VAN KAMPEN SENIOR FLOATING RATE FUND, 497, 1998-12-11

VAN KAMPEN SENIOR FLOATING RATE FUND
497, 1998-12-11

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VAN KAMPEN SENIOR FLOATING RATE FUND
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The Van Kampen Senior Floating Rate Fund's objective is to provide a high
level of current income, consistent with preservation of capital. The Fund
invests primarily in adjustable rate Senior Loans. Senior Loans are business
loans that have a senior right to payment. They are made to corporations and
other Borrowers and are often secured by specific assets of the Borrower. The
Fund believes that investing in adjustable rate Senior Loans should limit
fluctuations in net asset value caused by changes in interest rates. You should,
however, expect the Fund's net asset value to fluctuate as a result of changes
in Borrower credit quality and other factors.

There is no assurance that the Fund will achieve its investment objective. You
should carefully consider the risks of investing in the Fund. See "Special Risk
Considerations."

The Fund offers common shares of beneficial interest. The Fund's Shares have
no trading market and no market is expected to develop. You should consider your
investment in the Fund to be illiquid. In order to provide Shareholders an
opportunity to sell their Shares, the Fund currently intends to offer to
repurchase at net asset value a portion of its outstanding Shares each quarter.
There is no guarantee that you will be able to sell your Shares at any given
time. If you hold your Shares for less than one year, you will likely be charged
an early withdrawal charge at the time the Fund repurchases your Shares.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE REGULATOR HAS
APPROVED OR DISAPPROVED OF THE SHARES OR PASSED ON THE ADEQUACY OF THIS
PROSPECTUS. A REPRESENTATION TO THE CONTRARY IS A CRIME.

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

The Fund continuously offers its Shares through Van Kampen Funds Inc., as
principal underwriter, and through selected broker-dealers and financial
services firms, at a price per Share equal to net asset value. There is no
initial sales charge or underwriting discount on purchases of Shares. Van Kampen
Funds Inc. will pay 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.

The Fund's investment adviser is Van Kampen Investment Advisory Corp. This
prospectus sets forth the information about the Fund that you should know before
investing. You should keep it for future reference. More information about the
Fund, including a Statement of Additional Information dated December 9, 1998,
has been filed with the Securities and Exchange Commission. This information is
available upon written or oral request without charge. The Fund's Statement of
Additional Information is incorporated herein by reference. You may get a copy
of it by calling 1-800-341-2911. A table of contents for the Statement of
Additional Information is on page 28. The SEC maintains a web site at
http://www.sec.gov that contains the Statement of Additional Information,
material incorporated by reference and other information about SEC registrants.

VAN KAMPEN FUNDS LOGO

THIS PROSPECTUS IS DATED DECEMBER 9, 1998.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses............................................... 3
Prospectus Summary.......................................... 4
Financial Highlights........................................ 7
The Fund.................................................... 8
Investment Objective and Policies........................... 8
Special Risk Considerations................................. 12
Investment Practices and Special Risks...................... 15
Taxation.................................................... 18
Management of the Fund...................................... 19
Distributions............................................... 20
Dividend Reinvestment Plan.................................. 21
Repurchase of Shares........................................ 21
Description of Common Shares................................ 23
Purchasing Shares of the Fund............................... 24
Communications With Shareholders............................ 26
Custodian, Dividend Disbursing and Transfer Agent........... 27
Legal Opinions.............................................. 27
Experts..................................................... 27
Additional Information...................................... 27
Table of Contents for the Statement of Additional
Information............................................... 28
Appendix A.................................................. A-1
</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 VAN KAMPEN FUNDS INC. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE 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.

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FUND EXPENSES
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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................................................ None
Early Withdrawal Charge................................... 0.00-1.00%(1)
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO COMMON SHARES)
Investment Advisory and Administration Fees(2)............ .98%
Interest Payments on Borrowed Funds....................... 0.00%
Other Expenses (including service fee of 0.15%) (net of
expense reimbursements)(2).............................. 0.72%
----------
Total Annual Operating Expenses(2).................... 1.70%
</TABLE>

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(1) An early withdrawal charge of 1.00% will be imposed on most Shares accepted
by the Fund for repurchase which have been held for less than one year. See
"Repurchase of Shares" for additional information.

(2) The Adviser has agreed to waive investment advisory fees or reimburse the
Fund for other operating expenses from the Fund's commencement of investment
operations through the end of the Fund's first full fiscal year to the
extent necessary so that Total Annual Operating Expenses for such period
will not exceed 1.70%. In the absence of expense reimbursements, Investment
Advisory and Administrative Fees would be 1.20%, "Other Expenses" would be
.72% and "Total Annual Operating Expenses" would be 1.92%. 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 Shares................................ $17 $54 $92 $201
Assuming tender and repurchase of Shares on last day of
period and imposition of maximum applicable early withdrawal
charge...................................................... $27 $54 $92 $201
</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. 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.

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PROSPECTUS SUMMARY
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This summary is qualified by reference to the more detailed information
included elsewhere in this Prospectus and in the Statement of Additional
Information.

THE FUND. Van Kampen Senior Floating Rate Fund is a non-diversified,
closed-end management investment company. The Fund completed an initial public
offering of its common shares of beneficial interest in March, 1998. Since
March, 1998 the Fund has continuously offered its Shares through Van Kampen
Funds Inc. ("VKF") as principal underwriter. As of September 30, 1998, the Fund
had 56,713,996 Shares outstanding and had net assets of $569,723,425.

THE OFFERING. The Fund continuously offers Shares through VKF and through
selected broker-dealers and financial services firms at net asset value. There
is no initial sales charge or underwriting discount on purchases of Shares. VKF
pays 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.

INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment objective is to
provide a high level of current income, consistent with preservation of capital.
There is no assurance that the Fund will achieve its investment objective. You
should carefully consider the risks of investing in the Fund. See "Special Risk
Considerations."

The Fund plans to invest at least 80% of its total assets in adjustable rate
Senior Loans. Senior Loans are business loans made to Borrowers that may be
corporations, partnerships or other entities. These Borrowers operate in a
variety of industries and geographic regions. The interest rates on Senior Loans
adjust periodically, and the Fund's portfolio of Senior Loans will at all times
have a dollar-weighted average time until the next interest rate adjustment of
90 days or less. The Fund believes that investing in adjustable rate Senior
Loans should limit fluctuations in its net asset value caused by changes in
interest rates.

Senior Loans generally are negotiated between a Borrower and several financial
institution Lenders represented by one or more Lenders acting as agent of all
the Lenders. The Agent is responsible for negotiating the Loan Agreement that
establishes the terms and conditions of the Senior Loan and the rights of the
Borrower and the Lenders. The Fund may act as one of the group of Original
Lenders originating a Senior Loan, may purchase Assignments of portions of
Senior Loans from third parties and may invest in Participations in Senior
Loans. Senior Loans may include certain foreign senior debt that is in the form
of notes and not Loan Agreements.

Senior Loans have the most senior position in a Borrower's capital structure
or share the senior position with other senior debt securities of the Borrower.
This capital structure position generally gives holders of Seniors Loans a
priority claim on some or all of the Borrower's assets in the event of default.
Most of the Fund's Senior Loan investments will be secured by specific assets of
the Borrower. Senior Loans also have contractual terms designed to protect
Lenders. The Fund will only acquire Senior Loans of Borrowers that, in the
Adviser's judgment, can make timely payments on their Senior Loans and that
satisfy other credit standards established by the Adviser. Because of their
protective features, the Fund and the Adviser believe that Senior Loans of
Borrowers that either are experiencing, or are more likely to experience,
financial difficulty may represent attractive investment opportunities.
Investing in Senior Loans does, however, involve investment risk, and some
Borrowers default on their Senior Loan payments. The Fund attempts to manage
these risks through selection of a varied portfolio of Senior Loans and careful
analyses and monitoring of Borrowers. Nevertheless, you should expect that the
Fund's net asset value will fluctuate as a result of changes in the credit
quality of Borrowers and other factors. See "Special Risk
Considerations -- Borrower Credit Risk."

Following are some of the Fund's other important investment policies: The Fund
may invest up to 20% of its assets in Senior Loans that are not secured by any
specific collateral. The Fund may invest up to 5% of its total assets in Senior
Loans made to non-U.S. Borrowers. These Senior Loans must, however, be U.S.
dollar denominated and pay principal and interest in U.S. dollars. The Fund may
invest up to 5% of its total assets in any combination of the following: (1)
warrants, equity securities and junior debt securities in each case that are
acquired in connection with the acquisition, restructuring or disposition of a
Senior Loan, and (2) high quality short-term debt securities.

SHARE REPURCHASES. The Fund currently intends, each quarter, to offer to
repurchase a portion of its outstanding Shares at their then current net asset
value. Each repurchase must be preapproved by the Fund's Board of Trustees. To
date, the Fund has repurchased Shares every quarter since it began operations.
The Fund will impose an early withdrawal charge

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payable to VKF on most Shares accepted for repurchase that have been held for
less than one year. There is no assurance that the Fund will in fact offer to
repurchase any of its Shares. If the Fund does offer to repurchase Shares there
is no guarantee that all or any Shares tendered will be purchased. The Fund may
borrow to finance repurchases of Shares. Borrowings entail additional risks.

INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the Fund's
investment adviser. The Adviser also serves as investment adviser to Van Kampen
Senior Income Trust, a closed-end investment company listed on the New York
Stock Exchange, and to Van Kampen Prime Rate Income Trust, a closed-end
investment company engaged in a continuous offering. These funds also invest
primarily in Senior Loans. As of September 30, 1998, the Fund together with
these funds had over $10.8 billion in assets. See "Management of the Fund."

ADMINISTRATOR. Van Kampen Investments Inc. is the Fund's administrator (the
"Administrator"). See "Management of the Fund."

FEES AND EXPENSES. The Fund will pay the Adviser a fee at an annual rate of
0.95% of the average daily net assets of the Fund. This fee is reduced on assets
in excess of $4 billion. The Fund will pay the Administrator a fee at an annual
rate of 0.25% of the average daily net assets of the Fund. See "Management of
the Fund."

SERVICE PLAN. The Fund will also pay service fees for personal services
and/or the maintenance of shareholder accounts to VKF and broker-dealers and
other persons. These payments will not exceed 0.25% of the Fund's average daily
net assets for any fiscal year. The Trustees of the Fund have initially
authorized the Fund to make quarterly service fee payments to VKF and
broker-dealers in amounts not expected to exceed 0.15% of the Fund's average
daily net assets. See "Purchasing Shares of the Fund."

DISTRIBUTIONS. The Fund plans to make monthly distributions of substantially
all net investment income. Distributions cannot be assured, and the amount of
each distribution is likely to vary. Net realized long-term capital gains, if
any, will be distributed at least annually.

DIVIDEND REINVESTMENT PLAN. You may elect to have your dividends and capital
gain distributions automatically reinvested in additional Shares purchased from
the Fund at net asset value. If you do not elect to participate in this dividend
reinvestment plan you will receive distributions in cash.

SPECIAL RISK CONSIDERATIONS

NO TRADING MARKET FOR SHARES. 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 Shares for trading on any national securities
exchange. There is no secondary trading market for Shares. An investment in the
Shares is illiquid. If the Fund's Board of Trustees does not authorize the Fund
to repurchase its Shares, you will not be able to sell your Shares. Even if the
Fund does make repurchases, there is no guarantee that you will be able to sell
all of the Shares that you desire to sell.

SENIOR LOANS. There is less readily available, reliable information about
most Senior Loans than is the case for many other types of securities. In
addition, there is no minimum rating or other independent evaluation of a
Borrower or its securities limiting the Fund's investments, and the Adviser
relies primarily on its own evaluation of Borrower credit quality rather than on
any available independent sources. As a result, the Fund is particularly
dependent on the analytical abilities of the Adviser.

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borrow to meet short-term cash requirements. Illiquid securities are also
difficult to value. See "Investment Objective and Policies."

BORROWER CREDIT RISK. Senior Loans, like most other debt obligations, are
subject to the risk of default. Default in the payment of interest or principal
on a Senior Loan will result in a reduction in income to the Fund, a reduction
in the value of the Senior Loan and a potential decrease in the Fund's net asset
value and market value. The risk of default will increase in the event of an
economic downturn or a substantial increase in interest rates.

The Fund may acquire Senior Loans of Borrowers that are experiencing, or are
more likely to experience, financial difficulty, including Senior Loans issued
in highly leveraged transactions. The Fund may even acquire and retain in its
portfolio Senior Loans of Borrowers that have filed for bankruptcy protection.
Because of the protective terms of Senior Loans, the Adviser believes that the
Fund is more likely to recover more of its investment in a defaulted Senior Loan
than would be the case for most other types of defaulted debt securities.
Nevertheless, even in the case of collateralized Senior Loans, there is no
assurance that sale of the collateral would raise enough cash to satisfy the
Borrower's payment obligation or that the collateral can or will be liquidated.
In the case of bankruptcy, liquidation may not occur and the court may not give
Lenders the full benefit of their senior position. Uncollateralized Senior Loans
involve a greater risk of loss.

INVESTMENT IN NON-U.S. ISSUERS. The Fund may invest up to 5% of its total
assets, measured at the time of investment, in U.S. dollar denominated Senior
Loans to Borrowers that are organized or located in countries other than the
United States. Although the Senior Loans will require payment of interest and
principal in U.S. dollars, these Borrowers may have significant non-U.S. dollar
revenues. 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 U.S. issuers, less rigorous regulatory requirements, differing
legal systems and laws relating to creditors' rights, the potential inability to
enforce legal judgments, fluctuations in currency values and the potential for
political, social and economic adversity.

PARTICIPATIONS. The Fund may purchase Participations in Senior Loans. Under a
Participation the Fund generally will have rights that are more limited than the
rights of Lenders or of persons who acquire a Senior Loan by Assignment. In a
Participation the Fund typically has a contractual relationship with the Lender
selling the Participation, but not with the Borrower. As a result, the Fund
assumes the credit risk of the Lender selling the Participation in addition to
the credit risk of the Borrower. In the event of the insolvency of the Lender
selling the Participation, the Fund may be treated as a general creditor of the
Lender and may not have a senior claim to the Lender's interest in the Senior
Loan.

FUND BORROWINGS. The Fund is authorized to borrow money in an amount up to
33 1/3% of the Fund's total assets (including the amount borrowed) to finance
repurchases of Shares. The rights of any lenders to the Fund to receive payments
of interest on and repayments of principal of any borrowings will be senior to
the rights of Shareholders. The loan agreement for any borrowing likely will
limit certain activities of the Fund, including the payment of dividends to
holders of Shares in certain circumstances. Interest payments and fees incurred
in connection with borrowings will reduce the amount of net income available for
payment to Shareholders. The Fund will not use borrowings for investment
leverage purposes. Accordingly, the Fund will not purchase additional portfolio
securities at any time that borrowings exceed 5% of the Fund's total assets
(including the amount borrowed). See "Repurchase of Shares."

NON-DIVERSIFIED STATUS. The Fund has registered as a "non-diversified"
investment company. This means that it may invest more than 5% of the value of
its assets in the obligations of any single issuer, including Senior Loans of a
single Borrower and Participations purchased from a single Lender. Although the
Fund does not intend to invest more than 5% of the value of its assets in Senior
Loans of a single Borrower, it may invest more than 5% of its assets in
Participations purchased from a single Lender. If the Fund invests a relatively
high percentage of its assets in obligations of a limited number of issuers, the
Fund will be more at risk to any single corporate, economic, political or
regulatory event that impacts one or more of those issuers.

CERTAIN INVESTMENT PRACTICES. The Fund may use various investment practices
that involve special risks, including engaging in interest rate and other
hedging and risk management transactions. See "Investment Practices and Special
Risks."
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FINANCIAL HIGHLIGHTS (for one Share of the Fund outstanding throughout the
periods indicated)
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The following schedule presents financial highlights for one Share of the Fund
outstanding throughout the periods indicated. The financial highlights have been
audited by KPMG Peat Marwick LLP, independent certified public accountants for
the periods indicated, and their report thereon appears in the Fund's related
Statement of Additional Information. This information should be read in
conjunction with the financial statements and related notes included in the
Statement of Additional Information.

<TABLE>
<CAPTION>
MARCH 27, 1998
(COMMENCEMENT
OF INVESTMENT
OPERATIONS) TO
JULY 31, 1998
--------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.000
-------
Net Investment Income..................................... .213
Net Realized and Unrealized Gain/Loss..................... .034
-------
Total from Investment
Operations................................................ .247
-------
Less:
Distributions from Net Investment Income.................. .210
-------
Total Distributions......................................... .210
-------
Net Asset Value, End of Period.............................. $10.037
=======
Total Return(1)(2).......................................... 2.52%*
Net Assets at End of Period (in millions)................... $ 411.4
Ratio of Expenses to Average Net Assets(1).................. 1.70%
Ratio of Net Investment Income to Average Net Assets(1)..... 6.33%
Portfolio Turnover(3)....................................... 4%*
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(1) If certain expenses had not been assumed by the
investment adviser, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (Annualized)..... 1.92%
Ratio of Net Investment Income to Average Net Assets
(Annualized)............................................. 6.11%
(2) Total Return is based upon net asset value which does
not include payment of the early withdrawal charge.
(3) Calculation includes the proceeds from principal
repayments and sales of variable rate senior loan
interests.
</TABLE>

* Non-Annualized

See Financial Statements and Notes to Financial Statements.

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THE FUND
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Van Kampen Senior Floating Rate Fund (the "Fund") is a non-diversified,
closed-end management investment company. It was organized as a Massachusetts
business trust on December 19, 1997 and on July 17, 1998 adopted its current
name. The Fund completed an initial public offering of its common shares of
beneficial interest ("Shares") in March, 1998. Since March, 1998, the Fund has
continuously offered its Shares through Van Kampen Funds Inc. ("VKF") as
principal underwriter. The net proceeds from the sale of the Shares will be
invested in accordance with the Fund's investment objective and policies. The
Fund's principal office is located at 1 Parkview Plaza, P.O. Box 5555, Oakbrook
Terrace, Illinois 60181-5555 and its telephone number is 1-800-421-5666.

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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide a high level of current income,
consistent with preservation of capital. An investment in the Fund may not be
appropriate for all investors and should not be considered a complete investment
program. There is no assurance that the Fund will achieve its investment
objective. You should carefully consider the risks of investing in the Fund. See
"Special Risk Considerations."

DESCRIPTION OF SENIOR LOANS

In normal market conditions, the Fund plans to invest at least 80% of its
assets in adjustable rate senior loans ("Senior Loans"). Because Senior Loans
have very large minimum investments, typically $5 million or more, the Fund
provides individual investors access to a market that normally is limited to
institutional investors.

INTEREST RATES AND MATURITY. Interest rates on Senior Loans adjust
periodically. The interest rates are adjusted based on a base rate plus a
premium or spread over the base rate. The base rate usually is the London
Inter-Bank Offered Rate ("LIBOR"), the prime rate offered by one or more major
United States banks (the "Prime Rate") or the certificate of deposit ("CD") rate
or other base lending rates used by commercial lenders. LIBOR, as provided for
in Loan Agreements, usually is an average of the interest rates quoted by
several designated banks as the rates at which they pay interest to major
depositors in the London interbank market on U.S. dollar denominated deposits.
The Adviser believes that changes in short-term LIBOR rates are closely related
to changes in the Federal Reserve federal funds rate, although the two are not
technically linked. The Prime Rate quoted by a major U.S. bank is generally the
interest rate at which that bank is willing to lend U.S. dollars to is most
creditworthy borrowers, although it may not be the bank's lowest available rate.
The CD rate, as provided for in Loan Agreements, usually is the average rate
paid on large certificates of deposit traded in the secondary market. In normal
market conditions, the Fund will invest at least 65% of its net assets in Senior
Loans with interest rates that adjust periodically.

Interest rates on Senior Loans may adjust daily, monthly, quarterly,
semi-annually or annually. The Fund will not invest more than 5% of its total
assets in Senior Loans with interest rates that adjust less often than
semi-annually. The Fund may use interest rate swaps and other investment
practices to shorten the effective interest rate adjustment period of Senior
Loans. If the Fund does so, it considers the shortened period to be the
adjustment period of the Senior Loan. The Fund's portfolio of Senior Loans will
at all times have a dollar-weighted average time until the next interest rate
adjustment of 90 days or less. As short term interest rates rise, interest
payable to the Fund should increase. As short term interest rates decline,
interest payable to the Fund should decrease. The amount of time that will pass
before the Fund experiences the effects of changing short-term interest rates
will depend on the dollar-weighted average time until the next interest rate
adjustment on the Fund's portfolio of Senior Loans.

When interest rates rise, the values of fixed income securities generally
decline. When interest rates fall, the values of fixed income securities
generally increase. The Fund believes that investing in adjustable rate Senior
Loans should limit fluctuations in the Fund's net asset value caused by changes
in interest rates. The Fund expects the values of its Senior Loan investments to
fluctuate less than the values of fixed rate, longer-term income securities in
response to the changes in interest rates. Changes in interest rates can,
however, cause some fluctuation in the Fund's net asset value.

The Fund expects that its Senior Loans will have stated maturities ranging
from three to ten years, although the Fund has no policy limiting the maturity
of Senior Loans that it purchases. Senior Loans usually have mandatory and
optional

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<PAGE> 9

prepayment provisions. Because of prepayments, the actual remaining maturity of
Senior Loans may be considerably less than their stated maturity. The Fund
estimates that the actual maturity of the Senior Loans in its portfolio will be
approximately 18-24 months. Because the interest rates on Senior Loans adjust
periodically, the Fund and the Adviser believe that the reinvestment by the Fund
in Senior Loans after prepayment should not result in a significant reduction in
the interest payable to the Fund. Fees received by the Fund may even enhance the
Fund's income. See " -- The Senior Loan Process," below.

PROTECTIVE PROVISIONS OF SENIOR LOANS. Senior Loans have the most senior
position in a Borrower's capital structure or share the senior position with
other senior debt securities of the Borrower. This capital structure position
generally gives holders of Senior Loans a priority claim on some or all of the
Borrower's assets in the event of default. Most of the Fund's Senior Loan
investments will be secured by specific assets of the Borrower. These Senior
Loans will frequently be secured by all assets of the Borrower that qualify as
collateral, such as trademarks, accounts receivable, inventory, buildings, real
estate, franchises, and common and preferred stock in its subsidiaries and
affiliates. Collateral may also include guarantees or other credit support by
affiliates of the Borrower. In some cases, a collateralized Senior Loan may be
secured only by stock of the Borrower or its subsidiaries. The Loan Agreement
may or may not require the Borrower to pledge additional collateral to secure
the Senior Loan if the value of the initial collateral declines. In certain
circumstances, the Loan Agreement may authorize the Agent to liquidate the
collateral and to distribute the liquidation proceeds pro rata among the
Lenders. The Fund may invest up to 20% of its total assets in Senior Loans that
are not secured by specific collateral. Such unsecured Senior Loans involve a
greater risk of loss.

Senior Loans also have contractual terms designed to protect Lenders. Loan
Agreements often include restrictive covenants that limit the activities of the
Borrower. These covenants may include mandatory prepayment out of excess cash
flows, restrictions on dividend payments, the maintenance of minimum financial
ratios, limits on indebtedness and other financial tests. Breach of these
covenants generally is an event of default and, if not waived by the Lenders,
may give Lenders the right to accelerate principal and interest payments.

BORROWERS. Senior Loans are loans made to corporations, partnerships and
other entities ("Borrowers"). Borrowers operate in a variety of industries and
geographic regions. The Fund does not intend to invest more than 5% of its total
assets in Senior Loans of a single Borrower. In addition, the Fund will not
invest more than 25% of its total assets in Borrowers that conduct their
principal businesses in the same industry. Most Senior Loans are made to U.S.
Borrowers. The Fund may, however, invest up to 5% of its total assets in Senior
Loans made to non-U.S. Borrowers. These Senior Loans must be U.S. dollar
denominated and pay principal and interest in U.S. dollars. Investing in Senior
Loans of non-U.S. Borrowers involves special risks. See "Special Risk
Considerations -- Investment in Non-U.S. Issuers."

The capital structure of a Borrower may include Senior Loans, senior and
junior subordinated debt, preferred stock and common stock. Senior Loans
typically have the most senior claim on Borrower's assets and common stock the
most junior claim. The proceeds of Senior Loans that the Fund will purchase
usually will be used by Borrowers to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings
and, to a lesser extent, for general operating and other purposes.

The Fund may purchase and retain in its portfolio Senior Loans of Borrowers
that have filed for protection under the federal bankruptcy laws or that have
had involuntary bankruptcy petitions filed against them by creditors. Because of
the protective features of Senior Loans, the Fund and the Adviser believe that
Senior Loans of Borrowers that either are experiencing, or are more likely to
experience, financial difficulty may represent attractive investment
opportunities. Investing in Senior Loans does, however, involve investment risk,
and some Borrowers default on their Senior Loan payments. The Fund attempts to
manage these risks through selection of a varied portfolio of Senior Loans and
analyses and monitoring of Borrowers.

The Fund invests in a Senior Loan only if, in the Adviser's judgment, the
Borrower can meet its payment obligations. The Adviser performs its own
independent credit analysis of the Borrower in addition to utilizing information
prepared and supplied by the Agent or other Lenders. When evaluating a Borrower
the Adviser considers many factors, including the Borrower's past and future
projected financial performance. The Adviser also considers a Borrower's
management, collateral and industry. The Fund acquires a collateralized Senior
Loan only if the Adviser believes that the collateral coverage equals or exceeds
the outstanding principal amount of the Senior Loan. The Adviser continues to
monitor a Borrower on an ongoing basis for so long as the Fund continues to own
the Senior Loan. Although the Adviser will use its best judgment in selecting
Senior Loans, there can be no assurance that such analysis will disclose factors
that may impair
9
<PAGE> 10

the value of a Senior Loan. You should expect the Fund's net asset value to
fluctuate as a result of changes in the credit quality of Borrowers and other
factors. A serious deterioration in the credit quality of a Borrower could cause
a permanent decrease in the Fund's net asset value. See "Special Risk
Considerations -- Borrower Credit Risk."

The Adviser generally relies on its own credit analyses of Borrowers and not
on analyses prepared by ratings agencies or other independent parties. There is
no minimum rating or other independent evaluation of a Borrower or its
securities limiting the Fund's investments. Although a Senior Loan often is not
rated by any rating agency at the time the Fund purchases the Senior Loan,
rating agencies have become more active in rating an increasing number of Senior
Loans and at any given time a substantial portion of the Senior Loans in the
Fund's portfolio may be rated. The lack of a rating does not necessarily imply
that a Senior Loan is of lesser investment quality. There is no limit on the
percentage of the Fund's assets that may be invested in Senior Loans that are
rated below investment grade or that are unrated but of comparable quality.

The following table sets forth the market value, based on the higher of
Standard & Poor's or Moody's Investors Service, Inc. rating categories, of the
Senior Loans held by the Fund as of July 31, 1998:

<TABLE>
<S> <C>
Rated Obligations........................................... 47.8%
BB/Ba: 26.1%; B/B: 21.7%
Unrated Obligations......................................... 52.2%
</TABLE>

THE SENIOR LOAN PROCESS

Senior Loans generally are negotiated between a Borrower and several financial
institutions ("Lenders") represented by one or more Lenders acting as agent
("Agent") of all the Lenders. The Agent is responsible for negotiating the loan
agreement ("Loan Agreement") that establishes the terms and conditions of the
Senior Loan and the rights of the Borrower and the Lenders. The Agent is paid a
fee by the Borrower for its services.

The Agent generally is required to administer and manage the Senior Loan on
behalf of other Lenders. When evaluating Senior Loans, the Adviser may consider,
and may rely in part, on analysis performed by the Agent and other Lenders. This
analysis may include an evaluation of the value and sufficiency of any
collateral securing Senior Loans. As to collateralized Senior Loans, the Agent
usually is required to monitor the collateral. The Agent may rely on independent
appraisals of specific collateral. The Agent need not, however, obtain an
independent appraisal of assets pledged as collateral in all cases. The Agent
generally is also responsible for determining that the Lenders have obtained a
perfected security interest in the collateral securing a Senior Loan.

The Fund normally relies on the Agent to collect principal of and interest on
a Senior Loan. Furthermore, the Fund also relies in part on the Agent to monitor
compliance by the Borrower with the restrictive covenants in the Loan Agreement
and to notify the Fund (or the Lender from who the Fund has purchased a
Participation) of any adverse change in the Borrower's financial condition. The
Fund acts as a Lender with respect to a syndicated Senior Loan only where the
Agent at the time of investment has outstanding debt or deposit obligations
rated investment grade by a rating agency or determined by the Adviser to be of
comparable quality. A rating agency's top four major rating categories generally
are considered to be investment grade. For a description of Moody's Investor's
Service, Inc. rating categories see Appendix A. The lowest tier of investment
grade rating is considered to have speculative characteristics. The Fund will
not purchase interests in Senior Loans unless the Agent, Lender and any other
person positioned between the Fund and the Borrower has entered into an
agreement that provides for the holding of assets in safekeeping for, or the
prompt disbursement of assets to, the Fund. Insolvency of the Agent or other
persons positioned between the Fund and the Borrower could result in losses for
the Fund. See "Special Risk Considerations -- Senior Loans."

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 include three primary types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to Lenders when
a Senior Loan is originated. Commitment fees are paid to Lenders on an ongoing
basis based on the unused portion of a Senior Loan commitment. Lenders may
receive prepayment penalties when a Borrower prepays a Senior Loan. The Fund
receives these fees directly from the Borrower if the Fund is an Original Lender
(as defined below) or, in the case of commitment fees and prepayment penalties,
if the Fund acquires an Assignment. Whether the Fund receives a facility fee in
the case of an Assignment, or any fees in the case of a Participation, depends
on negotiations between the Fund and the Lender selling

10
<PAGE> 11

such interests. When the Fund buys an Assignment, it may be required to pay a
fee, or forgo a portion of interest and fees payable to it, to the Lender
selling the Assignment. Occasionally, the assignor pays a fee to the assignee. A
person selling a Participation to the Fund may deduct a portion of the interest
and any fees payable to the Fund as an administrative fee. The Fund may be
required to pass along to a person that buys a Senior Loan from the Fund a
portion of any fees that the Fund is entitled to.

The Fund may have obligations under a Loan Agreement, including the obligation
to make additional loans in certain circumstances. The Fund intends to reserve
against such contingent obligations by segregating cash, liquid securities and
liquid Senior Loans as a reserve. The Fund will not purchase a Senior Loan that
would require the Fund to make additional loans if as a result of such purchase
all of the Fund's additional loan commitments in the aggregate would exceed 20%
of the Fund's total assets or would cause the Fund to fail to meet the asset
composition requirements set forth under the heading "Investment Restrictions"
in the Statement of Additional Information.

TYPES OF SENIOR LOAN INVESTMENTS

The Fund may act as one of the group of Lenders originating a Senior Loan (an
"Original Lender"), may purchase assignments or novations ("Assignments") of
portions of Senior Loans from third parties, and may invest in participations
("Participations") in Senior Loans. Senior Loans also include certain foreign
debt obligations that are in the form of notes rather than Loan Agreements. All
of these interests in Senior Loans are sometimes referred to simply as Senior
Loans.

ORIGINAL LENDER. When the Fund acts as an Original Lender it may participate
in structuring the Senior Loan. When the Fund is an Original 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 of interest on or
principal of a Senior Loan, releasing collateral, changing the maturity of a
Senior Loan or a change in control of the Borrower frequently require the
unanimous vote or consent of all Lenders affected. The Fund will never act as
the Agent or principal negotiator or administrator of a Senior Loan.

ASSIGNMENTS. 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. Assignments may, however, be arranged
through private negotiations, 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.

PARTICIPATIONS. When the Fund purchases a Participation in a Senior Loan, the
Fund will usually have a contractual relationship only with the Lender selling
the Participation and not with the Borrower. 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 the
Lender of such payments from the Borrower. As a result, the Fund may assume the
credit risk of both the Borrower and the Lender selling the Participation. In
the event of insolvency of the Lender selling a Participation, the Fund may be
treated as a general creditor of the Lender.

The Fund has taken the following measures in an effort to minimize these
risks. The Fund will only acquire Participations if the Lender selling the
Participation and any other persons positioned between the Fund and the Lender
(i) at the time of investment has outstanding debt or deposit obligations rated
investment grade by a rating Agency 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.

The Fund generally will not have the right to enforce compliance by the
Borrower with the Loan Agreement, nor rights to any funds acquired by other
Lenders through set-off against the Borrower. In addition, when the Fund holds a
Participation in a Senior Loan it may not have the right to vote on whether 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 may not consider the interests of
the Fund. The Fund may not benefit directly from the collateral supporting a
Senior Loan in which it has purchased the Participation, although Lenders that
sell Participations generally are required to distribute liquidation proceeds
received by them pro rata among the holders of such Participations.

11
<PAGE> 12

OTHER SENIOR DEBT SECURITIES. The Fund may invest up to 5% of its total
assets in certain senior debt securities that are in the form of notes or
assignments rather than Loan Agreements. The Fund expects to purchase these
senior debt securities only in the case of non-U.S. Borrowers. The Fund will
only purchase senior debt securities if (i) the senior debt securities represent
the only form of senior debt financing of the Borrower or (ii) the senior debt
securities are pari passu in the capital structure with other Senior Loans of a
Borrower and the Adviser determines that the terms, conditions, covenants and
collateral package of the senior debt securities are substantially similar, or
more favorable to the Fund, compared to the other Senior Loans of such Borrower.
There may be no person performing the role of the Agent for senior debt
securities. As a result, the Fund may be more dependent on the ability of the
Adviser to monitor and administer these Senior Loans. Senior debt securities
will be treated as Senior Loans for purposes of the Fund's policy of normally
investing at least 80% of its total assets in Senior Loans.

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 Senior 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 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 Senior Loan 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 total assets in Senior Loans.

OTHER IMPORTANT INVESTMENT POLICIES

The Fund may invest up to 20% of its total asset in warrants, equity
securities and junior debt securities acquired in connection with the
acquisition, restructuring or disposition of Senior Loans. The Fund also may
convert a warrant into the underlying security. Although the Fund generally will
acquire interests in warrants, equity and junior debt securities only when the
Adviser believes that the value being given by the Fund in exchange for such
interests is substantially outweighed by their potential value, investment in
warrants, equity and junior debt securities entails certain risks in addition to
those associated with investments in Senior Loans. These risks include the
potential for increasing fluctuations in the Fund's net asset value. 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.

During normal market conditions, the Fund may invest up to 20% of its total
assets in high quality, short-term debt securities with remaining maturities of
one year or less. These may include commercial paper rated at least in the top
two rating categories, 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 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. These securities may pay interest at adjustable rates or 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.

- --------------------------------------------------------------------------------
SPECIAL RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

NO TRADING MARKET FOR SHARES. The Fund is a closed-end investment company
designed for long-term investors. The Fund does not intend to list the Shares
for trading on any national securities exchange. There is not expected to be any
secondary trading market in the Shares. The Shares are illiquid. In the event
that the Fund's Board of Trustees does not authorize the Fund to make
repurchases of its Shares, you will not be able to otherwise sell your Shares.
Even if the Fund does make repurchases, there is no guarantee that you will be
able to resell to the Fund all of the Shares that you desire to sell at any
particular time.

SENIOR LOANS. There is less readily available, reliable information about most
Senior Loans than is the case for many other types of securities. In addition,
there is no minimum rating or other independent evaluation of a Borrower or its
securities limiting the Fund's investments, and the Adviser relies primarily on
its own evaluation of Borrower credit quality

12
<PAGE> 13

rather than on any available independent sources. As a result, the Fund is
particularly dependent on the analytical abilities of the Adviser.

Senior Loans are not listed on any national securities exchange or automated
quotation system and no active trading market exists for many Senior Loans. As a
result, many Senior Loans are illiquid, meaning that the Fund may not be able to
sell them quickly at a fair price. The market for illiquid securities is more
volatile than the market for liquid securities. However, many Senior Loans are
of a large principal amount and are held by a large number of owners. In the
Adviser's opinion, this should enhance their liquidity. In addition, in recent
years the number of institutional investors purchasing Senior Loans has
increased. The risks of illiquidity are particularly important when the Fund's
operations require cash, and may in certain circumstances require that the Fund
borrow to meet short-term cash requirements. To the extent that a secondary
market does exist for certain Senior Loans, the market may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods. The Fund has no limitation on the amount of its assets that may be
invested in securities that are not readily marketable or that are subject to
restrictions on resale. The substantial portion of the Fund's assets invested in
Senior Loans 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 losses to
the Fund and holders of Shares. The market for Senior Loans could be disrupted
in the event of an economic downturn or a substantial increase or decrease in
interest rates. This could result in increased volatility in the market and in
the Fund's net asset value and market price per Share. Illiquid securities are
also difficult to value.

If legislation or state or federal regulators impose additional requirements
or restrictions on the ability of financial institutions to make loans that are
considered highly leveraged transactions, the availability of Senior Loans for
investment by the Fund may be adversely affected. In addition, such requirements
or restrictions could reduce or eliminate sources of financing for certain
Borrowers. This would increase the risk of default. If legislation or federal or
state regulators require financial institutions to dispose of Senior Loans that
are considered highly leveraged transactions or subject such Senior Loans to
increased regulatory scrutiny, financial institutions may determine to sell such
Senior Loans. Such sales could result in prices that, in the opinion of the
Adviser, do not represent fair value. If the Fund attempts to sell a Senior Loan
at a time when a financial institution is engaging in such a sale, the price the
Fund could get for the Senior Loan may be adversely affected.

Selling Lenders and other persons positioned between the Fund and the Borrower
will likely conduct their principal business activities in the banking, finance
and financial services industries. The Fund may be more at risk to any single
economic, political or regulatory occurrence affecting such industries. Persons
engaged in such industries may be more susceptible 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.

Should an Agent or a Lender positioned between the Fund and a Borrower become
insolvent or enter FDIC receivership or bankruptcy, where the Fund is an
Original Lender or has purchased an Assignment any interest of such person in
the Senior Loan and in any loan payment held by such person for the benefit of
the Fund should not be included in the person's estate. If, however, these items
are included in their estate, the Fund would incur costs and delays in realizing
payment and could suffer a loss of principal or interest.

Some Senior Loans are subject to the risk that a court, pursuant to fraudulent
conveyance or other similar laws, could subordinate the Senior Loans to
presently existing or future indebtedness of the Borrower or take other action
detrimental to Lenders. Such court action could under certain circumstances
include invalidation of Senior Loans.

BORROWER CREDIT RISK. Senior Loans, like most other debt obligations, are
subject to the risk of default. Default in the payment of interest or principal
on a Senior Loan results in a reduction in income to the Fund, a reduction in
the value of the Senior Loan and a potential decrease in the Fund's net asset
value. The risk of default increases in the event of an economic downturn or a
substantial increase in interest rates. An increased risk of default could
result in a decline in the value of Senior Loans and in the Fund's net asset
value.

The Fund may acquire Senior Loans of Borrowers that are experiencing, or are
more likely to experience, financial difficulty, including Senior Loans of
Borrowers that have filed for bankruptcy protection. Borrowers may have
outstanding debt obligations that are rated below investment grade. More
recently, rating agencies have begun rating Senior Loans, and Senior Loans in
the Fund's portfolio may themselves be rated below investment grade. The Fund
may invest a substantial portion of its assets in Senior Loans of Borrowers that
have outstanding debt obligations rated below investment

13
<PAGE> 14

grade or that are unrated but of comparable quality to such securities. Debt
securities rated below investment grade are viewed by the rating agencies as
speculative and are commonly known as "junk bonds." Senior Loans generally are
not rated at the time that the Fund purchases them. If a Senior Loan is rated at
the time of purchase, the Adviser may consider the rating when evaluating the
Senior Loan but, in any event, does not view ratings as a determinative factor
in investment decisions. As a result, the Fund is more dependant on the
Adviser's credit analysis abilities. Because of the protective terms of Senior
Loans, the Adviser believes that the Fund is more likely to recover more of its
investment in a defaulted Senior Loan than would be the case for most other
types of defaulted debt securities. The values of Senior Loans of Borrowers that
have filed for bankruptcy protection or that are experiencing payment difficulty
will reflect, among other things, the Adviser's assessment of the likelihood
that the Fund ultimately will receive repayment of the principal amount of such
Senior Loans, the likely duration, if any, of a lapse in the scheduled payment
of interest and repayment of principal and prevailing interest rates.

In the case of collateralized Senior Loans, there is no assurance that sale of
the collateral would raise enough cash to satisfy the Borrower's payment
obligation or that the collateral can or will be liquidated. In the event of
bankruptcy, liquidation may not occur and the court may not give Lenders the
full benefit of their senior positions. 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 Loans. To the extent that
a Senior Loan is collateralized by stock in the Borrower or its subsidiaries,
such stock may lose all of its value in the event of bankruptcy of the Borrower.
Uncollateralized Senior Loans involve a greater risk of loss.

YEAR 2000 READINESS DISCLOSURE. The following two paragraphs constitute "Year
2000 Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act of 1998.

Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's Adviser, Administrator and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem". The Adviser and Administrator are taking steps that they believe are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that they use and to obtain reasonable assurances that comparable steps
are being taken by each of the Fund's other major service providers. At this
time, there can be no assurance that these steps will be sufficient to avoid any
adverse impact to the Fund.

In addition, it is possible that the markets for Senior Loans and other
securities in which the Fund invests may be detrimentally affected by computer
failures throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. Moreover, corporate and governmental data processing errors
may result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.

INVESTMENT IN NON-U.S. ISSUERS. The Fund may invest up to 5% of its total
assets, measured at the time of investment, in U.S. dollar denominated Senior
Loans to Borrowers that are organized or located in countries other than the
United States. Although the Senior Loans will require payment of interest and
principal in U.S. dollars, these Borrowers may have significant non-U.S. dollar
revenues. Investment in non-U.S. issuers involves special risks. These risks
include that non-U.S. issuers may be subject to less rigorous accounting and
reporting requirements than U.S. issuers, less rigorous regulatory requirements,
differing legal systems and laws relating to creditors' rights, the potential
inability to enforce legal judgments, fluctuations in currency values and the
potential for political, social and economic adversity.

EQUITY SECURITIES AND JUNIOR DEBT SECURITIES. Warrants, equity securities and
junior debt securities have a subordinate claim on a Borrower's assets as
compared with Senior Loans. As a result, the values of warrants, equity
securities and junior debt 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 increase the volatility of the Fund's net
asset value.

14
<PAGE> 15

FUND BORROWINGS. The Fund is authorized to borrow money in an amount up to
33 1/3% of the Fund's total assets (including the amount borrowed) to finance
repurchases of Shares. The rights of any lenders to the Fund to receive payments
of interest on and repayments of principal of any borrowings will be senior to
the rights of Shareholders. The loan agreement for any borrowing likely will
limit certain activities of the Fund, including the payment of dividends to
holders of Shares in certain circumstances. Interest payments and fees incurred
in connection with borrowings will reduce the amount of net income available for
payment to Shareholders. Borrowings may also result in greater volatility in the
Fund's net asset value. The Fund will not use borrowings for investment leverage
purposes. Accordingly, the Fund will not purchase additional portfolio
securities at any time that borrowings exceed 5% of the Fund's total assets
(including the amount borrowed). See "Repurchase of Shares."

ANTI-TAKEOVER PROVISIONS. The Fund's Declaration of Trust includes provisions
that could limit the ability of other persons to acquire control of the Fund or
to change the composition of its Board of Trustees. See "Description of Capital
Structure -- Anti-Takeover Provisions in the Declaration of Trust."

- --------------------------------------------------------------------------------
INVESTMENT PRACTICES AND SPECIAL RISKS
- --------------------------------------------------------------------------------

The Fund may: use interest rate and other hedging transactions, lend portfolio
holdings, purchase and sell Senior Loans and other securities on a "when issued"
or "delayed delivery" basis, and use repurchase and reverse repurchase
agreements. These investment practices involve risks. Although the Adviser
believes that these investment practices may aid the Fund in achieving its
investment objective, there is no assurance that these 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

15
<PAGE> 16

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 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.

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

16
<PAGE> 17

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 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.

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
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<PAGE> 18

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 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.

Distributions. Distributions of the Fund's net investment income are taxable
to holders of Shares as ordinary income, whether paid in cash or reinvested in
additional Shares. Distributions of the Fund's net capital gains ("capital gain
dividends"), if any, are taxable to holders of 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 gain dividends), see "Capital Gains Rates"
below. The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.

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<PAGE> 19

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 Shares and the amount received. If such Shares are
held as a capital asset, the gain or loss will be a capital gain or loss. For a
summary of the tax rates applicable to capital gains, see "Capital Gains Rates"
below. It is possible, although the Fund believes it is unlikely, that, in
connection with a tender offer, distributions to tendering shareholders may be
subject to tax as ordinary income (rather than as gain or loss), which in turn
may result in deemed distributions subject to tax as ordinary income for
non-tendering shareholders. The federal income tax consequences of the
repurchase of Shares pursuant to tender offers will be disclosed in the related
offering documents. Any loss recognized upon a taxable disposition of Shares
held for six months or less will be treated as a long-term capital loss to the
extent of any capital gain dividends received with respect to such Shares. For
purposes of determining whether Shares have been held for six months or less,
the holding period is suspended for any periods during which the shareholder's
risk of loss is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

Capital Gains Rates. The maximum tax rate applicable to net capital gains
recognized by individuals and certain other non-corporate taxpayers is (i) the
same as the maximum ordinary income tax rate for capital assets held for one
year or less or (ii) 20% for capital assets held for more than one year. The
maximum long-term capital gains rate for corporations is 35%.

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 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 Investment Advisory Corp. (the "Adviser") is the Fund's investment
adviser. The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
Van Kampen Investments Inc. is an indirect wholly-owned subsidiary of Morgan
Stanley Dean Witter & Co. The Adviser's principal office is located at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555.

Van Kampen Investments Inc. is a diversified asset management company with
more than two million retail investor accounts, extensive capabilities for
managing institutional portfolios, and more than $68 billion under management or
supervision. Van Kampen Investments Inc.'s more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide.

Morgan Stanley Dean Witter & 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 securities lending.

INVESTMENT ADVISORY AGREEMENT. Subject to the authority of the Board of
Trustees, 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 requires the Adviser to supply
investment research and portfolio management. The Adviser's responsibilities
include, but are not limited to:

- selecting which securities the Fund should purchase, hold or sell;

- choosing the brokers through which the Fund will execute its portfolio
transactions,

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<PAGE> 20

- furnishing offices, necessary facilities and equipment, and

- permitting the use of its officers and employees to serve without
compensation as Trustees and officers 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 the percentage of the Fund's average net assets shown in the table
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.

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENT PER ANNUM
- ------------------------ -----------------
<S> <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>

The Adviser may in its sole discretion from time to time waive all or a
portion of the investment advisory fee or reimburse the Fund for all or a
portion of its other expenses. The Adviser has agreed to waive investment
advisory fees or reimburse the Fund for other operating expenses from the Fund's
commencement of investment operations through the end of the Fund's first full
fiscal year to the extent necessary so that total annual operating expenses for
such period will not exceed 1.70%.

PORTFOLIO MANAGEMENT. Jeffrey W. Maillet is a Senior Vice President of the
Adviser and has been primarily responsible for the day to day management of the
Fund's portfolio since the Fund commenced investment operations. Mr. Maillet has
been employed by the Adviser since 1989. Mr. Maillet also has primary
responsibility for the day to day management of the portfolio of the Van Kampen
Prime Rate Income Trust, a continuously offered closed-end investment company,
and Van Kampen Senior Income Trust, a closed-end investment company listed on
the New York Stock Exchange, both investing primarily in Senior Loans and having
investment objectives and policies substantially similar to those of the Fund.

THE ADMINISTRATOR. The administrator for the Fund is Van Kampen Investments
Inc. ("Van Kampen" and in such capacity, the "Administrator"). Its principal
business address is 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois
60181-5555. The Administrator is the parent company of the Adviser.

Pursuant to the administration agreement between the Fund and the
Administrator (the "Administration Agreement"), the Administrator (i) monitors
provisions of Loan Agreements and any Participations and Assignments and is
responsible for recordkeeping for Senior Loans; (ii) arranges for the printing
and dissemination of reports to holders of Shares; (iii) arranges for
dissemination of the Fund's proxy and any tender offer materials to holders of
Shares, and oversees the tabulation of proxies by the Fund's transfer agent;
(iv) negotiates the terms and conditions under which custodian services are
provided to the Fund and the fees to be paid by the Fund in connection
therewith; (v) negotiates the terms and conditions under which dividend
disbursing services are provided to the Fund, and the fees to be paid by the
Fund in connection therewith and reviews the provision of dividend disbursing
services to the Fund; (vi) provides the Fund's dividend disbursing agent and
custodian with such information as is required for them to effect payment of
dividends and distributions and to implement the Fund's dividend reinvestment
plan; (vii) makes such reports and recommendations to the Board of Trustees as
the Trustees reasonably request; and (viii) provides 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 Shares of substantially all net investment income of the Fund. Net
investment income consists of all interest income, fee income and other ordinary
income earned by the Fund and net short-term capital gains, less all expenses of
the Fund. Expenses of the Fund are accrued each day. Distributions cannot be
assured, and the amount of each monthly distribution is likely to vary. Net

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<PAGE> 21

realized long-term capital gains, if any, generally will be distributed at least
annually. You may elect to have distributions automatically reinvested in
additional Shares. See "Dividend Reinvestment Plan."

- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------

You may choose to have your dividend and capital gain distributions reinvested
in additional Shares at net asset value (without a sales charge). If you do not
make this election, all distributions will be made in cash.

All correspondence concerning the dividend reinvestment plan should be
directed to the State Street Bank and Trust Company, as Plan Agent, c/o Van
Kampen 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. See "Dividend
Reinvestment Plan" in the Statement of Additional Information.

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 Shares invested into shares of 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 distribution payment
date. Purchases may be made only if shares of the selected fund are available
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 repurchase Shares through a tender offer for all or a
portion of the Fund's then outstanding Shares. Such repurchases would be made at
the net asset value of the Shares on the expiration date of the tender offer.
Management of the Fund expects to recommend that the Board of Trustees approve
such repurchases quarterly. Although tender offers, if undertaken and completed,
will provide some liquidity for holders of the Shares, there is no assurance
that tender offers will in fact be undertaken or completed or, if completed,
that they will provide sufficient liquidity for all holders of Shares who may
desire to sell such Shares. As such, investment in the Shares should be
considered illiquid. As of the date of this Prospectus, the Fund has commenced
and consummated tender offers in each quarter since the commencement of
investment operations. An early withdrawal charge payable to VKF will be imposed
on most 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 Shares
generally would increase the liquidity of the Shares, the repurchase of Shares
by the Fund will decrease the total assets of the Fund and, therefore, increase
the Fund's expense ratio. Because of the nature of the Fund's portfolio, the
Adviser anticipates potential difficulty in disposing of portfolio securities in
order to consummate tender offers for the Shares. As a result, the Fund may be
required to borrow money in order to finance repurchases.

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 "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

21
<PAGE> 22

condition which would have a material adverse effect on the Fund or the holders
of its Shares if Shares were repurchased. The Trustees may modify these
conditions in light of experience. Any tender offer made by the Fund for its
Shares will be at a price equal to the net asset value of the Shares determined
at the close of business on the day the offer ends.

The Fund's Declaration of Trust authorizes the Fund, without prior approval of
the holders of 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 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 repayment of principal of any such borrowings
will be senior to those of the holders of 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 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 Shares. The Fund does not intend to use borrowings for long-term
financial 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 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 Shares, a notice
describing the tender offer, containing information shareholders should consider
in deciding whether to tender their Shares and including instructions on how to
tender 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 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
Shares.

Upon the death of a holder of Shares, VKF will waive any early withdrawal
charge (discussed below) applicable to the first $100,000 worth of such holder's
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 VKF'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
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. 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 Shares. Information
concerning the waiver of the early withdrawal charge may be obtained by
contacting the Fund.

EARLY WITHDRAWAL CHARGE. An early withdrawal charge of 1% designed to recover
offering expenses will be charged in connection with most 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 Shares
accepted for cash tender from a record holder of Shares the value of which
exceeds the aggregate value at the time the tender is accepted of (a) all Shares
owned by such holder that were purchased more than one year prior to such
acceptance, (b) all Shares owned by such holder that

22
<PAGE> 23

were acquired through reinvestment of distributions, and (c) the increase, if
any, of value of all other Shares owned by such holder (namely those purchased
within the one year preceding the acceptance) over the purchase price of such
Shares. The early withdrawal charge will be paid to VKF. 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 Shares.

EXCHANGES. Tendering shareholders may elect to receive, in lieu of cash, the
proceeds from the tender of Shares of the Fund in contingent deferred sales
charge shares ("Class C Shares") of certain open-end investment companies ("VK
Funds") distributed by VKF. The Early Withdrawal Charge will be waived for
Shares tendered in exchange for Class C Shares in the VK Funds; however, such
Class C Shares immediately become subject to a contingent deferred sales charge
equivalent to the Early Withdrawal Charge on Shares of the Fund. Thus, shares of
such VK Funds may be subject to a contingent deferred sales charge upon a
subsequent redemption from the VK Funds. The purchase of shares of such VK Fund
will be deemed to have occurred at the time of the initial purchase of the
Shares of the Fund for calculating the applicable contingent deferred sales
charge.

The prospectus for each VK Fund describes its investment objectives and
policies. Shareholders can obtain, without charge, a prospectus by calling
1-800-341-2911 and should consider these objectives and policies carefully
before requesting an exchange. Each exchange must involve proceeds from Shares
which have a net asset value of at least $500. An exchange is a taxable event
and may result in a taxable gain or loss.
- --------------------------------------------------------------------------------
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,
as amended to the date hereof (the "Declaration of Trust"). In connection with
its organization the Fund incurred approximately $140,000 in expenses. These
expenses are being amortized over a 60 month period. The Declaration of Trust
provides that the Trustees of the Fund may authorize separate classes of shares
of beneficial interest. The Trustees have authorized an unlimited number of
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
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 Share represents an equal proportionate interest in
the assets of the Fund with each other Share in the Fund. Holders of 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 Shares. Each whole 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 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 Shares credited to an investor's account. Share certificates
which have been issued to an investor may be returned at any time.

The 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 Shares. The following table
sets forth, since the commencement of the Fund's investment operations, for the
quarterly periods ending on the dates set forth below the high and low net asset
value per Share during such period.

<TABLE>
<CAPTION>
QUARTERLY PERIOD ENDING HIGH LOW
----------------------- -------- --------
<S> <C> <C>
September 30, 1998.......................................... $10.05 $10.03
June 30, 1998............................................... 10.04 10.00
March 31, 1998.............................................. 10.00 10.00
</TABLE>

23
<PAGE> 24

As of September 30, 1998, the net asset value per Share was $10.05. The
following table sets forth certain information with respect to the Shares as of
September 30, 1998:

<TABLE>
<CAPTION>
(3) (4)
AMOUNT AMOUNT
HELD OUTSTANDING
(2) BY FUND FOR EXCLUSIVE OF
(1) AMOUNT ITS OWN AMOUNT SHOWN
TITLE OF CLASS AUTHORIZED ACCOUNT UNDER (3)
-------------- ---------- ----------- ------------
<S> <C> <C> <C>
Common shares of beneficial interest, $.01 par value Unlimited 0 56,713,996
</TABLE>

To the knowledge of the Fund, as of September 30, 1998, no person held 5% or
more of the Fund's Shares either beneficially or of record. Further, as of such
date, officers and trustees of the Fund as a group owned less than 1% of the
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 Shares, such provisions could have the effect of depriving
holders of Shares of an opportunity to sell their Shares at a premium over
prevailing market prices.

The Declaration of Trust requires the favorable vote of the holders of at
least two-thirds of the outstanding Shares then entitled to vote to approve,
adopt or authorize certain transactions with 5%-or-greater holders of 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. For purposes of these provisions, a
5%-or-greater holder of 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
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).

A Trustee may be removed from office (i) with cause by a written instrument
signed by at least two-thirds of the remaining Trustees, (ii) without cause by a
written instrument signed by at least 80% of the remaining trustees or (iii) by
a vote of the holders of at least two-thirds of the Shares.

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 generally. Reference
should be made to the Declaration of Trust on file with the SEC for the full
text of these provisions.
- --------------------------------------------------------------------------------
PURCHASING SHARES OF THE FUND
- --------------------------------------------------------------------------------

The Fund offers continuously its Shares through VKF, the principal
underwriter, whose offices are located at 1 Parkview Plaza, P.O. Box 5555,
Oakbrook Terrace, Illinois 60181-5555. The 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 Shares at any time without prior notice.

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.

24
<PAGE> 25

The Shares will be offered by the Fund at the public offering price next
computed 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 Share. There will be
no initial sales charge or underwriting discount on purchases of Shares.

VKF will compensate broker-dealers participating in the continuous offering at
a rate of 0.75% of the dollar value of Shares purchased from the Fund by such
broker-dealers. If the Shares remain outstanding after one year from the date of
their original purchase, VKF will compensate such broker-dealers at an annual
rate, paid quarterly, equal to 0.75% of the dollar value of such Shares sold by
such broker-dealers and remaining outstanding. At various times VKF 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 Shares or the amount that the Fund will receive from
the sale of Shares. The compensation paid to broker-dealers at the time of
purchase and any quarterly payments mentioned above will be paid by VKF out of
its own assets, and not out of the assets of the Fund. An early withdrawal
charge payable to VKF will be imposed on most 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 VKF,
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. VKF 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
major features of the 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 VKF and
broker-dealers and other persons in amounts not exceeding 0.25% 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 VKF and broker-dealers in amounts not expected to exceed
0.15% of the Fund's average daily net assets for each fiscal year. VKF will
retain the service fee in the first year (as reimbursement for an initial
service fee payment of 0.15% 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 0.25% 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 VKF. 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. Shares are available for
purchase in connection with certain types of tax-sheltered retirement plans.
Eligible investors may establish individual retirement accounts ("IRAs");
Employee Pension Plans ("SEP's"); other pension and profit sharing plans; 401(k)
plans; or Section 403(b)(7) plans. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
Trust Company serves as custodian under the IRA, 403(b)(7) and Keogh plans.

The purchase of Shares 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.

25
<PAGE> 26

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 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
Share during such a monthly distribution period and dividing the annualized
distribution by the Fund's maximum offering price per 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 are based on historical performance and are not intended to indicate
future performance. Distribution rate, compounded distribution rate and net
asset value per share can be expected to fluctuate over time.

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.

<TABLE>
<CAPTION>
COMPARISON OF TREASURY BILL RATE AND
LONDON INTER-BANK OFFERED RATE
(AS OF 12/31 OF EACH CALENDAR YEAR)
-------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
3 Month Treasury Bill Rate(1)............................ 8.6000% 7.1000% 5.5300% 5.7700% 8.0700% 7.6300% 6.7400%
3 Month LIBOR(2)......................................... 8.7500% 8.0000% 6.3750% 7.4375% 9.6200% 8.3750% 7.6300%
</TABLE>

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
3 Month Treasury Bill Rate(1)............................ 4.0700% 3.2200% 3.0600% 5.6000% 5.1400% 4.9100% 5.1600%
3 Month LIBOR(2)......................................... 4.3125% 3.4375% 3.3750% 6.5000% 5.6250% 5.5625% 5.8125%
</TABLE>

- ---------------
(1) The 3 Month Treasury Bill Rate. Source: Bloomberg.

(2) The 3 Month 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.

26
<PAGE> 27

- --------------------------------------------------------------------------------
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 has custody
of the securities and cash of the Fund. The custodian, among other things,
attends to the collection of principal and income and payment for and collection
of proceeds of securities bought and sold by 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. Van Kampen
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 Shares offered hereby have been
passed upon for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP.
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------

The financial statements for the period ended July 31, 1998, 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.

27
<PAGE> 28

- --------------------------------------------------------------------------------
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies and Special Risk
Considerations............................................ B-2
Investment Restrictions..................................... B-2
Trustees and Officers....................................... B-4
Portfolio Transactions...................................... B-8
Management of the Fund...................................... B-10
Dividend Reinvestment Plan.................................. B-12
Net Asset Value............................................. B-13
Taxation.................................................... B-14
Repurchase of Shares........................................ B-16
Independent Accountants' Report............................. B-18
Financial Statements for the Period Ended July 31, 1998..... B-19
Notes to Financial Statements............................... B-27
</TABLE>

28
<PAGE> 29

APPENDIX A

MOODY'S INVESTORS SERVICE

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

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
category from Aa to Caa in the corporate finance sectors. The modifier 1
indicates that the issuer is in the higher end of its letter rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issuer is in the lower end of the letter ranking category.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
A-1
<PAGE> 30

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

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:

Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

-- Broad margins is earnings coverage of fixed financial charges and
high internal cash generation.

-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

STANDARD & POOR'S

A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

INVESTMENT GRADE

AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

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

A-2
<PAGE> 31

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

BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

SPECULATIVE GRADE

Debt rated 'BB', 'B', 'CC', and 'C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. 'BB' indicates the least degree of speculation and 'C' the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.

BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

B Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.

CCC Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.

CC The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.

C The rating 'C' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC-' rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI The rating 'CI' is reserved for income bonds on which no interest is being
paid.

D Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D' rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or minus (-) Ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

c the letter 'c' indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.

L The letter 'L' indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is federally
insured and interest is adequately collateralized. In the case of certificates
of deposit, the letter 'L' indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued predefault interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.

p The letter 'p' indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality

A-3
<PAGE> 32

subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.

* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming investments and
cash flows.

r The 'r' is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to noncredit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest-only and
principal-only mortgage securities.

The absence of an 'r' symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.

N.R. Not rated.

Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measures the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ('AAA', 'AA', 'A', 'BBB' commonly known as "investment-grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies, and fiduciaries generally.

COMMERCIAL PAPER RATING DEFINITIONS

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

Ratings are graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. These categories are as follows:

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designed 'A-1'.

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

A commercial paper rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

A-4
<PAGE> 33

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 VAN KAMPEN 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 SENIOR FLOATING RATE FUND
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555

Investment Adviser

VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555

Principal Underwriter

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555

Dividend Disbursing and Transfer Agent

VAN KAMPEN INVESTOR
SERVICES INC.
P.O. BOX 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Senior Floating Rate Fund

Custodian

STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen 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> 34

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

SENIOR FLOATING
RATE FUND

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

P R O S P E C T U S

DECEMBER 9, 1998

LOGO
SFR PRO 12/98
<PAGE> 35

VAN KAMPEN SENIOR FLOATING RATE FUND

STATEMENT OF ADDITIONAL INFORMATION

Van Kampen 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 December 9, 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- 2
Trustees and Officers....................................... B- 4
Portfolio Transactions...................................... B- 8
Management of the Fund...................................... B-10
Dividend Reinvestment Plan.................................. B-12
Net Asset Value............................................. B-13
Taxation.................................................... B-14
Repurchase of Shares........................................ B-16
Independent Accountants' Report............................. B-18
Financial Statements for the Period Ended July 31, 1998..... B-19
Notes to Financial Statements............................... B-27
</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 DECEMBER 9, 1998
B-1
<PAGE> 36

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 Considerations" 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 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, 25% or more 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> 37

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.

FUND STRUCTURE. The Fund's fundamental investment policies and restrictions
give the Fund the flexibility to pursue its investment objective through 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

B-3
<PAGE> 38

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.

TRUSTEES AND OFFICERS

The table below sets forth the officers and trustees of the Fund, their
principal occupations for the last five (5) years and their affiliations, if
any, with Van Kampen Investments Inc. ("Van Kampen"), Van Kampen Investment
Advisory Corp. (the "Adviser"), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc., the distributor of the Fund's shares
("VKF"), Van Kampen Management Inc., Van Kampen Advisors Inc., Van Kampen
Investor Services Inc., Van Kampen Insurance Agency of Illinois Inc., Van Kampen
Insurance Agency of Texas Inc., Van Kampen Recordkeeping Services Inc., American
Capital Contractual Services, Inc., Van Kampen Trust Company and Van Kampen
Exchange Corp. the Adviser and Asset Management sometimes are referred to herein
collectively as the "Advisers." For purposes hereof, the term "Fund Complex"
currently consists of 42 investment companies (including the Fund) advised by
the Adviser or its affiliates that have the same members on each investment
company's Board of Trustees. Unless otherwise noted the address of each of the
Trustees and officers is 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL
60181-5555.

DENNIS J. MCDONNELL,* DATE OF BIRTH 05/20/42, PRESIDENT, CHAIRMAN OF THE BOARD
AND TRUSTEE. Mr. McDonnell is Executive Vice President and a Director of Van
Kampen, President, Chief Operating Officer and a Director of the Advisers, Van
Kampen Advisors Inc., and Van Kampen Management Inc. Director or officer of
certain other subsidiaries of Van Kampen. Mr. McDonnell is also a Director of
Global Decisions Group LLC. Prior to July of 1998, Director and Executive Vice
President of VK/AC Holding, Inc. 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. Mr. McDonnell is also President, Chairman of the Board,
Trustee and Managing General Partner of each of the funds in the Fund Complex
and President of other investment companies advised by the Advisers or their
affiliates.

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 and Managing General Partner of each of the funds in the Fund
Complex.

ROD DAMMEYER, DATE OF BIRTH 11/05/40, TRUSTEE. Mr. Dammeyer is Managing Partner
of Equity Group Investments, Inc. (EGI), a company that makes private equity
investments in other companies, and Vice Chairman 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 member of
the Board of Directors of TeleTech Holdings Inc., Lukens, Inc., Metal
Management, Inc., Stericycle, Inc., Transmedia Networks, Inc., Jacor
Communications, Inc., CNA Surety, Corp., IMC Global Inc., Antec Corporation,
Groupo Azucarero Mexico (GAM) and Kent State University Foundation. 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. Prior to 1998, Mr.
Dammeyer was a Director of Capsure Holdings Corp., Revco D.S., Inc., the Chase
Manhattan Corporation National Advisory Board and Sealy, Inc. His address is Two
North Riverside Plaza,

B-4
<PAGE> 39

Suite 1950, Chicago, Illinois 60606. Mr. Dammeyer is also a Trustee and Managing
General Partner of each of the funds in the Fund Complex.

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 60523. Mr.
Arch is also a Trustee and Managing General Partner of each of the funds in the
Fund Complex.

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 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 each of the funds in the Fund Complex.

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 and Managing General
Partner of each of the funds in the Fund Complex.

DON G. POWELL,* DATE OF BIRTH 10/19/39, TRUSTEE. Mr. Powell is Chairman and a
Director of Van Kampen, VKF, the Advisers and Van Kampen Investor Services Inc.
Mr. Powell is also Chairman and Director of certain other subsidiaries of Van
Kampen, Chairman of the Board of Governors and the Executive Committee of the
Investment Company Institute. Prior to July 1998, Director and Chairman of VK/AC
Holding, Inc. Prior to November 1996, President, Chief Executive Officer and a
Director of VK/AC Holding, Inc. His address is 2800 Post Oak Blvd., Houston, TX
77056. Mr. Powell is Trustee and Managing General Partner of each of the funds
in the Fund Complex and Trustee and Director of other investment companies
advised by the Advisers or their affiliates.

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 and Managing General
Partner of each of the funds in the Fund Complex.

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), legal counsel
to each of the funds in the Fund Complex, and other investment companies advised
by the Advisers or their affiliates. His address is 333 West Wacker Drive,
Chicago, Illinois 60606. Mr. Whalen is also a Trustee and Managing General
Partner of each of the funds in the Fund Complex and Trustee and Director of
other investment companies advised by the Adviser or their affiliates.

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 Asset Management, Van Kampen Management, Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, he was a Director of McCarthy,
Crisanti & Maffei, Inc. He is Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by the Advisers or their
affiliates.

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 Management Inc. and Asset Management.

B-5
<PAGE> 40

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
Van Kampen. He is also Executive Vice President, General Counsel, Assistant
Secretary and Director of the Advisers, VKF and Van Kampen Investor Services
Inc., and of certain other subsidiaries of Van Kampen. Prior to July of 1998,
Mr. Nyberg was Executive Vice President, General Counsel, Secretary and Director
of VK/AC Holding, Inc. Prior to September of 1996, he was General Counsel of
McCarthy, Crisanti & Maffei, Inc. He is a Vice President and Secretary of each
of the funds in the Fund Complex and certain other investment companies advised
by the Advisers and their affiliates, and is a Director of ICI Mutual Insurance
Co., a provider of insurance to members of the Investment Company Institute.

EDWARD C. WOOD, III, DATE OF BIRTH 01/11/56, VICE PRESIDENT. Mr. Wood is Senior
Vice President of Van Kampen, the Advisers and Van Kampen Management Inc. He is
also Senior Vice President and Chief Operating Officer of VKF. Mr. Wood is Vice
President of each of the funds in the Fund Complex and certain other investment
companies advised by the Advisers and their affiliates.

CURTIS W. MORELL, DATE OF BIRTH 08/04/46, VICE PRESIDENT AND CHIEF ACCOUNTING
OFFICER. Mr. Morell is Senior Vice President of Van Kampen and the Advisers.
His address is 2800 Post Oak Blvd., Houston, TX 77056. Mr. Morell is Vice
President and Chief Accounting Officer of each of the funds in the Fund Complex
and certain other investment companies advised by the Advisers and their
affiliates.

WESTON B. WETHERELL, DATE OF BIRTH 06/15/56, ASSISTANT SECRETARY. Mr. Wetherell
is Vice President, Associate General Counsel and Assistant Secretary of Van
Kampen, VKF, the Advisers and of certain other subsidiaries of Van Kampen. Prior
to September of 1996, Mr. Wetherell was Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Mr. Wetherell is an Assistant Secretary of each of the
funds in the Fund Complex and certain other investment companies advised by the
Advisers and their affiliates.

NICHOLAS DALMASO, DATE OF BIRTH 03/01/65, ASSISTANT SECRETARY. Mr. Dalmaso is
Vice President, Assistant Secretary and Associate General Counsel of Van Kampen,
VKF, the Advisers and of certain other subsidiaries of Van Kampen. Mr. Dalmaso
is Assistant Secretary of each of the funds in the Fund Complex and certain
other investment companies advised by the Advisers and their affiliates.

JAMES J. BOYNE, DATE OF BIRTH 04/10/66, ASSISTANT SECRETARY. Mr. Boyne is Vice
President, Associate General Counsel and Assistant Secretary of Van Kampen, VKF,
the Advisers, Van Kampen Investor Services Inc., and of certain other
subsidiaries of Van Kampen. Prior to July of 1998, Mr. Boyne was Vice President,
Associate General Counsel and Assistant Secretary of VK/AC Holding, Inc. Prior
to September of 1996, Mr. Boyne was Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. He is Assistant Secretary of the Fund, Van Kampen Prime Rate Income
Trust and Van Kampen Senior Income Trust.

SCOTT E. MARTIN, DATE OF BIRTH 08/20/56, ASSISTANT SECRETARY. Mr. Martin is
Senior Vice President, Deputy General Counsel and Secretary of Van Kampen, VKF,
the Advisers, Van Kampen Investor Services Inc., and of certain other
subsidiaries of Van Kampen. Prior to July of 1998, Mr. Martin was Senior Vice
President, Deputy General Counsel and Assistant Secretary of VK/AC Holding, Inc.
Prior to September of 1996, Mr. Boyne was Deputy General Counsel and Secretary
of McCarthy, Crisanti Maffei, Inc. He is a Assistant Secretary of each of the
funds in the Fund Complex and certain other investment companies advised by the
Advisers and their affiliates.

HUEY P. FALGOUT, JR., DATE OF BIRTH 11/15/63, ASSISTANT SECRETARY. Mr. Falgout
is Vice President and an Attorney of Van Kampen, the Advisers, VKF, Van Kampen
Investor Services Inc, and of certain other subsidiaries of Van Kampen. His
address is 2800 Post Oak Blvd., Houston, TX 77056. Mr. Falgout is Assistant
Secretary of each of the funds in the Fund Complex and certain other investment
companies advised by the Advisers and their affiliates.

JOHN L. SULLIVAN, DATE OF BIRTH 08/20/55, VICE PRESIDENT, TREASURER AND CHIEF
FINANCIAL OFFICER. Mr. Sullivan is First Vice President of Van Kampen and the
Advisers. Mr. Sullivan is Chief Financial Officer of each of the funds in the
Fund Complex and certain other investment companies advised by the Advisers and
their affiliates.

B-6
<PAGE> 41

STEVEN M. HILL, DATE OF BIRTH 10/16/64, ASSISTANT TREASURER. Mr. Hill is Vice
President of Van Kampen and the Advisers. Mr. Hill is Treasurer of each of the
funds in the Fund Complex and certain other investment companies advised by the
Advisers and their affiliates.

TANYA M. LODEN, DATE OF BIRTH 11/19/59, CONTROLLER. Ms. Loden is Vice President
of Van Kampen and the Advisers. Her address is 2800 Post Oak Blvd., Houston, TX
77056. Ms. Loden is Controller of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers and their affiliates.

MICHAEL ROBERT SULLIVAN, DATE OF BIRTH 03/30/33, ASSISTANT CONTROLLER. Mr.
Sullivan is Assistant Vice President of Van Kampen and the Advisers. His address
is 2800 Post Oak Blvd., Houston, TX 77056. Mr. Sullivan is Assistant Controller
of each of the funds in the Fund Complex and certain other investment companies
advised by the Advisers and their affiliates.

*Such trustees are "interested persons" as defined in the 1940 Act.
Messrs. McDonnell and Powell 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 hold the same positions with other funds in the Fund
Complex. The officers and Trustees as a group own less than 1% of the Fund's
outstanding Shares. The compensation of the officers and trustees who are
affiliated persons (as defined in the 1940 Act) of the Adviser, VKF or Van
Kampen is paid by the respective entity. The Fund pays the compensation of all
other officers and trustees of the Fund. Funds in the Fund Complex, including
the Fund, pay the Trustees who are not affiliated persons of the Adviser, VKF or
Van Kampen, an annual Fund Complex retainer (generally equal to the product of
$2,500 times the number of funds in the Fund Complex), which retainer is then
allocated among the funds in the Fund Complex based on their relative net
assets, and $250 per fund per meeting of the Board of Trustees, 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, VKF or
Van Kampen, 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 $2,500 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, VKF or Van
Kampen 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
funds in the Fund Complex selected by the trustee. To the extent permitted by
the 1940 Act, the Fund may invest in securities of other funds in the Fund
Complex 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.

B-7
<PAGE> 42

COMPENSATION TABLE

<TABLE>
<CAPTION>
FUND COMPLEX
------------------------------------------------------
ESTIMATED
ESTIMATED AGGREGATE PENSION TOTAL
AGGREGATE OR RETIREMENT ESTIMATED COMPENSATION
COMPENSATION BENEFITS ACCRUED AGGREGATE ANNUAL BEFORE DEFERRAL
BEFORE DEFERRAL AS PART OF BENEFITS UPON FROM FUND
NAME(1) FROM THE FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
David C. Arch....................... $603 $10,861 $97,500 $160,625
Rod Dammeyer........................ 603 19,532 97,500 160,625
Howard J Kerr....................... 603 37,215 96,250 160,625
Steven Muller....................... 603 22,686 7,500 160,625
Theodore A. Myers................... 603 66,530 81,750 160,625
Hugo F. Sonnenschein................ 603 18,878 97,500 160,625
Wayne W. Whalen..................... 597 22,126 97,500 160,375
</TABLE>

- ---------------
(1) Messrs. McDonnell and Powell are affiliated person of the Adviser, VKF and
Van Kampen, and do not receive compensation or retirement benefits from the
Fund.

(2) The amounts shown in this column are the Aggregate Compensation of the Fund
before deferral by the trustees under the deferred compensation plan during
its last completed fiscal year ended July 31, 1998. The following trustees
deferred all or a portion of their compensation from the Fund during the
fiscal year ended July 31, 1998: Mr. Dammeyer $603; Mr. Sonnenschein $603;
Mr. Kerr $250; and Mr. Whalen $597. The cumulative deferred compensation
(including interest) accrued with respect to each Trustee from the Fund as
of July 31, 1998 is as follows: Mr. Dammeyer $614; Mr. Sonnenschein $600;
Mr. Kerr $250; and Mr. Whalen $591. 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 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) The amounts shown in this column represent the sum of the estimated Pension
or Retirement Benefit Accruals expected to be accrued by the 42 operating
funds in the Fund Complex as of December 31, 1998 for their respective
fiscal years end in 1998. The retirement plan is described above the table.

(4) The amounts shown in this column represent the sum of the estimated annual
benefits payable per year by the 42 operating funds in the Fund Complex as
of December 31, 1998 for each year of the 10-year period commencing in the
year of such trustee's anticipated retirement. The Fund is expected to pay
benefits of $2,500 per year for each of the 10-year period commencing in
the year of such trustee's retirement to those trustees who retire at or
over the age of 60 and with at least ten years of service to the Fund. The
retirement plan is described above the compensation table.

(5) The amounts shown in this column are accumulated from the Aggregate
Compensation of 42 operating investment companies in the Fund Complex for
the year ended December 31, 1998 before deferral by the trustees under the
deferred compensation plan. Amounts deferred are retained by the respective
fund and earn a rate of return determined by reference to either the return
on the Common Shares of the Fund or common shares of other funds in the
Fund Complex 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 or its affiliates, Mr. Whalen received Total
Compensation of $268,447, for the year ended December 31, 1997.

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

B-8
<PAGE> 43

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 "Special Risk Considerations" in the
Prospectus.

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, VKF or Van Kampen. For the fiscal year ended July 31, 1998,
the Fund paid brokerage commissions of $0.

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. In this regard allocations of Senior Loans by the
Adviser will be made taking into account a variety of factors, including the
assets of such clients then available for investment in Senior Loans, such
clients' relative net asset value and such clients' investment objectives,
policies and limitations. 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> 44

MANAGEMENT OF THE FUND

THE ADVISER

The Adviser was incorporated as a Delaware corporation in 1982. The Adviser is
a wholly-owned subsidiary of Van Kampen. Van Kampen is an indirect wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois
60181-5555.

Van Kampen is a diversified asset management company with more than two
million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $68 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide.

INVESTMENT ADVISORY AGREEMENT

The investment advisory agreement (the "Advisory Agreement") between the
Adviser and the Fund will continue in effect until December 19, 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
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 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 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. For the fiscal year ended July 31, 1998, the Fund recognized
investment advisory fees pursuant to the Advisory Agreement of $756,106.

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 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> 45

THE ADMINISTRATOR

The administrator for the Fund is Van Kampen (in such capacity, the
"Administrator"). For the fiscal year ended July 31, 1998, the Fund recognized
administrative fees pursuant to the Administration Agreement of $198,975.

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 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 Shares, expenses of
filing reports and other documents filed with governmental agencies, expenses of
annual and special meetings of holders of 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 VKF 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 VKF 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 VKF have entered into a Legal Services Agreements
pursuant to which Van Kampen provides legal services, including without
limitation: accurate maintenance of the Funds' minute books and records,
preparation and

B-11
<PAGE> 46

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 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 VKF also
receive legal services from Van Kampen. Of the total costs for legal services
provided to funds distributed by VKF, 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.

DIVIDEND REINVESTMENT PLAN

The Fund offers a Dividend Reinvestment Plan (the "Plan"). Under the Plan
Shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested in additional Shares. Unless you elect to participate
in the Plan, you will receive distributions in cash.

State Street Bank and Trust Company, as plan agent (the "Plan Agent"), serves
as agent for Shareholders in administering the Plan. Participants in the Plan
will receive 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 maintains each Shareholder's account in the Plan and furnishes
monthly written confirmations of all transactions in the accounts, including
information needed by Shareholders for personal and tax records. Shares will be
held by the Plan Agent in non-certificated form in the name of the participant,
and each Shareholder's proxy will include those 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.

In the case of Shareholders, such as banks, brokers or nominees, which hold
Shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of Shares certified from time to time by the
record Shareholders as representing the total amount registered in the record
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 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 Shareholders of the
Fund.

All registered 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 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 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 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 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 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 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 Share
credited to such account. All correspondence concerning the dividend
reinvestment plan should be directed to the State Street Bank and Trust Company,
as Plan Agent, c/o Van Kampen

B-12
<PAGE> 47

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.

NET ASSET VALUE

The net asset value per share of the Fund's 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 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 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

B-13
<PAGE> 48

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.

The Fund's net asset value has ranged from a high of $10.05 to a low of $10.00
since its commencement of investment operations on March 27, 1998.

TAXATION

FEDERAL INCOME TAXATION

The Fund intends 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; and (b) 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).

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 an amount equal to the sum of (a) 98% of its
ordinary income for such year and (b) 98% of its capital gain net income (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 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

B-14
<PAGE> 49

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.

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 gain dividends"), if
any, are taxable to 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 Shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming such Shares are held as a capital asset). For a summary of the
tax rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rate" 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 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 Shares received,
determined as of the distribution date. The basis of such 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.

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. Foreign shareholders, including shareholders who are non-resident
aliens, may be subject to U.S. withholding tax on certain distributions (whether
received in cash or shares) at a rate of 30% or such lower rate as prescribed by
an applicable income tax treaty.

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 Shares and the amount received. If such Shares are held as a capital asset,
the gain or loss will be a capital gain or loss. 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, in
connection with a tender offer, distributions to tendering shareholders may be
subject to tax as ordinary income (rather than as gain or loss), which in turn
may result

B-15
<PAGE> 50

in deemed distributions subject to tax as ordinary income for non-tendering
shareholders. The federal income tax consequences of repurchase of Shares
pursuant to tender offers will be disclosed in the related offering documents.
Any loss recognized upon a taxable disposition of Shares held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gains dividends received with respect to such Shares. For purposes of
determining whether Shares have been held for six months or less, the holding
period is suspended for any periods during which the Shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

CAPITAL GAINS RATES

Capital Gains Rate. The maximum tax applicable to net capital gains recognized
by individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year.

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 Shares, as well
as the effects of state, local and foreign tax laws and any proposed tax law
changes.

REPURCHASE OF SHARES

During the pendency of any tender offer by the Fund, the Fund will calculate
daily the net asset value of the Shares and will establish procedures which will
be specified in the tender offer documents, to enable 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 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.

B-16
<PAGE> 51

Tendered 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 Shares
will be recorded and reported as an offset to Shareholders' equity and
accordingly will reduce the Fund's total assets. If Treasury Shares are retired,
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 Shares
tendered, the Fund may realize gains and losses.

If the Fund must liquidate portfolio securities in order to repurchase Common
Shares tendered, the Fund may realize gains and losses.

B-17
<PAGE> 52

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of

Van Kampen Senior Floating Rate Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Senior Floating Rate Fund (the "Fund"), including the portfolio of
investments, as of July 31, 1998, and the related statements of operations, cash
flows and changes in net assets and financial highlights for the period from
March 27, 1998 (commencement of investment operations) to July 31, 1998. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1998, by correspondence with the custodian and selling or agent banks; where
replies were not received we performed other auditing procedures. 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 statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen Senior Floating Rate Fund as of July 31, 1998, the
results of its operations, cash flows, the changes in its net assets and
financial highlights for the period from March 27, 1998 (commencement of
investment operations) to July 31, 1998, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois

September 4, 1998

B-18
<PAGE> 53

PORTFOLIO OF INVESTMENTS

July 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P
(000) Borrower (Unaudited) Stated Maturity* Value
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE** SENIOR LOAN INTERESTS 79.5%
AEROSPACE/DEFENSE 1.5%
$ 4,990 Aerostructures Corp., Term Loan.......................... NR NR 12/31/03 $ 4,990,387
981 Whittaker Corp., Term Loan............................... NR NR 05/31/03 980,770
300 Whittaker Corp., Revolving Credit........................ NR NR 05/31/01 300,000
------------
6,271,157
------------
AUTOMOTIVE 1.2%
5,111 Breed Technologies, Inc., Term Loan...................... B1 BB 04/27/04 to 04/27/06 5,111,156
------------
BROADCASTING -- CABLE 1.2%
5,000 Insight Communication Co., L.P., Term Loan............... NR NR 03/31/05 5,001,861
------------
BROADCASTING -- TELEVISION 4.6%
8,684 NTL (UK) Group, Term Loan................................ NR NR 12/31/05 8,684,233
10,000 Sinclair Broadcasting, Term Loan......................... Ba2 BB- 09/15/05 10,000,067
------------
18,684,300
------------
CHEMICALS, PLASTICS AND RUBBER 3.3%
6,500 High Performance Plastics, Inc., Term Loan............... NR NR 03/31/05 6,500,000
7,172 Sterling Pulp Chemicals, Inc., Term Loan................. Ba3 NR 09/30/04 7,171,585
------------
13,671,585
------------
CONSTRUCTION MATERIALS 1.3%
5,217 Enclosures Holding Corp., Term Loan...................... NR NR 02/28/05 5,217,216
------------
CONTAINERS, PACKAGING AND GLASS 3.4%
5,985 American Bottling, Term Loan............................. NR NR 05/01/07 5,985,000
1,651 Huntsman Packaging Corp., Term Loan...................... Ba2 BB- 12/31/02 1,650,698
2,365 Huntsman Packaging Corp., Revolving Credit............... Ba2 BB- 12/31/02 2,365,445
4,162 Stone Container Corp., Term Loan......................... Ba3 B+ 10/01/03 4,161,672
------------
14,162,815
------------
DIVERSIFIED MANUFACTURING 2.8%
10,833 Intesys Technologies, Inc., Term Loan.................... NR NR 06/30/04 to 06/30/06 10,833,351
763 Intesys Technologies, Inc., Revolving Credit............. NR NR 06/30/04 762,671
------------
11,596,022
------------
ECOLOGICAL 0.8%
3,236 Safety-Kleen Corp., Term Loan............................ Ba3 BB 04/03/05 to 04/03/06 3,236,282
------------
ELECTRONICS 1.8%
7,500 Amphenol Corp., Term Loan................................ Ba3 B+ 05/19/04 7,506,835
------------
FARMING & AGRICULTURE 2.4%
4,995 Seminis, Inc., Term Loan................................. NR NR 12/31/03 to 12/31/04 4,994,995
4,937 Walco International, Term Loan........................... NR NR 03/31/04 4,968,246
------------
9,963,241
------------
FINANCE 8.9%
10,000 Bridge Information Systems, Inc., Term Loan.............. NR NR 05/27/05 10,000,000
9,375 Meditrust Corp., Term Loan............................... NR NR 07/15/99 9,375,162
6,992 OSI Holdings Corp., Term Loan............................ B2 NR 10/15/04 6,991,941
10,000 Paul G. Allen, Term Loan................................. NR NR 06/10/03 9,999,827
------------
36,366,930
------------
HEALTHCARE 4.9%
20,000 Vencor, Inc., Term Loan.................................. B1 B+ 01/15/05 20,000,035
------------
HOME & OFFICE FURNISHINGS 1.6%
6,500 Imperial Home Decor Group, Inc., Term Loan............... B1 B+ 03/13/05 to 03/13/06 6,500,000
------------
</TABLE>

See Notes to Financial Statements

B-19
<PAGE> 54

PORTFOLIO OF INVESTMENTS (CONTINUED)

July 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P
(000) Borrower (Unaudited) Stated Maturity* Value
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HOTELS, MOTELS, INNS, AND GAMING 2.4%
$10,000 Aladdin Gaming, LLC., Term Loan.......................... B2 NR 08/26/06 $ 10,000,279
------------
MACHINERY 4.7%
4,455 Numatics, Inc., Term Loan................................ Ba3 B+ 03/19/04 to 09/19/05 4,454,386
15,000 Ocean Rig (Norway), Term Loan............................ NR NR 06/01/08 15,000,701
------------
19,455,087
------------
PAPER AND FOREST PRODUCTS 3.7%
15,000 Le Group Forex, Inc., Term Loan.......................... NR BB 06/30/05 15,000,000
------------
PERSONAL/NON-DURABLE 1.5%
6,305 Boyd's Collection, Ltd., Term Loan....................... Ba3 B+ 04/21/06 6,305,006
------------
PRINTING AND PUBLISHING 2.8%
6,500 Advanstar Communications, Term Loan...................... Ba3 B+ 04/30/05 6,500,000
4,967 TransWestern Publishing, L.P., Term Loan................. Ba3 B+ 10/01/04 4,966,575
------------
11,466,575
------------
RESTAURANTS AND FOOD SERVICE 1.2%
4,866 Americas Favorite Chicken, Inc., Term Loan............... Ba3 NR 06/30/02 4,865,998
------------
RETAIL -- OFFICE PRODUCTS 2.4%
10,000 U.S. Office Products Co., Term Loan...................... B1 B- 06/09/06 10,000,052
------------
TELECOMMUNICATIONS -- CELLULAR 9.0%
34,300 BCP SP, Ltd., Term Loan.................................. NR NR 03/31/00 33,969,244
3,000 Cellular, Inc. Financial Corp. (CommNet), Term Loan...... B1 B 09/30/05 3,000,044
------------
36,969,288
------------
TELECOMMUNICATIONS -- HYBRID 0.5%
2,000 Nextel Finance Co., Term Loan............................ Ba3 B- 09/30/06 2,000,800
------------
TELECOMMUNICATIONS -- PERSONAL COMMUNICATIONS SYSTEMS 2.4%
9,975 Omnipoint Communications, Inc., Term Loan................ B2 B 02/17/06 9,975,000
------------
TELECOMMUNICATIONS -- WIRELESS MESSAGING 2.7%
11,000 TSR Wireless, LLC, Term Loan............................. NR NR 06/30/05 11,000,000
------------
TEXTILES AND LEATHER 3.2%
8,279 American Marketing Industries, Inc., Term Loan........... NR NR 11/30/04 to 11/30/05 8,279,243
4,986 Joan Fabrics Corp., Term Loan............................ NR NR 06/30/05 to 06/30/06 4,985,511
------------
13,264,754
------------
TRANSPORTATION 3.3%
4,450 Gemini Air Cargo, Inc., Term Loan........................ B1 NR 12/12/02 4,450,000
9,000 OmniTRAX Railroads, LLC., Term Loan...................... NR NR 05/14/05 9,000,059
------------
13,450,059
------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 79.5%
(Cost $326,481,619)............................................................................................ 327,042,333
------------
SHORT-TERM INVESTMENTS 16.1%
COMMERCIAL PAPER 7.5%
CSX Corp. ($7,000,000 par, maturing 08/06/98, yielding 5.77%).................................................. 6,994,390
Case Credit Corp. ($10,000,000 par, maturing 08/03/98, yielding 5.82%)......................................... 9,996,767
Illinois Power Co. ($790,000 par, maturing 08/04/98, yielding 5.85%)........................................... 789,615
Western Resources, Inc. ($13,400,000 par, maturing 08/03/98 to 08/13/98, yielding 5.72% to 5.75%).............. 13,397,444
------------
31,178,216
------------
SHORT-TERM LOAN PARTICIPATIONS 8.6%
Anadarko (Pete.) Corp. ($2,500,000 par, maturing 08/05/98, yielding 5.69%)..................................... 2,500,000
Englehard Corp. ($5,000,000 par, maturing 08/04/98, yielding 5.69%)............................................ 5,000,000
</TABLE>

See Notes to Financial Statements

B-20
<PAGE> 55

PORTFOLIO OF INVESTMENTS (CONTINUED)

July 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Value
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
SHORT-TERM LOAN PARTICIPATIONS (CONTINUED)
Enron Oil & Gas Co. ($11,800,000 par, maturing 08/03/98, yielding 5.80%)..................................... $11,800,000
National Rural Utilities Cooperative Finance Corp. ($5,000,000 par, maturing 08/20/98, yielding 5.57%)....... 5,000,000
Ralston Purina Co. ($11,000,000 par, maturing 08/03/98, yielding 5.80%)...................................... 11,000,000
------------
35,300,000
TOTAL SHORT-TERM INVESTMENTS 16.1%
(Cost $66,478,216)........................................................................................... 66,478,216
------------
TOTAL INVESTMENTS 95.6%
(Cost $392,959,835).......................................................................................... 393,520,549
OTHER ASSETS IN EXCESS OF LIABILITIES 4.4%.................................................................... 17,914,755
------------
NET ASSETS 100.0%............................................................................................. $411,435,304
----------
</TABLE>

NR = Not rated

+ Bank loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.

* Senior Loans in the Fund's portfolio generally are subject to mandatory
and/or optional prepayment. Because of these mandatory prepayment conditions
and because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Fund's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Fund's
portfolio may be substantially less than the stated maturities shown.
Although the Fund is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Fund estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.

** Senior Loans in which the Fund invests 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 (i) the prime rate offered by
one or more major United States banks, (ii) the lending rate offered by one
or more major European banks, such as the London Inter-Bank Offered Rate
("LIBOR") and (iii) the certificate of deposit rate. Senior loans are
generally considered to be restricted in that the Fund ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.

See Notes to Financial Statements

B-21
<PAGE> 56

STATEMENT OF ASSETS AND LIABILITIES

July 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $392,959,835)....................... $393,520,549
Cash........................................................ 38,462
Receivables:
Fund Shares Sold.......................................... 16,462,657
Interest.................................................. 2,532,425
Prepaid Expenses............................................ 479,486
Unamortized Organizational Costs............................ 130,257
Other....................................................... 19,112
------------
Total Assets.......................................... 413,182,948
------------
LIABILITIES:
Payables:
Income Distributions...................................... 491,780
Initial Offering and Registration Costs................... 471,809
Investment Advisory Fee................................... 308,459
Organizational Costs...................................... 135,000
Administrative Fee........................................ 97,974
Distributor and Affiliates................................ 73,633
Service Fee............................................... 45,783
Accrued Expenses............................................ 117,395
Trustees' Deferred Compensation and Retirement Plans........ 5,811
------------
Total Liabilities..................................... 1,747,644
------------
NET ASSETS.................................................. $411,435,304
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 40,992,495 shares issued and
outstanding).............................................. $ 409,925
Paid in Surplus............................................. 410,157,150
Net Unrealized Appreciation................................. 560,714
Accumulated Undistributed Net Investment Income............. 309,945
Accumulated Net Realized Loss............................... (2,430)
------------
NET ASSETS.................................................. $411,435,304
============
NET ASSET VALUE PER COMMON SHARE
($411,435,304 divided by 40,992,495 shares outstanding)... $ 10.04
============
</TABLE>

See Notes to Financial Statements

B-22
<PAGE> 57

STATEMENT OF OPERATIONS

For the Period March 27, 1998
(Commencement of Investment Operations)
to July 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $6,476,183
Fees........................................................ 19,415
----------
Total Income............................................ 6,495,598
----------
EXPENSES:
Investment Advisory Fee..................................... 756,106
Administrative Fee.......................................... 198,975
Service Fee................................................. 119,385
Printing Costs.............................................. 91,588
Shareholder Services........................................ 88,345
Custody..................................................... 35,816
Amortization of Organizational Costs........................ 9,743
Trustees' Fees and Expenses................................. 6,075
Other....................................................... 248,540
----------
Total Expenses.......................................... 1,554,573
Less Investment Advisory Fees Waived.................... 179,972
----------
Net Expenses............................................ 1,374,601
----------
NET INVESTMENT INCOME....................................... $5,120,997
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (2,430)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... -0-
End of the Period......................................... 560,714
----------
Net Unrealized Appreciation During the Period............... 560,714
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 558,284
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $5,679,281
==========
</TABLE>

See Notes to Financial Statements

B-23
<PAGE> 58

STATEMENT OF CHANGES IN NET ASSETS

For the Period March 27, 1998
(Commencement of Investment Operations)
to July 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Period Ended
July 31, 1998
- ---------------------------------------------------------------------------
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $5,120,997
Net Realized Loss........................................... (2,430)
Net Unrealized Appreciation During the Period............... 560,714
------------
Change in Net Assets from Operations........................ 5,679,281
Distributions from Net Investment Income.................... (4,980,066)
------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 699,215
------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 408,647,472
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 3,263,134
Cost of Shares Repurchased.................................. (1,274,517)
------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 410,636,089
------------
TOTAL INCREASE IN NET ASSETS................................ 411,335,304
NET ASSETS:
Beginning of the Period..................................... 100,000
------------
End of the Period (Including undistributed net investment
income of $309,945)....................................... $411,435,304
============
</TABLE>

See Notes to Financial Statements

B-24
<PAGE> 59

STATEMENT OF CASH FLOWS

For the Period March 27, 1998 (Commencement of Investment Operations) to July
31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 5,679,281
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (393,520,549)
Increase in Interest and Fees Receivables................. (2,532,425)
Increase in Prepaid Expenses.............................. (479,486)
Increase in Unamortized Organizational Costs.............. (130,257)
Increase in Other Assets.................................. (19,112)
Increase in Offering & Registration Fees.................. 471,809
Increase in Investment Advisory Fees...................... 308,459
Increase in Organizational Costs Payable.................. 135,000
Increase in Accrued Expenses.............................. 117,395
Increase in Administrative Fees........................... 97,974
Increase in Distributor & Affiliates Payable.............. 73,633
Increase in Service Fees.................................. 45,783
Increase in Deferred Compensation and Retirement Plans
Expenses................................................ 5,811
-------------
Total Adjustments....................................... (395,425,965)
-------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (389,746,684)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 392,184,815
Payments on Shares Repurchased.............................. (1,274,517)
Cash Dividends Paid......................................... (1,225,152)
-------------
Net Cash Provided by Financing Activities................. 389,685,146
-------------
NET DECREASE IN CASH........................................ (61,538)
Cash at Beginning of the Period............................. 100,000
-------------
CASH AT END OF THE PERIOD................................... $ 38,462
-----------
</TABLE>

See Notes to Financial Statements

B-25
<PAGE> 60

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of
the Fund outstanding throughout the period indicated.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
March 27, 1998
(Commencement
of Investment
Operations) to
July 31, 1998
- ---------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period.................... $10.000
-------
Net Investment Income..................................... .213
Net Realized and Unrealized Gain.......................... .034
-------
Total from Investment Operations............................ 0.247
-------
Less Distributions from Net Investment Income............... 0.210
-------
Net Asset Value, End of the Period.......................... $10.037
=======
Total Return*............................................... 2.52%**
Net Assets at End of the Period (In millions)............... $ 411.4
Ratio of Expenses to Average Net Assets*.................... 1.70%
Ratio of Net Investment Income to Average Net Assets*....... 6.33%
Portfolio Turnover.......................................... 4%**
* If certain expenses had not been waived by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.92%
Ratio of Net Investment Income to Average Net Assets........ 6.11%
</TABLE>

**Non-Annualized

See Notes to Financial Statements

B-26
<PAGE> 61

NOTES TO FINANCIAL STATEMENTS

July 31, 1998
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen Senior Floating Rate Fund, formerly known as Van Kampen American
Capital Senior Floating Rate Fund (the "Fund"), is registered as a
non-diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. 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 portfolio of
interests in floating or variable rate senior loans to corporations,
partnerships and other entities which operate in a variety of industries and
geographical regions. The Fund commenced investment operations on March 27,
1998.

The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

A. SECURITY VALUATION--The value of the Fund's Variable Rate Senior Loan
interests, totaling $327,042,333 (79.5% of net assets) is determined in the
absence of actual market values by Van Kampen Investment Advisory Corp. (the
"Adviser") following guidelines and procedures established, and periodically
reviewed, by the Board of Trustees. The value of a Variable Rate Senior Loan
interest in the Fund's portfolio is determined with reference to changes in
market interest rates and to the creditworthiness of the underlying obligor. In
valuing Variable Rate Senior Loan interests, the Adviser considers market
quotations and transactions in instruments that the Adviser believes may be
comparable to such Variable Rate Senior Loan interests. In determining the
relationship between such instruments and the Variable Rate Senior Loan
interest, the Adviser considers such factors as the creditworthiness of the
underlying obligor, the current interest rate, the interest rate redetermination
period and the maturity date. To the extent that reliable market transactions in
Variable Rate Senior Loan interest have occurred, the Adviser also considers
pricing information derived from such secondary market transactions in valuing
Variable Rate Senior Loan interests. Because of uncertainty inherent in the
valuation process, the estimated value of a Variable Rate Senior Loan interest
may differ significantly from the value that would have been used had there been
market activity for that Variable Rate Senior Loan interest. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.

B. SECURITY TRANSACTIONS--Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.

C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Facility
fees received are treated as market discounts. Market premiums and discounts are
amortized over the stated life of each applicable security.

D. ORGANIZATIONAL COSTS--The Fund will reimburse Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $140,000. These costs are being amortized
on a straight line basis over the 60 month period ending March 26, 2003. The
Adviser has agreed that in the event any of the initial shares of the Fund
originally purchased by Van Kampen are redeemed by the Fund during the
amortization period, the Fund will be reimbursed any unamortized organizational
costs in the same proportion as the number of shares redeemed bears to the
number of initial shares held at the time of redemption.

B-27
<PAGE> 62

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

July 31, 1998
- --------------------------------------------------------------------------------

E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.

At July 31, 1998, for federal income tax purposes cost of long- and
short-term investments is $392,957,384, the aggregate gross unrealized
appreciation is $719,299 and the aggregate gross unrealized depreciation is
$156,134 resulting in net unrealized appreciation of $563,165. Net realized
gains or losses may differ for financial reporting and tax purposes primarily as
a result of the deferral of losses for tax purposes resulting from wash sales.

F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.

Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1998 fiscal year have been identified and appropriately
reclassified. Permanent differences of $169,014 relating to certain offering
costs which are not deductible for tax purposes have been reclassified from
accumulated undistributed net investment income to capital.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -------------------------------------------------------------------------
<S> <C>
First $4.0 billion.......................................... .950 of 1%
Next $3.5 billion........................................... .900 of 1%
Next $2.5 billion........................................... .875 of 1%
Over $10.0 billion.......................................... .850 of 1%
</TABLE>

In addition, the Fund will pay a monthly administrative fee to Van Kampen
Funds Inc., the Fund's Administrator, at an annual rate of .25% of the average
net assets of the Fund. 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, record keeping
responsibilities with respect to interests in Variable Rate Senior Loans in the
Fund's portfolio and providing certain services to the holders of the Fund's
securities.

For the period ended July 31, 1998, the Fund recognized expenses of
approximately $16,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the period ended July 31, 1998, the Fund recognized expenses of
approximately $9,700 representing the Administrator's or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.

Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the period ended July
31, 1998, the Fund recognized expenses for their services

B-28
<PAGE> 63

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

July 31, 1998
- --------------------------------------------------------------------------------

of approximately $68,400. The transfer agency fees are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
market benchmarks.

Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.

The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.

3. CAPITAL TRANSACTIONS

At July 31, 1998, paid in surplus aggregated $410,157,150. Transactions in
common shares were as follows:

<TABLE>
<CAPTION>
PERIOD ENDED
JULY 31, 1998
- ---------------------------------------------------------------------------
<S> <C>
Beginning Shares............................................ 10,000
----------
Shares Sold................................................. 40,784,384
Shares Issued Through Dividend Reinvestment................. 325,311
Shares Repurchased.......................................... (127,200)
----------
Net Increases in Shares..................................... 40,982,495
----------
Outstanding Ending Shares................................... 40,992,495
==========
</TABLE>

4. INVESTMENT TRANSACTIONS

During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $334,319,527 and $7,911,217,
respectively.

5. TENDER OF SHARES

The Board of Trustees 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 at that time. For the
period ended July 31, 1998, 127,200 shares were tendered and repurchased by the
Fund.

6. EARLY WITHDRAWAL CHARGE

An early withdrawal charge to recover offering expenses will be imposed 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 of 1.00% will be payable to Van Kampen. For the period ended
July 31, 1998, Van Kampen received early withdrawal charges of approximately
$11,320 in connection with tendered shares of the Fund.

7. SENIOR LOAN PARTICIPATION COMMITMENTS

The Fund invests primarily in participations, assignments, or acts as a party to
the primary lending syndicate of a Variable Rate Senior Loan interest to United
States corporations, partnerships, and other entities. When the Fund purchases a
participation of a Senior Loan interest, the Fund typically enters into a
contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Fund assumes

B-29
<PAGE> 64

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

July 31, 1998
- --------------------------------------------------------------------------------

the credit risk of the Borrower, Selling Participant or other persons
interpositioned between the Fund and the Borrower.

At July 31, 1998, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Bankers Trust............................................... $ 8,279 $ 8,279
Canadian Imperial Bank of Commerce.......................... 19,459 19,461
------- -------
Total....................................................... $27,738 $27,740
======= =======
</TABLE>

8. SERVICE PLAN

The Fund has adopted a Service Plan (the "Plan") designed to meet the service
fee requirements of the sales charge rule of the National Association of
Securities Dealers, Inc. The Plan governs payments for personal services and/or
the maintenance of shareholder accounts.

Annual fees under the Plan of .15% (.25% maximum) of net assets are
accrued daily and paid quarterly. For the period ended July 31, 1998, the Fund
paid service fees of $73,602 to Van Kampen.

9. YEAR 2000 COMPLIANCE (UNAUDITED)

Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position our business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but we do not
anticipate that the move to Year 2000 will have a material impact on our ability
to continue to provide the Fund with service at current levels. In addition, it
is possible that the securities markets in which the Fund invests may be
detrimentally affected by computer failures throughout the financial services
industry beginning January 1, 2000. Improperly functioning trading systems may
result in settlement problems and liquidity issues.

B-30