Massachusetts (a
"Massachusetts Business Trust"), in connection with the preparation of the
above-referenced Registration Statement on Form N-1A (the "Registration
Statement") under the Securities Act of 1933, as amended (the "1933 Act"), and
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
to be filed by the Trust with the Securities and Exchange Commission (the
"Commission") on October 7, 1994. The Registration Statement relates to the
registration under the 1933 Act of an indefinite number of shares of beneficial
interest, without par value (the "Shares"), of The Explorer Institutional
Enhanced Limited Duration Fund (the "Fund"), a separate series of the Trust.
We understand that the Shares will be sold pursuant to a distribution
agreement to be entered into between the Trust, on behalf of the Fund, and Van
Kampen Merritt Inc. (the "Distribution Agreement").
<PAGE> 2
The Explorer Institutional Trust
October 7, 1994
Page 2
This opinion is delivered in accordance with the requirements of Item
24(b)(10) of Form N-1A under the 1933 Act and the Investment Company Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement, (ii) the Declaration of Trust and By-Laws of the Trust (the
"Declaration of Trust" and "By-Laws", respectively), (iii) the designation of
sub-trust with respect to the Fund, (iv) copies of the resolutions adopted by
the initial Board of Trustees of the Trust relating to the organization of the
Trust and the Fund, the authorization, issuance and sale of the Shares, the
filing of the Registration Statement and any amendments or supplements thereto
and related matters, (v) the form of Distribution Agreement, which is included
as an exhibit to the Registration Statement, and (vi) such other documents as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein. In such examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. We have also assumed that the
Distribution Agreement, when executed and delivered by the parties thereto, will
be in the form reviewed by us in connection with this opinion. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Trust and others.
Members of our firm are admitted to the practice of law in the
Commonwealth of Massachusetts, and we express no opinion as to the laws of any
other jurisdiction.
Pursuant to certain decisions of the Supreme Judicial Court of the
Commonwealth of Massachusetts, shareholders of a Massachusetts Business Trust
may, in certain circumstances, be assessed or held personally
<PAGE> 3
The Explorer Institutional Trust
October 7, 1994
Page 3
liable as partners for the obligations of such Massachusetts Business Trust.
Even if the Trust were held to be a partnership, however, the possibility of the
holders of common shares of beneficial interest of the Trust, including the
shares, incurring personal liability for financial losses of the Trust appears
remote because (i) Article V, Section 5.1 of the Declaration of Trust contains
an express disclaimer of liability for holders of common shares of beneficial
interest of the Trust, including the Shares, for the obligations of the Trust
and provides that the Trust shall indemnify and hold each holder of common
shares of beneficial interest of the trust harmless from and against all claims
and liabilities to which such holder may become subject by reason of his being
or having been a holder of common shares of beneficial interest of the Trust and
(ii) Article V, Section 5.5 of the Declaration of Trust requires that a
recitation of such disclaimer be included in every written obligation, contract,
instrument, certificate, common share of beneficial interest or other security
of the Trust or undertaking made or issued by the trustees of the Trust.
Based upon and subject to the foregoing and to the statements set forth
above with respect to the liability of a shareholder of a Massachusetts Business
Trust, we are of the opinion that when (i) the Registration Statement (and any
Pre- or Post-effective Amendments to the Registration Statement relating to the
commencement of the public offering of the shares) shall have become effective
under the 1933 Act, (ii) resolutions relating to the organization of the Trust
and the Fund, the authorization issuance and sale of the Shares, the filing of
the Registration Statement, the execution and delivery of the Distribution
Agreement and related matters have been duly adopted by a Board of Trustees of
the Trust the composition of which complies with the Investment Company Act,
(iii) the Distribution Agreement is duly executed and delivered by the Trust and
the other respective parties thereto and (iv) certificates representing the
Shares are duly executed, countersigned, registered and duly delivered and paid
for in accordance with the Distribution Agreement, the Shares will be
<PAGE> 4
The Explorer Institutional Trust
October 7, 1994
Page 4
validly issued, fully paid and, except as set forth in Article III, Section 3.8
of the Declaration of Trust, nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 10(viii) to the Registration Statement. We also consent to the reference
to our firm under the heading "Legal Counsel" in the Registration Statement. In
giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the rules
and regulations of the Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
The Explorer Institutional Trust:
We consent to the use of our report included in the Statement of Additional
Information which is incorporated by reference into the Prospectus and to the
reference to our Firm under the headings "Financial Highlights" in the
Prospectus and "Other Information" in the Statement of Additional Information.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
April 26, 1999
<PAGE> 1
Exhibit (l)
[VAN KAMPEN MERRITT LETTERHEAD]
October 3, 1994
The Explorer Institutional Trust
One Parkview Plaza
Oakbrook Terrace, IL 60181
Dear Sir or Madam:
The initial $100,000 investment by Van Kampen Merritt Inc. for 5,000 shares
of beneficial interest of The Explorer Institutional Enhanced Benchmark Fund and
5,000 shares of beneficial interest of The Explorer Institutional Enhanced
Limited Duration Fund will not be redeemed or resold while any organizational
expenses remain unamortized unless the proceeds of any redemption of that
initial investment are reduced by their pro rata portion of any unamortized
organizational expenses. These shares will be purchased for investment purposes,
and Van Kampen Merritt Inc. has no present intention of selling or publicly
distributing these shares.
Sincerely,
VAN KAMPEN MERRITT INC.
BY: /s/ SCOTT E. MARTIN
-----------------------
Scott E. Martin
First Vice President, General
Counsel and Secretary
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