VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND
N-2, 1997-12-31
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<PAGE>   1
 
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1997
 
                                                            FILE NOS. 333-
                                                                       811-
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                             Washington, D.C. 20549
 
                                    FORM N-2
 
<TABLE>
<CAPTION>
<S>                                                      <C>
REGISTRATION STATEMENT UNDER
   THE SECURITIES ACT OF 1933                                [X]
 
   Pre-Effective Amendment No.                               [ ]
 
   Post-Effective Amendment No.                              [ ]
                              and
REGISTRATION STATEMENT UNDER
   THE INVESTMENT COMPANY ACT OF 1940                        [X]
 
   Amendment No.                                             [ ]
</TABLE>
 
                          VAN KAMPEN AMERICAN CAPITAL
                           SENIOR FLOATING RATE FUND
        (Exact Name of Registrant as Specified in Declaration of Trust)
 
              One Parkview Plaza, Oakbrook Terrace, Illinois 60181
              (Address of Principal Executive Offices) (Zip Code)
 
                                 (630) 684-6000
              (Registrant's Telephone Number, including Area Code)
 
                              Dennis J. McDonnell
        President, Van Kampen American Capital Senior Floating Rate Fund
                               One Parkview Plaza
                        Oakbrook Terrace, Illinois 60181
                    (Name and Address of Agent for Service)
 
                                   Copies to:
 
<TABLE>
<C>                             <C>                             <C>
     Wayne W. Whalen, Esq.          Thomas A. DeCapo, Esq.          Ronald A. Nyberg, Esq.
     Thomas A. Hale, Esq.            Skadden, Arps, Slate,         Executive Vice President,
Skadden, Arps, Slate, Meagher &      Meagher & Flom L.L.P.       General Counsel and Director
        Flom (Illinois)                One Beacon Street          Van Kampen American Capital
      333 W. Wacker Drive              Boston, MA 02108            Investment Advisory Corp.
    Chicago, Illinois 60606                                           One Parkview Plaza
        (312) 407-0700                                            Oakbrook Terrace, Illinois
                                                                             60181
</TABLE>
 
     The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
 
     Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
 
     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.  [X]
                               ------------------
 
                   CALCULATION OF REGISTRATION FEE UNDER THE
                             SECURITIES ACT OF 1933
<TABLE>
<S>                                  <C>               <C>               <C>                 <C>
================================================================================================================
 
<CAPTION>
                                                           PROPOSED*          PROPOSED*
                                         AMOUNT OF          MAXIMUM            MAXIMUM            AMOUNT OF
        TITLE OF SECURITIES            SHARES BEING     OFFERING PRICE        AGGREGATE         REGISTRATION
          BEING REGISTERED              REGISTERED         PER UNIT        OFFERING PRICE           FEE*
<S>                                  <C>               <C>               <C>                 <C>
- ----------------------------------------------------------------------------------------------------------------
Common Shares of Beneficial
Interest............................    100,000,000         $10.00         $1,000,000,000         $295,000
================================================================================================================
</TABLE>
 
* Estimated solely for the purpose of calculating the registration fee.
================================================================================
<PAGE>   2
 
             VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND
 
                             CROSS REFERENCE SHEET
                            PURSUANT TO RULE 404(C)
 
<TABLE>
<CAPTION>
                   ITEM NUMBER, FORM N-2                                 CAPTION IN PROSPECTUS
                   ---------------------                                 ---------------------
<S>  <C>                                                        <C>
Part A
 1.  Outside Front Cover....................................    Cover Page
 2.  Inside Front and Outside Back Cover Page...............    Cover Page; Outside Back Cover
 3.  Fee Table and Synopsis.................................    Fund Expenses; Prospectus Summary
 4.  Financial Highlights...................................    Not Applicable
 5.  Plan of Distribution...................................    Use of Proceeds; Purchasing Shares of
                                                                the Fund; Management of the Fund
 6.  Selling Shareholders...................................    Not Applicable
 7.  Use of Proceeds........................................    Use of Proceeds; Investment Objective
                                                                and Policies and Special Risk Factors
 8.  General Description of the Registrant..................    The Fund; Investment Objective and
                                                                Policies and Special Risk Factors;
                                                                Investment Practices and Special Risks;
                                                                Description of Common Shares
 9.  Management.............................................    Management of the Fund; Custodian,
                                                                Dividend Disbursing and Transfer Agent
10.  Capital Stock, Long-Term Debt and Other Securities.....    The Fund; Taxation; Distributions;
                                                                Dividend Reinvestment Plan; Repurchase
                                                                of Shares; Description of Common
                                                                Shares; Communications with
                                                                Shareholders
11.  Defaults and Arrears on Senior Securities..............    Not Applicable
12.  Legal Proceedings......................................    Not Applicable
13.  Table of Contents of the Statement of Additional           Table of Contents of the Statement of
     Information............................................    Additional Information
</TABLE>
<PAGE>   3
 
<TABLE>
<CAPTION>
                                                                            CAPTION IN SAI
                                                                            --------------
<S>  <C>                                                        <C>
Part B
14.  Cover Page.............................................    Cover Page
15.  Table of Contents......................................    Cover Page
16.  General Information and History........................    Not Applicable
17.  Investment Objective and Policies......................    Investment Objective and Policies and
                                                                Special Risk Consideration; Investment
                                                                Restrictions; Portfolio Transactions
18.  Management.............................................    Trustees and Officers
19.  Control Persons and Principal Holders of Securities....    Trustees and Officers
20.  Investment Advisory and Other Services.................    Trustees and Officers; Management of
                                                                the Fund
21.  Brokerage Allocation and Other Practices...............    Portfolio Transactions
22.  Tax Status.............................................    Taxation
23.  Financial Statements...................................    Independent Accountants' Report;
                                                                Statement of Assets and Liabilities as
                                                                of           , 199 ; Notes to Statement
                                                                of Assets and Liabilities
</TABLE>
 
Part C
 
     Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>   4
 
- -------------------------------------------------------------------------------
                          VAN KAMPEN AMERICAN CAPITAL
                           SENIOR FLOATING RATE FUND
- -------------------------------------------------------------------------------
 
    Van Kampen American Capital Senior Floating Rate Fund (the "Fund") is a non-
diversified, closed-end management investment company. The Fund's investment
objective is to provide a high level of current income, consistent with
preservation of capital. The Fund seeks to achieve its objective by investing
primarily in a professionally managed portfolio of interests in floating or
variable rate senior loans ("Senior Loans") to corporations, partnerships and
other entities ("Borrowers") which operate in a variety of industries and
geographical regions. Although the Fund's net asset value will vary, the Fund's
policy of acquiring interests in floating or variable rate Senior Loans is
expected to minimize fluctuations in the Fund's net asset value as a result of
changes in interest rates. The Fund's net asset value may be affected by changes
in the credit quality of Borrowers with respect to Senior Loan interests in
which the Fund invests. The Fund's investment adviser is Van Kampen American
Capital Investment Advisory Corp. (the "Adviser"). An investment in the Fund may
not be appropriate for all investors and there is no assurance that the Fund
will achieve its investment objective. SEE "INVESTMENT OBJECTIVE AND POLICIES
AND SPECIAL RISK CONSIDERATIONS."
 
    The Board of Trustees of the Fund currently intends, each quarter, to
consider authorizing the Fund to make tender offers for all or a portion of its
outstanding common shares of beneficial interest ("Common Shares") at the then
current net asset value of the Common Shares. An early withdrawal charge payable
to Van Kampen American Capital Distributors, Inc. ("VKACDI") will be imposed on
most Common Shares held for less than one year that are accepted for repurchase
pursuant to a tender offer by the Fund. The
                                                       (Continued on next page.)
                               ------------------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATOR NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
                               ------------------
 
    COMMON SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, NOR 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. COMMON SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
 
    This Prospectus sets forth concisely the information that a prospective
investor should know before investing in the Common Shares of the Fund. Please
read and retain this Prospectus for future reference. A Statement of Additional
Information dated                  , 1998, has been filed with the Securities
and Exchange Commission and can be obtained without charge by calling
1-800-341-2911 or, for Telecommunications Device for the Deaf, 1-800-421-2833. A
table of contents to the Statement of Additional Information is located at page
  of this Prospectus. This Prospectus incorporates by reference the entire
Statement of Additional Information. The Statement of Additional Information has
been filed with the Securities and Exchange Commission ("SEC") and is available
along with other related materials at the SEC's internet web site
(http://www.sec.gov).
                               ------------------
                          VAN KAMPEN AMERICAN CAPITAL
                               ------------------
 
               THIS PROSPECTUS IS DATED                   , 1998.
<PAGE>   5
 
(Continued from previous page.)
 
Fund does not intend to list the Common Shares on any national securities
exchange and none of the Fund, the Adviser or VKACDI intends to make a secondary
market in the Common Shares at any time. Accordingly, Common Shares of the Fund
have no history of public trading, and there is not expected to be any secondary
trading market in the Common Shares. An investment in the Common Shares should
be considered illiquid.
 
  The Fund expects to engage in a continuous offering of its Common Shares
through VKACDI, as principal underwriter, and through selected broker-dealers
and financial services firms, at a price per Common Share equal to net asset
value. During an initial subscription period expected to terminate on          ,
1998 (the "Subscription Period"), Common Shares will be offered at $10.00 per
share for settlement on or about          , 1998. There is no initial sales
charge or underwriting discount on purchases of Common Shares. VKACDI will
compensate from its own assets the broker-dealers and financial services firms
participating in the continuous offering. The minimum initial investment is
$1,000. The minimum initial investment for tax sheltered retirement plans is
$250. See "Purchasing Shares of the Fund." The Fund has registered 100,000,000
Common Shares for sale under the Registration Statement to which this Prospectus
relates. The Fund expects to incur expenses totalling approximately $      in
connection with the Fund's organization. Organizational expenses will be
amortized over a period of 60 months. The Fund expects to incur approximately
$      in expenses in connection with the offering of 100,000,000 Common Shares
pursuant to this Prospectus, which expenses will be charged as operating
expenses of the Fund.
 
  Senior Loans in which the Fund may invest generally will pay interest at rates
which are periodically redetermined on the basis of a base lending rate plus a
premium. These base lending rates are generally the Prime Rate offered by a
major United States bank, the London Inter-Bank Offered Rate, the Certificate of
Deposit rate or other base lending rates used by commercial lenders. Senior
Loans generally will hold the most senior position in the capital structure of
the Borrowers and generally will be secured with specific collateral, which may
include guarantees, although the Fund may also invest in Senior Loans that are
not secured by any collateral. The terms of Senior Loans typically will include
various restrictive covenants which are designed to limit certain activities of
the Borrowers. It is anticipated that the proceeds of the Senior Loans in which
the Fund will acquire interests will be used primarily to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases and, to a
lesser extent, to finance internal growth and for other corporate purposes of
Borrowers. SEE "INVESTMENT OBJECTIVE AND POLICIES AND SPECIAL RISK
CONSIDERATIONS."
 
                                        2
<PAGE>   6
 
- ------------------------------------------------------------------------------
                               TABLE OF CONTENTS
- ------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                             <C>
Fund Expenses...............................................      4
Prospectus Summary..........................................      5
The Fund....................................................     14
Financial Highlights........................................     15
Use of Proceeds.............................................     15
Investment Objective and Policies and Special Risk
  Factors...................................................     15
Certain Characteristics of Senior Loan Interests............     15
Special Risk Considerations.................................     23
Investment Practices and Special Risks......................     26
Taxation....................................................     31
Management of the Fund......................................     32
Distributions...............................................     35
Dividend Reinvestment Plan..................................     35
Repurchase of Shares........................................     37
Description of Common Shares................................     40
Purchasing Shares of the Fund...............................     42
Communications with Shareholders............................     44
Custodian, Dividend Disbursing and Transfer Agent...........     46
Legal Opinions..............................................     46
Experts.....................................................     46
Additional Information......................................     46
Table of Contents for the Statement of Additional
  Information...............................................     47
</TABLE>
 
  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 MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND, THE FUND'S ADVISER OR VKACDI. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON
SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
 
                                        3
<PAGE>   7
 
- ------------------------------------------------------------------------------
FUND EXPENSES
- ------------------------------------------------------------------------------
 
  The following tables are intended to assist investors in understanding the
various costs and expenses directly or indirectly associated with investing in
the Fund.
 
<TABLE>
<S>                                                          <C>
SHAREHOLDER TRANSACTION EXPENSES
  Sales Load (as a percentage of offering price)...........     None
  Dividend Reinvestment Plan Fees..........................     None
  Early Withdrawal Charge..................................  0.00-1.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
  ATTRIBUTABLE TO COMMON SHARES)
  Investment Advisory and Administration Fees(1)...........    1.20%
  Interest Payments on Borrowed Funds......................    0.00%
  Other Expenses (including service fee of 0.15%)(1).......   [0.40]%
                                                             ----------
      Total Annual Operating Expenses(1)...................   [1.60]%
</TABLE>
 
- ----------------
(1) The Adviser has agreed to waive management fees or reduce ordinary Fund
    expenses through [         , 199 ] to the extent necessary so that estimated
    Total Annual Operating Expenses for such period would not exceed [1.60%].
    See "Management of the Fund" for additional information.
 
EXAMPLE
 
  An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming a 5% annual return:
 
<TABLE>
<CAPTION>
                                   ONE YEAR   THREE YEARS   FIVE YEARS   TEN YEARS
                                   --------   -----------   ----------   ---------
<S>                                <C>        <C>           <C>          <C>
Assuming no tender of Common
  Shares.........................    $            $            $           $
Assuming tender and repurchase of
Common Shares on last day of
period and imposition of maximum
applicable early withdrawal
charge...........................    $            $            $           $
</TABLE>
 
  This "Example" assumes that all dividends and other distributions are
reinvested at net asset value and that the percentage amounts listed under Total
Annual Operating Expenses remain the same in the years shown except, as to the
Three, Five and Ten Year periods, for the completion of organization expense
amortization. The above tables and the assumptions in the Example of a 5% annual
return and reinvestment at net asset value are required by regulation of the
SEC; the assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of the Fund's Common Shares. THIS
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES, AND THE
FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
 
                                        4
<PAGE>   8
 
- ------------------------------------------------------------------------------
                               PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
 
  The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and the Statement of
Additional Information.
 
THE FUND.  Van Kampen American Capital Senior Floating Rate Fund (the "Fund") is
a non-diversified, closed-end management investment company, organized as a
Massachusetts business trust on December 19, 1997. The Fund expects to engage in
a continuous offering of its common shares of beneficial interest (the "Common
Shares") through Van Kampen American Capital Distributors, Inc. ("VKACDI") (an
indirect affiliate of the Fund), as principal underwriter. During an initial
subscription period expected to terminate on          , 1998 (the "Subscription
Period"), Common Shares will be offered at $10.00 per share for settlement on or
about          , 1998. See "The Fund."
 
CONTINUOUS OFFERING.  The Fund is continuously offering Common Shares through
VKACDI, as principal underwriter, and through selected broker-dealers and
financial services firms, at a public offering price per Common Share equal to
net asset value. There will be no initial sales charge or underwriting discount
on purchases of Common Shares. VKACDI will compensate from its own assets the
broker-dealers and financial services firms participating in the continuous
offering. The minimum initial investment is $1,000 and minimum subsequent
investment is $100. The minimum initial investment for tax sheltered retirement
plans is $250. The Fund does not intend to list the Common Shares on any
national securities exchange. The Fund may from time to time make tender offers
for all or a portion of its Common Shares. An early withdrawal charge payable to
VKACDI will be imposed on most Common Shares accepted for tender that have been
held for less than one year. See "Purchasing Shares of the Fund" and "Repurchase
of Shares."
 
INVESTMENT OBJECTIVE AND POLICIES.  The Fund's investment objective is to
provide a high level of current income, consistent with preservation of capital.
The Fund seeks to achieve its objective by investing primarily in a
professionally managed portfolio of interests in floating or variable rate
senior loans ("Senior Loans") to corporations, partnerships and other entities
("Borrowers"). Although the Fund's net asset value will vary, the Fund's policy
of acquiring interests in floating or variable rate Senior Loans is expected to
minimize fluctuations in the Fund's net asset value as a result of changes in
interest rates. Senior Loans in which the Fund will purchase interests generally
pay interest at rates which are periodically redetermined by reference to a base
lending rate plus a premium. These base lending rates are generally the prime
rate offered by one or more major United States banks ("Prime Rate"), the London
Inter-Bank Offered Rate ("LIBOR"), the Certificate of Deposit ("CD") rate or
other base lending rates used by commercial lenders. The Fund's net asset value
may be affected by changes in the credit quality of Borrowers with respect to
Senior Loan interests in which the Fund invests. An investment in
 
                                        5
<PAGE>   9
 
the Fund may not be appropriate for all investors and is not intended to be a
complete investment program. No assurance can be given that the Fund will
achieve its investment objective. As discussed below in this Prospectus Summary
under "Tender Offers," an investment in the Common Shares should be considered
illiquid.
 
  Senior Loans generally are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent will be primarily responsible for
negotiating the loan agreement ("Loan Agreement") that establishes the relative
terms and conditions of the Senior Loan and rights of the Borrower and the
several Lenders. The Fund may invest in participations ("Participations") in
Senior Loans, may purchase assignments ("Assignments") of portions of Senior
Loans from third parties and may act as one of the group of Lenders originating
a Senior Loan (an "Original Lender"). The Fund will purchase an Assignment or
act as Original Lender with respect to a syndicated Senior Loan, initially, only
where the Agent with respect to such Senior Loan at the time of investment has
outstanding debt or deposit obligations rated investment grade (BBB or A-3 or
higher by Standard & Poor's Ratings Group ("S&P") or Baa or P-3 or higher by
Moody's Investors Service ("Moody's")) or determined by the Adviser to be of
comparable quality. In addition, the Fund will purchase a Participation only
when the Lender selling such Participation, and any other person interpositioned
between such Lender and the Fund at the time of investment have outstanding debt
obligations rated investment grade or determined by the Adviser to be of
comparable quality. Further, the Fund will not purchase interests in Senior
Loans unless such Agent, Lender or interpositioned person has entered into an
agreement which provides for the holding of assets in safekeeping for, or the
prompt disbursement of assets to, the Fund. With respect to any given Senior
Loan, the rights of the Fund when it acquires a Participation may be different
from, and more limited than, the rights of Original Lenders or of persons who
acquire an Assignment. Participations may entail certain risks relating to the
creditworthiness of the parties from which the Participations are obtained. The
Fund may pay a fee or forgo a portion of interest payments to the Lender selling
a Participation or Assignment pursuant to the terms of such Participation or
Assignment.
 
  It is anticipated that the proceeds of the Senior Loans in which the Fund will
acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases and, to a lesser
extent, to finance internal growth and for other corporate purposes of
Borrowers. Senior Loans have the most senior position in a Borrower's capital
structure, although some Senior Loans may hold an equal ranking with other
senior securities of the Borrower. Senior Loans generally are secured by
specific collateral, which may include guarantees. The Fund may invest up to 20%
of its total assets in interests in Senior Loans which are not secured by any
collateral. The Fund may also acquire warrants, equity securities and, in
limited circumstances, junior debt securities in connection
 
                                        6
<PAGE>   10
 
with its investments in Senior Loans, as discussed below. Such equity securities
and junior debt securities will not be treated by the Fund as Senior Loans.
Investment in Senior Loans which are not secured by specific collateral and in
warrants, equity securities and junior debt securities entails certain risks in
addition to those associated with investment in collateralized Senior Loans.
Loan Agreements may provide for various restrictive covenants designed to limit
the activities of the Borrower in an effort to protect the interests of the
Lenders. Breach of such covenants, if not waived by the Lenders, is generally an
event of default under the Loan Agreement and may give the Lenders the right to
accelerate principal and interest payments. The Adviser will consider the terms
of such restrictive covenants in deciding whether to invest in Senior Loans for
the Fund's portfolio. When the Fund holds a Participation in a Senior Loan it
may not have the right to vote to waive enforcement of any restrictive covenant
breached by a Borrower. Lenders voting in connection with a potential waiver of
a restrictive covenant may have interests different from those of the Fund and
such Lenders may not consider the interests of the Fund in connection with their
votes.
 
  Pursuant to the relevant Loan Agreement, the Borrower may be required in
certain circumstances, and may have the option at any time, to prepay the
principal amount of a Senior Loan, often without incurring a prepayment penalty.
A Lender may have certain obligations pursuant to a Loan Agreement, which may
include the obligation to make additional loans in certain circumstances. The
Fund currently intends to reserve against such contingent obligations by
segregating a sufficient amount of cash and liquid securities as a reserve
against such commitments. The Fund will not purchase interests in Senior Loans
that would require the Fund to make any such additional loans if such additional
loan commitments would exceed 20% of the Fund's total assets or would cause the
Fund to fail to meet the diversification requirements set forth under the
heading "Investment Restrictions" in the Statement of Additional Information.
 
  In normal market conditions, at least 80% of the Fund's total assets will be
invested in Senior Loans of domestic borrowers or foreign borrowers (so long as
Senior Loans to such foreign borrowers are U.S. dollar denominated and payments
of interest and repayments of principal pursuant to such Senior Loan are
required to be made in U.S. dollars). The Fund is not subject to any
restrictions with respect to the maturity of Senior Loans held in its portfolio.
It is currently anticipated that the Fund's assets invested in Senior Loans will
consist of Senior Loans with stated maturities of between three and seven years,
inclusive, and with rates of interest which are redetermined either daily,
monthly, quarterly or semi-annually; provided, however, that the Fund may invest
up to 5% of its total assets in Senior Loans which permit the Borrower to select
an interest rate redetermination period of up to one year. Investment in Senior
Loans with longer interest rate redetermination periods may increase
fluctuations in the Fund's net asset value as a result of changes in interest
rates. The Senior Loans in the Fund's portfolio will at all times have a
dollar-weighted average time until next interest rate redetermination of 90 days
or less. Because most Senior Loans in the Fund's portfolio will be subject to
 
                                        7
<PAGE>   11
 
mandatory or optional prepayment and as there may be significant economic
incentives for a Borrower to prepay its Senior Loans, prepayment of Senior Loans
in the Fund's portfolio may occur. Accordingly, the actual remaining maturity of
the Fund's portfolio invested in Senior Loans may vary substantially from the
average stated maturity of the Senior Loans held in the Fund's portfolio.
However, because Senior Loans in which the Fund may invest redetermine interest
rates at least annually, the Fund and the Adviser believe that the possibility
of prepayment does not entail a significant yield risk to holders of Common
Shares.
 
  During normal market conditions, the Fund may invest up to 20% of its total
assets (including assets maintained by the Fund as a reserve against any
additional loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants, equity
securities and, in limited circumstances, junior debt securities acquired in
connection with the Fund's investments in Senior Loans. Such high quality,
short-term debt securities may include commercial paper rated at least in the
top two rating categories of either S&P or Moody's or unrated commercial paper
considered by the Adviser to be of comparable quality, interests in short-term
loans of Borrowers having short-term debt obligations rated or a short-term
credit rating at least in such top two rating categories or having no such
rating but determined by the Adviser to be of comparable quality, certificates
of deposit and bankers' acceptances and securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Such high quality,
short-term debt securities may pay interest at rates that are periodically
redetermined, or may pay interest at fixed rates. If the Adviser determines that
market conditions temporarily warrant a defensive investment policy, the Fund
may, subject to its ability to liquidate its relatively illiquid portfolio of
Senior Loans, invest up to 100% of its assets in cash and such high quality,
short-term securities. The Fund may also lend its portfolio securities to other
parties and may enter into repurchase and reverse repurchase agreements for
securities, subject to certain restrictions. For further discussion of the
Fund's investment objective and policies and its investment practices and the
associated considerations, see "Investment Objective and Policies and Special
Risk Considerations" and "Investment Practices and Special Risks."
 
  Senior Loans historically have not been rated by nationally recognized
statistical rating organizations. Because of the senior capital structure
position of Senior Loans and the collateralized nature of most Senior Loans to
be purchased for the Fund's portfolio, the Fund and the Adviser believe that
ratings of other securities issued by a Borrower do not necessarily reflect
adequately the relative quality of a Borrower's Senior Loans. Therefore,
although the Adviser may consider such ratings in determining whether to invest
in a particular Senior Loan, the Adviser is not required to consider such
ratings and such ratings will not be the determinative factor in the Adviser's
analysis. The Fund may invest in Senior Loans, the Borrowers with respect to
which have outstanding debt securities which are rated below investment grade by
a nationally recognized statistical rating organization or are unrated but of
comparable quality to such securities. Debt securities rated below
 
                                        8
<PAGE>   12
 
investment grade, or unrated but of comparable quality, commonly are referred to
as "junk bonds." The Fund will invest only in those Senior Loans with respect to
which the Borrower, in the opinion of the Adviser, demonstrates one or more of
the following characteristics: sufficient cash flow to service debt; adequate
liquidity; successful operating history; strong competitive position;
experienced management; and, with respect to collateralized Senior Loans,
adequate collateral coverage of the Senior Loan. In addition, the Adviser will
consider, and may rely in part, on analyses performed by Lenders other than the
Fund.
 
  When the Fund purchases a Participation, the Fund will typically enter into a
contractual relationship with the Lender selling such Participation, but not
with the Borrower. As a result, the Fund may assume the credit risk of both the
Borrower and the Lender selling the Participation and the Fund may not directly
benefit from the collateral supporting the Senior Loan in which it has purchased
the Participation. The Fund will only acquire Participations if the Lender
selling the Participation, and any other person interpositioned between the Fund
and such Lender (i) at the time of investment has outstanding debt or deposit
obligations rated investment grade or determined by the Adviser to be of
comparable quality and (ii) has entered into an agreement providing for the
holding of assets in safekeeping for the Fund. The Fund ordinarily will purchase
a Participation only if, at the time of such purchase, the Fund believes that
the party from whom it is purchasing such Participation is retaining an interest
in the underlying Senior Loan. The Fund believes that such policies
significantly reduce the credit risk that it assumes with respect to such Lender
or interpositioned person.
 
INVESTMENT ADVISER.  Van Kampen American Capital Investment Advisory Corp. (the
"Adviser"), a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("VKAC"), is the Fund's investment adviser. VKAC is a diversified asset
management company with more than two million retail investor accounts,
extensive capabilities for managing institutional portfolios and more than $60
billion under management or supervision. VKAC's more than 50 open-end and 37
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. The Adviser also serves as
investment adviser to the Van Kampen American Capital Prime Rate Income Trust, a
closed-end investment company with investment objectives and policies
substantially similar to those of the Fund and with over $6.6 billion in assets
as of December 15, 1997. See "Management of the Fund." Van Kampen American
Capital Prime Rate Income Trust and the Fund have certain different shareholder
transaction expenses and operating expenses. For information about these
differences contact your broker or other sales representative or call
1-800-421-5666.
 
ADMINISTRATOR.  VKAC is the Fund's administrator (the "Administrator"). The
Administrator is responsible for managing the business affairs of the Fund,
subject to the supervision of the Fund's Board of Trustees. The administrative
services to be provided by the Administrator include monitoring the provisions
of the Loan Agreements and any agreements with respect to Participations and
Assignments,
 
                                        9
<PAGE>   13
 
recordkeeping responsibilities with respect to Senior Loans in the Fund's
portfolio and providing certain services to the holders of the Fund's
securities. See "Management of the Fund."
 
FEES AND EXPENSES.  The Fund will pay the Adviser a monthly fee at an annual
rate of 0.95% of the average net assets of the Fund (as defined); such annual
rate is reduced when average net assets exceed $4 billion. The advisory fee is
higher than the fees paid by most other management investment companies,
although it is comparable to the fees paid by several publicly offered,
closed-end management investment companies with an investment objective and
policies similar to those of the Fund. The Fund will pay the Administrator a
monthly fee at an annual rate of 0.25% of the average net assets of the Fund (as
defined). See "Management of the Fund."
 
  SERVICE PLAN.  In addition to advisory fees and other expenses, the Fund pays
service fees pursuant to a Service Plan. The Service Plan provides that the Fund
may make service fee payments for personal services and/or the maintenance of
shareholder accounts to VKACDI and broker-dealers and other persons in amounts
not exceeding .25% of the Fund's average daily net assets for any fiscal year.
The Trustees of the Fund have initially implemented the Service Plan by
authorizing the Fund to make quarterly service fee payments to VKACDI and
broker-dealers in amounts not expected to exceed .15% of the Fund's average
daily net assets for each fiscal year. See "Purchasing Shares of the Fund."
 
DISTRIBUTIONS.  The Fund's policy is to declare daily and pay monthly
distributions to holders of Common Shares of substantially all net investment
income of the Fund. Distributions to holders of Common Shares cannot be assured,
and the amount of each monthly distribution is likely to vary. Net realized
long-term capital gains, if any, are distributed to holders of Common Shares at
least annually. Holders of Common Shares may elect to have distributions
automatically reinvested in additional Common Shares. Until such time as the
Fund is fully invested, distributions will be less than they might otherwise be.
See "Distributions," "Taxation," "Dividend Reinvestment Plan" and "Use of
Proceeds."
 
  TENDER OFFERS.  The Board of Trustees of the Fund currently intends, each
quarter, to consider authorizing the Fund to make tender offers for all or a
portion of its outstanding Common Shares at the then current net asset value of
the Common Shares. An early withdrawal charge payable to VKACDI will be imposed
on most Common Shares accepted for tender that have been held for less than one
year. The Fund does not intend to list the Common Shares on any national
securities exchange and none of the Fund, the Adviser or VKACDI intends to make
a secondary trading market in the Common Shares at any time. Accordingly, there
is not expected to be any secondary trading market in the Common Shares and an
investment in the Common Shares should be considered illiquid. There can be no
assurance that the Fund will in fact tender for any of its Common Shares. If the
Fund tenders for Common Shares there is no guarantee that all, or any, Common
Shares tendered will be purchased. Subject to its borrowing restrictions, the
Fund may incur debt to finance
 
                                       10
<PAGE>   14
 
repurchases of its Common Shares pursuant to tender offers; such borrowings
entail additional risks. See "The Fund," "Purchasing Shares of the Fund" and
"Repurchase of Shares."
 
  SPECIAL RISK CONSIDERATIONS.  Illiquidity.  The Fund is a closed-end
investment company designed primarily for long-term investors and not as a
trading vehicle. The Fund does not intend to list the Common Shares for trading
on any national securities exchange. There is not expected to be any secondary
trading market in the Common Shares and an investment in the Common Shares
should be considered illiquid. In the event that the Fund's Board of Trustees
does not, at any time or from time to time, authorize the Fund to engage in
tender offers for its Common Shares, it is unlikely that a holder of Common
Shares will be able to otherwise sell Common Shares to the Fund. The shares of
closed-end investment companies often trade at a discount from their net asset
values and, in the unlikely event that a secondary market for the Common Shares
were to develop, the Common Shares likewise may trade at a discount from net
asset value. Because the Fund intends to offer its Common Shares continuously at
a price equal to net asset value, it is unlikely that the Common Shares would
trade at a premium to net asset value should a secondary market for the Common
Shares develop.
 
  Borrowings. The Fund is authorized to borrow money in an amount up to 33 1/3%
of the Fund's total assets (after giving effect to the amount borrowed) for the
purpose of obtaining short-term credits in connection with tender offers by the
Fund for the Common Shares and to fund commitments to purchase Senior Loan
interests. Under the requirements of the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund, immediately after any such borrowings, must
have an asset coverage of at least 300%. Asset coverage is the ratio which the
value of the total assets of the Fund, less all liabilities and indebtedness not
represented by senior securities (as that term is defined in the 1940 Act),
bears to the aggregate amount of any such borrowings by the Fund. The rights of
any lenders to the Fund to receive payments of interest on and repayments of
principal of such borrowings will be senior to those of the holders of Common
Shares, and the terms of any such borrowings may contain provisions which limit
certain activities of the Fund, including the payment of dividends to holders of
Common Shares in certain circumstances. Further, the terms of any such
borrowings may, and the provisions of the 1940 Act do (in certain
circumstances), grant lenders certain voting rights in the event of default in
the payment of interest or repayment of principal. In the event that such
provisions would impair the Fund's status as a regulated investment company, the
Fund, subject to its ability to liquidate its relatively illiquid portfolio,
intends to repay the borrowings. Interest payments and fees incurred in
connection with any such borrowings will reduce the amount of net income
available for payment to the holders of Common Shares. The Fund does not intend
to use borrowings for leverage purposes. Accordingly, the Fund will not purchase
additional portfolio securities at any time that borrowings, including the
Fund's commitments pursuant to reverse repurchase agreements, exceed 5% of the
Fund's total assets (after giving effect to the amount borrowed). See
"Repurchase of Shares."
 
                                       11
<PAGE>   15
 
  Senior Loans. Senior Loans in which the Fund will invest generally will not be
rated by a nationally recognized statistical rating organization, will not be
registered with the SEC or any state securities commission and generally will
not be listed on any national securities exchange. Although the Fund will
generally have access to financial and other information made available to the
Lenders in connection with Senior Loans, the amount of public information
available with respect to Senior Loans will generally be less extensive than
that available for more widely rated, registered and exchange-listed securities.
As a result, the performance of the Fund and its ability to meet its investment
objective is more dependent on the analytical abilities of the Adviser than
would be the case for an investment company that invests primarily in more
widely rated, registered or exchange-listed securities. See "Investment
Objective and Policies and Special Risk Considerations."
 
  Interests in Senior Loans generally are not listed on any national securities
exchange or automated quotation system and no active trading market may exist
for many of the Senior Loans in which the Fund will invest. To the extent that a
secondary market may exist for certain of the Senior Loans in which the Fund
invests, such market may be subject to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods. Senior Loans are thus relatively
illiquid, which illiquidity may impair the Fund's ability to realize the full
value of its assets in the event of a voluntary or involuntary liquidation of
such assets. Liquidity relates to the ability of the Fund to sell an investment
in a timely manner. The market for relatively illiquid securities tends to be
more volatile than the market for liquid securities. Because a substantial
portion of the Fund's assets may be invested in relatively illiquid Senior Loan
interests, the ability of the Fund to dispose of its investments in Senior Loans
in a timely fashion and at a fair price may be restricted, and the Fund and
holders of Common Shares may suffer capital losses as a result. However, many of
the Senior Loans in which the Fund expects to purchase interests are of a
relatively large principal amount and are held by a relatively large number of
owners which should, in the Adviser's opinion, enhance the relative liquidity of
such interests. The risks associated with illiquidity are particularly acute in
situations where the Fund's operations require cash, such as when the Fund
tenders for its Common Shares or when the Adviser considers it advantageous to
increase the percentage of the Fund's portfolio invested in high quality,
short-term securities, and may in certain circumstances result in the Fund
engaging in borrowings to meet short-term cash requirements. See "Investment
Objective and Policies and Special Risk Considerations."
 
  Credit Risks Associated with Investments in Participations.  The Fund will
purchase Participations in Senior Loans. With respect to any given Senior Loan,
the terms of Participations may result in the Fund having rights which differ
from, and are more limited than, the rights of Lenders or of persons who acquire
such interests by Assignment. Participations typically will result in the Fund
having a contractual relationship with the Lender selling the Participation, but
not with the Borrower. In the event of the insolvency of the Lender selling the
Participation, the Fund may be treated as a general creditor of such Lender, and
may not have any exclusive or senior claim with respect to such Lender's
interest in, or the collateral with respect to,
 
                                       12
<PAGE>   16
 
the Senior Loan. As such, the Fund may incur the credit risk of the Lender
selling the Participation in addition to the credit risk of the Borrower with
respect to the Senior Loan when purchasing Participations and may not benefit
directly from the security provided by any collateral supporting the Senior Loan
with respect to which such Participation was sold. The Fund has implemented
measures designed to reduce such risk. The Fund may pay a fee or forgo a portion
of interest payments when acquiring Participations or Assignments. See
"Investment Objective and Policies and Special Risk Considerations."
 
  Credit Risks Associated with Senior Loans.  Senior Loans, like other corporate
debt obligations, are subject to the risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income to the
Fund, a reduction in the value of the Senior Loan experiencing non-payment and a
potential decrease in the net asset value of the Fund. Although Senior Loans in
which the Fund will invest may be secured by specific collateral, there can be
no assurance that liquidation of such collateral would satisfy the Borrower's
obligation in the event of nonpayment of scheduled interest or principal or that
such collateral could be readily liquidated. In the event of bankruptcy of a
Borrower, the Fund could experience delays or limitations with respect to its
ability to realize the benefits of any collateral securing a Senior Loan. To the
extent that the Fund invests a portion of its assets in Senior Loans that are
not secured by specific collateral, the Fund will not enjoy the benefits of
collateralization with respect to such Senior Loans. See "Investment Objective
and Policies and Special Risk Considerations."
 
  Certain Investment Practices.  The Fund may use various investment practices
that involve special considerations including lending its portfolio securities,
entering into when-issued and delayed delivery transactions and entering into
repurchase and reverse repurchase agreements. In addition, the Fund has the
authority to engage in interest rate and other hedging and risk management
transactions. For further discussion of these practices and associated special
considerations, see "Investment Practices and Special Risks."
 
  Non-Diversification.  The Fund has registered as a "non-diversified"
investment company so that it will be able to invest more than 5% of the value
of its assets in the obligations of any single issuer, including Senior Loans of
a single Borrower or Participations purchased from a single Lender. The Fund
does not intend to invest, however, more than 5% of the value of its assets in
interests in Senior Loans of a single Borrower. To the extent the Fund invests a
relatively high percentage of its assets in obligations of a limited number of
issuers, the Fund will be more susceptible than a more widely diversified
investment company to any single corporate, economic, political or regulatory
occurrence. See "The Fund."
 
  Percentage of Assets in Participations.  The Fund may invest up to 100% of its
assets in Participations. The Lenders selling such Participations and other
persons interpositioned between such Lenders and the Fund with respect to such
Participations will likely conduct their principal business activities in the
bank, finance and financial services industries. Because the Fund may invest a
relatively high
 
                                       13
<PAGE>   17
 
percentage of its assets in such Participations, the Fund may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. The Fund
has taken measures which it believes significantly reduce its exposure to such
risk. See "Investment Objective and Policies and Special Risk Considerations"
and "Investment Restrictions" in the Statement of Additional Information.
 
  Investment in Non-U.S. Issuers. The Fund may invest in Senior Loans to
Borrowers that are organized or located in countries other than the United
States, provided that such Senior Loans are denominated in U.S. dollars and
provide for the payment of interest and repayment of principal in U.S. dollars.
Investment in non-U.S. issuers involves special risks, including that non-U.S.
issuers may be subject to less rigorous accounting and reporting requirements
than are U.S. issuers, less rigorous regulatory requirements, differing legal
systems and laws relating to creditors' rights, the potential inability to
enforce legal judgments and the potential for political, social and economic
adversities.
 
  Anti-Takeover Provisions.  The Fund's Declaration of Trust includes provisions
that could have the effect of limiting the ability of other persons or entities
to acquire control of the Fund or to change the composition of its Board of
Trustees. See "Description of Common Shares--Anti-Takeover Provisions in the
Declaration of Trust."
 
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
 
  Van Kampen American Capital Senior Floating Rate Fund (the "Fund") is a
non-diversified, closed-end management investment company which was organized as
a Massachusetts business trust on December 19, 1997. The Fund expects to engage
in a continuous offering of its common shares of beneficial interest (the
"Common Shares") through Van Kampen American Capital Distributors, Inc.
("VKACDI") (an indirect affiliate of the Fund), as principal underwriter. During
an initial subscription period expected to terminate on          , 1998 (the
"Subscription Period"), Common Shares will be offered at $10.00 per share for
settlement on or about          , 1998. The Fund has registered 100,000,000
Common Shares for sale under the Registration Statement to which this Prospectus
relates. The Fund's principal office is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 and its telephone number is 1-800-421-5666.
 
  The Fund is a closed-end investment company designed primarily for long-term
investors and not as a trading vehicle. The Fund does not intend to list the
Common Shares for trading on any national securities exchange and none of the
Fund, Van Kampen American Capital Investment Advisory Corp. (the "Adviser") or
VKACDI intends to make a secondary trading market in the Common Shares at any
time. Accordingly, there is not expected to be any secondary trading market in
the Common Shares and an investment in the Common Shares should be considered
illiquid. The Board of Trustees of the Fund currently intends each
 
                                       14
<PAGE>   18
 
quarter to consider authorizing the Fund to make tender offers for all or a
portion of its then outstanding Common Shares at the then current net asset
value for the Common Shares. An early withdrawal charge payable to VKACDI will
be imposed on most Common Shares held for less than one year which are accepted
for repurchase pursuant to a tender offer by the Fund. There can be no assurance
that the Fund will in fact tender for any of its Common Shares and, in the event
that the Fund does not so tender, it is unlikely that a holder of Common Shares
will be able to otherwise sell Common Shares to the Fund. If the Fund tenders
for Common Shares, there is no guarantee that all, or any, Common Shares
tendered will be purchased. Subject to its borrowing restrictions, the Fund may
incur debt to finance repurchases of its Common Shares pursuant to tender
offers, which entails additional risks. The ability of the Fund to enter into
tender offers may be limited by certain requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), that must be satisfied in order for the
Fund to maintain its desired tax status as a regulated investment company. See
"Repurchase of Shares."
 
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
 
  As of the date of this Prospectus the Fund had not commenced investment
operations and, accordingly, no financial highlight information is included in
this Prospectus.
 
- ------------------------------------------------------------------------------
USE OF PROCEEDS
- ------------------------------------------------------------------------------
 
  The net proceeds from the sale of the Common Shares offered hereby will be
invested in accordance with the Fund's investment objective and policies.
Pending such investment, the proceeds may be invested in high quality,
short-term securities.
 
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES AND SPECIAL RISK FACTORS
- ------------------------------------------------------------------------------
 
  An investment in the Fund may not be appropriate for all investors and is not
intended to be a complete investment program. No assurance can be given that the
Fund will achieve its investment objective.
 
  The Fund's investment objective is to provide a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its objective
through investment primarily in a professionally managed portfolio of interests
in floating or variable rate senior loans ("Senior Loans") to corporations,
partnerships and other entities ("Borrowers"). Although the Fund's net asset
value will vary, the Fund's policy of acquiring interests in floating or
variable rate Senior Loans is expected to minimize the fluctuations in the
Fund's net asset value as a result of changes in interest rates. The Fund's net
asset value may be affected by changes in
 
                                       15
<PAGE>   19
 
the credit quality of Borrowers with respect to Senior Loan interests in which
the Fund invests.
 
CERTAIN CHARACTERISTICS OF SENIOR LOAN INTERESTS
 
  Senior Loans generally are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent, which is frequently the commercial
bank or other entity that originates the Senior Loan and the person that invites
other parties to join the lending syndicate, will be primarily responsible for
negotiating the loan agreement or agreements ("Loan Agreement") that establish
the relative terms, conditions and rights of the Borrower and the several
Lenders. In larger transactions it is common to have several Agents; however,
generally only one such Agent has primary responsibility for documentation and
administration of the Senior Loan. Agents are typically paid a fee or fees by
the Borrower for their services.
 
  The Fund may invest in participations ("Participations") in Senior Loans, may
purchase assignments ("Assignments") of portions of Senior Loans from third
parties and may act as one of the group of Lenders originating a Senior Loan (an
"Original Lender").
 
  It is anticipated that the proceeds of the Senior Loans in which the Fund will
acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser
extent, to finance internal growth and for other corporate purposes of
Borrowers. The Fund currently does not intend to acquire interests in Senior
Loans the proceeds of which would be used primarily to finance construction or
real estate development projects. Senior Loans have the most senior position in
a Borrower's capital structure, although some Senior Loans may hold an equal
ranking with other senior securities of the Borrower. The capital structure of
Borrowers may include Senior Loans, senior and junior subordinated debt (which
may include "junk bonds"), preferred stock and common stock issued by the
Borrower, typically in descending order of seniority with respect to claims on
the Borrower's assets. Senior Loans generally are secured by specific
collateral, which may include guarantees. The Fund may also invest up to 20% of
its total assets in Senior Loans which are not secured by any collateral. To the
extent that the Fund invests a portion of its assets in Senior Loans that are
not secured by specific collateral, the Fund will not enjoy the benefits
associated with collateralization with respect to such Senior Loans and such
Senior Loans may pose a greater risk of nonpayment of interest or loss of
principal than do collateralized Senior Loans. As discussed below, the Fund may
also acquire warrants, equity securities and junior debt securities issued by
the Borrower or its affiliates as part of a package of investments in the
Borrower or its affiliates. Warrants, equity securities and junior debt
securities will not be treated as Senior Loans and thus assets invested in such
securities will not count toward the 80% of the Fund's total assets that
normally will be invested in Senior Loans. The Fund will acquire such interests
 
                                       16
<PAGE>   20
 
in warrants, equity securities and junior debt securities only as an incident to
the intended purchase of interests in Senior Loans. Loan Agreements may also
include various restrictive covenants designed to limit the activities of the
Borrower in an effort to protect the right of the Lenders to receive timely
payments of interest on and repayment of principal of the Senior Loans. In order
to borrow money pursuant to collateralized Senior Loans, a Borrower will
frequently, for the term of the Senior Loan, pledge as collateral assets,
including but not limited to, trademarks, accounts receivable, inventory,
buildings, real estate, franchises and common and preferred stock in its
subsidiaries. In addition, in the case of some Senior Loans, there may be
additional collateral pledged in the form of guarantees by and/or securities of
affiliates of the Borrowers. In certain instances, a collateralized Senior Loan
may be secured only by stock in the Borrower or its subsidiaries. Collateral may
consist of assets that may not be readily liquidated, and there is no assurance
that the liquidation of such assets would satisfy fully a Borrower's obligations
under a Senior Loan.
 
  Restrictive covenants may include mandatory prepayment provisions arising from
excess cash flows and typically include restrictions on dividend payments,
specific mandatory minimum financial ratios, limits on total debt and other
financial tests. Breach of such covenants, if not waived by the Lenders, is
generally an event of default under the applicable Loan Agreement and may give
the Lenders the right to accelerate principal and interest payments. The Adviser
will consider the terms of such restrictive covenants in deciding whether to
invest in Senior Loans for the Fund's portfolio. When the Fund holds a
Participation in a Senior Loan it may not have the right to vote to waive
enforcement of any restrictive covenant breached by a Borrower. Lenders voting
in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and such Lenders may not consider the
interests of the Fund in connection with their votes.
 
  Senior Loans in which the Fund will invest generally pay interest at rates
which are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates generally are the prime rate offered by one or
more major United States banks (the "Prime Rate"), the London Inter-Bank Offered
Rate ("LIBOR"), the certificate of deposit ("CD") rate or other base lending
rates used by commercial lenders. The Prime Rate quoted by a major U.S. bank is
the interest rate at which such bank is willing to lend U.S. dollars to its most
creditworthy borrowers. LIBOR, as provided for in Loan Agreements, is an average
of the interest rates quoted by several designated banks as the rates at which
such banks would offer to pay interest to major financial institutional
depositors in the London interbank market on U.S. dollar denominated deposits
for a specified period of time. The CD rate, as generally provided for in Loan
Agreements, is the average rate paid on large certificates of deposit traded in
the secondary market.
 
  In normal market conditions, at least 80% of the Fund's total assets will be
invested in Senior Loans of domestic borrowers or foreign borrowers (so long as
Senior Loans to such foreign borrowers are U.S. dollar denominated and payments
of interest and repayments of principal pursuant to such Senior Loans are
required
 
                                       17
<PAGE>   21
 
to be made in U.S. dollars). Investment in non-U.S. issuers involves special
risks, including that non-U.S. issuers may be subject to less rigorous
accounting and reporting requirements than are U.S. issuers, less rigorous
regulatory requirements, differing legal systems and laws relating to creditors'
rights, the potential inability to enforce legal judgments and the potential for
political, social and economic adversities. The Fund is not subject to any
restrictions with respect to the maturity of Senior Loans held in its portfolio.
It is currently anticipated that the Fund's assets invested in Senior Loans will
consist of Senior Loans with stated maturities of between three and ten years,
inclusive, and with rates of interest which are redetermined either daily,
monthly, quarterly or semi-annually; provided, however, that the Fund may invest
up to 5% of its total assets in Senior Loans which permit the Borrower to select
an interest rate redetermination period of up to one year. Investment in Senior
Loans with longer interest rate redetermination periods may increase
fluctuations in the Fund's net asset value as a result of changes in interest
rates. The Senior Loans in the Fund's portfolio will at all times have a dollar-
weighted average time until the next interest rate redetermination of 90 days or
less. As a result, as short-term interest rates increase, interest payable to
the Fund from its investments in Senior Loans should increase, and as short-term
interest rates decrease, interest payable to the Fund from its investments in
Senior Loans should decrease. The amount of time required to pass before the
Fund will realize the effects of changing short-term market interest rates on
its portfolio will vary with the dollar-weighted average time until the next
interest rate redetermination on the Senior Loans in the Fund's portfolio. The
Fund may utilize certain investment practices to, among other things, shorten
the effective interest rate redetermination period of Senior Loans in its
portfolio. In such event, the Fund will consider such shortened period to be the
interest rate redetermination period of the Senior Loan; provided, however, that
the Fund will not invest in Senior Loans which permit the Borrower to select an
interest rate redetermination period in excess of one year. Because most Senior
Loans in the Fund's portfolio will be subject to mandatory and/or optional
prepayment and there may be significant economic incentives for a Borrower to
prepay its loans, prepayments of Senior Loans in the Fund's portfolio may occur.
Accordingly, the actual remaining maturity of the Fund's portfolio invested in
Senior Loans may vary substantially from the average stated maturity of the
Senior Loans held in the Fund's portfolio. As a result of expected prepayments
from time to time of Senior Loans in the Fund's portfolio, the Fund estimates
that the actual average maturity of the Senior Loans held in its portfolio will
be approximately 18-24 months.
 
  When interest rates decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will vary, the Fund's management
expects the Fund's policy of acquiring interests in floating or variable rate
Senior Loans to minimize fluctuations in net asset value as a result of changes
in interest rates. Accordingly, the Fund's management expects the value of the
Fund's portfolio to fluctuate
 
                                       18
<PAGE>   22
 
significantly less than a portfolio of fixed-rate, longer term obligations as a
result of interest rate changes. However, changes in prevailing interest rates
can be expected to cause some fluctuation in the Fund's net asset value. In
addition to changes in interest rates, changes in the credit quality of
Borrowers will also affect the Fund's net asset value. Further, a serious
deterioration in the credit quality of a Borrower could cause a prolonged or
permanent decrease in the Fund's net asset value.
 
  The Fund may purchase and retain in its portfolio a Senior Loan interest the
Borrower with respect to which has filed for protection under the federal
bankruptcy laws or has had an involuntary bankruptcy petition filed against it
by its creditors. The values of such Senior Loan interests, if any, will
reflect, among other things, the Adviser's assessment of the likelihood that the
Fund ultimately will receive full repayment of the principal amount of such
Senior Loan interests, the likely duration, if any, of a lapse in the scheduled
repayment of principal and prevailing interest rates. At times, in connection
with the restructuring of a Senior Loan either outside of bankruptcy court or in
the context of bankruptcy court proceedings, the Fund may determine or be
required to accept equity securities or junior debt securities in exchange for
all or a portion of a Senior Loan interest. Depending upon, among other things,
the Adviser's evaluation of the potential value of such securities in relation
to the price that could be obtained by the Fund at any given time upon sale
thereof, the Fund may determine to hold such securities in its portfolio. Any
equity securities and junior debt securities held by the Fund will not be
treated as Senior Loans and thus will not count toward the 80% of the Fund's
total assets that normally will be invested in Senior Loans.
 
  Senior Loans historically have not been rated by nationally recognized
statistical rating organizations. Because of the senior capital structure
position of Senior Loans and the collateralized or guaranteed nature of most
Senior Loans, the Fund and the Adviser believe that ratings of other securities
issued by a Borrower do not necessarily reflect adequately the relative quality
of a Borrower's Senior Loans. Therefore, although the Adviser may consider such
ratings in determining whether to invest in a particular Senior Loan, the
Adviser is not required to consider such ratings and such ratings will not be
the determinative factor in the Adviser's analysis. The Fund may invest a
substantial portion of its assets in Senior Loans, the Borrowers with respect to
which have outstanding debt securities which are rated below investment grade by
a nationally recognized statistical rating organization or are unrated but of
comparable quality to such securities. Debt securities rated below investment
grade or unrated but of comparable quality commonly are referred to as "junk
bonds." The Fund will invest only in those Senior Loans with respect to which
the Borrower, in the opinion of the Adviser, demonstrates one or more of the
following characteristics: sufficient cash flow to service debt; adequate
liquidity; successful operating history; strong competitive position;
experienced management; and, with respect to collateralized Senior Loans,
collateral coverage that equals or exceeds the outstanding principal amount of
the Senior Loan. In addition, the Adviser will consider, and may rely in part,
on the analyses performed by the Agent
 
                                       19
<PAGE>   23
 
and other Lenders, including such persons' determinations with respect to
collateral securing a Senior Loan.
 
  The Fund may invest up to 100% of its assets in Participations. The selling
Lenders and other persons interpositioned between such Lenders and the Fund with
respect to such Participations will likely conduct their principal business
activities in the banking, finance and financial services industries. Although,
as discussed below, the Fund has taken measures which it believes significantly
reduce its exposure to any risks incident to such policy, the Fund may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. Persons
engaged in such industries may be more susceptible than are persons engaged in
some other industry to, among other things, fluctuations in interest rates,
changes in the Federal Open Market Committee's monetary policy, governmental
regulations concerning such industries and concerning capital raising activities
generally and fluctuations in the financial markets generally.
 
  Participations by the Fund in a Lender's portion of a Senior Loan typically
will result in the Fund having a contractual relationship only with such Lender,
not with the Borrower. As a result, the Fund may have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by such Lender of
such payments from the Borrower. In connection with purchasing Participations,
the Fund generally will have no right to enforce compliance by the Borrower with
the terms of the Loan Agreement, nor any rights with respect to any funds
acquired by other Lenders through set-off against the Borrower and the Fund may
not directly benefit from the collateral supporting the Senior Loan in which it
has purchased the Participation. As a result, the Fund may assume the credit
risk of both the Borrower and the Lender selling the Participation. In the event
of the insolvency of the Lender selling a Participation, the Fund may be treated
as a general creditor of such Lender, and may not benefit from any set-off
between such Lender and the Borrower. The Fund has taken the following measures
in an effort to minimize such risks. The Fund will only acquire Participations
if the Lender selling the Participation, and any other persons interpositioned
between the Fund and the Lender, (i) at the time of investment has outstanding
debt or deposit obligations rated investment grade (BBB or A-3 or higher by
Standard & Poor's Ratings Group ("S&P") or Baa or P-3 or higher by Moody's
Investors Service ("Moody's")) or determined by the Adviser to be of comparable
quality and (ii) has entered into an agreement which provides for the holding of
assets in safekeeping for, or the prompt disbursement of assets to, the Fund.
Long-term debt rated BBB by S&P is regarded by S&P as having adequate capacity
to pay interest and repay principal and debt rated Baa by Moody's is regarded by
Moody's as a medium grade obligation, i.e., it is neither highly protected nor
poorly secured. Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is considered by S&P to be either overwhelming
or very strong and issues of commercial paper rated Prime-1 by Moody's are
considered by Moody's to have a superior ability for repayment of
 
                                       20
<PAGE>   24
 
senior short-term debt obligations. The Fund ordinarily will purchase a
Participation only if, at the time of such purchase, the Fund believes that the
party from whom it is purchasing such Participation is retaining an interest in
the underlying Senior Loan. In the event that the Fund does not so believe, it
will only purchase such a Participation if, in addition to the requirements set
forth above, the party from whom the Fund is purchasing such Participation (i)
is a bank, a member of a national securities exchange or other entity designated
in the Investment Company Act of 1940, as amended, as qualified to serve as a
custodian for a registered investment company and (ii) has been approved as a
custodian by the Board of Trustees of the Fund (a "Designated Custodian").
 
  The Fund may also purchase Assignments from Lenders. The purchaser of an
Assignment typically succeeds to all the rights and obligations under the Loan
Agreement of the assigning Lender and becomes a Lender under the Loan Agreement
with the same rights and obligations as the assigning Lender. Assignments may,
however, be arranged through private negotiations between potential assignees
and potential assignors, and the rights and obligations acquired by the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
 
  When the Fund is an Original Lender originating a Senior Loan it may share in
a fee paid to the Original Lenders. The Fund will never act as the Agent or
principal negotiator or administrator of a Senior Loan. When the Fund is a
Lender, it will have a direct contractual relationship with the Borrower, may
enforce compliance by the Borrower with the terms of the Loan Agreement and may
have rights with respect to any funds acquired by other Lenders through set-off.
Lenders also have full voting and consent rights under the applicable Loan
Agreement. Action subject to Lender vote or consent generally requires the vote
or consent of the holders of some specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as reducing the
amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefor, frequently require
the unanimous vote or consent of all Lenders affected.
 
  The Fund will purchase an Assignment or act as a Lender with respect to a
syndicated Senior Loan only where the Agent with respect to such Senior Loan at
the time of investment has outstanding debt or deposit obligations rated
investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's) or determined by the Adviser to be of comparable quality. In addition,
the Fund will purchase a Participation only where the Lender selling such
Participation, and any other person interpositioned between such Lender and the
Fund at the time of investment, have outstanding debt obligations rated
investment grade or determined by the Adviser to be of comparable quality.
Further, the Fund will not purchase interests in Senior Loans unless such Agent,
Lender or interpositioned person has entered into an agreement which provides
for the holding of assets in safekeeping for, or the prompt disbursement of
assets to, the Fund.
 
                                       21
<PAGE>   25
 
  Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, enters FDIC receivership, or if not FDIC insured,
enters into bankruptcy. Should such an Agent, Lender or assignor with respect to
an Assignment interpositioned between the Fund and the Borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for the benefit of the Fund
should not be included in such person's estate. If, however, any such amount
were included in such person's estate, the Fund would incur certain costs and
delays in realizing payment or could suffer a loss of principal or interest. In
such event, the Fund could experience a decrease in net asset value.
 
  The Fund may be required to pay and may receive various fees and commissions
in connection with purchasing, selling and holding interests in Senior Loans.
The fees normally paid by Borrowers may include three types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to Lenders upon
origination of a Senior Loan. Commitment fees are paid to Lenders on an ongoing
basis based upon the undrawn portion committed by the Lenders of the underlying
Senior Loan. Lenders may receive prepayment penalties when a Borrower prepays
all or part of a Senior Loan. The Fund will receive these fees directly from the
Borrower if the Fund is an Original Lender, or, in the case of commitment fees
and prepayment penalties, if the Fund acquires an interest in a Senior Loan by
way of Assignment. Whether or not the Fund receives a facility fee from the
Lender in the case of an Assignment, or any fees in the case of a Participation,
depends upon negotiations between the Fund and the Lender selling such
interests. When the Fund is an assignee, it may be required to pay a fee, or
forgo a portion of interest and any fees payable to it, to the Lender selling
the Assignment. Occasionally, the assignor will pay a fee to the assignee based
on the portion of the principal amount of the Senior Loan which is being
assigned. A Lender selling a Participation to the Fund may deduct a portion of
the interest and any fees payable to the Fund as an administrative fee prior to
payment thereof to the Fund. The Fund may be required to pay over or pass along
to a purchaser of an interest in a Senior Loan from the Fund a portion of any
fees that the Fund would otherwise be entitled to.
 
  Pursuant to the relevant Loan Agreement, a Borrower may be required in certain
circumstances, and may have the option at any time, to prepay the principal
amount of a Senior Loan, often without incurring a prepayment penalty. Because
the interest rates on Senior Loans are periodically redetermined at relatively
short intervals, the Fund and the Adviser believe that the prepayment of, and
subsequent reinvestment by the Fund in, Senior Loans will not have a materially
adverse impact on the yield on the Fund's portfolio and may have a beneficial
impact on income due to receipt of prepayment penalties, if any, and any
facility fees earned in connection with reinvestment.
 
  A Lender may have certain obligations pursuant to a Loan Agreement, which may
include the obligation to make additional loans in certain circumstances. The
Fund currently intends to reserve against such contingent obligations by
segregating
 
                                       22
<PAGE>   26
 
a sufficient amount of cash, liquid securities and liquid Senior Loans as a
reserve against such commitments. The Fund will not purchase interests in Senior
Loans that would require the Fund to make any such additional loans if such
additional loan commitments would exceed 20% of the Fund's total assets or would
cause the Fund to fail to meet the diversification requirements set forth under
the heading "Investment Restrictions" in the Statement of Additional
Information.
 
  During normal market conditions, the Fund may invest up to 20% of its total
assets (including assets maintained by the Fund as a reserve against any
additional loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants, equity
securities and junior debt securities acquired in connection with the Fund's
investments in Senior Loans. Such high quality, short-term securities may
include commercial paper rated at least in the top two rating categories of
either S&P or Moody's, or unrated commercial paper considered by the Adviser to
be of similar quality, interests in short-term loans of Borrowers having
short-term debt obligations rated or a short-term credit rating at least in such
top two rating categories or having no such rating but determined by the Adviser
to be of comparable quality, certificates of deposit and bankers' acceptances
and securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Such high quality, short-term securities may pay interest at
rates which are periodically redetermined or may pay interest at fixed rates. If
the Adviser determines that market conditions temporarily warrant a defensive
investment policy, the Fund may invest, subject to its ability to liquidate its
relatively illiquid portfolio of Senior Loans, up to 100% of its assets in cash
and such high quality, short-term debt securities. The Fund will acquire such
warrants, equity and junior debt securities only as an incident to the purchase
or intended purchase of interests in collateralized Senior Loans. Although the
Fund generally will acquire interests in warrants, equity and junior debt
securities only when the Adviser believes that the relative value being given by
the Fund in exchange for such interests is substantially outweighed by the
potential value of such instruments, investment in warrants, equity and junior
debt securities entail certain risks in addition to those associated with
investments in Senior Loans. Warrants and equity securities have a subordinate
claim on a Borrower's assets as compared with debt securities and junior debt
securities have a subordinate claim on such assets as compared with Senior
Loans. As such, the values of warrants and equity securities generally are more
dependent on the financial condition of the Borrower and less dependent on
fluctuations in interest rates than are the values of many debt securities. The
values of warrants, equity securities and junior debt securities may be more
volatile than those of Senior Loans and thus may have an adverse impact on the
ability of the Fund to minimize fluctuations in its net asset value.
 
  The Fund also may invest up to 5% of its [total] assets in structured notes
with rates of return determined by reference to the total rate of return on one
or more loans referenced in such notes. The rate of return on the structured
note may be determined by applying a multiplier to the rate of total return on
the referenced loan or loans. Application of a multiplier is comparable to the
use of financial leverage, a
 
                                       23
<PAGE>   27
 
speculative technique. Leverage magnifies the potential for gain and the risk of
loss as a result, a relatively small decline in the value of a referenced note
could result in a relatively large loss in the value of a structured note.
Structured notes [will] be treated as Senior Loans for purposes of the Fund's
policy of normally investing at least 80% of its assets in Senior Loans.
 
SPECIAL RISK CONSIDERATIONS
 
  On behalf of the several Lenders, the Agent generally will be required to
administer and manage the Senior Loan and, with respect to collateralized Senior
Loans, to service or monitor the collateral. In this connection, the valuation
of assets pledged as collateral will reflect market value and the Agent may rely
on independent appraisals as to the value of specific collateral. The Agent,
however, may not obtain an independent appraisal as to the value of assets
pledged as collateral in all cases. The Fund normally will rely primarily on the
Agent (where the Fund is an Original Lender or owns an Assignment) or the
selling Lender (where the Fund owns a Participation) to collect principal of and
interest on a Senior Loan. Furthermore, the Fund usually will rely on the Agent
(where the Fund is an Original Lender or owns an Assignment) or the selling
Lender (where the Fund owns a Participation) to monitor compliance by the
Borrower with the restrictive covenants in the Loan Agreement and notify the
Fund of any adverse change in the Borrower's financial condition or any
declaration of insolvency. Collateralized Senior Loans will frequently be
secured by all assets of the Borrower that qualify as collateral, which may
include common stock of the Borrower or its subsidiaries. Additionally, the
terms of the Loan Agreement may require the Borrower to pledge additional
collateral to secure the Senior Loan, and enable the Agent, upon proper
authorization of the Lenders, to take possession of and liquidate the collateral
and to distribute the liquidation proceeds pro rata among the Lenders. If the
terms of a Senior Loan do not require the Borrower to pledge additional
collateral in the event of a decline in the value of the original collateral,
the Fund will be exposed to the risk that the value of the collateral will not
at all times equal or exceed the amount of the Borrower's obligations under the
Senior Loan. Lenders that have sold Participation interests in such Senior Loan
will distribute liquidation proceeds received by the Lenders pro rata among the
holders of such Participations. The Adviser will also monitor these aspects of
the Fund's investments and, where the Fund is an Original Lender or owns an
Assignment, will be directly involved with the Agent and the other Lenders
regarding the exercise of credit remedies. Senior Loans, like other corporate
debt obligations, are subject to the risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income to the
Fund, a reduction in the value of the Senior Loan experiencing non-payment and a
potential decrease in the net asset value of the Fund. Although, with respect to
collateralized Senior Loans, the Fund generally will invest only in Senior Loans
that the Adviser believes are secured by specific collateral, which may include
guarantees, the value of which exceeds the principal amount of the Senior Loan
at the time of initial investment, there can be no assurance that the
liquidation of any such collateral would satisfy the Borrower's
 
                                       24
<PAGE>   28
 
obligation in the event of non-payment of scheduled interest or principal
payments, or that such collateral could be readily liquidated. In the event of
bankruptcy of a Borrower, the Fund could experience delays or limitations with
respect to its ability to realize the benefits of the collateral securing a
Senior Loan. To the extent that a Senior Loan is collateralized by stock in the
Borrower or its subsidiaries, such stock may lose all or substantially all of
its value in the event of bankruptcy of the Borrower. The Agent generally is
responsible for determining that the Lenders have obtained a perfected security
interest in the collateral securing the Senior Loan. In the event that the Fund
does not believe that a perfected security interest has been obtained with
respect to a collateralized Senior Loan, the Fund will only obtain an interest
in such Senior Loan if the Agent is a Designated Custodian. Some Senior Loans in
which the Fund may invest are subject to the risk that a court, pursuant to
fraudulent conveyance or other similar laws, could subordinate such Senior Loans
to presently existing or future indebtedness of the Borrower or take other
action detrimental to the holders of Senior Loans, such as the Fund, including,
under certain circumstances, invalidating such Senior Loans. Lenders commonly
have certain obligations pursuant to the Loan Agreement, which may include the
obligation to make additional loans or release collateral in certain
circumstances.
 
  Senior Loans in which the Fund will invest historically have not been rated by
a nationally recognized statistical rating organization, will not be registered
with the SEC or any state securities commission and will not be listed on any
national securities exchange. Although the Fund will generally have access to
financial and other information made available to the Lenders in connection with
Senior Loans, the amount of public information available with respect to Senior
Loans will generally be less extensive than that available for rated, registered
or exchange listed securities. As a result, the performance of the Fund and its
ability to meet its investment objective is more dependent on the analytical
ability of the Adviser than would be the case for an investment company that
invests primarily in rated, registered or exchange listed securities.
 
  Senior Loans, at present, generally are not readily marketable and may be
subject to restrictions on resale. Interests in Senior Loans generally are not
listed on any national securities exchange or automated quotation system and no
active trading market may exist for many of the Senior Loans in which the Fund
will invest. To the extent that a secondary market may exist for certain of the
Senior Loans in which the Fund invests, such market may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods.
Senior Loans are thus relatively illiquid, which illiquidity may impair the
Fund's ability to realize the full value of its assets in the event of a
voluntary or involuntary liquidation of such assets. Liquidity relates to the
ability of the Fund to sell an investment in a timely manner. The market for
relatively illiquid securities tends to be more volatile than the market for
more liquid securities. The Fund has no limitation on the amount of its assets
which may be invested in securities which are not readily marketable or are
subject to restrictions on resale. The substantial portion of the Fund's assets
invested in Senior Loan interests may restrict the ability of the Fund to
dispose of its investments in a timely fashion and at a fair price, and could
result in capital
 
                                       25
<PAGE>   29
 
losses to the Fund and holders of Common Shares. However, many of the Senior
Loans in which the Fund expects to purchase interests are of a relatively large
principal amount and are held by a relatively large number of owners which
should, in the Adviser's opinion, enhance the relative liquidity of such
interests. The risks associated with illiquidity are particularly acute in
situations where the Fund's operations require cash, such as when the Fund
tenders for its Common Shares, and may result in the Fund borrowing to meet
short-term cash requirements.
 
  To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans in connection
with highly leveraged transactions, the availability of Senior Loan interests
for investment by the Fund may be adversely affected. In addition, such
requirements or restrictions may reduce or eliminate sources of financing for
certain Borrowers. Further, to the extent that legislation or federal or state
regulators that regulate certain financial institutions require such
institutions to dispose of Senior Loan interests relating to highly leveraged
transactions or subject such Senior Loan interests to increased regulatory
scrutiny, such financial institutions may determine to sell such Senior Loan
interests in a manner that results in a price which, in the opinion of the
Adviser, is not indicative of fair value. Were the Fund to attempt to sell a
Senior Loan interest at a time when a financial institution was engaging in such
a sale with respect to such Senior Loan interest, the price at which the Fund
could consummate such a sale might be adversely affected.
 
  The Fund has registered as a "non-diversified" investment company so that,
subject to its investment restrictions, it will be able to invest more than 5%
of the value of its assets in the obligations of any single issuer, including
Senior Loans of a single Borrower or Participations purchased from a single
Lender. See "Investment Restrictions" in the Statement of Additional
Information. The Fund does not intend, however, to invest more than 5% of the
value of its assets in interests in Senior Loans of a single Borrower. To the
extent the Fund invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Fund will be more susceptible
than a more widely diversified investment company to any single corporate,
economic, political or regulatory occurrence.
 
  The Fund may use various investment practices that involve special
considerations including engaging in interest rate and other hedging
transactions, lending its portfolio securities, entering into when-issued and
delayed delivery transactions and entering into repurchase and reverse
repurchase agreements. For further discussion of these practices and associated
special considerations, see "Investment Practices and Special Risks."
 
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES AND SPECIAL RISKS
- ------------------------------------------------------------------------------
 
  In connection with the investment objective and policies described above, the
Fund may: engage in interest rate and other hedging transactions, lend portfolio
 
                                       26
<PAGE>   30
 
holdings, purchase and sell interests in Senior Loans and other portfolio debt
securities on a "when issued" or "delayed delivery" basis, and enter into
repurchase and reverse repurchase agreements. These investment practices involve
certain special risk considerations. The Adviser may use some or all of the
following investment practices when, in the opinion of the Adviser, their use is
appropriate. Although the Adviser believes that these investment practices may
further the Fund's investment objective, no assurance can be given that these
investment practices will achieve this result.
 
INTEREST RATE AND OTHER HEDGING TRANSACTIONS
 
  The Fund may enter into various interest rate hedging and risk management
transactions. Certain of these interest rate hedging and risk management
transactions may be considered to involve 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. The Fund expects to enter into these
transactions primarily to seek to preserve a return on a particular investment
or portion of its portfolio, and may also enter into such transactions to seek
to protect against decreases in the anticipated rate of return on floating or
variable rate financial instruments the Fund owns or anticipates purchasing at a
later date, or for other risk management strategies such as managing the
effective dollar-weighted average duration of the Fund's portfolio. In addition,
the Fund may also engage in hedging transactions to seek to protect the value of
its portfolio against declines in net asset value resulting from changes in
interest rates or other market changes. The Fund does not intend to engage in
such transactions to enhance the yield on its portfolio to increase income
available for distributions. Market conditions will determine whether and in
what circumstances the Fund would employ any of the hedging and risk management
techniques described below. The Fund will not engage in any of the transactions
for speculative purposes and will use them only as a means to hedge or manage
the risks associated with assets held in, or anticipated to be purchased for,
the Fund's portfolio or obligations incurred by the Fund. The successful
utilization of hedging and risk management transactions requires skills
different from those needed in the selection of the Fund's portfolio securities.
The Fund believes that the Adviser possesses the skills necessary for the
successful utilization of hedging and risk management transactions. The Fund
will incur brokerage and other costs in connection with its hedging
transactions.
 
  The Fund may enter into interest rate swaps or purchase or sell interest rate
caps or floors. The Fund will not sell interest rate caps or floors that it does
not own. Interest rate swaps involve the exchange by the Fund with another party
of their respective obligations to pay or receive interest, e.g., an exchange of
an obligation to make floating rate payments for an obligation to make fixed
rate payments. For example, the Fund may seek to shorten the effective interest
rate redetermination
 
                                       27
<PAGE>   31
 
period of a Senior Loan in its portfolio the Borrower to which has selected an
interest rate redetermination period of one year. The Fund could exchange the
Borrower's obligation to make fixed rate payments for one year for an obligation
to make payments that readjust monthly. In such event, the Fund would consider
the interest rate redetermination period of such Senior Loan to be the shorter
period.
 
  The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest at the difference of the index and the predetermined rate
on a notional principal amount (the reference amount with respect to which
interest obligations are determined although no actual exchange of principal
occurs) from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payments of interest at
the difference of the index and the predetermined rate on a notional principal
amount from the party selling such interest rate floor. The Fund will not enter
into swaps, caps or floors if, on a net basis, the aggregate notional principal
amount with respect to such agreements exceeds the net assets of the Fund.
 
  In circumstances in which the Adviser anticipates that interest rates will
decline, the Fund might, for example, enter into an interest rate swap as the
floating rate payor or, alternatively, purchase an interest rate floor. In the
case of purchasing an interest rate floor, if interest rates declined below the
floor rate, the Fund would receive payments from its counterparty which would
wholly or partially offset the decrease in the payments it would receive in
respect of the portfolio assets being hedged. In the case where the Fund
purchases such an interest rate swap, if the floating rate payments fell below
the level of the fixed rate payment set in the swap agreement, the Fund's
counterparty would pay the Fund amounts equal to interest computed at the
difference between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the decrease in the
payments the Fund would receive in respect of floating rate portfolio assets
being hedged.
 
  The successful use of swaps, caps and floors to preserve the rate of return on
a portfolio of financial instruments depends on the Adviser's ability to predict
correctly the direction and extent of movements in interest rates. Although the
Fund believes that use of the hedging and risk management techniques described
above will benefit the Fund, if the Adviser's judgment about the direction or
extent of the movement in interest rates in incorrect, the Fund's overall
performance would be worse than if it had not entered into any such
transactions. For example, if the Fund had purchased an interest rate swap or an
interest rate floor to hedge against its expectation that interest rates would
decline but instead interest rates rose, the Fund would lose part or all of the
benefit of the increased payments it would receive as a result of the rising
interest rates because it would have to pay amounts to its counterparty under
the swap agreement or would have paid the purchase price of the interest rate
floor.
 
                                       28
<PAGE>   32
 
  Inasmuch as these hedging transactions are entered into for good-faith risk
management purposes, the Adviser and the Fund believe such obligations do not
constitute senior securities. The Fund will usually enter into interest rate
swaps on a net basis, i.e., where the two parties make net payments with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued and an
amount of cash or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian. If the Fund enters into a swap on other than a net basis, the
Fund will maintain in the segregated account the full amount of the Fund's
obligations under each such swap. Accordingly, the Fund does not treat swaps as
senior securities. The Fund may enter into swaps, caps and floors with member
banks of the Federal Reserve System, members of the New York Stock Exchange or
other entities determined by the Adviser, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board of Trustees, to be creditworthy. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction but
such remedies may be subject to bankruptcy and insolvency laws which could
affect the Fund's rights as a creditor. The swap market has grown substantially
in recent years with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps and floors are more
recent innovations and they are less liquid than swaps. There can be no
assurance, however, that the Fund will be able to enter into interest rate swaps
or to purchase interest rate caps or floors at prices or on terms the Adviser
believes are advantageous to the Fund. In addition, although the terms of
interest rate swaps, caps and floors may provide for termination, there can be
no assurance that the Fund will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.
 
  New financial products continue to be developed and the Fund may invest in any
such products as may be developed to the extent consistent with its investment
objective and the regulatory and federal tax requirements applicable to
investment companies.
 
LENDING OF PORTFOLIO HOLDINGS
 
  The Fund may seek to increase its income by lending financial instruments in
its portfolio in accordance with present regulatory policies, including those of
the Board of Governors of the Federal Reserve System and the SEC. Such loans may
be made, without limit, to brokers, dealers, banks or other recognized
institutional borrowers of financial instruments and would be required to be
secured continuously by collateral, including cash, cash equivalents or U.S.
Treasury bills maintained on a current basis at an amount at least equal to the
market value of the financial instruments loaned. The Fund would have the right
to call a loan and obtain the financial instruments loaned at any time on five
days' notice. For the duration of a
 
                                       29
<PAGE>   33
 
loan, the Fund would continue to receive the equivalent of the interest paid by
the issuer on the financial instruments loaned and also would receive
compensation from the investment of the collateral. The Fund would not have the
right to vote any financial instruments having voting rights during the
existence of the loan, but the Fund could call the loan in anticipation of an
important vote to be taken among holders of the financial instruments or in
anticipation of the giving or withholding of their consent on a material matter
affecting the financial instruments. As with other extensions of credit, risks
of delay in recovery or even loss of rights in the collateral exist should the
borrower of the financial instruments fail financially. However, the loans would
be made only to firms deemed by the Adviser to be of good standing and when, in
the judgment of the Adviser, the consideration which can be earned currently
from loans of this type justifies the attendant risk. The creditworthiness of
firms to which the Fund lends its portfolio holdings will be monitored on an
ongoing basis by the Adviser pursuant to procedures adopted and reviewed, on an
ongoing basis, by the Board of Trustees of the Fund. No specific limitation
exists as to the percentage of the Fund's assets which the Fund may lend.
 
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
 
  The Fund may also purchase and sell interests in Senior Loans and other
portfolio securities on a "when issued" and "delayed delivery" basis. No income
accrues to the Fund on such interests or securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
interests or securities. These transactions are subject to market fluctuation;
the value of the interests in Senior Loans and other portfolio debt securities
at delivery may be more or less than their purchase price, and yields generally
available on such interests or securities when delivery occurs may be higher or
lower than yields on the interests or securities obtained pursuant to such
transactions. Because the 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 the Fund is the buyer in such a
transaction, however, it will maintain, in a segregated account with its
custodian, cash or liquid securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. The Fund will make
commitments to purchase such interests or securities on such basis only with the
intention of actually acquiring these interests or securities, but the Fund may
sell such interests or securities prior to the settlement date if such sale is
considered to be advisable. To the extent the Fund engages in "when issued" and
"delayed delivery" transactions, it will do so for the purpose of acquiring
interests or securities for the Fund's portfolio consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage. No specific limitation exists as to the percentage of the Fund's
assets which may be used to acquire securities on a "when issued" or "delayed
delivery" basis.
 
                                       30
<PAGE>   34
 
REPURCHASE AGREEMENTS
 
  The Fund may enter into repurchase agreements (a purchase of, and a
simultaneous commitment to resell, a financial instrument at an agreed upon
price on an agreed upon date) only with member banks of the Federal Reserve
System and member firms of the New York Stock Exchange. When participating in
repurchase agreements, the Fund buys securities from a vendor, e.g., a bank or
brokerage firm, with the agreement that the vendor will repurchase the
securities at a higher price at a later date. Such transactions afford an
opportunity for the Fund to earn a return on available cash at minimal market
risk, although the Fund may be subject to various delays and risks of loss if
the vendor is unable to meet its obligation to repurchase. Under the 1940 Act,
repurchase agreements are deemed to be collateralized loans of money by the Fund
to the seller. In evaluating whether to enter into a repurchase agreement, the
Adviser will consider carefully the creditworthiness of the vendor. If the
member bank or member firm that is the party to the repurchase agreement
petitions for bankruptcy or otherwise becomes subject to the U.S. Bankruptcy
Code, the law regarding the rights of the Fund is unsettled. The securities
underlying a repurchase agreement will be marked to market every business day so
that the value of the collateral is at least equal to the value of the loan,
including the accrued interest thereon, and the Adviser will monitor the value
of the collateral. No specific limitation exists as to the percentage of the
Fund's assets which may be used to participate in repurchase agreements.
 
REVERSE REPURCHASE AGREEMENTS
 
  The Fund may enter into reverse repurchase agreements with respect to debt
obligations which could otherwise be sold by the Fund. A reverse repurchase
agreement is an instrument under which the Fund may sell an underlying debt
instrument and simultaneously obtain the commitment of the purchaser (a
commercial bank or a broker or dealer) to sell the security back to the Fund at
an agreed upon price on an agreed upon date. The Fund will maintain in a
segregated account with its custodian cash or liquid securities in an amount
sufficient to cover its obligations with respect to reverse repurchase
agreements. The Fund receives payment for such securities only upon physical
delivery or evidence of book entry transfer by its custodian. Regulations of the
SEC require either that securities sold by the Fund under a reverse repurchase
agreement be segregated pending repurchase or that the proceeds be segregated on
the Fund's books and records pending repurchase. Reverse repurchase agreements
could involve certain risks in the event of default or insolvency of the other
party, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities. An additional risk is that the market
value of securities sold by the Fund under a reverse repurchase agreement could
decline below the price at which the Fund is obligated to repurchase them.
Reverse repurchase agreements will be considered borrowings by the Fund and as
such would be subject to the restrictions on borrowing described in the
Statement of Additional Information under "Investment Restrictions." The
 
                                       31
<PAGE>   35
 
Fund will not hold more than 5% of the value of its total assets in reverse
repurchase agreements.
 
- ------------------------------------------------------------------------------
TAXATION
- ------------------------------------------------------------------------------
 
  The Fund has qualified and intends to continue to qualify each year to be
treated as a regulated investment company under Subchapter M of the Code. If the
Fund so qualifies and distributes each year to its shareholders at least 90% of
its net investment income (including, among other things, interest and 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, the
Fund will not be required to pay federal income taxes on any income distributed
to shareholders. The Fund will not be subject to federal income tax on any net
capital gains distributed to shareholders. As a Massachusetts business trust,
the Fund will not be subject to any excise or income taxes in Massachusetts as
long as it qualifies as a regulated investment company for federal income tax
purposes.
 
  If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income.
 
  Distributions.  Distributions of the Fund's net investment income are taxable
to holders of Common Shares as ordinary income, whether paid in cash or
reinvested in additional Common Shares. Distributions of the Fund's net capital
gains ("capital gains dividends"), if any, are taxable to holders of Common
Shares at the rates applicable to long-term capital gains regardless of the
length of time shares of the Fund have been held by such shareholders. For a
summary of the tax rates applicable to capital gains (including capital gains
dividends), see "Capital Gains Rates Under the 1997 Tax Act" below. The Fund
will inform shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
 
  Sale of Shares.  Except as discussed below, selling shareholders will
generally recognize gain or loss in an amount equal to the difference between
their adjusted tax basis in the Common Shares and the amount received. If such
Common Shares are held as a capital asset, the gain or loss will be a capital
gain or loss. For a summary of the tax rates applicable to capital gains, see
"Capital Gains Rates Under the 1997 Tax Act" below. It is possible, although the
Fund believes it is unlikely, that tendering holders of Common Shares may not
qualify for gain or loss treatment as described above, which in turn may result
in deemed distributions to non-tendering holders of Common Shares. The federal
income tax consequences of the repurchase of Common Shares pursuant to tender
offers will be disclosed in the related offering documents. Any loss recognized
upon a taxable disposition of Common Shares held for six months or less will be
treated as a long-term capital
 
                                       32
<PAGE>   36
 
loss to the extent of any capital gains dividends received with respect to such
Common Shares. For purposes of determining whether Common Shares have been held
for six months or less, the holding period is suspended for any periods during
which the shareholder's risk of loss is diminished as a result of holding one or
more other positions in substantially similar or related property or through
certain options or short sales.
 
  Capital Gains Rates Under the 1997 Tax Act. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act") the maximum tax rates applicable to net capital gains
recognized by individuals and other non-corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less, (ii) 28% for
capital assets held for more than one year but not more than 18 months and (iii)
20% for capital assets held for more than 18 months. The maximum long-term
capital gains rate for corporations remains at 35%. The new tax rates for
capital gains under the 1997 Tax Act described above apply to distributions of
capital gains dividends by regulated investment companies such as the Fund as
well as to sales and exchanges of shares in regulated investment companies such
as the Fund. With respect to capital losses recognized on dispositions of shares
held six months or less where such losses are treated as long-term capital
losses to the extent of prior capital gains dividends received on such shares
(see "Sale of Shares" above), it is unclear how such capital losses offset the
capital gains referred to above. Shareholders should consult their own tax
advisors as to the application of the new capital gains rates to their
particular circumstances.
 
  General.  The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal and state tax consequences of purchasing, holding and
disposing of Common Shares, as well as the effects of other state, local and
foreign tax laws and any proposed tax law changes.
 
- ------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- ------------------------------------------------------------------------------
 
BOARD OF TRUSTEES
 
  The management of the Fund, including general supervision of the duties
performed by the Adviser under the Advisory Agreement, is the responsibility of
the Fund's Board of Trustees.
 
THE ADVISER
 
  Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser is a wholly-owned subsidiary of Van
Kampen American Capital, Inc. ("VKAC"). VKAC is an indirect wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. The Adviser's
principal office is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181.
 
                                       33
<PAGE>   37
 
  VKAC is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $60 billion under management or supervision. VKAC's
more than 50 open-end and 37 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide.
 
  Morgan Stanley, Dean Witter, Discover & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley Asset Management Inc.,
an investment adviser, Morgan Stanley & Co. Incorporated, a registered broker-
dealer and investment adviser, and Morgan Stanley International are engaged in a
wide range of financial services. Their principal businesses include securities
underwriting, distribution and trading; merger, acquisition, restructuring and
other corporate finance advisory activities; merchant banking; stock brokerage
and research services; credit services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.
 
  INVESTMENT ADVISORY AGREEMENT. The business and affairs of the Fund will be
managed under the direction of the Fund's Board of Trustees. Subject to their
authority, the Adviser and the Fund's officers will supervise and implement the
Fund's investment activities and will be responsible for overall management of
the Fund's business affairs. The investment advisory agreement (the "Advisory
Agreement") between the Adviser and the 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
through whom the Fund's portfolio transactions are executed. The Adviser also
furnishes offices, necessary facilities and equipment and permits its officers
and employees to serve without compensation as Trustees and officers of the Fund
if duly elected to such positions. The Fund expects to incur expenses totalling
approximately $         in connection with the Fund's organization.
Organizational expenses will be amortized over a period of 60 months. The Fund
expects to incur approximately $         in expenses in connection with the
offering of 100,000,000 Common Shares pursuant to this Prospectus, which
expenses will be charged as operating expenses of the Fund.
 
  For the services provided by the Adviser under the Advisory Agreement, the
Fund will pay the Adviser an annualized fee (accrued daily and paid monthly)
equal to a percentage of the average net assets of the Fund as indicated below.
The advisory fee is higher than the fees paid by most management investment
companies, although it is comparable to the fees paid by several publicly
offered, closed-end management investment companies with investment objectives
and policies similar to those of the Fund. The Adviser has agreed to waive
management fees or reduce ordinary expenses through [         , 199  ] to the
extent neces-
 
                                       34
<PAGE>   38
 
sary so that estimated Total Annual Operating Expenses for such period would not
exceed [1.60%].
 
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS   PERCENT PER ANNUM
- ------------------------   -----------------
<C>                        <C>
   First $4.0 Billion       0.950 of 1.00%
   Next  $3.5 Billion       0.900 of 1.00%
   Next  $2.5 Billion       0.875 of 1.00%
   Over  $10.0 Billion      0.850 of 1.00%
</TABLE>
 
  PORTFOLIO MANAGEMENT. Jeffrey W. Maillet is a Senior Vice President of the
Adviser and is primarily responsible for the day to day management of the Fund's
portfolio Mr. Maillet also has primary responsibility for the day to day
management of the portfolio of the Van Kampen American Capital Prime Rate Income
Trust, a closed-end investment company investing primarily in interests in
Senior Loans and having investment objectives and policies virtually identical
to those of the Fund. As of December 15, 1997, Van Kampen American Capital Prime
Rate Income Trust had over $6.6 billion in net assets. Mr. Maillet has been
employed by the Adviser since 1989.
 
  THE ADMINISTRATOR. The administrator for the Fund is VKAC (in such capacity,
the "Administrator"). Its principal business address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. The Administrator is an indirect wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. The Administrator
maintains offices and regional representatives in major cities across the
nation. VKACDI, which is the principal underwriter of the Common Shares in
connection with the offering thereof by the Fund, is a wholly-owned subsidiary
of VKAC. See "Purchase of Shares."
 
  Pursuant to the administration agreement between the Fund and the
Administrator (the "Administration Agreement") and in consideration of its
administrative fee, the Administrator will (i) monitor the provisions of the
Loan Agreements and any agreements with respect to Participations and
Assignments and be responsible for recordkeeping with respect to Senior Loans in
the Fund's portfolio; (ii) arrange for the printing and dissemination of reports
to holders of Common Shares; (iii) arrange for the dissemination of the Fund's
proxy and any tender offer materials to holders of Common Shares, and oversee
the tabulation of proxies by the Fund's transfer agent; (iv) negotiate the terms
and conditions under which custodian services will be provided to the Fund and
the fees to be paid by the Fund in connection therewith; (v) negotiate the terms
and conditions under which dividend disbursing services will be provided to the
Fund, and the fees to be paid by the Fund in connection therewith and review the
provision of dividend disbursing services to the Fund; (vi) provide the Fund's
dividend disbursing agent and custodian with such information as is required for
such parties to effect payment of dividends and distributions and to implement
the Fund's dividend reinvestment plan; (vii) make such reports and
recommendations to the Board of Trustees as the
 
                                       35
<PAGE>   39
 
Trustees reasonably request or deem appropriate; and (viii) provide certain
shareholder services to holders or potential holders of the Fund's securities.
 
  For the services rendered to the Fund and related expenses borne by the
Administrator, the Fund pays the Administrator a fee, accrued daily and paid
monthly, at the annualized rate of 0.25% of the Fund's net assets.
 
- ------------------------------------------------------------------------------
DISTRIBUTIONS
- ------------------------------------------------------------------------------
 
  The Fund's present policy is to declare daily and pay monthly distributions to
holders of Common Shares of substantially all net investment income of the Fund.
Net investment income of the Fund consists of all interest income, fee income,
other ordinary income earned by the Fund on its portfolio assets and net
short-term capital gains, less all expenses of the Fund. Expenses of the Fund
are accrued each day. Distributions to holders of Common Shares cannot be
assured, and the amount of each monthly distribution is likely to vary. Net
realized long-term capital gains, if any, are expected to be distributed to
holders of Common Shares at least annually. Holders of Common Shares may elect
to have distributions automatically reinvested in additional Common Shares.
Until such time as the Fund is fully invested, distributions will be less than
they might otherwise be. See "Dividend Reinvestment Plan."
 
- ------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- ------------------------------------------------------------------------------
 
  The Fund offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders may elect to have all distributions of dividends and all
capital gains automatically reinvested in Common Shares pursuant to the Plan.
Unless Common Shareholders elect to participate in the Plan, all Common
Shareholders will receive distributions of dividends and capital gains in cash.
 
  State Street Bank and Trust Company, as plan agent (the "Plan Agent"), serves
as agent for the Common Shareholders in administering the Plan. Participants in
the Plan will receive the equivalent in Common Shares valued on the valuation
date, at net asset value. The valuation date will be the dividend or
distribution payment date or, if that date is not a business day, the next
preceding business day.
 
  The Plan Agent will maintain each Common Shareholder's account in the Plan and
furnish monthly written confirmations of all transactions in the accounts,
including information needed by Common Shareholders for personal and tax
records. Common Shares in the account of each Plan participant will be held by
the Plan Agent in non-certificated form in the name of the participant, and each
Common Shareholder's proxy will include those Common Shares purchased pursuant
to the Plan. The Plan Agent's fees for the handling of the reinvestment of
dividends and distributions will be paid by the Fund.
 
                                       36
<PAGE>   40
 
  In the case of Common Shareholders, such as banks, brokers or nominees, which
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record Common Shareholders as representing the total amount
registered in the record Common Shareholder's name and held for the account of
beneficial owners who are participating in the Plan.
 
  The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required to be
withheld on such dividends or distributions.
 
  Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Fund at least 90 days before the
record date for the dividend distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Fund.
 
  All registered Common Shareholders (other than brokers or nominees) will be
mailed information regarding the Plan, including a form with which they may
elect to participate in the Plan. Shareholders who intend to hold their Common
Shares through a broker or nominee should contact such person to confirm that
they may participate in the Plan and to determine the effect, if any, that a
transfer of the account by the shareholder to another broker or nominee will
have on continued participation in the Plan. A Common Shareholder may withdraw
from the Plan at any time by contacting the Plan Agent at the address or
telephone number set forth below. There is no penalty for non-participation in
or withdrawal from the Plan, and Common Shareholders who have previously
withdrawn from the Plan may rejoin it at any time. Changes in elections should
be directed to the Plan Agent and should include the name of the Fund and the
Common Shareholder's name and address as registered. An election to withdraw
from the Plan will, until such election is changed, be deemed to be an election
by a Common Shareholder to take all subsequent dividends and distributions in
cash. Elections will only be effective for dividends and distributions declared
after, and with a record date of at least ten days after, such elections are
received by the Plan Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided above, certificates for whole Common Shares
credited to his or her account under the Plan will be issued and a cash payment
will be made for any fraction of a Common Share credited to such account. All
correspondence concerning the Plan should be directed to the Plan Agent at c/o
ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO 64153-9256.
Please call (800) 341-2911 between the hours of 7:00 a.m. and 7:00 p.m. Central
Standard Time if you have questions regarding the Plan.
 
  DIVIDEND DIVERSIFICATION. A shareholder also may, upon written request by
completing the appropriate section of the application form or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other distributions paid on Common Shares of the Fund invested into shares
of
 
                                       37
<PAGE>   41
 
certain mutual funds advised by the Adviser or its affiliates so long as a
pre-existing account for such shares exists for the shareholder. A shareholder
may call the phone numbers shown above to obtain a list of the mutual funds
available and to request current prospectuses.
 
  If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
 
- ------------------------------------------------------------------------------
REPURCHASE OF SHARES
- ------------------------------------------------------------------------------
 
  The Board of Trustees of the Fund currently intends, each quarter, to consider
authorizing the Fund to make tender offers for all or a portion of its then
outstanding Common Shares at the net asset value of the Common Shares on the
expiration date of the tender offer. Although such tender offers, if undertaken
and completed, will provide some liquidity for holders of the Common Shares,
there can be no assurance that such tender offers will in fact be undertaken or
completed or, if completed, that they will provide sufficient liquidity for all
holders of Common Shares who may desire to sell such Common Shares. As such,
investment in the Common Shares should be considered illiquid. An early
withdrawal charge payable to VKACDI will be imposed on most Common Shares
accepted for tender by the Fund which have been held for less than one year, as
described below.
 
  Although the Board of Trustees believes that tender offers for the Common
Shares generally would increase the liquidity of the Common Shares, the
acquisition of Common Shares by the Fund will decrease the total assets of the
Fund and, therefore, have the effect of increasing the Fund's expense ratio.
Because of the nature of the Fund's investment objective and policies and the
Fund's portfolio, the Adviser anticipates potential difficulty in disposing of
portfolio securities in order to consummate tender offers for the Common Shares.
As a result, the Fund may be required to borrow money in order to finance
repurchases and tenders.
 
  The Fund's Declaration of Trust authorizes the Fund, without prior approval of
the holders of Common Shares, to borrow money in an amount up to 33 1/3% of the
Fund's total assets, for the purpose of, among other things, obtaining
short-term credits in connection with tender offers by the Fund for Common
Shares. In this connection, the Fund may issue notes or other evidence of
indebtedness or secure any such borrowings by mortgaging, pledging or otherwise
subjecting as security the Fund's assets. Under the requirements of the 1940
Act, the Fund, immediately after any such borrowing, must have an "asset
coverage" of at least 300%. With respect to any such borrowing, asset coverage
means the ratio which the value of the total assets of the Fund, less all
liabilities and indebtedness not represented by senior securities (as defined in
the 1940 Act), bears to the aggregate amount of such borrowing by the Fund. The
rights of lenders to the Fund to receive interest on and
 
                                       38
<PAGE>   42
 
repayment of principal of any such borrowings will be senior to those of the
holders of Common Shares, and the terms of any such borrowings may contain
provisions which limit certain activities of the Fund, including the payment of
dividends to holders of Common Shares in certain circumstances. Further, the
terms of any such borrowing may and the 1940 Act does (in certain circumstances)
grant to the lenders to the Fund certain voting rights in the event of default
in the payment of interest on or repayment of principal. In the event that such
provisions would impair the Fund's status as a regulated investment company, the
Fund, subject to its ability to liquidate its relatively illiquid portfolio,
intends to repay the borrowings. Any borrowing will likely rank senior to or
pari passu with all other existing and future borrowings of the Fund. Interest
payments and fees incurred in connection with borrowings will reduce the amount
of net income available for payment to the holders of Common Shares. The Fund
does not intend to use borrowings for leverage purposes. Accordingly, the Fund
will not purchase additional portfolio securities at any time that borrowings,
including the Fund's commitments, pursuant to reverse repurchase agreements,
exceed 5% of the Fund's total assets (after giving effect to the amount
borrowed).
 
  The Fund expects to enter into a Credit Agreement, as borrower, with certain
banks, as lenders (the "Financial Institutions"), pursuant to which the
Financial Institutions will provide a credit facility to the Fund. The Fund does
not expect that the credit facility will be secured by the assets of the Fund or
other collateral. The Fund expects that the credit facility will provide the
Fund with additional liquidity to meet its obligations to purchase Common Shares
pursuant to any tender offer that the Fund may make. See "Repurchase of Shares"
in the Statement of Additional Information.
 
  Should the Fund determine to make a tender offer for its Common Shares, a
notice describing the tender offer, containing information shareholders should
consider in deciding whether to tender their Common Shares and including
instructions on how to tender Common Shares will be sent to shareholders of
record. Information concerning the purchase price to be paid by the Fund and the
manner in which shareholders may ascertain net asset value during the pendency
of a tender offer will also be set forth in the notice. The Fund will purchase
all Common Shares tendered in accordance with the terms of the offer unless it
determines to terminate the offer. Costs associated with the tender will be
charged against capital. See the Statement of Additional Information for
additional information concerning repurchase of Common Stock.
 
  Upon the death of a holder of Common Shares, VKACDI will waive any early
withdrawal charge (discussed below) applicable to the first $100,000 worth of
such holder's Common Shares repurchased pursuant to a tender offer commenced
within one year of such holder's death; provided that the Fund's transfer agent
has received, on VKACDI's behalf, proper notice of the death of such holder. For
this purpose, the transfer agent will be deemed to have received proper notice
of such holder's death upon its receipt of (i) a duly executed Letter of
Transmittal duly
 
                                       39
<PAGE>   43
 
submitted in connection with a tender offer, (ii) a written request for waiver
of the early withdrawal charge, in form satisfactory to the transfer agent,
signed by the holder's duly authorized representative or surviving tenant, (iii)
appropriate evidence of death and (iv) appropriate evidence of the authority of
the representative of the deceased holder or surviving tenant. Common Shares
held in joint tenancy or tenancy in common will be deemed to be held by a single
holder (which may be either tenant in the case of joint tenancy) and the death
of any such tenant will be deemed to be the death of such holder of Common
Shares. Information concerning the waiver of the early withdrawal charge may be
obtained by contacting the Fund.
 
  EARLY WITHDRAWAL CHARGE.  An early withdrawal charge designed to recover
offering expenses will be charged in connection with most Common Shares held for
less than one year which are accepted by the Fund for repurchase pursuant to
tender offers. The early withdrawal charge will be imposed on a number of Common
Shares accepted for cash tender from a record holder of Common Shares the value
of which exceeds the aggregate value at the time the tender is accepted of (a)
all Common Shares owned by such holder that were purchased more than one year
prior to such acceptance, (b) all Common Shares owned by such holder that were
acquired through reinvestment of distributions, and (c) the increase, if any, of
value of all other Common Shares owned by such holder (namely those purchased
within the one year preceding the acceptance) over the purchase price of such
Common Shares. The early withdrawal charge will be paid to VKACDI. In
determining whether an early withdrawal charge is payable, it is assumed that
the acceptance of a repurchase offer would be made from the earliest purchase of
Common Shares.
 
  EXCHANGES.  Tendering shareholders may elect to receive, in lieu of cash, the
proceeds from the tender of Common Shares of the Fund in contingent deferred
sales charge shares ("Class C Shares") of certain open-end investment companies
distributed by VKAC ("VKAC Funds"). The Early Withdrawal Charge will be waived
for Common Shares tendered in exchange for Class C Shares in the VKAC Funds;
however, such Class C Shares immediately become subject to a contingent deferred
sales charge equivalent to the Early Withdrawal Charge on Common Shares of the
Fund. Thus, shares of such VKAC Funds may be subject to a contingent deferred
sales charge upon a subsequent redemption from the VKAC Funds. The purchase of
shares of such VKAC Funds will be deemed to have occurred at the time of the
initial purchase of the Common Shares of the Fund for calculating the applicable
contingent deferred sales charge.
 
- ------------------------------------------------------------------------------
DESCRIPTION OF COMMON SHARES
- ------------------------------------------------------------------------------
 
  The Fund is an unincorporated business trust established under the laws of the
Commonwealth of Massachusetts by a Declaration of Trust dated December 19, 1997
(the "Declaration of Trust"). The Declaration of Trust provides that the
Trustees of the Fund may authorize separate classes of shares of
 
                                       40
<PAGE>   44
 
beneficial interest. The Trustees have authorized an unlimited number of Common
Shares. The Declaration of Trust also authorizes the Fund to borrow money or
otherwise obtain credit and in this connection issue notes or other evidence of
indebtedness. The Fund does not intend to hold annual meetings of the holders of
Common Shares.
 
  COMMON SHARES.  The Declaration of Trust permits the Fund to issue an
unlimited number of full and fractional Common Shares of beneficial interest,
$.01 par value per Common Share. Each Common Share represents an equal
proportionate interest in the assets of the Fund with each other Common Share in
the Fund. Holders of Common Shares will be entitled to the payment of dividends
when, as and if declared by the Board of Trustees. The terms of any borrowings
may limit the payment of dividends to the holders of Common Shares. Each whole
Common Share shall be entitled to one vote as to matters on which it is entitled
to vote pursuant to the terms of the Fund's Declaration of Trust on file with
the SEC. Upon liquidation of the Fund, after paying or adequately providing for
the payment of all liabilities of the Fund, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining assets of the Fund among
the holders of the Common Shares. The Declaration of Trust provides that
shareholders are not liable for any liabilities of the Fund, requires inclusion
of a clause to that effect in every agreement entered into by the Fund and
indemnifies shareholders against any such liability. Although shareholders of an
unincorporated business trust established under Massachusetts law, in certain
limited circumstances, may be held personally liable for the obligations of the
trust as though they were general partners, the provisions of the Declaration of
Trust described in the foregoing sentence make the likelihood of such personal
liability remote.
 
  As a rule, the Fund will not issue share certificates. However, upon written
request to the Fund's transfer agent, a share certificate will be issued for any
or all of the full Common Shares credited to an investor's account. Share
certificates which have been issued to an investor may be returned at any time.
 
  As of the date of this Prospectus, VKAC or its subsidiaries owns 100% of the
issued and outstanding Common Shares and as a result is deemed to control the
Fund. The Common Shares are not, and are not expected to be, listed for trading
on any national securities exchange nor, to the Fund's knowledge, is there, or
is there expected to be, any secondary trading market in the Common Shares.
 
  ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST. The Fund's Declaration
of Trust includes provisions that could have the effect of limiting the ability
of other entities or persons to acquire control of the Fund or to change the
composition of its Board of Trustees by discouraging a third party from seeking
to obtain control of the Fund. In addition, in the event a secondary market were
to develop in the Common Shares, such provisions could have the effect of
depriving holders of Common Shares of an opportunity to sell their Common Shares
at a premium over prevailing market prices. A Trustee may be removed from office
only for cause by a written
 
                                       41
<PAGE>   45
 
instrument signed by at least two-thirds of the remaining Trustees or by a vote
of the holders of at least two-thirds of the Common Shares.
 
  In addition, the Declaration of Trust requires the favorable vote of the
holders of at least two-thirds of the outstanding Common Shares then entitled to
vote to approve, adopt or authorize certain transactions with 5%-or-greater
holders of Common Shares and their associates, unless the Board of Trustees
shall by resolution have approved a memorandum of understanding with such
holders, in which case normal voting requirements would be in effect. See
"Repurchase of Shares--Anti-takeover Provisions" in the Statement of Additional
Information.
 
  FUND STRUCTURE. The Fund's fundamental investment policies and restrictions
give the Fund the flexibility to pursue its investment objective through the
future conversion to a fund structure commonly known as a "master-feeder"
structure. If the Fund converts to a master-feeder structure, the existing
shareholders of the Fund would continue to hold their shares of the Fund and the
Fund would become a feeder-fund of the master-fund. The value of a shareholder's
shares would be the same immediately after any conversion as the value
immediately before such conversion. Use of this master-feeder structure
potentially would result in increased assets invested among the collective
investment vehicle of which the Fund would be a part, thus allowing operating
expenses to be spread over a larger asset base, potentially achieving economies
of scale. The Fund's Board of Trustees presently does not intend to affect any
conversion of the Fund to a master-feeder structure.
 
- ------------------------------------------------------------------------------
PURCHASING SHARES OF THE FUND
- ------------------------------------------------------------------------------
 
  The Fund expects to engage in a continuous offering of its Common Shares
through VKACDI, as principal underwriter of the continuous offering of the
Common Shares, whose offices are located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181. The Common Shares will also be offered through members
of the National Association of Securities Dealers, Inc. ("NASD") or eligible
non-NASD members who are acting as brokers or agents for investors ("broker-
dealers"). The Fund reserves the right to terminate or suspend the continuous
offering of its Common Shares at any time without prior notice.
 
  The Fund does not intend to list the Common Shares on any national securities
exchange and none of the Fund, the Adviser or VKACDI intends to make a secondary
market in the Common Shares. Accordingly, there is not expected to be any
secondary trading market in the Common Shares and an investment in the Common
Shares should be considered illiquid.
 
  Except as discussed below under "Investments by Tax Sheltered Retirement
Plans," the minimum initial investment in the Fund is $1,000 and minimum
subsequent investment is $100.
 
  During the continuous offering, the Common Shares will be offered by the Fund
at the public offering price next computed after an investor places an order to
 
                                       42
<PAGE>   46
 
purchase directly with VKACDI, or with the investor's broker-dealer. The price
of Common Shares ordered through an investor's broker-dealer will be the public
offering price next determined after the Fund receives the order. Because the
Fund determines the public offering price once daily on each business day as of
5:00 p.m. Eastern time, orders placed through an investor's broker-dealer must
be transmitted to the Fund by the broker-dealer prior to such time for the
investor's order to be executed at the public offering price to be determined
that day. Any change in price due to the failure of the Fund to receive an order
prior to such time must be settled between the investor and the broker-dealer
placing the order. The public offering price is equal to the net asset value per
Common Share. There will be no initial sales charge or underwriting discount on
purchases of Common Shares. During the Subscription Period, Common Shares will
be offered at $10.00 per share for settlement on or about          , 1998.
 
  VKACDI will compensate broker-dealers participating in the continuous offering
at a rate of 0.75% of the dollar value of Common Shares purchased from the Fund
by such broker-dealers. For Common Shares sold during the Subscription Period,
VKACDI will compensate broker-dealers participating at a rate of 1.00% of the
dollar value of Common Shares purchased from the Fund by such broker-dealers. If
the Common Shares remain outstanding after one year from the date of their
original purchase, VKACDI will compensate such broker-dealers at an annual rate,
paid quarterly, equal to 0.75% of the dollar value of such Common Shares sold by
such broker-dealers and remaining outstanding.
 
At various times VKACDI may implement programs under which a broker-dealer's
sales force may be eligible to win nominal awards for certain sales efforts. The
value of any such non-cash awards will not exceed $50 per person annually. These
incentives will not change the price investors pay for Common Shares or the
amount that the Fund will receive from the sale of Common Shares. The
compensation paid to broker-dealers at the time of purchase and the quarterly
payments mentioned above will be paid by VKACDI out of its own assets, and not
out of the assets of the Fund. An early withdrawal charge payable to VKACDI will
be imposed on most Common Shares held for less than one year that are accepted
for repurchase pursuant to a tender offer by the Fund. See "Repurchase of
Shares." The compensation paid to broker-dealers and VKACDI, including the
compensation paid at the time of purchase, the quarterly payments mentioned
above and the early withdrawal charge, if any, will not in the aggregate exceed
applicable limitations. VKACDI will monitor the aggregate value of all such
compensation on an ongoing basis.
 
  In addition to advisory fees, administrative fees and other expenses, the Fund
pays service fees pursuant to a Service Plan (the "Service Plan") designed to
meet the service fee requirements of the sales charge rule of the NASD, as if
such rule were applicable. The Service Plan is further described in the
Statement of Additional Information, and the following is a description of the
salient features of the Service Plan.
 
                                       43
<PAGE>   47
 
  The Service Plan provides that the Fund may make service fee payments for
personal services and/or the maintenance of shareholder accounts to VKACDI and
broker-dealers and other persons in amounts not exceeding .25% of the Fund's
average daily net assets for any fiscal year. The Trustees of the Fund have
initially implemented the Service Plan by authorizing the Fund to make quarterly
service fee payments to VKACDI and broker-dealers in amounts not expected to
exceed .15% of the Fund's average daily net assets for each fiscal year. VKACDI
will retain the service fee in the first year (as reimbursement for an initial
service fee payment of .15% of broker-dealers at the time of sale) and each
quarter thereafter only with respect to shares that are tendered. However, the
Service Plan authorizes the Trustees of the Fund to increase payments without
further action by shareholders of the Fund, provided that the aggregate amount
of payments made to such persons under the Plan in any fiscal year of the Fund
does not exceed .25% of the Fund's average daily net assets.
 
  Automatic Investment. Once an investor has opened an account in the Fund with
the minimum $1,000 investment, the automatic investment option may be utilized
to make regular monthly investments of $100 or more into such investor's account
with the Fund. In order to utilize this option, an investor must fill out and
sign the Automatic Investment application available from the transfer agent, the
Fund, such investor's broker or dealer, or VKACDI. Once the transfer agent has
received this application, such investor's checking account at his designated
bank will be debited each month in the amount authorized by such investor to
purchase shares of the Fund. Once enrolled in the Automatic Investment Program,
an investor may change the monthly amount or terminate participation at any time
by writing the transfer agent. Investors in the automatic investment program
will receive a confirmation of these transactions from the Fund quarterly and
their regular bank account statements will show the debit transaction each
month.
 
  Investments by Tax-Sheltered Retirement Plans. Common Shares are available for
purchase in connection with certain types of tax-sheltered retirement plans,
including, without limitation, Employee Pension Plans ("SEP's") for employees;
qualified plans for self-employed individuals; and qualified corporate pension
and profit sharing plans for employees.
 
  Eligible investors may establish individual retirement accounts ("IRAs"); SEP;
and pension and profit sharing plans; 401(k) plans; or Section 403(b)(7) plans
in the case of employees of public school systems and certain non-profit
organizations. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen American Capital
Trust Company serves as custodian under the IRA, 403(b)(7) and Keogh plans.
Details regarding fees, as well as full plan administration for profit sharing,
pension and 401(k) plans, are available from the Distributor.
 
  The purchase of shares of the Fund may be limited by the plans' provisions and
does not itself establish such plans. The minimum initial investment in
connection with a tax-sheltered retirement plan is $250.
 
                                       44
<PAGE>   48
 
  Shareholders considering establishing a retirement plan or purchasing any Fund
shares in connection with a retirement plan, should consult with their attorney
or tax advisor with respect to plan requirements and tax aspects pertaining to
the shareholder.
 
  The illiquid nature of the Fund's Common Shares may affect the nature of
distributions from tax sheltered retirement plans and may affect the ability of
participants in such plans to rollover assets to other tax sheltered retirement
plans.
 
- ------------------------------------------------------------------------------
COMMUNICATIONS WITH SHAREHOLDERS
- ------------------------------------------------------------------------------
 
  The Fund will send semi-annual and annual reports to shareholders, including a
list of the portfolio investments held by the Fund.
 
  From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information may include a distribution rate and an average compounded
distribution rate of the Fund for specified periods of time. Such information
may also include performance rankings and similar information from independent
organizations such as Lipper Analytical Services, Inc., Business Week, Forbes or
other industry publications.
 
  The Fund's distribution rate generally is determined on a monthly basis with
respect to the immediately preceding monthly distribution period. The
distribution rate is computed by first annualizing the Fund's distributions per
Common Share during such a monthly distribution period and dividing the
annualized distribution by the Fund's maximum offering price per Common Share on
the last day of such period. The Fund calculates the compounded distribution
rate by adding one to the monthly distribution rate, raising the sum to the
power of 12 and subtracting one from the product. In circumstances in which the
Fund believes that, as a result of decreases in market rates of interest, its
expected monthly distributions may be less than the distributions with respect
to the immediately preceding monthly distribution period, the Fund reserves the
right to calculate the distribution rate on the basis of a period of less than
one month.
 
  When utilized by the Fund, distribution rate and compounded distribution rate
figures will be based on historical performance and will not be intended to
indicate future performance. Distribution rate, compounded distribution rate and
net asset value per share can be expected to fluctuate over time.
 
                                       45
<PAGE>   49
 
  The following table is intended to provide investors with a comparison of
short-term money market rates. This comparison should not be considered a
representation of future money market rates, nor what an investment in the Fund
may earn or what an investor's yield or total return may be in the future. These
comparisons may be used in advertisements and in information furnished to
present or prospective shareholders.
 
                                    [UPDATE]
<TABLE>
<CAPTION>
                                       COMPARISON OF PRIME RATE,
                          CERTIFICATE OF DEPOSIT RATE, MONEY MARKET RATE AND
                                    LONDON INTER-BANK OFFERED RATE
                                      (AVERAGE OF CALENDAR YEAR)
                       ---------------------------------------------------------
                       1982    1983    1984    1985   1986   1987   1988   1989
                       ----    ----    ----    ----   ----   ----   ----   ----
<S>                    <C>     <C>     <C>     <C>    <C>    <C>    <C>    <C>
Prime Rate(1)........  15.06%  10.78%  12.06%  9.99%  8.38%  8.15%  9.24%  10.88%
C.D. Rate(2).........  12.57   9.27    10.68   8.25   6.51   7.01   7.91   9.08
Money Market
 Rate(3).............  11.70   8.20    9.58    7.50   6.17   5.89   6.77   8.53
LIBOR(4).............  9.18    9.81    8.75    8.00   6.37   7.43   9.62   8.37
 
<CAPTION>
                                     COMPARISON OF PRIME RATE,
                         CERTIFICATE OF DEPOSIT RATE, MONEY MARKET RATE AND
                                   LONDON INTER-BANK OFFERED RATE
                                     (AVERAGE OF CALENDAR YEAR)
                       ------------------------------------------------------
                       1990    1991   1992   1993   1994   1995   1996   1997
                       ----    ----   ----   ----   ----   ----   ----   ----
<S>                    <C>     <C>    <C>    <C>    <C>    <C>    <C>    <C>
Prime Rate(1)........  10.01%  8.46%  6.25%  6.00%  8.50%  8.83%  8.50%  --%
C.D. Rate(2).........  8.17    5.91   3.76   3.28   6.90   5.93   --      --
Money Market
 Rate(3).............  7.82    5.44   3.36   2.70   3.75   5.47   --      --
LIBOR(4).............  7.56    4.25   3.43   3.37   6.50   5.49   --      --
</TABLE>
 
- ---------------
(1)  The Prime Rate quoted by a major U.S. bank is the base rate on corporate
     loans at large U.S. money center commercial banks. Source: Federal Reserve
     Bulletin.
 
(2)  The Certificate of Deposit Rate represents the average annual rate paid on
     large six-month CDs traded in the secondary market. Source: Bloomberg.
 
(3)  The Money Market Rate represents Donoghue's Money Fund Averages for taxable
     money market funds.
 
(4)  The London Inter-Bank Offered Rate represents the rate at which most
     creditworthy international banks dealing in Eurodollars charge each other
     for large loans. Source: Bloomberg.
 
- ------------------------------------------------------------------------------
CUSTODIAN, DIVIDEND DISBURSING AND TRANSFER AGENT
- ------------------------------------------------------------------------------
 
  State Street Bank and Trust Company, 225 West Franklin Street, P.O. Box 1713,
Boston, Massachusetts 02105-1713, is the custodian of the Fund and will maintain
custody of the securities and cash of the Fund. The custodian, among other
things, will attend to the collection of principal and income and payment for
and collection of proceeds of securities bought and sold by the Fund. State
Street Bank and Trust Company also will perform certain accounting services for
the Fund pursuant to the Fund Accounting Agreement between it and the Fund.
ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256 is the dividend disbursing and transfer agent of the Fund.
 
- ------------------------------------------------------------------------------
LEGAL OPINIONS
- ------------------------------------------------------------------------------
 
  Certain legal matters in connection with the Common Shares offered hereby have
been passed upon for the Fund by Skadden, Arps, Slate, Meagher & Flom
(Illinois).
 
                                       46
<PAGE>   50
 
- ------------------------------------------------------------------------------
EXPERTS
- ------------------------------------------------------------------------------
 
  The Statement of Assets and Liabilities as of         ,199   , included in the
Statement of Additional Information, have been so included in reliance on the
report of KPMG Peat Marwick LLP, independent certified public accountants, given
on the authority of said firm as experts in auditing and accounting.
 
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
 
  The Prospectus and the Statement of Additional Information do not contain all
of the information set forth in the Registration Statement that the Fund has
filed with the SEC. The complete Registration Statement may be obtained from the
SEC upon payment of the fee prescribed by its rules and regulations.
 
  Statements contained in this Prospectus as to the contents of any contract or
other documents 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 Prospectus forms a part,
each such statement being qualified in all respects by such reference.
 
  THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION IS AS
FOLLOWS:
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Investment Objective and Policies and Special Risk
  Considerations............................................  B- 2
Investment Restrictions.....................................  B- 8
Trustees and Officers.......................................  B-10
Portfolio Transactions......................................  B-15
Management of the Fund......................................  B-16
Net Asset Value.............................................  B-18
Taxation....................................................  B-19
Repurchase of Shares........................................  B-21
Independent Accountants' Report.............................  B-24
Statement of Assets and Liabilities as of          , 199 ...  B-25
Notes to Financial Statements...............................  B-
</TABLE>
 
                                       47
<PAGE>   51
 
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE
NUMBER 1-800-341-2911.
 
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR 1-800-421-5666.
 
DEALERS--FOR DEALER
INFORMATION, CALL
1-800-421-5666. FOR WIRE ORDERS
CALL ACCESS INVESTOR
SERVICES, INC.'S TOLL FREE
NUMBER--1-800-231-7166
 
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL 1-800-421-2833
 
FOR AUTOMATED TELEPHONE
SERVICES DIAL 1-800-847-2424

VAN KAMPEN AMERICAN CAPITAL
SENIOR FLOATING RATE FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
 
Investment Adviser
 
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181
 
Principal Underwriter
 
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
 
Dividend Disbursing and Transfer Agent
 
ACCESS INVESTOR
SERVICES, INC.
P.O. BOX 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
     Prime Rate Income Trust
 
Custodian
 
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
     Senior Floating Rate Fund
 
Legal Counsel
 
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
 
Independent Accountants
 
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE>   52
 
- ------------------------------------------------------------------------------
 
                           SENIOR FLOATING RATE FUND
 
- ------------------------------------------------------------------------------
 
                              P R O S P E C T U S
 
                                          , 1998
 
        ------  A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH  ------
                          VAN KAMPEN AMERICAN CAPITAL
    ------------------------------------------------------------------------
<PAGE>   53
 
                          VAN KAMPEN AMERICAN CAPITAL
                           SENIOR FLOATING RATE FUND
 
                      STATEMENT OF ADDITIONAL INFORMATION
 
  Van Kampen American Capital Senior Floating Rate Fund (the "Fund"), is a
non-diversified, closed-end management investment company whose investment
objective is to provide a high level of current income, consistent with
preservation of capital. This Statement of Additional Information is not a
prospectus, but should be read in conjunction with the Prospectus for the Fund
dated           , 1998 (the "Prospectus"). This Statement of Additional
Information does not include all information that a prospective investor should
consider before purchasing shares of the Fund, and investors should obtain and
read the Prospectus prior to purchasing shares. A copy of the Prospectus may be
obtained without charge, by calling 1-800-341-2911, or for Telecommunications
Device for the Deaf, 1-800-421-2833. This Statement of Additional Information
incorporates by reference the entire Prospectus.
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Investment Objective and Policies and Special Risk
  Considerations............................................  B- 2
Investment Restrictions.....................................  B- 8
Trustees and Officers.......................................  B-10
Portfolio Transactions......................................  B-15
Management of the Fund......................................  B-16
Net Asset Value.............................................  B-18
Taxation....................................................  B-19
Repurchase of Shares........................................  B-21
Independent Accountants' Report.............................  B-24
Statement of Assets and Liabilities as of           , 199...  B-25
Notes to Statement of Assets and Liabilities................  B-
</TABLE>
 
  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.
 
       THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED           , 1998
 
                                       B-1
<PAGE>   54
 
                       INVESTMENT OBJECTIVE AND POLICIES
                        AND SPECIAL RISK CONSIDERATIONS
 
  The Fund's investment objective is to provide a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its objective
through investment primarily in a professionally managed portfolio of interests
in floating or variable rate Senior Loans to Borrowers. Although the Fund's net
asset value will vary, the Fund's policy of acquiring interests in floating or
variable rate Senior Loans is expected to minimize the fluctuations in the
Fund's net asset value as a result of changes in interest rates. The Fund's net
asset value may be affected by changes in the credit quality of Borrowers with
respect to Senior Loan interests in which the Fund invests. An investment in the
Fund may not be appropriate for all investors and is not intended to be a
complete investment program. No assurance can be given that the Fund will
achieve its investment objective. For further discussion of the characteristics
of Senior Loan interests and associated special risk considerations, see
"Investment Objective and Policies and Special Risk Factors" in the Prospectus.
 
                            INVESTMENT RESTRICTIONS
 
  The Fund's investment objective and the following investment restrictions are
fundamental and cannot be changed without the approval of the holders of a
majority (defined as the lesser of (i) 67% or more of the voting securities
present at a meeting of shareholders, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy at such
meeting, or (ii) more than 50% of the outstanding voting securities) of the
Fund's outstanding Common Shares. All other investment policies or practices are
considered by the Fund not to be fundamental and accordingly may be changed
without shareholder approval. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing market values will not be
considered a deviation from policy. In accordance with the foregoing, the Fund
may not:
 
   1. Purchase any securities (other than obligations issued or 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 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 any single issuer;
      provided that, with respect to 50% of the Fund's assets, the Fund may
      invest up to 25% of its assets in the securities of any one issuer. For
      purposes of this restriction, the term issuer includes both the Borrower
      under a Loan Agreement and the Lender selling a Participation to the Fund
      together with any other persons interpositioned between such Lender and
      the Fund with respect to a Participation.
 
   2. Purchase any security if, as a result of such purchase, more than 25% of
      the Fund's total assets (taken at current value) would be invested in the
      securities of Borrowers and other issuers having their principal business
      activities in the same industry (the electric, gas, water and telephone
      utility industries, commercial banks, thrift institutions and finance
      companies being treated as separate industries for purposes of this
      restriction); provided, that this limitation shall not apply with respect
      to obligations issued or guaranteed by the U.S. Government or by its
      agencies or instrumentalities.
 
   3. Issue senior securities (including borrowing money or entering into
      reverse repurchase agreements) in excess of 33 1/3% of its total assets
      (including the amount of senior securities issued but excluding any
      liabilities and indebtedness not constituting senior securities) except
      that the Fund may borrow up to an additional 5% of its total assets for
      temporary purposes, or pledge its assets other than to secure such
      issuance or in connection with hedging transactions, when-issued and
      delayed delivery transactions and similar investment strategies. The Fund
      will not purchase additional portfolio securities at any time that
      borrowings, including the Fund's commitments pursuant to reverse
      repurchase agreements, exceed 5% of the Fund's total assets (after giving
      effect to the amount borrowed).
 
   4. Make loans of money or property to any person, except for obtaining
      interests in Senior Loans in accordance with its investment objective,
      through loans of portfolio securities or the acquisition of securities
      subject to repurchase agreements.
 
                                       B-2
<PAGE>   55
 
   5. Buy any security "on margin." Neither the deposit of initial or variation
      margin in connection with hedging transactions nor short-term credits as
      may be necessary for the clearance of such transactions is considered the
      purchase of a security on margin.
 
   6. Sell any security "short," write, purchase or sell puts, calls or
      combinations thereof, or purchase or sell financial futures or options,
      except to the extent that the hedging transactions in which the Fund may
      engage would be deemed to be any of the foregoing transactions.
 
   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 or granting of
      interests in Senior Loans or other securities acquired by the Fund.
 
   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 Loan Agreements would be deemed to constitute such control or
      participation.
 
   9. Invest in securities of other investment companies, except that the Fund
      may purchase securities of other investment companies to the extent
      permitted by (i) the 1940 Act, as amended from time to time, (ii) the
      rules and regulations promulgated by the Securities and Exchange
      Commission under the 1940 Act, as amended from time to time, or (iii) an
      exemption or other relief from the provisions of the 1940 Act. The Fund
      will rely on representations of Borrowers in Loan Agreements in
      determining whether such Borrowers are investment companies.
 
  10. Buy or sell oil, gas or other mineral leases, rights or royalty contracts
      except pursuant to the exercise by the Fund of its rights under Loan
      Agreements. In addition, the Fund may purchase securities of issuers which
      deal in, represent interests in or are secured by interests in such
      leases, rights or contracts.
 
  11. Purchase or sell real estate, commodities or commodities contracts except
      pursuant to the exercise by the Fund of its rights under Loan Agreements,
      except to the extent the interests in Senior Loans the Fund may invest in
      are considered to be interests in real estate, commodities or commodities
      contracts and except to the extent that hedging instruments the Fund may
      invest in are considered to be commodities or commodities contracts.
 
  12. Notwithstanding the investment policies and restrictions of the Fund, upon
      approval of the Board of Trustees, the Fund may invest all or part of its
      investable assets in a management investment company with substantially
      the same investment objective, policies and restrictions as the Fund.
 
  For purposes of investment restriction number 2, the Fund will consider all
relevant factors in determining whether to treat the Lender selling a
Participation and any persons interpositioned between such Lender and the Fund
as an issuer, including: the terms of the Loan Agreement and other relevant
agreements (including inter-creditor agreements and any agreements between such
person and the Fund's custodian); the credit quality of such Lender or
interpositioned person; general economic conditions applicable to such Lender or
interpositioned person; and other factors relating to the degree of credit risk,
if any, of such Lender or interpositioned person incurred by the Fund.
 
  The Fund generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish the Fund's investment objective. For example, the Fund may sell
portfolio securities in anticipation of a movement in interest rates. Frequency
of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund anticipates that the
annual portfolio turnover rate of the Fund will not be in excess of 100%. A high
rate of portfolio turnover involves correspondingly greater expenses than a
lower rate, which expenses must be borne by the Fund and its shareholders.
 
                                       B-3
<PAGE>   56
 
                             TRUSTEES AND OFFICERS
 
  The table below sets forth the officers and trustees of the Fund, their
principal occupations for the last five years and their affiliations, if any,
with the Adviser, Van Kampen American Capital Asset Management, Inc. (the "AC
Adviser"), Van Kampen American Capital Management, Inc., Van Kampen American
Capital Distributors, Inc. ("VKACDI"), Van Kampen American Capital, Inc.
("VKAC"), Van Kampen American Capital Advisors, Inc., ACCESS Investor Services,
Inc., Van Kampen Merritt Equity Advisors Corp., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van Kampen American
Capital RecordKeeping Services, Inc., American Capital Contractual Services,
Inc., Van Kampen American Capital Trust Company, Van Kampen American Capital
Exchange Corporation, or VK/AC Holding, Inc. (affiliates of the Adviser). Unless
otherwise noted the address of each of the Trustees and officers is One Parkview
Plaza, Oakbrook Terrace, IL 60181.
 
DENNIS J. MCDONNELL,* DATE OF BIRTH 05/20/42, PRESIDENT, CHAIRMAN OF THE BOARD
AND TRUSTEE. Mr. McDonnell is President, Chief Operating Officer and a Director
of the Adviser, AC Adviser, Van Kampen American Capital Advisors, Inc., and Van
Kampen American Capital Management, Inc. He is also an Executive Vice President
and Director of VK/AC Holding, Inc., VKAC. Mr. McDonnell is President and a
Director of Van Kampen Merritt Equity Advisors Corp. He is the President and a
Trustee, Director or Managing General Partner of other investment companies
advised by the Adviser and the AC Adviser. Prior to April of 1997, he was a
Director of Van Kampen Merritt Equity Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer and Director of MCM Group, Inc.,
McCarthy, Crisanti & Maffei, Inc. and Chairman and Director of MCM Asia Pacific
Company, Limited and MCM (Europe) Limited. Prior to July of 1996, Mr. McDonnell
was President, Chief Operating Officer and Trustee of VSM Inc. and VCJ Inc.
Prior to December, 1991, Mr. McDonnell was Senior Vice President of Van Kampen
Merritt Inc. His address is One Parkview Plaza, Oakbrook Terrace, Illinois
60181.
 
DAVID C. ARCH, DATE OF BIRTH 07/17/45, TRUSTEE.  Mr. Arch is Chairman and Chief
Executive Officer of Blistex Inc., a consumer health care product's
manufacturer. Director of Elmhurst College and the Illinois Manufacturers'
Association. His address is 1800 Swift Drive, Oak Brook, Illinois 60521. Mr.
Arch is also a Trustee, Director or Managing General Partner of other investment
companies advised by the Adviser and the AC Adviser.
 
ROD DAMMEYER, DATE OF BIRTH 11/05/40, TRUSTEE.  Mr. Dammeyer is Managing
Director of EGI (Equity Group Investments, Inc.) Corporate Investments, a
division of Equity Group Investments, Inc., a company that makes private equity
investments in other companies, and President, Chief Executive Officer and
Director of Anixter International Inc., a value-added provider of integrated
networking and cabling solutions that support business information and network
infrastructure requirements (employed by Anixter since 1985). Prior to 1997, Mr.
Dammeyer was President, Chief Executive Officer and a Director of Great American
Management & Investment, Inc., a diversified manufacturing company. He is also a
Director of Teletech Holdings Inc., Lukens, Inc., Jacor Communications, Inc.,
CNA Surety, Corp., IMC Global Inc., Antec Corporation, Groupo Azucarero Mexico
(GAM) and a member of the Chase Manhattan Corporation National Advisory Board.
Mr. Dammeyer was previously a Director of Santa Fe Energy Resources, Inc.,
Falcon Building Products, Inc., Lomas Financial Corporation, Santa Fe Pacific
Corporation, Q-Tel, S.A. de C.V. and Servicios Financieros Quadrum, S.A. His
address is Two North Riverside Plaza, Suite 1950, Chicago, Illinois 60606. Mr.
Dammeyer is also a Trustee of other investment companies advised by the Adviser
and the AC Adviser.
 
HOWARD J KERR, DATE OF BIRTH 11/17/35, TRUSTEE.  Mr. Kerr is President and Chief
Executive Officer of Pocklington Corporation, Inc., an investment holding
company. Mr. Kerr is also a Director of Canbra Foods, Ltd., a Canadian oilseed
crushing, refining, processing and packaging operation. Prior to 1991, Mr. Kerr
was President, Chief Executive Officer and Chairman of the Board of Directors of
Grabill Aerospace Industries, Ltd. His address is 736 North Western Ave., P.O.
Box 317, Lake Forest, Illinois 60045. Mr. Kerr is a Trustee, Director or
Managing General Partner of other investment companies advised by the Adviser
and the AC Adviser.
 
STEVEN MULLER, DATE OF BIRTH 11/22/27, TRUSTEE.  Dr. Muller is Chairman of The
21(st) Century Foundation (public affairs). He is President Emeritus of The
Johns Hopkins University. He is also a Director of Beneficial
 
                                       B-4
<PAGE>   57
 
Corporation (bank holding company) and Millpore Corporation (biotechnology).
Prior to December, 1997, Dr. Muller was a director of the Common Sense Trust
and, prior to May, 1997, a Director of BT Alex. Brown & Sons (investment
banking). His address is The Johns Hopkins University, Suite 711, 1619
Massachusetts Avenue, N.W., Washington, D.C. 20036. Dr. Muller is also a Trustee
and Managing General Partner of other investment companies advised by the
Adviser and the AC Adviser.
 
THEODORE A. MYERS, DATE OF BIRTH 08/03/30, TRUSTEE.  Mr. Myers is a Senior
Financial Advisor of Qualitech Steel Corporation, a manufacturer of special
quality bar products, as well as iron carbide (a steel scrap substitute). Mr.
Myers is a Director of COVA Series Trust of COVA Financial Life Insurance
(formerly known as Xerox Life). He is also a member of the Arthur Anderson Chief
Financial Officer Advisory Committee. Prior to 1997, Mr. Myers was a Director of
McClouth Steel, and prior to July of 1996, Mr. Myers was an Executive Vice
President and Chief Financial Officer of Qualitech Steel Corporation. Prior to
August, 1993, Mr. Myers was Senior Vice President, Chief Financial Officer and a
Director of Foods Brand America (formerly known as Doskocil Companies, Inc.), a
food processing and distribution company. Prior to January, 1990, Mr. Myers was
Vice President and Chief Financial Officer of Inland Steel Industries. His
address is 550 Washington Avenue, Glencoe, Illinois 60022. Mr. Myers is also a
Trustee, Director or Managing General Partner of other investment companies
advised by the Adviser and the AC Adviser.
 
DON G. POWELL, DATE OF BIRTH 10/19/39, TRUSTEE.  Mr. Powell is Chairman, Chief
Executive Officer and a Director of VKAC, Chairman, Chief Executive Officer and
a Director of the Adviser, the AC Adviser, Van Kampen American Capital
Management, Inc. and Van Kampen American Capital Advisers, Inc. Mr. Powell is
also Chairman and a Director of ACCESS Investor Services, Inc., Van Kampen
American Capital Recordkeeping Services, Inc. and Van Kampen American Capital
Trust Company. Mr. Powell is also Chairman, President and Director of Van Kampen
American Capital Services, Inc. and Van Kampen American Capital Exchange
Corporation. Prior to November, 1996, Mr. Powell was President, Chief Executive
Officer and a Director of VKAC Holding, Inc. Mr. Powell is Chairman of the Board
of Governors and the Executive Committee of the Investment Company Institute.
Mr. Powell is also a Trustee or Director of other investment companies advised
by the Adviser and the AC Adviser.
 
HUGO F. SONNENSCHEIN, DATE OF BIRTH 11/14/40, TRUSTEE.  Mr. Sonnenschein is
President of the University of Chicago. Mr. Sonnenschein is a member of the
Board of Trustees of the University of Rochester and a member of its investment
committee. Prior to July, 1993, Mr. Sonnenschein was Provost of Princeton
University, and, from 1988 to 1991, Mr. Sonnenschein was 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. His address is 5801 South Ellis Avenue, Suite 502,
Chicago, Illinois 60637. Mr. Sonnenschein is also a Trustee, Director or
Managing General Partner of other investment companies advised by the Adviser
and the Ac Adviser.
 
WAYNE W. WHALEN,* DATE OF BIRTH 08/22/39, TRUSTEE.  Mr. Whalen is a partner in
the law firm of Skadden, Arps, Slate, Meagher & Flom (Illinois). His address is
333 West Wacker Drive, Chicago, Illinois 60606. Mr. Whalen is also a Trustee,
Director or Managing General Partner of other investment companies advised by
the Adviser and the AC Adviser.
 
PETER W. HEGEL, DATE OF BIRTH 06/25/56, VICE PRESIDENT.  Mr. Hegel is Executive
Vice President and Portfolio Manager of the Adviser. He is Executive Vice
President of the AC Adviser, Van Kampen American Capital Management, Inc. and
Van Kampen American Capital Advisors, Inc. Prior to July of 1996, Mr. Hegel was
a Director of VSM Inc. Prior to September of 1996, Mr. Hegel was a Director of
McCarthy, Crisanti & Maffei, Inc. His address is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181. He is Vice President of other investment companies
advised by the Adviser and the AC Adviser.
 
JEFFREY W. MAILLET, DATE OF BIRTH 09/30/56, VICE PRESIDENT.  Mr. Maillet is
Senior Vice President and Portfolio Manager of the Adviser. He is Senior Vice
President of Van Kampen American Capital Management, Inc., and the AC Adviser.
His address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
 
RONALD A. NYBERG, DATE OF BIRTH 07/29/53, VICE PRESIDENT AND SECRETARY.  Mr.
Nyberg is Executive Vice President, General Counsel, Secretary and Director of
VKAC, VK/AC Holding, Inc. He is also Executive
 
                                       B-5
<PAGE>   58
 
Vice President, General Counsel and Director of Van Kampen Merritt Equity
Holdings Corp. Mr. Nyberg is also Executive Vice President, General Counsel and
Assistant Secretary of ACCESS Investor Services, Inc., and Executive Vice
President, General Counsel, Assistant Secretary and Director of the Adviser, the
AC Adviser, Van Kampen American Capital Advisors, Inc., Van Kampen American
Capital Management, Inc., VKACDI, Van Kampen American Capital Exchange
Corporation, American Capital Contractual Services, Inc., and Van Kampen
American Capital Trust Company. Prior to April of 1997, he was Executive Vice
President, General Counsel and Director of Van Kampen Merritt Equity Advisors
Corp. Prior to July of 1996, Mr. Nyberg was Executive Vice President and General
Counsel of VSM Inc. and Executive Vice President and General Counsel of VCJ Inc.
Prior to September of 1996, he was General Counsel of McCarthy, Crisanti &
Maffei, Inc. He is a Vice President and Secretary of other investment companies
advised by the Adviser and the AC Adviser, and is a Director of ICI Mutual
Insurance Co., a provider of insurance to members of the Investment Company
Institute. Prior to March of 1991, Mr. Nyberg was Secretary of Van Kampen
Merritt Inc., the Adviser and McCarthy, Crisanti & Maffei, Inc. His address is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
 
EDWARD C. WOOD, III, DATE OF BIRTH 01/11/56, VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER.  Mr. Wood is Senior Vice President of the Adviser, the AC Adviser, and
Van Kampen American Capital Management, Inc. His address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. Mr. Wood is Vice President and Chief Financial
Officer of other investment companies advised by the Adviser and the AC Adviser.
 
CURTIS W. MORELL, DATE OF BIRTH 08/04/46, VICE PRESIDENT AND CHIEF ACCOUNTING
OFFICER.  Mr. Morell is Senior Vice President of the Adviser and the AC Adviser.
His address is 2800 Post Oak Blvd., Houston, TX 77056. Mr. Morell is Vice
President and Chief Accounting Officer each of other investment companies
advised by the Adviser and the AC Adviser.
 
NICHOLAS DALMASO, DATE OF BIRTH 03/01/65, ASSISTANT SECRETARY.  Mr. Dalmaso is
Vice President, Assistant Secretary and Attorney of VKAC. Mr. Dalmaso is also
Vice President and Assistant Secretary of the Adviser, the AC Adviser, VKACDI,
Van Kampen American Capital Advisors, Inc. and Van Kampen American Capital
Management, Inc. His address is One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Prior to May 1992, attorney for Cantwell & Cantwell, a Chicago law firm.
Mr. Dalmaso is Assistant Secretary of other investment companies advised by the
Adviser and the AC Adviser.
 
SCOTT E. MARTIN, DATE OF BIRTH 08/20/56, ASSISTANT SECRETARY.  Mr. Martin is
Senior Vice President, Deputy General Counsel and Assistant Secretary of VKAC,
VK/AC Holding, Inc., and Senior Vice President, Deputy General Counsel and
Secretary of VKACDI, the Adviser, the AC Adviser, Van Kampen American Capital
Advisors, Inc., ACCESS Investor Services, Inc., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VK/AC System, Inc. and Van Kampen American
Capital RecordKeeping Services, Inc., Van Kampen American Capital Exchange
Corporation, American Capital Contractual Services, Inc., Van Kampen American
Capital Management, Inc., and Van Kampen Merritt Equity Advisors Corp. Prior to
April of 1997, Senior Vice President, Deputy General Counsel and Secretary of
Van Kampen American Capital Services, Inc. and Van Kampen Merritt Holdings Corp.
Prior to September of 1996, Mr. Martin was Deputy General Counsel and Secretary
of McCarthy, Crisanti & Maffei, Inc., and prior to July of 1996, he was Senior
Vice President, Deputy General Counsel and Secretary of VSM Inc. and VCJ Inc.
His address in One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Martin
is an Assistant Secretary of other investment companies advised by the Adviser
and the AC Adviser.
 
WESTON B. WETHERELL, DATE OF BIRTH 06/15/56, ASSISTANT SECRETARY.  Mr. Wetherell
is Vice President, Associate General Counsel and Assistant Secretary of VKAC,
VKACDI, the Adviser, the AC Adviser, Van Kampen American Capital Management,
Inc., and Van Kampen American Capital Advisors, Inc. Prior to September of 1996,
Mr. Wetherell was Assistant Secretary of McCarthy, Crisanti & Maffei, Inc. His
address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Wetherell
is an Assistant Secretary of other investment companies advised by the Adviser
and the AC Adviser.
 
HUEY P. FALGOUT, JR., DATE OF BIRTH 11/15/63, ASSISTANT SECRETARY.  Mr. Falgout
is Assistant Vice President and an Attorney of VKAC. He is Assistant Vice
President and Assistant Secretary of the Adviser and the AC Adviser, ACCESS
Investor Services, Inc., American Capital Contractual Services, Inc., Van Kampen
American Capital Management, Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen
 
                                       B-6
<PAGE>   59
 
American Capital Advisors, Inc. and VKACDI. His address is 2800 Post Oak Blvd.,
Houston, TX 77056. Mr. Falgout is Assistant Secretary of other investment
companies advised by the adviser and the AC Adviser.
 
JOHN L. SULLIVAN, DATE OF BIRTH 08/20/55, TREASURER.  Mr. Sullivan is First Vice
President of the Adviser and the AC Adviser. His address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. Mr. Sullivan is Treasurer of other investment
companies advised by the Adviser and the AC Adviser.
 
STEVEN M. HILL, DATE OF BIRTH 10/16/64, ASSISTANT TREASURER.  Mr. Hill is
Assistant Vice President of the Adviser and the AC Adviser. His address is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Hill is Assistant
Treasurer of other investment companies advised by the Adviser and the AC
Adviser.
 
TANYA M. LODEN, DATE OF BIRTH 11/19/59, CONTROLLER.  Ms. Loden is Vice President
of the Adviser and the AC Adviser. Her address is 2800 Post Oak Blvd., Houston,
TX 77056. Ms. Loden is Controller of other investment companies advised by the
Adviser and the AC Adviser.
 
MICHAEL ROBERT SULLIVAN, DATE OF BIRTH 03/30/33, ASSISTANT CONTROLLER.  Mr.
Sullivan is Assistant Vice President of the Adviser and the AC Adviser. His
address is 2800 Post Oak Blvd., Houston, TX 77056. Mr. Sullivan is Assistant
Controller of other investment companies advised by the Adviser and the AC
Adviser.
 
     *Such trustees are "interested persons" as defined in the 1940 Act.
     Mr. McDonnell is an interested person of the Adviser and the Fund by
     reason of his position at the Adviser. Mr. Whalen is an interested
     person of the Fund by reason of his law firm having acted as legal
     counsel to the Fund.
 
The officers and Trustees as a group own less than 1% of the Fund's outstanding
Common Shares. As of the date of this Statement of Additional Information, VKAC
or its subsidiaries owns 100% of the issued and outstanding Common Stock and as
a result is deemed to control the Fund. The compensation of the officers and
trustees who are affiliated persons (as defined in the 1940 Act) of the Adviser,
VKACDI or VKAC is paid by the respective entity. The Fund pays the compensation
of all other officers and trustees of the Fund. During the next year, the Fund
expects to pay the Trustees who are not affiliated persons of the Adviser,
VKACDI or VKAC an annual fee of $2,500 and $250 per meeting of the Board of
Trustees and each committee meeting, as well as reimbursement of expenses
incurred in connection with such meetings. Under the Fund's retirement plan,
trustees who are not affiliated with the Adviser, VKACDI or VKAC, have at least
ten years of service (including years of service prior to adoption of the
retirement plan) and retire at or after attaining the age of 60, are eligible to
receive a retirement benefit equal to the annual retainer for each of the ten
years following such trustee's retirement. Under certain conditions, reduced
benefits are available for early retirement. Under the Fund's deferred
compensation plan, a trustee who is not affiliated with the Adviser, VKACDI or
VKAC can elect to defer receipt of all or a portion of the trustee's fees earned
by such trustee until such trustee's retirement. The deferred compensation earns
a rate of return determined by reference to the Fund or other Van Kampen
American Capital closed-end investment companies advised by the Adviser as
selected by the trustee. To the extent permitted by the 1940 Act, the Fund may
invest in securities of other Van Kampen American Capital closed-end investment
companies advised by the Adviser in order to match the deferred compensation
obligation. The deferred compensation plan is not funded and obligations
thereunder represent general unsecured claims against the general assets of the
Fund. Subject to certain exceptions and limitations, as fully described in
Section 5.3 of the Fund's Declaration of Trust on file with the SEC, the Fund
indemnifies every Trustee and officer of the Fund against liabilities and
expenses reasonably incurred or paid in connection with any claim, action, suit
or proceeding in which he becomes involved by virtue of his being or having been
a Trustee or officer. Such indemnification is unavailable for any Trustee or
officer who is deemed to have engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties or to not have acted in good
faith in the reasonable belief that his action was in the best interest of the
Fund. As more fully described in the Fund's Declaration of Trust, a Trustee may
be removed by a vote of not less than two-thirds of the outstanding Common
Shares and, in certain circumstances, holders of Common Shares may call a
meeting to remove a Trustee. The Fund is required to assist in communications
with holders of Common Shares regarding such a meeting.
 
                                       B-7
<PAGE>   60
 
COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                         ESTIMATED
                                                         PENSION OR                               TOTAL
                                      ESTIMATED          RETIREMENT                           COMPENSATION
                                      AGGREGATE       BENEFITS ACCRUED   ESTIMATED ANNUAL   FROM THE FUND AND
                                     COMPENSATION     AS PART OF FUND     BENEFITS UPON     FUND COMPLEX PAID
             NAME(1)               FROM THE FUND(2)     EXPENSES(3)       RETIREMENT(4)       TO TRUSTEE(5)
             -------               ----------------   ----------------   ----------------   -----------------
<S>                                <C>                <C>                <C>                <C>
David C. Arch....................       $4,257             $  254             $2,500            $138,500
Rod Dammeyer.....................        4,257                445              2,500             138,500
Howard J Kerr....................        4,257                766              2,500             138,500
Theodore A. Myers................        4,257              1,618              2,500             138,500
Hugo F. Sonnenschein.............        4,257                364              2,500             138,500
Wayne W. Whalen..................        4,250                496              2,500             138,500
</TABLE>
 
- ---------------
(1)  Mr. McDonnell is an affiliated person of the Adviser, VKACDI and VKAC, and
     does not receive compensation or retirement benefits from the Fund.
 
(2)  As of the date of this Statement of Additional Information the Fund had not
     commenced investment operations and, accordingly, no trustees received
     compensation related to its operation. The amounts shown in this column are
     the estimated Aggregate Compensation of the Fund before deferral by the
     trustees under the deferred compensation plan for the upcoming fiscal year.
     The deferred compensation plan is described above the table. Amounts
     deferred are retained by the Fund and earn a rate of return determined by
     reference to either the return on the Common Shares of the Fund or other
     funds in the Fund Complex (as defined below) as selected by the respective
     trustee. To the extent permitted by the 1940 Act, the Fund may invest in
     securities of these funds selected by the trustees in order to match the
     deferred compensation obligation.
 
(3)  As of the date of this Statement of Additional Information the Fund had not
     commenced investment operations and, accordingly, no trustees received any
     benefits related to its operation. The amounts shown in this column are the
     estimated Pension or Retirement Benefit Accruals by the Fund for the
     upcoming fiscal year. The retirement plan is described above the table.
 
(4)  This is the estimated annual benefits payable per year for the 10-year
     period commencing in the year of such trustee's retirement from the Fund
     assuming: the trustee has 10 or more years of service on the Board of
     Trustees (including years of service prior to the adoption of the
     retirement plan) and retires at or after attaining the age of 60. Trustees
     retiring prior to reaching age 60 or with fewer than 10 years of service
     (including years of service prior to the adoption of the retirement plan)
     may receive reduced benefits from the Fund.
 
(5)  The "Fund Complex" consists of 38 investment companies advised by the
     Adviser that have the same members on each investment company's Board of
     Trustees. The amounts shown in this column are accumulated from the
     Aggregate Compensation of each of these 38 investment companies in the Fund
     Complex for the year ended December 31, 1997 before deferral by the
     trustees under the deferred compensation plan. The following trustees
     deferred compensation paid by the Fund Complex during the calendar year
     ended December 31, 1997: Mr. Dammeyer $          ; Mr. Sonnenschein
     $          ; Mr. Kerr $          ; and Mr. Whalen $          . The deferred
     compensation plan is described above the table. The cumulative deferred
     compensation (including interest) accrued with respect to each trustee as
     of December 31, 1997 is as follows: Mr. Dammeyer $          ; Mr.
     Sonnenschein $          ; Mr. Kerr $          ; and Mr. Whalen $          .
     Amounts deferred are retained by the respective fund and earn a rate of
     return determined by reference to either the return on the Common Shares of
     the Fund or common shares of other funds in the Fund Complex (as defined
     below) as selected by the respective trustee. To the extent permitted by
     the 1940 Act, the respective fund may invest in securities of the funds
     selected by the trustees in order to match the deferred compensation
     obligation. The Adviser also serves as investment adviser for other
     investment companies; however, with the exception of Messrs. McDonnell,
     Whalen and Powell, the Trustees are not trustees of other investment
     companies. Combining the Fund Complex with other investment companies
     advised by the Adviser, Mr. Whalen received Total Compensation of
     $          for the year ended December 31, 1997.
 
                                       B-8
<PAGE>   61
 
                             PORTFOLIO TRANSACTIONS
 
  With respect to interests in Senior Loans, the Fund generally will engage in
privately negotiated transactions for purchase or sale in which the Adviser will
negotiate on behalf of the Fund, although a more developed market may exist for
certain Senior Loans. The Fund may be required to pay fees, or forgo a portion
of interest and any fees payable to the Fund, to the Lender selling
Participations or Assignments to the Fund. The Adviser will determine the
Lenders from whom the Fund will purchase Assignments and Participations by
considering their professional ability, level of service, relationship with the
Borrower, financial condition, credit standards and quality of management.
Although the Fund intends generally to hold interests in Senior Loans until
maturity or prepayment of the Senior Loan, the illiquidity of many Senior Loans
may restrict the ability of the Adviser to locate in a timely manner persons
willing to purchase the Fund's interests in Senior Loans at a fair price should
the Fund desire to sell such interests. See "Investment Objective and Policies."
 
  With respect to investments other than in Senior Loans, the Adviser will place
orders for portfolio transactions for the 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 the
Fund's net assets. Any research benefits so obtained are available for all
clients of the Adviser. Because statistical and other research information only
supplements 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
reduce materially its expenses. In selecting among the firms believed to meet
the criteria for handling a particular transaction, the Adviser may take into
consideration the fact that certain firms have sold Common Shares of the Fund
and that certain firms provide market, statistical or other research information
to the Fund and the Adviser and may select firms that are affiliated with the
Fund, the Adviser, VKACDI or VKAC.
 
  If it is believed to be in the best interest of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of services
described above, even if 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 the Adviser did not
consider the broker's furnishing of such 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.
 
  If purchases or sales of financial instruments for the Fund and for one or
more other investment companies or clients advised by the Adviser are considered
at or about the same time, transactions in such financial instruments will be
allocated among the several investment companies and clients, in a manner deemed
equitable by the Adviser, to each such investment company or client, taking into
account their respective sizes and the aggregate amount of financial instruments
to be purchased or sold. Allocations of Senior Loans will be made taking into
account the assets of such clients available for investment in Senior Loans.
Although in some cases this procedure could have a detrimental effect on the
price paid by the Fund for the financial instrument or the volume of the
financial instrument purchased by the Fund, the ability to participate in volume
transactions and to negotiate lower commissions, fees and expenses possibly
could benefit the Fund.
 
  Although the Adviser will be responsible for the management of the Fund's
portfolio, the policies and practices in this regard must be consistent with the
foregoing and will be subject at all times to review by the Trustees of the
Fund. The Fund anticipates that the annual portfolio turnover rate will not
exceed 100%.
 
  The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act, which requires that the commissions
paid to affiliates of the Fund, or to affiliates of such persons, 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 financial instruments 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 review 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 commissions given to brokers that are affiliated with the Fund.
 
                                       B-9
<PAGE>   62
 
                             MANAGEMENT OF THE FUND
 
THE ADVISER
 
  The Adviser was incorporated as a Delaware corporation in 1982. The Adviser is
a wholly-owned subsidiary of VKAC. VKAC is an indirect wholly-owned subsidiary
of Morgan Stanley, Dean Witter, Discover & Co. The Adviser's principal office is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
 
  VKAC is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $60 billion under management or supervision. VKAC more
than 50 open-end and 37 closed-end funds and more than 2,500 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
 
  Morgan Stanley, Dean Witter, Discover & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley Asset Management Inc.,
an investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending.
 
INVESTMENT ADVISORY AGREEMENT
 
  The investment advisory agreement (the "Advisory Agreement") between the
Adviser and the Fund will continue in effect until May 31, 1999 and thereafter
from year to year, unless earlier terminated as described below, if approved
annually (a) by the Trustees of the Fund or by a majority of the Fund's Common
Shares and (b) by a majority of the Trustees who are not parties to the
agreement or interested persons of any such party, in compliance with the
requirements of the 1940 Act. The Advisory Agreement may be terminated without
penalty upon 60 days written notice by either party (in the case of the Fund,
such termination may be effected by the Board of Trustees or by a majority of
the Common Shares) and will automatically terminate in the event of assignment.
The Adviser may in its sole discretion from time to time waive all or a portion
of the advisory fee or reimburse the Fund for all or a portion of its other
expenses. The Adviser has agreed to waive management fees or reduce ordinary
fund expenses through [          , 199  ] to the extent necessary so that
estimated Total Annual Operating Expenses for such period would not exceed
[1.60%].
 
  The investment advisory agreement (the "Advisory Agreement") between the
Adviser and the 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 financial institutions through whom
the Fund's portfolio transactions are executed. The Adviser also furnishes
necessary facilities and equipment, and permits its officers and employees to
serve without compensation as trustees and officers of the Fund if duly elected
to such positions.
 
  The Advisory Agreement provides that the Adviser shall not be liable for any
error of judgment or of law, or for any loss suffered by the Fund in connection
with the matters to which the Advisory 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 Advisory
Agreement.
 
  The Trustees are responsible for the overall management and supervision of the
Fund's affairs. The Adviser's activities are subject to the review and
supervision of the Trustees to whom the Adviser renders periodic reports of the
Fund's investment activities. The Advisory Agreement continues in effect from
year to year only if specifically approved by the Trustees, and by the
disinterested Trustees, or the Fund's holders of Common Shares in compliance
with the requirements of the 1940 Act. The Advisory Agreement may be terminated
without penalty upon 60 days' written notice by either party and will terminate
automatically in the event of assignment.
 
                                      B-10
<PAGE>   63
 
THE ADMINISTRATOR
 
  The administrator for the Fund is VKAC (in such capacity, the
"Administrator").
 
  The Fund pays all other expenses incurred in the operation of the Fund
including, but not limited to, direct charges relating to the purchase and sale
of financial instruments in its portfolio, interest charges, fees and expenses
of legal counsel and independent auditors, taxes and governmental fees, cost of
share certificates, expenses (including clerical expenses) of issuance, sale or
repurchase of any of the Fund's portfolio holdings, expenses in connection with
the Fund's dividend reinvestments, membership fees in trade associations,
expenses of registering and qualifying the Common Shares of the Fund for sale
under federal and state securities laws, expenses of printing and distributing
reports, notices and proxy materials to existing holders of Common Shares,
expenses of filing reports and other documents filed with governmental agencies,
expenses of annual and special meetings of holders of Common Shares, fees and
disbursements of the transfer agents, custodians and sub-custodians, expenses of
disbursing dividends and distributions, fees, expenses and out-of-pocket costs
of Trustees of the Fund who are not affiliated with the Adviser, insurance
premiums, indemnification and other expenses not expressly provided for in the
Advisory Agreement or the Administration Agreement and any extraordinary
expenses of a nonrecurring nature.
 
SERVICE PLAN
 
  In addition to the fees and expenses described herein, the Fund has adopted a
Service Plan (the "Service Plan") designed to meet the service fee requirements
of the sales charge rule of the National Association of Securities Dealers,
Inc., as if such rule were applicable. The Service Plan has been approved by the
independent Trustees of the Fund, who have no direct or indirect financial
interest in the Service Plan, and by all of the Trustees of the Fund.
 
  The Service Plan provides that the Fund may make payments of service fees for
personal services and/or the maintenance of shareholder accounts to VKACDI and
broker-dealers and other persons in amounts not exceeding .25% of the Fund's
average daily net assets for any fiscal year. The Trustees of the Fund have
initially implemented the Service Plan by authorizing the Fund to make quarterly
service fee payments to VKACDI and broker-dealers in amounts not expected to
exceed .15% of the Fund's average daily net assets for each fiscal year.
 
  The Service Plan shall continue in effect indefinitely for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Fund who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Service Plan or
any agreements related to the Service Plan (the "Plan Trustees") and (ii) all of
the Trustees then in office cast in person at a meeting (or meetings) called for
the purpose of voting on this Service Plan. The Service Plan may not be amended
to increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Fund in the manner described above. The Service
Plan may be terminated at any time by vote of a majority of the Plan Trustees or
by a vote of a majority of the outstanding voting securities of the Fund. Under
the Service Plan, the Trustees shall review at least quarterly a written report
of the amounts expended under the Service Plan and the purposes for which such
expenditures were made.
 
  So long as the Service Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Fund shall be committed to the
discretion of the Trustees who are not such interested persons of the Adviser.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Service Plan will benefit the Fund and its shareholders.
 
OTHER AGREEMENTS
 
  LEGAL SERVICES AGREEMENT. The Fund and each of the other funds advised by the
Adviser and distributed by VKACDI have entered into a Legal Services Agreements
pursuant to which VKAC 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. Payment by the Fund for such services is made on
 
                                      B-11
<PAGE>   64
 
a cost basis for the salary and salary related benefits, including but not
limited to bonuses, group insurances and other regular wages for the employment
of personnel, as well as overhead and the expenses related to the office space
and the equipment necessary to render the legal services. Other funds
distributed by VKACDI also receive legal services from VKAC. Of the total costs
for legal services provided to funds distributed by VKACDI, 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.
 
                                NET ASSET VALUE
 
  The net asset value per share of the Fund's Common Shares is determined by
calculating the total value of the Fund's assets, deducting its total
liabilities, and dividing the result by the number of Common Shares outstanding.
The net asset value will be computed on each business day as of 5:00 p.m.
Eastern time. The Fund reserves the right to calculate the net asset value more
frequently if deemed desirable.
 
  The value of the Fund's portfolio will be determined by the Adviser, following
guidelines established and periodically reviewed by the Trustees. Interests in
Senior Loans will be valued by the Adviser on behalf of the Fund on the basis of
market quotations and transactions in instruments which the Adviser believes may
be comparable to Senior Loan interests with respect to the following
characteristics: credit quality, interest rate, interest rate redetermination
period and maturity. Such instruments may include commercial paper, negotiable
certificates of deposit and short-term variable rate securities which have
adjustment periods comparable to the Senior Loan interests in the Fund's
portfolio. In determining the relationship between such instruments and the
Senior Loan interests in the Fund's portfolio, the Adviser will consider on an
ongoing basis, among other factors, (i) the credit worthiness of the Borrower
and (ii) the current interest rate, the period until next interest rate
redetermination and maturity of such Senior Loan interests. It is expected that
the Fund's net asset value will fluctuate as a function of interest rate and
credit factors. Because of the short-term nature of such instruments, however,
the Fund's net asset value is expected to fluctuate less in response to changes
in interest rates than the net asset values of investment companies with
portfolios consisting primarily of fixed-income or longer term securities. The
Adviser believes that Lenders selling Senior Loan interests or otherwise
involved in a Senior Loan transaction may tend, in valuing Senior Loan interests
for their own account, to be less sensitive to interest rate and credit quality
changes and, accordingly, the Adviser does not intend to rely solely on such
valuations in valuing the Senior Loan interests for the Fund's account. In
addition, because a secondary trading market in Senior Loans has not yet fully
developed, in valuing Senior Loans, the Adviser may not rely solely on but may
consider, to the extent the Adviser believes such information to be reliable,
prices or quotations provided by banks, dealers or pricing services with respect
to secondary market transactions in Senior Loans. To the extent that an active
secondary market in Senior Loan interests develops to a reliable degree, the
Adviser may rely to an increasing extent on such market prices and quotations in
valuing the Senior Loan interests in the Fund's portfolio. In light of the
senior nature of Senior Loan interests that may be included in the Fund's
portfolio and taking into account the Fund's access to non-public information
with respect to Borrowers relating to such Senior Loan interests, the Adviser
does not currently believe that consideration on a systematic basis of ratings
provided by any nationally recognized statistical rating organization or price
fluctuations with respect to long- or short-term debt of such Borrowers
subordinate to the Senior Loans of such Borrowers is necessary for the
determination of the value of such Senior Loan interests. Accordingly, the
Adviser generally will not systematically consider (but may consider in certain
instances) and, in any event, will not rely upon such ratings or price
fluctuations in determining the value of Senior Loan interests in the Fund's
portfolio.
 
  Other portfolio securities (other than short-term obligations, but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, portfolio
securities will be valued at the last sale price on the exchange that is the
primary market for such securities, or the last quoted bid price for those
securities for which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. The value of
interest rate
 
                                      B-12
<PAGE>   65
 
swaps will be determined in accordance with a discounted present value formula
and then confirmed by obtaining a bank quotation.
 
  Short-term obligations which mature in 60 days or less will be valued at
amortized cost, if their original term to maturity when acquired by the Fund was
60 days or less, or will be valued at amortized cost using their value on the
61st day prior to maturity, if their original term to maturity when acquired by
the Fund was more than 60 days, unless in each case this is determined not to
represent fair value. Repurchase agreements will be valued at cost plus accrued
interest. Securities for which there exist no price quotations or valuations and
all other assets will be valued at fair value as determined in good faith by or
on behalf of the Trustees.
 
                                    TAXATION
 
FEDERAL TAXATION
 
  The Fund has qualified and intends to continue to qualify each year to be
treated as a regulated investment company under Subchapter M of the Code. To
qualify as a regulated investment company, the Fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to loans of securities and gains from the sale or other disposition
of securities or certain other related income; (b) derive less than 30% of its
gross income from gains from the sale or other disposition of securities and
certain other investments held for less than three months (the "short-short
rule"); and (c) diversify its holdings so that at the end of each quarter of the
Fund's taxable year (i) at least 50% of the value of the Fund's assets is
represented by cash, U.S. government securities, securities of other regulated
investment companies, and other securities which, with respect to any one
issuer, do not represent more than 5% of the value of the Fund's assets or more
than 10% of the voting securities of such issuer, and (ii) not more than 25% of
the value of the Fund's assets is invested in the securities of any one issuer
(other than U.S. government securities or the securities of other regulated
investment companies). Under recently enacted legislation, the short-short rule
described above will no longer be applicable to the Fund beginning on July 1,
1998.
 
  If the Fund so qualifies and distributes each year to its Shareholders at
least 90% of its net investment income (including among other things, interest
and net short-term capital gain, 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 Shareholders. The Fund intends to distribute at least the minimum
amount of net investment income necessary to satisfy the 90% distribution
requirement. The Fund will not be subject to federal income tax on any net
capital gains distributed to Shareholders. As a Massachusetts business trust,
the Fund will not be subject to any excise or income taxes in Massachusetts as
long as it qualifies as a regulated investment company for federal income tax
purposes.
 
  In order to avoid a 4% excise tax, the 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 (the latter of which generally is
computed on the basis of the one-year period ending on October 31 of such year),
plus any amounts that were not distributed in previous taxable years. For
purposes of the excise tax, any ordinary income or capital gain net income
retained by, and subject to federal income tax in the hands of, the Fund will be
treated as having been distributed.
 
  If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income was
distributed to its Shareholders) and all distributions out of earnings and
profits would be taxed to Shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to Shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over
 
                                      B-13
<PAGE>   66
 
aggregate losses that would have been realized if it had been liquidated) in
order to qualify as a regulated investment company in a subsequent year.
 
  Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The 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 the 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 certain securities issued at a
discount, the 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,
the Fund may have to dispose of securities that it would otherwise have
continued to hold.
 
  The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's gross income be derived from the disposition of securities
held for less than three months. Under recently enacted legislation, this
requirement will no longer be applicable to the Fund beginning on July 1, 1998.
 
  Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
 
DISTRIBUTIONS
 
  Distributions of the Fund's net investment income are taxable to Shareholders
as ordinary income, whether paid in cash or reinvested in additional Shares.
Distributions of the Fund's net capital gains ("capital gains dividends"), if
any, are taxable to Common Shareholders at the rates applicable to long-term
capital gains regardless of the length of time Shares of the Fund have been held
by such Shareholders. Distributions in excess of the Fund's earnings and profits
will first reduce the adjusted tax basis of a holder's Common Shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming such Common Shares are held as a capital asset). For a
summary of the tax rates applicable to capital gains (including capital gains
dividends), see "Capital Gains Rates Under the 1997 Tax Act" below. It is not
expected that any portion of the distributions from the Fund will be eligible
for the dividends received deduction for corporations. The Fund will inform
Shareholders of the source and tax status of all distributions promptly after
the close of each calendar year.
 
  Shareholders receiving distributions in the form of additional Common Shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the Common Shares
received, determined as of the distribution date. The basis of such Common
Shares will equal the fair market value of such shares on the distribution date.
 
  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 the Fund and
received by the Shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as 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 was actually made.
 
                                      B-14
<PAGE>   67
 
  The Fund is required, in certain circumstances, to withhold 31% of taxable
dividends and certain other payments, including redemptions, paid to
Shareholders who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain required certifications, or who are otherwise subject to backup
withholding.
 
SALE OF SHARES
 
  Except as discussed below, selling Shareholders will generally recognize gain
or loss in an amount equal to the difference between their adjusted tax basis in
the Common Shares and the amount received. If such Common Shares are held as a
capital asset, the gain or loss will be a capital gain or loss. For a summary of
the tax rates applicable to capital gains, see "Capital Gains Rates Under the
1997 Tax Act" below. It is possible, although the Fund believes it is unlikely,
that tendering holders of Common Shares may not qualify for gain or loss
treatment as described above, which in turn may result in deemed distributions
to non-tendering holders of Common Shares. The federal income tax consequences
of repurchase of Common Shares pursuant to tender offers will be disclosed in
the related offering documents. Any loss recognized upon a taxable disposition
of Common Shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gains dividends received with respect
to such Common Shares. For purposes of determining whether Common Shares have
been held for six months or less, the holding period is suspended for any
periods during which the Shareholder's risk of loss is diminished as a result of
holding one or more other positions in substantially similar or related property
or through certain options or short sales.
 
CAPITAL GAINS RATES
 
  Capital Gains Rates Under the 1997 Tax Act. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rates applicable to net capital gains
recognized by individuals and other non-corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less, (ii) 28% for
capital assets held for more than one year but not more than 18 months and (iii)
20% for capital assets held for more than 18 months. The 1997 Tax Act did not
affect the maximum long-term capital gains rate for corporations, which remains
at 35%. The new tax rates for capital gains under the 1997 Tax Act described
above apply to distributions of capital gains dividends by regulated investment
companies such as the Fund as well as to sales and exchanges of shares in
regulated investment companies such as the Fund. With respect to capital losses
recognized on dispositions of shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gains
dividends received on such shares (see "Sale of Shares" above), it is unclear
how such capital losses offset the capital gains referred to above. Shareholders
should consult their own tax advisors as to the application of the new capital
gains rates to their particular circumstances.
 
GENERAL
 
  The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their advisers regarding the specific
federal tax consequences of purchasing, holding and disposing of Common Shares,
as well as the effects of state, local and foreign tax laws and any proposed tax
law changes.
 
                              REPURCHASE OF SHARES
 
  The Fund expects to enter into a Credit Agreement, as borrower, with certain
banks, as lenders (the "Financial Institutions"), pursuant to which the
Financial Institutions will provide a credit facility to the Fund. The Fund does
not expect that the Credit Facility will be secured by the assets of the Fund or
other collateral. See "Repurchase of Shares" in the Statement of Additional
Information.
 
  Even if a tender offer has been made, the Trustees' announced policy, which
may be changed by the Trustees, is that the Fund cannot accept tenders if (1) in
the reasonable judgment of the Trustees, there is not sufficient liquidity of
the assets of the Fund; (2) such transactions, if consummated, would (a) impair
the Fund's status as a regulated investment company under the Code (which would
make the Fund a taxable entity, causing the Fund's taxable income to be taxed at
the Fund level, as more fully described in
 
                                      B-15
<PAGE>   68
 
"Taxation") or (b) result in a failure to comply with applicable asset coverage
requirements; or (3) there is, in the Board of Trustees' reasonable judgment,
any (a) material legal action or proceeding instituted or threatened challenging
such transactions or otherwise materially adversely affecting the Fund, (b)
suspension of or limitation on prices for trading securities generally on any
United States national securities exchange or in the over-the-counter market,
(c) declaration of a banking moratorium by federal or state authorities or any
suspension of payment by banks in the United States or New York State, (d)
limitation affecting the Fund or the issuers of its portfolio securities imposed
by federal or state authorities on the extension of credit by lending
institutions, (e) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United States or (f)
other event or condition which would have a material adverse effect on the Fund
or the holders of its Common Shares if Common Shares were repurchased. The
Trustees may modify these conditions in light of experience.
 
  Any tender offer made by the Fund for its Common Shares will be at a price
equal to the net asset value of the Common Shares determined at the close of
business on the day the offer ends. During the pendency of any tender offer by
the Fund, the Fund will calculate daily the net asset value of the Common Shares
and will establish procedures which will be specified in the tender offer
documents, to enable Common Shareholders to ascertain readily such net asset
value. The relative illiquidity of some of the Fund's portfolio securities could
adversely impact the Fund's ability to calculate net asset value in connection
with determinations of pricing for tender offers, if any. Each offer will be
made and Common Shareholders notified in accordance with the requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder.
 
  Tendered Common Shares that have been accepted and repurchased by the Fund
will be held in treasury and may be retired by the Board of Trustees. Treasury
Common Shares will be recorded and reported as an offset to Shareholders' equity
and accordingly will reduce the Fund's total assets. If Treasury Common Shares
are retired, Common Shares issued and outstanding and capital in excess of par
value will be reduced accordingly.
 
  If the Fund must liquidate portfolio securities in order to repurchase Common
Shares tendered, the Fund may realize gains and losses. Such gains may be
realized on securities held for less than three months. Because of the
limitation of 30% on the portion of the Fund's gross income that may be derived
from the sale or disposition of stocks and securities held less than three
months (in order to retain the Fund's tax status as a regulated investment
company under the Code), such gains would reduce the ability of the Fund to sell
other securities held for less than three months that the Fund may wish to sell
in the ordinary course of its portfolio management which may adversely affect
the Fund's yield.
 
ANTI-TAKEOVER PROVISIONS
 
  For purposes of these provisions, a 5%-or-greater holder of Common Shares (a
"Principal Shareholder") refers to any person who, whether directly or
indirectly and whether alone or together with its affiliates and associates,
beneficially owns 5% or more of the outstanding Common Shares of the Fund. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the Fund to any
Principal Shareholder for cash; (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Fund to any Principal Shareholder (except
assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period);
or (iv) the sale, lease or exchange to the Fund or any subsidiary thereof, in
exchange for securities of the Fund, of any assets of any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purposes of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period).
 
  The Board of Trustees has determined that the voting requirements described
above, which are greater than the minimum requirements under Massachusetts law
or the 1940 Act, are in the best interests of shareholders
 
                                      B-16
<PAGE>   69
 
generally. Reference should be made to the Declaration of Trust on file with the
SEC for the full text of these provisions.
 
FUND STRUCTURE
 
  The Fund's fundamental investment policies and restrictions give the Fund the
flexibility to pursue its investment objective through the future conversion to
a fund structure commonly known as a "master-feeder" structure. If the Fund
converts to a master-feeder structure, the existing shareholders of the Fund
would continue to hold their shares of the Fund and the Fund would become a
feeder-fund of the master-fund. The value of a shareholder's shares would be the
same immediately after any conversion as the value immediately before such
conversion. Use of this master-feeder structure potentially would result in
increased assets invested among the collective investment vehicle of which the
Fund would be a part, thus allowing operating expenses to be spread over a
larger asset base, potentially achieving economies of scale. The Fund's Board of
Trustees presently does not intend to effect any conversion of the Fund to a
master-feeder structure. In addition, the Fund's Board of Trustees presently
does not intend to effect any conversion in which (i) the master fund does not
have substantially the same management team, investment objective, investment
policies and investment restrictions as the Fund just prior to the conversion,
(ii) the value of the shareholder's investment in Fund would not be the same
immediately after the conversion as it was immediately before such conversion or
(iii) an increase in the Fund's expense ratios is expected as a result of the
conversion.
 
                                      B-17
<PAGE>   70
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Trustees and Shareholder of
Van Kampen American Capital Senior Floating Rate Fund
 
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Senior Floating Rate Fund (the "Fund") as of
[          , 1998]. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based 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 statements. 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 Van Kampen American Capital
Senior Floating Rate Fund as of [          , 1998] in conformity with generally
accepted accounting principles.
 
                                                           KPMG PEAT MARWICK LLP
 
Chicago, Illinois
[          , 1998]
 
                                      B-18
<PAGE>   71
 
                          VAN KAMPEN AMERICAN CAPITAL
                           SENIOR FLOATING RATE FUND
 
                      STATEMENT OF ASSETS AND LIABILITIES
 
                               [          , 1998]
 
<TABLE>
<S>                                                           <C>
ASSETS:
  Cash......................................................  $100,000
  Unamortized organization expense..........................
  Unamortized initial offering expense......................
                                                              --------
     Total assets...........................................
                                                              ========
LIABILITIES:
  Accrued organization expense..............................
  Accrued initial offering expense..........................
                                                              --------
     Total liabilities......................................
                                                              ========
Net assets..................................................
                                                              ========
Net assets consists of:
  Common Shares, $.01 par value, unlimited number of shares
     authorized, 10,000 shares issued and outstanding.......   100,000
                                                              --------
     Total net assets.......................................  $100,000
                                                              ========
  Net asset value per Common Share ($100,000 divided by
     10,000 shares outstanding).............................  $     10
                                                              ========
</TABLE>
 
- ---------------
(1)  The Fund was organized as a Massachusetts business trust pursuant to a
     Declaration of Trust dated December 19, 1997 and has had no operations
     since that date other than relating to organization matters and the
     issuance of 10,000 shares of beneficial interest for $100,000 to [Van
     Kampen American Capital, Inc.,] an affiliated company. The authorized
     capital of the Fund currently consists of an unlimited number of Common
     Shares of beneficial interest. $.01 par value per Common Share.
 
(2)  The Fund will incur approximately $          of expenses in connection with
     the organization of the Fund and its initial offering of shares. These
     expenses will be amortized over a period not to exceed five years beginning
     on the date of the Fund's initial public offering of its shares. The amount
     paid by the Fund on any repurchase during the amortization period of any of
     the initial 10,000 shares sold to Van Kampen American Capital, Inc. will be
     reduced by a pro rata portion of any unamortized organization and initial
     offering expenses. Such proration is to be calculated by dividing the
     number of initial shares repurchased by the number of initial shares
     outstanding at the time of such repurchase.
 
                                      B-19
<PAGE>   72
 
                           PART C--OTHER INFORMATION
 
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
 
     (A) FINANCIAL STATEMENTS:
 
        Included in Part A:
 
           None.
 
        Included in Part B:
 
           Independent Accountants' Report; Statement of Assets and Liabilities
                 as of            , 199 ; Notes to Financial Statements
 
     (B) EXHIBITS
 
<TABLE>
<S>                      <S>
               (a)(i)    Declaration of Trust dated December 19, 1997(+)
                  (b)    By-laws(+)
                  (d)    Form of Specimen Certificate of Common Shares of Beneficial Interest of Registrant(+)
                  (g)    Investment Advisory Agreement(+)
               (h(1))    Offering Agreement(+)
               (h(2))    Form of Dealer Agreement(*)
               (h(3))    Form of Broker Agreement(*)
               (h(4))    Form of Bank Agreement(*)
               (j(1))    Custodian Agreement(+)
               (j(2))    Transfer Agency and Service Agreement(+)
               (k(1))    Administration Agreement(+)
               (k(2))    Amended and Restated Legal Services Agreement(+)
               (k(3))    Service Plan (+)
                  (l)    Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)(*)
                  (n)    Consent of KPMG Peat Marwick LLP(+)
                  (p)    Letter of Investment Intent(+)
                 (24)    Power of Attorney(+)
                 (27)    Financial Data Schedule(*)
</TABLE>
 
- ---------------
 
+   Filed herewith.
 
*   To be filed by amendment.
 
ITEM 25: MARKETING ARRANGEMENTS
 
     See Exhibit h to this Registration Statement.
 
ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
<TABLE>
<S>                                                           <C>
Securities and Exchange Commission fees.....................  $295,000
National Association of Securities Dealers, Inc. fees.......  $ 30,500
Printing and engraving expenses*............................  $
Legal fees*.................................................  $
Accounting expenses*........................................  $
Miscellaneous expenses*.....................................  $
                                                              --------
               Total........................................  $
                                                              ========
- ---------------
* Estimates.
</TABLE>
 
                                       C-1
<PAGE>   73
 
ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
 
     Not applicable
 
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
 
     At [          , 1998]
 
<TABLE>
<CAPTION>
                  TITLE OF CLASS                     NUMBER OF RECORD HOLDERS
                  --------------                     ------------------------
<S>                                                  <C>
Common Shares of Beneficial Interest, par value
  $.01 per share...................................               --
</TABLE>
 
ITEM 29: INDEMNIFICATION
 
     Please see Article 5.3 of the Registrant's Amended and Restated Declaration
of Trust (Exhibit (a)(i)) for indemnification of officers and trustees.
Registrant's trustees and officers are also covered by an Errors and Omissions
Policy. Section 5 of the proposed Investment Advisory Agreement between the Fund
and the Adviser provides that in the absence of willful misfeasance, bad faith
or gross negligence in connection with the obligations or duties under the
Investment Advisory Agreement or on the part of the Adviser, the Adviser shall
not be liable to the Fund or to any Common Shareholder of the Fund for any act
or omission in the course of or connected in any way with rendering services or
for any losses that may be sustained in the purchase, holding or sale of any
security. The Distribution Agreement provides that the Registrant shall
indemnify the Distributor (as defined therein) and certain persons related
thereto for any loss or liability arising from any alleged misstatement of a
material fact (or alleged omission to state a material fact) contained in, among
other things, the Registration Statement or Prospectus except to the extent the
misstated fact or omission was made in reliance upon information provided by or
on behalf of the Distributor. (See Section 7 of the Distribution Agreement.)
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant and the Adviser and any underwriter pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person or the Registrant and the principal underwriter in connection
with the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such trustee, officer or controlling person or the
Distributor in connection with the Common Shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final adjudication of such
issue.
 
                                       C-2
<PAGE>   74
 
ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
 
     For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and directors of the Adviser,
reference is made to the Adviser's current Form ADV (File No. 801-18161) filed
under the Investment Advisers Act of 1940, as amended, incorporated herein by
reference.
 
ITEM 31: LOCATION OF ACCOUNTS AND RECORDS
 
     All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., P.O. Box
418256, Kansas City, MO 02105-1713 or at the State Street Bank and Trust
Company, 1776 Heritage Drive, North Quincy, Massachusetts; (ii) by the Adviser,
will be maintained at its offices, located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181; and (iii) all such accounts, books and other documents
required to be maintained by the principal underwriter will be maintained by Van
Kampen American Capital Distributors, Inc., at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.
 
ITEM 32: MANAGEMENT SERVICES
 
     Not applicable
 
ITEM 33: UNDERTAKINGS
 
     1. Registrant undertakes to suspend offering of its Common Shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
 
     2. Not applicable
 
     3. Not applicable
 
     4. (a) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the Prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
 
     (b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
 
     (c) To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
 
     5. If applicable:
 
          (a) For purpose of determining any liability under the Securities Act
     of 1933, the information omitted from the form of prospectus filed as part
     of a registration statement in reliance upon Rule 430A and contained in the
     form of prospectus filed by the Registrant pursuant to Rule 497(h) under
     the Securities Act of 1933, shall be deemed to be part of this Registration
     Statement as of the time it was declared effective.
 
          (b) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.
 
     6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, its Statement of Additional Information.
 
                                       C-3
<PAGE>   75
 
                                   SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED
IN THE CITY OF OAKBROOK TERRACE, AND THE STATE OF ILLINOIS, ON THE 19TH DAY OF
DECEMBER, 1997.
 
                                          VAN KAMPEN AMERICAN CAPITAL
                                          PRIME RATE INCOME TRUST
 
                                          By:        /s/ RONALD A. NYBERG
                                              -------------------------------
                                                      Ronald A. Nyberg
                                                Vice President and Secretary
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON DECEMBER 19, 1997 BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED:
 
<TABLE>
<CAPTION>
                     SIGNATURES                                              TITLE
                     ----------                                              -----
<C>                                                      <S>
              /s/  DENNIS J. McDONNELL*                  Chairman, President
- -----------------------------------------------------    (Chief Executive Officer) and Trustee
                 Dennis J. McDonnell
 
                 /s/  DAVID C. ARCH*                     Trustee
- -----------------------------------------------------
                    David C. Arch
 
                 /s/  ROD DAMMEYER*                      Trustee
- -----------------------------------------------------
                    Rod Dammeyer
 
                 /s/  HOWARD J KERR*                     Trustee
- -----------------------------------------------------
                    Howard J Kerr
 
                 /s/  STEVEN MULLER                      Trustee
- -----------------------------------------------------
                    Steven Muller
 
               /s/  THEODORE A. MYERS*                   Trustee
- -----------------------------------------------------
                  Theodore A. Myers
 
                 /s/  DON G. POWELL                      Trustee
- -----------------------------------------------------
                    Don G. Powell
 
             /s/  HUGO F. SONNENSCHEIN*                  Trustee
- -----------------------------------------------------
                Hugo F. Sonnenschein
 
                /s/  WAYNE W. WHALEN*                    Trustee
- -----------------------------------------------------
                   Wayne W. Whalen
 
              /s/  EDWARD C. WOOD, III*                  Vice President and Treasurer
- -----------------------------------------------------    (Chief Financial Officer and Accounting
                 Edward C. Wood, III                     Officer)
</TABLE>
 
                                                               December 19, 1997
 
* Signed by Ronald A. Nyberg pursuant to a Power of Attorney.
 
        /s/ RONALD A. NYBERG
- ------------------------------------
          Ronald A. Nyberg
          Attorney-in-Fact
 
                                       C-4
<PAGE>   76
 
                           EXHIBIT INDEX TO FORM N-2
              SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
                              ON DECEMBER 31, 1997
 
(B) EXHIBITS
 
<TABLE>
<S>                      <S>
               (a)(i)    Declaration of Trust dated December 19, 1997(+)
                  (b)    By-laws(+)
                  (d)    Form of Specimen Certificate of Common Shares of Beneficial Interest of Registrant(+)
                  (g)    Investment Advisory Agreement(+)
               (h(1))    Offering Agreement(+)
               (h(2))    Form of Dealer Agreement(*)
               (h(3))    Form of Broker Agreement(*)
               (h(4))    Form of Bank Agreement(*)
               (j(1))    Custodian Agreement(+)
               (j(2))    Transfer Agency and Service Agreement(+)
               (k(1))    Administration Agreement(+)
               (k(2))    Amended and Restated Legal Services Agreement(+)
               (k(3))    Service Plan(+)
                  (l)    Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)(*)
                  (n)    Consent of KPMG Peat Marwick LLP(+)
                  (p)    Letter of Investment Intent(+)
                 (24)    Power of Attorney(+)
                 (27)    Financial Data Schedule(*)
</TABLE>
 
- ---------------
 
+   Filed herewith
 
*   To be filed by amendment.

<PAGE>   1
                                                                  EXHIBIT (a)(1)

                              DECLARATION OF TRUST
                                       OF
             VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND

                               December 19, 1997

     DECLARATION OF TRUST made as of December 19, 1997, by the undersigned
(together with all other persons from time to time duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, the
"Trustees"), and by the holders of shares of beneficial interest to be issued
hereunder as hereinafter provided;

     WHEREAS, the Trustees desire to establish a trust for the investment and
reinvestment of funds contributed thereto; and

     WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;

     NOW, THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.

                                   ARTICLE I

             NAME, PRINCIPAL OFFICE, RESIDENT AGENT AND DEFINITIONS

     Section 1.1.  Name, Principal Office and Resident Agent.  The name of the
trust created hereby is the "Van Kampen American Capital Senior Floating Rate
Fund" (the "Trust").

     The post office address of the principal office of the Trust is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181.  The name of the resident
agent of the Trust in the Commonwealth of Massachusetts is C T Corporation
System, a Delaware corporation, and the post office address of the resident
agent is 2 Oliver Street, Boston, Massachusetts 02109.

     Section 1.2.  Definitions.  Wherever they are used herein, the following
terms have the following respective meanings:

     (a) "By-Laws" means the By-Laws referred to in Section 3.8 hereof, as from
time to time amended.

<PAGE>   2

     (b) The terms "Commission," "Interested Person" and "Majority Shareholder
Vote" (the 67% or 50% requirement of the third sentence of Section 2(a)(42) of
the 1940 Act, whichever may be applicable) have the meanings given them in the
1940 Act.

     (c) "Common Shareholder" means a record owner of outstanding Common
Shares.

     (d) "Common Shares" means the common shares of beneficial interest in the
Trust as described in Section 6.1 hereof and includes fractions of Common
Shares as well as whole Common Shares.

     (e) "Custodian" means any person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).

     (f) "Declaration" means this Amended And Restated Declaration of Trust as
amended from time to time.  Reference in this Amended And Restated Declaration
of Trust to "Declaration," "hereof," "herein" and "hereunder" shall be deemed
to refer to this Declaration rather than the article or section in which such
words appear.

     (g) "Investment Adviser" means a party furnishing services to the Trust
pursuant to the contract described in Section 4.1 hereof.

     (h) The "1940 Act" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, as amended from time to time.

     (i) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign.

     (j) "Transfer Agent" means a party furnishing services to the Trust
pursuant to the contract described in Section 4.3 hereof.

     (k) The "Trust" means the trust created hereby.

     (l) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.

     (m) The "Trustees" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms 

                                       2


<PAGE>   3




hereto, and all other persons who may from time to time be duly
elected, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
person or persons in their capacity as trustees hereunder.

     (n) "Underwriters" means the parties, other than the Trust, to the
contract described in Section 4.2 hereof.

                                   ARTICLE II

                                    TRUSTEES

     Section 2.1.  Number of Trustees.  The number of Trustees shall initially
be nine (9), and after a registration statement under the Securities Act of
1933, as amended, covering the first public offering of securities of the Trust
shall have been filed, the number of Trustees shall be such number as shall be
fixed from time to time by a written instrument signed by a majority of the
Trustees, provided, however, that, following the date such registration
statement shall have become effective (the "effective date"), the number of
Trustees shall in no event be less than three (3) nor more than eleven (11).
No reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term unless the Trustee is
specifically removed pursuant to Section 2.2 of this Article II at the time of
the decrease.  The nine (9) initial Trustees shall be:

     David C. Arch, Blistex Inc., 1800 Swift Drive, Oak Brook, IL 60521
     Rod Dammeyer, Anixter International Inc., Two N. Riverside Plaza,
        Suite 600, Chicago, IL 60606
     Dr. Steven Muller, The Johns Hopkins University, 1619 Massachusetts 
         Ave., N.W., Suite 711, Washington, D.C.  20036
     Theodore A. Myers, 550 Washington Ave., Glencoe, IL 60022
     Don G. Powell, Van Kampen American Capital, 2800 Post Oak Blvd.,
        45th Floor, Houston, TX  70056
     Hugo Sonnenschein, University of Chicago, 5801 S. Ellis Ave.,
        Suite 502, Chicago, IL 60637
     Wayne W. Whalen, Skadden, Arps, Slate, Meagher & Flom (Illinois),
        333 W. Wacker Dr., Chicago, IL 60606
     Howard J Kerr, Pocklington Corporation, Inc., 736 N. Western Ave.,
        Box 317, Lake Forest, IL 60045
     Dennis J. McDonnell, Van Kampen American Capital Investment Advisory
        Corp., One Parkview Plaza, Oakbrook Terrace, IL 60181

                                       3

<PAGE>   4





     Section 2.2.  Term of Office of Trustees.  The Board of Trustees shall be
elected by Common Shareholders owning of record a plurality of the Common
Shares voting as a class at an annual meeting of the Common Shareholders, if
any, or special meeting called for that purpose, except as provided in Section
2.3 of this Article.  Each Trustee elected shall hold office until his
successor shall have been elected and shall have qualified; except that (a) any
Trustee may resign his trust (without need for prior or subsequent accounting)
by an instrument in writing signed by him and delivered to the other Trustees,
which shall take effect upon such delivery or upon such later date as is
specified therein; (b) any Trustee may be removed (provided the aggregate
number of Trustees after such removal shall not be less than the number
required by Section 2.1 hereof): (i) with cause, at any time by written
instrument, signed by at least two-thirds of the remaining Trustees, or (ii)
without cause, at any time by written instrument, signed by at least eighty
percent (80%) of the number of Trustees prior to such removal; in either case,
such written instrument shall specify the date when such removal shall become
effective; (c) any Trustee who requests in writing to be retired or who has
become incapacitated by illness or injury may be retried by written instrument
signed by a majority of the other Trustees, specifying the date of his
retirement; and (d) any Trustee may be removed at any meeting of Common
Shareholders by a vote of two-thirds of the outstanding Common Shares.  Upon
the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee other than by incapacity or death, he shall execute and deliver such
documents as the remaining Trustees shall require in the preceding sentence.
Upon the occurrence of any event requiring the Fund to hold annual meetings of
the Common Shareholders, including but not limited to the listing of the shares
of beneficial interest of the Fund on any national securities exchange or with
the National Association of Securities Dealers Automated Quotation system, the
Board of Trustees shall be divided into three classes.  The number of Trustees
in each class shall be a nearly equal as practicable, as determined from time
to time by resolution of the Board of Trustees.  The term of office of the
first class shall expire on the date of the first annual meeting of Common
Shareholders or special meeting in lieu thereof following the occurrence of
such an event.  The term of office of the second class shall expire on the date
of the second such annual meeting of Common Shareholders or special meeting in
lieu thereof.  The term of office of the third class shall expire on the date
of the third such annual meeting of Common Shareholders or special meeting in
lieu thereof.  Upon expiration of the term of office of each class as set for
the above, the number of Trustees in such class, as determined by the Board of
Trustees, shall be elected for a term expiring on the date of the third annual
meeting of Common Shareholders or special meeting  in lieu thereof following
such expiration to succeed the Trustees whose terms in office expire.

                                       4


<PAGE>   5




     Section 2.3.  Resignation and Appointment of Trustees.  The term of office
of a Trustee shall terminate and a vacancy shall occur in the event of the
death, declination, resignation, removal, retirement, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee.  In the case of an existing vacancy, including a vacancy existing by
reason of an increase in the number of Trustees, the remaining Trustees shall
fill such vacancy by appointing such other person as they in their discretion
shall see fit.  Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees then in office.  Any such appointment
shall not become effective, however, until the person named in the written
instrument of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration.  An appointment
of a Trustee may be made by the Trustees then in office and notice thereof
mailed to Common Shareholders as aforesaid in anticipation of a vacancy to
occur by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement, resignation
or increase in number of Trustees.  The power of appointment is subject to the
provisions of Section 16(a) of the 1940 Act.

     Section 2.4.  Vacancies.  The death, declination, resignation, retirement,
removal, bankruptcy, adjudicated incompetence or incapacity to perform the
duties of a Trustee, or any one of them, shall not operate to annul the Trust
or to revoke any existing agency created pursuant to the terms of this
Declaration.  Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in Section 2.3, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the
Declaration.  A written instrument certifying the existence of such vacancy
signed by a majority of the Trustees shall be conclusive evidence of the
existence of such vacancy.

     Section 2.5.  Delegation of Power to Other Trustees.  Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case
shall less than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration except as herein otherwise expressly provided.
Nothing in this Section 2.5 shall apply to, or limit the ability of any Trustee
to grant, any power of attorney for the purpose of executing any registration
statement filed with the Commission, or amendment thereto, relating to Shares.

     Section 2.6.  Meetings.  Meetings of the Trustees shall be held from time
to time upon the call of the Chairman, if any, the President, the Secretary or
any two Trustees.  Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees.  Notice of any other meeting shall be mailed not less than 48 hours
before the 

                                       5


<PAGE>   6



meeting or otherwise actually delivered orally or in writing not
less than 24 hours before the meeting, but may be waived in writing by any
Trustee either before or after such meeting.  The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been
lawfully called or convened.  The Trustees may act with or without a meeting.
A quorum for all meetings of the Trustees shall be a majority of the Trustees.
Unless provided otherwise in this Declaration of Trust, any action of the
Trustees may be taken at a meeting by vote of a majority of the Trustees
present (a quorum being present) or without a meeting by written consent of a
majority of the Trustees.

     Any committee of the Trustees, including an executive committee, if any,
may act with or without a meeting.  A quorum for all meetings of any such
committee shall be a majority of the members thereof.  Unless provided
otherwise in this Declaration, any action of any such committee may be taken at
a meeting by vote of a majority of the members present (a quorum being present)
or without a meeting by written consent of a majority of the members.

     With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons in any action to be taken may be counted
for quorum purposes under this Section and shall be entitled to vote to the
extent not prohibited by the 1940 Act.

     Section 2.7.  Officers.  The Trustees shall annually elect a President, a
Secretary and a Treasurer and may elect a Chairman.  The Trustees may elect or
appoint or may authorize the Chairman, if any, or President to appoint such
other officers or agents with such powers as the Trustees may deem to be
advisable.  A Chairman shall, and the President, Secretary and Treasurer may,
but need not, be a Trustee.


                                  ARTICLE III

                               POWERS OF TRUSTEES

     Section 3.1.  General.  The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration.  The Trustees shall have power to conduct the
business of its branches and maintain offices both within and without the
Commonwealth of Massachusetts, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United 

                                       6


<PAGE>   7



States of America and of foreign governments and to do all such other
things and execute all such instruments as the Trustees deem necessary, proper
or desirable in order to promote the interests of the Trust although such
things are not herein specifically mentioned.  Any determination as to what is
in the interests of the Trust made by the Trustees in good faith shall be
conclusive.  In construing the provisions of the Declaration, the presumption
shall be in favor of a grant of power to the Trustees.

     The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power.  Such powers of the Trustees may be exercised
without order of or resort to any court.

     Section 3.2.  Investments.
            (a)  The Trustees shall have the power to:

                   (i) operate as and carry on the business of an investment
    company, and exercise all of the powers necessary or appropriate to the
    conduct of such operations;

                   (ii) invest in, hold for investment, or reinvest in, 
    securities, including common and preferred stocks; warrants; bonds,
    debentures, bills, time notes and all other evidences of indebtedness;
    negotiable or non-negotiable instruments; government securities, including
    securities of any state, municipality or other political subdivision
    thereof, or any governmental or quasi-governmental agency or
    instrumentality; and money market instruments including bank certificates
    of deposit, finance paper, commercial paper, bankers acceptances and all
    kinds of repurchase agreements, of any corporation, company, trust,
    association, firm or other business organization however established, and
    of any country, state, municipality or other political subdivision, or any
    governmental or quasi-governmental agency or instrumentality and interests
    in any of the foregoing;

                   (iii) acquire (by purchase, subscription or otherwise), to 
    hold, to trade in and deal in, to acquire any rights or options to
    purchase or sell, to sell or otherwise dispose of, to lend, to write (or
    sell) and purchase put and call options on any such securities and to
    pledge any such securities and repurchase agreements;

                   (iv) exercise all rights, powers and privileges of 
    ownership or interest in all securities and repurchase agreements
    included in the Trust Property, including the right to vote thereon and
    otherwise act with respect thereto and to do all acts for the preservation,
    protection, improvement and enhancement in value of all such securities and
    repurchase agreements;

                                       7


<PAGE>   8


                   (v) acquire (by purchase, lease or otherwise) and to hold, 
    use, maintain, develop and dispose of (by sale or otherwise) any
    property, real or personal, including futures contracts and options
    thereon, cash, and any interest therein;

                   (vi) borrow money or otherwise obtain credit and in this 
    connection issue notes or other evidence of indebtedness; to secure
    borrowings by mortgaging, pledging or otherwise subjecting as security the
    Trust Property; to endorse, guarantee, or undertake the performance of any
    obligation, contract or engagement of any other Person and to lend Trust
    Property;

                   (vii) aid by further investment any corporation, company, 
    trust, association or firm, any obligation of or interest in which is
    included in the Trust Property or in the affairs of which the Trustees have
    any direct or indirect interest; to do all acts and things designed to
    protect, preserve, improve or enhance the value of such obligation or
    interest; to guarantee or become surety on any or all other contracts,
    stocks, bonds, notes, debentures and other obligations of any such
    corporation, company, trust, association or firm; and

                   (vii) carry on any other business in connection with or 
    incidental to any of the foregoing powers, to do everything necessary,
    suitable or proper for the accomplishment of any purpose or the attainment
    of any object or the furtherance of any power hereinbefore set forth, and
    to do every other act or thing incidental or appurtenant to or connected
    with the aforesaid purposes, objects or powers.

    The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.

         (b)  The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees
be limited by any law limiting the investments which may be made by
fiduciaries.

     Section 3.3.  Legal Title.  Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name
of one or more of the Trustees, or in the name of the Trust, or in the name of
any other Person as nominee, on such terms as the Trustees may determine.  The
right, title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee.  Upon the
termination of the term of office, resignation, removal or death of a Trustee
he shall automatically cease to have any right, 

                                      8



<PAGE>   9


title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees.  Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.

     Section 3.4.  Issuance and Purchase of Securities.  The Trustees shall
have the power to issue, sell, purchase, redeem, retire, cancel,
acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in
Common Shares and subject to the provisions set forth in Articles VI, VII and
VIII hereof, to apply to any such repurchase, retirement, cancellation or
acquisition of Shares of the Trust whether capital or surplus or otherwise, to
the full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.

     Section 3.5.  Delegation; Committees.  The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is not prohibited by the 1940 Act.

     Section 3.6.  Collection and Payment.  The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.

     Section 3.7.  Expenses.  The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and
Trustees.

     Section 3.8.  Manner of Acting; By-Laws.  Except as otherwise provided
herein or in the By-laws, any action to be taken by the Trustees may be taken
by a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of all the Trustees.
The Trustees may adopt By-laws to the extent such power is not reserved to the
Shareholders.

                                       9
<PAGE>   10

     Notwithstanding the foregoing provisions of this Section 3.8 and in
addition to such provisions or any other provision of this Declaration or of
the By-laws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as
if the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body.

     Section 3.9.  Miscellaneous Powers.  The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) remove
Trustees or fill vacancies in or add to their number, elect and remove such
officers and appoint and terminate such agents or employees as they consider
appropriate, and appoint from their own number, and terminate, any one or more
committees which may exercise some or all of the power and authority of the
Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust
Property, insurance policies insuring the Common Shareholders, Trustees,
Officers, employees, agents, investment advisers, distributors, selected
dealers or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not constituting negligence, or
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit sharing, Common Share purchase
and other retirement, incentive and benefit plans for any Trustees, officers,
employees or agents of the Trust; (f) make donations, irrespective of benefit
to the Trust, for charitable, religious, educational, scientific, civil or
similar purposes; (g) to the extent permitted by law, indemnify any person with
whom the Trust has dealings, including the Investment Adviser, Underwriter,
Transfer Agent, Custodian and selected dealers to such extent as the Trustees
shall determine; (h) guarantee indebtedness or contractual obligations of
others; (i) determine and change the fiscal year of the Trust and the method by
which its accounts shall be kept; and (j) adopt a seal for the Trust but the
absence of such seal shall not impair the validity of any instrument executed
on behalf of the Trust.

     Section 3.10.  Principal Transactions.  Except in transactions permitted
by the 1940 Act or rules and regulations adopted by the Commission, or any
order of exemption issued by the Commission, the Trustees shall not, on behalf
of the Trust, buy any securities (other than Common Shares) from or sell any
securities (other than Common Shares) to, or lend any assets of the Trust to,
any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with the
Investment Adviser, Underwriter or Transfer Agent or with any Interested
Person, or firm or 

                                     10

<PAGE>   11


company in which such Person is an Interested Person, as broker, legal
counsel, registrar, transfer agent, dividend disbursing agent or custodian.

                                   SECTION IV

               INVESTMENT ADVISER, UNDERWRITER AND TRANSFER AGENT

     Section 4.1.  Investment Adviser.  Subject to a Majority Shareholder Vote
the Trustees may in their discretion from time to time enter into one or more
investment advisory or management contracts whereby a party to such a contract
shall undertake to furnish the Trust such administrative, management,
investment advisory, statistical and research facilities and services, and such
other facilities and services, if any, as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may
in their discretion determine.  Notwithstanding any provisions of this
Declaration, the Trustees may delegate to the Investment Adviser authority
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales, loans or exchanges of assets of the
Trust on behalf of the Trustees or may authorize any officer, employee or
Trustee to effect such purchases, sales, loan or exchanges pursuant to
recommendations of the Investment Adviser (and all without further action by
the Trustees).  Any such purchases, sales, loans and exchanges shall be deemed
to have been authorized by all of the Trustees.

     Section 4.2.  Underwriters.  The Trustees may in their discretion enter
into a contract providing for the sale of shares of beneficial interest of the
Trust whereby the Trust may either agree to sell such Common Shares to the
other parties to the contact or appoint such other party the underwriter for
such Common Shares.  The contract shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Article IV or the By-laws; and such contract may also provide for the
sale of Common Shares by such other parties as principal or as agent of the
Trust and may provide that such other party may enter into agreements with
registered securities dealers to further the purpose of the distribution of
such Common Shares.

     Section 4.3.  Administrator.  The Trustees may in their discretion enter
into an agreement or agreements providing for administration services for the
Trust.  The terms of such agreement or agreements may include, but are not
hereby limited to, the selection of an Administrator to (i) monitor the
provisions of the terms of any financial instruments, or interest therein,
purchased for the Trust's portfolio and of any agreements with respect
to such financial instruments or interest and be responsible for recordkeeping
with respect to the Trust's portfolio; (ii) arrange for the printing and
dissemination of reports to holders of Common 

                                     11
<PAGE>   12

Shares; (iii) arrange for the dissemination to holders of Common 
Shares of the Fund's proxy and any tender offer materials, and oversee the
tabulation of proxies by the Fund's transfer agent; (iv) negotiate the terms
and conditions under which custodian services will be provided to the Fund and
the fees to be paid by the Fund in connection therewith and review the
provision of dividend disbursing services to the Fund; (v) provide the Fund's
dividend disbursing agent and custodian with such information as is required
for such parties to effect payment of dividends and distributions and to
implement the Fund's dividend reinvestment plan; and (vi) make such reports
and recommendations to the Board of Trustees as the Trustees reasonably request
or deem appropriate.

     Section 4.4.  Transfer Agent.  The Trustees may in their discretion from
time to time enter into a transfer agency and Shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust.  The contract shall have such
terms and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration or the By-laws.  Such services may be
provided by one or more Persons.

     Section 4.5.  Parties to Contract.  Any contract of the character
described in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or any Custodian
contract, as described in the By-laws, may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an
officer, partner, director, trustee, Common Shareholder, or member of such
other party to the contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any such relationship; nor
shall any Person holding such relationship be disqualified from voting upon or
executing any such contract; nor shall any Person holding such relationship be
liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was not inconsistent with the provisions of this Article IV or the
By-laws.  The same Person may be the other party to contracts entered into
pursuant to Sections 4.1, 4.2, 4.3 and 4.4 above or custodian contracts, and
any individual may be financially interested or otherwise affiliated with
Persons who are parties to any or all of the contracts mentioned in this
Section 4.5.

     Section 4.6.  Compliance with 1940 Act.  Any contract entered into
pursuant to Sections 4.1 and 4.2 shall be consistent with and subject
to the requirements of Section 15 of the Investment Company Act of 1940
(including any amendment thereof or other applicable Act of Congress hereafter
enacted) with respect to its continuance in effect, its termination and the
method of authorization and approval of such contract or renewal thereof.

                                     12


<PAGE>   13


                                   ARTICLE V

         LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS

     Section 5.1.  No Personal Liability of Shareholders, Trustees, etc.  No
Common Shareholder of the Trust shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust.  No Trustee, officer, employee or agent of
the Trust shall be subject to any personal liability whatsoever to any Person,
other than the Trust or its Common Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising from bad faith,
willful misfeasance, gross negligence or reckless disregard for his duty to
such Person; and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.  If any Common Shareholder, Trustee, officer, employee, or agent, as
such, of the Trust, is made a party to any suit or proceeding to enforce any
such liability, he shall not, on account thereof, be held to any personal
liability.  The Trust shall indemnify and hold each Common Shareholder harmless
from and against all claims and liabilities to which such Common Shareholder
may become subject by reason of his being or having been a Common Shareholder,
and shall reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim or liability.  The
rights accruing to a Common Shareholder under this Section 5.1 shall not
exclude any other right to which such Common Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Common Shareholder in any appropriate situation
even though not specifically provided herein.

     Section 5.2.  Non-Liability of Trustees, etc.  Subject to Section 5.3(b)
below, no Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its Common Shareholders, or to any Common Shareholder,
Trustee, officer, employee or agent thereof for any action or failure to act
(including without limitation the failure to compel in any way a former or
acting Trustee to redress any breach of trust) except for his own bad faith,
willful misfeasance, gross negligence or reckless disregard of his duties
involved in the conduct of his office.

     Section 5.3.  Mandatory Indemnification.
            (a) Subject to the exceptions and limitations contained in 
paragraph (b) below:

                (i) every person who is or has been a Trustee or officer of 
    the Trust shall be indemnified by the Trust to the fullest extent
    permitted by law against all liability and against all expenses reasonably
    incurred or paid by him in connection with any claim, action, suit or
    proceeding in which he 

                                     13

<PAGE>   14


    becomes involved as a party or otherwise by virtue of his being or
    having been a Trustee or officer and against amounts paid or incurred by
    him in the settlement thereof;

                (ii) the words "claim," "action," "suit," or "proceeding" shall
    apply to all claims, actions, suits or proceedings (civil, criminal,
    administrative or other, including appeals), actual or threatened; and the
    words "liability" and "expenses" shall include, without limitation,
    attorneys' fees, costs, judgments, amounts paid in settlement, fines,
    penalties and other liabilities.

         (b) No indemnification shall be provided hereunder to a Trustee or
officer:

                (i) against any liability to the Trust or its Common 
    Shareholders by reason of a final adjudication by the court or other
    body before which the proceeding was brought that he engaged in willful
    misfeasance, bad faith, gross negligence or reckless disregard of the
    duties involved in the conduct of his office;

                (ii) with respect to any matter as to which he shall have been
    finally adjudicated not to have acted in good faith in the
    reasonable belief that his action was in the best interest of the Trust;

                (iii) in the event of a settlement or other disposition not 
    involving a final adjudication as provided in paragraph (b)(i) or
    (b)(ii) resulting in a payment by a Trustee or officer, unless there has
    been either a determination that such Trustee or officer did not engage in
    willful misfeasance, bad faith, gross negligence or reckless disregard of
    the duties involved in the conduct of his officer by the court or other
    body approving the settlement or other disposition or a reasonable
    determination, based upon a review of readily available facts (as opposed
    to a full trial-type inquiry) that he did not engage in such conduct:

                      (A) by vote of a majority of the Disinterested Trustees
         acting on the matter (provided that a majority of the
         Disinterested Trustees then in office act on the matter); or

                      (B) by written opinion of independent legal counsel.

         (c) The rights of indemnification herein provided may be insured 
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to be such
Trustee or officer and 
                                     14


<PAGE>   15

shall inure to the benefit of the heirs, executors, administrators, and
assigns of such Person.  Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and
officers may be entitled by contract or otherwise under law.

     (d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to
indemnification under this Section 5.3, provided that either

          (i) such undertaking is secured by a surety bond or some other
     appropriate security or the Trust shall be insured against losses arising
     out of any such advances; or

          (ii) a majority of the Disinterested Trustees acting on the matter
     (provided that a majority of the Disinterested Trustees then in office act
     on the matter) or an independent legal counsel in a written opinion shall
     determine, based upon a review of readily available facts (as opposed to a
     full trial-type inquiry), that there is reason to believe that the
     recipient ultimately will be found entitled to indemnification.

     As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of
the Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.

     Section 5.4.  No Bond Required of Trustees.  No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.

     Section 5.5.  No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, transfer agent or other Person dealing with the Trustee
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustee or by said officer, employee or agent or be liable for the application
of money or property paid, loaned or delivered to or on the order of the
Trustees or of said officer, employee or agent.  Every obligation, contract,
instrument, certificate, Common Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection
with the Trust shall be conclusively presumed to have been executed or done by
the executors thereof only in their capacity as Trustees under the Declaration
or in their capacity as officers, 

                                     15


<PAGE>   16


employees or agents of the Trust.  Every written obligation, contract,
instrument, certificate, Common Share, other security of the Trust or
undertaking made or issued by the Trustees shall recite that the same is
executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of the Trust under any such instrument
are not binding upon any of the Trustees or Common Shareholders, individually,
but bind only the trust estate, and may contain any further recital which they
or he may deem appropriate, but the omission of such recital shall not operate
to bind the Trustees or Shareholders individually. The Trustees shall seek
diligently at all times to maintain insurance for the protection of the Trust
Property, its Common Shareholders, Trustees, officers, employees and agents in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.

     Section 5.6.  Reliance on Experts, etc.  Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by the Investment Adviser, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.


                                   ARTICLE VI

                         SHARES OF BENEFICIAL INTEREST

     Section 6.1.  Beneficial Interest.  The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest with
par value of $.01 per share (the "Common Shares").  The Board of Trustees of
the Trust may authorize separate classes of shares together with such
designations and powers, preferences and rights, qualifications, limitations
and restrictions as may be determined from time to time by the Board of
Trustees.  The number of common shares of beneficial interest authorized
hereunder is unlimited.  All shares issued hereunder including, without
limitation, shares issued in connection with a dividend in shares or a split of
shares, shall be fully paid and non-assessable.

                                     16

<PAGE>   17




     Pursuant to the powers vested in the Board of Trustees by this Section
6.1, the Board of Trustees hereby authorizes the issuance of an unlimited
number of Common Shares of beneficial interest, par value $.01 per share.

     The designations and powers, preferences and rights, and the
qualifications, limitations and restrictions of the Common Shares are as set
forth in this Declaration of Trust.

     Section 6.2.  Rights of Common Shareholders.  The ownership to the Trust
Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the Common
Shareholders shall have no interest conferred by their Common Shares, and they
shall have no right to call for any partition or division of any property,
profits, rights or interests of the Trust nor can they be called upon to assume
any losses of the Trust or suffer any assessment of any kind by virtue of their
ownership of Common Shares.  The Common Shares shall be personal property
giving only the rights in the Declaration specifically set forth.  The Common
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with
respect to any class or series of Common Shares.

     Section 6.3.  Trust Only.  It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Common Shareholder from time to time.  It is not the intention of the Trustees
to create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Common Shareholders,
either by themselves or with the Trustees, partners and members of a joint
stock association.

     Section 6.4.  Issuance of Common Shares.  The Trustees in their discretion
may, from time to time without vote of the Common Shareholders, issue Common
Shares, in addition to the then issued and outstanding Common Shares and Common
Shares held in the treasury, to such party or parties and for such amount and
type of consideration, including cash or property, at such time or times, and
on such terms as the Trustees may deem best, and may in such manner acquire
other assets (including the acquisition of assets subject to, and in connection
with the assumption of liabilities) and businesses.  In connection with any
issuance of Common Shares, the Trustees may issue fractional Common Shares and
Common Shares held in the treasury.  The Trustees may from time to time divide
or combine the Common Shares or any class or series into a greater or lesser
number of such series without thereby changing the proportionate beneficial
interests in the Trust.  Contributions to the Trust may be accepted for whole
Common Shares and/or 1/1,000ths of a Common Share or integral multiples
thereof.

                                     17

<PAGE>   18



     Section 6.5.  Register of Common Shares.  A register or registers shall be
kept at the principal office of the Trust or at an office of the Transfer Agent
which shall contain the names and addresses of the Common Shareholders and the
number of Common Shares held by them respectively and a record of all transfers
thereof.  Such register shall be conclusive as to who are the holders of the
Common Shares and who shall be entitled to receive dividends or distributions
or otherwise to exercise or enjoy the rights of Common Shareholders.  No Common
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon.  The Trustees, in their discretion, may authorize the issuance of
Common Share certificates and promulgate appropriate rules and regulations as
to their use.

     Section 6.6.  Transfer of Common Shares.  Common Shares shall be
transferable on the records of the Trust only by the record holder thereof or
by his agent thereunto duly authorized in writing, upon delivery to the
Trustees or the Transfer Agent of a duly executed instrument of transfer,
together with any certificate or certificates (if issued) for such Common
Shares and such evidence of the genuineness of each such execution and
authorization and of other matters as may reasonably be required.  Upon such
delivery the transfer shall be recorded on the register of the Trust.  Until
such record is made, the Common Shareholder of record shall be deemed to be the
holder of such Common Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or register nor any officer, employee or agent
of the Trust shall be affected by any notice of the proposed transfer.

     Any person becoming entitled to any Common Shares in consequence of the
death, bankruptcy, or incompetence of any Common Shareholder or otherwise by
operation of law, shall be recorded on the register of Common Shares as the
holder of such Common Shares upon production of the proper evidence thereof to
the Trustees or the Transfer Agent; but until such record is made, the Common
Shareholder of record shall be deemed to be the holder of such Common Shares
for all purposes hereunder and neither the Trustees not any Transfer Agent or
registrar nor any officer or agent of the Trust shall be affected by any notice
of such death, bankruptcy or incompetence, or other operation of law.

     Section 6.7.  Notices.  Any and all notices to which any Common
Shareholder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Common Shareholder
of record at his last known address as recorded on the register of the Trust.

                                     18
<PAGE>   19

     Section 6.8.  Treasury Shares.  Common Shares held in the treasury shall,
until reissued pursuant to Section 6.4, not confer any voting rights on the
Trustees, nor shall such Common Shares be entitled to any dividends or other
distributions declared with respect to the Common Shares.

     Section 6.9.  Voting Powers.  The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1, (iii) with respect to termination of the Trust as provided in
Section 9.2, (iv) with respect to any amendment of the Declaration to the
extent and as provided in Section 9.3, (v) with respect to any merger,
consolidation, conversion or sale of assets as provided in Sections 9.4, 9.5,
and 9.7, (vi) with respect to incorporation of the Trust to the extent and as
provided in Section 9.5, (vii) to the same extent as the stockholders
of a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Common Shareholders, (viii)
with respect to such additional matters relating to the Trust as may be
required by the Declaration, the By-laws or any registration of the Trust as an
investment company under the 1940 Act with the Commission (or any successor
agency) or any state, or as the Trustees may consider necessary or desirable. 
Each whole Common Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Common Share shall be entitled to a
proportionate fractional vote.  There shall be no cumulative voting in the
election of Trustees.  Until Common Shares are issued, the Trustees may
exercise all rights of Common Shareholders and may take any action required by
law, the Declaration or the By-laws to be taken by Common Shareholders.  The
By-laws may include further provisions for Common Shareholders votes and
meetings and related matters.



                                  ARTICLE VII

                       DETERMINATION OF NET ASSET VALUE,
                          NET INCOME AND DISTRIBUTIONS

     The Trustees, in their absolute discretion, may prescribe and shall set
forth in the By-laws or in a duly adopted vote of the Trustees such bases and
times for determining the per share net asset value of the Common Shares or net
income, or the declaration and payment of dividends and distributions, as they
may deem necessary or desirable.

                                     19



<PAGE>   20



                                  ARTICLE VIII

                                   CUSTODIANS

     Section 8.1.  Custodians.  The Trustee shall at all times employ one or
more custodians, meeting the qualifications for custodians for portfolio
securities of investment companies contained in the 1940 Act, as custodian with
respect to the Trust.  If so directed by a Majority Shareholder Vote the
custodian shall deliver and pay over all property of the Trust held by it as
specified in such vote.

     The Trustees may also authorize each custodian to employ one or more
sub-custodians from time to time to perform such of the acts and
services of the custodian and upon such terms and conditions, as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall meet the qualifications
for custodians contained in the 1940 Act. 

                                  ARTICLE IX

                        DURATION; TERMINATION OF TRUST;
                            AMENDMENT; MERGERS, ETC.

     Section 9.1.  Duration.  Subject to possible termination in accordance
with the other provisions of Article IX hereof, the trust created hereby shall
continue until the expiration of 20 years after the death of the last survivor
of the initial Trustees named herein and the following persons:


<TABLE>
<CAPTION>

           Name                 Address                Date of Birth
           -------------------  ---------------------  --------------
           <S>                  <C>                    <C>
           Allison Joy Nyberg   419 Deepwood Court     April 17, 1982
                                Naperville, IL  60540

           Peter Andrew Nyberg  419 Deepwood Court     May 5, 1984
                                Naperville, IL  60540

           Erika Ann Nyberg     419 Deepwood Court     May 8, 1987
                                Naperville, IL  60540
</TABLE>


     Section 9.2.  Termination of Trust.
            (a) The Trust may be terminated (I) by the affirmative vote of the 
holders of not less than two thirds of the Common Shares outstanding
and entitled to vote, at any meeting of Common Shareholders, or (II) by an
instrument in writing, without a meeting, signed by a majority of the Trustees
and consented to by the holders of not less than two thirds of such Common
Shares.  Upon the termination of the Trust:

                                     20

<PAGE>   21



                  (i) The Trust shall carry on no business except for the 
    purpose of winding up its affairs;

                  (ii) The Trustees shall proceed to wind up the affairs of 
    the Trust and all of the powers of the Trustees under this Declaration
    shall continue until the affairs of the Trust shall have been wound up,
    including the power to fulfill or discharge the contracts of the Trust,
    collect its assets, sell, convey, assign, exchange, transfer or otherwise
    dispose of all or any part of the remaining Trust Property to one or more
    persons at public or private sale for consideration which may consist
    in whole or in part of cash, securities or other property of any kind,
    discharge or pay its liabilities, and to do all other acts appropriate to
    liquidate its business; provided, that any sale, conveyance, assignment,
    exchange, transfer or other disposition of all or substantially all of the
    Trust Property shall require Common Shareholder approval in accordance with
    Section 9.4 hereof; and

                  (iii) After paying or adequately providing for the payment 
    of all liabilities, and upon receipt of such releases, indemnities and
    refunding agreements as they deem necessary for their protection, the
    Trustees may distribute the remaining Trust Property, in cash or in kind or
    partly in cash and partly in kind, among the Common Shareholders according
    to their respective rights.

         (b) After termination of the Trust and distribution to the Common
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Common Shareholders shall thereupon cease.

    Section 9.3.  Amendment Procedure.
           (a) Except as provided in paragraph (c) of this Section 9.3, this
Declaration may be amended by a Majority Shareholder Vote, or by an instrument
in writing, without a meeting, signed by a majority of the Trustees and
consented to by the holders of not less than a majority of the Common
Shareholders.  The Trustees may also amend this Declaration without the vote or
consent of Common Shareholders to change the name of the Trust, to supply any
omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or
the requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.

                                     21


<PAGE>   22


           (b) No amendment, except pursuant to Section 6.1, may be made under 
this Section 9.3 which would change any rights with respect to any
Common Shares by reducing the amount payable thereon upon liquidation
of the Trust or by diminishing or eliminating any voting rights pertaining
thereto, except with the vote or consent of the holders of two-thirds of the
class of Common Shares so effected outstanding and entitled to vote.  Nothing
contained in this Declaration shall permit the amendment of this Declaration to
impair the exemption from personal liability of the Common Shareholders,
Trustees, Officers, employees and agents of the Trust or to permit assessment
upon Common Shareholders.

           (c) No amendment may be made under this Section 9.3 which shall 
amend, alter, change or repeal any of the provisions of Sections 9.2,
9.3, 9.4, 9.6 and 9.7 unless the amendment effecting such amendment,
alteration, change or repeal shall receive the affirmative vote or consent of
two thirds of the Common Shareholders.  Such affirmative vote or consent shall
be in addition to the vote or consent of the holders of Common Shares otherwise
required by law or any agreement between the Trust and any national securities
exchange.

           (d) A certificate signed by a majority of the Trustees setting 
forth an amendment and reciting that it was duly adopted by the Common
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.

     Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.

     Section 9.4.  Merger, Consolidation and Sale of Assets.  Subject to
Section 9.7, the Trust may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of the Trust Property, including its good will, upon such
terms and conditions and for such consideration when and as authorized at any
meeting of Common Shareholders called for the purpose by the affirmative vote
of the holders of not less than two-thirds of the Common Shares outstanding and
entitled to vote, or by an instrument or instruments in writing without a
meeting, consented to by the holders of not less than two-thirds of Common
Shares, provided, however, that if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, the vote or written consent of
the holders of a majority of the Common Shares outstanding and entitled to vote
shall be sufficient authorization and any such merger, consolidation, sale,
lease or
                                     22
<PAGE>   23



exchange shall be deemed for all purposes to have been accomplished
under and pursuant to the statutes of the Commonwealth of Massachusetts.

     Section 9.5.  Incorporation and Reorganization.  Subject to Section 9.7
with the approval of the holders of a majority of the Common Shares outstanding
and entitled to vote the Trustees may cause to be organized or assist in
organizing a corporation or corporations under the laws of any jurisdiction, or
any other trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization or any corporation, partnership, association, trust, or
organization in which the Trust holds or is about to acquire shares or any
other interest.  The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted
by law, as provided under the law then in effect.  Nothing contained herein
shall be construed as requiring approval of Common Shareholders for the
Trustees to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organization or entities.

     Section 9.6.  Conversion to Open-End Company.  Notwithstanding any other
provisions of this Declaration or the By-Laws, an amendment to this Declaration
that makes the Common Shares a "redeemable security" (as that term is defined
in the 1940 Act) shall be required to be approved by at least (a) a majority of
the Trustees, including a majority of the Trustees who are not Interested
Persons; and (b) a Majority Shareholder Vote.

     The Trust shall notify the holders of all capital securities of the
approval, in accordance with the preceding paragraph of this Section 9.6, of
any amendment to this Declaration that makes the Common Shares a "redeemable
security" (as that term is defined in the 1940 Act) no later than thirty (30)
days prior to the date of filing of such amendment with the Secretary of State
of the Commonwealth of Massachusetts; provided, however, that such amendment
may not be so filed until the later of ninety (90) days following the date of
approval of such amendment by the holders of Common Shares in accordance with
the preceding paragraph of this Section 9.6 or thirty (30) days following
the date on which notice of the approval of such amendment is first given to
Common Shareholders.


                                     23


<PAGE>   24

     Section 9.7.  Certain Transactions.
            (a) Notwithstanding any other provision of this Declaration and 
subject to the exceptions provided in paragraph (d) of this Section,
the types of transactions described in paragraph (c) of this Section shall
require the affirmative vote or consent of the holders of not less than two
thirds of the Common Shares outstanding and entitled to vote when a Principal
Shareholder (as defined in paragraph (b) of this Section) is a party to the
transaction.  Such affirmative vote or consent shall be in addition to the vote
or consent of the holders of Common Shares otherwise required by law or any
agreement between the Trust and any national securities exchange.

            (b) The term "Principal Shareholder" shall mean any corporation, 
person or other entity which is the beneficial owner, directly or
indirectly, of more than five percent (5%) of the outstanding Common Shares and
shall include any affiliate or associate, as such terms are defined in clause
(ii) below, of a Principal Shareholder.  For the purposes of this Section, in
addition to the Common Shares which a corporation, person or other entity
beneficially owns directly, (a) any corporation, person or other entity shall
be deemed to be the beneficial owner of any Common Shares (i) which it has the
right to acquire pursuant to any agreement or upon exercise of conversion
rights or warrants, or otherwise (but excluding share options granted by the
Trust) or (ii) which are beneficially owned, directly or indirectly (including
Common Shares deemed owned through application of clause (i) above), by any
other corporation, person or entity with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of Common Shares, or
which is its "affiliate", or "associate" as those terms are defined in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934 as in effect on June 10, 1989, and (b) the outstanding Shares shall
include Shares deemed owned through application of clauses (i) and (ii) above
but shall not include any other Shares which may be issuable pursuant to any
agreement, or upon exercise of conversion rights or warrants, or otherwise.

            (c) This Section shall apply to the following transactions:

                (i) The merger or consolidation of the Trust or any subsidiary 
     of the Trust with or into any Principal Shareholder.

                (ii) The issuance of any securities of the Trust to any 
     Principal Shareholder for cash.

                (iii) The sale, lease or exchange of all or any substantial 
    part of the assets of the Trust to any Principal Shareholder (except
    assets having an aggregate fair market value of less than $1,000,000,
    aggregating for the purpose of such computation all assets sold, leased or
    exchanged in 

                                     24

<PAGE>   25


     any series of similar transactions within a twelve-month period).

                (iv) The sale, lease or exchange to the Trust or any subsidiary
     thereof, in exchange for securities of the Trust of any assets of any
     Principal Shareholder (except assets having an aggregate fair market value
     of less than $1,000,000, aggregating for the purposes of such computation
     all assets sold, leased or exchanged in any series of similar transactions
     within a twelve-month period).

          (d) The provisions of this Section shall not be applicable to (i) 
any of the transactions described in paragraph (c) of this Section if
the Board of Trustees of the Trust shall by resolution have approved a
memorandum of understanding with such Principal Shareholder with respect to and
substantially consistent with such transaction, or (ii) any such transaction
with any corporation of which a majority of the outstanding shares of all
classes of stock normally entitled to vote in elections of directors is owned
of record or beneficially by the Trust and its subsidiaries.

          (e) The Board of Trustees shall have the power and duty to determine 
for the purposes of this Section on the basis of information known to
the Trust, whether (i) a corporation, person or entity beneficially owns more
than five percent (5%) of the outstanding Common Shares, (ii) a corporation,
person or entity is an "affiliate" or "associate" (as defined above) of
another, (iii) the assets being acquired or leased to or by the Trust or any
subsidiary thereof, constitute a substantial part of the assets of the Trust
and have an aggregate fair market value of less than $1,000,000, and (iv) the
memorandum of understanding referred to in paragraph (d) hereof is
substantially consistent with the transaction covered thereby.  Any such
determination shall be conclusive and binding for all purposes of this Section.


                                   ARTICLE X

                                  SHAREHOLDERS

     Section 10.1.  Meetings of Common Shareholders.  An annual meeting of the
Common Shareholders for the election of Trustees and for the transaction of
such other business as may properly be brought before the meeting shall be held
if the holding of such a meeting is required by law or by the rules of any
exchange on which Common Shares are listed for trading, on the second Thursday
of May of each year, or at such other date, at such place within or without the
Commonwealth of Massachusetts at such time as the Trustees shall designate from
time to time.  Annual meetings of Common Shareholders will not be held if not
so required.  A Special Meeting of Common Shareholders may be called at any
time by a majority of the Trustees and shall be called by any 

                                     25


<PAGE>   26

Trustee for any proper purpose upon written request of Common
Shareholders of the Trust holding not less than 51% of the outstanding Common
Shares such request specifying the purpose or purposes for which such meeting
is to be called; or, in the case of a meeting for the purpose of voting on the
question of removal of any Trustee or Trustees, upon written request of the
class of Shareholders entitled to vote on the removal of such Trustee or
Trustees holding in the aggregate not less than 10% of the outstanding Common
Shares of such class; or, in the case of a meeting for the purpose of voting on
the question of removal of the independent public accountants of the Trust,
upon written request of Common Shareholders holding not less than 10% of the
outstanding Common Shares.  Any Special Meeting shall be held within or without
the Commonwealth of Massachusetts on such day and at such time as the Trustees
shall designate.

     Section 10.2.  Voting.  Common Shareholders shall have no power to vote on
any matter except matters on which a vote of Common Shareholders is required by
applicable law, this Declaration or resolution of the Trustees.  There shall be
no cumulative voting in the election or removal of Trustees.

     Section 10.3.  Notice of Meeting and Record Date.  Notice of all meetings
of Common Shareholders, stating the time, place and purposes of the meeting,
shall be given by the Trustees by mail to each Common Shareholder of record
entitled to vote thereat at his registered address, mailed at least 10 days and
not more than 60 days before the meeting.  Only the business stated in the
notice of the meeting shall be considered at such meeting.  Any adjourned
meeting may be held as adjourned without further notice.  For the
purposes of determining the Common Shareholders who are entitled to notice of
and to vote at any meeting the Trustees may, without closing the transfer
books, fix a date not more than 60 days prior to the date of such meeting of
Common Shareholders as a record date for the determination of the Persons to be
treated as Common Shareholders of record for such purposes.

     Section 10.4.  Quorum and Required Vote.  The holders of a majority of
outstanding Common Shares of each class or series or combined class entitled to
vote thereat of the Trust present in person or by proxy shall constitute a
quorum at any meeting of the Common Shareholders for purposes of conducting
business on which a vote of Common Shareholders of the Trust is being taken.
Subject to any provision of applicable law, this Declaration or resolution of
the Trustees specifying a greater or lesser vote requirement for the
transaction of any item of business at any meeting of Common Shareholders, the
affirmative vote of a majority of the Common Shares of any class or series
present in person or represented by proxy and entitled to vote on the subject
matter shall be the act of the Common Shareholders of such class or series with
respect to such matter.

                                     26



<PAGE>   27


     Section 10.5.  Proxies, etc.  At any meeting of Common Shareholders, any
holder of Common Shares entitled to vote thereat may vote by properly executed
proxy, provided that no proxy shall be voted at any meeting unless it shall
have been placed on file with the Secretary, or with such other officer or
agent of the Trust as the Secretary may direct, for verification prior to the
time at which such vote shall be taken.  Pursuant to a resolution of a majority
of the Trustees, proxies may be solicited in the name of one or more Trustees
or one or more of the officers or employees of the Trust.  Only Common
Shareholders of record shall be entitled to vote.  Each full Common Share shall
be entitled to one vote and fractional Common Shares shall be entitled to a
vote of such fractions.  When any Common Share is held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Common Share, but if more than one of them shall be present at
such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Common Share.  A proxy purporting to be executed by or on
behalf of a Common Shareholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Common Share is a minor or a person of
unsound mind, and subject to guardianship or to the legal control of any other
person as regards the charge or management of such Common Share, he may vote by
his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.

     Section 10.6.  Reports.  The Trustees shall cause to be prepared at least
annually and more frequently to the extent required by law a report of
operations containing a balance sheet and statement of income and undistributed
income of the Trust prepared in conformity with generally accepted accounting
principles and an opinion of an independent public accountant on such financial
statements.  Copies of such reports shall be mailed to all Common Shareholders
of record within the time required by the 1940 Act.  The Trustees shall, in
addition, furnish to the Common Shareholders at least semi-annually to the
extent required by law, interim reports containing an unaudited balance sheet
as of the end of such period and an unaudited statement of income and surplus
for the period from the beginning of the current fiscal year to the end of such
period.

     Section 10.7.  Inspection of Records.  The records of the Trust shall be
open to inspection by Common Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.


                                     27


<PAGE>   28




     Section 10.8.  Common Shareholder Action by Written Consent.  Any action
which may be taken by Common Shareholders by vote may be taken without a
meeting if the holders entitled to vote thereon of the proportion of Common
Shares of the class or classes  required for approval of such action at a
meeting of Common Shareholders pursuant to Section 10.4 consent to the action
in writing and the written consents be filed with the records of the meetings
of Common Shareholders.  Such consent shall be treated for all purposes as a
vote taken at a meeting of Common Shareholders.


                                   ARTICLE XI

                                 MISCELLANEOUS

     Section 11.1.  Filing.  This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and
in such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem
appropriate.  Each amendment so filed shall be accompanied by a certificate
signed and acknowledged by a Trustee stating that such action was duly taken in
a manner provided herein, and unless such amendment or such certificate sets
forth some later time for the effectiveness of such amendment, such amendment
shall be effective upon its filing.  A restated Declaration, integrating into a
single instrument all of the provisions of the Declaration which are then in
effect and operative, may be executed from time to time by a majority of the
Trustees and shall upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.

     Section 11.2.  Governing Law.  This Declaration is executed by the
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.

     Section 11.3.  Counterparts.  This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.



                                     28


<PAGE>   29


     Section 11.4.  Reliance by Third Parties.  Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying:  (a) the number or identity of Trustees or Common
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or Common
Shareholders, (d) the fact that the number of Trustees or Common Shareholders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by or the
identity of any officers elected by the Trustees, or (f) the existence of any
fact or facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any Person
dealing with the Trustees and their successors.

     Section 11.5.  Provisions in Conflict with Law or Regulations.
            (a) The provisions of the Declaration are severable, and if the 
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code of 1986, or any amendments or successor
statute thereto, or with other applicable laws and regulations, the conflicting
provision shall be deemed not to constitute and never to have constituted a
part of the Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of the Declaration or render invalid or
improper any action taken or omitted prior to such determination.

            (b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
apply only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.

     Section 11.6.  Use of the Names "Van Kampen American Capital".  Van Kampen
American Capital, Inc. ("Van Kampen") has consented to the use by the Trust of
the identifying words or names "Van Kampen American Capital" or "VKAC" in the
name of the Trust.  Such consent is conditioned upon the employment of Van
Kampen its successors or any affiliate thereof, as investment advisor or
distributor of the Trust.  As between the Trust and itself, Van Kampen controls
the use of the name of the Trust insofar as such name contains "Van Kampen
American Capital" or "VKAC".  The names or identifying words "Van Kampen
American Capital" or "VKAC" may be used from time to time in other connections
and for other purposes by Van Kampen or affiliated entities.  Van Kampen may
require the Trust to cease using "Van Kampen American Capital" or "VKAC" in the
name of the Trust if the Trust ceases to employ, for any reason, Van Kampen, an
affiliate, or any successor as investment advisor of the Trust.

                                     29
<PAGE>   30

IN WITNESS WHEREOF, the undersigned have caused these presents to be executed
as of the day and year first above written.

<TABLE>
<S>                                     <C>
/s/ David C. Arch                       /s/ Wayne W. Whalen
- -----------------------                 -------------------------
David C. Arch                           Wayne W. Walen

/s/ Rod Dammeyer                        /s/ Howard J Kerr
- -----------------------                 --------------------------
Rod Dammeyer                            Howard J Kerr

/s/ Theodore A. Myers                   /s/ Dennis J. McDonnell
- -----------------------                 --------------------------
Theodore A. Myers                       Dennis J. McDonnell

/s/ Dr. Steven Muller                   /s/ Don G. Powell
- -----------------------                 --------------------------
Dr. Steven Muller                       Don G. Powell

/s/ Hugo Sonnenschein                   being all the members of the
- -----------------------                 Board of Trustees of the Fund
Hugo Sonnenschein                       
</TABLE>


State of Illinois  )
                   ) ss
County of DuPage   )


          Then personally appeared before me David C. Arch, Rod Dammeyer,
Theodore A. Myers, Hugo Sonnenschein, Wayne W. Whalen, Howard J Kerr, Dr. Steven
Muller, Don G. Powell and Dennis J. McDonnell who acknowledged the foregoing
instrument to be their free act and deed and the free act and deed of the
Trustees of Van Kampen American Capital Senior Floating Rate Fund.


     Before me,


     /s/ Susan Pittner
    -----------------------------
     Notary Public

My Commission Expires:  2-23-98
                        ----------------



                                       30

<PAGE>   1


                                                                  Exhibit (b)

              VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND

                                     BY-LAWS

         These By-Laws are made and adopted pursuant to Section 3.8 of the
Declaration of Trust establishing VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING
RATE FUND, dated as of December 19, 1997, as from time to time amended
(hereinafter called the "Declaration"). All words and terms capitalized in these
By-Laws shall have the meaning or meanings set forth for such words or terms in
the Declaration.


                                    ARTICLE I

                              Shareholder Meetings

         Section 1.1. Chairman. The Chairman, if any, shall act as Chairman at
all meetings of the Common Shareholders; in his absence, the Trustee or Trustees
present at each meeting may elect a temporary chairman for the meeting, who may
be one of themselves.

         Section 1.2. Proxies; Voting. Common Shareholders may vote either in
person or by duly executed proxy and each full share represented at the meeting
and entitled to vote shall have one vote, all as provided in Article 10 of the
Declaration. No proxy shall be valid after eleven (11) months from the date of
its execution, unless a longer period is expressly stated in such proxy.

         Section 1.3 Closing of Transfer Books and Fixing Record Dates. For the
purpose of determining the Common Shareholders who are entitled to notice of or
to vote or act at any meeting, including any adjournment thereof, or who are
entitled to participate in any dividends, or for any other proper purpose, the
Trustees may from time to time close the transfer books or fix a record date in
the manner provided in Section 10.3 of the Declaration. If the Trustees do not
prior to any meeting of Common Shareholders so fix a record date or close the
transfer books, then the date of mailing notice of the meeting or the date upon
which the dividend resolution is adopted, as the case may be, shall be the
record date.

         Section 1.4. Inspectors of Election. In advance of any meeting of
Common Shareholders, the Trustees may appoint Inspectors of Election to act at
the meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Common Shareholders may, and
on the request of any Common Shareholder or his proxy shall, appoint Inspectors
of Election of the meeting. The number of Inspectors shall be either 





<PAGE>   2

one or three. If appointed at the meeting on the request of one or more Common
Shareholders or proxies, a majority of Common Shares present shall determine
whether one or three Inspectors are to be appointed, but failure to allow such
determination by the Common Shareholders shall not affect the validity of the
appointment of Inspectors of Election. In case any person appointed as Inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment made by the Trustees in advance of the convening of the meeting or
at the meeting by the person acting as chairman. The Inspectors of Election
shall determine the number of Common Shares outstanding, the Common Shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising in connection
with the right to vote, shall count and tabulate all votes or consents,
determine the results, and do such other acts as may be proper to conduct the
election or vote with fairness to all Common Shareholders. If there are three
Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On request
of the Chairman, if any, of the meeting, or of any Common Shareholder or his
proxy, the Inspectors of Election shall make a report in writing of any
challenge or question or matter determined by them and shall execute a
certificate of any facts found by them.

         Section 1.5. Records at Common Shareholder Meetings. At each meeting of
the Common Shareholders there shall be open for inspection the minutes of the
last previous Meeting of Common Shareholders of the Trust and a list of the
Common Shareholders of the Trust, certified to be true and correct by the
Secretary or other proper agent of the Trust, as of the record date of the
meeting or the date of closing of transfer books, as the case may be. Such list
of Common Shareholders shall contain the name of each Common Shareholder in
alphabetical order and the address of Common Shares owned by such Shareholder.
Common Shareholders shall have such other rights and procedures of inspection of
the books and records of the Trust as are granted to Common Shareholders of a
Massachusetts business corporation.


                                   ARTICLE II

                                    Trustees

         Section 2.1. Trustees Meeting. The Trustees shall hold an annual
meeting for the election of officers and the transaction of other business which
may come before such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of the Board of Trustees need be stated in the notice or
waiver of notice of such meeting, and no notice need be given of action proposed
to be taken by unanimous written consent.




                                       2
<PAGE>   3



         Section 2.2. Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the Trustees present
shall elect one of their number to act as temporary chairman. The results of all
actions taken at a meeting of the Trustees, or by unanimous written consent of
the Trustees, shall be recorded by the Secretary.


                                   ARTICLE III

                                    Officers

         Section 3.1. Officers of the Trust. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person, except that the same person may not be both President and Secretary. The
Trustees may designate the order in which the other Vice Presidents may act. The
Chairman, if any, shall be a Trustee, but no other officer of the Trust need be
a Trustee.

         Section 3.2. Election and Tenure. At the initial organization meeting
and thereafter at each annual meeting of the Trustees, the Trustees shall elect
the Chairman, if any, President, Secretary, Treasurer and such other officers as
the Trustees shall deem necessary or appropriate in order to carry out the
business of the Trust. Such officers shall hold office until the next annual
meeting of the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any additional
officers at any time.

         Section 3.3. Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately upon receipt by
the Chairman, if any, President, or Secretary, or at a later date according to
the terms of such notice in writing.





                                       3

<PAGE>   4



         Section 3.4. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustee may determine.

         Section 3.5. Chairman, President and Vice President. The Chairman, if
any, shall, if present, preside at all meetings of the Common Shareholders and
of the Trustees and shall exercise and perform such other powers and duties as
may be from time to time assigned to him by the Trustees. Subject to such
supervisory powers, if any, as may be given by the Trustees to the Chairman, if
any, the President shall be the chief executive officer of the Trust and,
subject to the control of the Trustees, shall have general supervision,
direction and control of the business of the Trust and of its employees and
shall exercise such general powers of management as are usually vested in the
office of president of a corporation. Subject to direction of the Trustees, the
Chairman, if any, and the President shall each have power in the name and on
behalf of the Trust or any of its Series to execute any and all loans,
documents, contracts, agreements, deeds, mortgages, registration statements,
applications, requests, filings and other instruments in writing, and to employ
and discharge employees and agents of the Trust. Unless otherwise directed by
the Trustees, the Chairman, if any, and the President shall each have full
authority and power, on behalf of all of the Trust at any meetings of business
organizations in which the Trust holds an interest, or to confer such powers
upon any other persons, by executing any proxies duly authorizing such persons.
The Chairman, if any, and the President shall have such further authorities and
duties as the Trustees shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank as fixed
by the Trustees or, if more than one and not ranked, the Vice President
designated by the Trustees shall perform all of the duties of the President, and
when so acting shall have all the powers of and be subject to all of the
restrictions upon the President. Subject to the direction of the Trustees, and
of the President, each Vice President shall have the power in the name and on
behalf of the Trust to execute any and all instruments in writing, and, in
addition, shall have such other duties and powers as shall be designated from
time to time by the Trustees or by the President.

         Section 3.6. Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Common Shareholders, Trustees and the
Executive Committee, if any. He shall be custodian of the seal of the Trust, if
any, and he (and any person so authorized b the Trustees) shall affix the seal
or, if permitted, facsimile thereof, to any instrument executed by the Trust
which would be sealed by a Massachusetts business corporation executing the same
or a similar instrument and shall attest the seal and the signature or
signatures of the officer or officers executing any other duties commonly
incident to such office in a Massachusetts business corporation, and shall have
such other authorities and duties as the Trustees shall from time to time
determine.




                                       4
<PAGE>   5

         Section 3.7. Treasurer. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the President al powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust in
such depositories as the Trustee shall designate. He shall be responsible for
such disbursement of the funds of the rust as may be ordered by the Trustees or
the President. He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which, together with
all other property of the Trust in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the Trust . He
shall have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of the Trust.

         Section 3.8. Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Trust shall have such other duties and authority as
may be conferred upon him by the Trustees or delegated to him by the President.


                                   ARTICLE IV

                                  Miscellaneous

         Section 4.1. Depositories. In accordance with Section 8.1 of the
Declaration, the funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including the adviser,
administrator or manager), as the Trustees may from time to time authorize.

         Section 4.2. Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by its properly authorized officers, agent or
agents, as provided in the Declaration or By-Laws or as the Trustees may from
time to time by resolution provide.



                                       5

<PAGE>   6


         Section 4.3. Seal. The seal of the Trust, if any, may be affixed to any
instrument, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and affixed manually in the same manner and with the same force
and effect as if done by a Massachusetts business corporation.


                                    ARTICLE V

                             Common Share Transfers

         Section 5.1. Transfer Agents, Registrars and the Like. As provided in
Section 4.4 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Common Shares
of the Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have power to employ and compensate such dividend disbursing
agents, warrant agents and agents for the reinvestment of dividends as they
shall deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.

         Section 5.2. Transfer of Common Shares. The Common Shares of the trust
shall be transferable on the books of the Trust only upon delivery to the
Trustees or a transfer agent of the Trust of proper documentation as provided in
Section 6.6 of the Declaration. The Trust, or its transfer agents, shall be
authorized to refuse any transfer unless and until presentation of such evidence
as may be reasonable required to show that the requested transfer is proper.

         Section 5.3. Registered Common Shareholders. The Trust may deem and
treat the holder of record of any Common Shares the absolute owner thereof for
all purposes and shall not be required to take any notice of any right or claim
of right of any other person.


                                   ARTICLE VI

                              Amendment of By-Laws

         Section 6.1. Amendment and Repeal of By-Laws. In accordance with
Section 3.8 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time; provided, however,
that By-Laws adopted by the Common Shareholders may, if such By-Laws so state,
be altered, amended or repealed only by the Common Shareholders and not the
Trustees. Action by the Trustees with respect to the By-Laws shall be taken by
an affirmative vote of a majority of the Trustees. The Trustees shall in no
event adopt By-Laws which are in conflict with the Declaration, and any 




                                       6
<PAGE>   7

apparent inconsistency shall be construed in favor of the related provisions in
the Declaration.

         The Declaration of Trust establishing the Van Kampen American Capital
Senior Floating Rate Fund dated as of December 19, 1997, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name Van Kampen American Capital Senior Floating Rate Fund refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, Common Shareholder, officer, employee or agent of
the Van Kampen American Capital Senior Floating Rate Fund shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of said Van Kampen American Capital Senior Floating Rate Fund but the
Trust Property only shall be liable.











                                       7

<PAGE>   1
                                                                  EXHIBIT (d)


  NUMBER                                                                SHARES
   
__________                                                            __________


                                   FORM OF


            VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND


                                   CLASS C
                                      
  ORGANIZED AND EXISTING UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS

THIS CERTIFIES that                                              is the owner of


                                            *SEE REVERSE FOR CERTAIN DEFINITIONS
                                                     _________________

                                                     CUSIP 
                                                     _________________

fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Senior Floating Rate Fund
transferable on the books of the Fund by the holder thereof in person or by 
duly authorized attorney upon surrender of this certificate properly endorsed. 
This certificate is not valid unless countersigned by the Transfer Agent. 

WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.

                                                       Dated

                          [VAN KAMPEN AMERICAN CAPITAL
                           SENIOR FLOATING RATE FUND
                       COMMONWEALTH OF MASSACHUSETTS SEAL]

RONALD A. NYBERG                                            DENNIS J. MCDONNELL
  SECRETARY                                                        PRESIDENT

                                                                     KC 002717

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

               COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
                 P.O. BOX 418256, KANSAS CITY, MO 64141-9256

                                                        TRANSFER AGENT

                 By                
                    ----------------------------------------------------
                                                      AUTHORIZED OFFICER

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


            PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED

            VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND

NUMBER                         CLASS C                     SHARES
KC

ACCOUNT NO.       ALPHA CODE           DEALER NO.          CONFIRM NO.

TRADE DATE                             CONFIRM DATE        BATCH I.D. NO.

                                       CHANGE NOTICE: IF THE ABOVE INFORMATION
                                       IS INCORRECT OR MISSING, PLEASE PRINT 
                                       THE CORRECT INFORMATION BELOW, AND RETURN
                                       TO:

                                               ACCESS
                                               P.O. BOX 418256
                                               KANSAS CITY, MISSOURI 64141-9256

                                        ----------------------------------------
                                        ----------------------------------------
                                        ----------------------------------------
<PAGE>   2
- --------------------------------------------------------------------------------

REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:

A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.

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

For value received,                        hereby sell, assign and transfer unto

________________________________________________________________________________
           (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby 

irrevocably constitute and appoint _____________________________________________

_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with

full power of substitution in the premises.


       Dated, _________________________________________ 19 ______

              __________________________________________________________________
                                         Owner
                                      
              __________________________________________________________________
                               Signature of Co-Owner, if any

IMPORTANT     {  BEFORE SIGNING, READ AND COMPLY CAREFULLY
              {  WITH REQUIREMENTS PRINTED ABOVE.

SIGNATURE(S) guaranteed by:

________________________________________________________________________________


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

        *The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM  - as tenants          UNIF GIFT MIN. ACT - ________ Custodian _________
           in common                                 (Cust)             (Minor) 
                                                       under Uniform Gifts to   
TEN ENT  - as tenants by                                     Minors Act         
           the entireties                           
                                                 ____________________________
JT TEN   - as joint tenants                                (State)           
           with right of sur-   
           vivorship and not   
           as tenants in common 

    Additional abbreviations may also be used though not in the above list

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




________________________________________________________________________________
                   THIS SPACE MUST NOT BE COVERED IN ANY WAY


<PAGE>   1




                                                                      Exhibit g


                         INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT, dated as of December 19, 1997 (the
"Agreement"), by and between VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE
FUND,  a Massachusetts business trust (the "Trust"), and VAN KAMPEN AMERICAN
CAPITAL INVESTMENT ADVISORY CORP. (the "ADVISER"), a Delaware corporation.


    1.  (a) RETENTION OF ADVISER BY FUND.  Subject to the terms and conditions
set forth herein, the Fund hereby employs the Adviser to act as the investment
adviser for and to manage the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objectives and policies and
limitations, and to administer its affairs to the extent requested by, and
subject to the review and supervision of, the Board of Trustees of the Fund for
the period and upon the terms herein set  forth.  The investment of funds shall
be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Adviser.

    (b) ADVISER'S ACCEPTANCE OF EMPLOYMENT.  The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation the
selection of securities for the Fund to purchase, hold or sell and the
selection of brokers through whom the Fund's portfolio transactions are
executed, in accordance with the policies adopted by the Fund and its Board of
Trustees), to administer the business affairs of the Fund, to furnish offices
and necessary facilities and equipment to the Fund, to provide administrative
services for the Fund, to render periodic reports to the Board of Trustees of
the Fund, and to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.


    (c) ESSENTIAL PERSONNEL.  Commencing on the effective date of this
Agreement until May 31, 1998, the Adviser and the Fund agree that the retention
of (i) the chief executive officer, president, chief financial officer and
secretary of the Adviser and (ii) each director, officer and employee of the
Adviser or any of its Affiliates (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) who serves as an officer of the Fund (each
person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest
of the Fund and the Fund's shareholders.  In connection with the Adviser's
acceptance of employment hereunder, the Adviser hereby agrees and covenants for
itself and on behalf of its Affiliates that neither the Adviser nor any of its
Affiliates shall make any material or significant personnel changes or replace
or seek to replace any Essential Person or cause to be replaced any Essential
Person, in each case without first informing the Board of Trustees of the Fund
in a timely manner.  In Addition, neither the Adviser nor any Affiliate of the
Adviser shall change or seek to change or cause to be changed, in any material
respect, the duties and responsibilities of any Essential Person, in each case
without first informing the Board of Trustees of the Fund in a timely manner.


    (d)  INDEPENDENT CONTRACTOR.  The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Fund in any way or otherwise be deemed as agent of the Fund.

    (e)  NON-EXCLUSIVE AGREEMENT.  The services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
                                                               


<PAGE>   2





    2.  (a)  FEE.  For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee computed based on a fee rate (expressed as a
percentage per annum) applied to the average daily net assets of the Fund as
follows:

                                                 FEE PERCENT
                                                 PER ANNUM OF
                 AVERAGE DAILY                   AVERAGE DAILY
                 NET ASSETS (MILLIONS)           NET ASSETS
                 ---------------------           -------------
                                       
                 First $4.0 billion              0.950 of 1.00%
                 Next $3.5 billion               0.900 of 1.00%
                 Next $2.5 billion               0.875 of 1.00%
                 Over $10.0 billion              0.850 of 1.00%


    (b)  DETERMINATION OF NET ASSET VALUE.   The net asset value of the Fund
shall be calculated as of the close of the New York Stock Exchange on the last
day the Exchange is open for trading or such other time or times as the
trustees may determine in accordance with the provisions of applicable law and
the Declaration of Trust and By-Laws of the Trust, and resolutions of the Board
of Trustees of the Fund as from time to time in force.  For the purpose of the
foregoing computations, on each such day when net asset value is not
calculated, the net asset value of a share of beneficial interest of the Fund
shall be deemed to be the net asset value of such share as of the close of
business of the last day on which such calculation was made.

    (c)  PRORATION.  For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in
effect during such month and year, respectively.

    3.  EXPENSES.  In addition to the fee of the Adviser, the Fund shall assume
and pay any expenses for services rendered by a custodian for the safekeeping
of the Fund's securities or other property, for keeping its books  of account,
for any other changes of the custodian and for calculating the net asset value
of the Fund as provided above.  The adviser shall not be required to pay, and
the Fund shall assume and pay, the charges and expenses of its operations,
including compensation of the trustees (other than those who are interested
persons of the Adviser and other than those who are interested persons of the
distributor of the Fund but not of the Adviser, if the distributor has agreed
to pay such compensation), charges and expenses of independent accountants, of
legal counsel and of any transfer or dividend disbursing agent, costs of
acquiring and disposing of portfolio securities, cost of listing shares on the
New York Stock Exchange or other exchange, interest (if any) on obligations
incurred by the Fund, costs of shares certificates, membership dues in the
Investment Company Institute or any similar organization, costs of reports and
notices to shareholders, cost 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 on account of the registration of
securities issued by the Fund, filing of corporate documents or otherwise.  The
Fund shall not pay or incur any obligation for any management or administrative
expenses for which the Fund intends to seek reimbursement from the Adviser
without first obtaining the written approval of the Adviser.  The Adviser shall
arrange, if desired by the Fund, for officers or employees of the Adviser to
serve, without compensation from the Fund, as trustees, officers or agents of
the Fund if duly elected or appointed to such positions and subject to their
individual consent and to any limitations imposed by the law.

    4.  INTERESTED PERSONS.  Subject to applicable statutes and regulations, it
is understood that trustees, officers, shareholders and agents of the Fund are
or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents
of the Adviser may be interested in the Fund as trustees, officers,
shareholders, agents or otherwise.
                                          



<PAGE>   3



    5.  LIABILITY.  The Adviser shall not be liable for any error of judgment
or of law, or for any loss suffered by the Fund in connection with the matters
to which this 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 this Agreement.

    6.  (a)  TERM.  This Agreement shall become effective on the date hereof
and shall remain in full force until December 19, 1999 unless sooner terminated
as hereinafter provided.  This Agreement shall continue in force from year to
year thereafter, but only for so long as such continuance is specifically
approved as least annually, in the manner required by the 1940 Act.


       (b)  TERMINATION.  This Agreement shall automatically terminate in the
event of its assignment.  This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty (60) days
written notice to the other party.  The Fund may effect termination by action
of the Board of Trustees or by vote of a majority of the outstanding shares of
stock of the Fund, accompanied by appropriate notice.  This Agreement may be
terminated at any time without the payment of any penalty and without advance
notice by the Board of Trustees or by vote of a majority of the outstanding
shares of the Fund in the event that it shall have been established by a court
of competent jurisdiction that the Adviser or any officer or director of the
Adviser has taken any action which results in a breach of the covenants of the
Adviser set forth herein.


       (c)  PAYMENT UPON TERMINATION.  Termination of this Agreement shall not
affect the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.

    7.   SEVERABILITY.  If any provision of this Agreement shall be held or
made invalid by a court decision, statue, rule or otherwise, the remainder
shall not thereby be affected.

    8.   NOTICES.  Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.


    9.  DISCLAIMER.  The Adviser acknowledges and agrees that, as provided by
Section 5.5 of the Declaration of Trust of the Trust, the shareholders,
trustees, officers, employees and other agents of the Trust and the Fund shall
not personally be bound by or liable hereunder, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
hereunder.

    10.  GOVERNING LAW.  All questions concerning the validity, meaning and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of Delaware applicable to contracts made and to be performed in that state.

    11.  NAME.  In connection with its employment hereunder, the Adviser hereby
agrees and covenants not to change its name without the prior consent of the
Board of Trustees of the Fund.

 
<PAGE>   4





          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below on the day and year first above
written.


         VAN KAMPEN AMERICAN CAPITAL                VAN KAMPEN AMERICAN CAPITAL
         INVESTMENT ADVISORY CORP.                  SENIOR FLOATING RATE FUND



         By: /s/ Dennis J. McDonnell                By:  /s/ Ronald A. Nyberg
             ------------------------------            -------------------------
             Name: Dennis J. McDonnell                 Name: Ronald A. Nyberg
             Title: President                          Title: Vice President





                                                                           

<PAGE>   1
                                                                 Exhibit h(1)

                          OFFERING AGREEMENT

     THIS OFFERING AGREEMENT, dated as of December 19, 1997 (the "Agreement"),
by and between VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND (the
"Fund"), a Massachusetts business trust, and VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC., a Delaware corporation (the "Principal Underwriter").

     1. (a) Appointment of Principal Underwriter. The Fund appoints the
Principal Underwriter as a principal underwriter and exclusive distributor of
shares of the Fund (the "Shares") effective as of the date upon which the
continuous public offering of the Fund's Shares, as described in the Fund's
then current Prospectus, shall commence. The Fund reserves the right, however,
to refuse at any time or times to sell Shares hereunder for any reason at any
time or times to sell Shares hereunder for any reason deemed adequate by the
Board of Trustees of the Fund.

        (b) Best Efforts. The Principal Underwriter shall use its best efforts 
to sell through its organization and through other dealers and agents the Shares
which the Principal Underwriter has the right to purchase under Section 2
hereof, but the Principal Underwriter does not undertake to sell any specific
number of Shares. Without the prior approval of the Board of Trustees, the
Principal Underwriter shall not, directly or indirectly, distribute, sell or
market, through its organization or other brokers, dealers or agents, shares of
any investment companies unless the Board of Trustees of the Fund determines
that such companies do not compete, or potentially compete, with the Fund.

        (c) Positions in the Shares. The Principal Underwriter agrees that it 
will not take any long or short positions in the Shares, except for long 
positions in those Shares purchased by the Principal Underwriter in accordance 
with any systematic sales plan described in the then current Prospectus of the 
Fund and except as permitted by Section 2 hereof, and that so far as it can 
control the situation, it will prevent any of its trustees, officers or 
shareholders from taking any long or short positions in the Shares, except for 
legitimate investment purposes.

        (d) Essential Personnel. Commencing on the date of this Agreement until
May 31, 1998, the Principal Underwriter and the Fund agree that the retention
of (i) the chief executive officer, president, treasurer and secretary of the
Principal Underwriter, and (ii) each director, officer and employee of the
Principal Underwriter or any of its Affiliates (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) who serves as an officer of
the Fund (each person referred to in (i) or (ii) hereinafter being referred to
as an "Essential Person"), in his or her current capacities, is in the best
interest of the Fund and the Fund's shareholders. In connection with the
Principal Underwriter's acceptance of employment hereunder, the Principal
Underwriter hereby agrees and covenants for itself and on behalf of its
Affiliates that neither the Principal Underwriter nor any of its Affiliates
shall replace or seek to replace any Essential Person or cause to be replaced
any Essential Person, in each case without first consulting with the Board of
Trustees of the Fund in a timely manner. In addition, neither the Principal
Underwriter nor any Affiliate of the Principal Underwriter, shall change or
seek to change or cause to be changed, in any material respect, the duties and
responsibilities of any Essential Person, in each case without first consulting
with the Board of Trustees of the Fund in a timely manner.

     2. Sale of Shares to Principal Underwriter; Early Withdrawal Charge. The
Fund hereby grants to the Principal Underwriter the exclusive right, except
as herein otherwise provided, to purchase Shares upon the terms herein set
forth. Such exclusive right hereby granted shall not apply to Shares issued or
transferred or sold at net asset value: (a) in connection with the merger or
consolidation of the Fund with any other investment company or the acquisition
by the Fund of all or substantially all of the assets of or the outstanding
Shares of any investment company; (b) in connection with a pro rata
distribution directly to the holders of Shares in the nature of a stock
dividend or stock split or in connection with any other recapitalization
approved by the Board of Trustees; (c) upon the exercise of purchase or
subscription rights granted to the holders of Shares on a pro rata basis; or
(d) in connection with the automatic reinvestment of dividends and
distributions from the Fund.


<PAGE>   2


     The Principal Underwriter shall have the right to buy from the Fund the
Shares needed, but not more than the Shares needed (except for reasonable 
allowances for clerical errors, delays and errors of transmission and
cancellation of orders) to fill unconditional orders for Shares received by the
Principal Underwriter from dealers, agents and investors during each period when
a particular net asset value and public offering price are in effect as provided
in Section 3 hereof; and the price which the Principal Underwriter shall pay for
the Shares so purchased shall be the net asset value used in determining the
public offering price on which such orders were based. The Principal Underwriter
shall notify the Fund at the end of each such period, or as soon thereafter on
that business day as the orders received in such period have been compiled, of
the number of Shares which the Principal Underwriter elects to purchase
hereunder.

     The Fund shall impose an early withdrawal charge, payable to the Principal
Underwriter, on most shares accepted for tender by the Fund which have been 
held for less than five years, as set forth in the current Fund Prospectus.

     3. Public Offering Price. The public offering price per Share shall be
determined in accordance with the then current Prospectus of the Fund. In no 
event shall the public offering price exceed the net asset value per Share. 
The net asset value per Share shall be determined in the manner provided
in the Declaration of Trust and By-laws of the Fund as then amended and in
accordance with the then current Prospectus of the Fund. The Fund will cause
immediate notice to be given to the Principal Underwriter of each change in net
asset value as soon as it is determined. Compensation from the Principal
Underwriter to dealers purchasing Shares from the Principal Underwriter for
resale and to brokers and other eligible agents making sales to investors shall
be sent the forms of agreement between the Principal Underwriter and such
dealers or agents, respectively, as from time to time amended, and, if such
compensation from the Principal Underwriter is described in the then current
Prospectus for the Fund, shall be as so set forth. In connection with the
Principal Underwriter's employment hereunder, the Principal Underwriter hereby
agrees to distribute the Shares through brokers, dealers and other agents of
Dean Witter Distributors, Inc. on a "proprietary basis" substantially identical
to the distribution of shares of proprietary open-end investment companies
distributed by Dean Witter Distributors, Inc.

     4. Compliance with NASD Rules, etc. In selling Fund Shares, the Principal
Underwriter will in all respects duly comply with all state and Federal laws
relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including, without limitation, the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., and
all applicable rules and regulations of the Securities and Exchange Commission
under the 1940 Act, and will indemnify and save the Fund harmless from any
damage or expense on account of any unlawful act by the Principal Underwriter or
its agents or employees. The Principal Underwriter is not, however, to be
responsible for the acts of other dealers or agents except as and to the extent
that they shall be acting for the Principal Underwriter or under its direction
or authority. None of the Principal Underwriter, any dealer, any agent or any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the Registration Statement or
Prospectus heretofore or hereafter filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "1933 Act") (as
any such Registration Statement and Prospectus may have been or may be amended
from time to time), covering the Shares and in any supplemental information to
any such Prospectus approved by the Fund in connection with the offer of
sale of Shares. None of the Principal Underwriter, any dealer, any broker or any
other person is authorized to act as agent for the Fund in connection with the
offering or sale of Shares to the public or otherwise. All such sales shall be
made by the Principal Underwriter as principal for its own account.

<PAGE>   3


     5. Expenses.

        (a)  The Fund will pay or cause to be paid:

             (i)   all expenses in connection with the registration of Shares
        under the Federal securities laws, and the Fund will exercise its best
        efforts to obtain said registration and qualification;

             (ii)  all expenses in connection with the printing of any notices
        of shareholders' meetings, proxy and proxy statements and enclosures
        therewith, as well as any other notice or communication sent to
        shareholders in connection with any meeting of the shareholders or
        otherwise, any annual, semi-annual or other reports or communications
        sent to the shareholders, and the expense of sending prospectuses
        relating to the Shares to existing shareholders;

             (iii) all expenses of any Federal or state original issue tax or
        transfer tax payable upon the issuance, transfer or delivery of Shares
        from the Fund to the Principal Underwriter; and

             (iv)  the costs of preparing and issuing any Share certificates
        which may be issued to represent Shares.

        (b)  The Principal Underwriter will pay the costs and expenses of
qualifying and maintaining qualification of the Shares for sale under the
securities laws of the various states. The Principal Underwriter will also
permit its officers and employees to serve without compensation as trustees and
officers of the Fund if duly elected to such positions.

     6. No Secondary Market Activity. It is understood that Shares of the Fund
will not be repurchased by either the Fund or the Principal Underwriter, and
that no secondary market for the Fund shares exists currently, or is expected
to develop. While the Board of Trustees of the Fund intends to consider
tendering for all or a portion of the Fund's shares on a quarterly basis, there
is no assurance that the Fund will tender for shares at any time or, following
such a tender offer, that shares so tendered will be repurchased by the Fund.
Accordingly investment in the Fund's shares would be considered illiquid. ANY
REPRESENTATION AS TO A TENDER OFFER BY THE FUND, OTHER THAN THAT WHICH IS SET
FORTH IN THE FUND'S THEN CURRENT PROSPECTUS, IS EXPRESSLY PROHIBITED.

     The Principal Underwriter hereby covenants that it (i) will not make a
secondary market in any shares of the Fund, (ii) will not purchase or hold such
shares in inventory for the purpose of resale in the open market, (iii) will
not repurchase shares in the open market, and (iv) will require every bank,
broker or dealer participating in the continuous offering of the shares to make
the covenants contained in clauses (i), (ii) and (iii) of this Section 6 as a
condition precedent to their participation in such offering.

     7. Indemnification. The Fund agrees to indemnify and hold harmless the
Principal Underwriter and each of its trustees and officers and each person, if
any, who controls the Principal Underwriter within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damages, or expenses
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expenses and reasonable counsel fees incurred in
connection therewith), arising by reason of any person acquiring any Shares,
based upon the grounds that the registration statement, Prospectus, shareholder
reports or other information filed or made public by the Fund (as from time to
time amended), included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make the
statements not misleading under the 1933 Act or any other statute or the common
law. However, the Fund does not agree to indemnify the Principal Underwriter or
hold it harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund by or
on behalf of the Principal Underwriter. In no case (i) is the indemnity of the
Fund in favor of the Principal Underwriter or any person indemnified to be
deemed to protect the Principal Underwriter or any person against any liability
to the Fund or its security holders to which the Principal Underwriter or such
person would otherwise by subject by reason of willful


<PAGE>   4


misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Fund to be liable under its indemnity agreement       
contained in this Section with respect to any claim made against the Principal
Underwriter or any other person unless the Principal Underwriter or such other
person shall have notified the Fund in writing of the claim within a reasonable
time after the summons or other first written notification giving information
of the nature of the claim shall have been served upon the Principal
Underwriter or any such person (or after the Principal Underwriter or the
person shall have received notice of service on any designated agent). However,
failure to notify the Fund of any claim shall not relieve the Fund from any
liability which it may have to the Principal Underwriter or any person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any such action brought to enforce any claims, but if the Fund
elects to assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Principal Underwriter or officers or trustees or
controlling person or persons or defendant or defendants in the suit. In the
event the Fund elects to assume the defense of any suit and retain counsel, the
Principal Underwriter, officers or trustees or controlling person or persons or
defendant or defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them. If the Fund does not elect to assume the
defense of any suit, it will reimburse the Principal Underwriter, officers or
trustees or controlling person or persons or defendant or defendants in the
suit for the reasonable fees and expenses of any counsel retained by them. The
Fund agrees to notify the Principal Underwriter promptly of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of any of the Shares.

     The Principal Underwriter also covenants and agrees that it will indemnify
and hold harmless the Fund and each of its trustees and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act, against any loss, liability, damages, claim or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
damages, claim or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any Shares, based upon the
1933 Act or any other statute or common law, alleging any wrongful act of the
Principal Underwriter or any of its employees or alleging that the registration
statement, Prospectus, shareholder reports or other information filed or made
public by the Fund (as from time to time amended), included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading, insofar as the
statement or omission was made in reliance upon, and in conformity with
information furnished to the Fund by or on behalf of the Principal Underwriter.
In no case (i) is the indemnity of the Principal Underwriter in favor of the
Fund or any person indemnified to be deemed to protect the Fund or any such
person against any liability to which the Fund or such person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Principal
Underwriter to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or person, as the case may be, shall have notified
the Principal Underwriter in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Fund or person (or after
the Fund or such person shall have received notice of service on any designated
agent). However, failure to notify the Principal Underwriter of any claim shall
not relieve the Principal Underwriter from any liability which it may have to
the Fund or any person against whom the action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. In the case of
any notice to the Principal Underwriter, it shall be entitled to participate,
at its own expense, in the defense or, if it so elects, to assume the defense
of any suit brought to enforce the claim, but if the Principal Underwriter
elects to assume the defense the defense shall be conducted by counsel chosen
by it and satisfactory to the Fund, to its officers and trustees and to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Principal Underwriter elects to assume the defense of any suit
and retain counsel, the Fund or controlling persons or defendants in the suit
shall bear the fees and expenses of any additional counsel retained by them. If
the Principal Underwriter does not elect to assume the defense of any suit, it
will reimburse the Fund, officers and trustees or controlling person or persons
or defendant or defendants in the suit for the reasonable fees and expenses of
any


<PAGE>   5


counsel retained by them. The Principal Underwriter agrees to notify the Fund
promptly of the commencement of any litigation or proceedings against it in
connection with the issue and sale of any of the Shares.

     8.  Continuation, Amendment or Termination of the Agreement. This Agreement
shall become effective on the Effective Date and thereafter shall continue in
full force and effect from year to year so long as such continuance is approved
at least annually (i) by the Board of Trustees of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund, and (ii) by vote of
a majority of the Trustees who are not parties to this Agreement or interested
persons in any such party (the "Disinterested Trustees") cast in person at a
meeting called for the purpose of voting on such approval, provided, however,
that (a) this Agreement may at any time be terminated without the payment of any
penalty either by vote of a majority of the Disinterested Trustees, or by vote
of a majority of the outstanding voting securities of the Fund, on written
notice to the Principal Underwriter; (b) this Agreement shall immediately
terminate in the event of its assignment; and (c) this Agreement may be
terminated by the Principal Underwriter on ninety (90) days' written notice to
the Fund. Upon termination of this Agreement, the obligations of the parties
hereunder shall cease and terminate as of the date of such termination, except
for any obligation to respond for a breach of this Agreement committed prior to
such termination and except with respect to any rights and obligations of
indemnification arising out of any action or inaction occurring prior to such
termination.

     This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved (i) by the Board of Trustees of the Fund, or by a vote of the majority
of the outstanding voting securities of the Fund and (ii) by vote of a majority
of the Disinterested Trustees cast in person at a meeting called for the
purpose of voting on such amendment.

     For purposes of this section, the terms "vote of a majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the meanings defined in the 1940 Act, as amended.

     9.  Disclaimer Liability. Notwithstanding anything to the contrary
contained in this Agreement, you acknowledge and agree that, as provided by
Section 5.5 of the Declaration of Trust of the Fund, the shareholders,
trustees, officers, employees and other agents of the Fund shall not personally
be bound by or liable hereunder, nor shall any resort to their personal
property being had for the satisfaction of any obligation or claim hereunder.

     10. Notice. Any notice given under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the other party at any
office of such party or at such other address as such party shall have
designated in writing.

     11. Name. In connection with its employment hereunder, the Principal
Underwriter hereby agrees and covenants not to change its name without the
prior consent of the Board of Trustees.


<PAGE>   6


     IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
executed on their behalf on the day and year first above written.

                                     VAN KAMPEN AMERICAN CAPITAL
                                     SENIOR FLOATING RATE FUND

                                     By: /s/ Dennis J. McDonnell
                                        --------------------------------
                                     Name: Dennis J. McDonnell
                                     Title: President

                                     VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS
                                     INC.

                                     By: /s/ William R. Molinari
                                        --------------------------------
                                     Name: William R. Molinari
                                     Title: President


<PAGE>   1
                                                                 EXHIBIT(j(1))





                               CUSTODIAN CONTRACT
                                    Between
                    EACH OF THE PARTIES LISTED ON APPENDIX A
                                      and
                      STATE STREET BANK AND TRUST COMPANY
<PAGE>   2
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>      <C>                                                                <C>
1.       Employment of Custodian and Property to be Held By                 
         It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
                                                                            
2.       Duties of the Custodian with Respect to Property                   
         of the Fund Held by the Custodian in the United States . . . . . . 2
                                                                            
         2.1     Holding Securities . . . . . . . . . . . . . . . . . . . . 2
         2.2     Delivery of Securities . . . . . . . . . . . . . . . . . . 2
         2.3     Registration of Securities . . . . . . . . . . . . . . . . 4
         2.4     Bank Accounts  . . . . . . . . . . . . . . . . . . . . . . 5
         2.5     Availability of Federal Funds  . . . . . . . . . . . . . . 5
         2.6     Collection of Income . . . . . . . . . . . . . . . . . . . 5
         2.7     Payment of Fund Moneys . . . . . . . . . . . . . . . . . . 6
         2.8     Liability for Payment in Advance of                        
                 Receipt of Securities Purchased  . . . . . . . . . . . . . 7
         2.9     Appointment of Agents  . . . . . . . . . . . . . . . . . . 7
         2.10    Deposit of Fund Assets in  Securities System . . . . . . . 8
         2.11    Fund Assets Held in the Custodian's Direct                 
                 Paper System . . . . . . . . . . . . . . . . . . . . . . . 9
         2.12    Segregated Account . . . . . . . . . . . . . . . . . . . . 10
         2.13    Ownership Certificates for Tax Purposes  . . . . . . . . . 10
         2.14    Proxies  . . . . . . . . . . . . . . . . . . . . . . . . . 11
         2.15    Communications Relating to Fund Securities . . . . . . . . 11
                                                                            
3.       Duties of the Custodian with Respect to Property of                
         the Fund Held Outside of the United States . . . . . . . . . . . . 11
                                                                            
         3.1     Appointment of Foreign Sub-Custodians  . . . . . . . . . . 11
         3.2     Assets to be Held  . . . . . . . . . . . . . . . . . . . . 11
         3.3     Foreign Securities Systems . . . . . . . . . . . . . . . . 12
         3.4     Agreements with Foreign Banking Institutions . . . . . . . 12
         3.5     Access of Independent Accountants of the Fund  . . . . . . 12
         3.6     Reports by Custodian . . . . . . . . . . . . . . . . . . . 12
         3.7     Transactions in Foreign Custody Account  . . . . . . . . . 13
         3.8     Liability of Foreign Sub-Custodians  . . . . . . . . . . . 13
         3.9     Liability of Custodian . . . . . . . . . . . . . . . . . . 13
         3.10    Reimbursement for Advances . . . . . . . . . . . . . . . . 14
         3.11    Monitoring Responsibilities  . . . . . . . . . . . . . . . 14
         3.12    Branches of U.S. Banks . . . . . . . . . . . . . . . . . . 14
</TABLE>                                                                    
<PAGE>   3
<TABLE>                                                                     
<S>      <C>                                                                <C>
         3.13    Tax Law  . . . . . . . . . . . . . . . . . . . . . . . . . 15
                                                                            
4.       Payments for Sales or Repurchase or Redemptions                    
         of Shares of the Fund  . . . . . . . . . . . . . . . . . . . . . . 15
                                                                            
5.       Proper Instructions  . . . . . . . . . . . . . . . . . . . . . . . 16
                                                                            
6.       Actions Permitted Without Express Authority  . . . . . . . . . . . 16
                                                                            
7.       Evidence of Authority  . . . . . . . . . . . . . . . . . . . . . . 17
                                                                            
8.       Duties of Custodian With Respect to the Books                      
         of Account and Calculation of Net Asset Value                      
         and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 17
                                                                            
9.       Records  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
                                                                            
10.      Opinion of Fund's Independent Accountants  . . . . . . . . . . . . 18
                                                                            
11.      Reports to Fund by Independent Public Accountants  . . . . . . . . 18
                                                                            
12.      Compensation of Custodian  . . . . . . . . . . . . . . . . . . . . 18
                                                                            
13.      Responsibility of Custodian  . . . . . . . . . . . . . . . . . . . 18
                                                                            
14.      Effective Period, Termination and Amendment  . . . . . . . . . . . 19
                                                                            
15.      Successor Custodian  . . . . . . . . . . . . . . . . . . . . . . . 20
                                                                            
16.      Interpretive and Additional Provisions . . . . . . . . . . . . . . 21
                                                                            
17.      Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . 21
                                                                            
18.      Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . 22
                                                                            
19.      Prior Contracts  . . . . . . . . . . . . . . . . . . . . . . . . . 22
                                                                            
20.      Shareholder Communications . . . . . . . . . . . . . . . . . . . . 22
                                                                            
21.      Limitation of Liability  . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE>   4
                               CUSTODIAN CONTRACT

         This Contract between each fund or series of a fund listed on
Appendix A which evidences its agreement to be bound hereby by executing a copy
of this Contract  (each such fund is individually hereafter  referred to  as
the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",

                                  WITNESSETH:

                 WITNESSETH THAT, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:

1.       Employment of Custodian and Property to be Held by It

         The Fund hereby employs the Custodian as the custodian of the assets
of the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities") pursuant to the
provisions of the Fund's governing documents.  The Fund  agrees to deliver to
the Custodian all securities and cash of the Fund, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, beneficial
interest or partnership interest, as applicable, of the Fund, ("Shares") as
may be issued or sold from time to time.  The Custodian shall not be
responsible for any property of a Fund held or received by the Fund and not
delivered to the Custodian.

         Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Fund(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund, and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian.  The
Custodian may employ as sub-custodian for the Fund's foreign securities the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.





                                       1
<PAGE>   5
2.       Duties of the Custodian with Respect to Property of the Fund Held By
         the Custodian in the United States

2.1      Holding Securities.  The Custodian shall hold and physically segregate
         for the account of each Fund all non-cash property to be held by it in
         the United States including all domestic securities owned by such Fund
         other than (a) securities which are maintained pursuant to Section 2.10
         in a clearing agency which acts as a securities depository or in a
         book-entry system authorized by the U.S. Department of the Treasury 
         (and certain federal agencies collectively referred to herein as
         "Securities System") and (b) commercial paper of an issuer for
         which State Street Bank and Trust Company acts as issuing and paying
         agent ("Direct Paper") which is deposited and/or maintained in the
         Direct Paper System of the Custodian (the "Direct Paper System")
         pursuant to Section 2.11.

2.2      Delivery of  Securities.  The Custodian shall release and deliver
         domestic securities owned by a Fund held by the Custodian or in a
         U.S. Securities System account of the Custodian or in the Custodian's
         Direct Paper book entry system account ("Direct Paper System Account")
         only upon receipt of Proper Instructions from the Fund, which may be
         continuing instructions when deemed appropriate by the parties, and
         only in the following cases:

         1)      Upon sale of such securities for the account of the Fund and
                 receipt of payment therefor;

         2)      Upon the receipt of payment in connection with any repurchase
                 agreement related to such securities entered into by the Fund;

         3)      In the case of a sale effected through a U.S. Securities 
                 System, in accordance with the provisions of Section 2.10 
                 hereof;

         4)      To the depository agent in connection with tender or other
                 similar offers for securities of the Fund;

         5)      To the issuer thereof or its agent when such securities are
                 called, redeemed, retired or otherwise become payable;
                 provided that, in any such case, the cash or other
                 consideration is to be delivered to the Custodian;

         6)      To the issuer thereof, or its agent, for transfer into the
                 name of the Fund or into the name of any nominee or nominees
                 of the Custodian or into the name or nominee





                                       2
<PAGE>   6
                 name of any agent appointed pursuant to Section 2.9 or into
                 the name or nominee name of any sub-custodian appointed
                 pursuant to Article 1; or for exchange for a different number
                 of bonds, certificates or other evidence representing the same
                 aggregate face amount or number of units; provided that, in
                 any such case, the new securities are to be delivered to the
                 Custodian;

         7)      Upon the sale of such securities for the account of the Fund,
                 to the broker or its clearing agent, against a receipt, for
                 examination in accordance with "street delivery" custom;
                 provided that in any such case, the Custodian shall have no
                 responsibility or liability for any loss arising from the
                 delivery of such securities prior to receiving payment for
                 such securities except as may arise from the Custodian's own
                 negligence or willful misconduct;

         8)      For exchange or conversion pursuant to any plan of merger,
                 consolidation, recapitalization, reorganization or
                 readjustment of the securities of the issuer of such
                 securities, or pursuant to provisions for conversion contained
                 in such securities, or pursuant to any deposit agreement;
                 provided that, in any such case, the new securities and cash,
                 if any, are to be delivered to the Custodian;

         9)      In the case of warrants, rights or similar securities, the
                 surrender thereof in the exercise of such warrants, rights or
                 similar securities or the surrender of interim receipts or
                 temporary securities for definitive securities; provided that,
                 in any such case, the new securities and cash, if any, are to
                 be delivered to the Custodian;

         10)     For delivery in connection with any loans of securities made
                 by the Fund, but only against receipt of adequate collateral
                 as agreed upon from time to time by the Custodian and the
                 Fund, which may be in the form of cash or obligations issued
                 by the United States government, its agencies or
                 instrumentalities, except that in connection with any loans
                 for which collateral is to be credited to the Custodian's
                 account in the book-entry system authorized by the U.S.
                 Department of the Treasury, the Custodian will not be held
                 liable or responsible for the delivery of securities owned by
                 the Fund prior to the receipt of such collateral;

         11)     For delivery as security in connection with any borrowings by
                 the Fund requiring a pledge of assets by the Fund, but only
                 against receipt of amounts borrowed;





                                       3
<PAGE>   7
         12)     For delivery in accordance with the provisions of any
                 agreement among the Fund, the Custodian and a broker-dealer
                 registered under the Securities Exchange Act of 1934 (the
                 "Exchange Act") and a member of The National Association of
                 Securities Dealers, Inc. ("NASD"), relating to compliance with
                 the rules of The Options Clearing Corporation and of any
                 registered national securities exchange, or of any similar
                 organization or organizations, regarding escrow or other
                 arrangements in connection with transactions by the Fund;

         13)     For delivery in accordance with the provisions of any
                 agreement among the Fund,  the Custodian, and a Futures
                 Commission Merchant registered under the Commodity Exchange
                 Act, relating to compliance with the rules of the Commodity
                 Futures Trading Commission and/or any Contract Market, or any
                 similar organization or organizations, regarding account
                 deposits in connection with transactions by the Fund;

         14)     Upon receipt of instructions from the transfer agent
                 ("Transfer Agent") for the Fund, for delivery to such Transfer
                 Agent or to the holders of shares in connection with
                 distributions in kind, as may be described from time to time
                 in the currently effective prospectus and statement of
                 additional information of the Fund ("Prospectus"), in
                 satisfaction of requests by holders of Shares for repurchase
                 or redemption; 

         15)     For any other proper corporate purpose, but only upon receipt
                 of, in addition to Proper Instructions from the Fund, a
                 certified copy of a resolution of the Board of Trustees,
                 specifying the securities of the Fund to be delivered, setting
                 forth the purpose for which such delivery is to be made,
                 declaring such purpose to be a proper corporate purpose, and
                 naming the person or persons to whom delivery of such
                 securities shall be made; and

         16)     Upon termination of the Contract.

2.3      Registration of Securities.  Domestic securities held by the Custodian
         (other than bearer securities) shall be registered in the name of the
         Fund or in the name of any nominee of the Fund  or of any nominee of
         the Custodian which nominee shall be assigned exclusively to the Fund,
         unless the Fund has authorized in writing the appointment of a nominee
         to be used in common with other registered investment companies having
         the same investment adviser as the Fund, or in the name or nominee
         name of any agent appointed pursuant to Section 2.9 or in the name or
         nominee name of any sub-custodian appointed pursuant to





                                       4
<PAGE>   8
         Article 1.  All securities accepted by the Custodian on behalf of the
         Fund under the terms of this Contract shall be in "street name" or
         other good delivery form.  If, however, the Fund directs the Custodian
         to maintain securities in "street name", the Custodian shall utilize
         its best efforts only to timely collect income due the Fund on such
         securities and to notify the Fund on a best efforts basis only of
         relevant corporate actions including, without limitation, pendency of
         calls, maturities, tender or exchange offers.

2.4      Bank Accounts.  The Custodian shall open and maintain a separate bank
         account or accounts in the United States in the name of each Fund ,
         subject only to draft or order by the Custodian acting pursuant to the
         terms of this Contract, and shall hold in such account or accounts,
         subject to the provisions hereof, all cash received by it from or for
         the account of the Fund, other than cash maintained by the Fund in a
         bank account established and used in accordance with Rule 17f-3 under
         the Investment Company Act of 1940.  Funds held by the Custodian for a
         Fund may be deposited by it to its credit as Custodian in the Banking
         Department of the Custodian or in such other banks or trust companies
         as it may in its discretion deem necessary or desirable; provided,
         however, that every such bank or trust company shall be qualified to
         act as a custodian under the Investment Company Act of 1940 and that
         each such bank or trust company and the funds to be deposited with each
         such bank or trust company shall on behalf of each applicable Fund be
         approved by vote of a majority of the Board of Trustees of the Fund.
         Such funds shall be deposited by the Custodian in its capacity as
         Custodian and shall be withdrawable by the Custodian only in that
         capacity.

2.5      Availability of Federal Funds.  Upon mutual agreement between the Fund
         and the Custodian, the Custodian shall, upon the receipt of Proper
         Instructions from the Fund, make federal funds available to such Fund
         as of specified times agreed upon from time to time by the Fund and
         the Custodian in the amount of checks received in payment for Shares
         of such Fund which are deposited into the Fund's account.

2.6      Collection of Income.  Subject to the provisions of Section 2.3, the
         Custodian shall collect on a timely basis all income and other
         payments with respect to registered domestic securities held hereunder
         to which each Fund shall be entitled either by law or pursuant to
         custom in the securities business, and shall collect on a timely basis
         all income and other payments with respect to bearer domestic
         securities if, on the date of payment by the issuer, such securities
         are held by the Custodian or its agent thereof and shall credit such
         income, as collected, to such Fund's custodian account.  Without
         limiting the generality of the foregoing, the Custodian shall detach
         and present for payment all coupons and other income items requiring
         presentation as and when they become due and shall collect interest
         when





                                       5
<PAGE>   9
         due on securities held hereunder.  Income due each Fund on securities
         loaned pursuant to the provisions of Section 2.2 (10) shall be the
         responsibility of the Fund.  The Custodian will have no duty or
         responsibility in connection therewith, other than to provide the Fund
         with such information or data as may be necessary to assist the Fund
         in arranging for the timely delivery to the Custodian of the income to
         which the Fund is properly entitled.

2.7      Payment of Fund Moneys.  Upon receipt of Proper Instructions from the
         Fund, which may be continuing instructions when deemed appropriate by
         the parties, the Custodian shall pay out moneys of a Fund in the
         following cases only:

         1)      Upon the purchase of domestic securities, options, futures
                 contracts or options on futures contracts for the account of
                 the Fund but only (a) against the delivery of such securities
                 or evidence of title to such options, futures contracts or
                 options on futures contracts to the Custodian (or any bank,
                 banking firm or trust company doing business in the United
                 States or abroad which is qualified under the Investment
                 Company Act of 1940, as amended, to act as a custodian and has
                 been designated by the Custodian as its agent for this purpose)
                 registered in the name of the Fund or in the name of a nominee
                 of the Custodian referred to in Section 2.3 hereof or in proper
                 form for transfer; (b) in the case of a purchase effected
                 through a U.S. Securities System, in accordance with the
                 conditions set forth in Section 2.10 hereof; (c) in the case of
                 a purchase involving the Direct Paper System, in accordance
                 with the conditions set forth in Section 2.11; (d) in the case
                 of repurchase agreements entered into between the Fund  and the
                 Custodian, or another bank, or a broker-dealer which is a
                 member of NASD, (i) against delivery of the securities either
                 in certificate form or through an entry crediting the
                 Custodian's account at the Federal Reserve Bank with such
                 securities or (ii) against delivery of the receipt evidencing
                 purchase by the Fund of securities owned by the Custodian along
                 with written evidence of the agreement by the Custodian to
                 repurchase such securities from the Fund or (e) for transfer to
                 a time deposit account of the Fund in any bank, whether
                 domestic or foreign; such transfer may be effected prior to
                 receipt of a confirmation from a broker and/or the applicable
                 bank pursuant to Proper Instructions from the Fund as defined
                 in Article 5;

         2)      In connection with conversion, exchange or surrender of
                 securities owned by the Fund as set forth in Section 2.2
                 hereof;





                                       6
<PAGE>   10
         3)      For the redemption or repurchase of Shares issued by the Fund
                 as set forth in Article 4 hereof;

         4)      For the payment of any expense or liability incurred by the
                 Fund, including but not limited to the following payments for
                 the account of the Fund:  interest, taxes, management,
                 accounting, transfer agent and legal fees, and operating
                 expenses of the Fund whether or not such expenses are to be in
                 whole or part capitalized or treated as deferred expenses;

         5)      For the payment of any dividends on Shares of the Fund
                 declared pursuant to the governing documents of the Fund;

         6)      For payment of the amount of dividends received in respect of
                 securities sold short;

         7)      For any other proper purpose, but only upon receipt of, in
                 addition to Proper Instructions from the Fund, a certified copy
                 of a resolution of the Board of Trustees, specifying the amount
                 of such payment, setting forth the purpose for which such
                 payment is to be made, declaring such purpose to be a proper
                 purpose, and naming the person or persons to whom such payment
                 is to be made; and

         8)      Upon termination of this Contract.

2.8      Liability for Payment in Advance of Receipt of Securities Purchased.
         Except as specifically stated otherwise in this Contract, in any and
         every case where payment for purchase of domestic securities for the
         account of a Fund is made by the Custodian in advance of receipt of
         the securities purchased in the absence of specific written
         instructions from the Fund  to so pay in advance, the Custodian shall
         be absolutely liable to the Fund for such securities to the same
         extent as if the securities had been received by the Custodian.

2.9      Appointment of Agents.  The Custodian may at any time or times in its
         discretion appoint (and may at any time remove) any other bank or
         trust company which is itself qualified under the Investment Company
         Act of 1940, as amended, to act as a custodian, as its agent to carry
         out such of the provisions of this Article 2 as the Custodian may from
         time to time direct; provided, however, that the appointment of any
         agent shall not relieve the Custodian of its responsibilities or
         liabilities hereunder.





                                       7
<PAGE>   11
2.10     Deposit of Fund Assets in U.S. Securities Systems.  The Custodian may
         deposit and/or maintain securities owned by a Fund in a clearing agency
         registered with the Securities and Exchange Commission under Section
         17A of the Securities Exchange Act of 1934, which acts as a securities
         depository, or in the book-entry system authorized by the U.S.
         Department of the Treasury and certain federal agencies, collectively
         referred to herein as "U.S. Securities System" in accordance with
         applicable Federal Reserve Board and Securities and Exchange Commission
         rules and regulations, if any, and subject to the following provisions:

         1)      The Custodian may keep securities of the Fund in a U.S. 
                 Securities System provided that such securities are represented
                 in an account ("Account") of the Custodian in the U.S.
                 Securities System which shall not include any assets of the
                 Custodian other than assets held as a fiduciary, custodian or
                 otherwise for customers;

         2)      The records of the Custodian with respect to securities of the
                 Fund which are maintained in a U.S. Securities System shall
                 identify by book-entry those securities belonging to the Fund;

         3)      The Custodian shall pay for securities purchased for the
                 account of the Fund upon (i) receipt of advice from the
                 U.S. Securities System that such securities have been
                 transferred to the Account, and (ii) the making of an entry on
                 the records of the Custodian to reflect such payment and
                 transfer for the account of the Fund.  The Custodian shall
                 transfer securities sold for the account of the Fund upon (i)
                 receipt of advice from the U.S. Securities System that payment
                 for such securities has been transferred to the Account, and
                 (ii) the making of an entry on the records of the Custodian to
                 reflect such transfer and payment for the account of the Fund.
                 Copies of all advices from the U.S. Securities System of
                 transfers of securities for the account of the Fund shall
                 identify the Fund, be maintained for the Fund by the Custodian
                 and be provided to the Fund at its request.  Upon request, the
                 Custodian shall furnish the Fund confirmation of each transfer
                 to or from the account of the Fund in the form of a written
                 advice or notice and shall furnish to the Fund copies of daily
                 transaction sheets reflecting each day's transactions in the
                 U.S. Securities System for the account of the Fund.

         4)      The Custodian shall provide the Fund with any report obtained
                 by the Custodian on the U.S. Securities System's accounting
                 system, internal accounting control and procedures for
                 safeguarding securities deposited in the U.S. Securities
                 System;





                                       8
<PAGE>   12
         5)      The Custodian shall have received from the Fund the initial or
                 annual certificate, as the case may be, required by Article 14
                 hereof;

         6)      Anything to the contrary in this Contract notwithstanding, the
                 Custodian shall be liable to the Fund for any loss or damage to
                 the Fund resulting from use of the U.S. Securities System by
                 reason of any negligence, misfeasance or misconduct of the
                 Custodian or any of its agents or of any of its or their
                 employees or from failure of the Custodian or any such agent to
                 enforce effectively such rights as it may have against the U.S.
                 Securities System; at the election of the Fund, it shall be
                 entitled to be subrogated to the rights of the Custodian with
                 respect to any claim against the U.S. Securities System or any
                 other person which the Custodian may have as a consequence of
                 any such loss or damage if and to the extent that the Fund has
                 not been made whole for any such loss or damage.

2.11     Fund Assets Held in the Custodian's Direct Paper System.  The
         Custodian may deposit and/or maintain securities owned by a Fund in
         the Direct Paper System of the Custodian subject to the following
         provisions:

         1)      No transaction relating to securities in the Direct Paper
                 System will be effected in the absence of Proper Instructions
                 from the Fund ;

         2)      The Custodian may keep securities of the Fund in the Direct
                 Paper System only if such securities are represented in an
                 account of the Custodian in the Direct Paper System which shall
                 not include any assets of the Custodian other than assets held
                 as a fiduciary, custodian or otherwise for customers;

         3)      The records of the Custodian with respect to securities of the
                 Fund which are maintained in the Direct Paper System shall
                 identify by book-entry those securities belonging to the Fund;

         4)      The Custodian shall pay for securities purchased for the
                 account of the Fund upon the making of an entry on the records
                 of the Custodian to reflect such payment and transfer of
                 securities to the account of the Fund.  The Custodian shall
                 transfer securities sold for the account of the Fund upon the
                 making of an entry on the records of the Custodian to reflect
                 such transfer and receipt of payment for the account of the
                 Fund;





                                       9
<PAGE>   13
         5)      The Custodian shall furnish the Fund confirmation of each
                 transfer to or from the account of the Fund, in the form of a
                 written advice or notice, of Direct Paper on the next business
                 day following such transfer and shall furnish to the Fund
                 copies of daily transaction sheets reflecting each day's
                 transaction in the U.S. Securities System for the account of 
                 the Fund;

         6)      The Custodian shall provide the Fund with any report on its
                 system of internal accounting control as the Fund may
                 reasonably request from time to time.

2.12     Segregated Account.  The Custodian shall upon receipt of Proper
         Instructions from the Fund establish and maintain a segregated account
         or accounts for and on behalf of each such Fund, into which account or
         accounts may be transferred cash and/or securities, including
         securities maintained in an account by the Custodian pursuant to
         Section 2.10 hereof, (i) in accordance with the provisions of any
         agreement among the Fund , the Custodian and a broker-dealer
         registered under the Exchange Act and a member of the NASD (or any
         futures commission merchant registered under the Commodity Exchange
         Act), relating to compliance with the rules of The Options Clearing
         Corporation and of any registered national securities exchange (or the
         Commodity Futures Trading Commission or any registered contract
         market), or of any similar organization or organizations, regarding
         escrow or other arrangements in connection with transactions by the
         Fund, (ii) for purposes of segregating cash or government securities
         in connection with options purchased, sold or written by the Fund or
         commodity futures contracts or options thereon purchased or sold by
         the Fund, (iii) for the purposes of compliance by the Fund with the
         procedures required by Investment Company Act Release No. 10666, or
         any subsequent release or releases of the Securities and Exchange
         Commission relating to the maintenance of segregated accounts by
         registered investment companies and (iv) for other proper corporate
         purposes, but only, in the case of clause (iv), upon receipt of, in
         addition to Proper Instructions from the Fund , a certified copy of a
         resolution of the Board  of Trustees setting forth the purpose or 
         purposes of such segregated account and declaring such purposes
         to be proper corporate purposes.

2.13     Ownership Certificates for Tax Purposes.  The Custodian shall execute
         ownership and other certificates and affidavits for all federal and
         state tax purposes in connection with receipt of income or other
         payments with respect to domestic securities of each Fund held by it
         and in connection with transfers of securities.





                                       10
<PAGE>   14
2.14     Proxies.  The Custodian shall, with respect to the domestic securities
         held hereunder, cause to be promptly executed by the registered holder
         of such securities, if the securities are registered otherwise than in
         the name of the Fund or a nominee of the Fund, all proxies, without
         indication of the manner in which such proxies are to be voted, and
         shall promptly deliver to the Fund such proxies, all proxy soliciting
         materials and all notices relating to such securities.

2.15     Communications Relating to Fund Securities.  Subject to the provisions
         of Section 2.3, the Custodian shall transmit promptly to the Fund  all
         written information (including, without limitation, pendency of calls
         and maturities of domestic securities and expirations of rights in
         connection therewith and notices of exercise of call and put options
         written by the Fund  and the maturity of futures contracts purchased
         or sold by the Fund) received by the Custodian from issuers of the
         securities being held for the Fund.  With respect to tender or
         exchange offers, the Custodian shall transmit promptly to the Fund all
         written information received by the Custodian from issuers of the
         securities whose tender or exchange is sought and from the party (or
         his agents) making the tender or exchange offer.  If the Fund desires
         to take action with respect to any tender offer, exchange offer or any
         other similar transaction, the Fund shall notify the Custodian at
         least three business days prior to the date on which the Custodian is
         to take such action.

3.       Duties of the Custodian with Respect to Property of the Fund Held
         Outside of the United States

3.1      Appointment of Foreign Sub-Custodians.  The Fund hereby authorizes and
         instructs the Custodian to employ as sub-custodians for the Fund's
         securities and other assets maintained outside the United States the
         foreign banking institutions and foreign securities depositories
         designated on Schedule A hereto ("foreign sub-custodians").  Upon
         receipt of "Proper Instructions", as defined in Section 5 of this
         Contract, together with a certified resolution of the Fund's Board of
         Trustees, the Custodian and the Fund may agree to amend Schedule A
         hereto from time to time to designate additional foreign banking
         institutions and foreign securities depositories to act as
         sub-custodian.  Upon receipt of Proper Instructions, the Fund may
         instruct the Custodian to cease the employment of any one or more such
         sub-custodians for maintaining custody of the Fund's assets.

3.2      Assets to be Held.  The Custodian shall limit the securities and other
         assets maintained in the custody of the foreign sub-custodians to:
         (a) "foreign securities", as defined in





                                       11
<PAGE>   15
         paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
         1940, and (b) cash and cash equivalents in such amounts as the
         Custodian or the Fund may determine to be reasonably necessary to
         effect the Fund's foreign securities transactions.  The Custodian
         shall identify on its books as belonging to the Fund, the foreign
         securities of the Fund held by each foreign sub-custodian.

3.3      Foreign Securities Systems.  Except as may otherwise be agreed upon in
         writing by the Custodian and the Fund, assets of the Funds shall be
         maintained in a clearing agency which acts as a securities depository
         or in a book-entry system for the central handling of securities
         located outside of the United States (each a "Foreign Securities
         System") only through arrangements implemented by the foreign banking
         institutions serving as sub-custodians pursuant to the terms hereof
         (Foreign Securities  Systems and U.S. Securities Systems are
         collectively referred to herein as the "Securities Systems").  Where
         possible, such arrangements shall include entry into agreements
         containing the provisions set forth in Section 3.5 hereof.

3.4      Holding Securities.  The Custodian may hold cash, securities and other
         non-cash property for all of its customers, including the Fund, with a
         foreign sub-custodian in a single account that is identified as
         belonging to the Custodian for the benefit of its customers, provided
         however, that (1) the records of the Custodian with respect to cash,
         securities and other non-cash property of the Fund which are
         maintained in such account shall identify by book-entry the cash,
         securities and other non-cash property belonging to the Fund and (ii)
         the Custodian shall require that cash, securities and other non-cash
         property so held by the foreign sub-custodian be held separately from
         any assets of the Custodian, the foreign sub-custodian or of others.

3.5      Agreements with Foreign Banking Institutions.  Each agreement with a
         foreign banking institution shall provide that:  (a) the assets of
         each Fund will not be subject to any right, charge, security interest,
         lien or claim of any kind in favor of the foreign banking institution
         or its creditors or agent, except a claim of payment for their safe
         custody or administration; (b) beneficial ownership for the assets of
         each Fund will be freely transferable without the payment of money or
         value other than for custody or administration; (c) adequate records
         will be maintained identifying the assets as belonging to each
         applicable Fund; (d) officers of or auditors employed by, or other 
         representatives of the Custodian, including to the extent permitted 
         under applicable law the independent public accountants for the Fund,
         will be given access to the books and records of the foreign banking 
         institution relating to its actions under its agreement with the 
         Custodian; and (e) assets of the Fund(s) held by the foreign 
         sub-custodian will be subject only to the instructions of the 
         Custodian or its agents.

3.6      Access of Independent Accountants of the Fund.  Upon request of the
         Fund, the Custodian will use its best efforts to arrange for the
         independent accountants of the Fund to be afforded access to the books
         and records of any foreign banking institution employed as a foreign
         sub-custodian insofar as such books and records relate to the
         performance of such foreign banking institution under its agreement
         with the Custodian.

3.7      Reports by Custodian.  The Custodian will supply to the Fund from time
         to time, as mutually agreed upon, statements in respect of the
         securities and other assets of the Fund(s) held by foreign
         sub-custodians, including but not limited to an identification of
         entities having possession of the Fund(s) securities and other assets
         and advices or notifications of any transfers of securities to or
         from each custodial account maintained by a foreign banking





                                       12
<PAGE>   16
         institution for the Custodian on behalf of each applicable Fund 
         indicating, as to securities acquired for a Fund, the identity of the
         entity having physical possession of such securities.

3.8      Transactions in Foreign Custody Account.  (a) Except as otherwise
         provided in paragraph (b) of this Section 3.8, the provision of
         Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
         the foreign securities of the Fund held outside the United States by
         foreign sub-custodians.  (b) Notwithstanding any provision of this
         Contract to the contrary, settlement and payment for securities
         received for the account of each applicable Fund and delivery of 
         securities maintained for the account of each applicable Fund may be 
         effected in accordance with the customary established securities
         trading or securities processing practices and procedures in the
         jurisdiction or market in which the transaction occurs, including,
         without limitation, delivering securities to the purchaser thereof or
         to a dealer therefor (or an agent for such purchaser or dealer)
         against a receipt with the expectation of receiving later payment for
         such securities from such purchaser or dealer.  In addition, and
         whether or not such practice is a customary established trading
         practice in the relevany jurisdictions, the Custodian will, upon
         Proper Instructions from the Fund, deliver cash to securities brokers
         in foreign jurisdictions who will effect securities trades for the 
         Fund and cause the securities purchased to be delivered to the
         applicable foreign sub-custodian at some later date.  (c) Securities
         maintained in the custody of a foreign sub-custodian may be maintained
         in the name of such entity's nominee to the same extent as set forth
         in Section 2.3 of this Contract, and the Fund agrees to hold any such
         nominee harmless from any liability as a holder of record of such
         securities.

3.9      Liability of Foreign Sub-Custodians.  Each agreement pursuant to which
         the Custodian employs a foreign banking institution as a foreign
         sub-custodian shall require the institution to exercise reasonable
         care in the performance of its duties and to indemnify, and hold
         harmless, the Custodian and each Fund from and against any loss,
         damage, cost, expense, liability or claim arising out of or in
         connection with the institution's performance of such obligations.  At
         the election of the Fund, it shall be entitled to be subrogated to the
         rights of the Custodian with respect to any claims against a foreign
         banking institution as a consequence of any such loss, damage, cost,
         expense, liability or claim if and to the extent that the Fund has not
         been made whole for any such loss, damage, cost, expense, liability or
         claim.

3.10     Liability of Custodian.  The Custodian shall be liable for the acts or
         omissions of a foreign banking institution to the same extent as set
         forth with respect to sub-custodians generally in this Contract and,
         regardless of whether assets are maintained in the custody of a
         foreign banking institution, a foreign securities depository or a
         branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
         Custodian shall not be liable for any loss, damage, cost, expense,
         liability or claim resulting from nationalization, expropriation,
         currency restrictions, or acts of war or terrorism or any loss where
         the sub-custodian has otherwise exercised reasonable care.
         Notwithstanding the foregoing provisions of this





                                       13
<PAGE>   17
         paragraph 3.10, in delegating custody duties to State Street London
         Ltd., the Custodian shall not be relieved of any responsibility to the
         Fund for any loss due to such delegation, except such loss as may
         result from (a) political risk (including, but not limited to,
         exchange control restrictions, confiscation, expropriation,
         nationalization, insurrection, civil strife or armed hostilities) or
         (b) other losses (excluding a bankruptcy or insolvency of State Street
         London Ltd. not caused by political risk) due to Acts of God, nuclear
         incident or other losses under circumstances where the Custodian and
         State Street London Ltd. have exercised reasonable care.

3.11     Reimbursement for Advances.  If the Fund requires the Custodian to
         advance cash or securities for any purpose for the benefit of a Fund
         including the purchase or sale of foreign exchange or of contracts for
         foreign exchange, or in the event that the Custodian or its nominee
         shall incur or be assessed any taxes, charges, expenses, assessments,
         claims or liabilities in connection with the performance of this
         Contract, except such as may arise from its or its nominee's own
         negligent action, negligent failure to act or willful misconduct, any
         property at any time held for the account of the applicable Fund shall
         be security therefor and should the Fund fail to repay the Custodian
         promptly, the Custodian shall be entitled to utilize available cash
         and to dispose of such Fund's assets to the extent necessary to obtain
         reimbursement.

3.12     Monitoring Responsibilities.  The Custodian shall furnish annually to
         the Fund, during the month of June, information concerning the foreign
         sub-custodians employed by the Custodian.  Such information shall be
         similar in kind and scope to that furnished to the Fund in connection
         with the initial approval of this Contract.  In addition, the
         Custodian will promptly inform the Fund in the event that the
         Custodian learns of a material adverse change in the financial
         condition of a foreign sub-custodian or any material loss of the
         assets of the Fund or in the case of any foreign sub-custodian not the
         subject of an exemptive order from the Securities and Exchange
         Commission is notified by such foreign sub-custodian that there
         appears to be a substantial likelihood that its shareholders' equity
         will decline below $200 million (U.S. dollars or the equivalent
         thereof) or that its shareholders' equity has declined below $200
         million (in each case computed in accordance with generally accepted
         U.S. accounting principles).

3.13     Branches of U.S. Banks.  (a) Except as otherwise set forth in this
         Contract, the provisions hereof shall not apply where the custody of
         the Fund's assets are maintained in a foreign branch of a banking
         institution which is a "bank" as defined by Section 2(a)(5) of the
         Investment Company Act of 1940 meeting the qualification set forth in
         Section 26(a) of





                                       14
<PAGE>   18
         said Act.  The appointment of any such branch as a sub-custodian shall
         be governed by paragraph 1 of this Contract.  (b) Cash held for each
         Fund in the United Kingdom shall be maintained in an interest bearing
         account established for the Fund with the Custodian's London branch,
         which account shall be subject to the direction of the Custodian,
         State Street London Ltd. or both.

3.14     Tax Law.  The Custodian shall have no responsibility or liability for
         any obligations now or hereafter imposed on the Fund or the Custodian
         as custodian of the Fund by the tax law of the United States of
         America or any state or political subdivision thereof.  It shall be
         the responsibility of the Fund to notify the Custodian of the
         obligations imposed on the Fund or the Custodian as custodian of the
         Fund by the tax law of jurisdictions other than those mentioned in the
         above sentence, including responsibility for withholding and other
         taxes, assessments or other governmental charges, certifications and
         governmental reporting.  The sole responsibility of the Custodian with
         regard to such tax law shall be to use reasonable efforts to assist
         the Fund with respect to any claim for exemption or refund under the
         tax law of jurisdictions for which the Fund has provided such
         information.

4.       Payments for Sales or Repurchases or Redemptions of Shares of the Fund

         The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Fund such payments as are received for Shares of that Fund issued
or sold from time to time by the Fund.  The Custodian will provide timely
notification to the Fund on behalf of each such Fund and the Transfer Agent of
any receipt by it of payments for Shares of such Fund.

         From such funds as may be available for the purpose but subject to the
limitations of the applicable Fund's governing documents and any applicable 
votes of the Board of Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares.  In connection
with the redemption or repurchase of Shares of a Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire funds
to or through a commercial bank designated by the redeeming shareholders.  In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
        




                                       15
<PAGE>   19
5.       Proper Instructions

         Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized.  Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested.  Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved.  The Fund shall cause all oral
instructions to be confirmed in writing.  Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of procedures 
approved by the Board of Trustees, Proper Instructions may include 
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford  adequate safeguards for the Funds' assets.  For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.12.
        
6.       Actions Permitted without Express Authority

         The Custodian may in its discretion, without express authority from
the Fund:

         1)      make payments to itself or others for minor expenses of
                 handling securities or other similar items relating to its
                 duties under this Contract, provided that all such payments
                 shall be accounted for to the Fund ;

         2)      surrender securities in temporary form for securities in
                 definitive form;

         3)      endorse for collection, in the name of the Fund, checks,
                 drafts and other negotiable instruments; and

         4)      in general, attend to all non-discretionary details in
                 connection with the sale, exchange, substitution, purchase,
                 transfer and other dealings with the securities and property
                 of the Fund except as otherwise directed by the Board of
                 Trustees of the Fund.





                                       16
<PAGE>   20
7.       Evidence of Authority

         The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or  on behalf of the
Fund.  The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of 
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the governing documents of
the Fund as described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.
        
8.       Duties of Custodian with Respect to the Books of Account and
         Calculation of Net Asset Value and Net Income

         The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep 
the books of account of each Fund and/or compute the net asset value per share
of the outstanding shares of each Fund or, if the Custodian and the Fund
execute the applicable Price Source Authorization (the "Authorization"), the
Custodian shall  keep such books of account and/or compute such net asset value
per share pursuant to the terms of the Authorization and the attachments
thereto.  If so directed, the Custodian shall also calculate daily the net
income of the Fund as described in the Fund's currently effective Prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components.  The calculations of the net asset value
per share and the daily income of each Fund shall be made at the time or times
described from time to time in the Fund's currently effective Prospectus
related to such Fund.
        
9.       Records

         The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder.  All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission.  The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Fund and held by the Custodian and shall, when requested to





                                       17
<PAGE>   21
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.

10.      Opinion of Fund's Independent Accountant

         The Custodian shall take all reasonable action, as the Fund  may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with respect
to any other requirements of such Commission.

11.      Reports to Fund by Independent Public Accountants

         The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.

12.      Compensation of Custodian

         The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.

13.      Responsibility of Custodian

         So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement.  The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in





                                       18
<PAGE>   22
good faith without negligence.  It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.

         Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by:  (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
its investment adviser in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.

         The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to 
sub-custodians generally in this Contract.

         If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.

         If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable Fund
shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of such Fund's assets to the extent necessary to obtain reimbursement.

14.      Effective Period, Termination and Amendment

         This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30)





                                       19
<PAGE>   23
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Fund act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Fund has approved the initial use of a
particular Securities System by such Fund and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of the
Fund has reviewed any subsequent change regarding the use by such Fund of such
Securities System, as required in each case  by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Fund act under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of the Direct Paper System by such Fund and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of the Fund has reviewed the use by such Fund of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Fund's governing documents, and further provided, that the Fund
on behalf of one or more of the Funds may at any time by action of its Board (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.

         Upon termination of the Contract, the Fund  shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.

15.      Successor Custodian

         If a successor custodian for a Fund shall be appointed by the Board
of Trustees of such Fund, the Custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities, Funds and other properties of each
applicable Fund then held by it hereunder and shall transfer to an account of
the successor custodian all of the securities of each Fund held in a Securities
System.

         If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.

         In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered 
to the Custodian on or before the date when such





                                       20
<PAGE>   24
termination shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Fund and all instruments held by the Custodian relative thereto and
all other property held by it under this Contract on behalf of each applicable
Fund and to transfer to an account of such successor custodian all of the
securities of each such Fund held in any Securities System.  Thereafter, such
bank or trust company shall be the successor of the Custodian under this
Contract.

         In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.

16.      Interpretive and Additional Provisions

         In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract.  Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the governing documents of the Fund.  No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.

17.      Additional Funds

         In the event that  Van Kampen American Capital Distributors , Inc.
establishes any funds in addition to the Funds listed on Appendix A with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such fund shall become a
Fund hereunder, subject to the delivery by the new Fund of resolutions
authorizing the appointment of the Custodian and such other supporting or
related documentation as the Custodian may request.  All references herein to
the "Fund" are to each of the Funds listed on Appendix A individually, as if





                                       21
<PAGE>   25
this Contract were between each such individual Fund and the Custodian.  With
respect to any Fund which issues shares in separate classes or series, each
class or series of such Fund shall be treated as a separate Fund hereunder.

18.      Massachusetts Law to Apply

         This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.

19.      Prior Contracts

         This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Funds and the Custodian relating to the custody of
the Fund's assets.

20.      Reproduction of Documents

         This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process.  The parties
hereto all/each agree that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.

21.      Shareholder Communications

         Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information.  In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns.  If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies.  If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund.  For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications.  Please
indicate below whether the Fund consent or object by checking one of the
alternatives below.

         YES [ ]        The Custodian is authorized to release the Fund's name,
                        address, and share positions of each Fund listed on
                        Exhibit A.

         NO  [X]        The Custodian is not authorized to release the Fund's 
                        name, address, and share positions of each Fund listed 
                        on Exhibit A.





                                       22
<PAGE>   26
22.  Limitation of Liability.

         The execution of this Contract has been authorized by each Fund's
Board of Trustees.  This Contract is executed on behalf of each Fund or the
trustees of such Fund as trustees and not individually and the obligations of
the Fund under this Contract are not binding upon any of the Fund's trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Fund.  



         IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 1st day of August, 1997.

                                        
ATTEST                                  EACH OF THE FUNDS LISTED ON APPENDIX A



/s/ Nicholas Dalmaso                    By: /s/ Ronald A. Nyberg
- ------------------------                    -----------------------------------
                                            Ronald A. Nyberg, Vice President
                                            and Secretary

ATTEST                                  STATE STREET BANK AND TRUST COMPANY



/s/ Francine Hayes                      By: [ILLEGIBLE]
- ------------------------                    -----------------------------------
                                            Executive Vice President





                                       23
<PAGE>   27
                                                                      APPENDIX A
                                   FUND NAMES

VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
                 Asset Allocation Portfolio
                 Domestic Income Portfolio
                 Emerging Growth Portfolio
                 Enterprise Portfolio                 
                 Global Equity Portfolio
                 Government Portfolio
                 Growth and Income Portfolio
                 Money Market Portfolio
                 Morgan Stanley Real Estate Securities Portfolio
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
                 Van Kampen American Capital High Yield Municipal Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
                 Van Kampen American Capital Global Equity Fund
                 Van Kampen American Capital Global Government Securities Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
                 Van Kampen American Capital U.S. Government Fund
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
                 Van Kampen American Capital Insured Tax Free Income Fund
                 Van Kampen American Capital Tax Free High Income Fund
                 Van Kampen American Capital California Insured Tax Free Fund
                 Van Kampen American Capital Municipal Income Fund
                 Van Kampen American Capital Intermediate Term Municipal
                  Income Fund
                 Van Kampen American Capital Florida Insured Tax Free
                  Income Fund
                 Van Kampen American Capital New Jersey Tax Free Income Fund
                 Van Kampen American Capital New York Tax Free Income Fund
VAN KAMPEN AMERICAN CAPITAL TRUST
                 Van Kampen American Capital High Yield Fund
                 Van Kampen American Capital Short-Term Global Income Fund
                 Van Kampen American Capital Strategic Income Fund
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
                 Van Kampen American Capital Utility Fund
                 Van Kampen American Capital Value Fund
                 Van Kampen American Capital Great American Companies Fund
                 Van Kampen American Capital Growth Fund
                 Van Kampen American Capital Prospector Fund
                 Van Kampen American Capital Aggressive Growth Fund
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND


                                       24
<PAGE>   28
THE EXPLORER INSTITUTIONAL TRUST
    Explorer Institutional Active Core Fund
    Explorer Institutional Limited Duration Fund
VAN KAMPEN AMERICAN CAPITAL NAVIGATOR FUNDS
            Emerging Markets Equity Portfolio
            Emerging Markets Fixed Income Portfolio
            U.S. QUALITY FUNDS
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR PENNSYLVANIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL BOND FUND
VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL INCOME TRUST


                                       25

<PAGE>   1
                                                              EXHIBIT (J)(2)

                      TRANSFER AGENCY AND SERVICE AGREEMENT


    AGREEMENT  made as of the  19th day of  December,  1997 by and  between  VAN
KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND, a Massachusetts business
trust, having its principal office and place of business at Oakbrook Terrace,
Illinois (the  "Fund"), and ACCESS INVESTOR SERVICES, INC., a Delaware
corporation,  having its principal  office at Houston,  Texas, and its principal
place of business at Kansas City, Missouri  ("ACCESS"). 

                                 R E C I T A L:

    WHEREAS, the Fund desires to appoint ACCESS as its transfer agent, dividend
disbursing agent and shareholder service agent and ACCESS desires to accept such
appointments;

    NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows: 

ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF ACCESS.

        1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints ACCESS as its transfer agent, dividend
disbursing agent and shareholder  service agent.

        1.02 ACCESS hereby accepts such employment and  appointments and agrees
that on and after the  effective  date of this  Agreement it will act as the
transfer agent,  dividend  disbursing agent and shareholder service agent for
the Fund on the terms and conditions set forth herein.

                                       1
<PAGE>   2

        1.03  ACCESS  agrees  that its  duties  and  obligations  hereunder
will be performed in a competent, efficient and workmanlike manner with due
diligence in accordance with reasonable industry practice, and that the
necessary facilities, equipment and personnel for such performance will be
provided.

        1.04  ACCESS  agrees  to  provide  and  maintain  quantitative
performance objectives,  including maximum target turn-around times and maximum
target error rates,  for the  various  services  provided  hereunder.  ACCESS
also agrees to provide a reporting system designed to provide the Board of
Trustees of the Fund (the  "Board") on a quarterly  basis with  quantitative
data  comparing  actual performance  for the  period  with the  performance
objectives.  The  foregoing procedures  are  designed to provide a basis for
continuing  monitoring  by the Board of the  quality  of  services  rendered
hereunder.

ARTICLE 2. FEES AND EXPENSES.

        2.01 For the services to be performed by ACCESS  pursuant to this
Agreement, the Fund agrees to pay ACCESS the fee provided in the fee schedules
agreed upon from time to time by the Fund and ACCESS.

        2.02 In addition  to the amounts  paid under  section  2.01 above,  the
Fund agrees to reimburse ACCESS promptly for its reasonable out-of-pocket
expenses or advances paid on its behalf by ACCESS in connection with its
performance  under this  Agreement for postage,  freight,  envelopes,  checks,
drafts,  continuous forms, reports and statements,  telephone,  telegraph,
costs of outside mailing firms,  necessary  outside record  storage  costs,
media for storage of records (e.g., microfilm, microfiche and computer tapes)
and printing costs incurred due to  special   requirements   of  the  Fund.  In
addition,   any  other  special out-of-pocket  expenses paid by ACCESS at the
specific  request of the Fund will be promptly reimbursed by the Fund. Postage
for mailings of dividends, 
 
                                      2
<PAGE>   3

proxies,  Fund reports and other mailings to all shareholder  accounts shall
be advanced to ACCESS by the Fund three  business days prior to the mailing date
of such materials.

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS.
          
           ACCESS represents and warrants to the Fund that:

        3.01  It is a corporation  duly  organized  and  existing  and in good
standing under the laws of the State of Delaware.

        3.02 It is duly  qualified  to carry on its  business  in the states of
Texas and Missouri.

        3.03 It is  empowered  under  applicable  laws and by its  charter  and
bylaws to enter into and perform this Agreement.

        3.04 All requisite  corporate  proceedings have been taken to authorize
it to enter into and perform this Agreement.

        3.05 It has and will continue to have during the term of this Agreement
access to the necessary  facilities,  equipment and personnel to perform its
duties and obligations hereunder.

        3.06 It will  maintain  a  system  regarding  "as of"  transactions  as
follows:

               (a) Each "as of" transaction effected at a price other than that
        in effect on the day of processing for which an estimate has not been
        given to the Fund and which is necessitated by ACCESS' error, or delay
        for which ACCESS is responsible or which could have been avoided through
        the exercise of reasonable care, will be identified, and the net effect
        of such transactions determined, on a daily basis for the Fund.

                (b) The cumulative net effect of the transactions included
        in paragraph (a) above will be determined each day throughout each
        month. If, on any day during the month, the cumulative  net effect
        upon the Fund is negative and exceeds an amount  equivalent to 1/2 of 1
        cent per share of the Fund, ACCESS shall promptly make a payment 


                                       3

<PAGE>   4

         to the Fund (in cash or through  use of a credit as  described  in
         paragraph (c) below) in such amount as necessary to reduce the negative
         cumulative net effect to less than 1/2 of 1 cent per share of the Fund.
         If on the last  business  day of the month the  cumulative  net  effect
         (adjusted  by the  amount of any  payments  pursuant  to the  preceding
         sentence)  upon the Fund is  negative,  the Fund shall be entitled to a
         reduction  in the  monthly  transfer  agency  fee  next  payable  by an
         equivalent amount, except as provided in paragraph (c) below. If on the
         last  business day of the month the  cumulative  net effect  (similarly
         adjusted)  upon the Fund is  positive,  ACCESS  shall  be  entitled  to
         recover  certain past payments and  reductions in fees, and to a credit
         against  all  future  payments  and  fee  reductions  made  under  this
         paragraph to the Fund, as described in paragraph (c) below. 

              (c) At the end of each month,  any positive  cumulative net effect
         upon the Fund  shall be deemed to be a credit  to  ACCESS  which  shall
         first be applied to recover any  payments  and fee  reductions  made by
         ACCESS to the Fund under  paragraph  (b) above during the calendar year
         by  increasing  the  amount of the  monthly  transfer  agency  fee next
         payable in an amount equal to prior  payments and fee  reductions  made
         during such year,  but not exceeding the sum of that month's credit and
         credits  arising in prior  months  during  such year to the extent such
         prior credits have not previously been utilized as contemplated by this
         paragraph  (c).  Any  portion  of a credit to ACCESS  not so used shall
         remain  as a credit to be used as  payment  against  the  amount of any
         future negative  cumulative net effects that would otherwise  require a
         payment or fee reduction to the Fund pursuant to paragraph (b) above.

ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE FUND.

              The Fund hereby represents and warrants that:

                                       4
<PAGE>   5



        4.01 It is duly  organized and existing and in good standing under the
laws of the commonwealth of Massachusetts.

        4.02 It is empowered  under  applicable laws and regulations and by its
Declaration of Trust and by-laws to enter into and perform this Agreement.

        4.03 All  requisite  proceedings  have  been  taken  by its Board  to
authorize it to enter into and perform this Agreement.

        4.04 It is an  closed-end,  management  investment  company registered
under the Investment Company Act of 1940, as amended.

        4.05 A  registration  statement  under the  Securities  Act of 1933, as
amended, is currently  effective and will remain effective, and appropriate
state  securities  laws filings have been made and will continue to be made,
with respect to all of its shares being offered for sale.

ARTICLE 5. INDEMNIFICATION.

        5.01 ACCESS shall not be responsible  for and the Fund shall  indemnify
and hold ACCESS  harmless  from and  against  any and all  losses,  damages,
costs, charges,  reasonable counsel fees, payments, expenses and liabilities
arising out of or attributable to:

             (a) All  actions of ACCESS  required to be taken by ACCESS for the
        benefit of the Fund  pursuant to this  Agreement,  provided  ACCESS has
        acted in good  faith  with due  diligence  and  without  negligence  or
        willful misconduct.

             (b) The  reasonable  reliance by ACCESS on, or  reasonable  use by
        ACCESS of, information,  records and documents which have been prepared
        or  maintained  by or on behalf of the Fund or have been  furnished  to
        ACCESS by or on behalf of the Fund.

             (c) The  reasonable  reliance by ACCESS on, or the carrying out by
        ACCESS of, any  instructions  or requests of the Fund.


                                       5

<PAGE>   6

              (d) The offer or sale of the  Fund's  shares in  violation  of any
         requirement  under the federal  securities  laws or  regulations or the
         securities laws or regulations of any state or in violation of any stop
         order or other  determination  or ruling by any  federal  agency or any
         state with  respect  to the offer or sale of such  shares in such state
         unless such violation results from any failure by ACCESS to comply with
         written  instructions of the Fund that no offers or sales of the Fund's
         shares be made in general or to the residents of a particular state.
         

              (e) The Fund's refusal or failure to comply with the terms of this
         Agreement,  or the Fund's  lack of good  faith,  negligence  or willful
         misconduct or the breach of any  representation or warranty of the Fund
         hereunder.

         5.02 ACCESS shall  indemnify and hold the Fund harmless from and
against any and all losses,  damages,  costs,  charges, reasonable counsel fees,
payments, expenses and  liability  arising out of or  attributable to ACCESS'
refusal or failure to comply with the terms of this  Agreement, or  ACCESS' lack
of good faith, negligence or willful misconduct,  or the breach of any
representation or warranty  of  ACCESS  hereunder.

         5.03 At any time ACCESS may apply to any authorized  officer of the
Fund for instructions,  and may consult with the Fund's legal counsel,  at the
expense of the Fund,  with respect to any matter arising in connection with the
services to be performed by ACCESS under this Agreement,  and ACCESS shall not
be liable and shall be  indemnified  by the Fund for any action taken or omitted
by it in good faith in reasonable  reliance upon such instructions or upon the
opinion of such counsel.  ACCESS shall be protected and  indemnified in acting
upon any paper or document  reasonably believed by ACCESS to be genuine and to
have been signed by the proper  person or persons and shall not be held to have
notice of any change of authority of any person,  until  receipt of written
notice  thereof from the Fund.  ACCESS shall also be  protected  and  

                                       6
<PAGE>   7


indemnified  in  recognizing  stock  certificates  which  ACCESS  reasonably
believes to bear the proper  manual or facsimile  signatures  of the officers of
the Fund,  and the  proper  countersignature  of any  former  transfer  agent or
registrar,  or of a  co-transfer  agent or  co-registrar. 

    5.04 In the event any party is unable to perform its  obligations  under the
terms  of  this  Agreement  because  of  acts  of  God,  strikes,  equipment  or
transmission  failure or damage,  or other causes reasonably beyond its control,
such  party  shall  not be liable  for  damages  to the  other  for any  damages
resulting from such failure to perform or otherwise from such causes. 

    5.05 In no  event  and  under  no  circumstances  shall  any  party  to this
Agreement  be  liable  to  another  party for  consequential  damages  under any
provision of this Agreement or for any act or failure to act hereunder.

    5.06 In order that the indemnification  provisions contained in this Article
5 shall apply, upon the assertion of a claim for which one party may be required
to indemnify another,  the party seeking  indemnification  shall promptly notify
the other party of such  assertion,  and shall keep the other party advised with
respect to all developments concerning such claim. The party who may be required
to  indemnify  shall  have the  option to  participate  with the  party  seeking
indemnification in the defense of such claim. The party seeking  indemnification
shall in no case confess any claim or make any  compromise  in any case in which
the other party may be required to  indemnify  it except with the other  party's
prior written  consent. 

ARTICLE 6. COVENANTS OF THE FUND AND ACCESS.

    6.01 The Fund shall promptly furnish to ACCESS the following:

              (a) Certified  copies of the  resolution of its Board  authorizing
    the appointment of ACCESS and the execution and delivery of this Agreement.

                                       7
<PAGE>   8


              (b) Certified  copies of its  Declaration of Trust and by-laws and
    all amendments thereto.

    6.02 ACCESS hereby agrees to maintain  facilities and procedures  reasonably
acceptable to the Fund for  safekeeping of share  certificates,  check forms and
facsimile signature  imprinting devices, if any; and for the preparation or use,
and for keeping account of, such certificates, forms and devices.

    6.03 ACCESS  shall keep  records  relating to the  services to be  performed
hereunder, in the form and manner as it may deem advisable;  provided,  however,
that all accounts,  books and other records of the Fund (hereinafter referred to
as  "Fund  Records")  prepared  or  maintained  by  ACCESS  hereunder  shall  be
maintained  and kept current in  compliance  with  Section 31 of the  Investment
Company  Act of 1940 and the Rules  thereunder  (such  Section  and Rules  being
hereinafter referred to as the "1940 Act Requirements").  To the extent required
by the 1940 Act  Requirements,  ACCESS agrees that all Fund Records  prepared or
maintained  by  ACCESS  hereunder  are the  property  of the Fund  and  shall be
preserved and made available in accordance with the 1940 Act  Requirements,  and
shall be surrendered promptly to the Fund on its request.  ACCESS agrees at such
reasonable  times as may be  requested  by the Board and at least  quarterly  to
provide  (i)  written  confirmation  to the  Board  that  all Fund  Records  are
maintained and kept current in accordance  with the 1940 Act  Requirements,  and
(ii) such other reports regarding its performance hereunder as may be reasonably
requested by the Board.

    6.04 ACCESS and the Fund agree that all books, records, information and data
pertaining  to the  business of the other party which are  exchanged or received
pursuant to the  negotiation or the carrying out of this Agreement  shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required by law.


                                       8

<PAGE>   9

    6.05 In case of any  requests  or demands for the  inspection  of any of the
Fund Records, ACCESS will endeavor to notify the Fund and to secure instructions
from an authorized  officer of the Fund as to such  inspection.  ACCESS reserves
the right,  however,  to exhibit such Fund Records to any person  whenever it is
advised by its counsel that it may be held liable for the failure to exhibit the
Fund records to such person.

ARTICLE 7. TERM AND TERMINATION OF AGREEMENT.

    7.01 The initial term of this  Agreement  shall  expire June 30,  1999,  and
thereafter this Agreement shall automatically be renewed for successive one year
periods to begin on July 1 of each year unless either party  provides  notice to
the other party at least 30 days in advance of that date that this  Agreement is
not  to be  renewed.

    7.02  Notwithstanding  the  foregoing,   either  party  may  terminate  this
Agreement for good and reasonable  cause at any time by giving written notice to
the other party at least 120 days prior to the date on which such termination is
to be effective.

    7.03 Any  unpaid  fees or  reimbursable  expenses  payable  to ACCESS at the
termination date of this Agreement shall be due on that termination date. ACCESS
agrees to use its best  efforts  to  cooperate  with the Fund and the  successor
transfer agent or agents in accomplishing an orderly transition.

ARTICLE 8. MISCELLANEOUS.

    8.01 Except as provided in section 8.03 below,  neither this  Agreement  nor
any rights or  obligations  hereunder  may be assigned by any party  without the
written  consent of ACCESS or the Fund, as the case may be;  provided,  however,
that no consent  shall be required for any merger of the Fund with,  or any sale
of all or  substantially  all the  assets  of the  Fund to,  another  investment
company.

                                       9

<PAGE>   10

    8.02 This  Agreement  shall inure to the benefit of and be binding  upon the
parties and their respective permitted successors and assigns.

    8.03  ACCESS  may,  without  further  consent  on  the  part  of  the  Fund,
subcontract  with DST,  Inc.,  a Missouri  corporation,  or any other  qualified
servicer, for the performance of data processing activities;  provided, however,
that ACCESS shall be as fully responsible to the Fund for the acts and omissions
of  DST,  Inc.  or  other  qualified  servicer  as it is for its  own  acts  and
omissions. 

    8.04 ACCESS may,  without further  consent on the part of the Fund,  provide
services to its  affiliated  companies.  Such  services may be provided at cost.

    8.05 This Agreement  constitutes  the entire  agreement  between the parties
hereto with  respect to the subject  matter  hereof,  and  supersedes  any prior
agreement with respect thereto,  whether oral or written, and this Agreement may
not be modified except by written instrument executed by the affected parties.

    8.06 The  execution  of this  Agreement  has been  authorized  by the Fund's
Trustees.  This Plan is  executed  on behalf of the Fund or the  Trustees of the
Fund as Trustees and not individually and that the obligations of this Agreement
are not binding upon any of the Trustees,  officers or  shareholders of the Fund
individually  but are binding  only upon the assets and  property of the Fund. A
Certificate  of Trust in  respect  of the  Fund is on file  with  Massachusetts'
Secretary  of State's  Office. 

    8.07 In the  event of a change in the  business  or  regulatory  environment
affecting  all or any portion of this  Agreement,  the parties  hereto  agree to
renegotiate such affected portions in good faith.

                                       10
<PAGE>   11



    IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement  to be
executed in their names and on their  behalf and through  their duly  authorized
officers, as of the date first above written. 

                                   VAN KAMPEN AMERICAN CAPITAL 
                                   SENIOR FLOATING RATE FUND



                                   BY:
                                      -------------------------------  
                                      Vice President
ATTEST:


- ------------------------
Assistant Secretary
                                   ACCESS INVESTOR SERVICES, INC.



                                   BY:
                                      -------------------------------  
                                       President and Chief Executive Officer

ATTEST:

- ------------------------
Assistant Secretary


                                       11

<PAGE>   12



                                  SCHEDULE "A"


                                PRICING SCHEDULE

                      PRICE PER ACCOUNT PLUS OUT OF POCKETS




Van Kampen American Capital Senior Floating Rate Fund
A flat fee of $15,000 per year plus  out-of-pocket  expenses  until such time as
there  are 1,000  shareholder  accounts,  and a per  account  fee of $21.34  per
shareholder account per year plus out-of-pocket expenses thereafter.



                                       12

<PAGE>   1

                                                                   Exhibit k(1)
                            ADMINISTRATION AGREEMENT

         Agreement made as of December 19, 1997, between VAN KAMPEN AMERICAN
CAPITAL SENIOR FLOATING RATE FUND, a Massachusetts business trust (the "Fund"),
and VAN KAMPEN AMERICAN CAPITAL, INC., a Delaware corporation (the
"Administrator").

         WHEREAS, the Fund intends to operate as a closed-end management
investment company, and is so registered under the Investment Company act of
1940, as amended ( "1940 Act"); and

         WHEREAS, the Fund wishes to retain the Administrator to provide certain
administrative services to the Fund, under the terms and conditions stated
below, and the Administrator is willing to provide such services for the
compensation set forth below;

         NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties agree as follows:

         1. Appointment. The Fund hereby appoints the Administrator to
administer the Fund, and the Administrator accepts such appointment and agrees
that it will furnish the services set forth in paragraph 2 below.

         2. Services and Duties of the Administrator. Subject to the supervision
of the Fund's Board of Trustees (the "Board"), the Administrator will:

                                    (a) Monitor the provisions of the loan
                           agreements and any agreements with respect to
                           participations and assignments and be responsible for
                           recordkeeping with respect to senior loans in the
                           Fund's portfolio;

                                    (b) Prepare all reports required to be sent
                           to Fund shareholders, and arrange for the printing
                           and dissemination of such reports to shareholders;

                                    (c) Arrange for the dissemination to
                           shareholders of the Fund's proxy materials and
                           oversee the tabulation of proxies by the Fund's
                           transfer agent;

                                    (d) Negotiate the terms and conditions under
                           which custodian services will be provided to the Fund
                           and the fees to be paid by the Fund to its custodian
                           (which may or may not be an affiliate of the Fund's
                           investment adviser), in connection therewith;

                                    (e) Negotiate the terms and conditions under
                           which dividend disbursing services will be provided
                           to the Fund, and the fees to be paid by the Fund in
                           connection therewith; review the provision of
                           dividend disbursing services to the Fund;

                                    (f) Determine the amounts available for
                           distribution as dividends and distributions to be
                           paid by the Fund to its Shareholders; prepare and
                           arrange for the printing of dividend notices to
                           Shareholders; and provide the Fund's dividend
                           disbursing agent and custodian with such information
                           as is required for such parties to effect the payment
                           of dividends and distributions and to implement the
                           Fund's dividend reinvestment plan;

                                    (g) Make such reports and recommendations to
                           the Board as the Board reasonably requests or deems
                           appropriate; and

<PAGE>   2

                                    (h)     Provide shareholder services to
                                            holders or potential holders of the
                                            Fund's securities including but not
                                            limited to responding to shareholder
                                            requests for information.

         3. Public Inquiries. The Fund and the Administrator agree that the
Administrator will not be responsible for replying to questions or requests for
information concerning the Fund from shareholders, brokers or the public. The
Fund will inform the Administrator of the party or parties to whom any such
questions or requests should be directed, and the Administrator will refer such
questions and requests to such party or parties.

         4. Compliance with the Fund's Governing Documents and Applicable Law.
In all matters relating to the performance of this Agreement, the Administrator
will act in conformity with the Declaration of Trust, By-Laws and registration
statement of the Fund and with the directions of the Board and Fund executive
officers and will conform to and comply with the requirements of the 1940 Act
and all other applicable federal or state laws and regulations.

         5. Services Not Exclusive. The Administrator's services hereunder are
not deemed to be exclusive, and the Administrator is free to render
administrative or other services to other funds or clients so long as the
Administrator's services under this Agreement are not impaired thereby.

         6. Compensation. For the services provided and expenses assumed by the
Administrator under this Agreement, the Fund will pay the Administrator a fee,
accrued daily and paid monthly, at the annualized rate of 0.25% of the Fund's
average weekly managed assets (which, for the purposes of determining such fee,
shall mean the average weekly value of the total assets of the Fund, minus the
sum of the accrued liabilities of the Fund other than the aggregate amount of
any borrowings undertaken by the Fund).

         7. Limitation of Liability of the Administrator. The Administrator will
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund or its shareholders in connection with the performance of
its duties under this Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its duties under this Agreement.

         8. Limitation of Liability of the Trustees and Shareholders of the
Fund. Pursuant to the provisions of Article V, Section 5.5 of the Declaration of
Trust as amended or restated as of the date hereof, this Agreement is entered
into by the Board not individually, but as trustees under such Declaration of
Trust and the obligations of the Fund hereunder are not binding upon any such
trustees or Shareholders of the Fund, but bind only the trust estate.

         9. Duration and Termination. This Agreement will become effective upon
the date hereabove written and shall continue in effect thereafter until
terminated without penalty by the Administrator or the Fund upon 30 days'
written notice to the other and shall automatically terminate in the event of
its assignment as that term is defined in the 1940 Act.

         10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

         11. Governing Law. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts and the 1940 Act. To the extent
that the applicable laws of the Commonwealth of Massachusetts conflict with the
applicable provisions of the 1940 Act, the latter shall control.

<PAGE>   3


         12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.


         IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.


Attest:                                 VAN KAMPEN AMERICAN CAPITAL
                                        SENIOR FLOATING RATE FUND

/s/ Weston B. Wetherell                 By: /s/ Edward C. Wood, III
- --------------------------                 -------------------------------------
Weston B. Wetherell                        Edward C. Wood, III, Vice President 
Assistant Secretary                           and Chief Financial Officer



Attest:                                 VAN KAMPEN AMERICAN CAPITAL, INC.

/s/ Weston B. Wetherell                 By: /s/ William R. Molinari 
- -------------------------                  -------------------------------------
Weston B. Wetherell                        William R. Molinari, President
Assistant Secretary


<PAGE>   1
                                                                  EXHIBIT (K)(2)
                              AMENDED AND RESTATED
                            LEGAL SERVICES AGREEMENT

         THIS AGREEMENT, dated as of December 19, 1997, by and between the
parties as set forth in Schedule 1, attached hereto and incorporated by
reference (designated collectively hereafter as the "Funds"), and VAN KAMPEN
AMERICAN CAPITAL, INC., a Delaware corporation ("Van Kampen").

                              W I T N E S S E T H:

         WHEREAS, each of the Funds is registered as a management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and

         WHEREAS, Van Kampen has the capability of providing certain legal
services to the Funds; and

         WHEREAS, each Fund desires to utilize Van Kampen in the provision of
such legal services; and

         WHEREAS, Van Kampen intends to increase its staff in order to
accommodate the provision of all such services.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:

1. Appointment of Van Kampen. As agent, Van Kampen shall provide each of the
Funds the legal services (the "Legal Services") as set forth in Paragraph 2 of
this Agreement. Van Kampen accepts such appointments and agrees to furnish the
Legal Services in return for the compensation provided in Paragraph 3 of this
Agreement.

2. Legal Services to be Provided. Van Kampen will provide to the Funds the
following legal services, including without limitation: accurate maintenance of
the Funds' Corporate Minute books and records, preparation and oversight of each
Fund's regulatory reports and other information provided to shareholders as well
as responding to day-to-day legal issues on behalf of the Funds. Van Kampen
shall hire persons (collectively the "Legal Services Group") as needed to
provide such Legal Services and in such numbers as may be agreed from time to
time.

3. Expenses and Reimbursement. The Legal Services expenses (the "Legal Services
Expenses") for which Van Kampen may be reimbursed are salary and salary related
benefits, including but not limited to bonuses, group insurance and other
regular wages paid to the personnel of the Legal Services Group, as well as
overhead and expenses related to office space and necessary equipment. The Legal
Services Expenses will be paid by Van Kampen and reimbursed by the Funds. Van
Kampen will tender to each Fund a monthly invoice as of the last business day of
each month which


<PAGE>   2


shall certify the total Legal Service Expenses expended. Except as provided
herein, Van Kampen will receive no other compensation in connection with Legal
Services rendered in accordance with this Agreement, and Van Kampen will be
responsible for all other expenses relating to the providing of Legal Services.

4. Payment for Legal Services Expense Among the Funds. One half (50%) of the
Legal Services Expenses incurred under the Agreement shall be attributable
equally to each respective Fund and all other funds to whom Van Kampen provides
Legal Services, including all other Funds for which Van Kampen serves as
investment adviser and distributor. Van Kampen shall assume the costs of Legal
Services for the Non-Participating Funds for which reimbursement is not
received. The remaining one half (50%) of the Legal Services Expenses shall be
in allocated (a) in the event services are attributable to specific funds
(including the Non-Participating Funds) based on such specific time allocations;
and (b) in the event services are attributable only to types of funds (i.e.
closed-end and open-end funds), the relative amount of time spent on each type
of fund and then further allocated between funds of that type on the basis of
relative net assets at the end of the period.

5. Maintenance of Records. All records maintained by Van Kampen in connection
with the performance of its duties under this Agreement will remain the property
of each respective Fund and will be preserved by Van Kampen for the periods
prescribed in Section 31 of the 1940 Act and the rules thereunder or such other
applicable rules that may be adopted from time to time under the Act. In the
event of termination of the Agreement, such records will be promptly delivered
to the respective Funds. Such records may be inspected by the respective Funds
at reasonable times.

6. Liability of Van Kampen. Van Kampen shall not be liable to any Fund for any
action taken or thing done by it or its agents or contractors on behalf of the
Fund in carrying out the terms and provisions of the Agreement if done in good
faith and without negligence or misconduct on the part of Van Kampen, its agents
or contractors.

7. Indemnification By Funds. Each Fund will indemnify and hold Van Kampen
harmless from all loss, cost, damage and expense, including reasonable expenses
for legal counsel, incurred by Van Kampen resulting from (a) any claim, demand,
action or suit in connection with Van Kampen's acceptance of this Agreement; (b)
an action or omission by Van Kampen in the performance of its duties hereunder;
(c) Van Kampen's acting upon instructions believed by it to have been executed
by a duly authorized officer of the Fund; or (d) Van Kampen's acting upon
information provided by the Fund in form and under policies agreed to by Van
Kampen and the Fund. Van Kampen shall not be entitled to such indemnification in
respect of action or omissions constituting negligence or willful misconduct of
Van Kampen or its agents or contractors. Prior to admitting any claim against it
which may be subject to this indemnification, Van Kampen shall give the Fund
reasonable opportunity to defend against said claim on its own name or in the
name of Van Kampen.


8. Indemnification By Van Kampen. Van Kampen will indemnify and hold harmless


<PAGE>   3


each Fund from all loss, cost, damage and expense, including reasonable expenses
for legal counsel, incurred by the Fund resulting from any claim, demand, action
or suit arising out of Van Kampen's failure to comply with the terms of this
Agreement or which arises out of the negligence or willful misconduct of Van
Kampen or its agents or contractors; provided, that such negligence or
misconduct is not attributable to the Funds, their agents or contractors. Prior
to admitting any claim against it which may be subject to this indemnification,
the Fund shall give Van Kampen reasonable opportunity to defend against said
claim in its own name or in the name of such Fund.

9. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as necessary to effectuate the purposes hereof.

10. Dual Interests. It is understood that some person or persons may be
directors, trustees, officers, or shareholders of both the Funds and Van Kampen
(including Van Kampen's affiliates), and that the existence of any such dual
interest shall not affect the validity hereof or of any transactions hereunder
except as otherwise provided by a specific provision of applicable law.

11. Execution, Amendment and Termination. The term of this Agreement shall begin
as of the date first above written, and unless sooner terminated as herein
provided, this Agreement shall remain in effect through May 31, 1998, and
thereafter from year to year if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. The Agreement may be modified or amended
from time to time by mutual agreement between the and shall likewise reimburse
Van Kampen for its costs, expenses and disbursements payable under this
Agreement to such date. This Agreement may be amended in the future to include
as additional parties to the Agreement other investment companies for which Van
Kampen, any subsidiary or affiliate serves as investment advisor or distributor.

12. Assignment. Any interest of Van Kampen under this Agreement shall not be
assigned or transferred, either voluntarily or involuntarily, by operation of
law or otherwise, without the prior written consent of the Fund. This Agreement
shall automatically and immediately terminate in the event of its assignment
without the prior written consent of the Fund.

13. Notice. Any notice under this agreement shall be in writing, addressed and
delivered or sent by registered or certified mail, postage prepaid, to the other
party at such address as such other party may designate for the receipt of such
notices. Until further notice to the other parties, it is agreed that for this
purpose the address of each Fund is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, Attention: President and the address of Van Kampen. for this
purpose is One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attention:
General Counsel.


14. Personal Liability. As provided for in the Declaration of Trust of the
various Funds, under which the Funds are organized as unincorporated trusts
under the laws of


<PAGE>   4


the State of Delaware, Massachusetts or Pennsylvania, as the case may be, the
shareholders, trustees, officers, employees and other agents of the Fund shall
not personally be bound by or liable for the matters set forth hereunder, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder.

15. Interpretative Provisions. In connection with the operation of this
agreement, Van Kampen and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their opinion be consistent with the general tenor of this Agreement.

16. State Law. This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Illinois.

17. Captions. The captions in the Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction effect.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.


ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO



By:        /s/ Ronald A. Nyberg
         ---------------------------
         Ronald A. Nyberg
         Vice President & Secretary


VAN KAMPEN AMERICAN CAPITAL, INC.



By:      /s/ Dennis J. McDonnell
         ---------------------------
         Dennis J. McDonnell
         Executive Vice President



<PAGE>   5


                                   SCHEDULE 1

1.       VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST, on behalf of its
         series, Van Kampen American Capital U.S. Government Fund

2.       VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, on behalf of its series,
         Van Kampen American Capital Insured Tax Free Income Fund, Van Kampen
         American Capital Tax Free High Income Fund, Van Kampen American Capital
         California Insured Tax Free Fund, Van Kampen American Capital Municipal
         Income Fund, Van Kampen American Capital Intermediate Term Municipal
         Income Fund, Van Kampen American Capital New York Tax Free Income Fund,
         Van Kampen American Capital Florida Insured Tax Free Income Fund, Van
         Kampen American Capital California Tax Free Income Fund, Van Kampen
         American Capital Michigan Tax Free Income Fund, Van Kampen American
         Capital Missouri Tax Free Income Fund and Van Kampen American Capital
         Ohio Tax Free Income Fund

3.       VAN KAMPEN AMERICAN CAPITAL TRUST, on behalf of its series, Van Kampen
         American Capital High Yield Fund, Van Kampen American Capital
         Short-Term Global Income Fund and Van Kampen American Capital Strategic
         Income Fund

4.       VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, on behalf of its series, Van
         Kampen American Capital Utility Fund, Van Kampen American Capital Value
         Fund, Van Kampen American Capital Growth Fund, Van Kampen American
         Capital Great American Companies Fund, Van Kampen American Capital
         Prospector Fund and Van Kampen American Capital Aggressive Growth Fund

5.       VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND

6.       VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND

7.       VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND

8.       VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST

9.       VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST

10.      VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST

11.      VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II

12.      VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST

13.      VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND

14.      VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST

15.      VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST

16.      VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST

17.      VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST

18.      VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST

19.      VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST

20.      VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST

21.      VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS



<PAGE>   6


22.      VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS

23.      VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
         MUNICIPALS

24.      VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA
         MUNICIPALS

25.      VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
         MUNICIPALS

26.      VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
         MUNICIPALS

27.      VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
         MUNICIPALS

28.      VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST

29.      VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST

30.      VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME
         TRUST

31.      VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST

32.      VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST

33.      VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST

34.      VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST

35.      VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST

36.      VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST

37.      VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST

38.      VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST

39.      VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II

40.      VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST

41.      VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II

42.      VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST

43.      THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts, Explorer
         Institutional Active Core Fund and Explorer Institutional Limited
         Duration Fund

44.      MORGAN STANLEY FUND INC., on behalf of its sub-trusts, Morgan Stanley
         Emerging Markets Debt Fund, Morgan Stanley Global Fixed Income Fund,
         Morgan Stanley High Yield Fund, Morgan Stanley Worldwide High Income
         Fund, Morgan Stanley American Value Fund, Morgan Stanley Aggressive
         Equity Fund, Morgan Stanley U.S. Real Estate Fund, Morgan Stanley
         Equity Growth Fund, Morgan Stanley Midcap Growth Fund, Morgan Stanley
         Value Fund, Morgan Stanley Global Equity Allocation Fund, Morgan
         Stanley Global Equity Fund, Morgan Stanley Asian Growth Fund, Morgan
         Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
         Morgan Stanley International Magnum Fund, Morgan Stanley Japanese
         Equity Fund, Morgan Stanley Money Market Fund, Morgan Stanley Tax Free
         Money Market Fund and Morgan Stanley Government Obligations Money
         Market Fund.



<PAGE>   1
                                                                   EXHIBIT(K)(3)

                                    FORM OF

             VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND

                                  SERVICE PLAN



         The plan set forth below (the "Service Plan") for the VAN KAMPEN
AMERICAN CAPITAL SENIOR FLOATING RATE FUND (the "Fund"), describes the material
terms and conditions under which assets of the Fund may be used to compensate
the Fund's principal underwriter, within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act"), brokers, dealers and other financial
intermediaries (collectively "Financial Intermediaries") for providing personal
services to shareholders and/or the maintenance of shareholder accounts with
respect to each of its Shares of beneficial interest (the "Shares"). Each Share
is offered and sold subject to a service fee and contingent deferred sales
charge.

         The Fund also has entered into a distribution and services agreement
(the "Distribution and Services Agreement") with Van Kampen American Capital
Distributors, Inc. (the "Distributor"), pursuant to which the Distributor acts
as agent on behalf of the Fund in connection with the implementation of the
Service Plan and acts as the principal underwriter with respect to the Shares.
The Distributor may enter into selling agreements (the "Selling Agreements")
with brokers, dealers and other financial intermediaries ("Financial
Intermediaries") in order to implement the Distribution Agreement and this
Service Plan.

1.       The Fund hereby is authorized to pay a service fee with respect to its
Shares to any person who sells such Shares and provides personal services to
shareholders and/or maintains shareholder accounts in an annual amount not to
exceed 0.25% of the average annual net asset value of the Shares maintained in
the Fund by such person that were sold on or after the date on which this
Service Plan was first implemented.  The aggregate annual amount of all such
payments with respect to each such Share may not exceed 0.25% of the Fund's
average annual net assets attributable to the Shares sold on or after the date
on which this Service Plan was first implemented and maintained in the Fund
more than one year.

2.       Payments pursuant to this Service Plan may be paid or prepaid on
behalf of the Fund by the Distributor acting as the Fund's agent.

3.       Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a
separate written expense report with respect to the Shares setting forth the
expenses qualifying for such reimbursement allocated to each Share and the
purposes thereof.

4.       In the event that amounts payable hereunder do not fully reimburse the
Distributor for pre-paid service fees, such unreimbursed service fee expenses
will be carried forward and paid by the Fund hereunder in future years so long
as this Service Plan remains in effect, subject to applicable laws and
regulations.  Reimbursements for service fee related expenses payable hereunder
with respect to a particular class of Shares may not be used to subsidize
services provided with respect to any other class of Shares.

5.       The Fund shall not compensate the Distributor, and neither the Fund
nor the Distributor shall compensate any Financial Intermediary, for any
service related expenses incurred prior to the later of (a) the implementation
of this Service Plan with respect to such class of Shares or (b) the date that
such Financial Intermediary enters into a Selling Agreement with the
Distributor.





<PAGE>   2





6.       The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to
such Financial Intermediaries for activities and services of the type referred
to in Paragraph 1 hereof.  Prior to the implementation of a Selling Agreement,
such agreement shall be approved by a majority of the Board of Trustees of the
Trust and a majority of the Disinterested Trustees (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of
voting on such Selling Agreements.  Such Selling Agreements shall provide that
the Financial Intermediaries shall provide the Distributor with such
information as is reasonably necessary to permit the Distributor to comply with
the reporting requirements set forth in Paragraphs 3 and 8 hereof.

7.       Subject to the provisions of this Service Agreement, the Fund is
hereby authorized to pay a service fee to any person that is not an "affiliated
person" or "interested person" of the Fund or its "investment adviser" or
"principal underwriter" (as such terms are defined in the 1940 Act) who
provides any of the foregoing services for the Fund.  Such fee shall be paid
only pursuant to written agreements between the Fund and such other person the
terms of which permit payments to such person only in accordance with the
provisions of this Service Agreement and which have the approval of a majority
of the Disinterested Trustees by vote cast separately with respect to each
class of Shares and cast in person at a meeting called for the purpose of
voting on such written agreement.

8.       The Fund and the Distributor shall prepare separate written reports
for each class of Shares and shall submit such reports to the Fund's Board of
Trustees on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the
agreements contemplated hereby, the purposes for which such payments were made
and such other information as the Board of Trustees or the Disinterested
Trustees may reasonably request from time to time, and the Board of Trustees
shall review such reports and other information.

9.       This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Trustees or by a
"majority of the outstanding voting securities"  of the respective class of
Shares of the Fund.

10.      This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Trustees and a majority of the Disinterested Trustees
by vote cast separately with respect to each class of Shares cast in person at
a meeting called for the purpose of voting on this Distribution Plan, and (b)
with respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.


11.      This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the first anniversary of its adoption by the Board of Trustees
of the Fund only so long as (a) its continuation is approved at least annually
in the manner set forth in clause (a) of paragraph 10 above and (b) the
selection and nomination of those trustees of the Fund who are not "interested
persons" of the Fund are committed to the discretion of such trustees.

12.      This Service Plan may not be amended to increase materially the
maximum amounts permitted to be expended hereunder except with the approval of
a "majority of the outstanding voting securities" of the respective class of
Shares of the Fund.  This Service Plan may not be amended in any material
respect except with the approval of a majority of the Disinterested Trustees.
Amendments required to conform requirements of the Investment Company Act of
1940, the rules and regulations thereunder, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. or other applicable law shall
not be deemed to be material amendments.

         The Trustees of the Trust have adopted this Service Plan as trustees
under the Declaration of Trust of the Trust and the policies of the Trust
adopted hereby are not binding upon any of the Trustees or shareholders of the
Trust individually, but bind only the trust estate.



                                      2


<PAGE>   1
                                                            EXHIBIT (n)

                       CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders
    Van Kampen American Capital Senior Floating Rate Fund:

We consent to the reference to our Firm under the heading "Experts"
in the Prospectus.

Chicago, Illinois
December 29, 1997             /s/ KPMG Peat Marwick LLP


<PAGE>   1
                                                     EXHIBIT (p)

December 23, 1997


Van Kampen American Capital Senior Floating Rate Fund
One Parkview Plaza
Oakbrook Terrace, Illinois 60181


Dear Sirs:

The initial $100,000.00 investment by Van Kampen American Capital Distributors,
Inc. for 10,000 Common Shares of Van Kampen American Capital Senior Floating
Rate Fund will not be redeemed while any organizational expenses remain
unamortized unless the proceeds of any redemption of that initial investment are
reduced by their pro rata portion of any unamortized organizational expenses.
These shares are purchased for investment purposes, and Van Kampen American 
Capital Distributors, Inc. has no present intention of selling or publicly 
distributing these shares.

Sincerely,

/s/ William R. Molinari
- -------------------------------------
William R. Molinari
President and Chief Operating Officer


<PAGE>   1
                                                                    Exhibit 24




                                POWER OF ATTORNEY

         The undersigned, being officers and trustees of Van Kampen American
Capital Senior Floating rate Fund, a Massachusetts business trust (the "Fund"),
do hereby, in the capacities shown below, individually appoint Ronald A. Nyberg
and Dennis J. McDonnell, of Oakbrook Terrace, Illinois, as the agents and
attorneys-in-fact with full power of substitution and resubstitution, for each
of the undersigned, to execute and deliver, for and on behalf of the
undersigned, a Certificate of Trustees and any corresponding documents with
regard to the name changes of the Fund and all amendments thereto, upon the
advice of counsel, filed by the Fund with the Commonwealth of Massachusetts and
any other regulating entity pursuant to the provisions of the Securities Act of
1933 and the Investment Company Act OF 1940.

         This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.

Dated:  December 19, 1997

<TABLE>
<CAPTION>
                 SIGNATURE                                                  TITLE
                 ---------                                                  -----

<S>                                                                         <C>

/S/ Dennis J. McDonnell                                                     Chairman and Trustee
- ----------------------------------------                                                        
Dennis J. McDonnell


/S/ David C. Arch                                                           Trustee
- ----------------------------------------                                           
DAVID C. ARCH


/S/ Rod Dammeyer                                                            Trustee
- --------------------------------------                                             
Rod Dammeyer


/S/ Steven Muller                                                           Trustee
- -----------------------------------------                                          
Steven Muller


/S/ Theodore A. Myers                                                       Trustee
- -----------------------------------------                                          
THEODORE A. MYERS


/S/ Don G. Powell                                                           Trustee
- -----------------------------------------                                          
DON G. POWELL


/S/ Hugo F. Sonnenschein                                                    Trustee
- ------------------------------------------                                         
Hugo F. Sonnenschein


/S/ Howard J Kerr                                                           Trustee
- -----------------------------------------                                          
Howard J Kerr


/S/ Wayne W. Whalen                                                         Trustee
- ----------------------------------------                                           
Wayne W. Whalen


/S/ Edward C. Wood III                                                      Senior Vice President and
- ----------------------------------------                                    Chief Financial Officer                   
Edward C. Wood III                                                                                 
                                                                                                   
</TABLE>


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