EXPLORER INSTITUTIONAL TRUST, 497, 1996-04-26

EXPLORER INSTITUTIONAL TRUST
497, 1996-04-26

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<PAGE> 1

EXPLORER
INSTITUTIONAL
FUNDS(SM)

- Active Core Fund

- Limited Duration Fund

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.

PROSPECTUS
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

April 22, 1996
The Explorer Institutional Trust (the "Trust") is a professionally managed
no-load, open-end management investment company consisting of two separate
investment portfolios ("Funds" or "Explorer Institutional Funds(SM)"), each with
its own investment objective and policies.

The Trust is 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 American Capital
Management, Inc. (the "Adviser"), the investment adviser to the Funds. The two
Explorer Institutional FundsSM are the Explorer Institutional Active Core Fund
("Active Core Fund") and the Explorer Institutional Limited Duration Fund
("Limited Duration Fund").

In managing the Funds, the 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 range for each respective Fund, adjusting duration from time to time
based on the Adviser's view of market conditions.

Additional information about the Trust and the Funds is contained in a Statement
of Additional Information dated April 22, 1996, which has been filed with the
Securities and Exchange Commission, a copy of which may be obtained without
charge by calling: 1-800-822-3699.

This Prospectus, which incorporates by reference the entire Statement of
Additional Information, concisely sets forth certain information about the Trust
and the Funds that a prospective shareholder should know before investing.
Shareholders should read this Prospectus carefully and retain it for future
reference.
<PAGE> 2

SUMMARY OF FUND EXPENSES

Shareholder Transaction Expenses

<TABLE>
<S> <C>
Maximum sales load imposed on purchases.......... None
Maximum sales load imposed on reinvested
dividends....................................... None
Deferred sales load.............................. None
Redemption fees.................................. None
Exchange fees.................................... None
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

As of the date of this Prospectus, neither of the Funds had commenced investment
operations. Accordingly, the following information represents estimates of
expenses expected for the Funds' first year of operations.

<TABLE>
<CAPTION>
ACTIVE CORE LIMITED DURATION
FUND FUND
----------- ----------------
<S> <C> <C>
Management Fees(1)........ 0.30% 0.30%
Other expenses(2)......... 0.10% 0.10%
Total(2).................. 0.40% 0.40%
</TABLE>

- ---------------

(1) Reduced to 0.25% on the respective Fund's net assets in excess of one
billion dollars. See "How the Funds are Managed."

(2) The Adviser has agreed to waive fees or reimburse certain expenses of each
Fund such that the respective Fund's management fees and certain other
expenses do not exceed 0.40% per annum. See "How the Funds are Managed."
Estimated total expenses for the first year of operations of each Fund,
before giving effect to such agreement, are 0.70%.

Example

A $1,000 investment would have the following transaction costs and operating
expenses assuming a 5% annual return and reinvestment of all dividends and
distributions. This example should not be considered indicative of actual or
expected Fund performance or expenses, both of which will vary.

<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
Active Core Fund......................... $4 $13
Limited Duration Fund.................... $4 $13
</TABLE>

Expenses are one of several factors to consider when you invest in a Fund. The
expense summary format above is used by all mutual funds and is provided here to
help you make your investment decision.

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<PAGE> 3

THE FUNDS' INVESTMENT OBJECTIVES

The Trust is 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 American Capital
Management, Inc., the investment adviser to the Funds. The Trust currently
consists of two separate Funds, each of which is registered as a diversified,
open-end management investment company. Additional Funds may be added in the
future.

Each Fund has its own investment objective. 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. The investment
objective of the Limited Duration Fund 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 preservation of capital. These objectives are
fundamental and cannot be changed without shareholder approval. 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 United States, agencies, instrumentalities and other political
subdivisions of any of the above and corporations, partnerships, trusts and
other organizations and entities. There are market risks inherent in all
securities investments and there can be no assurance that the Funds will achieve
their objectives.

HOW THE FUNDS SEEK THEIR INVESTMENT OBJECTIVES

Each Fund will seek 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 will not
invest in income securities rated at the time of investment below investment
grade. 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 Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"). For a description of S&P and Moody's
ratings, see the Statement of Additional Information. Each Fund will invest at
least 75% of its assets in securities rated AA/Aa or higher.

ACTIVE CORE FUND. The Active Core Fund invests substantially all of its assets
in a diversified portfolio of investment grade income securities having various
maturities and will maintain a portfolio duration of 3 to 6 years. The Fund will
invest at least 75% of its assets in securities rated AA/Aa or higher. The
Active Core Fund will not invest in securities rated below BBB/Baa. The Fund may
not invest in securities of foreign issuers.

LIMITED DURATION FUND. The Limited Duration Fund invests substantially all of
its assets in a diversified portfolio of investment grade income securities
having various maturities and will maintain a portfolio duration of 1 to 3
years. The Fund will invest at least 75% of its assets in securities rated AA/Aa
or higher. The Limited Duration Fund will not invest in securities rated below
A. The Fund may 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. 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 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.

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Traditionally, a debt security's "term to maturity" has been used as a measure
of the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until a debt 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 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 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.

PORTFOLIO CREDIT QUALITY. Each Fund will invest at least 75% of its assets in
securities rated AA/Aa or higher. A Fund's 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 may invest in securities rated in the fourth highest
rating category by a nationally recognized rating organization (e.g., BBB by S&P
or Baa 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 may invest in securities rated in the third highest
rating category 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

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<PAGE> 5

higher rated securities. Securities rated A by Moody's in Moody's view possess
many 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
instrumentalities ("U.S. Government Securities"); mortgage and other asset-
backed securities; corporate debt 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. There are many different types
of derivatives, with many different uses.

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) certain real
estate mortgage investment conduits, certain collateralized mortgage obligations
and other mortgage-backed securities 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.

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

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<PAGE> 6

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.

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.
Principal prepayments on the mortgage assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
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.

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.

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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).

CERTAIN 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 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. A Fund generally will not invest
more than 15% of its 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.

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 American Capital Distributors, Inc. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. The Distributor receives no compensation for this service. The 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.

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Investments may be made either by wire transfer or by mail as follows:

(1) By Wire. Explorer Institutional Funds(SM) will accept investments by wire.
An investor must first telephone the Explorer Institutional Funds(SM) at
1-800-822-3699 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 ACCESS Investor Services, Inc., Re: the
Explorer Institutional Funds(SM) 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
Funds(SM). 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 Funds(SM)
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 Funds(SM) will also accept investments
by mail. Investments by mail may be made by sending a check payable to
"Explorer Institutional Funds(SM)" 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 Funds(SM), ACCESS
Investor Services, Inc., Explorer Institutional Funds(SM), P.O. Box
418256, Kansas City, Missouri, 64141-9256 (ACCESS Investor Services, Inc.
"ACCESS"). ACCESS is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. 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 Funds(SM) 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 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 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 will generally not be issued.

The Trust 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 rejection is in the best interests of the Fund;
to waive the minimum investment requirements for certain investors; and to
redeem shares if

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<PAGE> 9

information provided in the Account Application should prove to be incorrect in
any material respect.

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 Adviser at One
Parkview Plaza, Oakbrook Terrace, IL 60181 or call the Explorer Institutional
Funds(SM) at 1-800-822-3699 to determine whether a Fund is registered or
qualified for sale in their particular jurisdiction.

Shares of the Trust may be purchased by customers of broker-dealers or other
financial intermediaries ("service agents") which interact with the Trust on
behalf of their customers. Service agents may impose additional or different
conditions on the purchase or redemption of Trust shares by their customers and
may charge their customers transaction or other account fees on the purchase and
redemption of Trust 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 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 1-800-822-3699 or by writing the Explorer Institutional Funds(SM) at One
Parkview Plaza, Oakbrook Terrace, IL 60181.

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 intends 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 or resale 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.

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 in good faith by the Board of Trustees of the Trust.

9
<PAGE> 10

HOW TO SELL SHARES

Shareholders may sell shares without charge at any time by mailing a written
redemption request in proper form to the Trust or by calling the Trust at
1-800-822-3699 before 4:00 p.m. Central time to request a redemption.
Shareholders will receive the net asset value 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.

Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem shares in any Fund 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 ACCESS 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
Trust, the Distributor and ACCESS 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.

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. For more information
regarding selling shares, please see the Statement of Additional Information.

HOW THE FUNDS ARE MANAGED

THE ADVISER. Van Kampen American Capital 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 $50 billion.

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is
controlled, through the ownership of a substantial majority of its common stock,
by The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D
L.P."), a Connecticut limited partnership. C&D L.P. is managed by Clayton,
Dubilier & Rice, Inc. a New York based private investment firm. The General
Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership
("C&D Associates L.P."). The general partners of C&D Associates L.P. are Joseph
L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore, Donald J.
Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of
whom is a principal of Clayton, Dubilier & Rice, Inc. In addition, certain
officers, directors and employees of Van Kampen American Capital, Inc. own, in
the aggregate, not more than 7% of the common stock of VK/AC Holding, Inc. and
have the right to acquire, upon the exercise of options, approximately an
additional 13% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee of the
Funds owns or would own 5% or more of the common stock of VK/AC Holding, Inc.

ADVISORY AGREEMENT. The business and affairs of the Funds will be managed by
the Adviser under the direction of the Board of Trustees of the Trust. Subject

10
<PAGE> 11

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>
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>

Under each Fund's investment advisory agreement with the Adviser dated
November 11, 1994, and approved by the sole shareholder of each Fund on November
14, 1994, 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 (other than those who are
affiliated persons, as defined in the Investment Company Act of 1940, of the
Trust, the Adviser or the Distributor), 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.

EXPENSE LIMITATION. In the interest of limiting the expenses of the Funds, the
Adviser 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>
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.

HOW THE FUNDS EXECUTE PORTFOLIO TRANSACTIONS

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. Many securities in which
the Funds invest are traded principally in the over-the-counter market.
Over-the-counter securities are generally 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 may also 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.

11
<PAGE> 12

The Adviser's primary considerations in selecting the manner of executing
securities transactions for the Funds will be prompt execution of orders, the
size and breadth of the market for the security, the reliability, integrity and
financial condition and execution capability of the firm, 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 is
given to those firms which supply research and other services in addition to
execution services. See "Portfolio Transactions and Brokerage Allocation" in the
Statement of Additional Information for more information.

In effecting purchases and sales of the Funds' portfolio securities, the
Adviser and the Funds may place orders with and pay brokerage commissions to
brokers which may be affiliated with the Funds, the Adviser or the Distributor.

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.

SHAREHOLDER SERVICES

Shareholders of the Funds are automatically 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, One Parkview Plaza, Oakbrook Terrace, Illinois 60181 or
by calling 1-800-822-3699.

ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO 64141-9256,
transfer agent for the Funds, performs bookkeeping, data processing and
administrative services related to the maintenance of shareholder accounts.

FUND PERFORMANCE

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 material may
also include a yield quotation as of a current period. In each case, such total
return and yield information, if any, will be calculated pursuant to rules
established by the Securities and Exchange Commission ("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., Morningstar,
Business Week, Forbes or other industry publications. From time to time, a Fund
may compare its 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 and/or return. In addition, from time
to time, the Funds may utilize sales literature that includes hypotheticals.

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 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

12
<PAGE> 13

be greater than yield since, for instance, it may not include the effect of
amortization of bond premiums and premiums from futures transactions engaged in
by a Fund.

Please consult the Statement of Additional Information for more information
regarding Fund performance.

ORGANIZATION

Each Fund is a series of The Explorer Institutional Trust, a Massachusetts
business trust organized on September 30, 1994 (the "Trust"). To date, the Funds
are the only series of the Trust, although the trustees of the Trust are
empowered to designate other series. 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. 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 vote of shareholders holding
not less than two thirds of the shares then outstanding. The Trust will assist
such holders in communicating with other shareholders of the Trust to the extent
required by applicable law. As of the date of this prospectus, the Distributor,
an affiliate of the Adviser, owned a majority of the outstanding shares of each
Fund and accordingly controlled the Funds and the Trust. The Declaration of
Trust provides that shareholders are not liable for any liabilities of the Trust
or any 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.

The authorized capitalization of each Fund consists of an unlimited number of
shares of beneficial interest, without par value.

The fiscal year end of each Fund is December 31.

More detailed information concerning the Trust is set forth in the Statement
of Additional Information.

ADDITIONAL INFORMATION

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Trust with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.

13
<PAGE> 14

EXISTING SHAREHOLDERS--
EXPLORER
FOR INFORMATION ON YOUR
INSTITUTIONAL FUNDS(SM)
EXISTING ACCOUNT PLEASE CALL
One Parkview Plaza
THE TRUST'S TOLL-FREE
Oakbrook Terrace, Illinois 60181
NUMBER--1-800-822-3699.
Investment Adviser
PROSPECTIVE INVESTORS--CALL
VAN KAMPEN AMERICAN CAPITAL
1-800-822-3699.
MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent

ACCESS INVESTOR SERVICES, INC.
Explorer Institutional Funds(SM)
P.O. Box 418256
Kansas City, MO 64141-9256

Custodian

STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Explorer Institutional Funds(SM)

Legal Counsel

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
One Beacon Street
Boston, MA 02108
---------------------------------------------------
333 West Wacker Drive
Chicago, IL 60606

Independent Auditors

KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 15

NO DEALER, SALESMAN 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 ANY FUND, THE TRUST, THE ADVISER, OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY FUND, THE
TRUST, THE ADVISER OR THE 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 SUCH PERSON TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Fund Expenses.................... 2
The Funds' Investment Objectives............ 3
How the Funds Seek Their Investment
Objectives................................ 3
How to Buy Shares........................... 7
Distributions and Taxes..................... 9
How the Funds Value Their Shares............ 9
How to Sell Shares.......................... 10
How the Funds Are Managed................... 10
How the Funds Execute Portfolio
Transactions.............................. 11
Shareholder Services........................ 12
Fund Performance............................ 12
Organization................................ 13
Additional Information...................... 13
</TABLE>

(SM) Service Mark of Van Kampen American Capital Distributors, Inc.
- ---------------------------------------

EXPLORER
INSTITUTIONAL FUNDS(SM)

- - Active Core Fund

- - Limited Duration Fund

- ---------------------------------------

PROSPECTUS

APRIL 22, 1996

()
<PAGE> 16

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
investment portfolios ("Funds" or "Explorer Institutional Funds(SM)"), each with
its own investment objectives and policies. The Trust is 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 American Capital Management, Inc. (the "Adviser"), the investment adviser
to the Funds. 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 but should be
read in conjunction with the Prospectus for the Explorer Institutional
Funds(SM) dated April 22, 1996 (the "Prospectus"). A copy of the Prospectus may
be obtained without charge by calling the Trust's toll-free number:
1-800-822-3699.

The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. (the "SEC"). These items
may be obtained from the SEC upon payment of the fee prescribed, or inspected at
the SEC's office at no charge. Capitalized terms used but not defined herein
shall have the meanings set forth in the Prospectus.

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-13
Investment Advisory and Other Services................................................... B-20
Portfolio Transactions and Brokerage Allocation.......................................... B-23
Taxation................................................................................. B-24
The Distributor.......................................................................... B-26
Legal Counsel............................................................................ B-27
Performance Information.................................................................. B-27
How to Buy Shares........................................................................ B-28
How to Sell Shares....................................................................... B-29
Shareholder Services..................................................................... B-31
Instructions Regarding Backup Withholding................................................ B-32
Independent Auditors' Report relating to the Explorer Institutional Active Core Fund..... B-34
Financial Statements relating to the Explorer Institutional Active Core Fund............. B-35
Independent Auditors' Report relating to the Explorer Institutional Limited Duration
Fund................................................................................... B-36
Financial Statements relating to the Explorer Institutional Limited Duration Fund........ B-37
Account Application...................................................................... B-38
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 22, 1996

<PAGE> 17

THE FUNDS AND THE TRUST

The Trust is a professionally managed no-load, open-end management investment
company. Each of the Explorer Institutional Funds(SM) is a separate, diversified
series of 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 "Enhanced Limited Duration Fund"), formerly known as
the Explorer Institutional Enhanced Limited Duration Fund, (collectively,
"Explorer Institutional FundsSM" or the "Funds"), which were each established
pursuant to a Designation 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. As of the date of this Statement of Additional Information, Van Kampen
American Capital Distributors, Inc., an affiliate of the Adviser, owned a
majority of the outstanding shares of each Fund and accordingly controlled the
Funds and the Trust.

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.

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.

B-2
<PAGE> 18

INVESTMENT POLICIES AND RESTRICTIONS

Each Fund has its own investment objective, policies and restrictions. 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 medium- and long-term U.S. income securities. The
investment objective of the Limited Duration Fund 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 U.S.
income securities, consistent with preservation of capital. These objectives are
fundamental and cannot be changed without shareholder approval. There are market
risks inherent in all securities investments and there can be no assurance that
the Funds will achieve their respective objectives.

Each of the Funds will seek to achieve its investment objective by investing
substantially all of its total assets in a professionally managed, diversified
portfolio of income securities. The Funds may also make other investments
described in the Prospectus. Each Fund may also make any investment not
inconsistent with the following investment restrictions in connection with a
work-out or restructuring of a security held in such Fund's portfolio if such
investment is believed by the Adviser to be in the best interest of the Fund.
The net asset value and return of the Funds may vary.

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.

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.

B-3
<PAGE> 19

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.

No Fund may change any of these investment restrictions as they apply to such
Fund without the approval of the lesser of (i) more than 50% of the Fund's
outstanding shares or (ii) 67% of the Fund's outstanding shares present at a
meeting at which the holders of more than 50% of the outstanding shares are
present in person or by proxy. As long as the percentage restrictions described
above are satisfied at the time of the investment or borrowing, a Fund will be
considered to have abided by those restrictions even if, at a later time, a
change in values or net assets causes an increase or decrease in percentage
beyond that allowed.

The Funds generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but may adjust their portfolios as
deemed advisable in view of prevailing or anticipated market conditions in an
effort to accomplish their respective investment objectives. For example, a Fund
may sell portfolio securities in anticipation of a movement in interest rates.
Frequency of portfolio turnover will not be a limiting factor if a Fund
considers it advantageous to purchase or sell securities. Each Fund anticipates
that its annual portfolio turnover rate will normally be less than 100%.
Portfolio turnover will be calculated by dividing the lesser of purchases or
sales of portfolio securities by the monthly average value of the securities in
the portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less will be
excluded from such calculation.

INCOME SECURITIES

Income securities include securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities");
mortgage and other asset-backed securities; corporate debt securities; variable
and floating rate debt securities; commercial paper; certificates of deposit,

B-4
<PAGE> 20

time deposits and bankers acceptances; other instruments having investment
characteristics substantially similar to any of the foregoing and repurchase
agreements and reverse repurchase agreements with respect to any of the
foregoing. 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 debt securities with floating or variable
rates of interest.

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.

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, graduated payment mortgages and 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

B-5
<PAGE> 21

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. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the prepayment
experience of graduated payment mortgages is basically the same as that of the
conventional mortgages of the same maturity dates over the life of the pool.
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 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.

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.

B-6
<PAGE> 22

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 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

B-7
<PAGE> 23

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 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

B-8
<PAGE> 24

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 S&P or
Moody's (or comparably rated by any other nationally recognized statistical
rating organization); 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.

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
changes 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 high-grade portfolio 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.

B-9
<PAGE> 25

DESCRIPTION OF SECURITIES RATINGS

STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by Standard & Poor's Ratings Group) follows:

A Standard & Poor's 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 default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal 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.

LONG-TERM DEBT--INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.

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.

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',

B-10
<PAGE> 26

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 rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies and
fiduciaries generally.

COMMERCIAL PAPER

A Standard & Poor's 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 This 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 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
Standard & Poor's 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.

VARIABLE RATE DEMAND BONDS

Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a variable rate demand or double feature.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, 'AAA/A-1') or if the nominal maturity is short, a rating of
'SP-1+/AAA' is assigned.

NOTES

A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assignment:

-- Amortization schedule (the longer the final maturity relative to other
maturities the more likely it will be treated as a note).

-- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

B-11
<PAGE> 27

MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service rating symbols and their meanings (as published by Moody's
Investor Service) follows:

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 edge." 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 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 sometime 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 by 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.

Note: Moody's applies the numerical modifiers 1, 2, and 3 in each generic
rating classification from AA through B in its corporate bond rating system. 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.

SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.

Among the obligations covered are commercial paper, Eurocommercial paper, bank
deposits, banker's acceptances and obligations to deliver foreign exchange.
Obligations relying upon support mechanisms such as letters-of-credit and bonds
of indemnity are excluded unless explicitly rated.

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.

B-12
<PAGE> 28

-- Broad margins in 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 Not Prime do not fall within any of the Prime rating categories.

Obligations of a branch of a bank are considered to be domiciled in the
country in which the branch is located. Unless noted as an exception, Moody's
rating on a bank's ability to repay senior obligations extends only to branches
located in countries which carry a Moody's Sovereign Rating for Bank Deposits.
Such branch obligations are rated at the lower of the bank's rating or Moody's
Sovereign Rating for Bank Deposits for the country in which the branch is
located.

When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of hue obligation will be
attended by actions of the government controlling the currency of denomination.
In addition, risks associated with bilateral conflicts between an investor's
home country and either the issuer's home country or the country where an
issuer's branch is located are not incorporated into Moody's short-term debt
ratings.

Moody's makes no representation that rated bank or insurance company
obligations are exempt from the registration under the U.S. Securities Act of
1933 or issued in conformity with any other applicable law or regulation. Nor
does Moody's represent that any specific bank or insurance company obligation is
legally enforceable or a valid senior obligation of a rated issuer.

If an issuer represents to Moody's that its short-term debt obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within the parentheses beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody's evaluates the financial strength of hue affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment. Moody's
makes no representation and gives no opinion on the legal validity or
enforceability of any support arrangement.

Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.

TRUSTEES AND OFFICERS

The Declaration of Trust of the Funds provides that the Board of Trustees
shall consist of not less than three nor more than eleven trustees. The Funds do
not contemplate holding regular meetings of shareholders to elect Trustees or
otherwise. In the event a vacancy occurs on the Board of Trustees by reason of
death, resignation or a reason other than removal by the shareholders, the
remaining Trustees shall appoint a person to fill the vacancy for the entire
unexpired term.

B-13
<PAGE> 29

The following sets forth the names, ages, principal occupations and other
information respecting the Trustees.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ------------------------------ ---------------------------------------------------------
<S> <C>
Don G. Powell*................ Chairman and Trustee. Mr. Powell is President, Chief
2800 Post Oak Blvd. Executive Officer and a Director of VK/AC Holding, Inc.
Houston, TX 77056 and Van Kampen American Capital, and is Chairman, Chief
Age: 56 Executive Officer and a Director of the Distributor, the
Adviser and Van Kampen American Capital Asset Management,
Inc. (the "AC Adviser"), Chairman, Director and President
of Van Kampen American Capital Services, Inc., Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisors, Inc. and Van Kampen American
Capital Exchange Corp., Former Director and Executive
Vice President of Advantage Capital Corporation, ACCESS
Investor Services, Inc. and Van Kampen American Capital
Trust Company.
Director of McCarthy, Crisanti & Maffei, Inc. He is also
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser.
Mr. Powell is Trustee of the open-end investment
companies advised by the Adviser. Mr. Powell is Chairman
of the Board of the closed-end investment companies
advised by the Adviser.
Dennis J. McDonnell*.......... President, Chief Executive Officer and Trustee. Mr.
One Parkview Plaza McDonnell is President, Chief Operating Officer and a
Oakbrook Terrace, IL 60181 Director of the Adviser, the AC Adviser, Van Kampen
Age: 53 American Capital Advisors Inc., VCJ Inc. and Van Kampen
American Capital Management, Inc. He is also an Executive
Vice President and Director of VK/AC Holding, Inc., and
Van Kampen American Capital. Chairman and Director of MCM
Asia Pacific Company, Limited and VSM, Inc., Chief
Executive Officer of McCarthy, Crisanti & Maffei, Inc.,
President of Van Kampen Merritt Equity Advisors Corp.,
Director of Van Kampen Merritt Equity Holdings Corp. and
McCarthy, Crisanti & Maffei, S.A. Mr. McDonnell is the
President, Chief Executive Officer and a Trustee of other
investment companies advised by the Adviser and the AC
Adviser.
Theodore A. Myers............. Trustee. Mr. Myers is an Executive Vice President and
1940 East 6th Street Chief Financial Officer of Qualitech Steel Corporation, a
Cleveland, OH 44114 producer of high quality engineered steels for
Age: 65 automotive, transportation and capital goods industries.
He is also a Director of McLouth Steel and a member of
the Arthur Anderson Chief Financial Officer Advisory
Committee. Prior to August, 1993, Mr. Myers was Senior
Vice President, Chief Financial Officer and a Director of
Doskocil Companies, Inc., a food processing and
distribution company. Mr. Myers is also a Trustee of
other investment companies advised by the Adviser.
</TABLE>

B-14
<PAGE> 30

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ------------------------------ ---------------------------------------------------------
<S> <C>
Rod Dammeyer.................. Trustee. Mr. Dammeyer is President, Chief Executive
Two North Riverside Plaza Officer and Director of Anixter International Inc.
Chicago, IL 60606 (formerly known as Itel Corporation), a value-added
Age: 55 provider of integrated networking and cabling solutions
that support business information and network
infrastructure requirements, and Great American
Management & Investment, Inc., a diversified
manufacturing company. He is also a Director of Lukens,
Inc., Falcon Building Products, Inc., Revco D.S., Inc.,
Jacor Communications, Inc., Kent State University
Foundation, National Advisory Board of Chemical Bank,
Capsure Holdings Corp., The Vigoro Corporation and Antec
Corporation. Mr. Dammeyer was previously a Director of
Santa Fe Energy Resources, 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 of other investment companies advised
by the Adviser.
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. Mr. Arch is also a Trustee of other
Age: 50 investment companies advised by the Adviser.
Howard J Kerr................. Trustee. Mr. Kerr is President and Chief Executive
736 North Western Ave. Officer of Pocklington Corporation, Inc., an investment
P.O. Box 317 holding company. Mr. Kerr is also a Director of Canbra
Lake Forest, IL 60045 Foods, Ltd., a Canadian oilseed crushing, refining,
Age: 60 processing and packaging operation. Mr. Kerr is a Trustee
of other investment companies advised by the Adviser.
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. Prior to July, 1993, Mr.
Age: 55 Sonnenschein was Provost of Princeton University and Dean
of the School of Arts and Sciences at the University of
Pennsylvania. Mr. Sonnenschein is a member of the
National Academy of Sciences and a fellow of the American
Academy of Arts and Sciences. Mr. Sonnenschein is also a
trustee of other investment companies advised by the
Adviser.
Wayne W. Whalen*.............. Trustee. Mr. Whalen is a partner in the law firm of
333 West Wacker Drive Skadden, Arps, Slate, Meagher & Flom. Mr. Whalen is also
Chicago, IL 60606 a Trustee of other investment companies advised by the
Age: 56 Adviser.
</TABLE>

- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell 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.

B-15
<PAGE> 31

Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.

The Fund's audit committee consists of Messrs. Arch, Dammeyer, Kerr, Myers and
Sonnenschein, who are not "interested persons" of the Funds as defined in the
1940 Act. The committee is primarily responsible for supervision of the Funds'
independent auditors and the annual review of the investment advisory agreement
and any other matters requiring the approval of the Trustees who are not
"interested persons" of the Funds pursuant to the 1940 Act.

The Trustees select and nominate trustees to fill any vacancies in
trusteeships and are prepared to review nominations from shareholders.
Nominations from shareholders should be in writing and addressed to the Trustees
at the Funds' office. The Trustees expect to be able to identify from their own
resources an ample number of qualified candidates.

Each of the trustees herein holds the same position with each of 36 other Van
Kampen American Capital investment companies (together with the Funds, the "Fund
Complex"). Each trustee who is not an affiliated person of the Adviser, the
Distributor or Van Kampen American Capital (each a "Non-Affiliated Trustee") is
compensated by an annual retainer and meeting fees for services to the funds in
the Fund Complex. Each fund in the Fund Complex provides a deferred compensation
plan to its Non-Affiliated Trustees that allows trustees to defer receipt of his
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.

The compensation of each Non-Affiliated Trustee includes a retainer from each
Fund in an amount equal to $2,500 per calendar year, due in four quarterly
installments on the first business day of each calendar quarter. Each
Non-Affiliated Trustee receives a per meeting fee from each Fund in the amount
of $250 per meeting attended by the Non-Affiliated Trustee, due on the date of
such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in
connection with his services as a trustee.

Each Non-Affiliated Trustee can elect to defer until retirement receipt of all
or a portion of the compensation earned by such Non-Affiliated Trustee. Amounts
deferred are retained by the Funds and earn a rate of return determined by
reference to the return on common shares of each Fund or other funds in the Fund
Complex as selected by the respective Non-Affiliated Trustee. To the extent
permitted by the 1940 Act, each Fund anticipates it will invest in securities of
those mutual 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 each Fund.

Under each Fund's retirement plan, a Non-Affiliated Trustee who is receiving
trustee's fees from the Funds prior to such Non-Affiliated Trustee's retirement,
has at least ten years of service and retires at or after attaining the age of
60 is eligible to receive a retirement benefit equal to $2,500 per year for each
of the ten years following such trustee's retirement. Under certain conditions,
reduced benefits are available for early retirement provided the trustee has
served at least five years.

B-16
<PAGE> 32

Additional information regarding compensation before deferral from the Trust
and the other funds in the Fund Complex is set forth in the table below.

1995 COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT BEFORE
COMPENSATION BENEFITS ESTIMATED DEFERRAL
BEFORE ACCRUED ANNUAL FROM THE FUND
DEFERRAL AS PART BENEFITS COMPLEX PAID
FROM THE OF FUND UPON TO
TRUSTEE(2) REGISTRANT(3) EXPENSES RETIREMENT(5) TRUSTEES(6)
- ---------------------------------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Theodore A. Myers.......................... $7,000 (4) $ 5,000 $ 144,625
Rod Dammeyer............................... 7,000 (4) 5,000 144,625
David C. Arch.............................. 7,000 (4) 5,000 144,625
Howard J Kerr.............................. 7,000 (4) 5,000 144,625
Hugo F. Sonnenschein....................... 7,000 (4) 5,000 144,625
Wayne W. Whalen............................ 7,000 (4) 5,000 144,125
</TABLE>

- ---------------
(1) The "Registrant" is the Trust which currently has two operating sub-trusts.

(2) Messrs. Powell and McDonnell, trustees of the Trust, are affiliated persons
of the Adviser and are not eligible for compensation or retirement benefits
from the Registrant.

(3) The amounts shown in this column are estimates of the Aggregate Compensation
before Deferral from the two sub-trusts of the Registrant assuming a full
fiscal year of operations. Trustees may defer all or a portion of their
compensation pursuant to the Trust's deferred compensation plan. Amounts
deferred are retained by the respective fund for which they are deferred 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. To the extent permitted by the 1940 Act,
it is anticipated that each fund will invest in securities of those funds
selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation.

(4) The amount of Retirement Benefits accruals aggregated for all of the
trustees of the two sub-trusts of the Registrant is estimated to be $9,600
for its first fiscal year of operations. Prior to commencing operations, the
Retirement Benefit accruals have only been estimated in the aggregate and
not by individual trustee.

(5) The amounts shown in this column are the maximum Estimated Annual Benefit
payable per year for the 10-year period commencing in the year of such
trustee's retirement by the Trust assuming: the trustee has 10 or more years
of service on the Board and retires at or after attaining the age of 60.
Trustees retiring prior to the age of 60 or with fewer than 10 years but
more than five years of service may receive reduced retirement benefits.

(6) The amounts shown in this column are accumulated from the Aggregate
Compensation before Deferral of each of the 36 funds in the Fund Complex as
of December 31, 1995. The Adviser and its affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. Powell, McDonnell and Whalen, the trustees were not
trustees of such investment companies. Combining the Fund Complex with other
investment companies advised by the Adviser and its affiliates, Mr. Whalen
received Total Compensation of $268,857 during the calendar year ended
December 31, 1995. The following trustees deferred aggregate compensation

B-17
<PAGE> 33

from the Registrant and the Fund Complex during the calendar year ended
December 31, 1995 as follows: Mr. Dammeyer, $144,625; Mr. Kerr, $144,625;
Mr. Hugo, $144,625; and Mr. Whalen, $144,125. Amounts deferred are retained
by the respective fund for which they are deferred and earn a rate of return
determined by reference to the return of the common shares of such fund or
other funds in the Fund Complex as selected by the respective Non-Affiliated
Trustee. To the extent permitted by the 1940 Act, it is anticipated that
each fund will invest in securities of those funds selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation.

The following table sets forth certain information (other than information
concerning Messrs. Powell and McDonnell, 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. The officers 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 American Capital and receive
compensation in such capacities.

<TABLE>
<CAPTION>
NAME, OFFICE AND AGE OTHER PRINCIPAL OCCUPATIONS IN PAST 5 YEARS
- ------------------------------ --------------------------------------------------------
<S> <C>
Peter W. Hegel................ Executive Vice President and Portfolio Manager of the
Vice President Adviser. Executive Vice President of Van Kampen American
Age: 39 Capital Asset Management, Inc. (the "AC Adviser"), Van
Kampen American Capital Advisors, Inc. Director of
McCarthy, Crisanti & Maffei, Inc. Vice President of each
of the open-end funds and closed-end funds advised by
the Adviser.
Ronald A. Nyberg.............. Executive Vice President, General Counsel and Secretary
Vice President and of Van Kampen American Capital and VK/AC Holding, Inc.
Secretary Executive Vice President, General Counsel and a Director
Age: 42 of the Distributor, Executive Vice President and General
Counsel of the Adviser and the AC Adviser, Van Kampen
American Capital Management, Inc., VSM Inc., VCJ, Inc.,
Van Kampen Merritt Equity Advisors Corp., and Van Kampen
Merritt Equity Holdings Corp. Executive Vice President,
General Counsel and Assistant Secretary of Van Kampen
American Capital Advisors, Inc., American Capital
Contactual Services, Inc., Van Kampen American Capital
Exchange Corporation, ACCESS Investor Services, Inc.,
American Capital Shareholders Corporation, and Van
Kampen American Capital Trust Company. General Counsel
of McCarthy, Crisanti & Maffei, Inc. Secretary of each
of the Van Kampen American Capital funds advised by the
Adviser and the AC Adviser. Secretary of the closed-end
funds advised by the Adviser. Director of ICI Mutual
Insurance Co., a provider of insurance to members of the
Investment Company Institute.
</TABLE>

B-18
<PAGE> 34

<TABLE>
<CAPTION>
NAME, OFFICE AND AGE OTHER PRINCIPAL OCCUPATIONS IN PAST 5 YEARS
- ------------------------------ --------------------------------------------------------
<S> <C>
Edward C. Wood III............ Senior Vice President of the Adviser and the AC Adviser.
Vice President, Treasurer Vice President and Chief Financial Officer of each of
and Chief Financial Officer the open-end investment companies advised by the Adviser
Age: 40 and the AC Adviser. Vice President, Treasurer and Chief
Financial Officer of the closed-end investment companies
advised by the Adviser.
Nicholas Dalmaso.............. Assistant Vice President and Senior Attorney of Van
Assistant Secretary Kampen American Capital. Assistant Vice President and
Age: 31 Assistant Secretary of the Distributor, the Adviser, the
AC Adviser, and Van Kampen American Capital Management,
Inc. Assistant Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary of each of
the open-end and closed-end investment companies advised
by the Adviser. Prior to May 1992, attorney for Cantwell
& Cantwell, a Chicago law firm.
Scott E. Martin............... Senior Vice President, Deputy General Counsel and
Assistant Secretary Assistant Secretary of, VK/AC Holding, Inc., Van Kampen
Age: 39 American Capital, Inc. Senior Vice President, Deputy
General Counsel and Secretary of the Adviser, the AC
Adviser the Distributor, Van Kampen American Capital
Management, Inc., Van Kampen American Capital Advisors,
Inc., VSM Inc., VCJ Inc., American Capital Contractual
Services, Inc., Van Kampen American Capital Exchange
Corporation, ACCESS Investor Services, Inc., Van Kampen
Merritt Equity Advisors Corp., Van Kampen Merritt Equity
Holdings Corp., American Capital Shareholders
Corporation. Secretary and Deputy General Counsel of
McCarthy, Crisanti & Maffei, Inc. Chief Legal Officer of
McCarthy, Crisanti & Maffei, S.A. Assistant Secretary of
each of the open-end and closed-end investment companies
advised by the Adviser.
Weston B. Wetherell........... Vice President, Associate General Counsel and Assistant
Assistant Secretary Secretary of Van Kampen American Capital, the Adviser
Age: 39 the AC Adviser, the Distributor, Van Kampen American
Capital Management, Inc. and Van Kampen American Capital
Advisors, Inc. Assistant Secretary of each of the
open-end and closed-end investment companies advised by
the Adviser.
John L. Sullivan.............. First Vice President of the Adviser and AC Adviser.
Controller Treasurer of each of the open-end investment companies
Age: 40 advised by the Adviser and the AC Adviser, and
Controller of each of the closed-end investment
companies advised by the Adviser.
Steven M. Hill................ Assistant Vice President of the Adviser and the AC
Assistant Treasurer Adviser. Assistant Treasurer of each of the open-end and
Age: 31 closed-end investment companies advised by the Adviser.
</TABLE>

B-19
<PAGE> 35

<TABLE>
<S> <C>
Edward A. Treichel............ Mr. Treichel is Senior Vice President of the Adviser and
Vice President Senior Vice President of Advisory Corp. and an agent of
Age: 52 Van Kampen American Capital Distributors, Inc. His
address is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181. Prior to 1992, Mr. Treichel was a
consultant with G.P. Lauter & Associates, a financial
consulting firm.
John M. McCareins............. Mr. McCareins is First Vice President of the Adviser and
Vice President Advisory Corp. and an agent of Van Kampen American
Age: 46 Capital Distributors, Inc. His address is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181.
Michael P. Kamradt............ Mr. Kamradt is First Vice President of the Adviser and
Vice President Advisory Corp. and an agent of Van Kampen American
Age: 39 Capital Distributors, Inc. His address is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181.
J. Christopher Jackson........ Mr. Jackson is Vice President, Associate General Counsel
Assistant Secretary and Assistant Secretary of Van Kampen American Capital,
Age: 44 Inc., the Adviser, Advisory Corp., Asset Management and
Van Kampen American Capital Distributors, Inc. Mr.
Jackson is Assistant Secretary of other investment
companies advised by Advisory Corp. and Asset
Management.
</TABLE>

With respect to the Fund, as of March 13, 1996, 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.

As of the date of this Statement of Additional Information, Van Kampen
American Capital Distributors, Inc., an affiliate of the Adviser, owned a
majority of the outstanding shares of each Fund and accordingly controlled the
Funds and the Trust.

No officer or trustee of any Fund owns or would be able to acquire 5% or more
of the common stock of the Adviser or VKAC Holding, Inc., the indirect parent
company of the Adviser.

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

Van Kampen American Capital 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 $50 billion. The Adviser was incorporated as a Delaware
corporation in 1990.

The Adviser's principal office is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181. The Adviser is a wholly-owned subsidiary of Van Kampen
American Capital, Inc., which in turn is a wholly-owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by

B-20
<PAGE> 36

Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of Van Kampen American Capital, Inc.
own, in the aggregate, not more than 7% of the common stock of VK/AC Holding,
Inc. and have the right to acquire, upon the exercise of options, approximately
an additional 13% of the common stock of VK/AC Holding, Inc. Presently, and
after giving effect to the exercise of such options, no officer or trustee of
the Funds owns or would own 5% or more of the common stock of VK/AC Holding,
Inc.

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 September ,
1995 was approved by the sole shareholders of each respective Fund on November
14, 1994. Each agreement will continue until November 14, 1996, and will remain
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 (other than those who are affiliated
persons, as defined in the 1940 Act, of the Trust, the Adviser or Van Kampen
American Capital Distributors, Inc.), the charges and expenses of independent
accountants,

B-21
<PAGE> 37

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 expenses of the Funds, the
Adviser 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. The most stringent
limit as of the date of this Statement of Additional Information, as affecting
any Fund, requires the Adviser to reimburse a Fund to the extent that aggregate
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund.

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.

OTHER AGREEMENTS

FUND ACCOUNTING AGREEMENT. The Fund has also entered into a Fund accounting
agreement pursuant to which the Adviser provides accounting services. Such
services are expected to enable the Funds to more closely monitor and maintain
its accounts and records. The Fund shares together with the other Van Kampen
American Capital mutual funds advised by the Adviser, Van Kampen American
Capital Investment Advisory Corp., 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.

B-22
<PAGE> 38

LEGAL SERVICES AGREEMENT. The Funds and each of the Van Kampen American
Capital funds advised by Van Kampen American Capital Investment Advisory Corp.,
and distributed by the Distributor have entered into Legal Services Agreements
pursuant to which Van Kampen American Capital, Inc. 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 American
Capital, Inc. can render such legal services on a more cost effective basis than
other providers of such services. Payment by the Fund 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 American Capital, Inc.
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.

CUSTODIAN AND INDEPENDENT AUDITORS

State Street Bank and Trust Company, 225 Franklin Street, P.O. 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 auditors for each Fund are KPMG Peat Marwick LLP, 303 East
Wacker Drive, Chicago, IL 60601. The selection of independent auditors will be
subject to ratification by the shareholders of each Fund at any annual meeting
of shareholders.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser will place orders for portfolio transactions for a Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund and the Adviser, including quotations necessary
to determine the value of a Fund's net assets. Any research benefits derived are
available for all clients of the Adviser. Since statistical and other research
information is only supplementary to the research efforts of the Adviser and
still must be analyzed and reviewed by its staff, the receipt of research
information is not expected to materially reduce its expenses. In selecting
among the firms believed to meet the criteria for handling a particular
transaction, the Adviser may take into consideration that certain firms provide
market, statistical or other research information to the Funds and the Adviser,
and may select firms that are affiliated with the Funds, its Adviser or its
distributor.

If it is believed to be in the best interests of a Fund, the Adviser may place
portfolio transactions with brokers who provide the types of service described
above, even if it means the Fund will have to pay a higher commission, (or, if
the broker's profit is part of the cost of the security, will have to pay a
higher price for the security) than would be the case if no weight were given to
the broker's furnishing of those services. This will be done, however, only if,
in the opinion of the Adviser, the amount of additional commission or increased
cost is reasonable in relation to the value of the services.

B-23
<PAGE> 39

If purchases or sales of securities of a Fund and of one or more other
investment companies or clients supervised by the Adviser are considered at or
about the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective sizes of the accounts and the
amount of securities to be purchased or sold. Although it is possible that in
some cases this procedure could have a detrimental effect on the price or volume
of the security as far as a Fund is concerned, it is also possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to a Fund.

Day to day management of the portfolios of each Fund is the responsibility of
the Adviser. While the Adviser will be primarily responsible for the placement
of the Funds' business, the policies and practices in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Trustees.

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 Van Kampen American Capital Distributors, Inc. and other affiliates of a
Fund 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
will be reduced by all or a portion of the brokerage commission given to
affiliated brokers.

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, and reflects applicable tax laws as of the date of
this Statement of Additional Information.

Each Fund intends to qualify each year and to elect 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, at least 98% of its ordinary income for such year and
at least 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

B-24
<PAGE> 40

taxable years. For purposes of the excise tax, any ordinary income or capital
gains 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)
and/or gain derived from the sale or exchange of property.

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 mark-to-market some of the positions in its portfolio (i.e., treat them
as if they were sold for fair market value at the end of the taxable year),
which may cause a Fund to recognize income 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.

A Fund's ability to liquidate portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.

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).

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

B-25
<PAGE> 41

having been paid by the Fund (except for purposes of the 4% 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.

REDEMPTION OF SHARES

Redeeming shareholders will recognize gain or loss in an amount equal to the
difference between their basis in such redeemed 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 realized 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.

GENERAL

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 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
American Capital Distributors, Inc., One Parkview Plaza, Oakbrook Terrace, IL
60181. Van Kampen American Capital Distributors, Inc. is a wholly-owned
subsidiary of Van Kampen American Capital, Inc., which is a wholly-owned
subsidiary of VK/AC Holding Inc., a Delaware corporation that is controlled
through an ownership of a substantial majority of its common stock by The
Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. C & D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C & D
Associates L.P.") is the general partner of C & D L.P. The general partners of
C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J.

B-26
<PAGE> 42

Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of Van Kampen American Capital, Inc. own, in the
aggregate, not more than 7% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
13% of the common stock of VK/AC Holding, Inc. Presently, and after giving
effect to the exercise of such options, no officer or trustee of the Funds owns
or would own 5% or more of the common stock of VK/AC Holding, Inc.

Pursuant to a distribution agreement, Van Kampen American Capital
Distributors, Inc. 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."

LEGAL COUNSEL

Counsel to the Funds is Skadden, Arps, Slate, Meagher & Flom, Boston,
Massachusetts and Chicago, Illinois.

PERFORMANCE INFORMATION

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 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 and/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)

B-27
<PAGE> 43

of a $1,000 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.

Performance information with respect to shares of the Funds is not provided
herein because such shares were not outstanding prior to the date hereof.

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 American Capital Distributors, Inc. (the
"Distributor"), as principal underwriter, which is located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. 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.

B-28
<PAGE> 44

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 One
Parkview Plaza, Oakbrook Terrace, IL 60181 or call the Explorer Institutional
FundsSM at 1-800-822-3699 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" ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO
64141-9256 Re: 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 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 ACCESS Investor Services,
Inc., P.O. 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 1-800-822-3699 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

B-29
<PAGE> 45

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 ACCESS Investor Services, Inc.
("ACCESS") 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 ACCESS 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 ACCESS. 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 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.

B-30
<PAGE> 46

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% 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 1-800-822-3699 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 ACCESS 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 ACCESS employ 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 ACCESS 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.

B-31
<PAGE> 47

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

(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

B-32
<PAGE> 48

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.

B-33
<PAGE> 49

INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholder of
The Explorer Institutional Active Core Fund:

We have audited the accompanying statement of assets and liabilities of The
Explorer Institutional Active Core Fund (the "Fund") as of December 31, 1995.
This financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.

We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of December 31,
1995, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Chicago, Illinois
March 6, 1996

B-34
<PAGE> 50

THE EXPLORER INSTITUTIONAL ACTIVE CORE FUND

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<S> <C>
Assets:
Cash........................................................................ $50,000
Unamortized Organizational Expenses (Note 2)................................ 40,000
-------
Total Assets............................................................. 90,000
-------
Liabilities:
Payable for Organizational Expenses......................................... 40,000
-------
Net Assets.................................................................... $50,000
=======
Net Assets Consist of:
Paid in Surplus............................................................. $50,000
=======
Maximum Offering Price per Share:
Net Asset Value and Redemption Price per Share (based upon net assets of
$50,000 and 5,000 shares of beneficial interest issued and
outstanding)............................................................. $10.00
======
</TABLE>

Note 1: The Fund was organized as a Massachusetts business trust on September
30, 1994, and has had no operations since that date other than relating to
organization matters and the issuance of 5,000 shares of beneficial interest for
$50,000 to Van Kampen American Capital Distributors, Inc., an affiliated
company. There are an unlimited number of shares authorized without par value.

Note 2: The Adviser of the Fund will incur approximately $40,000 of expenses in
connection with the organization of the Fund. These expenses will be reimbursed
to the Adviser and will be charged against operations over a period of 60 months
from the commencement of investment operations by the Fund.

B-35
<PAGE> 51

INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholder of
The Explorer Institutional Limited Duration Fund:

We have audited the accompanying statement of assets and liabilities of The
Explorer Institutional Limited Duration Fund (the "Fund") as of December 31,
1995. This financial statement is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this financial statement based on
our audit.

KPMG PEAT MARWICK LLP

Chicago, Illinois
March 6, 1996

B-36
<PAGE> 52

THE EXPLORER INSTITUTIONAL LIMITED DURATION FUND

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

B-37
<PAGE> 53

APPLICATION
----------------------------------------------------------------------------

1 ACCOUNT REGISTRATION All shaded areas must
be completed

<TABLE>
<S><C>
Mail Application to:
EXPLORER INSTITUTIONAL FUNDS(SM)
INITIAL INVESTMENT($500,000 Minimum) Institutional Asset Management
Enclosed is (are) check(s) payable to 4th Floor
Explorer Institutional Active Core One Parkview Plaza
Fund Amount: $ Oakbrook Terrace, IL 60181
Explorer Institutional Limited Duration Fund Amount: $ Phone # 1-800-822-3699
------------------------------------------------------------------------------------------------------------------

A. CORPORATION, ORGANIZATION, PARTNERSHIP, FIDUCIARY, TRUST, ETC.
-
-------------------------------------------------------------------------- -----------------------------------
NAME TAX IDENTIFICATION NUMBER

- -
-------------------------------------------------------------------------- -----------------------------------
NAME(S) OF TRUSTEES/BENEFICIARY(IES) TO BE INCLUDED IN REGISTRATION DATE OF TRUST AGREEMENT

B. 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

C. ADDRESS

- -
-------------------------------------------------------------------------- -----------------------------------
STREET OR P.O. BOX TELEPHONE (DURING THE DAY)

-------------------------------------------------------------------------- -----------------------------------
CITY STATE ZIP CODE CITIZEN OF

</TABLE>
----------------------------------------------------------------------------

2 DISTRIBUTIONS All distributions are reinvested in shares of the Fund unless
you elect otherwise.
/ / All Distributions will be paid in cash.
/ / Dividends will be paid in cash and capital gains distributions
reinvested.
/ / Payment Order. Dividends and redemptions should be wired to the
following bank(s) rather than the registered owner:

Make checks payable to:

-------------------------------------------------
NAME(s)

-------------------------------------------------

-------------------------------------------------
ADDRESS

-------------------------------------------------
CITY STATE ZIP CODE

----------------------------------------------------------------------------

3 AUTOMATED ACCOUNT SERVICES

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 make check payable
as account is registered and mail to address of record or 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).

Checks: minimum $ Wires: minimum $ (include voided check or deposit
slip for wire privileges).

B. AUTOMATED DIVIDEND PROGRAMS

I authorize the Fund to:

/ / Deposit distributions from my Fund Account into the bank account
indicated on the attached voided check or deposit slip (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 #6 MUST BE COMPLETED.
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PLEASE COMPLETE BOTH SIDES OF THE APPLICATION.

B-38
<PAGE> 54

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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.

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5 Completed By Account Executive

<TABLE>
<S> <C>
- -
----------------------------------------------------- ---------------------------------
NAME OF VAN KAMPEN AMERICAN CAPITAL ACCOUNT EXECUTIVE TELEPHONE

-----------------------------------------------------
BRANCH OFFICE
</TABLE>

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B-39