<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
FILE NOS. 33-
811-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
<TABLE>
<CAPTION>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL
SENIOR 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:
<TABLE>
<S> <C> <C> <C>
Wayne W. Whalen, Esq. Pierre de Saint Phalle, Thomas A. DeCapo, Esq. Ronald A. Nyberg, Esq.
Thomas A. Hale, Esq. Esq. Skadden, Arps, Slate, Executive Vice President,
Skadden, Arps, Slate, Davis Polk & Wardwell Meagher & Flom LLP General Counsel and
Meagher & Flom (Illinois) 450 Lexington Avenue One Beacon Street Director
333 W. Wacker Drive New York, New York 10017 Boston, MA 02108 Van Kampen American Capital
Chicago, Illinois 60606 Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois
60181
</TABLE>
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>
<S> <C> <C> <C> <C>
====================================================================================================================
<CAPTION>
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Common Shares of Beneficial Interest.... 6,900,000 $10.00 $69,000,000 $20,355
====================================================================================================================
</TABLE>
(1) Includes 900,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
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
- --------------------- ---------------------
<C> <S> <C>
Part A
1. Outside Front Cover.................................... Cover Page
2. Inside Front and Outside Back Cover Page............... Cover Page; Outside Back Cover
3. Fee Table and Synopsis................................. Fund Expenses; Prospectus Summary
4. Financial Highlights................................... Not Applicable
5. Plan of Distribution................................... 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; Communications with
Shareholders
11. Defaults and Arrears on Senior Securities.............. Not Applicable
12. Legal Proceedings...................................... Not Applicable
13. Table of Contents of the Statement of Additional
Information............................................ Table of Contents of the Statement of
Additional Information
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CAPTION IN SAI
--------------
<C> <S> <C>
Part B
14. Cover Page............................................. Cover Page
15. Table of Contents...................................... Cover Page
16. General Information and History........................ Not Applicable
17. Investment Objective and Policies...................... Investment Objective and Policies and
Special Risk Consideration; Investment
Restrictions; Portfolio Transactions
18. Management............................................. Trustees and Officers
19. Control Persons and Principal Holders of Securities.... Trustees and Officers
20. Investment Advisory and Other Services................. Trustees and Officers; Management of
the Fund
21. Brokerage Allocation and Other Practices............... Portfolio Transactions
22. Tax Status............................................. Taxation
23. Financial Statements................................... Independent Accountants' Report;
Statement of Assets and Liabilities as
of , 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
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1998
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. The Fund's investment adviser is Van
Kampen American Capital Investment Advisory Corp. (the "Adviser"). An investment
in the Fund may not be appropriate for all investors and there is no assurance
that the Fund will achieve its investment objective. SEE "INVESTMENT OBJECTIVE
AND POLICIES AND SPECIAL RISK CONSIDERATIONS."
Prior to this offering, there has been no market for the Fund's Common
Shares. The Fund intends to make an application to list the Common Shares on the
New York Stock Exchange under the symbol " ." 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 Prospectus sets forth
in a concise form information about the Fund that a prospective investor should
know before investing in the Fund. Investors are advised to read this Prospectus
carefully and to retain it for future reference.
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.
------------------------
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>
<S> <C> <C> <C>
=======================================================================================================================
<CAPTION>
Price to Proceeds to
Public Sales Load(1) Fund(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Per Share................................... $10.00 $0.00 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Total(3).................................... $60,000,000 $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 New York City on or about , 1998.
This Prospectus sets forth concisely the information that a prospective
investor should know before investing in the Common Shares of the Fund. Please
read and retain this Prospectus for future reference. A Statement of Additional
Information dated , 1998, has been filed with the Securities and
Exchange Commission ("SEC") and can be obtained without charge by calling
1-800-341-2911 or, for Telecommunications Device for the Deaf, 1-800-421-2833. A
table of contents to the Statement of Additional Information is located at page
of this Prospectus. This Prospectus incorporates by reference the entire
Statement of Additional Information. The Statement of Additional Information has
been filed with the SEC and is available along with other related materials at
the SEC's internet web site (http://www.sec.gov).
---------------------
THIS PROSPECTUS IS DATED , 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, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, THE COMMON SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
UNTIL [ ] 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, stock
repurchases and, to a lesser extent, to finance internal growth and for other
corporate purposes of Borrowers. SEE "INVESTMENT OBJECTIVE AND POLICIES AND
SPECIAL RISK CONSIDERATIONS."
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 and frequently will be secured by specific
collateral, which may include guarantees. A substantial portion of the Fund's
assets may, however, be invested in Senior Loans and other income securities
rated below investment grade by Moody's Investors Service, Inc., Standard &
Poor's Ratings Group or other nationally recognized statistical rating
organizations and in unrated Senior Loans and other income securities of
comparable credit quality. These securities generally involve greater volatility
of price and risk of non-payment of income and principal than do investment
grade securities. In addition, 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 offer preferred shares or to borrow money for investment
purposes or both. The issuance of preferred shares or borrowing by the Fund will
result in financial leverage, which involves the opportunity for enhanced income
but also involves special risks. 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."
------------------------
(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. The Adviser or an affiliate (not the Fund) will pay the
Underwriters out of its own assets compensation in the gross amount of [ ]%
of the initial public offering price per share of Common Shares, in
connection with the sale of Shares in this offering.
(2) Before deducting organizational and offering expenses payable by the Fund,
estimated at [ ] and [ ], respectively. Organizational expenses
will be amortized over a period not to exceed 60 months from the date the
Fund commences operations. [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 900,000 additional
Common Shares at the price to the public for the purpose of covering
overallotments, if any. If the Underwriters exercise such options in full,
the total price to the public, sales load and proceeds to the Fund will be
69,000,000, $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.................................................... 10
Use of Proceeds............................................. 10
Investment Objective and Policies and Special Risk
Factors................................................... 11
Certain Characteristics of Senior Loan Interests............ 11
Special Risk Considerations................................. 16
Investment Practices and Special Risks...................... 20
Taxation.................................................... 24
Management of the Fund...................................... 25
Distributions............................................... 26
Dividend Reinvestment Plan.................................. 27
Repurchase of Shares........................................ 28
Description of Capital Structure............................ 30
Underwriters................................................ 35
Custodian, Dividend Disbursing and Transfer Agent........... 36
Legal Opinions.............................................. 36
Experts..................................................... 37
Additional Information...................................... 37
Table of Contents for the Statement of Additional
Information............................................... 37
</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>
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................................... 0.85%
Administration Fee........................................ 0.20%
Interest Payments on Borrowed Funds....................... 0.00%
Other Expenses............................................ 0.22%
------
Total Annual Operating Expenses...................... 1.27%
</TABLE>
The above table does not reflect any fees or expenses associated with the
anticipated leveraging of the Fund. In the event 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 borrowing) under current market conditions, 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 %; Administration Fee %; Interest Payments on Borrowed Funds
%; Other Expenses %; and Total Annual Operating Expenses %. See
"Investment Objective and Policies and Special Risk Factors -- Special Risk
Considerations" and "Description of Capital Structure."
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Assuming No Leverage................... $ $ $ $
Assuming Borrowings Representing 331/3%
of Total Assets...................... $ $ $ $
</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 Ten Years period which is 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. 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. 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 Loan
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. 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
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
next interest rate redetermination of 90 days or less. Because of prepayment
provisions, the actual remaining maturity of Senior Loans may vary substantially
from the stated maturity of such loans. The Fund estimates actual average
maturity of Senior Loans in the portfolio will be approximately 18-24 months.
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 (including assets maintained by the Fund as a reserve against any
additional loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants, equity
securities and, in limited circumstances, junior debt securities acquired in
connection with the Fund's investments in Senior Loans. If the Adviser
determines that market conditions temporarily warrant a defensive investment
policy, the Fund may, subject to its ability to liquidate its relatively
illiquid portfolio of Senior Loans, invest up to 100% of its assets in cash and
such high quality, short-term securities. The Fund may also lend its portfolio
securities to other parties and may enter into repurchase and reverse repurchase
agreements for securities, subject to certain restrictions. For further
discussion of the Fund's investment objective and policies and its investment
practices and the associated considerations, see "Investment Objective and
Policies and Special Risk Considerations" and "Investment Practices and Special
Risks."
THE OFFERING. The Fund is offering 6,000,000 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. The Underwriters have been granted an option to purchase up to
900,000 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.
The Adviser (or an affiliate) has agreed to pay the Underwriters out of its
own assets, compensation in the gross amount of $[ ] per Common Share ([ ]% of
the public offering price per share) or $ in the aggregate ($
assuming that the Underwriters exercise their over-allotment option in full) for
all Common Shares covered by this Prospectus. See "Underwriters."
LISTING AND SYMBOL. The Fund intends to make an application to list the
Common Shares on the New York Stock Exchange under the symbol " ."
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% of the Fund's total assets
immediately after the issuance of 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. Issuance of the Preferred Shares or
6
<PAGE> 10
borrowing will result in financial leveraging, which involves special risks. 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 Prime Rate Income Trust, a
closed-end investment company engaged in a continuous offering with investment
objectives and policies substantially similar to those of the Fund and with over
$7.0 billion in assets as of March 30, 1998. 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 at an annual
rate of 0.85% of 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 at an annual rate of 0.20% of 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 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 60 days thereafter.
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
Common Shareholders elect to participate in the Plan, all Common Shareholders
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 investment company at any time by a vote of the outstanding Common
Shares and Preferred Shares, each voting as a separate 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
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<PAGE> 11
value. The trading price of the Fund's Common Shares may be less than the public
offering price. 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.
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 "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 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 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 Considerations."
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<PAGE> 12
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
Considerations."
Credit Risks Associated with Investments in Participations. The Fund will
purchase Participations in Senior Loans. With respect to any given Senior Loan,
the terms of Participations may result in the Fund having rights which differ
from, and are more limited than, the rights of Lenders or of persons who acquire
such interests by Assignment. Participations typically will result in the Fund
having a contractual relationship with the Lender selling the Participation, but
not with the Borrower. In the event of the insolvency of the Lender selling the
Participation, the Fund may be treated as a general creditor of such Lender, and
may not have any exclusive or senior claim with respect to such Lender's
interest in, or the collateral with respect to, the Senior Loan. As such, the
Fund may incur the credit risk of the Lender selling the Participation in
addition to the credit risk of the Borrower with respect to the Senior Loan when
purchasing Participations and may not benefit directly from the security
provided by any collateral supporting the Senior Loan with respect to which such
Participation was sold. The Fund has implemented measures designed to reduce
such risk. The Fund may pay a fee or forgo a portion of interest payments when
acquiring Participations or Assignments. See "Investment Objective and Policies
and Special Risk Considerations."
Credit Risks Associated with Senior Loans. Senior Loans, like other corporate
debt obligations, are subject to the risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income to the
Fund, a reduction in the value of the Senior Loan experiencing non-payment and a
potential decrease in the net asset value of the Fund. Although Senior Loans in
which the Fund will invest may be secured by specific collateral, there can be
no assurance that liquidation of such collateral would satisfy the Borrower's
obligation in the event of nonpayment of scheduled interest or principal or that
such collateral could be readily liquidated. In the event of bankruptcy of a
Borrower, the Fund could experience delays or limitations with respect to its
ability to realize the benefits of any collateral securing a Senior Loan. See
"Investment Objective and Policies and Special Risk Considerations."
Certain Investment Practices. The Fund may use various investment practices
that involve special considerations including lending its portfolio securities,
entering into when-issued and delayed delivery transactions and entering into
repurchase and reverse repurchase agreements. In addition, the Fund has the
authority to engage in interest rate and other hedging and risk management
transactions. For further discussion of these practices and associated special
considerations, see "Investment Practices and Special Risks."
Non-Diversification. The Fund has registered as a "non-diversified"
investment company so that it will be able to invest more than 5% of the value
of its assets in the obligations of any single issuer, including Senior Loans of
a single Borrower or Participations purchased from a single Lender. The Fund
does not intend to invest, however, more than 5% of the value of its assets in
interests in Senior Loans of a single Borrower. To the extent the Fund invests a
relatively high percentage of its assets in obligations of a limited number of
issuers, the Fund will be more susceptible than a more widely diversified
investment company to any single corporate, economic, political or regulatory
occurrence. See "The Fund."
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<PAGE> 13
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 significantly reduce its exposure to such
risk. See "Investment Objective and Policies and Special Risk Considerations"
and "Investment Restrictions" in the Statement of Additional Information.
Investment in Non-U.S. Issuers. The Fund may invest in Senior Loans to
Borrowers that are organized or located in countries other than the United
States, provided that such Senior Loans are denominated in U.S. dollars and
provide for the payment of interest and repayment of principal in U.S. dollars.
Investment in non-U.S. issuers involves special risks, including that non-U.S.
issuers may be subject to less rigorous accounting and reporting requirements
than are U.S. issuers, less rigorous regulatory requirements, differing legal
systems and laws relating to creditors' rights, the potential inability to
enforce legal judgments and the potential for political, social and economic
adversities.
Anti-Takeover Provisions. The Fund's Declaration of Trust includes provisions
that could have the effect of limiting the ability of other persons or entities
to acquire control of the Fund or to change the composition of its Board of
Trustees. See "Description of Capital Structure -- Anti-Takeover Provisions in
the Declaration of Trust."
- --------------------------------------------------------------------------------
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 1-800-421-5666. 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 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
as Common Shareholders and Preferred Shareholders, respectively, and are
sometimes referred to collectively as Shareholders.
- --------------------------------------------------------------------------------
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The net proceeds of this offering, after deduction of organizational and
offering expenses, estimated to be $60,000,000 (or $69,000,000 assuming exercise
of the over-allotment option 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 six 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
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<PAGE> 14
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. The Common Shares may trade
at a discount or a premium to net asset value.
CERTAIN CHARACTERISTICS OF SENIOR LOAN INTERESTS
Senior Loans generally are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent, which is frequently the commercial
bank or other entity that originates the Senior Loan and the person that invites
other parties to join the lending syndicate, will be primarily responsible for
negotiating the loan agreement or agreements ("Loan Agreement") that establish
the relative terms, conditions and rights of the Borrower and the several
Lenders. In larger transactions it is common to have several Agents; however,
generally only one such Agent has primary responsibility for documentation and
administration of the Senior Loan. Agents are typically paid a fee or fees by
the Borrower for their services.
The Fund may invest in participations ("Participations") in Senior Loans, may
purchase assignments ("Assignments") of portions of Senior Loans from third
parties and may act as one of the group of Lenders originating a Senior Loan (an
"Original Lender").
It is anticipated that the proceeds of the Senior Loans in which the Fund will
acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser
extent, to finance internal growth and for other corporate purposes of
Borrowers. The Fund currently does not intend to acquire interests in Senior
Loans the proceeds of which would be used primarily to finance construction or
real estate development projects. Senior Loans have the most senior position in
a Borrower's capital structure, although some Senior Loans may hold an equal
ranking with other senior securities of the Borrower. The capital structure of 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 also 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 may pose a greater risk of
nonpayment of interest or loss of principal than do collateralized Senior Loans.
As discussed below, the Fund may also acquire warrants, equity securities and
junior debt securities issued by 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
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<PAGE> 15
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 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.
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). Investment in non-U.S. issuers involves special
risks, including that non-U.S. issuers may be subject to less rigorous
accounting and reporting requirements than are U.S. issuers, less rigorous
regulatory requirements, differing legal systems and laws relating to creditors'
rights, the potential inability to enforce legal judgments and the potential for
political, social and economic adversities. The Fund is not subject to any
restrictions with respect to the maturity of Senior Loans held in its portfolio.
It is currently anticipated that the Fund's assets invested in Senior Loans will
consist of Senior Loans with stated maturities of between three and ten years,
inclusive, and with rates of interest which are redetermined either daily,
monthly, quarterly or semi-annually; provided, however, that the Fund may invest
up to 5% of its total assets in Senior Loans which permit the Borrower to select
an interest rate redetermination period of up to one year. Investment in Senior
Loans with longer interest rate redetermination periods may increase
fluctuations in the Fund's net asset value as a result of changes in interest
rates. The Senior Loans in the Fund's portfolio will at all times have a
dollar-weighted average time until the next interest rate redetermination of 90
days or less. As a result, as short-term interest rates increase, interest
payable to the Fund from its investments in Senior Loans should increase, and as
short-term interest rates decrease, interest payable to the Fund from its
investments in Senior Loans should decrease. The amount of time required to pass
before the Fund will realize the effects of changing short-term market interest
rates on its portfolio will vary with the dollar-weighted average time until the
next interest rate
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<PAGE> 16
redetermination on the Senior Loans in the Fund's portfolio. The Fund may
utilize certain investment practices to, among other things, shorten the
effective interest rate redetermination period of Senior Loans in its portfolio.
In such event, the Fund will consider such shortened period to be the interest
rate redetermination period of the Senior Loan; provided, however, that the Fund
will not invest in Senior Loans which permit the Borrower to select an interest
rate redetermination period in excess of one year. Because most Senior Loans in
the Fund's portfolio will be subject to mandatory and/or optional prepayment and
there may be significant economic incentives for a Borrower to prepay its loans,
prepayments of Senior Loans in the Fund's portfolio may occur. Accordingly, the
actual remaining maturity of the Fund's portfolio invested in Senior Loans may
vary substantially from the average stated maturity of the Senior Loans held in
the Fund's portfolio. As a result of expected prepayments from time to time of
Senior Loans in the Fund's portfolio, the Fund estimates that the actual average
maturity of the Senior Loans held in its portfolio will be approximately 18-24
months.
When interest rates decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will vary, the Fund's management
expects the Fund's policy of acquiring interests in floating or variable rate
Senior Loans to minimize fluctuations in net asset value as a result of changes
in interest rates. Accordingly, the Fund's management expects the value of the
Fund's portfolio to fluctuate significantly less than a portfolio of fixed-rate,
longer term obligations as a result of interest rate changes. However, changes
in prevailing interest rates can be expected to cause some fluctuation in the
Fund's net asset value. In addition to changes in interest rates, changes in the
credit quality of Borrowers will also affect the Fund's net asset value.
Further, a serious deterioration in the credit quality of a Borrower could cause
a prolonged or permanent decrease in the Fund's net asset value. 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
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<PAGE> 17
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 significantly
reduce its exposure to any risks incident to such policy, the Fund may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. Persons
engaged in such industries may be more susceptible than are persons engaged in
some other industry to, among other things, fluctuations in interest rates,
changes in the Federal Open Market Committee's monetary policy, governmental
regulations concerning such industries and concerning capital raising activities
generally and fluctuations in the financial markets generally.
Participations by the Fund in a Lender's portion of a Senior Loan typically
will result in the Fund having a contractual relationship only with such Lender,
not with the Borrower. As a result, the Fund may have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by such Lender of
such payments from the Borrower. In connection with purchasing Participations,
the Fund generally will have no right to enforce compliance by the Borrower with
the terms of the Loan Agreement, nor any rights with respect to any funds
acquired by other Lenders through set-off against the Borrower and the Fund may
not directly benefit from the collateral supporting the Senior Loan in which it
has purchased the Participation. As a result, the Fund may assume the credit
risk of both the Borrower and the Lender selling the Participation. In the event
of the insolvency of the Lender selling a Participation, the Fund may be treated
as a general creditor of such Lender, and may not benefit from any set-off
between such Lender and the Borrower. The Fund has taken the following measures
in an effort to minimize such risks. The Fund will only acquire Participations
if the Lender selling the Participation, and any other persons interpositioned
between the Fund and the Lender, (i) at the time of investment has outstanding
debt or deposit obligations rated investment grade (BBB or A-3 or higher by
Standard & Poor's Ratings Group ("S&P") or Baa or P-3 or higher by Moody's
Investors Service, 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-1 by S&P indicates that
the degree of safety regarding timely payment is considered by S&P to be either
overwhelming or very strong and issues of commercial paper rated P-1 by Moody's
are considered by Moody's to have a superior ability for repayment of senior
short-term debt obligations. The Fund ordinarily will purchase a Participation
only if, at the time of such purchase, the Fund believes that the party from
whom it is purchasing such Participation is retaining an interest in the
underlying Senior Loan. In the event that the Fund does not so believe, it will
only purchase such a Participation if, in addition to the requirements set forth
above, the party from whom the Fund is purchasing such Participation (i) is a
bank, a member of a national securities exchange or other entity designated in
the Investment Company Act of 1940, as amended (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
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<PAGE> 18
by the Borrower with the terms of the Loan Agreement and may have rights with
respect to any funds acquired by other Lenders through set-off. Lenders also
have full voting and consent rights under the applicable Loan Agreement. Action
subject to Lender vote or consent generally requires the vote or consent of the
holders of some specified percentage of the outstanding principal amount of the
Senior Loan. Certain decisions, such as reducing the amount or increasing the
time for payment of interest on or repayment of principal of a Senior Loan, or
releasing collateral therefor, frequently require the unanimous vote or consent
of all Lenders affected.
The Fund will purchase an Assignment or act as a Lender with respect to a
syndicated Senior Loan only where the Agent with respect to such Senior Loan at
the time of investment has outstanding debt or deposit obligations rated
investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's) or determined by the Adviser to be of comparable quality. In addition,
the Fund will purchase a Participation only where the Lender selling such
Participation, and any other person interpositioned between such Lender and the
Fund at the time of investment, have outstanding debt obligations rated
investment grade or determined by the Adviser to be of comparable quality.
Further, the Fund will not purchase interests in Senior Loans unless such Agent,
Lender or interpositioned person has entered into an agreement which provides
for the holding of assets in safekeeping for, or the prompt disbursement of
assets to, the Fund.
Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, enters FDIC receivership, or if not FDIC insured,
enters into bankruptcy. Should such an Agent, Lender or assignor with respect to
an Assignment interpositioned between the Fund and the Borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for the benefit of the Fund
should not be included in such person's estate. If, however, any such amount
were included in such person's estate, the Fund would incur certain costs and
delays in realizing payment or could suffer a loss of principal or interest. In
such event, the Fund could experience a decrease in net asset value.
The Fund may be required to pay and may receive various fees and commissions
in connection with purchasing, selling and holding interests in Senior Loans.
The fees normally paid by Borrowers may include three types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to Lenders upon
origination of a Senior Loan. Commitment fees are paid to Lenders on an ongoing
basis based upon the undrawn portion committed by the Lenders of the underlying
Senior Loan. Lenders may receive prepayment penalties when a Borrower prepays
all or part of a Senior Loan. The Fund will receive these fees directly from the
Borrower if the Fund is an Original Lender, or, in the case of commitment fees
and prepayment penalties, if the Fund acquires an interest in a Senior Loan by
way of Assignment. Whether or not the Fund receives a facility fee from the
Lender in the case of an Assignment, or any fees in the case of a Participation,
depends upon negotiations between the Fund and the Lender selling such
interests. When the Fund is an assignee, it may be required to pay a fee, or
forgo a portion of interest and any fees payable to it, to the Lender selling
the Assignment. Occasionally, the assignor will pay a fee to the assignee based
on the portion of the principal amount of the Senior Loan which is being
assigned. A Lender selling a Participation to the Fund may deduct a portion of
the interest and any fees payable to the Fund as an administrative fee prior to
payment thereof to the Fund. The Fund may be required to pay over or pass along
to a purchaser of an interest in a Senior Loan from the Fund a portion of any
fees that the Fund would otherwise be entitled to.
Pursuant to the relevant Loan Agreement, a Borrower may be required in certain
circumstances, and may have the option at any time, to prepay the principal
amount of a Senior Loan, often without incurring a prepayment penalty. Because
the interest rates on Senior Loans are periodically redetermined at relatively
short intervals, the Fund and the Adviser believe that the prepayment of, and
subsequent reinvestment by the Fund in, Senior Loans will not have a materially
adverse impact on the yield on the Fund's portfolio and may have a beneficial
impact on income due to receipt of prepayment penalties, if any, and any
facility fees earned in connection with reinvestment.
A Lender may have certain obligations pursuant to a Loan Agreement, which may
include the obligation to make additional loans in certain circumstances. The
Fund currently intends to reserve against such contingent obligations by
segregating 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
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<PAGE> 19
to make any such additional loans if such additional loan commitments would
exceed 20% of the Fund's total assets or would cause the Fund to fail to meet
the diversification requirements set forth under the heading "Investment
Restrictions" in the Statement of Additional Information.
During normal market conditions, the Fund may invest up to 20% of its total
assets (including assets maintained by the Fund as a reserve against any
additional loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants, equity
securities and junior debt securities acquired in connection with the Fund's
investments in Senior Loans. Such high quality, short-term securities may
include commercial paper rated at least in the top two rating categories of
either S&P or Moody's, or unrated commercial paper considered by the Adviser to
be of similar quality, interests in short-term loans of Borrowers having
short-term debt obligations rated or a short-term credit rating at least in such
top two rating categories or having no such rating but determined by the Adviser
to be of comparable quality, certificates of deposit and bankers' acceptances
and securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Such high quality, short-term securities may pay interest at
rates which are periodically redetermined or may pay interest at fixed rates. If
the Adviser determines that market conditions temporarily warrant a defensive
investment policy, the Fund may invest, subject to its ability to liquidate its
relatively illiquid portfolio of Senior Loans, up to 100% of its assets in cash
and such high quality, short-term debt securities. The Fund will acquire such
warrants, equity and junior debt securities only as an incident to the purchase
or intended purchase of interests in collateralized Senior Loans. Although the
Fund generally will acquire interests in warrants, equity and junior debt
securities only when the Adviser believes that the relative value being given by
the Fund in exchange for such interests is substantially outweighed by the
potential value of such instruments, investment in warrants, equity and junior
debt securities entail certain risks in addition to those associated with
investments in Senior Loans. Warrants and equity securities have a subordinate
claim on a Borrower's assets as compared with debt securities and junior debt
securities have a subordinate claim on such assets as compared with Senior
Loans. As such, the values of warrants and equity securities generally are more
dependent on the financial condition of the Borrower and less dependent on
fluctuations in interest rates than are the values of many debt securities. The
values of warrants, equity securities and junior debt securities may be more
volatile than those of Senior Loans and thus may have an adverse impact on the
ability of the Fund to minimize fluctuations in its net asset value.
The Fund also may invest up to 5% of its total assets in structured notes with
rates of return determined by reference to the total rate of return on one or
more loans referenced in such notes. The rate of return on the structured note
may be determined by applying a multiplier to the rate of total return on the
referenced loan or loans. Application of a multiplier is comparable to the use
of financial leverage, a 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%, or such other percentage
permitted by law, 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
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.
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<PAGE> 20
On behalf of the several Lenders, the Agent generally will be required to
administer and manage the Senior Loan and, with respect to collateralized Senior
Loans, to service or monitor the collateral. In this connection, the valuation
of assets pledged as collateral will reflect market value and the Agent may rely
on independent appraisals as to the value of specific collateral. The Agent,
however, may not obtain an independent appraisal as to the value of assets
pledged as collateral in all cases. The Fund normally will rely primarily on the
Agent (where the Fund is an Original Lender or owns an Assignment) or the
selling Lender (where the Fund owns a Participation) to collect principal of and
interest on a Senior Loan. Furthermore, the Fund usually will rely on the Agent
(where the Fund is an Original Lender or owns an Assignment) or the selling
Lender (where the Fund owns a Participation) to monitor compliance by the
Borrower with the restrictive covenants in the Loan Agreement and notify the
Fund of any adverse change in the Borrower's financial condition or any
declaration of insolvency. Collateralized Senior Loans will frequently be
secured by all assets of the Borrower that qualify as collateral, which may
include common stock of the Borrower or its subsidiaries. Additionally, the
terms of the Loan Agreement may require the Borrower to pledge additional
collateral to secure the Senior Loan, and enable the Agent, upon proper
authorization of the Lenders, to take possession of and liquidate the collateral
and to distribute the liquidation proceeds pro rata among the Lenders. If the
terms of a Senior Loan do not require the Borrower to pledge additional
collateral in the event of a decline in the value of the original collateral,
the Fund will be exposed to the risk that the value of the collateral will not
at all times equal or exceed the amount of the Borrower's obligations under the
Senior Loan. Lenders that have sold Participation interests in such Senior Loan
will distribute liquidation proceeds received by the Lenders pro rata among the
holders of such Participations. The Adviser will also monitor these aspects of
the Fund's investments and, where the Fund is an Original Lender or owns an
Assignment, will be directly involved with the Agent and the other Lenders
regarding the exercise of credit remedies.
Senior Loans, like other corporate debt obligations, are subject to the risk
of non-payment of scheduled interest or principal. Such non-payment would result
in a reduction of income to the Fund, a reduction in the value of the Senior
Loan experiencing non-payment and a potential decrease in the net asset value of
the Fund. Although, with respect to collateralized Senior Loans, the Fund
generally will invest only in Senior Loans that the Adviser believes are secured
by specific collateral, which may include guarantees, the value of which exceeds
the principal amount of the Senior Loan at the time of initial investment, there
can be no assurance that the liquidation of any such collateral would satisfy
the Borrower's obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily liquidated. In the
event of bankruptcy of a Borrower, the Fund could experience delays or
limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. To the extent that a Senior Loan is
collateralized by stock in the Borrower or its subsidiaries, such stock may lose
all or substantially all of its value in the event of bankruptcy of the
Borrower. The Agent generally is responsible for determining that the Lenders
have obtained a perfected security interest in the collateral securing the
Senior Loan. In the event that the Fund does not believe that a perfected
security interest has been obtained with respect to a collateralized Senior
Loan, the Fund will only obtain an interest in such Senior Loan if the Agent is
a Designated Custodian. Some Senior Loans in which the Fund may invest are
subject to the risk that a court, pursuant to fraudulent conveyance or other
similar laws, could subordinate such Senior Loans to presently existing or
future indebtedness of the Borrower or take other action detrimental to the
holders of Senior Loans, such as the Fund, including, under certain
circumstances, invalidating such Senior Loans. Lenders commonly have certain
obligations pursuant to the Loan Agreement, which may include the obligation to
make additional loans or release collateral in certain circumstances.
Senior Loans in which the Fund will invest historically have not been rated by
a nationally recognized statistical rating organization, will not be registered
with the SEC or any state securities commission and will not be listed on any
national securities exchange. Although the Fund will generally have access to
financial and other information made available to the Lenders in connection with
Senior Loans, the amount of public information available with respect to Senior
Loans will generally be less extensive than that available for rated, registered
or exchange listed securities. As a result, the performance of the Fund and its
ability to meet its investment objective is more dependent on the analytical
ability of the Adviser than would be the case for an investment company that
invests primarily in rated, registered or exchange listed securities.
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<PAGE> 21
\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 to highly leveraged
transactions or subject such Senior Loan interests to increased regulatory
scrutiny, such financial institutions may determine to sell such Senior Loan
interests in a manner that results in a price which, in the opinion of the
Adviser, is not indicative of fair value. Were the Fund to attempt to sell a
Senior Loan interest at a time when a financial institution was engaging in such
a sale with respect to such Senior Loan interest, the price at which the Fund
could consummate such a sale might be adversely affected.
The Fund has registered as a "non-diversified" investment company so that,
subject to its investment restrictions, it will be able to invest more than 5%
of the value of its assets in the obligations of any single issuer, including
Senior Loans of a single Borrower or Participations purchased from a single
Lender. See "Investment Restrictions" in the Statement of Additional
Information. The Fund does not intend, however, to invest more than 5% of the
value of its assets in interests in Senior Loans of a single Borrower. To the
extent the Fund invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Fund will be more susceptible
than a more widely diversified investment company to any single corporate,
economic, political or regulatory occurrence.
Within approximately three months from the date of this Prospectus, the Fund
currently intends to offer Preferred Shares or borrow money for investment
purposes. 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 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,
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<PAGE> 22
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."
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.
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 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
19
<PAGE> 23
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."
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 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. 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.
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 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,
20
<PAGE> 24
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 in incorrect, the Fund's overall
performance would be worse than if it had not entered into any such
transactions. For example, if the Fund had purchased an interest rate swap or an
interest rate floor to hedge against its expectation that interest rates would
decline but instead interest rates rose, the Fund would lose part or all of the
benefit of the increased payments it would receive as a result of the rising
interest rates because it would have to pay amounts to its counterparty under
the swap agreement or would have paid the purchase price of the interest rate
floor.
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<PAGE> 25
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 would receive compensation from the investment of the
collateral. The Fund would not have the right to vote any financial instruments
having voting rights during the existence of the loan, but the Fund could call
the loan in anticipation of an important vote to be taken among holders of the
financial instruments or in anticipation of the giving or withholding of their
consent on a material matter affecting the financial instruments. As with other
extensions of credit, risks of delay in recovery or even loss of rights in the
collateral exist should the borrower of the financial instruments fail
financially. However, the loans would be made only to firms deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. The creditworthiness of firms to which the Fund lends its
portfolio holdings will be monitored on an ongoing basis by the Adviser pursuant
to procedures adopted and reviewed, on an ongoing basis, by the Board of
Trustees of the Fund. No specific limitation exists as to the percentage of the
Fund's assets which the Fund may lend.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
The Fund may also purchase and sell interests in Senior Loans and other
portfolio securities on a "when issued" and "delayed delivery" basis. No income
accrues to the Fund on such interests or securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
interests or securities. These transactions are subject to market fluctuation;
the value of the interests in Senior Loans
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<PAGE> 26
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> 27
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 reasonably
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.
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TAXATION
- --------------------------------------------------------------------------------
The Fund intends to elect and to qualify each year to be treated as a
regulated investment company under Subchapter M of the Code. If the Fund so
qualifies and distributes each year to its 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) in each 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.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its Common Shareholders) and all distributions out of earnings
and profits would be taxed to Common Shareholders as ordinary income.
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 gains dividends"), if any, are taxable to Common Shareholders at the
rates applicable to long-term capital gains regardless of the length of time
shares of the Fund have been held by such Common Shareholders. For a summary of
the tax rates applicable to capital gains (including capital gains dividends),
see "Capital Gains Rates Under the 1997 Tax Act" below. The Fund will inform
Common Shareholders of the source and tax status of all distributions promptly
after the close of each calendar year.
Sale of Shares. Except as discussed below, selling 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 gains dividends
received with respect to such Common Shares. For purposes of determining whether
Common Shares have been held for six months or less, the holding period is
suspended for any periods during which the Shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property or through certain options or short sales.
Capital Gains Rates Under the 1997 Tax Act. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act") the maximum tax rates applicable to net capital gains
recognized by individuals and other non-corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less, (ii) 28% for
capital assets held for more than one year but not more than 18 months and (iii)
20% for capital assets held for more than 18 months. The maximum long-term
capital gains rate for corporations remains at 35%. The new tax rates for
capital gains under the 1997 Tax Act described above will apply to distributions
of capital gains dividends by regulated investment companies such as the Fund as
well as to sales and exchanges
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<PAGE> 28
of shares in regulated investment companies such as the Fund. With respect to
capital losses recognized on dispositions of shares held six months or less
where such losses are treated as long-term capital losses to the extent of prior
capital gains dividends received on such shares (see "Sale of Shares" above), it
is unclear how such capital losses offset the capital gains referred to above.
Common Shareholders should consult their own tax advisors as to the application
of the new capital gains rates to their particular circumstances.
General. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their 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.
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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 $60 billion under management or supervision. VKAC's
more than 50 open-end and 37 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. The Adviser also serves as investment adviser to the Van Kampen
American Capital Prime Rate Income Trust, a closed-end investment company
engaged in a continuous offering with an investment objective and policies
substantially similar to those of the Fund and with over $7.0 billion in assets
as of March 30, 1998. 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., an
investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending.
INVESTMENT ADVISORY AGREEMENT. The business and affairs of the Fund will be
managed under the direction of the Fund's Board of Trustees. Subject to their
authority, the Adviser and the Fund's officers will supervise and implement the
Fund's investment activities and will be responsible for overall management of
the Fund's business affairs. The investment advisory agreement (the "Advisory
Agreement") between the Adviser and the Fund provides that the Adviser will
supply investment research and portfolio management, including the selection of
securities for the Fund to purchase, hold, or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed. The Adviser also
furnishes offices, necessary facilities and equipment and permits its officers
and employees to serve without compensation as Trustees and officers of the Fund
if duly elected to such positions.
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<PAGE> 29
For the services provided by the Adviser under the Advisory Agreement, the
Fund will pay the Adviser an annualized fee (accrued daily and paid monthly)
equal to 0.85% of 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 Prime Rate Income
Trust, 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. As of March 30, 1998, Van Kampen American Capital Prime
Rate Income Trust had over $7.0 billion in net assets. Mr. Maillet has been
employed by the Adviser since 1989.
THE ADMINISTRATOR. The administrator for the Fund is VKAC (in such capacity,
the "Administrator"). Its principal business address is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. The Administrator is an indirect wholly-owned
subsidiary of Morgan Stanley Dean Witter & 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 reports
to holders of Common Shares; (iii) in connection with the issuance of any
Preferred Shares or borrowing 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 fee, accrued daily and paid
monthly, at the annualized rate of 0.20% of the Fund's average daily managed
assets.
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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. 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
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<PAGE> 30
expected to be declared approximately 30 days after the completion of this
offering and will be paid approximately 60 days thereafter. 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."
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DIVIDEND REINVESTMENT PLAN
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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 the Plan Agent, as
dividend disbursing agent.
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 with the Plan.
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.
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<PAGE> 31
In the case of Common Shareholders, such as banks, brokers or nominees, which
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record Common Shareholders as representing the total amount
registered in the record Common Shareholder's name and held for the account of
beneficial owners who are participating in the Plan.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required to be
withheld on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Fund at least 90 days before the
record date for the dividend distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Fund.
All registered Common Shareholders (other than brokers or nominees) will be
mailed information regarding the Plan, including a form with which they may
elect to participate in the Plan. Shareholders who intend to hold their Common
Shares through a broker or nominee should contact such person to confirm that
they may participate in the Plan and to determine the effect, if any, that a
transfer of the account by the shareholder to another broker or nominee will
have on continued participation in the Plan. A Common Shareholder may withdraw
from the Plan at any time by contacting the Plan Agent at the address or
telephone number set forth below. There is no penalty for non-participation in
or withdrawal from the Plan, and Common Shareholders who have previously
withdrawn from the Plan may rejoin it at any time. Changes in elections should
be directed to the Plan Agent and should include the name of the Fund and the
Common Shareholder's name and address as registered. An election to withdraw
from the Plan will, until such election is changed, be deemed to be an election
by a Common Shareholder to take all subsequent dividends and distributions in
cash. Elections will only be effective for dividends and distributions declared
after, and with a record date of at least ten days after, such elections are
received by the Plan Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided above, certificates for whole Common Shares
credited to his or her account under the Plan will be issued and a cash payment
will be made for any fraction of a Common Share credited to such account. All
correspondence concerning the Plan should be directed to the Plan Agent at c/o
ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO 64153-9256.
Please call (800) 341-2911 between the hours of 7:00 a.m. and 7:00 p.m. Central
Standard Time if you have questions regarding the Plan.
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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
28
<PAGE> 32
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 would 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 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
29
<PAGE> 33
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 $ , 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 does
not intend to hold annual meetings of the holders of Common Shares.
COMMON SHARES. The Declaration of Trust permits the Fund to issue an
unlimited number of full and fractional Common Shares of beneficial interest,
$.01 par value per Common Share. Each Common Share represents an equal
proportionate interest in the assets of the Fund with each other Common Share in
the Fund. Holders of Common Shares will be entitled to the payment of dividends
when, as and if declared by the Board of Trustees. The 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.
30
<PAGE> 34
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. Additional
asset coverage requirements and distribution limitations may be imposed in
connection with the Fund's seeking to obtain a rating of the Preferred Shares
from a nationally recognized statistical rating organization or pursuant to
covenants made by the Fund in connection with such borrowings. The Fund intends,
to the extent possible, to purchase or redeem Preferred Shares or repay
borrowings from time to time to maintain compliance with the 1940 Act asset
coverage requirements and any other coverage requirements and distribution
limitations which may be imposed. 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 intends to make an application to list the Common Shares, on the New
York Stock Exchange under the symbol " ."
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.
The Fund's Board of Trustees has indicated its present intention to authorize
an offering of Preferred Shares, subject to market conditions and to the Board
of Trustees' continuing to believe that leveraging the Fund's capital structure
through the issuance of Preferred Shares is likely to achieve the benefits to
the Common Shareholders described in this Prospectus. 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 currently anticipated and described in this
Prospectus. The discussion below describes the Board of Trustees' present
intention with respect to an offering of Preferred Shares.
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. Although 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 offering,
the Board of Trustees has indicated that the terms of the
31
<PAGE> 35
initial series of Preferred Shares would likely 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. The Board of Trustees has also
indicated that the liquidation preference, voting rights and redemption
provisions of the Preferred Shares will likely be as stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of Preferred
Shares will be entitled 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
will 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 will have no voting rights. When
Preferred Shareholders are entitled to vote, each holder shall be entitled to
cast one vote per Preferred Share.
Holders of Preferred Shares, voting as a class, shall 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 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, will 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 currently intends to 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
32
<PAGE> 36
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 will 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 -- Effects of Leverage."
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.
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. 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. 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.
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 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
33
<PAGE> 37
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 (except
pursuant to the Plan); (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) more than 50% of the Fund's
outstanding 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. 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.
34
<PAGE> 38
- --------------------------------------------------------------------------------
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 [and others] 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...........................
[ ]............................
[ ] ...........................
[ ]............................
---------
Total.......................................................
=========
</TABLE>
The Underwriters and the Representatives are collectively referred to herein
as the "Underwriters" and the "Representatives," respectively. 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 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 Shares in the offering.
The Adviser (or an affiliate) has agreed to pay to the Underwriters out of its
own assets compensation in the gross amount of $ per Common Share ( % of
the public offering price per 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 the
Adviser (or an affiliate) and 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 $ per Common Share
from such payment received from the Adviser 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 900,000 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 this option, 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.
Prior to the offerings 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
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 Fund intends to list
the Common Shares for trading on the New York Stock Exchange, the American Stock
Exchange or another national securities exchange or market system. The Fund
intends to
35
<PAGE> 39
make an application to list the Common Shares on the New York Stock Exchange
under the symbol " ." 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 shares of beneficial
interest 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 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. In addition, physical delivery of certificates representing Common
Shares is required to transfer ownership of Common Shares for a certain period.
The Advisor 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.
- --------------------------------------------------------------------------------
CUSTODIAN, DIVIDEND DISBURSING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 West Franklin Street, P.O. Box 1713,
Boston, Massachusetts 02105-1713 is the custodian of the Fund and will maintain
custody of the securities and cash of the Fund. The custodian, among other
things, will attend to the collection of principal and income and payment for
and collection of proceeds of securities bought and sold by the Fund. State
Street Bank and Trust Company also will perform certain accounting services for
the Fund pursuant to the Fund Accounting Agreement between it and the Fund.
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.
36
<PAGE> 40
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The Statement of Assets and Liabilities as of [ , 1998,] included
in the Statement of Additional Information, has been so included in reliance on
the report of [ ], independent certified public accountants, given
on the authority of said firm as experts in auditing and accounting.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Prospectus and the Statement of Additional Information do not contain all
of the information set forth in the Registration Statement that the Fund has
filed with the SEC. The complete Registration Statement may be obtained from the
SEC upon payment of the fee prescribed by its rules and regulations.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION IS AS
FOLLOWS:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies and Special Risk
Considerations............................................ B- 2
Investment Restrictions..................................... B- 2
Trustees and Officers....................................... B- 4
Portfolio Transactions...................................... B- 6
Management of the Fund...................................... B- 7
Net Asset Value............................................. B- 8
Taxation.................................................... B-10
Repurchase of Shares........................................ B-12
Independent Accountants' Report............................. B-14
Statement of Assets and Liabilities as of [ 1998]... B-15
</TABLE>
37
<PAGE> 41
- --------------------------------------------------------------------------------
SENIOR INCOME TRUST
- --------------------------------------------------------------------------------
P R O S P E C T U S
[ ], 1998
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 42
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 ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES
NOT CONSTITUTE A PROSPECTUS.
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 , 1998 (the "Prospectus"). This Statement of
Additional Information does not include all information that a prospective
investor should consider before purchasing shares of the Fund, and investors
should obtain and read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge, by calling 1-800-341-2911, or for
Telecommunications Device for the Deaf, 1-800-421-2833. This Statement of
Additional Information incorporates by reference the entire Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies and Special Risk
Considerations............................................ B- 2
Investment Restrictions..................................... B- 2
Trustees and Officers....................................... B- 4
Portfolio Transactions...................................... B- 6
Management of the Fund...................................... B- 7
Net Asset Value............................................. B- 8
Taxation.................................................... B-10
Repurchase of Shares........................................ B-12
Independent Accountants' Report............................. B-14
Statement of Assets and Liabilities as of ,
1998...................................................... B-15
</TABLE>
The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. (the "SEC"). These items
may be obtained from the SEC upon payment of the fee prescribed, or inspected at
the SEC's office at no charge.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1998
B-1
<PAGE> 43
INVESTMENT OBJECTIVE AND POLICIES
AND SPECIAL RISK CONSIDERATIONS
The Fund's investment objective is to provide a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its objective
through investment primarily in a professionally managed portfolio of interests
in floating or variable rate Senior Loans to Borrowers. Although the Fund's net
asset value will vary, the Fund's policy of acquiring interests in floating or
variable rate Senior Loans is expected to minimize the fluctuations in the
Fund's net asset value as a result of changes in interest rates. 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. 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 selling a Participation to the Fund
together with any other persons interpositioned between such Lender and
the Fund with respect to a Participation.
B-2
<PAGE> 44
2. Purchase any security if, as a result of such purchase, 25% or more of the
Fund's total assets (taken at current value) would be invested in the
securities of Borrowers and other issuers having their principal business
activities in the same industry (the electric, gas, water and telephone
utility industries, commercial banks, thrift institutions and finance
companies being treated as separate industries for purposes of this
restriction); provided, that this limitation shall not apply with respect
to obligations issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities.
3. Issue senior securities (including borrowing money or entering into
reverse repurchase agreements) in excess of 33 1/3% of its total assets
(including the amount of senior securities issued but excluding any
liabilities and indebtedness not constituting senior securities) except
that the Fund may borrow up to an additional 5% of its total assets for
temporary purposes, or pledge its assets other than to secure such
issuance or in connection with hedging transactions, when-issued and
delayed delivery transactions and similar investment strategies. The Fund
will not purchase additional portfolio securities at any time that
borrowings, including the Fund's commitments pursuant to reverse
repurchase agreements, exceed 5% of the Fund's total assets (after giving
effect to the amount borrowed).
4. Make loans of money or property to any person, except for obtaining
interests in Senior Loans in accordance with its investment objective,
through loans of portfolio securities or the acquisition of securities
subject to repurchase agreements.
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> 45
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. [Final Trustees will be added by amendment.]
DENNIS J. MCDONNELL,* DATE OF BIRTH 05/20/42, PRESIDENT, CHAIRMAN OF THE BOARD
AND TRUSTEE. Mr. McDonnell is President, Chief Operating Officer and a Director
of the Adviser, AC Adviser, Van Kampen American Capital Advisors, Inc., and Van
Kampen American Capital Management, Inc. He is also an Executive Vice President
and Director of VK/AC Holding, Inc., VKAC. Mr. McDonnell is President and a
Director of Van Kampen Merritt Equity Advisors Corp. He is the President and a
Trustee, Director or Managing General Partner of other investment companies
advised by the Adviser and the AC Adviser. Prior to April of 1997, he was a
Director of Van Kampen Merritt Equity Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer and Director of MCM Group, Inc.,
McCarthy, Crisanti & Maffei, Inc. and Chairman and Director of MCM Asia Pacific
Company, Limited and MCM (Europe) Limited. Prior to July of 1996, Mr. McDonnell
was President, Chief Operating Officer and Trustee of VSM Inc. and VCJ Inc.
Prior to December, 1991, Mr. McDonnell was Senior Vice President of Van Kampen
Merritt Inc. His address is One Parkview Plaza, Oakbrook Terrace, Illinois
60181.
RONALD A. NYBERG, DATE OF BIRTH 07/29/53, VICE PRESIDENT AND SECRETARY. Mr.
Nyberg is Executive Vice President, General Counsel, Secretary and Director of
VKAC, VK/AC Holding, Inc. He is also Executive Vice President, General Counsel
and Director of Van Kampen Merritt Equity Holdings Corp. Mr. Nyberg is also
Executive Vice President, General Counsel and Assistant Secretary of ACCESS
Investor Services, Inc., and Executive Vice President, General Counsel,
Assistant Secretary and Director of the Adviser, the AC Adviser, Van Kampen
American Capital Advisors, Inc., Van Kampen American Capital Management, Inc.,
VKACDI, Van Kampen American Capital Exchange Corporation, American Capital
Contractual Services, Inc., and Van Kampen American Capital Trust Company. Prior
to April of 1997, he was Executive Vice President, General Counsel and Director
of Van Kampen Merritt Equity Advisors Corp. Prior to July of 1996, Mr. Nyberg
was Executive Vice President and General Counsel of VSM Inc. and Executive Vice
President and General Counsel of VCJ Inc. Prior to September of 1996, he was
General Counsel of McCarthy, Crisanti & Maffei, Inc. He is a Vice President and
Secretary of other investment companies advised by the Adviser and the AC
Adviser, and is a Director of ICI Mutual Insurance Co., a provider of insurance
to members of the Investment Company Institute. Prior to March of 1991, Mr.
Nyberg was Secretary of Van Kampen Merritt
B-4
<PAGE> 46
Inc., the Adviser and McCarthy, Crisanti & Maffei, Inc. His address is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181.
EDWARD C. WOOD, III, DATE OF BIRTH 01/11/56, VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TRUSTEE. Mr. Wood is Senior Vice President of the Adviser, the AC
Adviser, and Van Kampen American Capital Management, Inc. His address is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Wood is Vice President and
Chief Financial Officer of other investment companies advised by the Adviser and
the AC Adviser.
WESTON B. WETHERELL, DATE OF BIRTH 06/15/56, ASSISTANT SECRETARY. Mr. Wetherell
is Vice President, Associate General Counsel and Assistant Secretary of VKAC,
VKACDI, the Adviser, the AC Adviser, Van Kampen American Capital Management,
Inc., and Van Kampen American Capital Advisors, Inc. Prior to September of 1996,
Mr. Wetherell was Assistant Secretary of McCarthy, Crisanti & Maffei, Inc. His
address is One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Wetherell
is an Assistant Secretary of other investment companies advised by the Adviser
and the AC Adviser.
JOHN L. SULLIVAN, DATE OF BIRTH 08/20/55, TREASURER AND TRUSTEE. Mr. Sullivan
is First Vice President of the Adviser and the AC Adviser. His address is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Mr. Sullivan is Treasurer of
other investment companies advised by the Adviser and the AC Adviser.
*Such trustees are "interested persons" as defined in the 1940 Act.
Mr. McDonnell is an interested person of the Adviser and the Fund by
reason of his position at the Adviser.
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 Stock and as a result is deemed to control the Fund. The
compensation of the officers and trustees who are affiliated persons (as defined
in the 1940 Act) of the Adviser 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 of $92,500, 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 of all or a portion of the trustee's fees earned by such trustee until
such trustee's retirement. The deferred compensation earns a rate of return
determined by reference to the Fund or other funds in the Fund Complex selected
by the trustee. To the extent permitted by the 1940 Act, the Fund may invest in
securities of other funds in the Fund Complex in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund. Subject to certain exceptions and limitations, as fully
described in Section 5.3 of the Fund's Declaration of Trust on file with the
SEC, the Fund indemnifies every Trustee and officer of the Fund against
liabilities and expenses reasonably incurred or paid in connection with any
claim, action, suit or proceeding in which he becomes involved by virtue of his
being or having been a Trustee or officer. Such indemnification is unavailable
for any Trustee or officer who is deemed to have engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of his duties or to not have
acted in good faith in the reasonable belief that his action was in the best
interest of the Fund.
B-5
<PAGE> 47
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 FROM THE FUND EXPENSES RETIREMENT COMPLEX
---- ---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
[ ]................... $ $ $ $
[ ]...................
[ ]...................
[ ]...................
[ ]...................
[ ]...................
[ ]...................
</TABLE>
- ---------------
PORTFOLIO TRANSACTIONS
With respect to interests in Senior Loans, the Fund generally will engage in
privately negotiated transactions for purchase or sale in which the Adviser will
negotiate on behalf of the Fund, although a more developed market may exist for
certain Senior Loans. The Fund may be required to pay fees, or forgo a portion
of interest and any fees payable to the Fund, to the Lender selling
Participations or Assignments to the Fund. The Adviser will determine the
Lenders from whom the Fund will purchase Assignments and Participations by
considering their professional ability, level of service, relationship with the
Borrower, financial condition, credit standards and quality of management.
Although the Fund intends generally to hold interests in Senior Loans until
maturity or prepayment of the Senior Loan, the illiquidity of many Senior Loans
may restrict the ability of the Adviser to locate in a timely manner persons
willing to purchase the Fund's interests in Senior Loans at a fair price should
the Fund desire to sell such interests. See "Investment Objective and Policies."
With respect to investments other than in Senior Loans, the Adviser will place
orders for portfolio transactions for the Fund with broker-dealer firms giving
consideration to the quality, quantity and nature of each firm's professional
services. These services include execution, clearance procedures, wire service
quotations and statistical and other research information provided to the Fund
and the Adviser, including quotations necessary to determine the value of the
Fund's net assets. Any research benefits so obtained are available for all
clients of the Adviser. Because statistical and other research information only
supplements the research efforts of the Adviser and still must be analyzed and
reviewed by its staff, the receipt of research information is not expected to
reduce materially its expenses. In selecting among the firms believed to meet
the criteria for handling a particular transaction, the Adviser may take into
consideration the fact that certain firms have sold Common Shares of the Fund
and that certain firms provide market, statistical or other research information
to the Fund and the Adviser and may select firms that are affiliated with the
Fund, the Adviser 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
B-6
<PAGE> 48
detrimental effect on the price paid by the Fund for the financial instrument or
the volume of the financial instrument purchased by the Fund, the ability to
participate in volume transactions and to negotiate lower commissions, fees and
expenses possibly could benefit the Fund.
Although the Adviser will be responsible for the management of the Fund's
portfolio, the policies and practices in this regard must be consistent with the
foregoing and will be subject at all times to review by the Trustees of the
Fund. The Fund anticipates that the annual portfolio turnover rate will not
exceed 100%.
The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act, which requires that the commissions
paid to affiliates of the Fund, or to affiliates of such persons, be reasonable
and fair compared to the commissions, fees or other remuneration received or to
be received by other brokers in connection with comparable transactions
involving similar financial instruments during a comparable period of time. The
rule and procedures also contain review requirements and require the Adviser to
furnish reports to the Trustees and to maintain records in connection with such
reviews. After review of all factors deemed relevant, the Trustees will consider
from time to time whether the advisory fee will be reduced by all or a portion
of the brokerage commissions given to brokers that are affiliated with the Fund.
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.
VKAC is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $60 billion under management or supervision. VKAC's
more than 50 open-end and 37 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., an
investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending.
INVESTMENT ADVISORY AGREEMENT
The investment advisory agreement (the "Advisory Agreement") between the
Adviser and the Fund will continue in effect until , 2000 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 investment advisory agreement (the "Advisory Agreement") between the
Adviser and the Fund provides that the Adviser will supply investment research
and portfolio management, including the selection of securities for the Fund to
purchase, hold or sell and the selection of financial institutions through whom
the Fund's portfolio transactions are executed. The Adviser also furnishes
necessary facilities and equipment, and
B-7
<PAGE> 49
permits its officers and employees to serve without compensation as trustees and
officers of the Fund if duly elected to such positions.
The Advisory Agreement provides that the Adviser shall not be liable for any
error of judgment or of law, or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the Advisory
Agreement.
The Trustees are responsible for the overall management and supervision of the
Fund's affairs. The Adviser's activities are subject to the review and
supervision of the Trustees to whom the Adviser renders periodic reports of the
Fund's investment activities. The Advisory Agreement continues in effect from
year to year only if specifically approved by the Trustees, and by the
disinterested Trustees, or the Fund's holders of Common Shares in compliance
with the requirements of the 1940 Act. The Advisory Agreement may be terminated
without penalty upon 60 days' written notice by either party and will terminate
automatically in the event of assignment.
THE ADMINISTRATOR
The administrator for the Fund is VKAC (in such capacity, the
"Administrator").
The Fund pays all other expenses incurred in the operation of the Fund
including, but not limited to, direct charges relating to the purchase and sale
of financial instruments in its portfolio, interest charges, fees and expenses
of legal counsel and independent auditors, taxes and governmental fees, cost of
share certificates, expenses (including clerical expenses) of issuance, sale or
repurchase of any of the Fund's portfolio holdings, expenses in connection with
the Fund's dividend reinvestments, membership fees in trade associations,
expenses of registering and qualifying the Common Shares of the Fund for sale
under federal and state securities laws, expenses of printing and distributing
reports, notices and proxy materials to existing holders of Common Shares,
expenses of filing reports and other documents filed with governmental agencies,
expenses of annual and special meetings of holders of Common Shares, fees and
disbursements of the transfer agents, custodians and sub-custodians, expenses of
disbursing dividends and distributions, fees, expenses and out-of-pocket costs
of Trustees of the Fund who are not affiliated with the Adviser, insurance
premiums, indemnification and other expenses not expressly provided for in the
Advisory Agreement or the Administration Agreement and any extraordinary
expenses of a nonrecurring nature.
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
B-8
<PAGE> 50
each business day as of 5:00 p.m. Eastern time. The Fund reserves the right to
calculate the net asset value more frequently if deemed desirable.
The value of the Fund's portfolio will be determined by the Adviser, following
guidelines established and periodically reviewed by the Trustees. Interests in
Senior Loans will be valued by the Adviser on behalf of the Fund on the basis of
market quotations and transactions in instruments which the Adviser believes may
be comparable to Senior Loan interests with respect to the following
characteristics: credit quality, interest rate, interest rate redetermination
period and maturity. Such instruments may include commercial paper, negotiable
certificates of deposit and short-term variable rate securities which have
adjustment periods comparable to the Senior Loan interests in the Fund's
portfolio. In determining the relationship between such instruments and the
Senior Loan interests in the Fund's portfolio, the Adviser will consider on an
ongoing basis, among other factors, (i) the credit worthiness of the Borrower
and (ii) the current interest rate, the period until next interest rate
redetermination and maturity of such Senior Loan interests. It is expected that
the Fund's net asset value will fluctuate as a function of interest rate and
credit factors. Because of the short-term nature of such instruments, however,
the Fund's net asset value is expected to fluctuate less in response to changes
in interest rates than the net asset values of investment companies with
portfolios consisting primarily of fixed-income or longer term securities. The
Adviser believes that Lenders selling Senior Loan interests or otherwise
involved in a Senior Loan transaction may tend, in valuing Senior Loan interests
for their own account, to be less sensitive to interest rate and credit quality
changes and, accordingly, the Adviser does not intend to rely solely on such
valuations in valuing the Senior Loan interests for the Fund's account. In
addition, because a secondary trading market in Senior Loans has not yet fully
developed, in valuing Senior Loans, the Adviser may not rely solely on but may
consider, to the extent the Adviser believes such information to be reliable,
prices or quotations provided by banks, dealers or pricing services with respect
to secondary market transactions in Senior Loans. To the extent that an active
secondary market in Senior Loan interests develops to a reliable degree, the
Adviser may rely to an increasing extent on such market prices and quotations in
valuing the Senior Loan interests in the Fund's portfolio. In light of the
senior nature of Senior Loan interests that may be included in the Fund's
portfolio and taking into account the Fund's access to non-public information
with respect to Borrowers relating to such Senior Loan interests, the Adviser
does not currently believe that consideration on a systematic basis of ratings
provided by any nationally recognized statistical rating organization or price
fluctuations with respect to long- or short-term debt of such Borrowers
subordinate to the Senior Loans of such Borrowers is necessary for the
determination of the value of such Senior Loan interests. Accordingly, the
Adviser generally will not systematically consider (but may consider in certain
instances) and, in any event, will not rely upon such ratings or price
fluctuations in determining the value of Senior Loan interests in the Fund's
portfolio.
Other portfolio securities (other than short-term obligations, but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, portfolio
securities will be valued at the last sale price on the exchange that is the
primary market for such securities, or the last quoted bid price for those
securities for which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. The value of
interest rate swaps will be determined in accordance with a discounted present
value formula and then confirmed by obtaining a bank quotation.
Short-term obligations which mature in 60 days or less will be valued at
amortized cost, if their original term to maturity when acquired by the Fund was
60 days or less, or will be valued at amortized cost using their value on the
61st day prior to maturity, if their original term to maturity when acquired by
the Fund was more 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.
B-9
<PAGE> 51
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 Code. To qualify as a
regulated investment company, the Fund must, among other things: (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
loans of securities and gains from the sale or other disposition of securities
or certain other related income; and (b) diversify its holdings so that at the
end of each quarter of the Fund's taxable year (i) at least 50% of the value of
the Fund's assets is represented by cash, U.S. government securities, securities
of other regulated investment companies, and other securities which, with
respect to any one issuer, do not represent more than 5% of the value of the
Fund's assets or more than 10% of the voting securities of such issuer, and (ii)
not more than 25% of the value of the Fund's assets is invested in the
securities of any one issuer (other than U.S. government securities or the
securities of other regulated investment companies).
If the Fund so qualifies and distributes each year to its Shareholders at
least 90% of its net investment income (including among other things, interest
and net short-term capital gain, but not net capital gains, which are the excess
of net long-term capital gains over net short-term capital losses), in each
year, it will not be required to pay federal income taxes on any income
distributed to Shareholders. The Fund intends to distribute at least the minimum
amount of net investment income necessary to satisfy the 90% distribution
requirement. The Fund will not be subject to federal income tax on any net
capital gains distributed to Shareholders. As a Massachusetts business trust,
the Fund will not be subject to any excise or income taxes in Massachusetts as
long as it qualifies as a regulated investment company for federal income tax
purposes.
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
B-10
<PAGE> 52
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
DISTRIBUTIONS
Distributions of the Fund's net investment income are taxable to Shareholders
as ordinary income, whether paid in cash or reinvested in additional Shares.
Distributions of the Fund's net capital gains ("capital gains dividends"), if
any, are taxable to Common Shareholders at the rates applicable to long-term
capital gains regardless of the length of time Shares of the Fund have been held
by such Shareholders. Distributions in excess of the Fund's earnings and profits
will first reduce the adjusted tax basis of a holder's Common Shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming such Common Shares are held as a capital asset). For a
summary of the tax rates applicable to capital gains (including capital gains
dividends), see "Capital Gains Rates Under the 1997 Tax Act" below. It is not
expected that any portion of the distributions from the Fund will be eligible
for the dividends received deduction for corporations. The Fund will inform
Shareholders of the source and tax status of all distributions promptly after
the close of each calendar year.
Shareholders receiving distributions in the form of additional Common Shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the Common Shares
received, determined as of the distribution date. The basis of such Common
Shares will equal the fair market value of such shares on the distribution date.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to Shareholders of
record on a specified date in such a month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the Shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% 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.
The Fund is required, in certain circumstances, to withhold 31% of taxable
dividends and certain other payments, including redemptions, paid to
Shareholders who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain required certifications, or who are otherwise subject to backup
withholding.
SALE OF SHARES
Except as discussed below, selling Shareholders will generally recognize gain
or loss in an amount equal to the difference between their adjusted tax basis in
the Common Shares and the amount received. If such Common Shares are held as a
capital asset, the gain or loss will be a capital gain or loss. For a summary of
the tax rates applicable to capital gains, see "Capital Gains Rates Under the
1997 Tax Act" below. It is possible, although the Fund believes it is unlikely,
that, in connection with a tender offer, distributions to tendering shareholders
may be subject to tax as ordinary income (rather than as gain or loss), which in
turn may result in deemed distributions subject to tax as ordinary income for
non-tendering shareholders. The federal income tax consequences of repurchase of
Common Shares pursuant to tender offers will be disclosed in the related
offering documents. Any loss recognized upon a taxable disposition of Common
Shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gains dividends received with respect to such
Common Shares. For purposes of determining whether Common Shares have been held
for six months or less, the holding period is suspended for any periods during
which the Shareholder's risk of loss is diminished as a result of holding one or
more other positions in substantially similar or related property or through
certain options or short sales.
B-11
<PAGE> 53
CAPITAL GAINS RATES
Capital Gains Rates Under the 1997 Tax Act. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rates applicable to net capital gains
recognized by individuals and other non-corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less, (ii) 28% for
capital assets held for more than one year but not more than 18 months and (iii)
20% for capital assets held for more than 18 months. The 1997 Tax Act did not
affect the maximum long-term capital gains rate for corporations, which remains
at 35%. The new tax rates for capital gains under the 1997 Tax Act described
above apply to distributions of capital gains dividends by regulated investment
companies such as the Fund as well as to sales and exchanges of shares in
regulated investment companies such as the Fund. With respect to capital losses
recognized on dispositions of shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gains
dividends received on such shares (see "Sale of Shares" above), it is unclear
how such capital losses offset the capital gains referred to above. Shareholders
should consult their own tax advisors as to the application of the new capital
gains rates to their particular circumstances.
GENERAL
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their advisers regarding the specific
federal tax consequences of purchasing, holding and disposing of Common Shares,
as well as the effects of state, local and foreign tax laws and any proposed tax
law changes.
REPURCHASE OF SHARES
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.
Even if a tender offer has been made, the Trustees' announced policy, which
may be changed by the Trustees, is that the Fund cannot accept tenders if (1) in
the reasonable judgment of the Trustees, there is not sufficient liquidity of
the assets of the Fund; (2) such transactions, if consummated, would (a) impair
the Fund's status as a regulated investment company under the Code (which would
make the Fund a taxable entity, causing the Fund's taxable income to be taxed at
the Fund level, as more fully described in "Taxation") or (b) result in a
failure to comply with applicable asset coverage requirements; or (3) there is,
in the Board of Trustees' reasonable judgment, any (a) material legal action or
proceeding instituted or threatened challenging such transactions or otherwise
materially adversely affecting the Fund, (b) suspension of or limitation on
prices for trading securities generally on any United States national securities
exchange or in the over-the-counter market, (c) declaration of a banking
moratorium by federal or state authorities or any suspension of payment by banks
in the United States or New York State, (d) limitation affecting the Fund or the
issuers of its portfolio securities imposed by federal or state authorities on
the extension of credit by
B-12
<PAGE> 54
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-13
<PAGE> 55
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
, 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 , 1998 in conformity with
generally accepted accounting principles.
[ ]
Chicago, Illinois
, 1998
B-14
<PAGE> 56
VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
, 1998
<TABLE>
<S> <C>
ASSETS:
Cash...................................................... $100,000
Unamortized organization expense.......................... []
--------
Total assets........................................... $ []
========
LIABILITIES:
Accrued organization expense.............................. $ []
--------
Total liabilities...................................... $ []
========
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, Inc., an affiliated company. The authorized capital of the Fund
currently consists of an unlimited number of Common Shares of beneficial
interest, $.01 par value per Common Share.
(2) The Fund will incur approximately $[ ] of expenses in connection with
the organization of the Fund. These expenses will be amortized over a
period not to exceed five years beginning on the date of the Fund's initial
public offering of its shares. The amount paid by the Fund on any
repurchase during the amortization period of any of the initial 10,000
shares sold to Van Kampen American Capital, Inc. will be reduced by a pro
rata portion of any unamortized organization expense. Such proration is to
be calculated by dividing the number of initial shares repurchased by the
number of initial shares outstanding at the time of such repurchase.
B-15
<PAGE> 57
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 , 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)) Agreement Among Underwriters(+)
(h(3)) Selected Dealer Agreement(+)
(j(1)) Custodian Agreement(+)
(j(2)) 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 [ ](+)
(p) Letter of Investment Intent(+)
(r) Financial Data Schedule(+)
(24) Power of Attorney(*)
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
ITEM 25: MARKETING ARRANGEMENTS
See Exhibit h to this Registration Statement.
ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission fees..................... $
New York Stock Exchange Listing Fee......................... $
National Association of Securities Dealers, Inc. fees....... $
Printing and engraving expenses*............................ $
Legal fees*................................................. $
Accounting expenses*........................................ $
Transfer agent and registrar fees*.......................... $
Blue Sky filing fees and expenses*.......................... $
Miscellaneous expenses*..................................... $
--------
Total........................................ $
========
- ---------------
* Estimates.
</TABLE>
C-1
<PAGE> 58
ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
At , 1998
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
Common Shares of Beneficial Interest, par value
$.01 per share................................... 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 an Errors and Omissions Policy. Section 5 of the
proposed Investment Advisory Agreement between the Fund and the Adviser provides
that in the absence of willful misfeasance, bad faith or gross negligence in
connection with the obligations or duties under the Investment Advisory
Agreement or on the part of the Adviser, the Adviser shall not be liable to the
Fund or to any Common Shareholder of the Fund for any act or omission in the
course of or connected in any way with rendering services or for any losses that
may be sustained in the purchase, holding or sale of any security. The
Distribution Agreement provides that the Registrant shall indemnify the
Distributor (as defined therein) and certain persons related thereto for any
loss or liability arising from any alleged misstatement of a material fact (or
alleged omission to state a material fact) contained in, among other things, the
Registration Statement or Prospectus except to the extent the misstated fact or
omission was made in reliance upon information provided by or on behalf of the
Distributor. (See Section 7 of the Distribution Agreement.)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant and the Adviser and any underwriter pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person or the Registrant and the principal underwriter in connection
with the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such trustee, officer or controlling person or the
Distributor in connection with the Common Shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final adjudication of such
issue.
C-2
<PAGE> 59
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; (ii) by the
Adviser, will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181; and (iii) all such accounts, books and other
documents required to be maintained by the principal underwriter will be
maintained by [Morgan Stanley Dean Witter & Co.].
ITEM 32: MANAGEMENT SERVICES
Not applicable
ITEM 33: UNDERTAKINGS
1. Registrant undertakes to suspend offering of its Common Shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable
3. Not applicable
4. (a) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the Prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
5. If applicable:
(a) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 497(h) under
the Securities Act of 1933, shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, its Statement of Additional Information.
C-3
<PAGE> 60
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 9TH DAY OF
APRIL, 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 APRIL 9, 1998 BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ DENNIS J. MCDONNELL Chairman, President and Trustee
- -----------------------------------------------------
Dennis J. McDonnell
/s/ JOHN L. SULLIVAN Treasurer and Trustee
- -----------------------------------------------------
John L. Sullivan
/s/ EDWARD C. WOOD, III* Vice President Chief Financial Officer and
- ----------------------------------------------------- Trustee
Edward C. Wood, III (Accounting Officer)
</TABLE>
April 9, 1998
C-4
<PAGE> 61
EXHIBIT INDEX TO FORM N-2 EXHIBITS
SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 9, 1998
(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)) Agreement Among Underwriters(+)
(h(3)) Selected Dealer Agreement(+)
(j(1)) Custodian Agreement(+)
(j(2)) 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 [ ](+)
(p) Letter of Investment Intent(+)
(r) Financial Data Schedule(+)
(24) Power of Attorney*
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT (a)(i)
DECLARATION OF TRUST
OF
VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST
DECLARATION OF TRUST made as of April 7, 1998, by the
undersigned (together with all other persons from time to time duly elected,
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, the "Trustees"), and by the holders of shares of beneficial interest
to be issued hereunder as hereinafter provided;
WHEREAS, the Trustees desire to establish a trust for the
investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in
the trust assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that all money and
property contributed to the trust established hereunder shall be held and
managed in trust for the benefit of holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME, PRINCIPAL OFFICE, RESIDENT AGENT AND DEFINITIONS
Section 1.1 Name, Principal Office and Resident Agent The name
of the trust created hereby is the "Van Kampen American Capital Senior Income
Trust" (the "Trust").
The post office address of the principal office of the Trust is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. The name of the resident agent of the
Trust in the Commonwealth of Massachusetts is C T Corporation System, a Delaware
corporation, and the post office address of the resident agent is 2 Oliver
Street, Boston, Massachusetts 02109.
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<PAGE> 2
Section 1.2 Definitions. Wherever they are used herein, the
following terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in
Section 3.8 hereof, as from time to time amended.
(b) The terms "Commission," "Interested Person" and
"Majority Shareholder Vote" (the 67% or 50% requirement of the third sentence of
Section 2(a)(42) of the 1940 Act, whichever may be applicable) have the meanings
given them in the 1940 Act.
(c) "Common Shareholder" means a record owner of
outstanding Common Shares.
(d) "Common Shares" means the common shares of
beneficial interest in the Trust as described in Section 6.1 hereof and includes
fractions of Common Shares as well as whole Common Shares.
(e) "Custodian" means any person other than the
Trust who has custody of any Trust Property as required by Section 17(f) of the
1940 Act, but does not include a system for the central handling of securities
described in said Section 17(f).
(f) "Declaration" means this Declaration of Trust.
Reference in this Amended And Restated Declaration of Trust to "Declaration,"
"hereof," "herein" and "hereunder" shall be deemed to refer to this Declaration
rather than the article or section in which such words appear.
(g) "Investment Adviser" means a party furnishing
services to the Trust pursuant to the contract described in Section 4.1 hereof.
(h) The "1940 Act" means the Investment Company Act
of 1940 and the Rules and Regulations thereunder, as amended from time to time.
(i) "Person" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof, whether domestic or foreign.
(j) "Preferred Shareholder" means a record owner of
outstanding Preferred Shares.
(k) "Preferred Shares" means the preferred shares of
beneficial interest in the Trust as described in Section 6.1 hereof and includes
fractions of Preferred Shares as well as whole Preferred Shares.
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<PAGE> 3
(l) "Shareholder" means a record owner of
outstanding Shares.
(m) "Shares" means the units of beneficial interest
in the Trust as described in Section 6.1 hereof and includes fractions of
Shares as well as whole Shares.
(n) "Transfer Agent" means a party furnishing
services to the Trust pursuant to the contract described in Section 4.3 hereof.
(o) The "Trust" means the trust created hereby.
(p) The "Trust Property" means any and all property,
real or personal, tangible or intangible, which is owned or held by or for the
account of the Trust or the Trustees.
(q) The "Trustees" means the persons who have signed
the Declaration, so long as they shall continue in office in accordance with the
terms hereto, and all other persons who may from time to time be duly elected,
qualified and serving as Trustees in accordance with the provisions hereof, and
references herein to a Trustee or the Trustees shall refer to such person or
persons in their capacity as trustees hereunder.
(r) "Underwriters" means the parties, other than the
Trust, to the contract described in Section 4.2 hereof.
ARTICLE II
TRUSTEES
Section 2.1 Number of Trustees. The number of Trustees shall
initially be three (3), and after a registration statement under the Securities
Act of 1933, as amended, covering the first public offering of securities of the
Trust shall have been filed, the number of Trustees shall be such number as
shall be fixed from time to time by a written instrument signed by a majority of
the Trustees, provided, however, that, following the date such registration
statement shall have become effective (the "effective date"), the number of
Trustees shall in no event be less than three (3) nor more than eleven (11),
except as such number shall be increased in connection with the rights of the
holders of the Preferred Shares to elect a majority of the Trustees, as provided
for in Section 2.2 hereof. No reduction in the number of Trustees shall have the
effect of removing any Trustee from office prior to the expiration of his term
unless the Trustee is specifically removed pursuant to Section 2.2 of this
Article II at the time of the decrease. The three (3) initial Trustees shall be:
3
<PAGE> 4
Dennis J. McDonnell, One Parkview Plaza, Oakbrook Terrace, IL 60181
John L. Sullivan, One Parkview Plaza, Oakbrook Terrace, IL 60181
Edward C. Wood, III, One Parkview Plaza, Oakbrook Terrace, IL 60181
Section 2.2 Term of Office of Trustees. The Board of Trustees
shall be divided into three classes. The number of Trustees in each class shall
be as nearly equal as practicable, as determined from time to time by resolution
of the Board of Trustees. The term of office of the first class shall expire on
the date of the first annual meeting of Shareholders or special meeting in lieu
thereof following the effective date. The term of office of the second class
shall expire on the date of the second annual meeting of Shareholders or special
meeting in lieu thereof. The term of office of the third class shall expire on
the date of the third annual meeting of Shareholders or special meeting in lieu
thereof. Upon expiration of the term of office of each class as set forth above,
the number of Trustees in such class, as determined by the Board of Trustees,
shall be elected for a term expiring on the date of the third annual meeting of
Shareholders or special meeting in lieu thereof following such expiration to
succeed the Trustees whose terms in office expire. Subject to the rights of the
Preferred Shareholders, the Trustees shall be elected by the Common Shareholders
owning of record a plurality of the Common Shares voting as a class at an annual
meeting of the Shareholders or special meeting in lieu thereof called for that
purpose, except as provided in Section 2.3 of this Article; provided, however,
that the Preferred Shareholders owning of record a plurality of the Preferred
Shares voting as a class at an annual meeting of the Shareholders or special
meeting in lieu thereof called for such purpose, shall elect at least two (2)
Trustees at all times, and, provided further, that the Preferred Shareholders
owning of record a plurality of the Preferred Shares voting as a class shall
elect at least a majority of the Trustees, which number of Trustees shall be
increased appropriately in order to effectuate such rights after giving effect
to resignations of Trustees, if (i) at any time the dividends on the Preferred
Shares shall be unpaid in an amount equal to two (2) full years dividends on the
Preferred Shares, with such representation to continue until all dividends in
arrears shall have been paid or otherwise provided for, or (ii) pursuant to the
designations and powers, preferences and rights, and the qualifications,
limitations and restrictions of the Preferred Shares as determined in accordance
with Section 6.1 hereof. Each Trustee elected shall hold office until his
successor shall have been elected and shall have qualified; except that (a) any
Trustee may resign his trust (without need for prior or subsequent accounting)
by an instrument in writing signed by him and delivered to the other Trustees,
which shall take effect upon such delivery or upon such later date as is
specified therein; (b) any Trustee may be removed (provided the aggregate number
of Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) with cause, at any time by written instrument, signed by at
least two-thirds of the remaining Trustees, specifying the date when such
removal shall become effective (provided, however, that the
4
<PAGE> 5
Trustees elected by any one class of shares shall have no power to so remove any
Trustees elected by another class of Shares); (c) any Trustee who requests in
writing to be retired or who has become incapacitated by illness or injury may
be retried by written instrument signed by a majority of the other Trustees,
specifying the date of his retirement; and (d) any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the outstanding shares of the
class or classes of shares of beneficial interest that elected such Trustee.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
Section 2.3 Resignation and Appointment of Trustees. The term
of office of a Trustee shall terminate and a vacancy shall occur in the event of
the death, declination, resignation, removal, retirement, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the office
of a Trustee. In the case of an existing vacancy, including a vacancy existing
by reason of an increase in the number of Trustees, the remaining Trustees shall
fill such vacancy by appointing such other person as they in their discretion
shall see fit. Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees then in office. Any such appointment shall
not become effective, however, until the person named in the written instrument
of appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. An appointment of a
Trustee may be made by the Trustees then in office and notice thereof mailed to
Shareholders as aforesaid in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. The power of appointment is subject to the provisions of Section 16(a)
of the 1940 Act.
Section 2.4 Vacancies. The death, declination, resignation,
retirement, removal, bankruptcy, adjudicated incompetence or incapacity to
perform the duties of a Trustee, or any one of them, shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of this
Declaration. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in Section 2.3, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration,
subject to the rights of the holders of the Preferred Shares to elect a Trustee
to fill such vacancy in accordance with the terms and provisions hereof. A
written
5
<PAGE> 6
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 2.5 Delegation of Power to Other Trustees. Any Trustee
may, by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted to
the Trustees under this Declaration except as herein otherwise expressly
provided. Nothing in this Section 2.5 shall apply to, or limit the ability of
any Trustee to grant, any power of attorney for the purpose of executing any
registration statement filed with the Commission, or amendment thereto, relating
to Shares.
Section 2.6 Meetings. Meetings of the Trustees shall be held
from time to time upon the call of the Chairman, if any, the President, the
Secretary or any two Trustees. Regular meetings of the Trustees may be held
without call or notice at a time and place fixed by the By-Laws or by resolution
of the Trustees. Notice of any other meeting shall be mailed not less than 48
hours before the meeting or otherwise actually delivered orally or in writing
not less than 24 hours before the meeting, but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
provided otherwise in this Declaration of Trust, any action of the Trustees may
be taken at a meeting by vote of a majority of the Trustees present (a quorum
being present) or without a meeting by written consent of a majority of the
Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee may be
taken at a meeting by vote of a majority of the members present (a quorum being
present) or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons in any action to be taken may
be counted for quorum purposes under this Section and shall be entitled to vote
to the extent not prohibited by the 1940 Act.
6
<PAGE> 7
Section 2.7 Officers. The Trustees shall annually elect a
President, a Secretary and a Treasurer and may elect a Chairman. The Trustees
may elect or appoint or may authorize the Chairman, if any, or President to
appoint such other officers or agents with such powers as the Trustees may deem
to be advisable. A Chairman shall, and the President, Secretary and Treasurer
may, but need not, be a Trustee.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1 General. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of its branches and maintain offices both within and without the
Commonwealth of Massachusetts, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United States of America and of foreign governments and to do all such
other things and execute all such instruments as the Trustees deem necessary,
proper or desirable in order to promote the interests of the Trust although such
things are not herein specifically mentioned. Any determination as to what is in
the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of the Declaration, the presumption
shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as limiting
the aforesaid power. Such powers of the Trustees may be exercised without order
of or resort to any court.
Section 3.2 Investments. (a) The Trustees shall have the power
to:
(i) operate as and carry on the business of an
investment company, and exercise all of the powers necessary or appropriate to
the conduct of such operations;
(ii) To subscribe for, invest in, hold for
investment, or reinvest in, securities, including common and preferred stocks;
warrants; bonds, debentures, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments; government securities,
including securities of any state, municipality or other political subdivision
thereof, or any governmental or
7
<PAGE> 8
quasi-governmental agency or instrumentality; and money market instruments
including bank certificates of deposit, finance paper, commercial paper, bankers
acceptances and all kinds of repurchase agreements, of any corporation, company,
trust, association, firm or other business organization however established, and
of any country, state, municipality or other political subdivision, or any
governmental or quasi-governmental agency or instrumentality;
(iii) To acquire (by purchase, subscription or
otherwise), to hold, to trade in and deal in, to acquire any rights or options
to purchase or sell, to sell or otherwise dispose of, to lend, to write (or
sell) and purchase put and call options on any such securities and to pledge any
such securities and repurchase agreements;
(iv) To exercise all rights, powers and privileges
of ownership or interest in all securities and repurchase agreements included in
the Trust Property, including the right to vote thereon and otherwise act with
respect thereto and to do all acts for the preservation, protection, improvement
and enhancement in value of all such securities and repurchase agreements;
(v) To acquire (by purchase, lease or otherwise) and
to hold, use, maintain, develop and dispose of (by sale or otherwise) any
property, real or personal, including futures contracts and options thereon,
cash, and any interest therein;
(vi) To borrow money or otherwise obtain credit and
in this connection issue notes or other evidence of indebtedness; to secure
borrowings by mortgaging, pledging or otherwise subjecting as security the Trust
Property; to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust Property;
(vii) To aid by further investment any corporation,
company, trust, association or firm, any obligation of or interest in which is
included in the Trust Property or in the affairs of which the Trustees have any
direct or indirect interest; to do all acts and things designed to protect,
preserve, improve or enhance the value of such obligation or interest; to
guarantee or become surety on any or all other contracts, stocks, bonds, notes,
debentures and other obligations of any such corporation, company, trust,
association or firm; and
(viii) to carry on any other business in connection
with or incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the attainment of
any object or the furtherance of any power hereinbefore set forth, and to do
every other act or thing incidental or appurtenant to or connected with the
aforesaid purposes, objects or powers.
8
<PAGE> 9
The foregoing clauses shall be construed both as objects and
powers, and the foregoing enumeration of specific powers shall not be held to
limit or restrict in any manner the general powers of the Trustees.
(b) The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
Section 3.3 Legal Title. Legal title to all the Trust Property
shall be vested in the Trustees as joint tenants except that the Trustees shall
have power to cause legal title to any Trust Property to be held by or in the
name of one or more of the Trustees, or in the name of the Trust, or in the name
of any other Person as nominee, on such terms as the Trustees may determine. The
right, title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 3.4 Issuance and Purchase of Securities. The Trustees
shall have the power to issue, sell, purchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and
subject to the provisions set forth in Articles VI, VII and VIII hereof, to
apply to any such repurchase, retirement, cancellation or acquisition of Common
Shares or Preferred Shares any funds or property of the Trust whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts governing business corporations.
Section 3.5 Delegation; Committees. The Trustees shall have
power to delegate from time to time to such of their number or to officers,
employees or agents of the Trust the doing of such things and the execution of
such instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is not prohibited by the 1940 Act.
Section 3.6 Collection and Payment. The Trustees shall have
power to collect all property due to the Trust; to pay all claims, including
taxes, against the Trust Property; to prosecute, defend, compromise or abandon
any claims relating to the Trust Property; to foreclose any security interest
securing any obligations by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
9
<PAGE> 10
Section 3.7 Expenses. The Trustees shall have the power to
incur and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
Section 3.8 Manner of Acting; By-Laws. Except as otherwise
provided herein or in the By-laws, any action to be taken by the Trustees may be
taken by a majority of the Trustees present at a meeting of Trustees (a quorum
being present), including any meeting held by means of a conference telephone
circuit or similar communications equipment by means of which all persons
participating in the meeting can hear each other, or by written consents of all
the Trustees. The Trustees may adopt By-laws to the extent such power is not
reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 3.8
and in addition to such provisions or any other provision of this Declaration or
of the By-laws, the Trustees may by resolution appoint a committee consisting of
less than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 3.9 Miscellaneous Powers. The Trustees shall have the
power to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) remove
Trustees or fill vacancies in or add to their number, elect and remove such
officers and appoint and terminate such agents or employees as they consider
appropriate, and appoint from their own number, and terminate, any one or more
committees which may exercise some or all of the power and authority of the
Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust
Property, insurance policies insuring the Common Shareholders and Preferred
Shareholders, Trustees, Officers, employees, agents, investment advisers,
distributors, selected dealers or independent contractors of the Trust against
all claims arising by reason of holding any such position or by reason of any
action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability; (e) establish pension, profit
sharing, Share purchase and other retirement, incentive and benefit plans for
any Trustees, officers, employees or agents of the Trust; (f) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civil or similar purposes; (g) to the extent permitted by law,
indemnify any person with whom the
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<PAGE> 11
Trust has dealings, including the Investment Adviser, Underwriter, Transfer
Agent, Custodian and selected dealers to such extent as the Trustees shall
determine; (h) guarantee indebtedness or contractual obligations of others; (i)
determine and change the fiscal year of the Trust and the method by which its
accounts shall be kept; and (j) adopt a seal for the Trust but the absence of
such seal shall not impair the validity of any instrument executed on behalf of
the Trust.
Section 3.10 Principal Transactions. Except in transactions
permitted by the 1940 Act or rules and regulations adopted by the Commission, or
any order of exemption issued by the Commission, the Trustees shall not, on
behalf of the Trust, buy any securities (other than Common or Preferred Shares)
from or sell any securities (other than Common or Preferred Shares) to, or lend
any assets of the Trust to, any Trustee or officer of the Trust or any firm of
which any such Trustee or officer is a member acting as principal, or have any
such dealings with the Investment Adviser, Underwriter or Transfer Agent or with
any Interested Person, or firm or company in which such Person is an Interested
Person, as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian.
ARTICLE IV
INVESTMENT ADVISER, UNDERWRITER AND TRANSFER AGENT
Section 4.1 Investment Adviser. Subject to a Majority
Shareholder Vote of both the Common Shareholders and the Preferred Shareholders
voting without regard to class, the Trustees may in their discretion from time
to time enter into one or more investment advisory or management contracts
whereby a party to such a contract shall undertake to furnish the Trust such
administrative, management, investment advisory, statistical and research
facilities and services, and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provisions of this Declaration, the Trustees may delegate to the Investment
Adviser authority (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of assets of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loan or exchanges
pursuant to recommendations of the Investment Adviser (and all without further
action by the Trustees). Any such purchases, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees.
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Section 4.2 Underwriter. The Trustees may in their discretion
enter into a contract providing for the sale of shares of beneficial interest of
the Trust whereby the Trust may either agree to sell such Shares to the other
parties to the contact or appoint such other party the underwriter for such
Shares. The contract shall be on such terms and conditions as the Trustees may
in their discretion determine not inconsistent with the provisions of this
Article IV or the By-laws; and such contract may also provide for the sale of
Shares by such other parties as principal or as agent of the Trust and may
provide that such other party may enter into agreements with registered
securities dealers to further the purpose of the distribution of such Shares.
Section 4.3 Transfer Agent. The Trustees may in their
discretion from time to time enter into a transfer agency and Shareholder
service contract whereby the other party to such contract shall undertake to
furnish transfer agency and Shareholder services to the Trust. The contract
shall have such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the Declaration or the By-laws. Such services
may be provided by one or more Persons.
Section 4.4 Parties to Contract. Any contract of the character
described in Section 4.1, 4.2 or 4.3 of this Article IV or any Custodian
contract, as described in the By-laws, may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an officer,
partner, director, trustee, Shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any such relationship; nor shall any Person holding
such relationship be disqualified from voting upon or executing any such
contract; nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article IV or the By-laws. The same
Person may be the other party to contracts entered into pursuant to Sections
4.1, 4.2 and 4.3 above or custodian contracts, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.4.
Section 4.5 Compliance with 1940 Act. Any contract entered
into pursuant to Sections 4.1 and 4.2 shall be consistent with and subject to
the requirements of Section 15 of the Investment Company Act of 1940 (including
any amendment thereof or other applicable Act of Congress hereafter enacted)
with respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
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ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1 No Personal Liability of Shareholders, Trustees,
etc. No Shareholder of the Trust shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust. No Trustee, officer, employee or agent of
the Trust shall be subject to any personal liability whatsoever to any Person,
other than the Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard for his duty to such Person;
and all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability, he shall
not, on account thereof, be held to any personal liability. The Trust shall
indemnify and hold each Shareholder harmless from and against all claims and
liabilities to which such Shareholder may become subject by reason of his being
or having been a Shareholder, and shall reimburse such Shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 5.2 Non-Liability of Trustees, etc. Subject to Section
5.3(b) below, no Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its Shareholders, or to any Shareholder, Trustee, officer,
employee or agent thereof for any action or failure to act (including without
limitation the failure to compel in any way a former or acting Trustee to
redress any breach of trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties involved in the conduct of
his office.
Section 5.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations
contained in paragraph (b) below:
(i) every person who is or has been a
Trustee or officer of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party
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or otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder
to a Trustee or officer:
(i) against any liability to the Trust or
its Shareholders by reason of a final adjudication by the court or other
body before which the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which
he shall have been finally adjudicated not to have acted in good faith in
the reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in paragraph
(b)(i) or (b)(ii) resulting in a payment by a Trustee or officer, unless
there has been either a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his officer by the
court or other body approving the settlement or other disposition or a
reasonable determination, based upon a review of readily available facts
(as opposed to a full trial-type inquiry) that he did not engage in such
conduct:
(A) by vote of a majority of the
Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on
the matter); or
(B) by written opinion of
independent legal counsel.
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(c) The rights of indemnification herein provided
may be insured against by policies maintained by the Trust, shall be severable,
shall not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors,
administrators, and assigns of such Person. Nothing contained herein shall
affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 5.3 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 5.3, provided that either
(i) such undertaking is secured by a surety
bond or some other appropriate security or the Trust shall be insured
against losses arising out of any such advances; or
(ii) a majority of the Disinterested
Trustees acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter) or an independent
legal counsel in a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient ultimately will be found
entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one
(i) who is not an "Interested Person" of the Trust (including anyone who has
been exempted from being an "Interested Person" by any rule, regulation or order
of the Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
Section 5.4 No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. No purchaser, lender, transfer agent or other Person dealing
with the Trustee or any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustee or by said officer, employee or agent or be liable for the
application of money or property paid, loaned or delivered to or on the order of
the Trustees or
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of said officer, employee or agent. Every obligation, contract, instrument,
certificate, Common Share or Preferred Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under the Declaration or in
their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Common Share or Preferred Share,
other security of the Trust or undertaking made or issued by the Trustees shall
recite that the same is executed or made by them not individually, but as
Trustees under the Declaration, and that the obligations of the Trust under any
such instrument are not binding upon any of the Trustees or Shareholders,
individually, but bind only the trust estate, and may contain any further
recital which they or he may deem appropriate, but the omission of such recital
shall not operate to bind the Trustees or Shareholders individually. The
Trustees shall seek diligently at all times to maintain insurance for the
protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 5.6 Reliance on Experts, etc. Each Trustee and officer
or employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 Beneficial Interest. The interest of the
beneficiaries hereunder shall be divided into transferable shares of beneficial
interest with par value of $.01 per share (the "Shares"). The Board of Trustees
of the Trust may authorize separate classes of shares together with such
designations and powers, preferences and rights, qualifications, limitations and
restrictions as may be determined from time to time by the Board of Trustees.
The number of shares of beneficial interest authorized hereunder is unlimited.
All shares issued hereunder including, without limitation, shares issued in
connection with a dividend in shares or a split of shares, shall be fully paid
and non-assessable.
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Pursuant to the powers vested in the Board of Trustees by this
Section 6.1, the Board of Trustees hereby authorizes the issuance of an
unlimited number of Common Shares of beneficial interest, par value $.01 per
share (the "Common Shares") together with 100,000,000 shares of beneficial
interest, par value of $.01 per share (the "Preferred Shares").
The designations and powers, preferences and rights, and the
qualifications, limitations and restrictions of the Common Shares are as set
forth in this Declaration of Trust.
The designations and powers, preferences and rights, and the
qualifications, limitations and restrictions of the Preferred Shares are as
follows:
The Preferred Shares shall be issued from time to time in one
or more series with such distinctive serial designations and (i) may have such
voting powers, full or limited; (ii) may be subject to redemption at such time
or times and at such price or prices; (iii) may be entitled to receive dividends
(which may be cumulative or noncumulative) at such rate or rates, on such
conditions, and at such times, and payable in preference to, or in such relation
to, the dividends payable on any other class or classes of shares; (iv) may have
such preferences or other rights upon the dissolution of, or upon any
distribution of the assets of, the Trust; (v) may be made convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of shares of the Trust, at such price or
prices or at such rates of exchange and with such adjustments; (vi) shall have
such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, all as shall hereafter be
stated and expressed in the resolution or resolutions providing for the issue of
such Preferred Shares from time to time adopted by the Board of Trustees
pursuant to authority so to do which is hereby expressly vested in the Board;
and are as further set out in this Declaration of Trust.
Section 6.2 Rights of Shareholders. The ownership to the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest conferred by their Shares, and they shall have no right to call
for any partition or division of any property, profits, rights or interests of
the Trust nor can they be called upon to assume any losses of the Trust or
suffer any assessment of any kind by virtue of their ownership of Shares. The
Shares shall be personal property giving only the rights in the Declaration
specifically set forth. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights, except as the Trustees may
determine with respect to any class or series of Shares.
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Section 6.3 Trust Only. It is the intention of the Trustees to
create only the relationship of Trustee and beneficiary between the Trustees and
each Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners and members of a joint stock
association.
Section 6.4 Issuance of Shares. The Trustees in their
discretion may, from time to time without vote of the Shareholders, issue
Shares, in addition to the then issued and outstanding Shares and Shares held in
the treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares or any
class or series into a greater or lesser number of such series without thereby
changing the proportionate beneficial interests in the Trust. Contributions to
the Trust may be accepted for whole Shares and/or 1/1,000ths of a Share or
integral multiples thereof.
Section 6.5 Register of Shares. A register or registers shall
be kept at the principal office of the Trust or at an office of the Transfer
Agent which shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the holders of the
Common Shares and Preferred Shares and who shall be entitled to receive
dividends or distributions or otherwise to exercise or enjoy the rights of
Common Shareholders and Preferred Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or distribution, nor to have notice given to
him as herein or in the By-laws provided, until he has given his address to the
Transfer Agent or such other officer or agent of the Trustees as shall keep the
said register for entry thereon. The Trustees, in their discretion, may
authorize the issuance of Share certificates and promulgate appropriate rules
and regulations as to their use.
Section 6.6 Transfer of Shares. Shares shall be transferable
on the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with any
certificate or certificates (if issued) for such Shares and such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of
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the Trust. Until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or register nor any officer, employee or agent
of the Trust shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of
the death, bankruptcy, or incompetence of any Shareholder or otherwise by
operation of law, shall be recorded on the register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or
the Transfer Agent; but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees not any Transfer Agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
Section 6.7 Notices. Any and all notices to which any
Shareholder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the register of the Trust.
Section 6.8 Treasury Shares. Shares held in the treasury
shall, until reissued pursuant to Section 6.4, not confer any voting rights on
the Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 6.9 Voting Powers. The Shareholders shall have power
to vote only (i) for the election of Trustees as provided in Section 2.2 hereof,
(ii) with respect to any investment advisory or management contract as provided
in Section 4.1, (iii) with respect to termination of the Trust as provided in
Section 9.2, (iv) with respect to any amendment of the Declaration to the extent
and as provided in Section 9.3, (v) with respect to any merger, consolidation,
conversion or sale of assets as provided in Sections 9.4, 9.5, and 9.7, (vi)
with respect to incorporation of the Trust to the extent and as provided in
Section 9.5, (vii) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, (viii) with respect to such
additional matters relating to the Trust as may be required by the Declaration,
the By-laws or any registration of the Trust as an investment company under the
1940 Act with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable and (ix) with respect to those
matters set forth in the designations and powers, preferences and rights, and
the qualifications, limitations and restrictions of the Preferred Shares, as
determined in accordance with Section 6.1 hereof. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a
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proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, the Declaration
or the By-laws to be taken by Shareholders. The By-laws may include further
provisions for Shareholders votes and meetings and related matters.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
The Trustees, in their absolute discretion, may prescribe and
shall set forth in the By-laws or in a duly adopted vote of the Trustees such
bases and times for determining the per share net asset value of the Common
Shares or net income, or the declaration and payment of dividends and
distributions, as they may deem necessary or desirable.
ARTICLE VIII
CUSTODIANS
The Trustee shall at all times employ one or more custodians,
meeting the qualifications for custodians for portfolio securities of investment
companies contained in the 1940 Act, as custodian with respect to the Trust. If
so directed by a Majority Shareholder Vote of each the Common Shares and the
Preferred Shares voting as separate classes, the custodian shall deliver and pay
over all property of the Trust held by it as specified in such vote.
The Trustees may also authorize each custodian to employ one
or more sub-custodians from time to time to perform such of the acts and
services of the custodian and upon such terms and conditions, as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall meet the qualifications for
custodians contained in the 1940 Act.
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ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 9.1 Duration. Subject to possible termination in
accordance with the other provisions of Article IX hereof, the trust created
hereby shall continue without limitation of time.
Section 9.2 Termination of Trust.
(a) Trust may be terminated (I) by the affirmative
vote of the holders of not less than seventy-five percent (75%) of each of the
Common Shares and the Preferred Shares outstanding and entitled to vote, voting
as separate classes, at any meeting of Shareholders, or (II) by an instrument in
writing, without a meeting, signed by a majority of the Trustees and consented
to by the holders of not less than seventy-five percent (75%) of each of such
Common Shares and Preferred Shares. Upon the termination of the Trust:
(i) The Trust shall carry on no business
except for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up
the affairs of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall have been
wound up, including the power to fulfill or discharge the contracts of the
Trust, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust Property to
one or more persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and to do all other acts
appropriate to liquidate its business; provided, that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all of the Trust Property shall require Shareholder approval
in accordance with Section 9.4 hereof; and
(iii) After paying or adequately providing
for the payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining Trust Property, in
cash or in kind or partly in cash and partly in kind, among the
Shareholders according to their respective rights, including any
preferential rights of Preferred Shares to receive such distribution.
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(b) After termination of the Trust and distribution
to the Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust an instrument in writing setting forth
the fact of such termination, and the Trustees shall thereupon be discharged
from all further liabilities and duties hereunder, and the rights and interests
of all Shareholders shall thereupon cease.
Section 9.3 Amendment Procedure.
(a) Except as provided in paragraph (c) of this
Section 9.3, this Declaration may be amended by a Majority Shareholder Vote of
each of the Common Shares and the Preferred Shares, voting as separate classes,
or by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of each of
the Common Shareholders and the Preferred Shareholders, voting as separate
classes. The Trustees may also amend this Declaration without the vote or
consent of Shareholders to change the name of the Trust, to supply any omission,
to cure, correct or supplement any ambiguous, defective or inconsistent
provision hereof, to make any changes deemed necessary to effectuate the
designations and powers, preferences and rights, and the qualifications,
limitations and restrictions adopted by the Trustees with respect to the
Preferred Shares pursuant to Section 6.1 hereof, or if they deem it necessary to
conform this Declaration to the requirements of applicable federal laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code, but the Trustees shall not be liable for failing
so to do.
(b) No amendment, except pursuant to Section 6.1,
may be made under this Section 9.3 which would change any rights with respect to
any Shares by reducing the amount payable thereon upon liquidation of the Trust
or by diminishing or eliminating any voting rights pertaining thereto, except
with the vote or consent of the holders of two-thirds of the class of Shares so
effected outstanding and entitled to vote. Nothing contained in this Declaration
shall permit the amendment of this Declaration to impair the exemption from
personal liability of the Shareholders, Trustees, Officers, employees and agents
of the Trust or to permit assessment upon Shareholders.
(c) No amendment may be made under this Section 9.3
which shall amend, alter, change or repeal any of the provisions of Sections
9.2, 9.3, 9.4, 9.6 and 9.7 unless the amendment effecting such amendment,
alteration, change or repeal shall receive the affirmative vote or consent of
seventy-five percent (75%) of each the Common Shareholders and the Preferred
Shareholders, voting as separate classes. Such affirmative vote or consent shall
be in addition to the vote or consent of the holders of Shares otherwise
required by law or by the terms of any class or series of Preferred Shares,
whether now or hereafter authorized, or any agreement between the Trust and any
national
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securities exchange.
(d) A certificate signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as
a Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 9.4 Merger, Consolidation and Sale of Assets. Subject
to Section 9.7, the Trust may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of the Trust Property, including its good will, upon such
terms and conditions and for such consideration when and as authorized at any
meeting of Shareholders called for the purpose by the affirmative vote of the
holders of not less than two-thirds of the Common Shares and the Preferred
Shares outstanding and entitled to vote, voting as separate classes or by an
instrument or instruments in writing without a meeting, consented to by the
holders of not less than two-thirds of each such class of Common Shares and
Preferred Shares, provided, however, that if such merger, consolidation, sale,
lease or exchange is recommended by the Trustees, the vote or written consent of
the holders of a majority of the Common Shares and the Preferred Shares
outstanding and entitled to vote, voting as separate classes shall be sufficient
authorization and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts.
Section 9.5 Incorporation and Reorganization. Subject to
Section 9.7 with the approval of the holders of a majority of the Common Shares
and Preferred Shares outstanding and entitled to vote, voting as separate
classes the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction, or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization or any corporation, partnership, association, trust, or
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organization in which the Trust holds or is about to acquire shares or any other
interest. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
Section 9.6 Conversion to Open-End Company. Notwithstanding
any other provisions of this Declaration or the By-Laws, an amendment to this
Declaration that makes the Shares a "redeemable security" (as that term is
defined in the 1940 Act) shall be required to be approved by at least (a) a
majority of the Trustees, including a majority of the Trustees who are not
Interested Persons; and (b) a Majority Shareholder Vote of each the Common
Shareholders and the Preferred Shareholders, voting as separate classes.
The Trust shall notify the holders of all capital securities
of the approval, in accordance with the preceding paragraph of this Section 9.6,
of any amendment to this Declaration that makes the Shares a "redeemable
security" (as that term is defined in the 1940 Act) no later than thirty (30)
days prior to the date of filing of such amendment with the Secretary of State
of the Commonwealth of Massachusetts; provided, however, that such amendment may
not be so filed until the later of ninety (90) days following the date of
approval of such amendment by the holders of Shares in accordance with the
preceding paragraph of this Section 9.6 or thirty (30) days following the date
on which notice of the approval of such amendment is first given to
Shareholders.
Section 9.7 Certain Transactions.
(a) Notwithstanding any other provision of this
Declaration and subject to the exceptions provided in paragraph (d) of this
Section, the types of transactions described in paragraph (c) of this Section
shall require the affirmative vote or consent of the holders of seventy-five
percent (75%) of the Common Shares and Preferred Shares outstanding and entitled
to vote, voting as separate classes when a Principal Shareholder (as defined in
paragraph (b) of this Section) is a party to the transaction. Such affirmative
vote or consent shall be in addition to the vote or consent of the holders of
Shares otherwise required by law or by the terms of any class or series of
Preferred Shares, whether now or hereafter authorized, or any agreement between
the Trust and any national securities exchange.
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(b) The term "Principal Shareholder" shall mean any
corporation, person or other entity which is the beneficial owner, directly or
indirectly, of more than five percent (5%) of the outstanding Shares and shall
include any affiliate or associate, as such terms are defined in clause (ii)
below, of a Principal Shareholder. For the purposes of this Section, in addition
to the Shares which a corporation, person or other entity beneficially owns
directly, (a) any corporation, person or other entity shall be deemed to be the
beneficial owner of any Shares (i) which it has the right to acquire pursuant to
any agreement or upon exercise of conversion rights or warrants, or otherwise
(but excluding share options granted by the Trust) or (ii) which are
beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (i) above), by any other corporation, person or
entity with which it or its "affiliate" or "associate" (as defined below) has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of Shares, or which is its "affiliate", or
"associate" as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 as in effect on August 1,
1988, and (b) the outstanding Shares shall include Shares deemed owned through
application of clauses (i) and (ii) above but shall not include any other Shares
which may be issuable pursuant to any agreement, or upon exercise of conversion
rights or warrants, or otherwise.
(c) This Section shall apply to the following
transactions:
(i) The merger or consolidation of the Trust
or any subsidiary of the Trust with or into any Principal Shareholder.
(ii) The issuance of any securities of the
Trust to any Principal Shareholder for cash.
(iii) The sale, lease or exchange of all or
any substantial part of the assets of the Trust to any Principal
Shareholder (except assets having an aggregate fair market value of less
than $1,000,000, aggregating for the purpose of such computation all
assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period).
(iv) The sale, lease or exchange to the
Trust or any subsidiary thereof, in exchange for securities of the Trust
of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for
the purposes of such computation all assets sold, leased or exchanged in
any series of similar transactions within a twelve-month period).
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(d) The provisions of this Section shall not be
applicable to (i) any of the transactions described in paragraph (c) of this
Section if the Board of Trustees of the Trust shall by resolution have approved
a memorandum of understanding with such Principal Shareholder with respect to
and substantially consistent with such transaction, or (ii) any such transaction
with any corporation of which a majority of the outstanding shares of all
classes of stock normally entitled to vote in elections of directors is owned of
record or beneficially by the Trust and its subsidiaries.
(e) The Board of Trustees shall have the power and
duty to determine for the purposes of this Section on the basis of information
known to the Trust, whether (i) a corporation, person or entity beneficially
owns more than five percent (5%) of the outstanding Shares, (ii) a corporation,
person or entity is an "affiliate" or "associate" (as defined above) of another,
(iii) the assets being acquired or leased to or by the Trust or any subsidiary
thereof, constitute a substantial part of the assets of the Trust and have an
aggregate fair market value of less than $1,000,000, and (iv) the memorandum of
understanding referred to in paragraph (d) hereof is substantially consistent
with the transaction covered thereby. Any such determination shall be conclusive
and binding for all purposes of this Section.
ARTICLE X
SHAREHOLDERS
Section 10.1 Meetings of Shareholders. An annual meeting of
the Shareholders for the election of Trustees and for the transaction of such
other business as may properly be brought before the meeting shall be held if
the holding of such a meeting is required by law or by the rules of any exchange
on which Shares are listed for trading, on the second Thursday of May of each
year, or at such other date, at such place within or without the Commonwealth of
Massachusetts at such time as the Trustees shall designate from time to time. A
Special Meeting of Shareholders may be called at any time by a majority of the
Trustees and shall be called by any Trustee for any proper purpose upon written
request of Shareholders of the Trust holding in the aggregate: with respect to
matters not requiring voting by the Common Shareholders and Preferred
Shareholders as separate classes, not less than 51% of the outstanding Common
Shares and Preferred Shares voting as single class, such request specifying the
purpose or purposes for which such meeting is to be called; with respect to
matters requiring voting by the Common Shareholders and Preferred Shareholders
as separate classes, not less than 51% of the outstanding Common Shares and not
less than 51% of the outstanding Preferred Shares, unless some other percentage
for the Preferred Shares is set forth in the designation pursuant to Section 6.1
hereof, voting as separate classes, such
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request specifying the purpose or purposes for which such meeting is to be
called; or, in the case of a meeting for the purpose of voting on the question
of removal of any Trustee or Trustees, upon written request of the class of
Shareholders entitled to vote on the removal of such Trustee or Trustees holding
in the aggregate not less than 10% of the outstanding Shares of such class; or,
in the case of a meeting for the purpose of voting on the question of removal of
the independent public accountants of the Trust, upon written request of Common
Shareholders and Preferred Shareholders voting as a single class, holding in the
aggregate not less than 10% of the outstanding Common Shares and Preferred
Shares. Any Special Meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate.
Section 10.2 Voting. Shareholders shall have no power to vote
on any matter except matters on which a vote of Shareholders is required by
applicable law, this Declaration or resolution of the Trustees. There shall be
no cumulative voting in the election or removal of Trustees.
Section 10.3 Notice of Meeting and Record Date. Notice of all
meetings of Shareholders, stating the time, place and purposes of the meeting,
shall be given by the Trustees by mail to each Shareholder of record entitled to
vote thereat at his registered address, mailed at least 10 days and not more
than 60 days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice. For the purposes of determining the
Shareholders who are entitled to notice of and to vote at any meeting the
Trustees may, without closing the transfer books, fix a date not more than 60
days prior to the date of such meeting of Shareholders as a record date for the
determination of the Persons to be treated as Shareholders of record for such
purposes.
Section 10.4 Quorum and Required Vote. The holders of a
majority of outstanding Shares of each class or series or combined class
entitled to vote thereat of the Trust present in person or by proxy shall
constitute a quorum at any meeting of the Shareholders for purposes of
conducting business on which a vote of Shareholders of the Trust is being taken.
Subject to any provision of applicable law, this Declaration or resolution of
the Trustees specifying a greater or lesser vote requirement for the transaction
of any item of business at any meeting of Shareholders, the affirmative vote of
a majority of the Shares of any class or series present in person or represented
by proxy and entitled to vote on the subject matter shall be the act of the
Shareholders of such class or series with respect to such matter.
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Section 10.5 Proxies, etc. At any meeting of Shareholders, any
holder of Shares entitled to vote thereat may vote by properly executed proxy,
provided that no proxy shall be voted at any meeting unless it shall have been
placed on file with the Secretary, or with such other officer or agent of the
Trust as the Secretary may direct, for verification prior to the time at which
such vote shall be taken. Pursuant to a resolution of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or one or
more of the officers or employees of the Trust. Only Shareholders of record
shall be entitled to vote. Each full Share shall be entitled to one vote and
fractional Shares shall be entitled to a vote of such fractions. When any Share
is held jointly by several persons, any one of them may vote at any meeting in
person or by proxy in respect of such Share, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Share. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
If the holder of any such Share is a minor or a person of unsound mind, and
subject to guardianship or to the legal control of any other person as regards
the charge or management of such Share, he may vote by his guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy.
Section 10.6 Reports. The Trustees shall cause to be prepared
at least annually and more frequently to the extent required by law a report of
operations containing a balance sheet and statement of income and undistributed
income of the Trust prepared in conformity with generally accepted accounting
principles and an opinion of an independent public accountant on such financial
statements. Copies of such reports shall be mailed to all Shareholders of record
within the time required by the 1940 Act. The Trustees shall, in addition,
furnish to the Shareholders at least semi-annually to the extent required by
law, interim reports containing an unaudited balance sheet as of the end of such
period and an unaudited statement of income and surplus for the period from the
beginning of the current fiscal year to the end of such period.
Section 10.7 Inspection of Records. The records of the Trust
shall be open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
Section 10.8 Shareholder Action by Written Consent. Any action
which may be taken by Shareholders by vote may be taken without a meeting if the
holders entitled to vote thereon of the proportion of Shares of the class or
classes required for approval of such action at a meeting of Shareholders
pursuant to Section 10.4 consent to the action in writing and the written
consents be filed with the records of the meetings of Shareholders. Such consent
shall be treated for all purposes as a vote taken at a meeting of Shareholders.
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ARTICLE XI
MISCELLANEOUS
Section 11.1 Filing. This Declaration and any amendment hereto
shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its filing. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and shall upon filing with the Secretary of the
Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
Section 11.2 Governing Law. This Declaration is executed by
the Trustees and delivered in The Commonwealth of Massachusetts and with
reference to the laws thereof, and the rights of all parties and the validity
and construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
Section 11.3 Counterparts. This Declaration may be
simultaneously executed in several counterparts, each of which shall be deemed
to be an original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.4 Reliance by Third Parties. Any certificate
executed by an individual who, according to the records of the Trust appears to
be a Trustee hereunder, certifying: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
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Section 11.5 Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration are severable,
and if the Trustees shall determine, with the advice of counsel,
that any of such provisions is in conflict with the 1940 Act, the regulated
investment company provisions of the Internal Revenue Code of 1986, or any
amendments or successor statute thereto, or with other applicable laws and
regulations, the conflicting provision shall be deemed not to constitute and
never to have constituted a part of the Declaration; provided, however, that
such determination shall not affect any of the remaining provisions of the
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of the Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall apply only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of the Declaration in any jurisdiction.
Section 11. 6 Use of the Names "Van Kampen American Capital".
Van Kampen American Capital, Inc. ("Van Kampen") has consented to the use by the
Trust of the identifying words or names "Van Kampen American Capital" or "VKAC"
in the name of the Trust. Such consent is conditioned upon the employment of Van
Kampen its successors or any affiliate thereof, as investment advisor or
distributor of the Trust. As between the Trust and itself, Van Kampen controls
the use of the name of the Trust insofar as such name contains "Van Kampen
American Capital" or "VKAC. The names or identifying words "Van Kampen American
Capital" or "VKAC" may be used from time to time in other connections and for
other purposes by Van Kampen or affiliated entities. Van Kampen may require the
Trust to cease using "Van Kampen American Capital" or "VKAC" in the name of the
Trust if the Trust ceases to employ, for any reason, Van Kampen, an affiliate,
or any successor as investment advisor or distributor of the Trust.
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IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as
of the day and year first above written.
/s/ Dennis J. McDonnell
- ------------------------------
Dennis J. McDonnell
/s/ John L. Sullivan
- ------------------------------
John L. Sullivan
/s/ Edward C. Wood, III
- ------------------------------
Edward C. Wood, III
being all the members of the Board of Trustees of
the Trust.
State of Illinois )
) ss
County of DuPage )
Then personally appeared before me Dennis J. McDonnell, John
L. Sullivan and Edward C. Wood, III who acknowledged the foregoing instrument to
be their free act and deed and the free act and deed of the Trustees of Van
Kampen American Capital Senior Income Trust.
Before me,
/s/ Susan Pittner
------------------------------
Notary Public
My Commission Expires: 02/23/02
------------------------------
31
<PAGE> 1
EXHIBIT (b)
VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST
BY-LAWS
These By-Laws (the "By-Laws") are made and adopted pursuant to Section
3.8 of the Declaration of Trust establishing VAN KAMPEN AMERICAN CAPITAL SENIOR
INCOME TRUST, as from time to time amended (hereinafter called the
"Declaration"). All words and terms capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
Section 1.1 Chairman. The Chairman, if any, shall act as chairman at
all meetings of the Shareholders; in his absence, the Trustee or Trustees
present at each meeting may elect a temporary chairman for the meeting, who may
be one of themselves.
Section 1.2 Proxies; Voting. Shareholders may vote either in person or
by duly executed proxy and each full share represented at the meeting shall have
one vote, all as provided in Article 10 of the Declaration. No proxy shall be
valid after eleven (11) months from the date of its execution, unless a longer
period is expressly stated in such proxy.
Section 1.3 Closing of Transfer Books and Filing Record Dates. For the
purpose of determining the Shareholders who are entitled to notice of or to vote
or act at any meeting, including any adjournment thereof, or who are entitled to
participate in any dividends, or for any other proper purpose, the Trustees may
from time to time close the transfer bonds or fix a record date in the manner
provided in Section 10.3 of the Declaration. If the Trustees do not prior to any
meeting of Shareholders so fix a record date or close the transfer books, then
the date of mailing notice of the meeting or the date upon which the dividend
resolution is adopted, as the case may be, shall be the record date.
Section 1.4 Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election of
the meeting. The number of Inspectors shall be either one or three. If appointed
at the meeting on the request of one or more Shareholders or proxies, a majority
of Shares present shall determine whether one or three Inspectors are to be
appointed, but failure to allow such determination by the Shareholders shall not
affect the validity of the appointment of Inspectors of Election. In case any
person appointed as Inspector fails or refuses to act, the vacancy may be filled
by appointment made by the Trustees in advance of the convening of the meeting
or at the meeting by the person acting as chairman. The Inspectors of Election
shall determine the number of Shares outstanding, the Shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with right to vote,
shall count and tabulate all votes or consents, determine the results, and do
such other acts as may be proper to conduct the election or vote with fairness
to all Shareholders. If there are three Inspectors of Election, the decision,
act or certificate of a majority is effective in all respects as the decision,
act or certificate of all. On request of the Chairman, if any, of the meeting,
or of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them and
shall execute a certificate of any facts found by them.
<PAGE> 2
Section 1.5 Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last previous
Meeting of Shareholders of the Trust and a list of the Shareholders of the
Trust, certified to be true and correct by the Secretary or other proper agent
of the Trust, as of the record date of the meeting or the date of closing of
transfer books, as the case may be. Such list of Shareholders shall contain the
name of each Shareholder in alphabetical order and the address of Shares owned
by such Shareholder. Shareholders shall have such other rights and procedures of
inspection of the books and records of the Trust as are granted to shareholders
of a Massachusetts business corporation.
ARTICLE II
Trustees
Section 2.1 Trustees Meeting. The Trustees shall hold an annual meeting
for the election of officers and the transactions of other business which may
come before such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of the Board of Trustees need be stated in the notice or
waiver of notice of such meeting, and no notice need be given of action proposed
to be taken by unanimous written consent.
Section 2.2 Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the Trustees present
shall elect one of their number to act as temporary chairman. The results of all
actions taken at a meeting of the Trustees, or any unanimous written consent of
the Trustees, shall be recorded by the secretary.
ARTICLE III
Officers
Section 3.1 Officers of the Trust. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person, except that the same person may not be both President and Secretary. The
Trustees may designate the order in which the other Vice Presidents may act. The
Chairman, if any, shall be a Trustee, but no other officer of the Trust need be
a Trustee.
Section 3.2 Election and Tenure. At the initial organization meeting
and thereafter at each annual meeting of the Trustees, the Trustees shall elect
the Chairman, if any, President, Secretary, Treasurer and such other officers as
the Trustee shall deem necessary or appropriate in order to carry out the
business of the Trust. Such officers shall hold office until the next annual
meeting of the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill vacancy in office or add any additional
officers at any time.
Section 3.3 Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for definite
term with any officer and shall have no effect upon any cause of action which
any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately upon receipt by
the Chairman, if any, President, or Secretary, or at a later date according to
the terms of such notice in writing.
Section 3.4 Bonds and Surety. Any officer may be required by the
Trustees to be bonded doe the faithful performance of his duties in such amount
and with such sureties as the Trustee may determine.
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<PAGE> 3
Section 3.5 Chairman, President, and Vice President. The Chairman, if
any, shall, if present, preside at all meetings of the Shareholders and of the
Trustees and shall exercise and perform such other powers and duties as may be
from time to time assigned to him by the Trustees. Subject to such supervisory
powers, if any, as may be given by the Trustees to the Chairman, if any, the
President shall be the chief executive officer of the Trust and, subject to the
control of the Trustees, shall have general supervision, direction and control
of the business of the Trust and of its employees and shall exercise such
general powers of management as are usually vested in the office of President of
a corporation. Subject to direction of the Trustees, the Chairman, if any, and
the President shall each have power in the name and on behalf of the Trust or
any of its Series to execute any and all loans, documents, contracts,
agreements, deeds, mortgages, registration statements, applications, requests,
filings and other instruments in writing, and to employ and discharge employees
and agents of the Trust. Unless otherwise directed by the Trustees, the
Chairman, if any, and the President shall each have full authority and power, on
behalf of all of the Trustees, to attend and to act to vote, on behalf of the
Trust at any meetings of business organizations in which the Trust holds an
interest, or to confer such powers upon any other persons, by executing any
proxies duly authorizing such persons. The Chairman, if any, and the President
shall have further authorities and duties as the Trustees shall from time to
time determine. In the absence or disability of the President, the Vice
Presidents in order of their rank as fixed by the Trustees or, if more than one
and not ranked, the Vice President designated by the Trustees, shall perform all
of the duties of the President, and when so acting shall have all the powers of
and be subject to all of the restrictions upon the President. Subject to the
direction of the Trustees, and of the President, each Vice President shall have
the power in the name and on behalf of the Trust to execute any and all
instruments in writing, and, in addition, shall have such other duties and
powers as shall be designated from time to time by the Trustees or by the
President.
Section 3.6 Secretary. The Secretary shall keep the minutes of all
meeting of, and record all votes of, Shareholders, Trustees and the Executive
Committee, if any. He shall be custodian of the seal of the Trust, if any, and
he (and any person so authorized by the Trustees) shall affix the seal or, if
permitted, facsimile thereof, to any instrument executed by the Trust which
would be sealed by a Massachusetts business corporation executing the same or a
similar instrument and shall attest the seal and the signature or signatures of
the officers executing any other duties commonly incident to such office in a
Massachusetts business corporation, and shall have such other authorities and
duties as the Trustees shall from time to time determine.
Section 3.7 Treasurer. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust in
such depositories as the Trustee shall designate. He shall be responsible for
such disbursement of the funds of the Trust as may be ordered by the Trustees or
the President. He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which together with
all other property of the Trust in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall be the principal financial officer of the Trust. He shall
have such other duties and authorities as the Trustees shall from time to time
determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of the Trust.
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<PAGE> 4
Section 3.8 Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Trust shall have such other duties and authority as
may be conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
Miscellaneous
Section 4.1 Depositories. In accordance with Section 8.1 of the
Declaration, the funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including the adviser,
administrator or manager), as the Trustees may from time to time authorize.
Section 4.2 Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by its properly authorized officers, agent or
agents, as provided in the Declaration or By-Laws or as the Trustees may from
time to time by resolution provide.
Section 4.3 Seal. The seal of the Trust, if any, may be affixed to any
instrument, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and affixed manually in the same manner and with the same force
and effect if done by a Massachusetts business corporation.
ARTICLE V
Stock Transfers
Section 5.1 Transfer Agents, Registrars and the Like. As provided in
Section 4.3 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Shares of the
Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have power to employ and compensate such dividend disbursing
agents, warrant agents and agents for the reinvestment of dividends as they
shall deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.
Section 5.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section 6.6
of the Declaration. The Trust, or its transfer agents, shall be authorized to
refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.
Section 5.3 Registered Shareholders. The Trust may deem and treat the
holder of record of any Shares the absolute owner thereof for all purposes and
shall not be required to take any notice of any right or claim of right of any
other person.
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ARTICLE VI
Amendment of By-Laws
Section 6.1 Amendment and Repeal of By-Laws. In accordance with Section
3.8 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-Laws or adopt new By-Laws at any time; provided, however, that
By-Laws adopted by the Shareholders may, if such By-Laws so state, be altered,
amended or repealed only by the Shareholders and not the Trustees. Action by the
Trustees with respect to the By-Laws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt By-Laws which are
in conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
The Declaration of Trust establishing the Van Kampen American Capital
Senior Income Trust, dated as of April 7, 1998, a copy of which, together with
all amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Van Kampen American
Capital Senior Income Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
Shareholder, officer, employee or agent of the Van Kampen American Capital
Senior Income Trust shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim
otherwise in connection with the affairs of said Van Kampen American Capital
Senior Income Trust property only shall be liable.
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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, a Certificate of Trustees and any corresponding documents with
regard to the name changes of the Trust and all amendments thereto, upon the
advice of counsel, filed by the Trust with the Commonwealth of Massachusetts and
any other regulating entity pursuant to the provisions of the Securities Act of
1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: April 7, 1998
Signature Title
/s/ Dennis J. McDonnell Chairman, President and
- ------------------------------ Trustee
Dennis J. McDonnell
/s/ John L. Sullivan
- ------------------------------ Treasurer and Trustee
John L. Sullivan
/s/ Edward C. Wood, III Vice President, Chief Financial
- ------------------------------ Officer and Trustee
Edward C. Wood, III
