VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST, N-2/A, 1998-06-23

VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST
N-2/A, 1998-06-23

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998

FILE NOS. 333-49829
811-08743
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-2

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. 3 [X]

Post-Effective Amendment No. [ ]
and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 3 [X]
</TABLE>

VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)

One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Offices) (Zip Code)

(630) 684-6000
(Registrant's Telephone Number, including Area Code)
Dennis J. McDonnell
President, Van Kampen American Capital Senior Income Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Name and Address of Agent for Service)

Copies to:

Wayne W. Whalen, Esq.
Thomas A. Hale, Esq.
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 W. Wacker Drive
Chicago, Illinois 60606
Pierre de Saint Phalle, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Thomas A. DeCapo, Esq.
Skadden, Arps, Slate,
Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Ronald A. Nyberg, Esq.
Executive Vice President,
General Counsel and Director
Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
------------------
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
==========================================================================================================================
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1) FEE(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest......... 195,500,000 $10.00 $1,955,000,000 $576,725
==========================================================================================================================
</TABLE>

(1) Includes 25,500,000 shares subject to the Underwriters' over-allotment
option.

(2) $20,355 has been previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST

CROSS REFERENCE SHEET
PURSUANT TO RULE 404(C)

<TABLE>
<CAPTION>
ITEM NUMBER, FORM N-2 CAPTION IN PROSPECTUS
- --------------------- ---------------------
<S> <C> <C>
Part A
1. Outside Front Cover.................................... Cover Page

2. Inside Front and Outside Back Cover Page............... Cover Page; Inside Front Cover; Outside
Back Cover
3. Fee Table and Synopsis................................. Fund Expenses; Prospectus Summary

4. Financial Highlights................................... Not Applicable

5. Plan of Distribution................................... Cover Page; Use of Proceeds;
Underwriters; Dividend Reinvestment
Plan
6. Selling Shareholders................................... Not Applicable

7. Use of Proceeds........................................ Use of Proceeds; Investment Objective
and Policies and Special Risk Factors

8. General Description of the Registrant.................. The Fund; Investment Objective and
Policies and Special Risk Factors;
Investment Practices and Special Risks;
Description of Capital Structure

9. Management............................................. Management of the Fund; Custodian,
Dividend Disbursing and Transfer Agent

10. Capital Stock, Long-Term Debt and Other Securities..... The Fund; Taxation; Distributions;
Dividend Reinvestment Plan; Repurchase
of Shares; Description of Capital
Structure
11. Defaults and Arrears on Senior Securities.............. Not Applicable

12. Legal Proceedings...................................... Not Applicable

13. Table of Contents of the Statement of Additional
Information............................................ Table of Contents of the Statement of
Additional Information
</TABLE>
<PAGE> 3

<TABLE>
<CAPTION>
CAPTION IN SAI
--------------
<S> <C> <C>
Part B
14. Cover Page............................................. Cover Page

15. Table of Contents...................................... Cover Page

16. General Information and History........................ Not Applicable

17. Investment Objective and Policies...................... Investment Objective and Policies and
Special Risk Factors; Investment
Restrictions; Portfolio Transactions

18. Management............................................. Trustees and Officers

19. Control Persons and Principal Holders of Securities.... Trustees and Officers

20. Investment Advisory and Other Services................. Trustees and Officers; Management of
the Fund

21. Brokerage Allocation and Other Practices............... Portfolio Transactions

22. Tax Status............................................. Taxation

23. Financial Statements................................... Independent Accountants' Report;
Statement of Assets and Liabilities as
of June 5, 1998; Notes to Statement of
Assets and Liabilities
</TABLE>

Part C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4

PROSPECTUS

Common Shares

Van Kampen American Capital
Senior Income Trust
------------------------

Van Kampen American Capital Senior Income Trust (the "Fund") is a
non-diversified, closed-end management investment company. The Fund's investment
objective is to provide a high level of current income, consistent with
preservation of capital. The Fund seeks to achieve its objective by investing
primarily in a professionally managed portfolio of interests in floating or
variable rate senior loans ("Senior Loans") to corporations, partnerships and
other entities ("Borrowers") which operate in a variety of industries and
geographical regions. Although the Fund's net asset value will vary, the Fund's
policy of acquiring interests in floating or variable rate Senior Loans is
expected to minimize fluctuations in the Fund's net asset value as a result of
changes in interest rates. The Fund's net asset value may be affected by changes
in the credit quality of Borrowers with respect to Senior Loan interests in
which the Fund invests. Fluctuations in net asset value may be magnified as a
result of the Fund's use of leverage. In addition, the Fund's use of leverage
may affect the Fund's ability to make distributions. The Fund's investment
adviser is Van Kampen American Capital Investment Advisory Corp. (the
"Adviser"). An investment in the Fund may not be appropriate for all investors
and there is no assurance that the Fund will achieve its investment objective.
See "Investment Objective and Policies and Special Risk Factors."

The Fund is offering common shares of beneficial interest, par value $0.01
per share ("Common Shares"). Prior to this offering, there has been no market
for the Fund's Common Shares. The Fund's Common Shares have been approved for
listing on the New York Stock Exchange under the symbol "VVR" subject to
official notice of issuance. The shares of closed-end investment companies, such
as the Fund, frequently trade at a discount to their net asset values. Investors
in this offering should note that the Common Shares may likewise trade at a
discount to net asset value. This risk may be greater for investors expecting to
sell their Common Shares in a relatively short period after completion of the
public offering.

Common Shares of the Fund are not deposits or obligations of, nor guaranteed
or endorsed by, any bank or depository institution; further, the Common Shares
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Common Shares of the Fund
involve investment risks, including the possible loss of principal.
------------------------

PRICE $10.00 A SHARE
------------------------

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

<TABLE>
<CAPTION>
PRICE TO PROCEEDS TO
PUBLIC SALES LOAD(1) FUND(2)
-------- ------------- -----------
<S> <C> <C> <C>
Per Common Share....................... $10.00 $0.00 $10.00
Total(3)............................... $ $0.00 $
</TABLE>

(Footnotes on the following page.)

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

The Common Shares are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the Common Shares will be made in book-entry form through the facilities of
The Depository Trust Company on or about June 26, 1998.

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

MORGAN STANLEY DEAN WITTER

<TABLE>
<S> <C> <C>
A.G. EDWARDS & SONS, INC. ADVEST, INC. ROBERT W. BAIRD & CO.
Incorporated
DAIN RAUSCHER WESSELS FAHNESTOCK & CO. INC. FIRST OF MICHIGAN CORPORATION
A Division of Dain Rauscher
Incorporated
GRUNTAL & CO., L.L.C. INTERSTATE/JOHNSON LANE JANNEY MONTGOMERY SCOTT INC.
Corporation
LEGG MASON WOOD WALKER McDONALD & COMPANY RAYMOND JAMES & ASSOCIATES, INC.
Incorporated Securities, Inc.
</TABLE>

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

June 23, 1998.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY STATE.
<PAGE> 5

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SPECIFICALLY, THE
UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING, AND MAY BID FOR,
AND PURCHASE, THE COMMON SHARES ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Until July 18, 1998 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.

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

Senior Loans in which the Fund may invest generally will pay interest at
rates which are periodically redetermined on the basis of a base lending rate
plus a premium. These base lending rates are generally the Prime Rate offered by
one or more major United States banks, the London Inter-Bank Offered Rate, the
Certificate of Deposit rate or other base lending rates used by commercial
lenders. Senior Loans generally will hold the most senior position in the
capital structure of the Borrowers and generally will be secured with specific
collateral, which may include guarantees, although the Fund may also invest in
Senior Loans that are not secured by any collateral. The terms of Senior Loans
typically will include various restrictive covenants which are designed to limit
certain activities of the Borrowers. It is anticipated that the proceeds of the
Senior Loans in which the Fund will acquire interests will be used primarily to
finance leveraged buyouts, recapitalizations, mergers, acquisitions, and stock
repurchases and, to a lesser extent, to finance internal growth and for other
corporate purposes of Borrowers. See "Investment Objective and Policies and
Special Risk Factors."

Senior Loans in which the Fund will invest generally will have a claim on
the assets of an issuer senior to that of subordinated debt, preferred stock and
common stock of such issuer. Senior Loans in which the Fund may invest generally
will not be registered with the Securities and Exchange Commission or listed on
any national securities exchange, and there is no express limitation on the
percentage of the Fund's assets that may be invested in illiquid securities. See
"Investment Objective and Policies and Special Risk Factors -- Special Risk
Considerations."

Within approximately three months of the date of this Prospectus, the Fund
currently intends to borrow money for investment purposes. The Fund may also
offer preferred shares. The issuance of preferred shares or borrowing by the
Fund will result in financial leverage. Leverage is a speculative technique
which involves the opportunity for enhanced income but also involves special
risks. Use of leverage may increase the volatility of changes in the net asset
value and the market price of, and the distributions paid on, the Common Shares.
There can be no assurance that the Fund will be able to issue preferred shares
or to borrow on terms acceptable to the Fund. See "Investment Objectives and
Policies and Special Risk Factors -- Special Risk Considerations" and
"Description of Capital Structure."

This Prospectus sets forth concisely information that a prospective investor
should know before investing in the Common Shares of the Fund. Please read and
retain this Prospectus for future reference. A Statement of Additional
Information dated June 23, 1998, has been filed with the Securities and Exchange
Commission ("SEC") and can be obtained without charge by calling 1-800-
341-2929. A table of contents to the Statement of Additional Information is
located at page 39 of this Prospectus. This Prospectus incorporates by reference
the entire Statement of Additional Information. The Statement of Additional
Information has been filed with the SEC and is available along with other
Fund-related materials at the SEC's internet web site (http://www.sec.gov).

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

(Footnotes from the previous page.)
(1) The Fund and the Adviser have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. Morgan Stanley Dean Witter & Co. or one of its affiliates (not
the Fund) will pay the Underwriters out of its own assets compensation in
the gross amount of 4% of the initial public offering price per share of
Common Shares, in connection with the sale of Common Shares in this
offering.

(2) Before deducting organizational and offering expenses payable by the Fund,
estimated at $40,000 and $2,280,000, respectively. Organizational expenses
will be capitalized initially and amortized as described in the footnotes to
the Fund's Statement of Assets and Liabilities in the Statement of
Additional Information. Offering expenses will be deducted from net
proceeds.

(3) The Fund has granted the Underwriters options, exercisable up to 45 days
from the date hereof, to purchase up to an aggregate of
additional Common Shares at the price to the public for the purpose of
covering over-allotments, if any. If the Underwriters exercise such options
in full, the total price to the public, sales load and proceeds to the Fund
(before deducting organizational and offering expenses payable by the Fund)
will be $ , $0.00 and $ , respectively. See "Underwriters."

2
<PAGE> 6

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses............................................... 4
Prospectus Summary.......................................... 5
The Fund.................................................... 11
Use of Proceeds............................................. 11
Investment Objective and Policies and Special Risk
Factors................................................... 11
Investment Practices and Special Risks...................... 21
Taxation.................................................... 25
Management of the Fund...................................... 26
Distributions............................................... 28
Dividend Reinvestment Plan.................................. 28
Repurchase of Shares........................................ 30
Description of Capital Structure............................ 31
Underwriters................................................ 37
Custodian, Dividend Disbursing and Transfer Agent........... 38
Legal Opinions.............................................. 38
Experts..................................................... 39
Additional Information...................................... 39
Table of Contents for the Statement of Additional
Information............................................... 39
</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 OR THE FUND'S ADVISER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.

3
<PAGE> 7

FUND EXPENSES

The following tables are intended to assist investors in understanding the
various costs and expenses directly or indirectly associated with investing in
the Fund.

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)............ None
Dividend Reinvestment Plan Fees........................... None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO COMMON SHARES)*
Investment Advisory Fee................................... 1.28%
Interest Payments on Borrowed Funds....................... 3.13%
Other Expenses
Administration Fee..................................... 0.30%
Other Operating Expenses............................... 0.18%
-----
Total Other Expenses................................. 0.48%
-----
Total Annual Operating Expenses........................... 4.89%
</TABLE>

*Figures assume that the Fund utilizes leverage by borrowing an amount equal
to 33 1/3% of the Fund's total assets (including the proceeds of such leverage).
The Fund intends to utilize leverage initially by borrowing under a revolving
credit facility(s). The Adviser anticipates that interest payments, fees and
expenses associated with such facility(s), in aggregate, will approximate an
ongoing annual cost of LIBOR plus 0.60% on the stated amount of the facility(s),
though no assurance can be given to this effect. In the event that the Fund does
not utilize any leverage, the Fund estimates that annual operating expenses (as
a percentage of net assets attributed to Common Shares) would be approximately
as follows: Investment Advisory Fee 0.85%; Interest Payments on Borrowed Funds
0.00%; Administration Fee 0.20%; Other Operating Expenses 0.15%; Total Other
Expenses 0.35%; and Total Annual Operating Expenses 1.20%. See "Management of
the Fund" for additional information about the investment advisory fee and the
administration fee. See "Investment Objective and Policies and Special Risk
Factors -- Special Risk Considerations" and "Description of Capital Structure."
"Other Operating Expenses" have been estimated.

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 Borrowings Representing
33 1/3% of Total Assets.............. $49 $147 $245 $491
</TABLE>

This "Example" assumes that all dividends and other distributions are
reinvested at net asset value and that the percentage amounts listed under Total
Annual Operating Expenses remain the same in the years shown except for amounts
for the Three Years, Five Years and Ten Years periods which are after completion
of organization expense amortization. The above tables and the assumptions in
the Example of a 5% annual return and reinvestment at net asset value are
required by regulation of the SEC; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
the Fund's Common Shares. In the event that the Fund does not utilize any
leverage an investor would pay the following expenses based on the assumptions
in the "Example:" One Year $12; Three Years $38; Five Years $66; and Ten Years
$145. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.

4
<PAGE> 8

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and the Statement of
Additional Information.

THE FUND. Van Kampen American Capital Senior Income Trust (the "Fund") is a
non-diversified, closed-end management investment company, organized as a
Massachusetts business trust on April 8, 1998.

INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment objective is to
provide a high level of current income, consistent with preservation of capital.
The Fund seeks to achieve its objective by investing primarily in a
professionally managed portfolio of interests in floating or variable rate
senior loans ("Senior Loans") to corporations, partnerships and other entities
("Borrowers") which operate in a variety of industries and geographical regions
(including domestic and foreign entities). Although the Fund's net asset value
will vary, the Fund's policy of acquiring interests in floating or variable rate
Senior Loans is expected to minimize fluctuations in the Fund's net asset value
as a result of changes in interest rates. Senior Loans in which the Fund will
purchase interests generally pay interest at rates which are periodically
redetermined by reference to a base lending rate plus a premium. These base
lending rates are generally the prime rate offered by one or more major United
States banks ("Prime Rate"), the London Inter-Bank Offered Rate ("LIBOR"), the
Certificate of Deposit ("CD") rate or other base lending rates used by
commercial lenders. The Fund's net asset value may be affected by changes in the
credit quality of Borrowers with respect to Senior Loan interests in which the
Fund invests. Fluctuations in net asset value may be magnified as a result of
the Fund's use of leverage. In addition, the Fund's use of leverage may affect
the Fund's ability to make distributions. 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.

Senior Loans generally are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent will be primarily responsible for
negotiating the loan agreement ("Loan Agreement") that establishes the relative
terms and conditions of the Senior Loan and rights of the Borrower and the
several Lenders. The Fund may invest in participations ("Participations") in
Senior Loans, may purchase assignments ("Assignments") of portions of Senior
Loans from third parties and may act as one of the group of Lenders originating
a Senior Loan (an "Original Lender"). The Fund will purchase an Assignment or
act as Original Lender with respect to a syndicated Senior Loan, initially, only
where the Agent with respect to the Senior Loan at the time of investment has
outstanding debt or deposit obligations rated investment grade (BBB or A-3 or
higher by Standard & Poor's Ratings Group ("S&P") or Baa or P-3 or higher by
Moody's Investors Service, Inc. ("Moody's")) or determined by the Adviser to be
of comparable quality.

In normal market conditions, at least 80% of the Fund's total assets will be
invested in Senior Loans (either as an Original Lender or as a purchaser of an
Assignment or Participation) of domestic borrowers or foreign borrowers (so long
as Senior Loans to such foreign borrowers are U.S. dollar denominated and
payments of interest and repayments of principal pursuant to such Senior Loans
are required to be made in U.S. dollars). It is anticipated that the proceeds of
the Senior Loans in which the Fund will acquire interests primarily will be used
to finance leveraged buyouts, recapitalizations, mergers, acquisitions and stock
repurchases and, to a lesser extent, to finance internal growth and for other
corporate purposes of Borrowers. Senior Loans have the most senior position in a
Borrower's capital structure, although some Senior Loans may hold an equal
ranking with other senior securities of the Borrower. Senior Loans generally are
secured by specific collateral, which may include guarantees. The Fund may
invest up to 20% of its total assets in interests in Senior Loans which are not
secured by any collateral. The Fund may also acquire warrants, equity securities
and, in limited circumstances, junior debt securities in connection with its
investments in Senior Loans. Such equity securities and junior debt securities
will not be treated by the Fund as Senior Loans. Investment in Senior Loans
which are not secured by specific collateral and in warrants, equity securities
and junior debt securities entails certain risks in addition to those associated
with investment in collateralized Senior Loans.

5
<PAGE> 9

Senior Loans historically have not been rated by nationally recognized
statistical rating organizations. The Fund may invest in Senior Loans, the
Borrowers with respect to which have outstanding debt securities which are rated
below investment grade by a nationally recognized statistical rating
organization or are unrated but of comparable quality to such securities. Debt
securities rated below investment grade, or unrated but of comparable quality,
commonly are referred to as "junk bonds." The Fund will invest only in those
Senior Loans with respect to which the Borrower, in the opinion of the Adviser,
demonstrates one or more of the following characteristics: sufficient cash flow
to service debt; adequate liquidity; successful operating history; strong
competitive position; experienced management; and, with respect to
collateralized Senior Loans, adequate collateral coverage of the Senior Loan. In
addition, the Adviser will consider, and may rely in part, on analyses performed
by Lenders other than the Fund.

During normal market conditions, the Fund may invest up to 20% of its total
assets in (i) high quality, short-term debt securities with remaining maturities
of one year or less and (ii) warrants, equity securities and, in limited
circumstances, junior debt securities acquired in connection with the Fund's
investments in Senior Loans. If the Adviser determines that market conditions
temporarily warrant a defensive investment policy, the Fund may, subject to its
ability to liquidate its relatively illiquid portfolio of Senior Loans, invest
up to 100% of its assets in cash and such high quality, short-term securities.
The Fund may also lend its portfolio securities to other parties and may enter
into repurchase and reverse repurchase agreements for securities, subject to
certain restrictions. For further discussion of the Fund's investment objective
and policies and its investment practices and the associated considerations, see
"Investment Objective and Policies and Special Risk Factors" and "Investment
Practices and Special Risks."

THE OFFERING. The Fund is offering common shares of beneficial
interest, par value $.01 per share (the "Common Shares"), through a group of
underwriters (the "Underwriters") represented by Morgan Stanley & Co.
Incorporated, A.G. Edwards & Sons, Inc., Advest, Inc., Robert W. Baird & Co.
Incorporated, Dain Rauscher Wessels, Fahnestock & Co. Inc., First of Michigan
Corporation, Gruntal & Co. Inc., Interstate/Johnson Lane Corporation, Janney
Montgomery Scott Inc., Legg Mason Wood Walker, Incorporated, McDonald & Company
Securities, Inc. and Raymond James & Associates, Inc. The Underwriters have been
granted options to purchase up to additional Common Shares solely to
cover over-allotments, if any. The initial public offering price is $10.00 per
share. The minimum purchase in this offering is 100 shares.

Morgan Stanley Dean Witter & Co. or one of its affiliates has agreed to pay
the Underwriters out of its own assets, compensation in the gross amount of
$0.40 per Common Share (4% of the public offering price per Common Share) or
$ in the aggregate ($ assuming that the Underwriters exercise their
over-allotment options in full) for all Common Shares covered by this
Prospectus. See "Underwriters."

The aggregate number of Common Shares offered in the offering may increase
prior to the consummation of the offering.

LISTING AND SYMBOL. The Fund's Common Shares have been approved for listing
on the New York Stock Exchange under the symbol "VVR" subject to official notice
of issuance.

6
<PAGE> 10

PROPOSED LEVERAGE. To seek to increase the yield on the Common Shares, the
Fund currently intends, within approximately three months of the date of this
Prospectus, to utilize financial leverage by borrowing for investment purposes
in an amount representing up to approximately 33 1/3% of the Fund's total assets
immediately after such borrowing. The Fund may also utilize financial leverage
by offering preferred shares of beneficial interest (the "Preferred Shares").
(Collectively, the Common Shares and the Preferred Shares are referred to as the
"Shares"). The timing of any Preferred Shares offering or borrowing and the
terms thereof will be determined by the Fund's Board of Trustees. See
"Investment Objective and Policies and Special Risk Factors -- Special Risk
Considerations." Issuance of the Preferred Shares or borrowing will result in
financial leveraging, which involves special risks. For example, the Fund's use
of leverage may increase the volatility of changes in the net asset value and
the market price of, and the distributions paid on, the Common Shares and under
certain circumstances, the Fund's use of leverage may impair the ability of the
Fund to maintain its qualification, for federal income tax purposes, as a
regulated investment company. See "Investment Objective and Policies and Special
Risk Factors -- Special Risk Considerations."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp.
(the "Adviser"), a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("VKAC"), is the Fund's investment adviser. The Adviser also serves as
investment adviser to the Van Kampen American Capital Senior Floating Rate Fund
and to the Van Kampen American Capital Prime Rate Income Trust, each a
closed-end investment company engaged in a continuous offering with investment
objectives and policies substantially similar to those of the Fund. As of March
30, 1998, the Van Kampen American Capital Prime Rate Income Trust had over $7.0
billion in assets. See "Management of the Fund."

ADMINISTRATOR. VKAC is the Fund's administrator (the "Administrator"). See
"Management of the Fund."

FEES AND EXPENSES. The Fund will pay the Adviser a monthly fee (accrued daily
and paid monthly) computed based upon an annual rate of 0.85% applied to the
average daily managed assets of the Fund (which for purposes of determining such
fee, shall mean the average daily gross asset value of the Fund, minus the sum
of accrued liabilities other than the aggregate amount of any borrowings
undertaken by the Fund). The Fund will pay the Administrator a monthly fee
(accrued daily and paid monthly) computed based upon an annual rate of 0.20%
applied to the average daily managed assets of the Fund (as defined). Because
leverage will increase the amount of the Fund's total assets, the Fund will pay
a greater amount of advisory and administrative fees when leverage is utilized.
See "Management of the Fund."

DISTRIBUTIONS. The Fund's policy will be to make monthly distributions to
holders of Common Shares of substantially all net investment income of the Fund
remaining after the payment of dividends on any outstanding Preferred Shares.
Holders of the Common Shares and holders of the Preferred Shares are referred to
as Common Shareholders and Preferred Shareholders, respectively and are
sometimes referred to collectively as Shareholders. Distributions to Common
Shareholders cannot be assured, and the amount of each monthly distribution is
likely to vary. Net realized long-term capital gains, if any, are distributed to
Common Shareholders at least annually. Initial distributions to Common
Shareholders are expected to be declared approximately 30 days after the
completion of this offering and will be paid approximately 30 days after
declaration. Until such time as the Fund is fully invested, distributions will
be less than they might otherwise be. See "Distributions," "Taxation," "Dividend
Reinvestment Plan" and "Use of Proceeds."

DIVIDEND REINVESTMENT PLAN. The Fund has established a dividend reinvestment
plan (the "Plan") pursuant to which Common Shareholders may elect to have all
dividends and capital gain distributions on Common Shares automatically
reinvested in additional Common Shares purchased in the open market. Unless a
Common Shareholder elects to participate in the Plan, such Common Shareholder
will receive distributions of dividends and capital gains in cash.

REPURCHASE OF SHARES; POSSIBLE CONVERSION TO OPEN-END STATUS. The Board of
Trustees of the Fund will consider on a quarterly basis, in consultation with
the Adviser, making a tender offer for or open market share repurchases of
Common Shares to seek to reduce any discount in the market price of the Common
Shares from the net asset value thereof. There can be no assurance that the Fund
will undertake a tender offer or effect repurchases of any of its Common Shares
or that, if undertaken, such tender offers or repurchases will reduce or
eliminate any such discount from net asset value. The Fund may be converted to
an open-end
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<PAGE> 11

investment company at any time with the approval of (a) a majority of the
Trustees, including the approval by a majority of the disinterested Trustees of
the Fund, and (b) the lesser of (i) 67% or more of the Fund's Common Shares and
Preferred Shares, each voting as a class, present at a meeting at which holders
of more than 50% of the outstanding Shares of each class are present in person
or by proxy or (ii) more than 50% of the outstanding Common Shares and Preferred
Shares, each voting as a class. See "Repurchase of Shares" and "Description of
Capital Structure -- Conversion to Open-End Fund."

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company will act as
custodian, and Boston Equiserve L.P. will act as dividend disbursing and
transfer agent for the Fund. See "Custodian, Dividend Disbursing and Transfer
Agent."

SPECIAL RISK CONSIDERATIONS. No Operating History. The Fund is a closed-end
investment company with no history of operations and is designed primarily for
long-term investors and not as a trading vehicle.

Market Price of Common Shares. The shares of closed-end investment companies
often trade at a discount from their net asset value, and the Fund's Common
Shares may likewise trade at a discount from net asset value. The trading price
of the Fund's Common Shares may be less than the public offering price. This
risk may be greater for investors expecting to sell their Common Shares in a
relatively short period after completion of the public offering.

Effects of Leverage. The issuance of Preferred Shares and the use of borrowing
for investment purposes are forms of financial leverage, and as such will pose
certain risks for Common Shareholders, including the possibility of higher
volatility of the net asset value and market value of, and distributions paid
on, the Common Shares. See "Investment Objective and Policies and Special Risk
Factors -- Special Risk Considerations."

As long as the Fund is able to invest the proceeds of any Preferred Shares
offering or borrowing in securities that provide a higher net return than the
then current dividend rate of the Preferred Shares or interest rate on the
borrowing after taking into account the expenses of the Preferred Shares
offering or borrowing and the Fund's operating expenses, the effect of leverage
will be to cause the Common Shareholders to realize a higher current rate of
return than if the Fund were not leveraged. However, if the current dividend
rate of the Preferred Shares or interest rate on the borrowing were to approach
the return on such proceeds after expenses, the benefit of leverage to Common
Shareholders would be reduced, and if the current dividend rate of the Preferred
Shares or interest rate on the borrowing were to exceed such net return, the
Fund's leveraged capital structure would result in a lower rate of return to the
Common Shareholders than if the Fund had an unleveraged capital structure.

During any annual period when the Fund's net investment income and
undistributed net realized capital gains are insufficient to pay the dividends
then due on any outstanding Preferred Shares, the failure to pay dividends on
the Preferred Shares would preclude the Fund from paying dividends on the Common
Shares until such dividends on the Preferred Shares have been paid or provided
for. The terms of any borrowing may preclude the Fund from paying dividends on
the Common Shares at any time that the Fund is not current in the payment of
interest or repayment of principal on such borrowing. In addition, under the
Investment Company Act of 1940, as amended (the "1940 Act"), the Fund is not
permitted to declare any cash dividend or other distribution on its Common
Shares unless, at the time of such declaration and after deducting the amount of
such dividend or distribution, the Fund is in compliance with the asset coverage
requirements of the 1940 Act. Such prohibition on the payment of dividends or
distributions might impair the ability of the Fund to maintain its
qualification, for federal income tax purposes, as a regulated investment
company. The Fund intends, however, to the extent possible to purchase or redeem
Preferred Shares or to repay borrowings from time to time if necessary to
maintain compliance with such asset coverage requirements. See "Taxation" and
"Description of Capital Structure."

If there are no Preferred Shares issued and outstanding, Common Shareholders
will elect all of the Trustees of the Fund. If there are Preferred Shares issued
and outstanding, holders of the Preferred Shares will elect two Trustees. Under
the 1940 Act, upon failure by the Fund to pay dividends on the Preferred Shares
in an

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<PAGE> 12

amount equal to two full years' dividends arrearage, the holders of the
Preferred Shares shall be entitled to elect a majority of the Board of Trustees
until all such dividends arrearage has been paid or provided for.

The lenders with respect to any borrowing by the Fund may be entitled to elect
a majority of the Board of Trustees if certain asset coverage requirements are
not maintained. Failure to maintain asset coverage may also result in a default
under the terms of any borrowing. In addition, the terms of any Preferred Shares
or borrowing may entitle holders of the Preferred Shares or lenders, as the case
may be, to elect a majority of the Board of Trustees in certain other
circumstances. See "Description of Capital Structure."

Senior Loans. Senior Loans in which the Fund will invest generally will not be
rated by a nationally recognized statistical rating organization, will not be
registered with the SEC or any state securities commission and generally will
not be listed on any national securities exchange. Although the Fund will
generally have access to financial and other information made available to the
Lenders in connection with Senior Loans, the amount of public information
available with respect to Senior Loans will generally be less extensive than
that available for more widely rated, registered and exchange-listed securities.
As a result, the performance of the Fund and its ability to meet its investment
objective is more dependent on the analytical abilities of the Adviser than
would be the case for an investment company that invests primarily in more
widely rated, registered or exchange-listed securities. See "Investment
Objective and Policies and Special Risk Factors."

Interests in Senior Loans generally are not listed on any national securities
exchange or automated quotation system and no active trading market may exist
for many of the Senior Loans in which the Fund will invest. Senior Loans are
thus relatively illiquid, which illiquidity may impair the Fund's ability to
realize the full value of its assets in the event of a voluntary or involuntary
liquidation of such assets. Liquidity relates to the ability of the Fund to sell
an investment in a timely manner. The market for relatively illiquid securities
tends to be more volatile than the market for liquid securities. Because a
substantial portion of the Fund's assets may be invested in relatively illiquid
Senior Loan interests, the ability of the Fund to dispose of its investments in
Senior Loans in a timely fashion and at a fair price may be restricted, and the
Fund and holders of Common Shares may suffer capital losses as a result.
However, many of the Senior Loans in which the Fund expects to purchase
interests are of a relatively large principal amount and are held by a
relatively large number of owners which should, in the Adviser's opinion,
enhance the relative liquidity of such interests. The risks associated with
illiquidity are particularly acute in situations where the Fund's operations
require cash, such as when the Fund tenders for its Common Shares or when the
Adviser considers it advantageous to increase the percentage of the Fund's
portfolio invested in high quality, short-term securities, and may in certain
circumstances result in the Fund engaging in borrowings to meet short-term cash
requirements. See "Investment Objective and Policies and Special Risk Factors."

Credit Risks Associated with Investments in Participations. The Fund will
purchase Participations in Senior Loans. With respect to any given Senior Loan,
the terms of Participations may result in the Fund having rights which differ
from, and are more limited than, the rights of Lenders or of persons who acquire
such interests by Assignment. Participations typically will result in the Fund
having a contractual relationship with the Lender selling the Participation, but
not with the Borrower. In the event of the insolvency of the Lender selling the
Participation, the Fund may be treated as a general creditor of such Lender, and
may not have any exclusive or senior claim with respect to such Lender's
interest in, or the collateral with respect to, the Senior Loan. As such, the
Fund may incur the credit risk of the Lender selling the Participation in
addition to the credit risk of the Borrower with respect to the Senior Loan when
purchasing Participations and may not benefit directly from the security
provided by any collateral supporting the Senior Loan with respect to which such
Participation was sold. The Fund has implemented measures designed to reduce
such risk but no assurances can be given as to their effectiveness. The Fund may
pay a fee or forgo a portion of interest payments when acquiring Participations
or Assignments. See "Investment Objective and Policies and Special Risk
Factors."

Credit Risks Associated with Senior Loans. Senior Loans, like other corporate
debt obligations, are subject to the risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income to the
Fund, a reduction in the value of the Senior Loan experiencing non-payment and a
potential decrease in the net asset value of the Fund. Although Senior Loans in
which the Fund will invest may be secured by specific collateral, there can be
no assurance that liquidation of such collateral would satisfy the

9
<PAGE> 13

Borrower's obligation in the event of nonpayment of scheduled interest or
principal or that such collateral could be readily liquidated. In the event of
bankruptcy of a Borrower, the Fund could experience delays or limitations with
respect to its ability to realize the benefits of any collateral securing a
Senior Loan. See "Investment Objective and Policies and Special Risk Factors."

Certain Investment Practices. The Fund may use various investment practices
that involve special considerations including lending its portfolio securities,
entering into when-issued and delayed delivery transactions and entering into
repurchase and reverse repurchase agreements. In addition, the Fund has the
authority to engage in interest rate and other hedging and risk management
transactions. For further discussion of these practices and associated special
considerations, see "Investment Practices and Special Risks."

Non-Diversification. The Fund has registered as a "non-diversified"
investment company so that it will be able to invest more than 5% of the value
of its assets in the obligations of any single issuer, including Senior Loans of
a single Borrower or Participations purchased from a single Lender. The Fund
does not intend to invest, however, more than 5% of the value of its assets in
interests in Senior Loans of a single Borrower. To the extent the Fund invests a
relatively high percentage of its assets in obligations of a limited number of
issuers, the Fund will be more susceptible than a more widely diversified
investment company to any single corporate, economic, political or regulatory
occurrence. See "Investment Objective and Policies and Special Risk Factors" and
"The Fund."

Percentage of Assets in Participations. The Fund may invest up to 100% of its
assets in Participations. The Lenders selling Participations and other persons
interpositioned between the Lenders and the Fund with respect to Participations
will likely conduct their principal business activities in the bank, finance and
financial services industries. Because the Fund may invest a relatively high
percentage of its assets in such Participations, the Fund may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. The Fund
has taken measures which it believes reduce its exposure to such risk but no
assurances can be given as to their effectiveness. See "Investment Objective and
Policies and Special Risk Factors" and "Investment Restrictions" in the
Statement of Additional Information.

Investment in Non-U.S. Issuers. The Fund may invest in Senior Loans to
Borrowers that are organized or located in countries other than the United
States, provided that such Senior Loans are denominated in U.S. dollars and
provide for the payment of interest and repayment of principal in U.S. dollars.
Investment in non-U.S. issuers involves special risks, including that non-U.S.
issuers may be subject to less rigorous accounting and reporting requirements
than U.S. issuers, less rigorous regulatory requirements, differing legal
systems and laws relating to creditors' rights, the potential inability to
enforce legal judgments and the potential for political, social and economic
adversity.

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

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<PAGE> 14

THE FUND

Van Kampen American Capital Senior Income Trust (the "Fund") is a
non-diversified, closed-end management investment company which was organized as
a Massachusetts business trust on April 8, 1998 and has no operating history.
The Fund's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181 and its telephone number is 1-800-341-2929. The Fund has
registered as a "non-diversified" investment company. To the extent the Fund
invests a relatively high percentage of its assets in obligations of a limited
number of issuers, the Fund will be more susceptible than a more widely
diversified investment company to any single economic, political or regulatory
occurrence. Investment in the Fund involves certain risks and special
considerations, including risks associated with the Fund's use of leverage. See
"Investment Objective and Policies and Special Risk Factors -- Special Risk
Considerations."

This Prospectus relates to the initial public offering of the Fund's common
shares of beneficial interest, $.01 par value (the "Common Shares"). Within
approximately three months of the date of this Prospectus, the Fund currently
intends to borrow money for investment purposes, which would result in the
financial leveraging of the Fund. The Fund may also utilize financial leverage
by offering preferred shares of beneficial interest (the "Preferred Shares").
Collectively, the Common Shares and the Preferred Shares are referred to herein
as the "Shares". There can be no assurance that the Fund will be able to issue
Preferred Shares or borrow on terms acceptable to the Fund. See "Investment
Objective and Policies and Special Risk Factors -- Special Risk Considerations."
Holders of the Common Shares and holders of the Preferred Shares are referred to
herein as Common Shareholders and Preferred Shareholders, respectively, and are
sometimes referred to collectively as Shareholders.

USE OF PROCEEDS

The net proceeds of this offering, before deduction of organizational and
offering expenses, estimated to be $ (or $ assuming exercise
of the Underwriters' over-allotment options in full), will be invested in
accordance with the Fund's investment objectives and policies as soon as
practicable, but in no event, under normal market conditions, later than three
months after the receipt thereof. Pending such investment, the proceeds may be
invested in high-quality, short-term securities. A portion of the organizational
and offering expenses of the Fund have been advanced by the Fund's investment
adviser, Van Kampen American Capital Investment Advisory Corp. (the "Adviser"),
and will be repaid by the Fund.

INVESTMENT OBJECTIVE AND POLICIES AND SPECIAL RISK FACTORS

An investment in the Fund may not be appropriate for all investors and is not
intended to be a complete investment program. No assurance can be given that the
Fund will achieve its investment objective.

The Fund's investment objective is to provide Common Shareholders with a high
level of current income, consistent with preservation of capital. The Fund seeks
to achieve its objective through investment primarily in a professionally
managed portfolio of interests in floating or variable rate senior loans
("Senior Loans") to corporations, partnerships and other entities ("Borrowers")
which operate in a variety of industries and geographical regions (including
domestic and foreign entities). The Fund may provide individual investors with
access to a market normally accessible only to financial institutions and larger
corporate or institutional investors. 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. Fluctuations in net asset value may be
magnified as a result of the Fund's use of leverage. In addition, the Fund's use
of leverage may affect the Fund's ability to make distributions. The Common
Shares may trade at a discount or a premium to net asset value.

11
<PAGE> 15

CERTAIN CHARACTERISTICS OF SENIOR LOAN INTERESTS

Senior Loans generally are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent, which is frequently the commercial
bank or other entity that originates the Senior Loan and the person that invites
other parties to join the lending syndicate, will be primarily responsible for
negotiating the loan agreement or agreements ("Loan Agreement") that establish
the relative terms, conditions and rights of the Borrower and the several
Lenders. In larger transactions it is common to have several Agents; however,
generally only one such Agent has primary responsibility for documentation and
administration of the Senior Loan. Agents are typically paid a fee or fees by
the Borrower for their services.

The Fund may invest in participations ("Participations") in Senior Loans, may
purchase assignments ("Assignments") of portions of Senior Loans from third
parties and may act as one of the group of Lenders originating a Senior Loan (an
"Original Lender"). In normal market conditions, at least 80% of the Fund's
total assets will be invested in Senior Loans (either as an Original Lender or
as a purchaser of an Assignment or Participation) of domestic borrowers or
foreign borrowers (so long as Senior Loans to foreign borrowers are U.S. dollar
denominated and payments of interest and repayments of principal pursuant to
such Senior Loans are required to be made in U.S. dollars).

It is anticipated that the proceeds of the Senior Loans in which the Fund will
acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser
extent, to finance internal growth and for other corporate purposes of
Borrowers. The Fund currently does not intend to acquire interests in Senior
Loans the proceeds of which would be used primarily to finance construction or
real estate development projects. Senior Loans have the most senior position in
a Borrower's capital structure, although some Senior Loans may hold an equal
ranking with other senior securities of the Borrower. The capital structure of a
Borrower may include Senior Loans, senior and junior subordinated debt (which
may include "junk bonds"), preferred stock and common stock issued by the
Borrower, typically in descending order of seniority with respect to claims on
the Borrower's assets. Senior Loans generally are secured by specific
collateral, which may include guarantees. The Fund may invest up to 20% of its
total assets in Senior Loans which are not secured by any collateral. Senior
Loans that are not secured by specific collateral pose a greater risk of
nonpayment of interest or loss of principal than do collateralized Senior Loans.
As discussed below, the Fund may also acquire warrants, equity securities and
junior debt securities issued by a Borrower or its affiliates as part of a
package of investments in the Borrower or its affiliates. Warrants, equity
securities and junior debt securities will not be treated as Senior Loans and
thus assets invested in such securities will not count toward the 80% of the
Fund's total assets that normally will be invested in Senior Loans. The Fund
will acquire such interests in warrants, equity securities and junior debt
securities only as an incident to the intended purchase of interests in Senior
Loans. In order to borrow money pursuant to collateralized Senior Loans, a
Borrower will frequently, for the term of the Senior Loan, pledge as collateral
assets, including but not limited to, trademarks, accounts receivable,
inventory, buildings, real estate, franchises and common and preferred stock in
its subsidiaries. In addition, in the case of some Senior Loans, there may be
additional collateral pledged in the form of guarantees or other credit support
by and/or securities of affiliates of the Borrowers. In certain instances, a
collateralized Senior Loan may be secured only by stock in the Borrower or its
subsidiaries. Collateral may consist of assets that may not be readily
liquidated, and there is no assurance that the liquidation of such assets would
satisfy fully a Borrower's obligations under a Senior Loan.

Loan Agreements may include various restrictive covenants designed to limit
the activities of the Borrower in an effort to protect the right of the Lenders
to receive timely payments of interest on and repayment of principal of the
Senior Loans. Restrictive covenants may include mandatory prepayment provisions
arising from excess cash flows and typically include restrictions on dividend
payments, specific mandatory minimum financial ratios, limits on total debt and
other financial tests. Breach of such covenants, if not waived by the Lenders,
is generally an event of default under the applicable Loan Agreement and may
give the Lenders the right to accelerate principal and interest payments. The
Adviser will consider the terms of such restrictive covenants in deciding
whether to invest in Senior Loans for the Fund's portfolio. When the Fund holds
a

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<PAGE> 16

Participation in a Senior Loan it may not have the right to vote to waive
enforcement of any restrictive covenant breached by a Borrower. Lenders voting
in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and such Lenders may not consider the
interests of the Fund in connection with their votes.

Senior Loans in which the Fund will invest generally pay interest at rates
which are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates generally are the prime rate offered by one or
more major United States banks (the "Prime Rate"), the London Inter-Bank Offered
Rate ("LIBOR"), the certificate of deposit ("CD") rate or other base lending
rates used by commercial lenders. The Prime Rate quoted by a major U.S. bank is
generally the interest rate at which such bank is willing to lend U.S. dollars
to its most creditworthy borrowers although it may not be the bank's lowest
available rate. LIBOR, as provided for in Loan Agreements, is an average of the
interest rates quoted by several designated banks as the rates at which such
banks would offer to pay interest to major financial institutional depositors in
the London interbank market on U.S. dollar denominated deposits for a specified
period of time. The CD rate, as generally provided for in Loan Agreements, is
the average rate paid on large certificates of deposit traded in the secondary
market.

The Fund may invest in the Senior Loans of non-U.S. issuers. Investment in the
Senior Loans of 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 and the potential for political, social and economic
adversity.

The Fund is not subject to any restrictions with respect to the maturity of
Senior Loans held in its portfolio. It is currently anticipated that the Fund's
assets invested in Senior Loans will consist of Senior Loans with stated
maturities of between three and ten years, inclusive, and with rates of interest
which are redetermined either daily, monthly, quarterly or semi-annually;
provided, however, that the Fund may invest up to 5% of its total assets in
Senior Loans which permit the Borrower to select an interest rate
redetermination period of up to one year. Investment in Senior Loans with longer
interest rate redetermination periods may increase fluctuations in the Fund's
net asset value as a result of changes in interest rates. The Senior Loans in
the Fund's portfolio will at all times have a dollar-weighted average time until
the next interest rate redetermination of 90 days or less. As a result, as
short-term interest rates increase, interest payable to the Fund from its
investments in Senior Loans should increase, and as short-term interest rates
decrease, interest payable to the Fund from its investments in Senior Loans
should decrease. The amount of time required to pass before the Fund will
realize the effects of changing short-term market interest rates on its
portfolio will vary with the dollar-weighted average time until the next
interest rate redetermination on the Senior Loans in the Fund's portfolio. The
Fund may utilize certain investment practices to, among other things, shorten
the effective interest rate redetermination period of Senior Loans in its
portfolio. In such event, the Fund will consider such shortened period to be the
interest rate redetermination period of the Senior Loan; provided, however, that
the Fund will not invest in Senior Loans which permit the Borrower to select an
interest rate redetermination period in excess of one year. Because most Senior
Loans in the Fund's portfolio will be subject to mandatory and/or optional
prepayment and there may be significant economic incentives for a Borrower to
prepay its loans, prepayments of Senior Loans in the Fund's portfolio may occur.
Accordingly, the actual remaining maturity of the Fund's portfolio invested in
Senior Loans may vary substantially from the average stated maturity of the
Senior Loans held in the Fund's portfolio. As a result of expected prepayments
from time to time of Senior Loans in the Fund's portfolio, the Fund estimates
that the actual maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.

When interest rates decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will vary, the Fund's management
expects the Fund's policy of acquiring interests in floating or variable rate
Senior Loans to minimize fluctuations in net asset value as a result of changes
in interest rates. Accordingly, the Fund's management expects the value of the
Fund's portfolio to fluctuate less than a portfolio of fixed-rate, longer term
obligations as a result of interest rate changes. However, changes in prevailing
interest rates can be expected to cause some fluctuation in the Fund's
13
<PAGE> 17

net asset value. In addition to changes in interest rates, changes in the credit
quality of Borrowers will also affect the Fund's net asset value. Further, a
serious deterioration in the credit quality of a Borrower could cause a
prolonged or permanent decrease in the Fund's net asset value. Fluctuations in
net asset value may be magnified as a result of the Fund's use of leverage.

The Fund may purchase and retain in its portfolio a Senior Loan interest the
Borrower with respect to which has filed for protection under the federal
bankruptcy laws or has had an involuntary bankruptcy petition filed against it
by its creditors. The values of such Senior Loan interests, if any, will
reflect, among other things, the Adviser's assessment of the likelihood that the
Fund ultimately will receive full repayment of the principal amount of such
Senior Loan interests, the likely duration, if any, of a lapse in the scheduled
repayment of principal and prevailing interest rates. At times, in connection
with the restructuring of a Senior Loan either outside of bankruptcy court or in
the context of bankruptcy court proceedings, the Fund may determine or be
required to accept equity securities or junior debt securities in exchange for
all or a portion of a Senior Loan interest. Depending upon, among other things,
the Adviser's evaluation of the potential value of such securities in relation
to the price that could be obtained by the Fund at any given time upon sale
thereof, the Fund may determine to hold such securities in its portfolio. Any
equity securities and junior debt securities held by the Fund will not be
treated as Senior Loans and thus will not count toward the 80% of the Fund's
total assets that normally will be invested in Senior Loans.

Senior Loans historically have not been rated by nationally recognized
statistical rating organizations. Because of the senior capital structure
position of Senior Loans and the collateralized or guaranteed nature of most
Senior Loans, the Fund and the Adviser believe that ratings of other securities
issued by a Borrower do not necessarily reflect adequately the relative quality
of a Borrower's Senior Loans. Therefore, although the Adviser may consider such
ratings in determining whether to invest in a particular Senior Loan, the
Adviser is not required to consider such ratings and such ratings will not be
the determinative factor in the Adviser's analysis. The Fund may invest a
substantial portion of its assets in Senior Loans, the Borrowers with respect to
which have outstanding debt securities which are rated below investment grade by
a nationally recognized statistical rating organization or are unrated but of
comparable quality to such securities. Debt securities rated below investment
grade or unrated but of comparable quality commonly are referred to as "junk
bonds." The Fund will invest only in those Senior Loans with respect to which
the Borrower, in the opinion of the Adviser, demonstrates one or more of the
following characteristics: sufficient cash flow to service debt; adequate
liquidity; successful operating history; strong competitive position;
experienced management; and, with respect to collateralized Senior Loans,
collateral coverage that equals or exceeds the outstanding principal amount of
the Senior Loan. In addition, the Adviser will consider, and may rely in part,
on the analyses performed by the Agent and other Lenders, including such
persons' determinations with respect to collateral securing a Senior Loan.

The Fund may invest up to 100% of its assets in Participations. The selling
Lenders and other persons interpositioned between such Lenders and the Fund with
respect to such Participations will likely conduct their principal business
activities in the banking, finance and financial services industries. Although,
as discussed below, the Fund has taken measures which it believes reduce its
exposure to any risks incident to such policy, the Fund may be more susceptible
than an investment company without such a policy to any single economic,
political or regulatory occurrence affecting such industries. Persons engaged in
such industries may be more susceptible than are persons engaged in some other
industry to, among other things, fluctuations in interest rates, changes in the
Federal Open Market Committee's monetary policy, governmental regulations
concerning such industries and concerning capital raising activities generally
and fluctuations in the financial markets generally.

Participations by the Fund in a Lender's portion of a Senior Loan typically
will result in the Fund having a contractual relationship only with such Lender,
not with the Borrower. As a result, the Fund may have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by such Lender of
such payments from the Borrower. In connection with purchasing Participations,
the Fund generally will have no right to enforce compliance by the Borrower with
the terms of the Loan Agreement, nor any rights with respect to any funds
acquired by other Lenders through set-off against the Borrower and the Fund may
not directly benefit from the collateral supporting the

14
<PAGE> 18

Senior Loan in which it has purchased the Participation. As a result, the Fund
may assume the credit risk of both the Borrower and the Lender selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of such Lender. The
Fund has taken the following measures in an effort to minimize such risks. The
Fund will only acquire Participations if the Lender selling the Participation,
and any other persons interpositioned between the Fund and the Lender, (i) at
the time of investment has outstanding debt or deposit obligations rated
investment grade (BBB or A-3 or higher by Standard & Poor's Ratings Group
("S&P") or Baa or P-3 or higher by Moody's Investors Service, Inc. ("Moody's"))
or determined by the Adviser to be of comparable quality and (ii) has entered
into an agreement which provides for the holding of assets in safekeeping for,
or the prompt disbursement of assets to, the Fund. Long-term debt rated BBB by
S&P is regarded by S&P as having adequate capacity to pay interest and repay
principal and debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured. Commercial
paper rated A-3 by S&P indicates that S&P believes such obligations exhibit
adequate protection parameters but that adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation and issues of commercial paper
rated P-3 by Moody's are considered by Moody's to have an acceptable ability for
repayment of short-term debt obligations but the effect of industry
characteristics and market compositions may be more pronounced. The Fund
ordinarily will purchase a Participation only if, at the time of such purchase,
the Fund believes that the party from whom it is purchasing such Participation
is retaining an interest in the underlying Senior Loan. In the event that the
Fund does not so believe, it will only purchase such a Participation if, in
addition to the requirements set forth above, the party from whom the Fund is
purchasing such Participation (i) is a bank, a member of a national securities
exchange or other entity designated in the Investment Company Act of 1940, as
amended (the "1940 Act"), as qualified to serve as a custodian for a registered
investment company and (ii) has been approved as a custodian by the Board of
Trustees of the Fund (a "Designated Custodian").

The Fund may also purchase Assignments from Lenders. The purchaser of an
Assignment typically succeeds to all the rights and obligations under the Loan
Agreement of the assigning Lender and becomes a Lender under the Loan Agreement
with the same rights and obligations as the assigning Lender. Assignments may,
however, be arranged through private negotiations between potential assignees
and potential assignors, and the rights and obligations acquired by the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.

When the Fund is an Original Lender originating a Senior Loan it may share in
a fee paid to the Original Lenders. The Fund will never act as the Agent or
principal negotiator or administrator of a Senior Loan. When the Fund is a
Lender, it will have a direct contractual relationship with the Borrower, may
enforce compliance by the Borrower with the terms of the Loan Agreement and may
have rights with respect to any funds acquired by other Lenders through set-off.
Lenders also have full voting and consent rights under the applicable Loan
Agreement. Action subject to Lender vote or consent generally requires the vote
or consent of the holders of some specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as reducing the
amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefor, frequently require
the unanimous vote or consent of all Lenders affected.

The Fund will purchase an Assignment or act as a Lender with respect to a
syndicated Senior Loan only where the Agent with respect to such Senior Loan at
the time of investment has outstanding debt or deposit obligations rated
investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's) or determined by the Adviser to be of comparable quality. Further, the
Fund will not purchase interests in Senior Loans unless such Agent, Lender or
interpositioned person has entered into an agreement which provides for the
holding of assets in safekeeping for, or the prompt disbursement of assets to,
the Fund.

Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, enters FDIC receivership, or if not FDIC insured,
enters into bankruptcy. Should such an Agent, Lender or assignor with respect to
an Assignment interpositioned between the Fund and the Borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for
15
<PAGE> 19

the benefit of the Fund should not be included in such person's estate. If,
however, any such amount were included in such person's estate, the Fund would
incur certain costs and delays in realizing payment or could suffer a loss of
principal or interest. In such event, the Fund could experience a decrease in
net asset value.

The Fund may be required to pay and may receive various fees and commissions
in connection with purchasing, selling and holding interests in Senior Loans.
The fees normally paid by Borrowers may include three types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to Lenders upon
origination of a Senior Loan. Commitment fees are paid to Lenders on an ongoing
basis based upon the undrawn portion committed by the Lenders of the underlying
Senior Loan. Lenders may receive prepayment penalties when a Borrower prepays
all or part of a Senior Loan. The Fund will receive these fees directly from the
Borrower if the Fund is an Original Lender, or, in the case of commitment fees
and prepayment penalties, if the Fund acquires an interest in a Senior Loan by
way of Assignment. Whether or not the Fund receives a facility fee from the
Lender in the case of an Assignment, or any fees in the case of a Participation,
depends upon negotiations between the Fund and the Lender selling such
interests. When the Fund is an assignee, it may be required to pay a fee, or
forgo a portion of interest and any fees payable to it, to the Lender selling
the Assignment. Occasionally, the assignor will pay a fee to the assignee based
on the portion of the principal amount of the Senior Loan which is being
assigned. A Lender selling a Participation to the Fund may deduct a portion of
the interest and any fees payable to the Fund as an administrative fee prior to
payment thereof to the Fund. The Fund may be required to pay over or pass along
to a purchaser of an interest in a Senior Loan from the Fund a portion of any
fees that the Fund would otherwise be entitled to.

Pursuant to the relevant Loan Agreement, a Borrower may be required in certain
circumstances, and may have the option at any time, to prepay the principal
amount of a Senior Loan, often without incurring a prepayment penalty. Because
the interest rates on Senior Loans are periodically redetermined at relatively
short intervals, the Fund and the Adviser believe that the prepayment of, and
subsequent reinvestment by the Fund in, Senior Loans will not have a materially
adverse impact on the yield on the Fund's portfolio and may have a beneficial
impact on income due to receipt of prepayment penalties, if any, and any
facility fees earned in connection with reinvestment.

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

During normal market conditions, the Fund may invest up to 20% of its total
assets (including assets maintained by the Fund as a reserve against any
additional loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants, equity
securities and junior debt securities acquired in connection with the Fund's
investments in Senior Loans. Such high quality, short-term securities may
include commercial paper rated at least in the top two rating categories of
either S&P or Moody's, or unrated commercial paper considered by the Adviser to
be of similar quality, interests in short-term loans of Borrowers having
short-term debt obligations rated or a short-term credit rating at least in such
top two rating categories or having no such rating but determined by the Adviser
to be of comparable quality, certificates of deposit and bankers' acceptances
and securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Such high quality, short-term securities may pay interest at
rates which are periodically redetermined or may pay interest at fixed rates. If
the Adviser determines that market conditions temporarily warrant a defensive
investment policy, the Fund may invest, subject to its ability to liquidate its
relatively illiquid portfolio of Senior Loans, up to 100% of its assets in cash
and such high quality, short-term debt securities. The Fund will acquire such
warrants, equity and junior debt securities only as an incident to the purchase
or intended purchase of interests in collateralized Senior Loans. Although the
Fund generally will acquire interests in warrants, equity and junior debt
securities only when the Adviser believes that the relative value being given by
the Fund in exchange for such interests is substantially outweighed by the
potential value of such instruments, investment in warrants, equity and junior
debt securities entail certain

16
<PAGE> 20

risks in addition to those associated with investments in Senior Loans. Warrants
and equity securities have a subordinate claim on a Borrower's assets as
compared with debt securities and junior debt securities have a subordinate
claim on such assets as compared with Senior Loans. As such, the values of
warrants and equity securities generally are more dependent on the financial
condition of the Borrower and less dependent on fluctuations in interest rates
than are the values of many debt securities. The values of warrants, equity
securities and junior debt securities may be more volatile than those of Senior
Loans and thus may have an adverse impact on the ability of the Fund to minimize
fluctuations in its net asset value.

The Fund also may invest up to 5% of its total assets in structured notes with
rates of return determined by reference to the total rate of return on one or
more loans referenced in such notes. The rate of return on the structured note
may be determined by applying a multiplier to the rate of total return on the
referenced loan or loans. Application of a multiplier is comparable to the use
of financial leverage, a speculative technique. Leverage magnifies the potential
for gain and the risk of loss; as a result, a relatively small decline in the
value of a referenced note could result in a relatively large loss in the value
of a structured note. Structured notes will be treated as Senior Loans for
purposes of the Fund's policy of normally investing at least 80% of its assets
in Senior Loans.

The Fund is permitted to borrow up to 33 1/3% of its total assets (including
the amount borrowed) less all liabilities other than borrowings. Borrowings may
be made for the purpose of acquiring additional income-producing investments
when the Adviser believes that such use of borrowed proceeds will enhance the
Fund's net income. The amount of outstanding borrowings may vary with prevailing
market or economic conditions.

SPECIAL RISK CONSIDERATIONS

Closed-end Funds. The Fund is a closed-end investment company with no history
of operations and is designed primarily for long-term investors and not as a
trading vehicle. The shares of closed-end investment companies often trade at a
discount from their net asset value, and the Fund's Common Shares may likewise
trade at a discount from net asset value. The trading price of the Fund's Common
Shares may be less than the initial public offering price, creating a risk of
loss for investors purchasing in the initial public offering of the Common
Shares. This market price risk may be greater for investors who intend to sell
their Common Shares within a relatively short period after completion of this
offering.

Senior Loans. Senior Loans, like other corporate debt obligations, are subject
to the risk of non-payment of scheduled interest or principal. Such non-payment
would result in a reduction of income to the Fund, a reduction in the value of
the Senior Loan experiencing non-payment and a potential decrease in the net
asset value of the Fund. Although, with respect to collateralized Senior Loans,
the Fund generally will invest only in Senior Loans that the Adviser believes
are secured by specific collateral, which may include guarantees, the value of
which exceeds the principal amount of the Senior Loan at the time of initial
investment, there can be no assurance that the liquidation of any such
collateral would satisfy the Borrower's obligation in the event of non-payment
of scheduled interest or principal payments, or that such collateral could be
readily liquidated. In the event of bankruptcy of a Borrower, the Fund could
experience delays or limitations with respect to its ability to realize the
benefits of the collateral securing a Senior Loan. To the extent that a Senior
Loan is collateralized by stock in the Borrower or its subsidiaries, such stock
may lose all or substantially all of its value in the event of bankruptcy of the
Borrower. The Agent generally is responsible for determining that the Lenders
have obtained a perfected security interest in the collateral securing the
Senior Loan. In the event that the Fund does not believe that a perfected
security interest has been obtained with respect to a collateralized Senior
Loan, the Fund will only obtain an interest in such Senior Loan if the Agent is
a Designated Custodian. Some Senior Loans in which the Fund may invest are
subject to the risk that a court, pursuant to fraudulent conveyance or other
similar laws, could subordinate such Senior Loans to presently existing or
future indebtedness of the Borrower or take other action detrimental to the
holders of Senior Loans, such as the Fund, including, under certain
circumstances, invalidating such Senior Loans. Lenders commonly have certain
obligations pursuant to the Loan Agreement, which may include the obligation to
make additional loans or release collateral in certain circumstances.

On behalf of the several Lenders, the Agent generally will be required to
administer and manage the Senior Loan and, with respect to collateralized Senior
Loans, to service or monitor the collateral. In this connection,
17
<PAGE> 21

the valuation of assets pledged as collateral will reflect market value and the
Agent may rely on independent appraisals as to the value of specific collateral.
The Agent, however, may not obtain an independent appraisal as to the value of
assets pledged as collateral in all cases. The Fund normally will rely primarily
on the Agent (where the Fund is an Original Lender or owns an Assignment) or the
selling Lender (where the Fund owns a Participation) to collect principal of and
interest on a Senior Loan. Furthermore, the Fund usually will rely on the Agent
(where the Fund is an Original Lender or owns an Assignment) or the selling
Lender (where the Fund owns a Participation) to monitor compliance by the
Borrower with the restrictive covenants in the Loan Agreement and notify the
Fund of any adverse change in the Borrower's financial condition or any
declaration of insolvency. Collateralized Senior Loans will frequently be
secured by all assets of the Borrower that qualify as collateral, which may
include common stock of the Borrower or its subsidiaries. Additionally, the
terms of the Loan Agreement may require the Borrower to pledge additional
collateral to secure the Senior Loan, and enable the Agent, upon proper
authorization of the Lenders, to take possession of and liquidate the collateral
and to distribute the liquidation proceeds pro rata among the Lenders. If the
terms of a Senior Loan do not require the Borrower to pledge additional
collateral in the event of a decline in the value of the original collateral,
the Fund will be exposed to the risk that the value of the collateral will not
at all times equal or exceed the amount of the Borrower's obligations under the
Senior Loan. Lenders that have sold Participation interests in such Senior Loan
will distribute liquidation proceeds received by the Lenders pro rata among the
holders of such Participations. The Adviser will also monitor these aspects of
the Fund's investments and, where the Fund is an Original Lender or owns an
Assignment, will be directly involved with the Agent and the other Lenders
regarding the exercise of credit remedies.

Senior Loans in which the Fund will invest historically have not been rated by
a nationally recognized statistical rating organization, will not be registered
with the SEC or any state securities commission and will not be listed on any
national securities exchange. Although the Fund will generally have access to
financial and other information made available to the Lenders in connection with
Senior Loans, the amount of public information available with respect to Senior
Loans will generally be less extensive than that available for rated, registered
or exchange listed securities. As a result, the performance of the Fund and its
ability to meet its investment objective is more dependent on the analytical
ability of the Adviser than would be the case for an investment company that
invests primarily in rated, registered or exchange listed securities.

Senior Loans, at present, generally are not readily marketable and may be
subject to restrictions on resale. Interests in Senior Loans generally are not
listed on any national securities exchange or automated quotation system and no
active trading market may exist for many of the Senior Loans in which the Fund
will invest. To the extent that a secondary market may exist for certain of the
Senior Loans in which the Fund invests, such market may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods.
Senior Loans are thus relatively illiquid, which illiquidity may impair the
Fund's ability to realize the full value of its assets in the event of a
voluntary or involuntary liquidation of such assets. Liquidity relates to the
ability of the Fund to sell an investment in a timely manner. The market for
relatively illiquid securities tends to be more volatile than the market for
more liquid securities. The Fund has no limitation on the amount of its assets
which may be invested in securities which are not readily marketable or are
subject to restrictions on resale. The substantial portion of the Fund's assets
invested in Senior Loan interests may restrict the ability of the Fund to
dispose of its investments in a timely fashion and at a fair price, and could
result in capital losses to the Fund and holders of Common Shares. However, many
of the Senior Loans in which the Fund expects to purchase interests are of a
relatively large principal amount and are held by a relatively large number of
owners which should, in the Adviser's opinion, enhance the relative liquidity of
such interests. The risks associated with illiquidity are particularly acute in
situations where the Fund's operations require cash, such as when the Fund
tenders for its Common Shares, and may result in the Fund borrowing to meet
short-term cash requirements.

To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans in connection
with highly leveraged transactions, the availability of Senior Loan interests
for investment by the Fund may be adversely affected. In addition, such
requirements or restrictions may reduce or eliminate sources of financing for
certain Borrowers. Further, to the extent that legislation or federal or state
regulators that regulate certain financial institutions require such
institutions to dispose of Senior Loan interests relating

18
<PAGE> 22

to highly leveraged transactions or subject such Senior Loan interests to
increased regulatory scrutiny, such financial institutions may determine to sell
such Senior Loan interests in a manner that results in a price which, in the
opinion of the Adviser, is not indicative of fair value. Were the Fund to
attempt to sell a Senior Loan interest at a time when a financial institution
was engaging in such a sale with respect to such Senior Loan interest, the price
at which the Fund could consummate such a sale might be adversely affected.

Non-Diversification. The Fund has registered as a "non-diversified" investment
company so that, subject to its investment restrictions, it will be able to
invest more than 5% of the value of its assets in the obligations of any single
issuer, including Senior Loans of a single Borrower or Participations purchased
from a single Lender. See "Investment Restrictions" in the Statement of
Additional Information. The Fund does not intend, however, to invest more than
5% of the value of its assets in interests in Senior Loans of a single Borrower.
To the extent the Fund invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Fund will be more susceptible
than a more widely diversified investment company to any single corporate,
economic, political or regulatory occurrence.

Leverage. Within approximately three months from the date of this Prospectus,
the Fund currently intends to borrow money for investment purposes. The Fund may
also offer Preferred Shares. The timing of any such Preferred Shares offering or
borrowing and the terms of any such Preferred Shares or borrowing will be
determined by the Fund's Board of Trustees.

Under the requirements of the 1940 Act, the value of the Fund's total assets,
less all liabilities and indebtedness of the Fund not represented by senior
securities, must be at least equal, immediately after any borrowing, to 300% of
the aggregate value of borrowings represented by senior securities. Any lender
with respect to borrowings by the Fund may require additional asset coverage
provisions as well as restrictions on the Fund's investment practices.

Under the requirements of the 1940 Act, the value of the Fund's total assets,
less all liabilities and indebtedness of the Fund not represented by senior
securities, must at least be equal, immediately after the issuance of any
Preferred Shares, to 200% of the aggregate liquidation value of the Preferred
Shares plus the aggregate amount of senior securities representing indebtedness.
The liquidation value of the Preferred Shares is expected to equal their
aggregate original purchase price plus a redemption premium, if any, together
with any accrued and unpaid dividends thereon (on a cumulative basis), whether
or not earned or declared. See "Description of Capital Structure." The Fund
currently intends to seek an investment grade rating for any Preferred Shares
from one or more nationally recognized statistical rating organizations. If the
Fund seeks such a rating of the Preferred Shares, asset coverage provisions in
addition to and more stringent than those required by the 1940 Act may be
imposed in connection with the issuance of such a rating. In addition,
restrictions may be imposed on certain investment practices in which the Fund
may otherwise engage. The rating agency requirements also are expected to impose
certain minimum issue size, issuer geographical diversification and other
requirements for determining portfolio assets that are eligible for computing
compliance with their asset coverage requirements. A rating of the Preferred
Shares does not reflect a direct assessment of the credit quality of the Fund's
portfolio and is not an assessment of the investment characteristics of the
Common Shares. If the Fund obtains a rating of the Preferred Shares and the
rating is subsequently lowered or withdrawn, the Fund would likely be required
to pay higher dividends on the Preferred Shares. See "Description of Capital
Structure -- Preferred Shares."

Investors should note that there are risks associated with issuing Preferred
Shares or borrowing in an effort to increase the yield on the Common Shares,
including higher volatility of both the net asset value and the market value of
the Common Shares, and that fluctuations in the dividend rates on the Preferred
Shares or interest rates on the borrowing may affect the yield to the Common
Shareholders. So long as the Fund is able to realize a higher return after
expenses on its investment of the proceeds of the Preferred Shares offering or
of any borrowing than the then current dividend rates on the Preferred Shares or
interest rate on the borrowing, the effect of the leverage will be to cause the
Common Shareholders to realize a higher current rate of return than if the Fund
were not so leveraged. On the other hand, to the extent that the then current
dividend rates on the Preferred Shares or interest rate on the borrowing
approaches the return on such proceeds after expenses, the benefit of leverage
to the Common Shareholders will be reduced, and if the then current

19
<PAGE> 23

dividend rates on the Preferred Shares or interest rate on the borrowing were to
exceed the return on such investment after expenses, the Fund's leveraged
capital structure would result in a lower rate of return to the Common
Shareholders than if the Fund were not so structured. Similarly, since any
decline in the net asset value of the Fund's investments will be borne entirely
by the Common Shareholders, the effect of leverage in a declining market would
result in a greater decrease in net asset value to the Common Shareholders than
if the Fund were not so leveraged. Any such decrease would likely be reflected
in a decline in the market price for Common Shares. The floating or variable
rate nature of Senior Loans in which the Fund invests helps mitigate against the
risks of increased dividend or interest costs as a result of increasing interest
rates. The Adviser may also seek to manage certain of the risks of financial
leverage in anticipation of changes in interest rates in a number of ways,
including extending the length of the dividend period on any Preferred Shares or
interest rate period on any borrowing so as to fix a dividend or an interest
rate for a period of time, "deleveraging" the Fund by redeeming all or a portion
of the outstanding Preferred Shares or repaying all or a portion of any
outstanding borrowing, entering into certain transactions in an effort to hedge
against changes in interest rates and purchasing securities the terms of which
have elements of, or are similar in effect to, certain hedging transactions in
which the Fund may engage. There can be no assurance that the Adviser can
successfully manage the risks of leverage. See "Investment Practices and Special
Risks.".

The issuance of Preferred Shares or borrowing by the Fund will entail certain
initial costs and expenses and certain ongoing administrative and accounting
expenses. These costs and expenses will be borne by the Fund and will reduce the
income or net assets available to Common Shareholders. If the Fund's current
investment income were not sufficient to meet dividend requirements on any
Preferred Shares or interest expenses on any borrowing, the Fund might have to
liquidate certain of its investments in order to meet required dividend or
interest payments, thereby reducing the net asset value attributable to the
Fund's Common Shares. In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the Fund meets certain asset coverage requirements (determined
after deducting the amount of such dividend or distribution). Such prohibition
on the payment of dividends or other distributions might impair the ability of
the Fund to maintain its qualification, for federal income tax purposes, as a
regulated investment company. The Fund intends, however, to the extent possible
to purchase or redeem Preferred Shares from time to time or to repay borrowing,
which may involve the payment by the Fund of a premium and the sale by the Fund
of portfolio securities at a time when it may be disadvantageous to do so, to
maintain such asset coverage requirements. Subject to the restrictions of the
1940 Act, the Fund may "releverage" through the reissuance of Preferred Shares
or incurrence of new borrowing, and in connection with which the Fund, and
indirectly the Common Shareholders, would incur the expenses of such
releveraging. See "Taxation."

Assuming the utilization of leverage in the amount of approximately 33 1/3% of
the Fund's total assets, and an annual interest rate on borrowings of 6.2%
payable on such leverage based on market rates as of the date of this
Prospectus, the annual return that the Fund's portfolio must experience (net of
expenses) in order to cover such interest payments would be 2.05%. The Fund's
actual cost of leverage will be based on market rates at the time the Fund
undertakes a leveraging strategy, and such actual cost of leverage may be higher
or lower than that assumed in the previous example.

The following table is designed to illustrate the effect on the return to a
holder of the Fund's Common Shares of leverage in the amount of approximately
33 1/3% of the Fund's total assets, assuming hypothetical annual returns of the
Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage
generally increases the return to shareholders when portfolio return is positive
and greater than the cost of leverage and decreases the return when the
portfolio return is negative or less than the cost of leverage. The figures
appearing in the table are hypothetical and actual returns may be greater or
less than those appearing in the table.

<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses)...... (10)% (5)% 0% 5% 10%
Corresponding Common Share Return Assuming
33 1/3% Leverage.............................. (18.10)% (10.60)% (3.10)% 4.40% 11.90%
</TABLE>

If there are no Preferred Shares issued and outstanding, Common Shareholders
will elect all of the Trustees of the Fund. If there are Preferred Shares issued
and outstanding, holders of any Preferred Shares will elect two Trustees. Under
the 1940 Act, upon failure by the Fund to pay dividends on the Preferred Shares
in an

20
<PAGE> 24

The lenders with respect to any borrowing by the Fund may be entitled to elect
a majority of the Board of Trustees if certain asset coverage requirements are
not maintained. In addition, failure to maintain certain asset coverage
requirements may result in a default under the terms of any Preferred Shares or
borrowing. The terms of any borrowing may entitle holders of the Preferred
Shares or lenders, as the case may be, to elect a majority of the Board of
Trustees in certain other circumstances. See "Description of Capital Structure."

Until any Preferred Shares are issued or borrowings are incurred, the Fund's
capital structure will not be leveraged, and the special leverage considerations
described in this Prospectus will not apply. There can be no assurance that the
Preferred Shares will be issued or, if issued, that the Preferred Shares would
not subsequently be redeemed or that the Fund will borrow or, if it borrows,
that such borrowing will be continued.

Year 2000 Compliance. 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 Adviser and other service providers
do not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." The
Adviser is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the 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. In addition, 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.

The Fund may use various other investment practices that involve special
considerations including engaging in interest rate and other hedging
transactions, lending its portfolio securities, entering into when-issued and
delayed delivery transactions and entering into repurchase and reverse
repurchase agreements. For further discussion of these practices and associated
special considerations, see "Investment Practices and Special Risks."

INVESTMENT PRACTICES AND SPECIAL RISKS

In connection with the investment objective and policies described above, the
Fund may engage in interest rate and other hedging transactions, utilize
borrowing for investment purposes, lend portfolio holdings, purchase and sell
interests in Senior Loans and other portfolio debt securities on a "when issued"
or "delayed delivery" basis, and enter into repurchase and reverse repurchase
agreements. These investment practices involve certain special risk
considerations. The Adviser may use some or all of the following investment
practices when, in the opinion of the Adviser, their use is appropriate.
Although the Adviser believes that these investment practices may further the
Fund's investment objective, no assurance can be given that these investment
practices will achieve this result. If the Fund issues Preferred Shares and
seeks to obtain a rating of the Preferred Shares or borrows money, the rating
service issuing such rating may, as a condition thereof, or the lenders may
impose asset coverage or other requirements, compliance with which may restrict
the Fund's ability to engage in these investment practices.

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

21
<PAGE> 25

derivatives, with many different uses. The Fund expects to enter into these
transactions primarily to seek to preserve a return on a particular investment
or portion of its portfolio, and may also enter into such transactions to seek
to protect against decreases in the anticipated rate of return on floating or
variable rate financial instruments the Fund owns or anticipates purchasing at a
later date, or for other risk management strategies such as managing the
effective dollar-weighted average duration of the Fund's portfolio. In addition,
the Fund may also engage in hedging transactions to seek to protect the value of
its portfolio against declines in net asset value resulting from changes in
interest rates or other market changes. The Fund does not intend to engage in
such transactions to enhance the yield on its portfolio to increase income
available for distributions. Market conditions will determine whether and in
what circumstances the Fund would employ any of the hedging and risk management
techniques described below. The Fund will not engage in any of the transactions
for speculative purposes and will use them only as a means to hedge or manage
the risks associated with assets held in, or anticipated to be purchased for,
the Fund's portfolio or obligations incurred by the Fund. The successful
utilization of hedging and risk management transactions requires skills
different from those needed in the selection of the Fund's portfolio securities.
The Fund believes that the Adviser possesses the skills necessary for the
successful utilization of hedging and risk management transactions. The Fund
will incur brokerage and other costs in connection with its hedging
transactions.

The Fund may enter into interest rate swaps or purchase or sell interest rate
caps or floors. The Fund will not sell interest rate caps or floors that it does
not own. Interest rate swaps involve the exchange by the Fund with another party
of their respective obligations to pay or receive interest, e.g., an exchange of
an obligation to make floating rate payments for an obligation to make fixed
rate payments. For example, the Fund may seek to shorten the effective interest
rate redetermination 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 is 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

22
<PAGE> 26

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 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 may 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

23
<PAGE> 27

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 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.
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<PAGE> 28

TAXATION

The Fund intends to elect and to qualify each year to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). If the Fund so qualifies and distributes each
year to its Common 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) from that year, the Fund will not be required to
pay federal income taxes on any income distributed to Common Shareholders. The
Fund will not be subject to federal income tax on any net capital gains
distributed to Common 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 Common Shareholders as ordinary income, whether paid in cash or reinvested in
additional Common Shares. Distributions of the Fund's net capital gains
("capital gain dividends"), if any, are taxable to Common Shareholders at the
rates applicable to long-term capital gains regardless of the length of time
shares of the Fund have been held by such Common Shareholders. For a summary of
the tax rates applicable to capital gains (including capital gain dividends),
see "Capital Gains Rates Under the 1997 Tax Act" below. The Fund will inform
Common Shareholders of the source and tax status of all distributions promptly
after the close of each calendar year. For a discussion of the allocation of
capital gain dividends between Common Shareholders and Preferred Shareholders,
if any, see "Taxation -- Distributions" in the Statement of Additional
Information.

Sale of Shares. Except as discussed below, selling Common Shareholders will
generally recognize gain or loss in an amount equal to the difference between
their adjusted tax basis in the Common Shares and the amount received. If such
Common Shares are held as a capital asset, the gain or loss will be a capital
gain or loss. For a summary of the tax rates applicable to capital gains, see
"Capital Gains Rates Under the 1997 Tax Act" below. The federal income tax
consequences of the repurchase of Common Shares pursuant to tender offers will
be disclosed in the related offering documents. Any loss recognized upon a
taxable disposition of Common Shares held for six months or less will be treated
as a long-term capital loss to the extent of any capital gain dividends received
with respect to such Common Shares. For purposes of determining whether Common
Shares have been held for six months or less, the holding period is suspended
for any periods during which the Common Shareholder's risk of loss is diminished
as a result of holding one or more other positions in substantially similar or
related property or through certain options or short sales.

Capital Gains Rates Under the 1997 Tax Act. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act") the maximum tax rate applicable to net capital gains
recognized by individuals and other non-corporate taxpayers is (i) the same as
the maximum ordinary income tax rate for capital assets held for one year or
less, (ii) 28% for capital assets held for more than one year but not more than
18 months and (iii) 20% for capital assets held for more than 18 months. Common
Shareholders should consult their tax advisors regarding a certain election to
mark-to-market Common Shares held on January 1, 2001. The maximum net capital
gains tax rate for corporations remains at 35%. The new tax rates for capital
gains under the 1997 Tax Act described above will apply to distributions of
capital gain dividends by the Fund (if, as expected, the Fund designates capital
gain dividends as 28% rate gain distributions or 20% rate gain distributions, in
accordance with its holding periods for the securities sold that generated such
capital gain dividends) as well as to sales and exchanges of Common Shares in
the Fund. With respect to capital losses recognized on dispositions of shares
held six months or less where such losses are treated as long-term capital
losses to the extent of prior capital gain dividends received on such shares
(see "Sale of Shares" above), it is unclear how such capital losses offset the
capital gains referred to above. Common Shareholders should consult their own
tax advisors as to the application of the new capital gains rates to their
particular circumstances.

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<PAGE> 29

Non-U.S. Shareholders. A Common Shareholder that is not a "United States
person" within the meaning of the Code (a "Non-U.S. Shareholder") generally will
be subject to a withholding tax of 30% (or lower applicable treaty rate) on
dividends from the Fund (other than capital gain dividends) that are not
"effectively connected" with a United States trade or business carried on by
such Common Shareholder. Accordingly, investment in the Fund is likely to be
appropriate for a Non-U.S. Shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such United States
withholding tax. Non-effectively connected capital gain dividends and gains
realized from the sale of Common Shares will not be subject to United States
federal income tax in the case of (i) a Non-U.S. Shareholder that is a
corporation and (ii) a Non-U.S. Shareholder that is not present in the United
States for more than 182 days during the taxable year (assuming that certain
other conditions are met). See "Taxation -- Non-U.S. Shareholders" in the
Statement of Additional Information. Prospective foreign investors should
consult their U.S. tax advisors concerning the tax consequences to them of an
investment in Common Shares.

General. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their tax advisors
regarding the specific federal and state tax consequences of purchasing, holding
and disposing of Common Shares, as well as the effects of other state, local and
foreign tax laws and any proposed tax law changes.

MANAGEMENT OF THE FUND

BOARD OF TRUSTEES

The management of the Fund, including general supervision of the duties
performed by the Adviser under the Advisory Agreement, is the responsibility of
the Fund's Board of Trustees.

THE ADVISER

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

VKAC is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $62 billion under management or supervision. VKAC'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. The Adviser also serves as investment adviser to the Van Kampen
American Capital Senior Floating Rate Fund and to the Van Kampen American
Capital Prime Rate Income Trust, each a closed-end investment company engaged in
a continuous offering with an investment objective and policies substantially
similar to those of the Fund. As of March 30, 1998, the Van Kampen American
Capital Prime Rate Income Trust had over $7.0 billion in assets. The Adviser and
its affiliates may sponsor and advise new investment vehicles with investment
objectives, policies and restrictions similar or identical to those of the Fund.

Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., Morgan
Stanley & Co. Incorporated, Dean Witter Reynolds Inc., Dean Witter InterCapital
Inc. and Morgan Stanley & Co. International Limited are engaged in a wide range
of financial services. Their principal businesses include securities
underwriting, distribution and trading; merger, acquisition, restructuring and
other corporate finance advisory activities; merchant banking; stock brokerage
and research services; credit services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.

INVESTMENT ADVISORY AGREEMENT. The business and affairs of the Fund will be
managed under the direction of the Fund's Board of Trustees. Subject to their
authority, the Adviser and the Fund's officers will supervise and implement the
Fund's investment activities and will be responsible for overall management of
the Fund's business affairs. The investment advisory agreement (the "Advisory
Agreement") between the Adviser and
26
<PAGE> 30

the Fund provides that the Adviser will supply investment research and portfolio
management, including the selection of securities for the Fund to purchase,
hold, or sell and the selection of brokers through whom the Fund's portfolio
transactions are executed. The Adviser also furnishes offices, necessary
facilities and equipment and permits its officers and employees to serve without
compensation as Trustees and officers of the Fund if duly elected to such
positions.

For the services provided by the Adviser under the Advisory Agreement, the
Fund will pay the Adviser a monthly fee (accrued daily and paid monthly)
computed based upon an annual rate equal to 0.85% applied to the average daily
managed assets of the Fund (which for purposes of determining such fee, shall
mean the average daily gross asset value of the Fund, minus the sum of accrued
liabilities other than the aggregate amount of any borrowings undertaken by the
Fund). Because leverage will increase the amount of total assets, the Fund will
pay a greater amount of advisory fees when leverage is utilized. The advisory
fee is higher than the fees paid by most management investment companies,
although it is comparable to the fees paid by several publicly offered,
closed-end management investment companies with investment objectives and
policies similar to those of the Fund.

The Adviser 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.

PORTFOLIO MANAGEMENT. Jeffrey W. Maillet is a Senior Vice President of the
Adviser and is primarily responsible for the day to day management of the Fund's
portfolio. Mr. Maillet also has primary responsibility for the day to day
management of the portfolio of the Van Kampen American Capital Senior Floating
Rate Fund and of the Van Kampen American Capital Prime Rate Income Trust, each a
closed-end investment company investing primarily in interests in Senior Loans
and having investment objectives and policies substantially similar to those of
the Fund. Mr. Maillet has been employed by the Adviser since 1989.

THE ADMINISTRATOR. The administrator for the Fund is VKAC (in such capacity,
the "Administrator"). Its principal business address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. The Administrator is an indirect wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co. The Administrator maintains
offices and regional representatives in major cities across the nation.

Pursuant to the administration agreement between the Fund and the
Administrator (the "Administration Agreement") and in consideration of its
administrative fee, the Administrator will (i) monitor the provisions of the
Loan Agreements and any agreements with respect to Participations and
Assignments and be responsible for recordkeeping with respect to Senior Loans in
the Fund's portfolio; (ii) arrange for the printing and dissemination of proxies
and reports to holders of the Fund's Shares; (iii) in connection with the
issuance of any Preferred Shares by the Fund, calculate, monitor and provide to
any rating agencies rating any Preferred Shares such asset coverage and
liquidity reports as the Board of Trustees deems advisable; (iv) negotiate the
terms and conditions under which custodian services will be provided to the Fund
and the fees to be paid by the Fund in connection therewith; (v) negotiate the
terms and conditions under which dividend disbursing services will be provided
to the Fund, and the fees to be paid by the Fund in connection therewith and
review the provision of dividend disbursing services to the Fund; (vi) provide
the Fund's dividend disbursing agent and custodian with such information as is
required for such parties to effect payment of dividends and distributions and
to implement the Fund's dividend reinvestment plan; (vii) make such reports and
recommendations to the Board of Trustees as the Trustees reasonably request or
deem appropriate; and (viii) provide certain shareholder services to holders or
potential holders of the Fund's securities.

For the services rendered to the Fund and related expenses borne by the
Administrator, the Fund pays the Administrator a monthly fee (accrued daily and
paid monthly) computed based upon an annual rate equal to 0.20% applied to the
Fund's average daily managed assets (which for purposes of determining such fee,
shall mean the average daily gross asset value of the Fund, minus the sum of
accrued liabilities other than the aggregate amount of any borrowings undertaken
by the Fund). Because leverage will increase the amount of total assets, the
Fund will pay a greater amount of administration fees when leverage is utilized.

27
<PAGE> 31

DISTRIBUTIONS

The Fund's policy will be to make monthly distributions to Common Shareholders
of substantially all net investment income of the Fund remaining after the
payment of dividends on any outstanding Preferred Shares. Net investment income
of the Fund consists of all interest income, fee income, other ordinary income
earned by the Fund on its portfolio assets and net short-term capital gains,
less all expenses of the Fund (including interest expense on borrowings).
Expenses of the Fund are accrued each day. Distributions to Common Shareholders
cannot be assured, and the amount of each monthly distribution is likely to
vary. Net realized long-term capital gains, if any, are expected to be
distributed to Common Shareholders at least annually. Initial distributions to
Common Shareholders are expected to be declared approximately 30 days after the
completion of this offering and will be paid approximately 30 days after
declaration. Common Shareholders may elect to have distributions automatically
reinvested in additional Common Shares. Until such time as the Fund is fully
invested, distributions will be less than they might otherwise be. See "Dividend
Reinvestment Plan."

While there are any Preferred Shares or borrowings outstanding, the Fund may
not be permitted to declare any cash dividend or other distribution on its
Common Shares, unless at the time of such declaration, (1) all accrued dividends
on Preferred Shares or accrued interest on borrowings has been paid and (2) the
value of the Fund's total assets (determined after deducting the amount of such
dividend or other distribution), less all liabilities and indebtedness of the
Fund not represented by senior securities, is at least 300% of the aggregate
amount of senior securities representing indebtedness and at least 200% of the
aggregate amount of securities representing indebtedness plus the aggregate
liquidation value of the outstanding Preferred Shares (expected to equal the
aggregate original purchase price of the outstanding Preferred Shares plus
redemption premium, if any, together with any accrued and unpaid dividends
thereon, whether or not earned or declared and on a cumulative basis). In
addition to the requirements of the 1940 Act, the Fund may be required to comply
with other asset coverage requirements as a condition of the Fund obtaining a
rating of the Preferred Shares from a nationally recognized statistical rating
organization or as a condition to borrowing money. These requirements may
include an asset coverage test more stringent than under the 1940 Act. This
limitation on the Fund's ability to make distributions on its Common Shares
could in certain circumstances impair the ability of the Fund to maintain its
qualification for taxation as a regulated investment company. The Fund intends,
however, to the extent possible to purchase or redeem Preferred Shares or to
repay borrowings from time to time to maintain compliance with such asset
coverage requirements and may pay special dividends to the holders of the
Preferred Shares in certain circumstances in connection with any such impairment
of the Fund's status as a regulated investment company. See "Investment
Objective and Policies and Special Risk Factors -- Special Risk Considerations"
and "Taxation." Depending on the timing of any such redemption or repayment, the
Fund may be required to pay a premium in addition to the liquidation preference
of the Preferred Shares or the principal amount of the borrowings to the holders
thereof. See "Description of Capital Structure -- Borrowings, -- Preferred
Shares" below.

DIVIDEND REINVESTMENT PLAN

The Fund offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders may elect to have all distributions of dividends and all
capital gains automatically reinvested in Common Shares pursuant to the Plan.

State Street Bank and Trust Company, as plan agent (the "Plan Agent"), serves
as agent for the Common Shareholders in administering the Plan. The Plan Agent
will effect purchases of Common Shares under the Plan in the open market. Common
Shareholders who do not elect to participate in the Plan will receive all
distributions of dividends and capital gains in cash paid by check mailed
directly to the shareholder of record (or if the Common Shares are held in
street or other nominee name, then to the nominee) by Boston Equiserve, L.P., as
dividend disbursing agent. The Fund expects that the first dividend will be
payable only in cash.

The Plan Agent serves as agent for the Common Shareholders in administering
the Plan. After the Fund declares a dividend or makes a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Common Shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Fund will not
issue any new shares in connection
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<PAGE> 32

with the Plan. The Plan Agent's purchase of Common Shares in the open market may
have the effect of increasing the market price of the Common Shares and may
result in the purchase of Common Shares at prices in excess of both net asset
value and the market price prevailing at the time that such purchases commence.
The Plan Agent may but is not required to effect purchases over a period of days
or weeks in order to mitigate the impact of such purchases on market prices.
Common Shareholders participating in the Plan will be allocated Common Shares
based on the average cost of Common Shares purchased in connection with a
particular dividend or distribution.

The Plan Agent will maintain each Common Shareholder's account in the Plan and
furnish monthly written confirmations of all transactions in the accounts,
including information needed by Common Shareholders for personal and tax
records. Common Shares in the account of each Plan participant will be held by
the Plan Agent in non-certificated form in the name of the participant, and each
Common Shareholder's proxy will include those Common Shares purchased pursuant
to the Plan. The Plan Agent's fees for the handling of the reinvestment of
dividends and distributions will be paid by the Fund. However, each participant
will pay a pro rata share of brokerage commissions incurred with respect to the
Plan Agent's open market purchases in connection with the reinvestment of
dividends and distributions. No other charges will be made to participants for
reinvesting dividends or capital gain distributions.

In the case of Common Shareholders, such as banks, brokers or nominees, which
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record Common Shareholders as representing the total amount
registered in the record Common Shareholder's name and held for the account of
beneficial owners who are participating in the Plan. Investors that own Common
Shares registered in the name of a bank, broker or other nominee should consult
with such nominee as to participation in the Plan through such nominee and may
be required to have their Common Shares registered in their own names in order
to participate in the Plan.

The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required to be
withheld on such dividends or distributions.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Fund at least 90 days before the
record date for the dividend distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Fund.

All registered Common Shareholders (other than brokers or nominees) will be
mailed information regarding the Plan, including a form with which they may
elect to participate in the Plan. Shareholders who intend to hold their Common
Shares through a broker or nominee should contact such person to confirm that
they may participate in the Plan and to determine the effect, if any, that a
transfer of the account by the shareholder to another broker or nominee will
have on continued participation in the Plan. A Common Shareholder may withdraw
from the Plan at any time by contacting the Plan Agent at the address or
telephone number set forth below. There is no penalty for non-participation in
or withdrawal from the Plan, and Common Shareholders who have previously
withdrawn from the Plan may rejoin it at any time. Changes in elections should
be directed to the Plan Agent and should include the name of the Fund and the
Common Shareholder's name and address as registered. An election to withdraw
from the Plan will, until such election is changed, be deemed to be an election
by a Common Shareholder to take all subsequent dividends and distributions in
cash. Elections will only be effective for dividends and distributions declared
after, and with a record date of at least ten days after, such elections are
received by the Plan Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided above, certificates for whole Common Shares
credited to his or her account under the Plan will be issued and a cash payment
will be made for any fraction of a Common Share credited to such account. All
correspondence concerning the Plan should be directed to the Plan Agent at State
Street Bank and Trust Co., P.O. Box 8200, Boston, MA 02266-8200. Please call
(800) 341-2929 between the hours of 7:30 a.m. and 5:00 p.m. Central Standard
Time if you have questions regarding the Plan.

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<PAGE> 33

REPURCHASE OF SHARES

Shares of closed-end management investment companies frequently trade at a
discount to their net asset values but in some cases trade at a premium. In
recognition of the possibility that the Fund's Common Shares might similarly
trade at a discount, the Fund's Board of Trustees has determined that from time
to time it may be in the interest of Common Shareholders for the Fund to take
action to attempt to reduce or eliminate a market value discount from net asset
value. The Board of Trustees, in consultation with the Adviser, will review on a
quarterly basis the possibility of open market repurchases and/or tender offers
for the Common Shares and will consider such factors as the market price of the
Common Shares, the net asset value of the Common Shares, the liquidity of the
assets of the Fund, whether such transactions would impair the Fund's status as
a regulated investment company or result in a failure to comply with applicable
asset coverage requirements, general economic conditions and such other events
or conditions which may have a material effect on the Fund's ability to
consummate such transactions. There are no assurances that the Board of Trustees
will, in fact, decide to undertake either of these actions or if undertaken,
that such actions will result in the Fund's Common Shares trading at a price
which is equal to or approximates their net asset value. In addition, the Board
of Trustees will not necessarily announce when it has given consideration to
these matters. Common Shares will not be repurchased unless after such
repurchase the Fund would continue to satisfy the 1940 Act asset coverage
requirements with respect to the Preferred Shares or any borrowing and any asset
coverage requirements which may be imposed by any rating service as a condition
of its rating of the Preferred Shares or by any lender with respect to any
borrowing.

Although the Board of Trustees believes that Common Share repurchases and
tenders generally could have a favorable effect on the market price of the
Fund's Common Shares, it should be recognized that the acquisition of Common
Shares by the Fund will decrease the total assets of the Fund and, therefore,
have the effect of increasing the Fund's expense ratio and decreasing the asset
coverage available with respect to the Preferred Shares and any borrowing.
Because of the nature of the Fund's investment objectives and policies and the
Fund's portfolio, the Adviser anticipates potential difficulty in disposing of
portfolio securities in order to consummate tender offers for the Common Shares.
As a result, the Fund may be required to borrow money in order to finance
repurchases and tenders. Interest on any such borrowings will reduce the Fund's
net investment income. See "Description of Capital Structure -- Borrowings."
Disposition of portfolio securities may increase the Fund's portfolio turnover
rate and will result in related costs to the Fund.

Even if a tender offer has been made, it is the Trustees' announced policy,
which may be changed by the Trustees, that the Fund cannot accept tenders or
effect repurchases if (1) such transactions, if consummated, would (a) result in
the delisting of the Fund's Shares from the New York Stock Exchange or other
national securities exchange (the Fund understands that the New York Stock
Exchange would consider delisting if the aggregate market value of the Fund's
outstanding Common Shares is less than $5,000,000, the number of publicly held
Common Shares falls below 600,000 or the number of round-lot holders falls below
1,200) (b) 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), or (c) result in a failure to comply with
applicable asset coverage requirements; (2) the amount of securities tendered
would require liquidation of such a substantial portion of the Fund's securities
that the Fund would not be able to liquidate portfolio securities in an orderly
manner in light of the existing market conditions and such liquidation would
have an adverse effect on the net asset value of the Fund to the detriment of
non-tendering Shareholders; or (3) there is, in the Board of Trustees' 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 in securities generally on the
New York Stock Exchange, the American Stock Exchange or other national
securities exchange or national market system, (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) threatened or actual
conditions of war, armed hostilities or other international or national calamity
directly or indirectly involving the United States, or (f) any other event or
condition which would have a material

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<PAGE> 34

adverse effect on the Fund or its Shareholders if Common Shares were
repurchased. The Trustees may modify these conditions in light of experience.

Under the requirements of the 1940 Act, the Fund cannot accept tenders or
effect repurchases of the Common Shares if, after deducting the amount of the
purchase or tender price, the Fund's total assets, less all liabilities not
represented by senior securities of the Fund, would fall below 200% of the
aggregate liquidation value of the Preferred Shares plus the aggregate amount of
senior securities representing indebtedness or the Fund's total assets, less all
liabilities not represented by senior securities of the Fund, would fall below
300% of the aggregate amount of senior securities represented by indebtedness.
In addition, the Fund may be precluded from accepting tenders or effecting
repurchases at any time dividends on the Preferred Shares or payment of interest
or repayment of principal on any borrowings are in arrears. Any tender offer
made by the Fund for its Common Shares will be at a price equal to the net asset
value of the Common Shares determined at the close of business on the day the
offer ends. During the pendency of any tender offer by the Fund, the Fund will
calculate daily the net asset value of the Common Shares and will establish
procedures which will be specified in the tender offer documents, to enable
Common Shareholders to ascertain readily such net asset value. The relative
illiquidity of some of the Fund's portfolio securities could adversely impact
the Fund's ability to calculate net asset value in connection with
determinations of pricing for tender offers, if any. Each offer will be made and
Common Shareholders notified in accordance with the requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder.

Should the Fund determine to make a tender offer for its Common Shares, a
notice describing the tender offer, containing information Common Shareholders
should consider in deciding whether to tender their Common Shares and including
instructions on how to tender Common Shares will be sent to shareholders of
record. Information concerning the purchase price to be paid by the Fund and the
manner in which shareholders may ascertain net asset value during the pendency
of a tender offer will also be set forth in the notice. When a tender offer is
authorized to be made by the Fund's Trustees, a Common Shareholder wishing to
accept the offer will be required to tender all (but not less than all) of the
Common Shares owned by such Shareholder (or attributed to him for federal income
tax purposes under Section 318 of the Code). The Fund will purchase all Common
Shares tendered in accordance with the terms of the offer unless it determines
in accordance with the terms of the offer to accept none of them. Each person
tendering Common Shares will pay to the Fund a reasonable service charge
currently anticipated to be $25.00, subject to change, to help defray certain
costs, including the processing of tender forms, effecting payment, postage and
handling. It is the position of the staff of the SEC that such service charge
may not be deducted from the proceeds of the purchase. The Fund's transfer agent
will receive a fee as an offset to these costs. The Fund expects that the cost
to the Fund of effecting a tender offer will exceed the aggregate of all service
charges received from those who tender their Common Shares. Costs associated
with the tender will be charged against capital.

Tendered Common Shares that have been accepted and purchased by the Fund will
be held in treasury and may be retired by the Trustees. Treasury Common Shares
will be recorded and reported as an offset to Shareholders' equity and
accordingly will reduce the Fund's total assets. If treasury Common Shares are
retired, Common Shares issued and outstanding and capital in excess of par value
will be reduced accordingly.

DESCRIPTION OF CAPITAL STRUCTURE

The Fund is an unincorporated business trust established under the laws of the
Commonwealth of Massachusetts by a Declaration of Trust dated April 7, 1998 (the
"Declaration of Trust"). 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 Common Shares. The Declaration
of Trust also authorizes the Fund to borrow money or otherwise obtain credit and
in this connection issue notes or other evidence of indebtedness. The Fund
intends to hold annual meetings of the holders of Common Shares in compliance
with the requirements of the New York Stock Exchange.

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<PAGE> 35

COMMON SHARES. The Declaration of Trust permits the Fund to issue an
unlimited number of full and fractional Common Shares of beneficial interest,
$.01 par value per Common Share. Each Common Share represents an equal
proportionate interest in the assets of the Fund with each other Common Share in
the Fund. Holders of Common Shares will be entitled to the payment of dividends
when, as and if declared by the Board of Trustees. The 1940 Act or the terms of
any borrowings or Preferred Shares may limit the payment of dividends to the
holders of Common Shares. Each whole Common Share shall be entitled to one vote
as to matters on which it is entitled to vote pursuant to the terms of the
Fund's Declaration of Trust on file with the SEC. Upon liquidation of the Fund,
after paying or adequately providing for the payment of all liabilities of the
Fund and the liquidation preference with respect to any outstanding Preferred
Shares, and upon receipt of such releases, indemnities and refunding agreements
as they deem necessary for their protection, the Trustees may distribute the
remaining assets of the Fund among the holders of the Common Shares. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Fund, requires inclusion of a clause to that effect in every
agreement entered into by the Fund and indemnifies shareholders against any such
liability. Although shareholders of an unincorporated business trust established
under Massachusetts law, in certain limited circumstances, may be held
personally liable for the obligations of the trust as though they were general
partners, the provisions of the Declaration of Trust described in the foregoing
sentence make the likelihood of such personal liability remote.

While there are any Preferred Shares or borrowings outstanding, the Fund may
not be permitted to declare any cash dividend or other distribution on its
Common Shares, unless at the time of such declaration, (i) all accrued dividends
on Preferred Shares or accrued interest on borrowings has been paid and (2) the
value of the Fund's total assets (determined after deducting the amount of such
dividend or other distribution), less all liabilities and indebtedness of the
Fund not represented by senior securities, is at least 300% of the aggregate
amount of such securities representing indebtedness and at least 200% of the
aggregate amount of securities representing indebtedness plus the aggregate
liquidation value of the outstanding Preferred Shares (expected to equal the
aggregate original purchase price of the outstanding Preferred Shares plus
redemption premium, if any, together with any accrued and unpaid dividends
thereon, whether or not earned or declared and on a cumulative basis). In
addition to the requirements of the 1940 Act, the Fund may be required to comply
with other asset coverage requirements as a condition of the Fund obtaining a
rating of the Preferred Shares from a nationally recognized statistical rating
organization or as a condition to borrowing money. These requirements may
include an asset coverage test more stringent than under the 1940 Act. This
limitation on the Fund's ability to make distributions on its Common Shares
could in certain circumstances impair the ability of the Fund to maintain its
qualification for taxation as a regulated investment company. The Fund intends,
however, to the extent possible to purchase or redeem Preferred Shares or to
repay borrowings from time to time to maintain compliance with such asset
coverage requirements and may pay special dividends to the holders of the
Preferred Shares in certain circumstances in connection with any such impairment
of the Fund's status as a regulated investment company. See "Investment
Objective and Policies and Special Risk Factors -- Special Risk Considerations"
and "Taxation." Depending on the timing of any such redemption or repayment, the
Fund may be required to pay a premium in addition to the liquidation preference
of the Preferred Shares or the principal amount of the borrowings to the holders
thereof. See "Borrowings" below.

The Fund has no present intention of offering additional Common Shares, except
as described herein. Other offerings of its Common Shares, if made, will require
approval of the Fund's Board of Trustees. Any additional offering will not be
sold at a price per Common Share below the then current net asset value
(exclusive of underwriting discounts and commissions) except in connection with
an offering to existing Common Shareholders or with the consent of a majority of
the Fund's outstanding Common Shares. The Common Shares have no preemptive
rights.

The Fund's Common Shares have been approved for listing on the New York Stock
Exchange under the symbol "VVR" subject to official notice of issuance.

As a rule, the Fund will not issue share certificates. However, upon written
request to the Fund's transfer agent, a share certificate will be issued for any
or all of the full Common Shares credited to an investor's account. Share
certificates which have been issued to an investor may be returned at any time.

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<PAGE> 36

BORROWINGS. The Fund's Declaration of Trust authorizes the Fund, without
prior approval of the Common Shareholders, to borrow money in an amount up to
33 1/3% of the Fund's total assets. In this connection, the Fund may issue notes
or other evidence of indebtedness (including bank borrowings or commercial
paper) and may secure any such borrowings by mortgaging, pledging or otherwise
subjecting as security the Fund's assets. In connection with such borrowing, the
Fund may be required to maintain minimum average balances with the lender or to
pay a commitment or other fee to maintain a line of credit. Any such
requirements will increase the cost of borrowing over the stated interest rate.
Under the requirements of the 1940 Act, the Fund, immediately after any such
borrowings, 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 represented by senior securities by the Fund. Certain types of
borrowing may result in the Fund being subject to covenants in credit agreements
relating to asset coverages or portfolio composition or otherwise. Such
restrictions may be more stringent than those imposed by the 1940 Act. 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 Common Shareholders, and
the terms of any such borrowings may contain provisions which limit certain
activities of the Fund, including the payment of dividends to Common
Shareholders 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. See "Investment Objective and
Policies and Special Risk Factors -- Special Risk Considerations." The Fund may
also borrow up to an additional 5% of its total assets for temporary purposes.
See "Investment Restrictions" in the Statement of Additional Information.

The Fund currently expects that it may enter into definitive agreements with
respect to a credit facility within two weeks after the closing of the offer and
sale of the Common Shares offered hereby. The Fund is currently in negotiations
with a small number of money center banks to arrange a senior revolving credit
facility pursuant to which the Fund expects to be entitled to borrow an amount
equal to between approximately 30% and 50% of the Fund's total assets as of the
closing of the offer and sale of the Common Shares offered hereby. Any such
borrowings would constitute financial leverage. The terms of any agreements
relating to such a credit facility have not been determined and are subject to
definitive agreement and other conditions but the Fund anticipates that such a
credit facility would have terms substantially similar to the following: (i) a
final maturity not expected to exceed three years subject to possible extension
by the Fund; (ii) with respect to each draw under the facility, an interest rate
equal to the lesser of LIBOR plus a stated premium or an alternate rate on the
outstanding amount of each such draw, reset over periods ranging from one to six
months; and (iii) payment by the Fund of certain fees and expenses including an
underwriting fee, a commitment fee on the average undrawn amount of the
facility, an ongoing administration fee and the expenses of the lenders under
the facility incurred in connection therewith; the Fund currently expects that
the aggregate annualized cost to the Fund over the life of the facility of the
interest rate and fees referred to in clauses (ii) and (iii) will not exceed an
amount equal to the stated principal amount of the facility times an amount
equal to LIBOR plus 60 basis points. Individual draws on the facility may have
maturities ranging from seven days to one year. The facility is not expected to
be convertible into any other securities of the Fund, outstanding amounts are
expected to be prepayable by the Fund prior to final maturity without
significant penalty and there are not expected to be any sinking fund or
mandatory retirement provisions. Outstanding amounts would be payable at
maturity or such earlier times as required by the agreement. The Fund may be
required to prepay outstanding amounts under the facility or incur a penalty
rate of interest in the event of the occurrence of certain events of default.
The Fund expects to indemnify the lenders under the facility against liabilities
they may incur in connection with the facility. In addition the Fund expects
that such a credit facility would contain covenants which, among other things,
likely will limit the Fund's ability to pay dividends in certain circumstances,
incur additional debt, change its fundamental investment policies and engage in
certain transactions including mergers and consolidations, and may require asset
coverage ratios in addition to those required by the 1940 Act. The Fund may be
required to maintain a portion of its assets in cash or high-

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<PAGE> 37

grade securities as a reserve against interest or principle payments and
expenses. The Fund expects that any credit facility would have customary
covenant, negative covenant and default provisions. There can be no assurance
that the Fund will enter into an agreement for a credit facility on terms and
conditions representative of the foregoing, or that additional material terms
will not apply. In addition, if entered into, any such credit facility may in
the future be replaced or refinanced by one or more credit facilities having
substantially different terms or by the issuance of preferred shares or debt
securities.

PREFERRED SHARES. The Fund's Declaration of Trust authorizes the issuance of
up to 100,000,000 shares of beneficial interest with preference rights,
including the Preferred Shares, having a par value of $.01 per share, in one or
more series, with rights as determined by the Board of Trustees, by action of
the Board of Trustees without the approval of the Common Shareholders. There can
be no assurance that the Preferred Shares will be issued or, if issued, that the
terms of such Preferred Shares will be as described in this Prospectus.

Under the requirements of the 1940 Act, the Fund must, immediately after the
issuance of the Preferred Shares, have an "asset coverage" of at least 200%.
With respect to the Preferred Shares, asset coverage means the ratio which the
value of the total assets of the Fund, less all liability and indebtedness not
represented by senior securities (as defined in the 1940 Act), bears to the
aggregate amount of senior securities representing indebtedness of the Fund, if
any, plus the aggregate liquidation preference of the Preferred Shares. If the
Fund seeks a rating of the Preferred Shares, asset coverage requirements, in
addition to those set forth in the 1940 Act, may be imposed. The liquidation
value of the Preferred Shares is expected to equal their aggregate original
purchase price plus redemption premium, if any, together with any accrued and
unpaid dividends thereon (on a cumulative basis), whether or not earned or
declared. The terms of the Preferred Shares, including their dividend rate,
voting rights, liquidation preference and redemption provisions, will be
determined by the Board of Trustees (subject to applicable law and the Fund's
Declaration of Trust) if and when it authorizes the Preferred Shares. The Fund
may issue Preferred Shares that provide for the periodic redetermination of the
dividend rate at relatively short intervals through an auction or remarketing
procedure, although the terms of the Preferred Shares may also enable the Fund
to lengthen such intervals. At times, the dividend rate as redetermined on the
Fund's Preferred Shares may approach or exceed the Fund's return after expenses
on the investment of proceeds from the Preferred Shares and the Fund's leverage
structure would result in a lower rate of return to Common Shareholders than if
the Fund were not so structured. However, the Fund believes that the floating or
variable rate nature of Senior Loans in which the Fund invests helps mitigate
against the risks of increased dividend costs as a result of redetermined market
rates adversely impacting the return to Common Shareholders.

Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the terms of the Preferred
Shares may entitle the holders of Preferred Shares to receive a preferential
liquidating distribution (expected to equal the original purchase price per
share plus redemption premium, if any, together with accrued and unpaid
dividends, whether or not earned or declared and on a cumulative basis) before
any distribution of assets is made to holders of Common Shares. After payment of
the full amount of the liquidating distribution to which they are entitled, the
Preferred Shareholders would not be entitled to any further participation in any
distribution of assets by the Fund.

Voting Rights. Except as indicated below and as set forth below under
"Anti-Takeover Provisions in the Declaration of Trust" and "Conversion to
Open-End Fund," or except as expressly required by applicable law or expressly
set forth in the designation of rights and preferences with respect to the
Preferred Shares, the Preferred Shareholders would have no voting rights. When
Preferred Shareholders are entitled to vote, each holder would be entitled to
cast one vote per Preferred Share. Holders of Preferred Shares, voting as a
class, would be entitled to elect two of the Fund's Trustees. Under the 1940
Act, if at any time dividends on the Fund's Preferred Shares shall be unpaid in
an amount equal to two full years' dividends thereon, the holders of all
outstanding Preferred Shares, voting as a class, will be entitled to elect a
majority of the Fund's Trustees until all dividends in default have been paid or
declared and set apart for payment. In addition, if required by an agency rating
the Preferred Shares or if the Board of Trustees determines it to be in the best
interests of the Common Shareholders, issuance of the Preferred Shares may
result in more restrictive provisions than required by the 1940 Act being
imposed. In this regard, holders of the Preferred Shares may be entitled to

34
<PAGE> 38

elect a majority of the Fund's Board of Trustees in other circumstances, for
example, if one payment on the Preferred Shares is in arrears.

The affirmative vote of the holders of a majority of the outstanding Preferred
Shares, voting as a class, would be required to amend, alter or repeal any of
the preferences, rights or powers of holders of Preferred Shares so as to affect
materially and adversely such preferences, rights, or powers, or increase or
decrease the number of Preferred Shares authorized to be issued. Unless a higher
percentage is provided for under "Anti-Takeover Provisions in the Declaration of
Trust," the affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a class, will be required to approve any plan of
reorganization adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act including, among other
things, changes in the Fund's fundamental investment policies.

Redemption, Purchase and Sale of Preferred Shares by Fund. The terms of the
Preferred Shares may provide that they are redeemable at certain times, in whole
or in part, at the original purchase price per Preferred Share plus accrued and
unpaid dividends thereon (on a cumulative basis), whether or not earned or
declared, and redemption premium, if any, that the Fund may tender for or
purchase Preferred Shares and that the Fund may subsequently resell any shares
so tendered for or purchased. In addition, if the Preferred Shares are rated, as
a condition to its rating the rating agency may impose mandatory redemption
requirements if certain asset coverage or other tests are not met by the Fund or
if there is an arrearage in the payment of dividends. The Preferred Shares have
no preemptive rights provided for by the Declaration of Trust.

Rating Organization Guidelines. The Fund may seek an investment grade rating
for any Preferred Shares it may issue from one or more nationally recognized
statistical rating organizations. The Fund intends that, as long as Preferred
Shares are outstanding, the composition of its portfolio will reflect guidelines
established by any such rating agency in connection with its issuance of a
rating for the Preferred Shares. Although, as of the date hereof, no such rating
agency has established guidelines relating to the Preferred Shares, based on
previous guidelines established by such rating agencies for the securities of
other issuers, the Fund anticipates that the guidelines with respect to the
Preferred Shares will establish a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act. The Fund currently anticipates that
such guidelines would include asset coverage requirements which are more
restrictive than those under the 1940 Act, restrictions on certain portfolio
investments and investment practices, requirements that the Fund maintain a
portion of its assets in short-term, high-quality, fixed-income securities and
certain mandatory redemption requirements relating to the Preferred Shares. No
assurance can be given that the guidelines actually imposed with respect to the
Preferred Shares by such rating agencies will not be more or less restrictive
than as described in this Prospectus. See "Investment Objective and Policies and
Special Risk Factors -- Special Risk Considerations."

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, and could have the effect of depriving
Common Shareholders of an opportunity to sell their Common Shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund. These provisions may have the effect of discouraging
attempts to acquire control of the Fund, which attempts could have the effect of
increasing the expenses of the Fund and interfering with the normal operation of
the Fund. The Board of Trustees is divided into three classes, with the term of
one class expiring at each annual meeting of Shareholders. At each annual
meeting, one class of Trustees is elected to a three-year term. This provision
could delay for up to two years the replacement of a majority of the Board of
Trustees. A Trustee may be removed from office only for cause by a written
instrument signed by at least two-thirds of the remaining Trustees or by a vote
of the holders of at least two-thirds of the class of Shares of the Fund that
elected such Trustee and is entitled to vote on the matter.

In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 75% of the outstanding shares of each class of the Fund,
voting as a class, then entitled to vote to approve, adopt or authorize certain
transactions with 5%-or-greater holders of a class of shares and their
associates, unless the Board of Trustees shall by resolution have approved a
memorandum of understanding with such holders, in

35
<PAGE> 39

which case normal voting requirements would be in effect. For purposes of these
provisions, a 5%-or-greater holder of a class 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 any class of beneficial interest of the
Fund. The transactions subject to these special approval requirements are: (i)
the merger or consolidation of the Fund or any subsidiary of the Fund with or
into any Principal Shareholder; (ii) the issuance of any securities of the Fund
to any Principal Shareholder for cash; (iii) the sale, lease or exchange of all
or any substantial part of the assets of the Fund to any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period);
or (iv) the sale, lease or exchange to the Fund or any subsidiary thereof, in
exchange for securities of the Fund, of any assets of any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purposes of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period).

The Board of Trustees has determined that provisions with respect to the Board
of Trustees and the 75% voting requirements described above, which voting
requirements are greater than the minimum requirements under Massachusetts law
or the 1940 Act, are in the best interest of Shareholders generally. Reference
should be made to the Declaration of Trust on file with the SEC for the full
text of these provisions.

CONVERSION TO OPEN-END FUND. The Fund may be converted to an open-end
investment company at any time by an amendment to the Declaration of Trust. The
Declaration of Trust provides that such an amendment would require the approval
of (a) a majority of the Trustees, including the approval by a majority of the
disinterested Trustees of the Fund, and (b) the lesser of (i) 67% or more of the
Fund's Common Shares and Preferred Shares, each voting as a class, present at a
meeting at which holders of more than 50% of the outstanding Shares of each
class are present in person or by proxy or (ii) more than 50% of the outstanding
Common Shares and Preferred Shares, each voting as a class. If approved in the
foregoing manner, conversion of the Fund could not occur until 90 days after the
Shareholders' meeting at which such conversion was approved and would also
require at least 30 days' prior notice to all Shareholders. The composition of
the Fund's portfolio likely would prohibit the Fund from complying with
regulations of the SEC applicable to open-end investment companies. Accordingly,
conversion likely would require significant changes in the Fund's investment
policies and liquidation of a substantial portion of its relatively illiquid
portfolio. Conversion of the Fund to an open-end investment company also would
require the redemption of all outstanding Preferred Shares and could require the
repayment of borrowings, which would eliminate the leveraged capital structure
of the Fund with respect to the Common Shares. In the event of conversion, the
Common Shares would cease to be listed on the New York Stock Exchange or other
national securities exchange or market system. Shareholders of an open-end
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at
their net asset value, less such redemption charge, if any, as might be in
effect at the time of a redemption. The Fund expects to pay all such redemption
requests in cash, but intends to reserve the right to pay redemption requests in
a combination of cash or securities. If such partial payment in securities were
made, investors may incur brokerage costs in converting such securities to cash.
If the Fund were converted to an open-end fund, it is likely that new Common
Shares will be sold at net asset value plus a sales load.

36
<PAGE> 40

UNDERWRITERS

Under the terms and conditions of the Underwriting Agreement dated as of the
date hereof (the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Morgan Stanley & Co. Incorporated, A.G. Edwards &
Sons, Inc., Advest, Inc., Robert W. Baird & Co. Incorporated, Dain Rauscher
Wessels, Fahnestock & Co. Inc., First of Michigan Corporation, Gruntal & Co.
Inc., Interstate/Johnson Lane Corporation, Janney Montgomery Scott Inc., Legg
Mason Wood Walker, Incorporated, McDonald & Company Securities, Inc. and Raymond
James & Associates, Inc. are serving as Representatives (the "Representatives"),
have severally agreed to purchase from the Fund the respective number of Common
Shares set forth opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON SHARES
----------- -------------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
A.G. Edwards & Sons, Inc....................................
Advest, Inc.................................................
Robert W. Baird & Co. Incorporated..........................
Dain Rauscher Wessels.......................................
Fahnestock & Co. Inc........................................
First of Michigan Corporation...............................
Gruntal & Co. Inc. .........................................
Interstate/Johnson Lane Corporation.........................
Janney Montgomery Scott Inc.................................
Legg Mason Wood Walker, Incorporated........................
McDonald & Company Securities, Inc. ........................
Raymond James & Associates, Inc.............................
---------
Total.......................................................
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Shares offered hereby
are subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to take and pay for all
Common Shares offered hereby (other than those covered by the Underwriters'
over-allotment option described below) if any Common Shares are taken.

The Representatives have advised the Fund that the Underwriters propose
initially to offer the Common Shares to the public at the public offering price
of $10.00 per share. There is no sales charge or underwriting discount charged
to investors on purchases of Common Shares in the offering. Morgan Stanley Dean
Witter & Co., the ultimate parent company of both the Adviser and Morgan Stanley
& Co. Incorporated, or one of its affiliates has agreed to pay to the
Underwriters out of its own assets compensation in the gross amount of $0.40 per
Common Share (4% of the public offering price per Common Share) or an aggregate
amount of $ ($ assuming full exercise of the over-allotment option) for
all Common Shares covered by this Prospectus. Such payment will be the legal
obligation of Morgan Stanley Dean Witter & Co. or such affiliate and will be
made out of its own assets and will not in any way represent an obligation of
the Fund or its Shareholders. The Representatives have advised the Fund that the
Underwriters may pay up to $0.30 per Common Share from such payment received
from Morgan Stanley Dean Witter & Co. or such affiliate, to certain dealers who
sell the Common Shares.

The Fund has granted to the Underwriters options, exercisable for 45 days from
the date of this Prospectus, to purchase up to an additional Common
Shares to cover over-allotments, if any, at the initial offering price. The
Underwriters may exercise such options solely for the purpose of covering
over-allotments incurred in the sale of the Common Shares offered hereby. To the
extent that the Underwriters exercise these options, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase an
additional number of Common Shares proportionate to such Underwriter's initial
commitment.

37
<PAGE> 41

Prior to the offering, there has been no public market for the Common Shares
or any other securities of the Fund. Consequently, the initial public offering
price has been determined by negotiations among the Fund, the Adviser and the
Underwriters. There can be no assurance, however, that the price at which the
Common Shares will sell in the public market after the offering will not be
lower than the price at which they are sold by the Underwriters. The Common
Shares have been approved for listing on the New York Stock Exchange under the
symbol "VVR" subject to official notice of issuance. In order to meet the
requirements for listing the Common Shares on the New York Stock Exchange, the
Underwriters have undertaken to sell lots of 100 or more Common Shares to a
minimum of 2,000 beneficial holders. The minimum investment requirement is 100
Common Shares ($1,000).

Pursuant to the Underwriting Agreement, the Fund and the Adviser have each
agreed to indemnify the several Underwriters in connection with this offering
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.

The Fund has agreed not to offer or sell any additional Common Shares of the
Fund, other than as contemplated by this Prospectus, for a period of 180 days
after the date of the Underwriting Agreement without the prior written consent
of the Underwriters. The Fund has also agreed in the Underwriting Agreement to
pay offering expenses in an amount up to $0.02 per Common Share purchased by the
Underwriters in the offering.

The Underwriters may take certain actions to discourage short-term trading of
Common Shares during a period of time following the initial offering date.
Included in these actions is the withholding of the concession and other
payments to dealers in connection with Common Shares which were sold by such
dealers and which are repurchased for the account of the Underwriters during
such period.

The Adviser is an affiliate of Morgan Stanley & Co. Incorporated. The Fund
anticipates that Morgan Stanley & Co. Incorporated and certain other
Underwriters may from time to time act as brokers or dealers in connection with
the execution of the Fund's portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as such brokers while
they are Underwriters. The Fund also anticipates that Morgan Stanley & Co.
Incorporated may, consistent with applicable law, act as an underwriter or
placement agent in connection with future offerings of Preferred Shares or debt
securities by the Fund.

Employees of the Underwriters and their respective affiliates, and officers
and trustees of the Fund and any other investment company advised by the
Adviser, may purchase Common Shares in this offering at the price appearing on
the cover page of this Prospectus, provided that the Common Shares must be held
by the investor for up to 90 days and, provided further, that if the Common
Shares trade in the secondary market at a premium over the public offering price
when secondary trading commences, sales to these associated persons will be
canceled.

CUSTODIAN, DIVIDEND DISBURSING AND TRANSFER AGENT

State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02105-1713 is the custodian of the Fund and will maintain custody
of the securities and cash of the Fund. The custodian, among other things, will
attend to the collection of principal and income and payment for and collection
of proceeds of securities bought and sold by the Fund. State Street Bank and
Trust Company also will perform certain accounting services for the Fund
pursuant to the Fund Accounting Agreement between it and the Fund. Boston
Equiserve L.P., Blue Hills Office Park, 150 Royall Street, Canton, Massachusetts
02021, is the dividend disbursing and transfer agent of the Fund.

LEGAL OPINIONS

Certain legal matters in connection with the Common Shares offered hereby have
been passed upon for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP and
for the Underwriters by Davis Polk & Wardwell.

38
<PAGE> 42

EXPERTS

The Statement of Assets and Liabilities as of June 5, 1998, included in the
Statement of Additional Information, has 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. The
Statement of Additional Information can be obtained without charge by calling
1-800-341-2929.

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.

TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies and Special Risk
Factors................................................... B- 2
Investment Restrictions..................................... B- 2
Trustees and Officers....................................... B- 4
Portfolio Transactions...................................... B- 9
Management of the Fund...................................... B-10
Net Asset Value............................................. B-11
Taxation.................................................... B-12
Repurchase of Shares........................................ B-16
Independent Accountants' Report............................. B-18
Statement of Assets and Liabilities as of June 5, 1998...... B-19
</TABLE>

39
<PAGE> 43

- ------ ------ A Wealth of Knowledge - A Knowledge of Wealth
VAN KAMPEN AMERICAN CAPITAL
- --------------------------------------------------------------------------------
<PAGE> 44

VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST

STATEMENT OF ADDITIONAL INFORMATION

Van Kampen American Capital Senior Income Trust (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 June 23, 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 1-800-341-2929. This Statement of Additional
Information incorporates by reference the entire Prospectus.

TABLE OF CONTENTS

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 JUNE 23, 1998

B-1
<PAGE> 45

INVESTMENT OBJECTIVE AND POLICIES
AND SPECIAL RISK FACTORS

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. Senior Loans in
which the Fund will purchase interests generally pay interest at rates which are
periodically redetermined by reference to a base lending rate plus a premium.
These base lending rates are generally the prime rate offered by one or more
major United States banks, the London Inter-Bank Offered Rate, the Certificate
of Deposit rate or other base lending rates used by commercial lenders. The
Fund's net asset value may be affected by changes in the credit quality of
Borrowers with respect to Senior Loan interests in which the Fund invests.
Fluctuations in net asset value may be magnified as a result of the Fund's use
of leverage. In addition, the Fund's use of leverage may affect the Fund's
ability to make distributions. The Common Shares may trade at a discount or
premium to net asset value. An investment in the Fund may not be appropriate for
all investors and is not intended to be a complete investment program. No
assurance can be given that the Fund will achieve its investment objective. For
further discussion of the characteristics of Senior Loan interests and
associated special risk considerations, see "Investment Objective and Policies
and Special Risk Factors" in the Prospectus.

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.
<TABLE>
<CAPTION>
COMPARISON OF
MONEY MARKET RATE AND
LONDON INTER-BANK OFFERED RATE
(AS OF 12/31 OF EACH CALENDAR YEAR)
-------------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <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% 4.0700% 3.2200% 3.0600%
3 Month LIBOR(2).... 8.7500% 8.0000% 6.3750% 7.4375% 9.6200% 8.3750% 7.6300% 4.3125% 3.4375% 3.3750%

<CAPTION>
COMPARISON OF
MONEY MARKET RATE AND
LONDON INTER-BANK OFFERED RATE
(AS OF 12/31 OF EACH CALENDAR YEAR)
-------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
3 Month Treasury
Bill Rate(1)....... 5.6000% 5.1400% 4.9100% 5.1600%
3 Month LIBOR(2).... 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.

INVESTMENT RESTRICTIONS

The Fund's investment objective and the following investment restrictions are
fundamental and cannot be changed without the approval of the holders of a
majority (defined as the lesser of (i) 67% or more of the voting securities
present at a meeting of shareholders, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy at such
meeting, or (ii) more than 50% of the outstanding voting securities) of the
Fund's outstanding Common Shares. All other investment policies or practices are
considered by the Fund not to be fundamental and accordingly may be changed
without shareholder approval. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing market values will not be
considered a deviation from policy. In accordance with the foregoing, the Fund
may not:

1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its agencies or instrumentalities), if
as a result more than 5% of the Fund's total assets would then be invested
in securities of a single issuer or if as a result the Fund would hold
more than 10% of the outstanding voting securities of any single issuer;
provided that, with respect to 50% of the Fund's assets, the Fund may
invest up to 25% of its assets in the securities of any one issuer. For
purposes of this restriction, the term issuer includes both the Borrower
under a Loan Agreement and the Lender

B-2
<PAGE> 46

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.

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.

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 numbers 1 and 2, the Fund will consider
all relevant factors in determining whether to treat the Lender selling a
Participation and any persons interpositioned between such

B-3
<PAGE> 47

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.

TRUSTEES AND OFFICERS

The table below sets forth the officers and trustees of the Fund, their
principal occupations for the last five years and their affiliations, if any,
with the Adviser, Van Kampen American Capital Asset Management, Inc. (the "AC
Adviser"), Van Kampen American Capital Management, Inc., Van Kampen American
Capital Distributors, Inc. ("VKACDI"), Van Kampen American Capital, Inc.
("VKAC"), Van Kampen American Capital Advisors, Inc., ACCESS Investor Services,
Inc., Van Kampen Merritt Equity Advisors Corp., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van Kampen American
Capital Recordkeeping Services, Inc., American Capital Contractual Services,
Inc., Van Kampen American Capital Trust Company, Van Kampen American Capital
Exchange Corporation, or VK/AC Holding, Inc. (affiliates of the Adviser). Unless
otherwise noted the address of each of the Trustees and officers is One Parkview
Plaza, Oakbrook Terrace, IL 60181.

DENNIS J. MCDONNELL,* DATE OF BIRTH 05/20/42, PRESIDENT, CHAIRMAN OF THE BOARD
AND TRUSTEE. Mr. McDonnell is President, Chief Operating Officer and a Director
of the Adviser, AC Adviser, Van Kampen American Capital Advisors, Inc., and Van
Kampen American Capital Management, Inc. He is also an Executive Vice President
and Director of VK/AC Holding, Inc., and VKAC. He is the President and a
Trustee, Director or Managing General Partner of other investment companies
advised by the Adviser, the AC Adviser and Van Kampen American Capital
Management, 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 a Trustee, Director or Managing General Partner
of other investment companies advised by the Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc.

THEODORE A. MYERS, DATE OF BIRTH 08/03/30, TRUSTEE. Mr. Myers is a Senior
Financial Advisor of Qualitech Steel Corporation, a manufacturer of special
quality bar products, as well as iron carbide (a steel scrap substitute). Mr.
Myers is a Director of COVA Series Trust of COVA Financial Life Insurance
(formerly known as Xerox Life). He is also a member of the Arthur Anderson Chief
Financial Officer Advisory Committee. Prior to 1997, Mr. Myers was a Director of
McClouth Steel, and prior to July of 1996, Mr. Myers was an Executive Vice
President and Chief Financial Officer of Qualitech Steel Corporation. Prior to
August, 1993, Mr. Myers was Senior Vice President, Chief Financial Officer and a
Director of Foods Brand America (formerly known as Doskocil Companies, Inc.), a
food processing and distribution company. Prior to January, 1990, Mr. Myers was
Vice President and Chief Financial Officer of Inland Steel Industries. His
address is 550 Washington Avenue, Glencoe, Illinois 60022. Mr. Myers is also a
Trustee, Director or Managing General Partner of other investment companies
advised by the Adviser, the AC Adviser and Van Kampen American Capital
Management, Inc.

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

B-4
<PAGE> 48

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, Suite 1950, Chicago, Illinois
60606. Mr. Dammeyer is also a Trustee, Director or Managing General Partner of
other investment companies advised by the Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc.

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, and a 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, Director or Managing General Partner of other investment
companies advised by the Adviser, the AC Adviser and Van Kampen American Capital
Management, Inc.

STEVEN MULLER, DATE OF BIRTH 11/22/27, TRUSTEE. Dr. Muller 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 Trustee of the Common Sense Trust and
Chairman of The 21st Century Foundation (public affairs). Prior to May, 1997 he
was 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, Director and Managing
General Partner of other investment companies advised by the Adviser, the AC
Adviser and Van Kampen American Capital Management, Inc.

HOWARD J KERR, DATE OF BIRTH 11/17/35, TRUSTEE. Mr. Kerr is President and Chief
Executive Officer of Pocklington Corporation, Inc., an investment holding
company. Mr. Kerr is also a Director of Canbra Foods, Ltd., a Canadian oilseed
crushing, refining, processing and packaging operation. Prior to 1991, Mr. Kerr
was President, Chief Executive Officer and Chairman of the Board of Directors of
Grabill Aerospace Industries, Ltd. His address is 736 North Western Ave., P.O.
Box 317, Lake Forest, Illinois 60045. Mr. Kerr is a Trustee, Director or
Managing General Partner of other investment companies advised by the Adviser,
the AC Adviser and Van Kampen American Capital Management, Inc.

DON G. POWELL,* DATE OF BIRTH 10/19/39, TRUSTEE. Mr. Powell is Chairman and a
Director of VKAC, VKACDI, the Adviser, the AC Adviser, VK/AC Holding, Inc., Van
Kampen American Capital Management, Inc., Van Kampen American Capital Advisors,
Inc., ACCESS Investor Services, Inc., Van Kampen American Capital Recordkeeping
Services, Inc., American Capital Contractual Services, Inc., Van Kampen American
Capital Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van Kampen
American Capital Trust Company, and Van Kampen American Capital Exchange
Corporation. Prior to September 1996, Mr. Powell was Chairman and Director of
McCarthy, Crisanti & Maffei, Inc. Mr. Powell is Chairman of the Board of
Governors and the Executive Committee of the Investment Company Institute. Mr.
Powell is also a Trustee or Director of other investment companies advised by
the Adviser, the AC Adviser and Van Kampen American Capital Management, Inc.

HUGO F. SONNENSCHEIN, DATE OF BIRTH 11/14/40, TRUSTEE. Mr. Sonnenschein is
President of the University of Chicago. Mr. Sonnenschein is a member of the
Board of Trustees of the University of Rochester and a member of its investment
committee. Prior to July, 1993, Mr. Sonnenschein was Provost of Princeton
University, and, from 1988 to 1991, Mr. Sonnenschein was Dean of the School of
Arts and Sciences at the University of Pennsylvania. Mr. Sonnenschein is a
member of the National Academy of Sciences and a fellow of the American Academy
of Arts and Sciences. His address is 5801 South Ellis Avenue, Suite 502,
Chicago, Illinois 60637. Mr. Sonnenschein is also a Trustee, Director or
Managing General Partner of other investment companies advised by the Adviser,
the AC Adviser and Van Kampen American Capital Management, Inc.

WAYNE W. WHALEN,* DATE OF BIRTH 08/22/39, TRUSTEE. Mr. Whalen is a partner in
the law firm of Skadden, Arps, Slate, Meagher & Flom (Illinois). His address is
333 West Wacker Drive, Chicago, Illinois 60606.
B-5
<PAGE> 49

Mr. Whalen is also a Trustee, Director or Managing General Partner of other
investment companies advised by the Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc.

PETER W. HEGEL, DATE OF BIRTH 06/25/56, VICE PRESIDENT. Mr. Hegel is Executive
Vice President and Portfolio Manager of the Adviser. He is Executive Vice
President of the AC Adviser, Van Kampen American Capital Management, Inc. and
Van Kampen American Capital Advisors, Inc. Prior to September of 1996, Mr. Hegel
was a Director of McCarthy, Crisanti & Maffei, Inc. His address is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. He is Vice President of other
investment companies advised by the Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc.

JEFFREY W. MAILLET, DATE OF BIRTH 09/30/56, VICE PRESIDENT. Mr. Maillet is
Senior Vice President and Portfolio Manager of the Adviser. He is Senior Vice
President of Van Kampen American Capital Management, Inc., and the AC Adviser.
His address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

RONALD A. NYBERG, DATE OF BIRTH 07/29/53, VICE PRESIDENT AND SECRETARY. Mr.
Nyberg is Executive Vice President, General Counsel, Secretary and Director of
VKAC and VK/AC Holding, Inc. Mr. Nyberg is also Executive Vice President,
General Counsel and Assistant Secretary of ACCESS Investor Services, Inc., and
Executive Vice President, General Counsel, Assistant Secretary and Director of
the Adviser, the AC Adviser, Van Kampen American Capital Advisors, Inc., Van
Kampen American Capital Management, Inc., VKACDI, Van Kampen American Capital
Exchange Corporation, American Capital Contractual Services, Inc., Van Kampen
American Capital Insurance Agency of Illinois, Inc. and Van Kampen American
Capital Trust Company. Prior to September of 1996, he was General Counsel of
McCarthy, Crisanti & Maffei, Inc. He is a Vice President and Secretary of other
investment companies advised by the Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc., and is a Director of ICI Mutual Insurance
Co., a provider of insurance to members of the Investment Company Institute. His
address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

EDWARD C. WOOD, III, DATE OF BIRTH 01/11/56, VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER. Mr. Wood is Senior Vice President of the Adviser, the AC Adviser, and
Van Kampen American Capital Management, Inc. He is also Senior Vice President
and Chief Operating Officer of VKACDI. His address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. Mr. Wood is Vice President and Chief Financial
Officer of other investment companies advised by the Adviser, the AC Adviser and
Van Kampen American Capital Management, Inc.

CURTIS W. MORELL, DATE OF BIRTH 08/04/46, VICE PRESIDENT AND CHIEF ACCOUNTING
OFFICER. Mr. Morell is Senior Vice President of the Adviser and the AC Adviser.
His address is 2800 Post Oak Blvd., Houston, TX 77056. Mr. Morell is Vice
President and Chief Accounting Officer each of other investment companies
advised by the Adviser, the AC Adviser and Van Kampen American Capital
Management, Inc.

WESTON B. WETHERELL, DATE OF BIRTH 06/15/56, ASSISTANT SECRETARY. Mr. Wetherell
is Vice President, Associate General Counsel and Assistant Secretary of VKAC,
VKACDI, the Adviser, the AC Adviser, Van Kampen American Capital Management,
Inc., and Van Kampen American Capital Advisors, Inc. Prior to September of 1996,
Mr. Wetherell was Assistant Secretary of McCarthy, Crisanti & Maffei, Inc. His
address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Wetherell
is an Assistant Secretary of other investment companies advised by the Adviser,
the AC Adviser and Van Kampen American Capital Management, Inc.

NICHOLAS DALMASO, DATE OF BIRTH 03/01/65, ASSISTANT SECRETARY. Mr. Dalmaso is
Vice President, Assistant Secretary and Associate General Counsel of VKAC. Mr.
Dalmaso is also Vice President, Assistant Secretary and Associate General
Counsel of the Adviser, the AC Adviser, VKACDI, Van Kampen American Capital
Advisors, Inc. and Van Kampen American Capital Management, Inc. His address is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Dalmaso is Assistant
Secretary of other investment companies advised by the Adviser, the AC Adviser
and Van Kampen American Capital Management, Inc.

SCOTT E. MARTIN, DATE OF BIRTH 08/20/56, ASSISTANT SECRETARY. Mr. Martin is
Senior Vice President, Deputy General Counsel and Assistant Secretary of VKAC,
VK/AC Holding, Inc., and Senior Vice President, Deputy General Counsel and
Secretary of VKACDI, the Adviser, the AC Adviser, Van Kampen American
B-6
<PAGE> 50

Capital Advisors, Inc., ACCESS Investor Services, Inc., Van Kampen American
Capital Insurance Agency of Illinois, Inc., VK/AC System, Inc. and Van Kampen
American Capital Recordkeeping Services, Inc., Van Kampen American Capital
Exchange Corporation, American Capital Contractual Services, Inc., and Van
Kampen American Capital Management, Inc. Prior to September of 1996, Mr. Martin
was Deputy General Counsel and Secretary of McCarthy, Crisanti & Maffei, Inc.
His address in One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Martin
is an Assistant Secretary of other investment companies advised by the Adviser,
the AC Adviser and Van Kampen American Capital Management, Inc.

HUEY P. FALGOUT, JR., DATE OF BIRTH 11/15/63, ASSISTANT SECRETARY. Mr. Falgout
is Vice President and an Attorney of VKAC. He is Vice President and Assistant
Secretary of the Adviser and the AC Adviser, ACCESS Investor Services, Inc.,
American Capital Contractual Services, Inc., Van Kampen American Capital
Management, Inc., Van Kampen American Capital Exchange Corporation, Van Kampen
American Capital Advisors, Inc. and VKACDI. His address is 2800 Post Oak Blvd.,
Houston, TX 77056. Mr. Falgout is Assistant Secretary of other investment
companies advised by the Adviser, the AC Adviser and Van Kampen American Capital
Management, Inc.

JOHN L. SULLIVAN, DATE OF BIRTH 08/20/55, TREASURER. Mr. Sullivan is First Vice
President of the Adviser and the AC Adviser. His address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. Mr. Sullivan is Treasurer of other investment
companies advised by the Adviser, the AC Adviser and Van Kampen American Capital
Management, Inc.

STEVEN M. HILL, DATE OF BIRTH 10/16/64, ASSISTANT TREASURER. Mr. Hill is Vice
President of the Adviser and the AC Adviser. His address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. Mr. Hill is Assistant Treasurer of other
investment companies advised by the Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc.

TANYA M. LODEN, DATE OF BIRTH 11/19/59, CONTROLLER. Ms. Loden is Vice President
of the Adviser and the AC Adviser. Her address is 2800 Post Oak Blvd., Houston,
TX 77056. Ms. Loden is Controller of other investment companies advised by the
Adviser, the AC Adviser and Van Kampen American Capital Management, Inc.

MICHAEL ROBERT SULLIVAN, DATE OF BIRTH 03/30/33, ASSISTANT CONTROLLER. Mr.
Sullivan is Assistant Vice President of the Adviser and the AC Adviser. His
address is 2800 Post Oak Blvd., Houston, TX 77056. Mr. Sullivan is Assistant
Controller of other investment companies advised by the Adviser, the AC Adviser
and Van Kampen American Capital Management, Inc.

*Such trustees are "interested persons" as defined in the 1940 Act.
Messrs. McDonnell and Powell are interested persons of the Adviser and
the Fund by reason of their positions at the Adviser. Mr. Whalen is an
interested person of the Fund for reason of his law firm acting as
counsel for the Fund.

The officers and Trustees hold the same positions with other funds in the Fund
Complex (defined below). The officers and Trustees as a group own less than 1%
of the Fund's outstanding Common Shares. As of the date of this Statement of
Additional Information, VKAC or its subsidiaries owns 100% of the issued and
outstanding Common Shares and as a result is deemed to control the Fund. After
the offering, no one person is expected to hold a controlling interest in the
Fund. The compensation of the officers and trustees who are affiliated persons
(as defined in the 1940 Act) of the Adviser or VKAC 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 or VKAC, an annual retainer in an amount
equal to the product of $2,500 multiplied by the number of funds in the Fund
Complex, which retainer is allocated among the funds based on the relative net
assets of such funds, and $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 or VKAC, have at least ten years of service (including years of service
prior to adoption of the retirement plan) and retire at or after attaining the
age of 60, are eligible to receive a retirement benefit equal to $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 or VKAC can
elect to defer receipt

B-7
<PAGE> 51

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.

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....................... $1,650 $ 7,912 $85,000 $157,750
Rod Dammeyer........................ 1,650 14,303 85,000 157,750
Howard J Kerr....................... 1,650 27,338 85,000 157,750
Steven Muller....................... 1,650 0 0 0
Theodore A. Myers................... 1,650 57,361 85,000 157,750
Hugo F. Sonnenschein................ 1,650 13,493 85,000 157,750
Wayne W. Whalen..................... 1,650 16,155 85,000 157,250
</TABLE>

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

(2) As of the date of this Statement of Additional Information the Fund had not
commenced investment operations and, accordingly, no trustees received
compensation related to its operation. The amounts shown in this column are
the estimated aggregate compensation of the Fund before deferral by the
trustees under the deferred compensation plan for the upcoming fiscal year.
The deferred compensation plan is described above the table. Amounts
deferred are retained by the Fund and earn a rate of return determined by
reference to either the return on the Common Shares of the Fund or other
funds in the Fund Complex (as defined below) as selected by the respective
trustee. To the extent permitted by the 1940 Act, the Fund may invest in
securities of these funds selected by the trustees in order to match the
deferred compensation obligation.

(3) The amounts shown in this column represent the sum of the estimated pension
or retirement benefit accruals expected to be accrued by the 34 operating
funds in the Fund Complex as of December 31, 1997 for their respective
fiscal years end in 1997. The Fund is expected to accrue in total
approximately $3,800 covering all of the trustees named above in its first
full fiscal year. 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 34 operating funds in the Fund Complex as
of December 31, 1997 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 year 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 "Fund Complex" currently consists of 41 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. The amounts shown
in this column are accumulated from the Aggregate Compensation of 34
operating

B-8
<PAGE> 52

investment companies in the Fund Complex for the year ended December 31,
1997 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 references to either the return on the Common Shares
of the Fund or common shares of other funds in the Fund Complex (as defined
below) as selected by the respective trustee. To the extent permitted by
the 1940 Act, the respective fund may invest in securities of the funds
selected by the trustees in order to match the deferred compensation
obligation. The Adviser also serves as investment adviser for other
investment companies; however, with the exception of Messrs. McDonnell,
Whalen and Powell, the Trustees are not trustees of other investment
companies. Combining the Fund Complex with other investment companies
advised by the Adviser 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 and any fees payable to the Fund, to the Lender selling
Participations or Assignments to the Fund. The Adviser will determine the
Lenders from whom the Fund will purchase Assignments and Participations by
considering their professional ability, level of service, relationship with the
Borrower, financial condition, credit standards and quality of management.
Although the Fund intends generally to hold interests in Senior Loans until
maturity or prepayment of the Senior Loan, the illiquidity of many Senior Loans
may restrict the ability of the Adviser to locate in a timely manner persons
willing to purchase the Fund's interests in Senior Loans at a fair price should
the Fund desire to sell such interests. See "Investment Objective and Policies
and Special Risk Factors."

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 or VKAC.

If it is believed to be in the best interest of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of services
described above, even if the Fund will have to pay a higher commission (or, if
the broker's profit is part of the cost of the security, will have to pay a
higher price for the security) than would be the case if the Adviser did not
consider the broker's furnishing of such services. This will be done, however,
only if, in the opinion of the Adviser, the amount of additional commission or
increased cost is reasonable in relation to the value of the services.

If purchases or sales of financial instruments for the Fund and for one or
more other investment companies or clients advised by the Adviser are considered
at or about the same time, transactions in such financial instruments will be
allocated among the several investment companies and clients, in a manner deemed
equitable by the Adviser, to each such investment company or client, taking into
account their respective sizes and the aggregate amount of financial instruments
to be purchased or sold. 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.

B-9
<PAGE> 53

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.

MANAGEMENT OF THE FUND

THE ADVISER

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

INVESTMENT ADVISORY AGREEMENT

The investment advisory agreement (the "Advisory Agreement") between the
Adviser and the Fund will continue in effect until April 22, 1999 and thereafter
from year to year, unless earlier terminated as described below, if approved
annually (a) by the Trustees of the Fund or by a majority of the Fund's Common
Shares and (b) by a majority of the Trustees who are not parties to the
agreement or interested persons of any such party, in compliance with the
requirements of the 1940 Act. The Advisory Agreement may be terminated without
penalty upon 60 days written notice by either party (in the case of the Fund,
such termination may be effected by the Board of Trustees or by a majority of
the Common Shares) and will automatically terminate in the event of assignment.
The Adviser may in its sole discretion from time to time waive all or a portion
of the advisory fee or reimburse the Fund for all or a portion of its other
expenses.

The Advisory Agreement between the Adviser and the Fund provides that the
Adviser will supply investment research and portfolio management, including the
selection of securities for the Fund to purchase, hold or sell and the selection
of financial institutions through whom the Fund's portfolio transactions are
executed. The Adviser also furnishes necessary facilities and equipment, and
permits its officers and employees to serve without compensation as trustees and
officers of the Fund if duly elected to such positions.

The Advisory Agreement provides that the Adviser shall not be liable for any
error of judgment or of law, or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the

B-10
<PAGE> 54

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 Fund pays all other expenses incurred in the operation of the Fund
including, but not limited to, direct charges relating to the purchase and sale
of financial instruments in its portfolio, interest charges, fees and expenses
of legal counsel and independent auditors, taxes and governmental fees, cost of
share certificates, expenses (including clerical expenses) of issuance, sale or
repurchase of any of the Fund's portfolio holdings, expenses in connection with
the Fund's dividend reinvestments, membership fees in trade associations,
expenses of registering and qualifying the Common Shares of the Fund for sale
under federal and state securities laws, expenses of printing and distributing
reports, notices and proxy materials to existing holders of Common Shares,
expenses of filing reports and other documents filed with governmental agencies,
expenses of annual and special meetings of holders of Common Shares, fees and
disbursements of the transfer agents, custodians and sub-custodians, expenses of
disbursing dividends and distributions, fees, expenses and out-of-pocket costs
of Trustees of the Fund who are not affiliated with the Adviser, insurance
premiums, indemnification and other expenses not expressly provided for in the
Advisory Agreement or the Administration Agreement and any extraordinary
expenses of a nonrecurring nature.

THE ADMINISTRATOR

The administrator for the Fund is VKAC.

OTHER AGREEMENTS

LEGAL SERVICES AGREEMENT. The Fund has entered into a Legal Services
Agreements pursuant to which VKAC provides legal services, including without
limitation: accurate maintenance of the Funds' minute books and records,
preparation and oversight of the Funds' regulatory reports, and other
information provided to shareholders, as well as responding to day-to-day legal
issues on behalf of the funds. Payment by the Fund for such services is made on
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. Certain other funds
advised by the Adviser are distributed by VKACDI, an indirect affiliate of the
Fund, and also receive legal services from VKAC. Of the total costs for legal
services provided to funds distributed by VKACDI, one half of such costs are
allocated equally to each fund and the remaining one half of such costs are
allocated to specific funds based on monthly time records.

NET ASSET VALUE

The net asset value per share of the Fund's Common Shares is determined by
calculating the total value of the Fund's assets, deducting its total
liabilities and the liquidation value of the Fund's Preferred Shares (without
giving effect to any potential redemption premium with respect to such Preferred
Shares), and dividing the result by the number of Common Shares outstanding. The
net asset value will be computed on each business day as of 5:00 p.m. Eastern
time. The Fund reserves the right to calculate the net asset value more
frequently if deemed desirable.

The value of the Fund's portfolio will be determined by the Adviser, following
guidelines established and periodically reviewed by the Trustees. Interests in
Senior Loans will be valued by the Adviser on behalf of the Fund on the basis of
market quotations and transactions in instruments which the Adviser believes may
be comparable to Senior Loan interests with respect to the following
characteristics: credit quality, interest rate, interest rate redetermination
period and maturity. Such instruments may include commercial paper, negotiable
certificates of deposit and short-term variable rate securities which have
adjustment periods comparable to the Senior Loan interests in the Fund's
portfolio. In determining the relationship between such instruments and the
Senior Loan interests in the Fund's portfolio, the Adviser will consider on an
ongoing

B-11
<PAGE> 55

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 than 60 days, unless in each case this is determined not to
represent fair value. Repurchase agreements will be valued at cost plus accrued
interest. Securities for which there exist no price quotations or valuations and
all other assets will be valued at fair value as determined in good faith by or
on behalf of the Trustees.

TAXATION

FEDERAL TAXATION

The Fund intends to elect and to qualify each year to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (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

B-12
<PAGE> 56

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) from that
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.

The Fund may be required to pay a 4% federal excise tax if it fails to
distribute, by December 31 of each year, the sum of 98% of its ordinary income
for such year and 98% of its capital gain net income (the latter of which
generally is computed on the basis of the one-year period ending on October 31
of such year), plus any amounts that were not distributed in previous taxable
years. For purposes of the excise tax, any ordinary income or capital gain net
income retained by, and subject to federal income tax in the hands of, the Fund
will be treated as having been distributed.

If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income was
distributed to its Shareholders) and all distributions out of earnings and
profits would be taxed to Shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to Shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.

Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.

Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
Shareholders. For example, with respect to certain securities issued at a
discount, the Fund will be required to accrue as income each year a portion of
the discount and to distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid income and excise
taxes. In order to generate sufficient cash to make distributions necessary to
satisfy the 90% distribution requirement and to avoid income and excise taxes,
the Fund may have to dispose of securities that it would otherwise have
continued to hold.

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.

B-13
<PAGE> 57

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 Common Shareholders at the rates applicable to long-term
capital gains regardless of the length of time Shares of the Fund have been held
by such Shareholders. Distributions in excess of the Fund's earnings and profits
will first reduce the adjusted tax basis of a holder's Common Shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming such Common Shares are held as a capital asset). For a
summary of the tax rates applicable to capital gains (including capital gain
dividends), see "Capital Gains Rates Under the 1997 Tax Act" below. It is not
expected that any portion of the distributions from the Fund will be eligible
for the dividends received deduction for corporations. The Fund will inform
Shareholders of the source and tax status of all distributions promptly after
the close of each calendar year.

The Internal Revenue Service (the "IRS") has taken the position in a revenue
ruling that if a regulated investment company has two classes of shares, it may
designate distributions made to each class in any year as consisting of no more
than such class's proportionate share of particular types of income based on the
total distributions paid to each class for such year, including distributions of
capital gain dividends. Consequently, if both Common Shares and Preferred Shares
are outstanding, the Fund intends to designate distributions made to the classes
as consisting of particular types of income in accordance with the classes'
proportionate shares of such income. Thus, capital gain dividends will be
allocated between the Common Shareholders and the Preferred Shareholders in
proportion to the total distributions made to each class during the taxable
year, or otherwise as required by applicable law.

Shareholders receiving distributions in the form of additional Common Shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the Common Shares
received, determined as of the distribution date. The basis of such Common
Shares will equal the fair market value of such shares on the distribution date.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to Shareholders of
record on a specified date in such a month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the Shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% federal 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.

SALE OF SHARES

Except as discussed below, selling Shareholders will generally recognize gain
or loss in an amount equal to the difference between their adjusted tax basis in
the Common Shares and the amount received. If such Common Shares are held as a
capital asset, the gain or loss will be a capital gain or loss. For a summary of
the tax rates applicable to capital gains, see "Capital Gains Rates Under the
1997 Tax Act" below. It is possible, although the Fund believes it is unlikely,
that, in connection with a tender offer, distributions to tendering shareholders
may be subject to tax as ordinary income (rather than as gain or loss). The
federal income tax consequences of repurchase of Common Shares pursuant to
tender offers will be disclosed in the related offering documents. Any loss
recognized upon a taxable disposition of Common Shares held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gain dividends received with respect to such Common Shares. For purposes of
determining whether Common Shares have been held for six months or less, the
holding period is suspended for any periods during which the Shareholder's risk
of loss is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

CAPITAL GAINS RATES UNDER THE 1997 TAX ACT

Under the Taxpayer Relief Act of 1997 (the "1997 Tax Act"), the maximum tax
rate applicable to net capital gains recognized by individuals and other
non-corporate taxpayers is (i) the same as the maximum
B-14
<PAGE> 58

ordinary income tax rate for capital assets held for one year or less, (ii) 28%
for capital assets held for more than one year but not more than 18 months and
(iii) 20% for capital assets held for more than 18 months. Common Shareholders
should consult their tax advisers regarding a certain election to mark-to-market
Common Shares held on January 1, 2001. The 1997 Tax Act did not affect the
maximum net capital gains tax rate for corporations, which remains at 35%. The
new tax rates for capital gains under the 1997 Tax Act described above will
apply to distributions of capital gain dividends by the Fund (if, as expected,
the Fund designates capital gain dividends as 28% rate gain distributions or 20%
rate gain distributions, in accordance with its holdings periods for the
securities sold that generated such capital gain dividends) as well as to sales
and exchanges of Shares in the Fund. With respect to capital losses recognized
on dispositions of Shares held for six months or less where such losses are
treated as long-term capital losses to the extent of prior capital gain
dividends received on such Shares (see "Sale of Shares" above), it is unclear
how such capital losses offset the capital gains referred to above. Shareholders
should consult their own tax advisors as to the application of the new capital
gains rates to their particular circumstances.

NON-U.S. SHAREHOLDERS

A Common Shareholder who is not (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized under the laws of
the United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such Common Shareholder.
Accordingly, investment in the Fund is likely to be appropriate for a Non-U.S.
Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.

Non-effectively connected capital gain dividends and gains realized from the
sale of Common Shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their Common Shares. See "Backup Withholding" below.

If income from the Fund or gains realized from the sale of Common Shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
at the tax rates applicable to United States citizens or domestic corporations.
Non-U.S. Shareholders that are corporations may also be subject to an additional
"branch profits tax" with respect to income from the Fund that is effectively
connected with a United States trade or business.

The United States Treasury Department recently issued Treasury regulations
generally effective for payments made after December 31, 1999 concerning the
withholding of tax and reporting for certain amounts paid to nonresident alien
individuals and foreign corporations (the "Final Withholding Regulations").
Among other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after December
31, 1999. Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in Common Shares.

The tax consequences to a Non-U.S. Shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described in this
section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisors with respect to the
tax implications of purchasing, holding and disposing of Common Shares.

B-15
<PAGE> 59

BACKUP WITHHOLDING

The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate Shareholders. This tax may be withheld from dividends if (i) the
Shareholder fails to furnish the Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the Shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the Shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.

The Fund must report annually to the IRS and to each Non-U.S. Shareholder the
amount of dividends paid to such Shareholder and the amount, if any, of tax
withheld pursuant the backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such Shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.

GENERAL

The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their advisers regarding the specific
federal tax consequences of purchasing, holding and disposing of Common Shares,
as well as the effects of state, local and foreign tax laws and any proposed tax
law changes.

REPURCHASE OF SHARES

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
B-16
<PAGE> 60

suspension of payment by banks in the United States or New York State, (d)
limitation affecting the Fund or the issuers of its portfolio securities imposed
by federal or state authorities on the extension of credit by lending
institutions, (e) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United States or (f)
other event or condition which would have a material adverse effect on the Fund
or the holders of its Common Shares if Common Shares were repurchased. The
Trustees may modify these conditions in light of experience.

Any tender offer made by the Fund for its Common Shares will be at a price
equal to the net asset value of the Common Shares determined at the close of
business on the day the offer ends. During the pendency of any tender offer by
the Fund, the Fund will calculate daily the net asset value of the Common Shares
and will establish procedures which will be specified in the tender offer
documents, to enable Common Shareholders to ascertain readily such net asset
value. The relative illiquidity of some of the Fund's portfolio securities could
adversely impact the Fund's ability to calculate net asset value in connection
with determinations of pricing for tender offers, if any. Each offer will be
made and Common Shareholders notified in accordance with the requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder.

Tendered Common Shares that have been accepted and repurchased by the Fund
will be held in treasury and may be retired by the Board of Trustees. Treasury
Common Shares will be recorded and reported as an offset to Shareholders' equity
and accordingly will reduce the Fund's total assets. If Treasury Common Shares
are retired, Common Shares issued and outstanding and capital in excess of par
value will be reduced accordingly.

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

FUND STRUCTURE

The Fund's fundamental investment policies and restrictions give the Fund the
flexibility to pursue its investment objective through the future conversion to
a fund structure commonly known as a "master-feeder" structure. If the Fund
converts to a master-feeder structure, the existing shareholders of the Fund
would continue to hold their shares of the Fund and the Fund would become a
feeder-fund of the master-fund. The value of a shareholder's shares would be the
same immediately after any conversion as the value immediately before such
conversion. Use of this master-feeder structure potentially would result in
increased assets invested among the collective investment vehicle of which the
Fund would be a part, thus allowing operating expenses to be spread over a
larger asset base, potentially achieving economies of scale. The Fund's Board of
Trustees presently does not intend to effect any conversion of the Fund to a
master-feeder structure. In addition, the Fund's Board of Trustees presently
does not intend to effect any conversion in which (i) the master fund does not
have substantially the same management team, investment objective, investment
policies and investment restrictions as the Fund just prior to the conversion,
(ii) the value of the shareholder's investment in Fund would not be the same
immediately after the conversion as it was immediately before such conversion or
(iii) an increase in the Fund's expense ratios is expected as a result of the
conversion.

B-17
<PAGE> 61

INDEPENDENT ACCOUNTANTS' REPORT

The Board of Trustees and Shareholder of
Van Kampen American Capital Senior Income Trust

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Senior Income Trust (the "Fund") as of June 5, 1998.
This financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based our
audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Van Kampen American Capital
Senior Income Trust as of June 5, 1998 in conformity with generally accepted
accounting principles.

/s/ KPMG PEAT MARWICK LLP

Chicago, Illinois

June 8, 1998

B-18
<PAGE> 62

VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST

STATEMENT OF ASSETS AND LIABILITIES

JUNE 5, 1998

<TABLE>
<S> <C>
ASSETS:
Cash...................................................... $100,000
Unamortized organization expense.......................... 40,000
--------
Total assets........................................... $140,000
========
LIABILITIES:
Accrued organization expense.............................. $ 40,000
--------
Total liabilities...................................... $ 40,000
========
Net assets.................................................. $100,000
========
Net assets consists of:
Common Shares, $.01 par value, unlimited number of shares
authorized, 10,000 shares issued and outstanding....... $100,000
--------
Total net assets....................................... $100,000
========
Net asset value per Common Share ($100,000 divided by
10,000 shares outstanding)............................. $ 10.00
========
</TABLE>

- ---------------
(1) The Fund was organized as a Massachusetts business trust pursuant to a
Declaration of Trust dated April 7, 1998 and has had no operations since
that date other than relating to organization matters and the issuance of
10,000 shares of beneficial interest for $100,000 to Van Kampen American
Capital Investment Advisory Corp., an affiliated company. The authorized
capital of the Fund currently consists of an unlimited number of Common
Shares of beneficial interest, $.01 par value per Common Share.

(2) The Fund will incur approximately $40,000 of expenses in connection with
the organization of the Fund. These expenses normally are amortized over a
period not to exceed five years beginning on the date of the Fund's initial
public offering of its shares. On April 3, 1998, Statement of Position 98-5
was issued. This Statement of Position requires that unamortized
organization costs on the Fund's statement of assets and liabilities be
written off. This Statement of Position is effective for fiscal years
beginning after December 15, 1998, therefore, the Fund is required to write
off the unamortized organization expenses on August 1, 1999.

(3) The Fund will incur approximately $2,280,000 of expenses in connection with
the offering of Common Shares. These expenses will be deducted from the
proceeds of the initial offering.

B-19
<PAGE> 63

PART C--OTHER INFORMATION

ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS

(A) FINANCIAL STATEMENTS:

Included in Part A:

None.

Included in Part B:

Independent Accountants' Report; Statement of Assets and Liabilities
as of June 5, 1998; Notes to Statement of Asset and Liabilities

(B) EXHIBITS

<TABLE>
<C> <S>
(a)(i) Declaration of Trust dated April 7, 1998(**)
(b) By-laws(**)
(d) Form of Specimen Certificate of Common Shares of Beneficial Interest of Registrant(**)
(e) Dividend Reinvestment Plan(**)
(g) Investment Advisory Agreement(**)
(h(1)) Underwriting Agreement(**)
(h(2)) Master Agreement Among Underwriters(**)
(h(3)) Master Dealer Agreement(**)
(j(1)) Custodian Agreement(**)
(j(2)) Registrar, Transfer Agency and Service Agreement(**)
(k(1)) Administration Agreement(**)
(k(2)) Amended and Restated Legal Services Agreement(**)
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP(*)
(n) Consent of KPMG Peat Marwick LLP(*)
(p) Letter of Investment Intent(**)
(r) Financial Data Schedule(*)
(24) Power of Attorney(*)
(27) Financial Data Schedule(*)
</TABLE>

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

* Filed herewith.
** Previously filed.

ITEM 25: MARKETING ARRANGEMENTS

See Exhibit Section 3 of h(1) to this Registration Statement.

ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Securities and Exchange Commission fees..................... $ 576,725
New York Stock Exchange Listing fee......................... $ 751,350
National Association of Securities Dealers, Inc. fees....... $ 30,500
Printing and engraving expenses*............................ $ 705,000
Legal fees*................................................. $ 200,000
Accounting expenses*........................................ $ 10,000
Blue Sky filing fees and expenses*.......................... $ 5,000
Miscellaneous expenses*..................................... $ 1,425
----------
Total........................................ $2,280,000
==========
- ---------------
* Estimates.
</TABLE>

C-1
<PAGE> 64

ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not applicable

ITEM 28: NUMBER OF HOLDERS OF SECURITIES

At May 11, 1998

<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
Common Shares of Beneficial Interest, par value
$.01 per share................................... 1
</TABLE>

ITEM 29: INDEMNIFICATION

Please see Article 5.3 of the Registrant's Declaration of Trust (Exhibit
(a)(i)) for indemnification of officers and trustees. Registrant's trustees and
officers are also covered by a Joint Directors and Officers/Errors and Omissions
Insurance Policy. Section 5 of the proposed Investment Advisory Agreement
between the Fund and the Adviser provides that in the absence of willful
misfeasance, bad faith or gross negligence in connection with the obligations or
duties under the Investment Advisory Agreement or on the part of the Adviser,
the Adviser shall not be liable to the Fund or to any Common Shareholder of the
Fund for any act or omission in the course of or connected in any way with
rendering services or for any losses that may be sustained in the purchase,
holding or sale of any security. The Underwriting Agreement provides that the
Registrant shall indemnify the Underwriters (as defined therein) and certain
persons related thereto for any loss or liability arising from any alleged
misstatement of a material fact (or alleged omission to state a material fact)
contained in, among other things, the Registration Statement or Prospectus
except to the extent the misstated fact or omission was made in reliance upon
information provided by or on behalf of the Underwriters. (See Section 8 of the
Underwriting Agreement.)

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant and the Adviser and any underwriter pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person or the Registrant and the Underwriters in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person or the Distributor in
connection with the Common Shares being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.

C-2
<PAGE> 65

ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and directors of the Adviser,
reference is made to the Adviser's current Form ADV (File No. 801-18161) filed
under the Investment Advisers Act of 1940, as amended, incorporated herein by
reference.

ITEM 31: LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, at State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, Massachusetts or at Boston Equiserve L.P., Blue
Hills Office Park, 150 Royall Street, Canton, Massachusetts 02021; and (ii) by
the Adviser, will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.

ITEM 32: MANAGEMENT SERVICES

Not applicable

ITEM 33: UNDERTAKINGS

1. Registrant undertakes to suspend offering of its Common Shares until it
amends its prospectus if (a) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(b) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.

2. Not applicable

3. Not applicable

4. Not applicable

5. If applicable:

(a) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 497(h) under
the Securities Act of 1933, shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, its Statement of Additional Information.

C-3
<PAGE> 66

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED
IN THE CITY OF OAKBROOK TERRACE, AND THE STATE OF ILLINOIS, ON THE 23RD DAY OF
JUNE, 1998.

VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST

By: /s/ DENNIS J. MCDONNELL

------------------------------------
Dennis J. McDonnell
President

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON JUNE 23, 1998 BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED:

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>

/s/ DENNIS J. MCDONNELL Chairman, President and Trustee
- -----------------------------------------------------
Dennis J. McDonnell

/s/ EDWARD C. WOOD, III* Vice President and Chief Financial Officer
- ----------------------------------------------------- (Accounting Officer)
Edward C. Wood, III

/s/ THEODORE A. MYERS* Trustee
- -----------------------------------------------------
Theodore A. Myers

/s/ ROD DAMMEYER* Trustee
- -----------------------------------------------------
Rod Dammeyer

Trustee
- -----------------------------------------------------
David C. Arch

/s/ STEVEN MULLER* Trustee
- -----------------------------------------------------
Steven Muller

/s/ HOWARD J KERR* Trustee
- -----------------------------------------------------
Howard J Kerr

Trustee
- -----------------------------------------------------
Don G. Powell

Trustee
- -----------------------------------------------------
Hugo F. Sonnenschein

/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen

* Signed by Dennis J. McDonnell pursuant to a Power of Attorney.

/s/ DENNIS J. MCDONNELL
- -----------------------------------------------------
Dennis J. McDonnell
Attorney-in-Fact
</TABLE>

June 23, 1998

C-4
<PAGE> 67

EXHIBIT INDEX TO FORM N-2 EXHIBITS
SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION

ON JUNE 23, 1998

<TABLE>
<CAPTION>
EXHIBITS
<C> <S>
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP
(n) Consent of KPMG Peat Marwick LLP
(24) Power of Attorney
(27) Financial Data Schedule
</TABLE>

<PAGE> 1

EXHIBIT (l)

June 23, 1998

Van Kampen American
Capital Senior Income Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Re: Van Kampen American
Capital Senior Income Trust
Registration Statement on Form N-2

Ladies and Gentlemen:

We have acted as special counsel to Van Kampen American Capital Senior
Income Trust (the "Company"), a voluntary association with transferable shares
organized and existing under and by virtue of the laws of the Commonwealth of
Massachusetts, commonly known as a Massachusetts business trust , in connection
with the initial public offering by the Company of up to 195,500,000 shares
(including 25,500,000 shares subject to an over-allotment option) (the "Shares")
of the Company's common shares of beneficial interest, par value $0.01 per
share (the "Common Shares").

This opinion is being furnished in accordance with the requirements of
Item 24(2)(1) of Form N-2 under the Securities Act of 1933, as amended (the
"Securities Act") and the Investment Company Act of 1940, as amended (the
"Investment Company Act" and together with the Securities Act, the "Acts").

In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form N-2 (File No. 333-49829 and 811-08743) as filed with the
Securities and Exchange Commission (the

<PAGE> 2

Van Kampen American
Capital Senior Income Trust
June 23, 1998
Page 2

"Commission") on April 9, 1998 under the Acts, Pre-Effective Amendment No. 1
to such Registration Statement as filed with the Commission on May 13, 1998
under the Acts, Pre-Effective Amendment No. 2 to such Registration
Statement as filed with the Commission on June 19, 1998 under the Acts and
Pre-Effective Amendment No. 3 to such Registration Statement as filed with the
Commission on June 23, 1998 under the Acts (such Registration Statement, as so
amended, being hereinafter referred to as the "Registration Statement"); (ii)
the form of Underwriting Agreement (the "Underwriting Agreement") proposed to
be entered into between the Company, as issuer, and Morgan Stanley Dean Witter,
A.G. Edwards & Sons, Inc., Advest, Inc., Robert W. Baird & Co. Incorporated,
Dain Rauscher Wessels, a Division of Dain Rauscher Incorporated, Fahnestock &
Co. Inc., First of Michigan Corporation, Gruntal & Co., L.L.C.,
Interstate/Johnson Lane Corporation, Janney Montgomery Scott Inc., Legg Mason
Wood Walker, Incorporated, McDonald & Company Securities, Inc. and Raymond
James & Associates, Inc. as representatives of the several underwriters named
therein (the "Underwriters"), filed as an exhibit to the Registration
Statement; (iii) a specimen certificate representing the Common Shares; (iv)
the Declaration of Trust of the Company, as presently in effect; (v) the
By-Laws of the Company, as presently in effect; and (vi) certain resolutions of
the Board of Trustees of the Company relating to the authorization, sale and
issuance of the Shares. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.

In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had

<PAGE> 3

Van Kampen American
Capital Senior Income Trust
June 23, 1998
Page 3

or will have the power, corporate or other, to enter into and perform all of
their obligations thereunder and have also assumed the due authorization by
all requisite action, corporate or other, and the due execution and delivery
by such parties of such documents and the validity and binding effect thereof.
As to any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and
others.

Members of our firm are admitted to the bar in the Commonwealth of
Massachusetts, and we do not express any opinion as to the laws of any other
jurisdiction.

With respect to the opinion expressed below, we note that pursuant to
certain decisions of the Supreme Judicial Court of the Commonwealth of
Massachusetts, shareholders of a Massachusetts business trust may, in certain
circumstances, be assessed or held personally liable as partners for the
obligations of a Massachusetts business trust. Even if the Company were held
to be a partnership, however, the possibility of the holders of the Shares
incurring personal liability for financial loss appears remote because (a)
Article V, Section 5.1 of the Declaration of Trust of the Company contains an
express disclaimer of liability for holders of common shares of beneficial
interest of the Company, including the Shares, for the obligations of the
Company and provides that the Company shall indemnify and hold each holder of
such common shares harmless from and against all claims and liabilities to
which such holder may become subject by reason of his being or having been a
holder of such common shares and (b) Article V, Section 5.5 of the Declaration
of Trust of the Company requires that every written obligation, contract,
instrument, certificate, common share or preferred share of beneficial
interest or other security of the Company or undertaking made or issued by the
trustees of the Company contain a disclaimer to the effect that such
instrument is not binding upon any of the trustees or shareholders of the
Company individually.

<PAGE> 4

Van Kampen American
Capital Senior Income Trust
June 23, 1998
Page 4

Based upon and subject to the foregoing, we are of the opinion that when
(i) the Registration Statement becomes effective; (ii) the price at which the
Shares are to be sold to the Underwriters pursuant to the Underwriting
Agreement and other matters relating to the issuance and sale of the Shares
have been approved by Board of Trustees; (iii) the Underwriting Agreement has
been duly executed and delivered; and (iv) the Shares have been delivered to
and paid for by the Underwriters as contemplated by the Underwriting
Agreement, the issuance and sale of the Shares will have been duly authorized,
and the Shares will be validly issued, fully paid and, subject to the
statements set forth above regarding the liability of shareholders of a
Massachusetts business trust, nonassessable.

We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Opinions" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Commission.

Very truly yours,

/s/ Skadden, Arps,
Slate, Meagher
& Flom LLP

<PAGE> 1

EXHIBIT (n)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of
Van Kampen American Capital Senior Income Trust:

We consent to the use of our report included in the Statement of Additional
Information which is incorporated by reference into the Prospectus and to the
reference to our Firm under the heading "Experts" in the Prospectus.

/s/ KPMG Peat Marwick LLP

Chicago, Illinois
June 23, 1998

<PAGE> 1
Exhibit (24)
POWER OF ATTORNEY

The undersigned, being officers and trustees of Van Kampen American
Capital Senior Income Trust, a Massachusetts business trust (the "Trust"), do
hereby, in the capacities shown below, individually appoint Ronald A. Nyberg
and Dennis J. McDonnell, of Oakbrook Terrace, Illinois, as the agents and
attorneys-in-fact with full power of substitution and resubstitution, for each
of the undersigned, to execute and deliver, for and on behalf of the
undersigned, any and all amendments to the Registration Statement filed by the
Trust on April 9, 1998, with the Securities and Exchange Commission pursuant to
the provisions of the Securities Act of 1933 and the Investment Company Act of
1940 and covering the Trust's shares of beneficial interest.

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

Dated: April 22, 1998

Signature Title
--------- -----

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

- ------------------------------------------ Trustee
David C. Arch

/s/ Rod Dammeyer Trustee
- ------------------------------------------
Rod Dammeyer

/s/ Steven Muller Trustee
- ------------------------------------------
Steven Muller

/s/ Theodore A. Myers Trustee
- ------------------------------------------
Theodore A. Myers

- ------------------------------------------ Trustee
Don G. Powell

- ------------------------------------------ Trustee
Hugo F. Sonnenschein

/s/ Howard J Kerr Trustee
- ------------------------------------------
Howard J Kerr

/s/ Wayne W. Whalen Trustee
- ------------------------------------------
Wayne W. Whalen

/s/ Edward C. Wood, III Vice President and
- ------------------------------------------
Edward C. Wood, III Chief Financial Officer

<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUN-05-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 40,000
<OTHER-ITEMS-ASSETS> 100,000
<TOTAL-ASSETS> 140,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,000
<TOTAL-LIABILITIES> 40,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,000
<SHARES-COMMON-STOCK> 10,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>