- --------------------------------------------------------------------------------
THE EXPLORER
INSTITUTIONAL
TRUST(SM)
- --------------------------------------------------------------------------------
Annual Report
December 31,1999
[] ACTIVE CORE FUND
[] LIMITED DURATION FUND
<PAGE>
TABLE OF CONTENTS
Letter to Shareholders................................................. 1
Putting Your Fund's Performance in Perspective......................... 3
Active Core Fund
Portfolio of Investments.......................................... 5
Statement of Assets and Liabilities............................... 9
Statement of Operations........................................... 10
Statement of Changes in Net Assets................................ 11
Financial Highlights.............................................. 12
Limited Duration Fund
Portfolio of Investments.......................................... 13
Statement of Assets and Liabilities............................... 15
Statement of Operations........................................... 16
Statement of Changes in Net Assets................................ 17
Financial Highlights.............................................. 18
Notes to Financial Statements.......................................... 19
Report of Independent Accountants...................................... 22
EXPI ANR 2/00
<PAGE>
LETTER TO SHAREHOLDERS
January 20, 2000
Dear Shareholder,
We are pleased to provide you our annual report for the year ended
December 31, 1999. Unfortunately, for bond market participants, 1999 proved to
be a difficult year for the U.S. fixed-income market. As global financial
stability materialized early in the year, the market focused on the strength of
the U.S. economy and the prospects for emerging inflationary pressures.
Consequently, the Federal Reserve Board (the Fed) signaled its desire to mute
inflationary pressures through short-term interest rate hikes. Over the course
of 1999, the Fed raised the federal funds target rate from 4.75 percent to 5.50
percent. At year end the 30-year U.S. Treasury yield stood at 6.48 percent
versus 5.09 percent from year-end 1998.
ECONOMIC REVIEW
The U.S. economy continued to be characterized by solid growth and
modest inflation. U.S. demand remained strong despite concerns about rising
trade deficits and rising interest rates. The Fed's interest rate hikes totaling
75 basis points were intended to forestall a rise in inflation. The higher rate
environment will increase the financial cost of doing business and may
contribute to a slowing in economic growth.
MARKET OVERVIEW
The Lehman Brothers Aggregate Bond Index returned -.82 percent for the
twelve months ended December 31, 1999. For the same twelve-month period, U.S.
Treasuries returned -2.56 percent. In contrast to 1998, non-Treasuries
outperformed U.S. Treasuries as higher yields contributed to higher returns. The
best performing sector was mortgage-backed securities, which returned 1.86
percent, while asset-backed securities returned 1.81 percent. Finally,
investment-grade corporate bonds returned -1.96 percent and U.S. government
agency securities returned -.94 percent.
OUTLOOK
We expect the economic expansion to continue despite the rising
interest rate environment. Looking ahead, we believe the market appears to be
expecting at least another .50 percent federal funds rate increase, as the Fed
attempts to maintain a balance between economic growth and low inflation.
ACTIVE CORE FUND--PORTFOLIO STRATEGY AND OVERVIEW
As of December 31, 1999, the Fund had a duration of 4.9 years, which
was comparable to the 5.0-year duration of the Fund's benchmark, the Lehman
Brothers Aggregate Bond Index. During the period, we increased the Fund's
exposure to corporate and mortgage-backed securities as larger risk premiums
increased the value in those sectors. As a result, we reduced the Fund's weight
in U.S. Treasury securities.
The Active Core Fund generated a total return of -1.25 percent for the
twelve-month period ended December 31, 1999.
Continued on page 2
1
<PAGE>
LIMITED DURATION FUND--PORTFOLIO STRATEGY AND OVERVIEW
As of December 31, 1999, the Fund had a duration of 1.6 years, which
was comparable to the 1.6-year duration of the Fund's benchmark, the Lehman
Brothers 1- to 3-Year Government Bond Index.
As always, we expect to maintain a portfolio composed of modest
positions diversified among various sectors.
The Limited Duration Fund generated a total return of 2.62 percent for
the twelve-month period ended December 31, 1999.
SUMMARY
We believe the year 2000 will continue to present challenges for
fixed-income portfolios. We expect to continue to meet these challenges through
appropriate risk management and our disciplined investment style. The balance of
the report provides additional details about the funds. We appreciate your
investment in the Explorer Institutional Trust funds and your confidence in our
institutional asset management team.
Sincerely,
/s/ Edward A. Treichel
Edward A. Treichel
Director of Institutional Asset Management
Van Kampen Management Inc.
2
<PAGE>
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
o Illustrate the market environment in which your Fund is being managed.
o Reflect the impact of favorable market trends or difficult market
conditions.
o Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Lehman
Brothers Aggregate Bond Index over time. This index is an unmanaged,
broad-based, statistical composite that does not include any commissions or fees
that would be paid by an investor purchasing the securities it represents. Such
costs would lower the performance of the index. An investment cannot be made
directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Explorer Institutional Active Core Fund vs. the Lehman Brothers Aggregate
Bond Index (April 23, 1996, through December 31, 1999)
Chart
FUND'S PERFORMANCE
1 Year Total Return = -1.25%
Annualized Total Return
Since Inception = 5.71%
Explorer
Institutional Lehamn Brothers
Active Core Aggregate Bond
Date Fund Value Index Value
Apr 1996 $9,950.46 $10,000.00
May 1996 $9,950.46 $9,980.00
Jun 1996 $10,060.58 $10,113.73
Jul 1996 $10,080.47 $10,141.04
Aug 1996 $10,040.13 $10,123.80
Sep 1996 $10,213.72 $10,299.95
Oct 1996 $10,431.95 $10,528.61
Nov 1996 $10,609.84 $10,708.65
Dec 1996 $10,519.94 $10,609.06
Jan 1997 $10,544.91 $10,641.95
Feb 1997 $10,566.47 $10,668.55
Mar 1997 $10,454.84 $10,550.13
Apr 1997 $10,595.42 $10,708.39
May 1997 $10,684.30 $10,810.11
Jun 1997 $10,793.09 $10,938.76
Jul 1997 $11,085.64 $11,234.10
Aug 1997 $10,989.92 $11,138.61
Sep 1997 $11,142.45 $11,303.46
Oct 1997 $11,308.59 $11,467.36
Nov 1997 $11,342.72 $11,520.11
Dec 1997 $11,459.12 $11,636.47
Jan 1998 $11,617.80 $11,785.41
Feb 1998 $11,603.26 $11,775.98
Mar 1998 $11,637.44 $11,816.02
Apr 1998 $11,690.56 $11,877.47
May 1998 $11,791.42 $11,990.30
Jun 1998 $11,880.96 $12,092.22
Jul 1998 $11,914.08 $12,117.61
Aug 1998 $12,110.14 $12,315.13
Sep 1998 $12,400.14 $12,603.30
Oct 1998 $12,350.67 $12,536.51
Nov 1998 $12,394.37 $12,607.97
Dec 1998 $12,427.57 $12,645.79
Jan 1999 $12,496.79 $12,595.21
Feb 1999 $12,285.27 $12,221.13
Mar 1999 $12,367.75 $12,237.02
Apr 1999 $12,388.72 $12,224.78
May 1999 $12,263.05 $12,046.30
Jun 1999 $12,209.82 $11,871.63
Jul 1999 $12,169.72 $12,054.45
Aug 1999 $12,155.38 $12,035.16
Sep 1999 $12,301.94 $12,183.19
Oct 1999 $12,337.28 $12,164.92
Nov 1999 $12,335.33 $12,032.32
Dec 1999 $12,272.53 $11,991.41
While past performance is not indicative of future results, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages. Returns
include reinvestment of all distributions.
3
<PAGE>
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
o Illustrate the market environment in which your Fund is being managed.
o Reflect the impact of favorable market trends or difficult market
conditions.
o Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Lehman
Brothers 1- to 3-year Government Bond Index over time. This index is an
unmanaged, broad-based, statistical composite that does not include any
commissions or fees that would be paid by an investor purchasing the securities
it represents. Such costs would lower the performance of the index. An
investment cannot be made directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Explorer Institutional Limited Duration Fund vs. the Lehman Brothers 1- to
3-year Government Bond Index (April 23, 1996, through December 31, 1999)
Chart
FUND'S PERFORMANCE
1 Year Total Return = 2.62%
Annualized Total Return Since Inception = 5.34%
Explorer
Institutional Lehman Brothers
Limited 1- to 3-year
Duration Government Bond
Date Fund Value Index Value
Apr 1996 $9,992.60 $10,000.00
May 1996 $9,992.60 $10,022.00
Jun 1996 $10,071.10 $10,095.16
Jul 1996 $10,109.13 $10,134.53
Aug 1996 $10,116.99 $10,172.03
Sep 1996 $10,215.38 $10,264.59
Oct 1996 $10,336.73 $10,380.58
Nov 1996 $10,426.23 $10,457.40
Dec 1996 $10,414.05 $10,459.49
Jan 1997 $10,454.36 $10,509.70
Feb 1997 $10,480.00 $10,534.92
Mar 1997 $10,458.20 $10,526.49
Apr 1997 $10,550.98 $10,612.81
May 1997 $10,613.52 $10,687.10
Jun 1997 $10,685.73 $10,760.84
Jul 1997 $10,801.95 $10,878.13
Aug 1997 $10,810.74 $10,889.01
Sep 1997 $10,893.21 $10,971.77
Oct 1997 $10,956.44 $11,052.96
Nov 1997 $10,996.37 $11,080.59
Dec 1997 $11,069.26 $11,154.83
Jan 1998 $11,166.39 $11,261.92
Feb 1998 $11,175.59 $11,272.05
Mar 1998 $11,216.96 $11,316.02
Apr 1998 $11,266.47 $11,370.33
May 1998 $11,330.63 $11,430.60
Jun 1998 $11,381.57 $11,490.03
Jul 1998 $11,433.35 $11,544.04
Aug 1998 $11,554.12 $11,684.88
Sep 1998 $11,719.50 $11,842.62
Oct 1998 $11,759.38 $11,900.65
Nov 1998 $11,775.65 $11,888.75
Dec 1998 $11,805.93 $11,933.93
Jan 1999 $11,856.43 $11,979.28
Feb 1999 $11,780.91 $11,925.37
Mar 1999 $11,856.03 $12,006.46
Apr 1999 $11,892.57 $12,043.68
May 1999 $11,880.36 $12,035.25
Jun 1999 $11,905.77 $12,070.15
Jul 1999 $11,931.83 $12,107.57
Aug 1999 $11,958.14 $12,141.47
Sep 1999 $12,032.89 $12,220.39
Oct 1999 $12,071.20 $12,253.39
Nov 1999 $12,095.93 $12,276.67
Dec 1999 $12,115.35 $12,287.72
While past performance is not indicative of future results, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages. Returns
include reinvestment of all distributions.
4
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES 12.0%
$ 125 American Express Credit Account Master Trust 5.900% 04/15/04 $ 120,984
75 American Express Credit Account Master Trust 6.400 04/15/05 74,084
100 Citibank Credit Card Master Trust 5.800 02/07/05 97,072
200 CoMed Transitional Funding Trust 5.390 06/25/05 191,894
100 Equicredit Funding Trust 6.855 10/15/28 98,328
140 First NBC Credit Card Master Trust 6.150 09/15/04 137,711
150 First USA Credit Card Master Trust 6.420 03/17/05 148,734
100 Green Tree Financial Corp. 6.330 11/01/29 91,980
150 Green Tree Financial Corp. 7.290 03/15/28 144,600
125 Greenpoint Manufactured Housing 6.110 11/15/18 115,686
100 MBNA Credit Card Master Trust 5.250 02/15/06 93,865
100 Nationsbank Credit Card Master Trust 6.000 12/15/05 96,563
75 Peco Energy Transition Trust 5.800 03/01/07 69,644
175 Premier Auto Trust 5.820 12/06/02 173,264
125 Standard Credit Card Master Trust 5.950 10/07/04 121,225
250 Toyota Auto Lease Trust 6.350 04/26/04 249,395
125 Vanderbilt Mortgage Finance 6.080 12/07/15 118,926
-----------
TOTAL ASSET-BACKED SECURITIES 2,143,955
-----------
CORPORATE BONDS 22.5%
AEROSPACE/DEFENSE 0.6%
115 McDonnell Douglas Corp. 6.875 11/01/06 111,213
-----------
AUTOMOBILE 1.9%
125 Dana Corp. 6.500 03/01/09 113,912
255 Delphi Auto Systems Corp. 7.125 05/01/29 225,784
-----------
339,696
-----------
BEVERAGE, FOOD & TOBACCO 0.6%
125 Earthgrains Co. 6.500 04/15/09 113,920
-----------
CONSUMER SERVICES 0.5%
100 Hertz Corp. 6.250 03/15/09 90,707
-----------
FINANCE 9.0%
100 American Express Credit Corp. 6.500 08/01/00 100,103
50 Ameritech Capital Funding Corp. 6.150 01/15/08 46,394
310 Associates Corp. NA 5.800 04/20/04 293,913
70 BankAmerica Corp. 6.250 04/01/08 64,486
125 BankAmerica Corp. 5.875 02/15/09 111,528
125 Bank One Corp. 7.000 03/25/02 124,668
20 Capital One Bank 6.375 02/15/03 19,292
175 Chase Manhattan Corp. 5.750 04/15/04 165,825
75 Chase Manhattan Corp. 7.125 06/15/09 72,869
50 Citigroup, Inc. 6.875 02/15/98 42,175
100 Commercial Credit Group, Inc. 6.625 11/15/06 96,071
150 Deere (John) Capital Corp. 5.350 10/23/01 145,753
60 Finova Capital Corp. 6.150 03/31/03 57,664
60 Finova Capital Corp. 7.250 11/08/04 59,402
100 First Union Corp. 6.400 04/01/08 92,402
120 General Motors Acceptance Corp. 6.150 04/05/07 111,453
-----------
1,603,998
-----------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
LEISURE/ENTERTAINMENT 0.6%
$ 110 Viacom, Inc. 7.750% 06/01/05 $ 111,650
-----------
OIL & GAS 1.6%
315 Conoco, Inc. 6.950 04/15/29 284,092
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 1.6%
60 Goodyear Tire Rubber Co. 6.375 03/15/08 55,128
150 Tyson Foods, Inc. 7.000 05/01/18 137,465
100 Union Pacific Resources Group, Inc. 7.000 10/15/06 95,504
-----------
288,097
-----------
RETAIL 0.4%
25 Nordstrom, Inc. 6.950 03/15/28 22,023
50 Sears Roebuck Acceptance Corp. 7.000 06/15/07 47,299
-----------
69,322
-----------
TELECOMMUNICATIONS 2.5%
50 GTE North, Inc. 6.730 02/15/28 43,402
80 MCI Communications Corp. 6.500 04/15/10 74,605
100 Sprint Capital Corp. 6.125 11/15/08 90,810
110 Sprint Capital Corp. 6.875 11/15/28 98,138
150 U.S. West Capital Funding, Inc. 6.375 07/15/08 137,793
-----------
444,748
-----------
TRANSPORTATION 0.5%
100 CSX Corp. 7.450 05/01/07 98,197
-----------
UTILITIES 2.7%
15 Florida Power & Light Co. 7.050 12/01/26 13,110
25 Florida Power Corp. 6.750 02/01/28 22,185
100 Pacific Gas & Electric Co. 6.250 08/01/03 97,231
125 PacifiCorp 6.375 05/15/08 115,888
200 South Carolina Electric & Gas Co. 6.125 03/01/09 182,016
50 Wisconsin Electric Power Co. 6.625 11/15/06 47,893
-----------
478,323
-----------
TOTAL CORPORATE BONDS 22.5% 4,033,963
-----------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 46.7%
300 Federal Home Loan Banks 5.690 06/19/03 290,227
350 Federal Home Loan Mortgage Corp. 6.500 05/15/24 332,479
225 Federal Home Loan Mortgage Corp. 6.000 07/15/24 209,601
275 Federal Home Loan Mortgage Corp. 6.500 08/15/24 263,486
113 Federal Home Loan Mortgage Corp.
Gold 30 Year Pool #C00602 6.000 02/01/28 103,329
485 Federal Home Loan Mortgage Corp.
Gold 30 Year Pool #C00781 6.500 04/01/29 457,960
199 Federal Home Loan Mortgage Corp.
Gold 30 Year Pool #C25413 6.500 04/01/29 187,848
342 Federal Home Loan Mortgage Corp.
Gold 30 Year Pool #C29175 6.500 07/01/29 322,509
395 Federal Home Loan Mortgage Corp.
Gold 30 Year Pool #C29244 7.000 07/01/29 381,823
</TABLE>
See Notes to Financial Statements
6
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C>
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
$ 59 Federal Home Loan Mortgage Corp.
Gold Convertible 15 Year Pool #G10592 6.500% 09/01/11 $ 57,432
40 Federal Home Loan Mortgage Corp.
Gold Convertible 15 Year Pool #G10270 8.500 09/01/09 41,243
455 Federal National Mortgage Association 4.750 11/14/03 423,473
500 Federal National Mortgage Association 6.000 05/15/08 468,060
600 Federal National Mortgage Association 6.625 09/15/09 582,372
300 Federal National Mortgage Association CMO 6.000 06/25/24 279,564
230 Federal National Mortgage Association PAC 6.500 04/18/20 227,916
100 Federal National Mortgage Association PAC 7.000 10/25/09 99,790
80 Federal National Mortgage Association Pool
#124561 7.500 11/01/22 79,116
162 Federal National Mortgage Association Pool
#429249 7.000 05/01/28 156,882
268 Federal National Mortgage Association Pool
#447787 5.500 12/01/28 237,365
843 Federal National Mortgage Association Pools 6.000 04/01/14 788,771
- 05/01/26
380 Federal National Mortgage Association Pools 6.500 08/01/11 361,873
- 03/01/29
57 Government National Mortgage Association Platinum
15 Year Pool #780419 7.500 12/15/09 57,722
70 Government National Mortgage Association Platinum
Pool #780440 8.500 11/15/17 72,581
348 Government National Mortgage Association Pool
#466439 6.000 02/15/29 317,209
31 Government National Mortgage Association Pool
#780157 9.500 08/15/22 33,580
876 Government National Mortgage Association Pools 6.500 04/15/26 823,639
- 07/15/29
304 Government National Mortgage Association Pools 7.000 04/15/28 293,843
- 07/15/28
440 Tennessee Valley Authority 6.375 06/15/05 427,552
-----------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 46.7% 8,379,245
-----------
UNITED STATES TREASURY OBLIGATIONS 11.2%
140 United States Treasury Bonds 8.125 08/15/19 159,405
655 United States Treasury Notes 6.000 08/15/00 655,413
805 United States Treasury Notes 6.125 08/15/07 784,754
1,425 United States Treasury STRIPS (a) * 05/15/18 409,868
-----------
TOTAL UNITED STATES TREASURY OBLIGATIONS 2,009,440
-----------
TOTAL LONG TERM INVESTMENTS 92.4%
(Cost $17,274,210) 16,566,603
SHORT TERM INVESTMENTS 6.8%
Federal Home Loan Bank Discount Note ($1,220,000 par,
maturing 01/03/00, yielding 0.93%)
(Cost $1,219,905) 1,219,905
-----------
TOTAL INVESTMENTS 99.2%
(Cost $18,494,115) 17,786,508
OTHER ASSETS IN EXCESS OF LIABILITIES 0.8% 134,508
-----------
NET ASSETS 100.0% $17,921,016
===========
</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.
See Notes to Financial Statements
7
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following table summarizes the portfolio composition at December 31, 1999,
based upon the higher of the quality rating issued by Standard & Poor's or
Moody's.
Portfolio Composition by Credit Quality **
U.S. Government and Government Agency Obligations 62.7%
AAA 12.9
AA 8.2
A 11.0
BBB 5.2
-------
100.0%
=======
** As a Percentage of Long-Term Investments
See Notes to Financial Statements
8
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Total Investments (Cost $18,494,115) $ 17,786,508
Interest Receivable 176,110
Unamortized Organizational Costs 13,830
Other 526
------------
Total Assets 17,976,974
------------
LIABILITIES:
Payables:
Distributor and Affiliates 11,263
Custodian Bank 2,186
Income Distributions 184
Accrued Expenses 21,951
Trustees' Deferred Compensation and Retirement Plans 20,374
------------
Total Liabilities 55,958
------------
NET ASSETS $ 17,921,016
============
NET ASSETS CONSIST OF:
Capital $ 18,681,696
Accumulated Distributions in Excess
of Net Investment Income (3,753)
Accumulated Net Realized Loss (49,320)
Net Unrealized Depreciation (707,607)
------------
NET ASSETS $ 17,921,016
============
Net Asset Value Per Share (Based on net assets of
$17,921,016 and 1,855,764 shares of beneficial
interest issued and outstanding) $ 9.66
============
See Notes to Financial Statements
9
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME:
Interest $ 972,838
------------
EXPENSES:
Investment Advisory Fee 47,305
Shareholder Services 17,019
Custody 17,162
Audit 15,990
Trustees' Fees and Expenses 11,139
Legal 11,005
Shareholder Reports 9,593
Amortization of Organizational Costs 8,439
Other 10,622
------------
Total Expenses 148,274
Less: Expense Reduction ($47,305 Investment
Advisory Fee and $37,386 Other) 84,691
Credits Earned on Cash Balances 416
------------
Net Expenses 63,167
------------
NET INVESTMENT INCOME $ 909,671
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss $ (51,676)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period 343,175
End of the Period (707,607)
------------
Net Unrealized Depreciation During the Period (1,050,782)
------------
NET REALIZED AND UNREALIZED LOSS $ (1,102,458)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (192,787)
============
See Notes to Financial Statements
10
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 & 1998
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------ -------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income $ 909,671 $ 611,855
Net Realized Gain/Loss (51,676) 58,523
Net Unrealized Appreciation/Depreciation During the Period (1,050,782) 189,938
-------------- --------------
Change in Net Assets from Operations (192,787) 860,316
-------------- --------------
Distributions from Net Investment Income (909,483) (611,855)
Distributions in Excess of Net Investment Income 0 (4)
-------------- --------------
Distributions from and in Excess of Net Investment Income (909,483) (611,859)
Distributions from Net Realized Gain 0 (81,810)
-------------- --------------
Total Distributions (909,483) (693,669)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES (1,102,270) 166,647
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 6,615,825 7,055,143
Net Asset Value of Shares Issued Through Dividend Reinvestment 906,622 690,436
Cost of Shares Repurchased (352,938) (996,722)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 7,169,509 6,748,857
-------------- --------------
TOTAL INCREASE IN NET ASSETS 6,067,239 6,915,504
NET ASSETS:
Beginning of the Period 11,853,777 4,938,273
-------------- --------------
End of the Period (Including accumulated distributions
in excess of net investment income of $3,753 and $5,409
respecively) $ 17,921,016 $ 11,853,777
============== ==============
</TABLE>
See Notes to Financial Statements
11
<PAGE>
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE
OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
April 23, 1996
Year Year Year (Commencement
Ended Ended Ended of Investment
December 31, December 31, December 31, Operations) to
1999 1998 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 10.362 $ 10.171 $ 10.085 $ 10.000
--------- --------- --------- ---------
Net Investment Income 0.574 0.579 0.626 0.409
Net Realized and Unrealized Gain/Loss (0.707) 0.258 0.249 0.095
--------- --------- --------- ---------
Total from Investment Operations (0.133) 0.837 0.875 0.504
--------- --------- --------- ---------
Less:
Distributions from and in Excess of Net Investment Income 0.572 0.574 0.626 0.409
Distributions from Net Realized Gain 0.000 0.072 0.163 0.010
--------- --------- --------- ---------
Total Distributions 0.572 0.646 0.789 0.419
--------- --------- --------- ---------
Net Asset Value, End of the Period $ 9.657 $ 10.362 $ 10.171 $ 10.085
========= ========= ========= =========
Total Return (1.25%) 8.45% 8.93% 5.20%**
Net Assets at End of the Period (In millions) $17.9 $11.9 $4.9 $5.6
Ratio of Expenses to Average Net Assets* (a) 0.40% 0.47% 0.60% 0.40%
Ratio of Net Investment Income to Average Net Assets* 5.77% 5.56% 6.19% 5.98%
Portfolio Turnover 53% 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) 0.94% 1.33% 2.01% 1.81%
Ratio of Net Investment Income to Average Net Assets 5.24% 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.
See Notes to Financial Statements
12
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES 5.3%
$ 30 American Express Credit Account Master Trust 6.400% 04/15/05 $ 29,634
10 CoMed Transitional Funding Trust 5.390 06/25/05 9,595
10 Equicredit Funding Trust 6.855 10/15/28 9,710
10 First NBC Credit Card Master Trust 6.150 09/15/04 9,837
15 First USA Credit Card Master Trust 6.420 03/17/05 14,873
30 MBNA Credit Card Master Trust 6.600 11/15/04 29,840
10 Nationsbank Credit Card Master Trust 6.000 12/15/05 9,656
30 Peco Energy Transition Trust 5.800 03/01/07 27,858
10 Standard Credit Card Master Trust 5.950 10/07/04 9,698
20 Toyota Auto Lease Trust 6.350 04/26/04 19,952
-----------
TOTAL ASSET-BACKED SECURITIES 170,653
-----------
CORPORATE BONDS 9.9%
FINANCE 8.4%
150 American Express Credit Corp. 6.500 08/01/00 150,034
100 Associates Corp. NA 5.800 04/20/04 94,792
25 Deere (John) Capital Corp. 5.350 10/23/01 24,273
-----------
269,099
-----------
UTILITIES 1.5%
50 Pacific Gas & Electric Co. 6.250 08/01/03 48,619
-----------
TOTAL CORPORATE BONDS 317,718
-----------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 8.4%
100 Federal Home Loan Banks 5.690 06/19/03 96,425
30 Federal National Mortgage Association
Medium Term Note 6.800 04/08/02 30,108
100 Federal National Mortgage Association 5.125 02/13/04 93,857
50 Federal National Mortgage Association 6.500 08/15/04 49,313
-----------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 269,703
-----------
UNITED STATES TREASURY OBLIGATIONS 37.7%
780 United States Treasury Notes 5.875 11/30/01 775,250
30 United States Treasury Notes 5.750 08/15/03 29,390
100 United States Treasury Notes 6.250 02/15/03 100,134
200 United States Treasury Notes 7.250 08/15/04 206,280
120 United States Treasury STRIPS (a) * 05/15/03 96,787
-----------
TOTAL UNITED STATES TREASURY OBLIGATIONS 1,207,841
-----------
TOTAL LONG-TERM INVESTMENTS 61.3%
(Cost $2,007,149) 1,965,915
</TABLE>
See Notes to Financial Statements
13
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Description Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 38.9%
Federal Home Loan Bank Discount Note ($261,000 par, maturing 01/03/00, yielding 0.93%) $ 260,980
Federal National Mortgage Association Discount Note
($500,000 par, maturing 02/08/00, yielding 5.45%) 497,050
Federal National Mortgage Association Discount Note
($500,000 par, maturing 05/18/00, yielding 5.56%) 489,266
----------
(Cost $1,247,296) 1,247,296
----------
TOTAL INVESTMENTS 100.2%
(Cost $3,254,445) $3,213,211
==========
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2)% (7,388)
----------
NET ASSETS 100.0% $3,205,823
==========
</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 31,1999,
based upon the higher of the quality rating issued by Standard & Poor's or
Moody's.
Portfolio Composition by Credit Quality **
U.S. Government and Government Agency Obligations 75.2%
AAA 8.7
AA 14.9
A 1.2
------
100.0%
======
** As a Percentage of Long-Term Investments
See Notes to Financial Statements
14
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Total Investments (Cost $3,254,445) $3,213,211
Cash 605
Interest Receivable 23,629
Unamortized Organizational Expenses 14,121
Other 109
----------
Total Assets 3,251,675
----------
LIABILITIES:
Payables:
Distributor and Affiliates 7,896
Income Distributions 277
Trustees' Deferred Compensation and Retirement Plans 20,374
Accrued Expenses 17,305
----------
Total Liabilities 45,852
----------
NET ASSETS $3,205,823
==========
NET ASSETS CONSIST OF:
Capital $3,255,824
Accumulated Distributions in Excess of Net Investment Income (8,767)
Net Unrealized Depreciation (41,234)
----------
NET ASSETS $3,205,823
==========
Net Asset Value Per Share (Based on net assets of $3,205,823 and
336,888 shares of beneficial interest issued and outstanding) $ 9.52
==========
See Notes to Financial Statements
15
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME:
Interest $167,572
--------
EXPENSES:
Shareholder Services 16,630
Audit 16,193
Custody 15,795
Trustees' Fees and Expenses 11,136
Investment Advisory Fee 9,161
Legal 8,334
Amortization of Organizational Costs 8,616
Shareholder Reports 6,800
Other 1,957
--------
Total Expenses 94,622
Less: Expense Reduction
($9,161 Investment Advisory Fee and $72,902 Other) 82,063
Credits Earned on Cash Balances 335
--------
Net Expenses 12,224
--------
NET INVESTMENT INCOME $155,348
========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 4,323
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period 41,696
End of the Period (41,234)
--------
Net Unrealized Depreciation During the Period (82,930)
--------
NET REALIZED AND UNREALIZED LOSS $(78,607)
========
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 76,741
=========
See Notes to Financial Statements
16
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 & 1998
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
FROM INVESTMENT ACTIVITIES:
Operations:
<S> <C> <C>
Net Investment Income $ 155,348 $ 182,967
Net Realized Gain 4,323 91,400
Net Unrealized Depreciation During the Period (82,930) (37,308)
---------- ----------
Change in Net Assets from Operations 76,741 237,059
---------- ----------
Distributions from Net Investment Income (154,388) (182,967)
Distributions in Excess of Net Investment Income 0 (9,017)
---------- ----------
Distributions from and in Excess of Net Investment Income (154,388) (191,984)
Distributions from Net Realized Gain (4,187) (90,705)
---------- ----------
Total Distributions (158,575) (282,689)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES (81,834) (45,630)
---------- ----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold 400,372 410,033
Net Asset Value of Shares Issued Through Dividend Reinvestment 156,083 262,640
Cost of Shares Repurchased 0 (6,127,927)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 556,455 (5,455,254)
---------- ----------
TOTAL INCREASE/DECREASE IN NET ASSETS 474,621 (5,500,884)
NET ASSETS:
Beginning of the Period 2,731,202 8,232,086
---------- ----------
End of the Period (Including accumulated distributions in excess of
net investment income of $8,767 and $10,546 respectively) $3,205,823 $2,731,202
========== ==========
</TABLE>
See Notes to Financial Statements
17
<PAGE>
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
April 23, 1996
Year Year Year (Commencement
Ended Ended Ended of Investment
December 31, December 31, December 31, Operations) to
1999 1998 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 9.773 $ 10.037 $ 10.019 $ 10.000
----------- ---------- ---------- ---------
Net Investment Income 0.496 0.547 0.574 0.386
Net Realized and Unrealized Gain/Loss (0.253) 0.110 0.036 0.019
----------- ---------- ---------- ---------
Total from Investment Operations 0.243 0.657 0.610 0.405
----------- ---------- ---------- ---------
Less:
Distributions from and in Excess of Net Investment Income 0.487 0.583 0.574 0.386
Distributions from Net Realized Gain 0.013 0.338 0.018 0.000
----------- ---------- ---------- ---------
Total Distributions 0.500 0.921 0.592 0.386
----------- ---------- ---------- ---------
Net Asset Value, End of the Period $ 9.516 $ 9.773 $ 10.037 $ 10.019
=========== ========== ========== =========
Total Return 2.62% 6.65% 6.29% 4.14%**
Net Assets at End of the Period (In millions) $3.2 $2.7 $8.2 $9.8
Ratio of Expenses to Average Net Assets* (a) 0.41% 0.61% 0.56% 0.40%
Ratio of Net Investment Income to Average Net Assets* 5.07% 5.44% 5.74% 5.68%
Portfolio Turnover 63% 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) 3.09% 3.67% 1.86% 1.40%
Ratio of Net Investment Income to Average Net Assets 2.38% 2.38% 4.59% 4.68%
** Non-Annualized
</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 .01%, .21% and
.16%, for the periods ended December 31, 1999, 1998, and 1997,
respectively.
See Notes to Financial Statements
18
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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, 1999, there were no
when issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME - Interest income is recorded on an accrual basis. Bond
discount and premium are amortized over the life of each applicable security.
D. ORGANIZATIONAL COSTS - The Funds will reimburse Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Funds' organization in the amount of $47,718 for Active Core Fund and $48,676
for Limited Duration Fund. These costs are being amortized on a straight line
basis over the 60 month period ending April 22, 2001. Van Kampen Management Inc.
(the "Adviser") has agreed that in the event any of the initial shares of the
Funds originally purchased by Van Kampen are redeemed during the amortization
period, the Funds will be reimbursed for any unamortized organizational costs in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income and gains to
its shareholders. Therefore, no provision for federal income taxes is required.
The Funds' intend to utilize provisions of the federal income tax laws
which allow it to carry a realized loss capital loss forward for eight years
following the year of the loss and offset such losses against any future
realized capital gains. At December 31, 1999, Active Core had an accumulated
capital loss carry forward for tax purposes of $26,443 which expires December
31, 2007. Net realized gains or losses may differ for financial reporting and
tax purposes as a result of post-October losses which may not be recognized for
tax purposes until the first day of the following fiscal year.
The following table presents the identified cost of investments at December
31, 1999 for federal income tax purposes with the associated gross unrealized
appreciation, gross unrealized depreciation and net unrealized
appreciation/depreciation.
ACTIVE CORE LIMITED
FUND DURATION FUND
Cost of long-term and
short-term investments $18,494,115 $3,254,445
============== ===================
Aggregate gross
unrealized appreciation $3,901 $253
Aggregate gross
unrealized depreciation 711,508 41,487
-------------- -------------------
Net unrealized
Depreciation $707,607 $41,234
============== ===================
F. DISTRIBUTION OF INCOME AND GAINS - Each Fund
declares daily and pays monthly dividends from net investment income. Net
realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains which are
included in ordinary income for tax purposes.
Due to inherent differences in the recognition of income, expenses, and
realized gain/losses under generally
19
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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.
Permanent book and tax basis differences relating to the recognition of
gains/losses on paydowns of mortgage pool obligations totaling $2,356 for Active
Core Fund have been reclassified from accumulated distributions in excess of net
investment income to accumulated net realized loss. Permanent book and tax basis
differences relating capital gains distributions totaling $3,824 for Active Core
Fund and $819 for Limited Duration Fund have been reclassified from accumulated
net realized loss to accumulated distributions in excess of net investment
income. The Limited Duration Fund designated and paid $4,182 as a 20% rate gain
distribution for the fiscal year 1999. In January 2000, the Funds will provide
tax information to shareholders for the 1999 calendar year.
G. EXPENSE REDUCTIONS - During the period ended December 31, 1999, the custody
fees for Active Core Fund and Limited Duration Fund were reduced by $416 and
$335, 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 $316,955 and $336,432 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, 1999, Active Core Fund and Limited Duration
Fund recognized expenses of approximately $300 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, 1999, Active Core Fund and Limited Duration
Fund recognized expenses of approximately $24,200 and $19,700, respectively,
representing Van Kampen's cost of providing accounting and legal services to the
Funds. All of this expense has been assumed by Van Kampen.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Funds. For the year ended December 31,
1999, Active Core Fund and Limited Duration Fund recognized expenses of
approximately $17,000 and $16,000, respectively. 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, 1999, Van Kampen owned 5,000 shares of each Fund.
3. CAPITAL TRANSACTIONS There are an unlimited number of shares of beneficial
interest of each Fund without par value authorized.
For the year ended December 31, 1999, transactions in common shares were as
follows:
ACTIVE LIMITED
CORE DURATION
FUND FUND
--------------- ----------------
Beginning Shares 1,143,960 279,454
Shares Sold 656,253 41,203
Shares Issued
through 91,561 16,231
Dividend Reinvestment
Shares Repurchased (36,010) 0
--------------- ----------------
Ending Shares 1,855,764 336,888
=============== ================
Capital at 12/31/99 $18,681,696 $3,255,824
=============== ================
20
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
For the period ended December 31, 1998, transactions in common shares were as
follows:
ACTIVE LIMITED
CORE DURATION
FUND FUND
--------------- -----------------
Beginning Shares 485,509 820,195
Shares Sold 688,318 40,755
Shares Issued
through 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
=============== =================
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 $14,293,911 and $7,921,080 for Active Core Fund and
$1,584,241 and $1,443,805 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.
6. SUBSEQUENT EVENT
On November 3, 1999, the Board approved a Plan of Liquidation for the Funds. The
Plan of Liquidation will be presented to the shareholders of the Funds for
approval. Dividends subject to automatic reinvestment in the Funds according to
previous instructions of existing shareholders will continue to be reinvested in
shares of the Funds.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
The Explorer Institutional Trust:
We have audited the accompanying statements of assets and liabilities of The
Explorer Institutional Trust (comprising the Active Core Fund and Limited
Duration Fund, collectively referred to as the "Funds"), including the
portfolios of investments, as of December 31, 1999, the related statements of
operations for the year then ended, the statements 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 Explorer Institutional
Trust 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, 1999, 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, 1999, 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, 2000
22
<PAGE>
THE EXPLORER INSTITUTIONAL TRUST
BOARD OF TRUSTEES INVESTMENT ADVISER
DAVID C. ARCH VAN KAMPEN MANAGEMENT INC.
ROD DAMMEYER 1 Parkview Plaza
HOWARD J KERR P.O. Box 5555
DENNIS J. MCDONNELL* Oakbrook Terrace, Illinois 60181-5555
THEODORE A. MYERS
RICHARD F. POWERS, III*- Chairman DISTRIBUTOR
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* VAN KAMPEN FUNDS INC.
1 Parkview Plaza
OFFICERS P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
RICHARD F. POWERS, III*
President SHAREHOLDER SERVICING AGENT
DENNIS J. MCDONNELL* VAN KAMPEN INVESTOR SERVICES INC.
Executive Vice President and P.O. Box 218256
Chief Investment Officer Kansas City, Missouri 64121-8256
A. THOMAS SMITH III* CUSTODIAN
Vice President and Secretary
STATE STREET BANK AND TRUST COMPANY
JOHN L. SULLIVAN* 225 Franklin Street
Vice President, Treasurer, and P.O. Box 1713
Chief Financial Officer Boston, Massachusetts 02105
PETER W. HEGEL* LEGAL COUNSEL
MICHAEL P. KAMRADT*
JOHN M. MCCAREINS* SKADDEN, ARPS, SLATE, MEAGHER
MICHAEL H. SANTO* & FLOM (ILLINOIS)
EDWARD A. TREICHEL* 333 West Wacker Drive
EDWARD C. WOOD, III* Chicago, Illinois 60606
Vice Presidents
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen Funds Inc., 2000
All Rights Reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
23
<PAGE>
YEAR 2000 UPDATE
As we enter the new century it's "business as usual" for Van Kampen. Thank you
for the confidence you showed in us during the changeover on January 1, 2000,
and for entrusting us with your investment portfolio. We look forward to
continuing to serve your investment needs.
24
