Edgar Filing: Van Kampen Global Credit Opportunities Fund

As filed with the Securities and Exchange Commission on April 2, 2007
Securities Act File No. 333-
Investment Company Act File No. 811-

United States Securities and Exchange Commission
Washington, D.C. 20549

FORM N-2

[X] Registration Statement under the Securities Act of 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and/or
[X] Registration Statement under the Investment Company Act of 1940
[ ] Amendment No.

VAN KAMPEN GLOBAL CREDIT OPPORTUNITIES FUND
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas
New York, New York 10020
(Address of Principal Executive Offices)

Registrant's Telephone Number, Including Area Code: (800) 847-2424

Amy Doberman, Esq.
Managing Director
Van Kampen Investments Inc.
1221 Avenue of the Americas
New York, New York 10020
(Name and Address of Agent for Service)

Copies to:

Charles B. Taylor Leonard B. Mackey, Jr.
Skadden, Arps, Slate, Meagher & Flom LLP Clifford Chance US LLP
333 West Wacker Drive 31 West 52nd Street
Chicago, Illinois 60606 New York, New York 10019

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

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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

Proposed Maximum Amount of
Title of Securities Being Amount Being Proposed Maximum Aggregate Offering Registration
Registered Registered(1) Offering Price Per Share Price (1) Fee
---------------------------------- -------------- ------------------------- -------------------------- ---------------------

Common Shares, $0.01 par value 50,000 $20.00 $1,000,000 $30.70
Shares
---------------------------------- -------------- ------------------------- -------------------------- ---------------------

(1) 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 this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.

The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting offers to buy these securities in
any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS Subject to Completion April 2, 2007

Shares
Van Kampen Global Credit Opportunities Fund
COMMON SHARES

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

Investment Objectives and Principal Investment Strategy. Van Kampen Global
Credit Opportunities Fund (the "Fund") is a newly organized, diversified,
closed-end management investment company. The Fund's primary investment
objective is to seek a high level of current income, with a secondary objective
of capital appreciation.

Depending on current market conditions and the Fund's outlook over time, the
Fund seeks to achieve its investment objectives by opportunistically investing
primarily in credit-related debt securities of issuers which operate in a
variety of industries and geographic regions located throughout the world.

Rationale. The Fund believes that changing investment environments over time
offer both attractive investment opportunities in the credit securities market,
as well as varying degrees of investment risk. To both capitalize on attractive
investments and effectively manage potential risk, the Fund believes that the
combination of thorough and continuous credit analysis, diversification of
holdings, active use of other risk management techniques and instruments and the
ability to reallocate investments among different categories of investments at
different points in the credit cycle is critical to achieving attractive
risk-adjusted returns through varying stages of the credit cycle. The Fund
believes that reallocating investments in this way will opportunistically
emphasize those investments and categories of investments best suited to the
then current environment and outlook. In positive economic environments
characterized by, among other things, low default rates, the Fund expects to
invest primarily in Senior Loans (as defined herein), and will generally invest
to a much lesser degree in second lien or other subordinated loans. In less
positive economic environments characterized by, among other things, high
default rates, the Fund will generally seek to protect principal and enhance
returns by exploiting market inefficiencies and will emphasize more balanced
investments among Senior Loans and second lien or other subordinated loans,
including stressed and distressed credit securities. (continued on inside cover)

Because the Fund is newly organized, its common shares have no history of public
trading. Shares of closed-end investment companies frequently trade at a
discount to their net asset value, which may increase investors' risk of loss.
This risk may be greater for investors expecting to sell their shares in a
relatively short period after completion of this public offering.

Before buying any common shares you should read the discussion of the principal
risks of investing in the Fund summarized in "Prospectus summary - Principal
Investment Risks" beginning on page ___ of this Prospectus and the further
discussion of risks described in "Investment objectives, principal investment
strategies, and risks" beginning on page of this Prospectus.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The underwriters are offering the common shares subject to various conditions
and expect to deliver the common shares to purchasers on or about , 2007. The
underwriters named in this Prospectus may purchase up to additional common
shares from the Fund at the public offering price, less the sales load, within
45 days after the date of this Prospectus to cover over-allotments.

Price Proceeds to
to Public Sales Load (1) the Fund (2)
--------- -------------- ------------

Per common share.................. $ $ $
Total............................. $ $ $
Total assuming full exercise of the over-allotment option......... $ $ $

[(1) The Fund's adviser (not the Fund) may pay additional compensation or a
marketing and structuring fee to certain qualifying Underwriters. See
"Underwriting." This amount is not reflected under estimated offering
expenses in the table above. The total compensation received by the
Underwriters will not exceed 9% of the aggregate initial offering price
of the common shares offered hereby.] (notes continued on next page)

UBS Investment Bank Morgan Stanley

(notes continued from previous page)

(2) In addition to the sales load, the Fund will pay offering expenses up
to an aggregate of $ per common share, estimated to total $ , which
will reduce the "Proceeds to the Fund" above. [The Fund's adviser has
agreed to pay the amount by which the aggregate of all of the Fund's
offering costs (other than the sales load) exceed $0. per common share.
The Fund's adviser has agreed to reimburse all Fund organizational
costs].

(continued from previous page)

Portfolio Contents. Under normal market conditions, the Fund will invest at
least 80% of its net assets (including borrowings for investment purposes) in
any combination of the following: (i) senior secured floating rate and fixed
rate loans ("Senior Loans"); (ii) second lien or other subordinated or unsecured
floating rate and fixed rate loans; and (iii) other debt obligations, including
high-yield, high-risk obligations (i.e., securities that are rated below
investment grade by a nationally recognized credit rating organization or
unrated securities that are deemed to be of comparable quality are commonly
known as "junk bonds," and are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal). The Fund
also may invest up to 20% of its assets in structured products, including
collateralized debt and loan obligations (collectively, "structured products").
The Fund also may invest in swaps, including credit default, total return and
interest rate swaps and other credit derivatives. The Fund may invest in loans,
debt and other credit securities obligations of any credit quality, and may
invest without limitation in obligations below investment grade. Any of the
Fund's investments may be issued by non-stressed, stressed and distressed
issuers, including issuers in bankruptcy, provided that with respect to the
portion of the Fund's assets to be managed by the Subadviser, the Subadviser
will not invest in securities that at the time of investment have a total yield
above the applicable Avenue-Credit Thresholds (as defined herein). See
"Prospectus summary - Investment Objectives and Principal Investment Strategies"
herein and "Management of the Fund - Portfolio Management - Potential Conflicts
of Interest of the Subadviser" in the Statement of Additional Information. The
Fund may invest in loans, debt and other credit securities obligations of any
maturity or duration, and although the Fund will not be managed for maturity or
duration, given the nature of the Fund's portfolio, the Fund's portfolio [may]
[will likely] have a low average duration. In addition, the Fund may invest up
to 20% of its assets in equity securities obtained through debt restructurings
or bankruptcy proceedings. The Fund may also invest in derivative instruments.
From time to time, the Fund may also invest in short-term debt securities such
as U.S. government securities, commercial paper and other money market
instruments and cash equivalents. There can be no assurance that the Fund will
achieve its investment objectives.

The Fund will invest in obligations of U.S. and non-U.S. issuers and such
obligations may be U.S. dollar denominated as well as non-U.S. dollar
denominated. To address foreign currency risks, the Fund may enter into foreign
currency hedging transactions. The Fund may invest in issuers located anywhere
in the world and, although under current market conditions the Fund does not
intend to invest in obligations of issuers located in emerging market countries,
the Fund may do so if it determines that such investments are appropriate for
the Fund. Under normal market conditions, the Fund will invest in securities of
issuers located in at least [three] different countries, including the United
States.

The Fund expects to employ financial leverage by borrowing money through a
credit facility or through the issuance of preferred securities that are senior
to the common shares, initially equal to approximately % of its managed assets
(including the amount obtained through leverage). The Fund anticipates that the
use of leverage will result in higher income to common shareholders over time.
Use of financial leverage creates an opportunity for increased income but, at
the same time, creates special risks. There can be no assurance that a
leveraging strategy will be utilized or will be successful. The investment
advisory fees paid by the Fund will be calculated on the basis of the Fund's
managed assets, which includes proceeds from the credit facility or and/or the
issuance of preferred shares, so the fee will be higher when leverage is
utilized. In this regard, the providers of the credit facility or holders of the
preferred securities do not bear the investment advisory fee. Rather, common
shareholders bear the portion of the investment advisory fee attributable to the
assets purchased with the proceeds, which means that common shareholders
effectively bear the entire investment advisory fee.

The Fund's investment adviser is Van Kampen Asset Management (the "Adviser").
Van Kampen Investments is a diversified asset management company that services
more than three million retail investor accounts, has extensive capabilities for
managing institutional portfolios and had more than $ billion under management
or supervision as of March 31, 2007. The Adviser has substantial investment
experience managing loans and credit related investments and, as of March 31,
2007, managed approximately [$ ] billion in senior loan assets. Van Kampen

Investments is an indirect wholly owned subsidiary of Morgan Stanley, a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses: securities, asset management
and credit services. Morgan Stanley is a full service securities firm engaged in
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services. The Adviser's principal
office is located at 1221 Avenue of the Americas, New York, New York 10020.

The Fund's investment subadviser is Avenue Europe International Management,
L.P., (the "Subadviser"), a part of Avenue Capital Group, which is comprised of
three registered investment advisers, including the Subadviser. The Adviser
allocates a portion of the Fund's assets to be invested by the Subadviser based
upon market conditions and the attractiveness of available investment
opportunities in European investments. The Subadviser, together with its
affiliates, has extensive expertise investing in non-stressed, stressed and
distressed securities throughout the world. The Subadviser, located at 535
Madison Avenue, New York, New York 10022, has experience managing investment
portfolios and investment funds and, as of March 31, 2007, had more than [$1.6]
billion in assets under management and, together with its affiliates, as of
March 31, 2007, had more than $[13.2] billion in assets under management. Morgan
Stanley owns an indirect, non-controlling interest in the Subadviser.

The Fund has applied for the listing of its common shares on the New York Stock
Exchange [and the Chicago Stock Exchange] under the symbol " ."

This Prospectus sets forth concisely information about the Fund you should know
before investing. Please read this Prospectus carefully before deciding whether
to invest and retain it for future reference. A Statement of Additional
Information dated , 2007 (the "SAI") has been filed with the Securities and
Exchange Commission (the "SEC"). When available, the Fund's annual and
semiannual reports to shareholders can be obtained without charge, and any other
shareholder inquiries, including requests for additional information about the
Fund, can be made by calling 1-800-847-2424 or by writing to the Fund. The
Fund's annual report, when available, can also be obtained on our web site at
www.vankampen.com. A table of contents to the SAI is located on page of this
Prospectus. This Prospectus incorporates by reference the entire SAI. The SAI is
available along with other Fund-related materials at: the SEC's public reference
room in Washington, DC (call 1-202-551-8090 for information on the operation of
the reference room); the EDGAR database on the SEC's internet site
(http://www.sec.gov); upon payment of copying fees by writing to the SEC's
public reference section, Washington, DC 20549-0102; or by electronic mail at
publicinfo@sec.gov.

The Fund's common shares do not represent a deposit or obligation of, and are
not guaranteed by or endorsed by, any bank or other insured depositary
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.

You should rely only on the information contained or incorporated by reference
in this Prospectus. The Fund has not authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. The Fund is not making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information in this Prospectus is
accurate only as of the date of this Prospectus.

Until , 2007 (25 days after the date of this Prospectus), all dealers that
buy, sell or trade the common shares, whether or not participating in this
offering, may be required to deliver a Prospectus. This delivery requirement is
in addition to the dealers' obligation to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS
--------------------------------------------------------------------------------

Prospectus summary....................................
Summary of Fund expenses..............................
The Fund..............................................
Use of proceeds.......................................
Investment objectives, principal investment
strategies and risks...............................
Management of the Fund................................
Distributions.........................................
Tax matters...........................................
Closed-end fund structure.............................
Dividend reinvestment plan............................
Description of capital structure......................
Underwriting..........................................
Dividend paying agent, transfer
agent and registrar................................
Custodian.............................................
Legal opinion.........................................
Reports to shareholders...............................
Independent registered public
accounting firm....................................
Additional information................................
Table of contents for the Statement
of Additional Information..........................
The Fund's privacy policy.............................

- 1 -

Prospectus summary

This is only a summary. This summary may not contain all of the information that
you should consider before investing in the Fund's common shares. You should
review the more detailed information contained in this Prospectus and in the
Statement of Additional Information.

THE FUND

Van Kampen Global Credit Opportunities Fund (the "Fund") is a newly organized,
diversified, closed-end management investment company. The Fund's primary
investment objective is to seek a high level of current income, with a secondary
objective of capital appreciation.

THE OFFERING

The Fund is offering common shares of beneficial interest, par value $0.01

per common share (the "Common Shares"), through a group of underwriters (the
"Underwriters") led by UBS Securities LLC and Morgan Stanley & Co. Incorporated.
The Fund has given the Underwriters an option to purchase up to additional
Common Shares to cover over-allotments, if any. The initial public offering
price is $ per Common Share. The minimum purchase in this offering is 100 Common
Shares ($______). The Fund's investment adviser, Van Kampen Asset Management
(the "Adviser"), has agreed to pay the amount by which the aggregate of all of
the Fund's offering costs (other than the sales load) exceed $0. per Common
Share. The Adviser has agreed to reimburse all Fund organizational costs.

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

Investment objectives and principal investment strategy

The Fund's primary investment objective is to seek a high level of current
income, with a secondary objective of capital appreciation.

Rationale

The Fund believes that changing investment environments over time offer both
attractive investment opportunities in the credit securities market, as well as
varying degrees of investment risk. To both capitalize on attractive investments
and effectively manage potential risk, the Fund believes that the combination of
thorough and continuous credit analysis, diversification of holdings, active use
of other risk management techniques and instruments and the ability to
reallocate investments among different categories of investments at different
points in the credit cycle is critical to achieving attractive risk-adjusted
returns through varying stages of the credit cycle. The Fund believes that
reallocating investments in this way will opportunistically emphasize those
investments and categories of investments best suited to the current environment
and outlook. In positive economic environments characterized by, among other
things, low default rates, the Fund expects to invest primarily in Senior Loans
(as defined herein), and will generally invest to a much lesser degree in second
lien or other subordinated loans. In less positive economic environments
characterized by, among other things, high default rates, the Fund will
generally seek to protect principal and enhance returns by exploiting market
inefficiencies and will emphasize more balanced investments among Senior Loans
and second lien or other subordinated loans, including stressed and distressed
credit securities.

Portfolio contents

Under normal market conditions, the Fund will invest at least 80% of its net
assets (including borrowings for investment purposes) in any combination of the
following: (i) senior secured floating rate and fixed rate loans ("Senior
Loans"); (ii) second lien or other subordinated or unsecured floating rate and
fixed rate loans; and (iii) other debt obligations, including high-yield,
high-risk obligations (commonly known as "junk bonds"). The Fund also may invest
up to 20% of its assets in structured products, including collateralized debt
and loan obligations (collectively, "structured products"). The Fund also may
invest in swaps, including credit default, total return and interest rate swaps
and other credit derivatives. The Fund may invest, without limitation, in loans,
debt and other credit securities obligations that are rated below investment
grade by a nationally recognized credit rating organization (a "NRSRO") such as
Standard & Poor's Ratings Service ("S&P") or Moody's Investors Service, Inc.

- 2 -

("Moody's"), or unrated securities that are deemed to be of comparable quality,
commonly known as "junk bonds." Such securities are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations and involve major risk
exposure to adverse conditions. Any of the Fund's investments may be issued by
non-stressed, stressed and distressed issuers, including issuers in bankruptcy,
provided that with respect to the portion of the Fund's assets to be managed by
the Subadviser, the Subadviser will not invest in securities that at the time of
investment have a total yield above the applicable Avenue-Credit Thresholds. See
"Investment philosophy" below and "Management of the Fund - Portfolio Management
- Potential Conflicts of Interest of the Subadviser" in the SAI. The Fund may
invest in loans, debt and other credit securities obligations of any maturity or
duration, and although the Fund will not be managed for maturity or duration,
given the nature of the Fund's portfolio, the Fund's portfolio [may] [will
likely] have a low average duration. In addition, the Fund may invest up to 20%
of its assets in equity securities obtained through debt restructurings or
bankruptcy proceedings. The Fund may also invest in derivative instruments
(defined as "Strategic Transactions" under "Prospectus Summary--Principal
Investment Risks"). From time to time, the Fund may also invest in short-term
debt securities such as U.S. government securities, commercial paper and other
money market instruments and cash equivalents. There can be no assurance that
the Fund will achieve its investment objectives.

Investment philosophy

The Adviser, an investment management firm with expertise in senior loan,
subordinated debt and structured products, including distressed issuers, is
responsible for the overall management of the Fund. The Adviser employs a
valuation driven investment approach grounded in a bottom-up investment
selection process and a top-down portfolio construction process to derive a
portfolio based upon fundamental analysis with an emphasis on liquidity,
diversification and relative value. The Adviser will analyze the yield, price,
duration, credit spread, prepayment risk and the risk of credit deterioration or
default of its current and potential investments on a continuous basis to
determine what it believes are the appropriate investments for the Fund. The
Adviser's philosophy is based on fundamental credit, collateral and structural
analysis of the underlying investments; a strong belief in portfolio
diversifications including issuer, industry, sponsor, underwriter and agent; and
active use of the secondary market for loans to manage risk. The Adviser employs
a balanced combination of bottom-up credit analysis and top-down portfolio
construction. Fundamental analysis involves evaluation of the macro-economy,
industry, trends, management quality, collateral adequacy, and consistency of
corporate cash flows. In constructing the portfolio, the Adviser focuses on
liquidity, diversification, identification of relative value and continuous
monitoring.

The Subadviser, an investment management firm with expertise in senior loan and
subordinated debt markets, conducts extensive research and analysis using a
top-down/bottom-up approach to find undervalued opportunities considering
macroeconomics themes and detailed fundamental analysis.

The Adviser will assess the current and prospective credit environment around
the world and will determine the proper portfolio allocations among the various
credit instruments and among domestic and foreign markets, as well as
continuously monitor potential risks. The Adviser has broad discretion to
allocate the Fund's assets among investment categories and to change allocations
as conditions warrant. The Adviser will allocate a portion of the Fund's assets
to be managed by the Subadviser. After assessments among credit instruments and
markets are made, it is currently expected that the Adviser will concentrate
primarily, but not exclusively, on implementing the Fund's strategy in the U.S.
markets. It is currently expected that the Subadviser will concentrate its
portion of the Fund's assets primarily, but not exclusively, in issuers located
in long-time European Union countries (particularly the United Kingdom, The
Netherlands, Germany, France, Italy and the Scandinavian states, and may pursue
opportunities in central Europe and recently admitted European Union countries)
and in Euro-denominated investments issued by non-European issuers. As market
conditions change and develop, the Adviser may allocate a portion of the Fund's
assets to be invested in other markets throughout the world, including emerging
markets.

- 3 -

The Subadviser will invest its portion of the Fund's assets only in obligations
with total yields at the time of purchase below an applicable benchmark plus a
credit spread set from time to time by the Subadviser (the "Avenue-Credit
Thresholds"). The Avenue-Credit Thresholds shall be determined periodically by
the Subadviser, in its sole discretion, as the markets change. Along the credit
spectrum of performing, stressed and distressed securities, securities with
total yields below the Avenue-Credit Thresholds generally will be more in the
range of performing or stressed securities and generally will not be distressed
securities. Subject to these constraints, the Subadviser seeks to maximize risk
adjusted returns. The Subadviser seeks to produce consistent returns while
carefully evaluating risk/return within the capital structure of a company, as
well as the industry and asset class. The Subadviser looks to maintain trading
flexibility and to preserve capital. The Subadviser conducts thorough in-depth
research and employs a disciplined investment philosophy and a consistent
investment approach in its focus on event-driven investment opportunities. The
Subadviser's investment team conducts extensive research and analysis using a
top-down/bottom-up approach and credit research to find undervalued
opportunities. The Subadviser will typically make non-controlling investments in
companies to provide maximum trading flexibility and will generally purchase
securities denominated in benchmark currencies. The Subadviser manages that
portion of the Fund's assets that are allocated to the Subadviser by the
Adviser. The Subadviser also manages assets for other accounts. The Subadviser
generally will not be making investments in the same securities for the Fund
that it will be making for its other accounts. The expected risk and return
profile for the Subadviser's portion of the Fund's assets is lower than for the
Subadviser's other accounts. Thus, the Subadviser will allocate investments with
a total yield at the time of investment below the Avenue-Credit Thresholds to
the Fund and investments above the Avenue-Credit Thresholds to the Subadviser's
other accounts. Investors should also note that the investment advisory fee
structure of Avenue's other accounts is computed differently and is generally
higher than the investment advisory fee structure of the Fund. See "Management
of the Fund - Portfolio Management - Potential Conflicts of Interest of the
Subadviser" in the SAI, for more information on the Avenue-Credit Thresholds,
advisory fees and the Subadviser's policies and procedures to address conflicts
of interest. This Fund offers an opportunity for the Fund's investors to have
some access to the Subadviser which normally is not directly available to retail
investors, albeit only at the lower risk and return segment of the market.

Leverage

The Fund's policy on financial leverage allows the Fund to use financial
leverage in the form of borrowings and/or preferred shares to the maximum extent
allowable under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund expects to utilize financial leverage either by borrowing money through
a credit facility or through the issuance of preferred shares. The Fund intends
initially to utilize financial leverage equal to approximately [ %] of its
managed assets (including the amount obtained through leverage). The Fund
generally will not use financial leverage if it would result in a lower return
to holders of Common Shares over time. Use of financial leverage creates an
opportunity for increased income and return for holders of Common Shares but, at
the same time, creates special risks (including the likelihood of greater
volatility of net asset value and market price of, and distributions on, the
Common Shares), and there can be no assurance that a leveraging strategy will be
successful during any period in which it is employed. The Fund currently intends
to utilize financial leverage purposes approximately one to three months after
completion of this offering, subject to market conditions. The Fund may be
subject to investment restrictions of one or more rating agencies and/or credit
facility lenders as a result. These restrictions may impose asset coverage or
portfolio composition requirements that are more stringent than those imposed on
the Fund by the 1940 Act. It is not anticipated that these covenants or
guidelines will significantly impede the Adviser and the Subadviser in managing
the Fund's portfolio in accordance with its investment objectives and policies.

The costs of a financial leverage program will be borne by holders of Common
Shares and consequently will result in a reduction of the net asset value of
Common Shares. During periods in which the Fund is using leverage, the fees paid
by the Fund for investment advisory services will be higher than if the Fund did
not use leverage because the investment advisory fees paid will be calculated on
the basis of the Fund's managed assets, which includes proceeds from the credit
facility and/or preferred shares. In this regard, providers of the credit
facility or holders of the preferred securities do not bear the investment
advisory fee. Rather, holders of Common Shares bear the portion of the
investment advisory fee attributable to the assets purchased with the proceeds,
which means that holders of Common Shares effectively bear the entire investment
advisory fee. See "Investment objectives, policies and risks - Use of Leverage
and Related Risks" and "Management of the Fund - The Adviser."

- 4 -

and risks - Portfolio Composition" and "Investment objectives, principal
investment strategies and risks - Additional Risk Considerations."

THE ADVISER AND SUBADVISER

Van Kampen Asset Management is the Fund's investment adviser. The Adviser is a
wholly owned subsidiary of Van Kampen Investments Inc. ("Van Kampen
Investments"). Van Kampen Investments is a diversified asset management company
that services more than three million retail investor accounts, has extensive
capabilities for managing institutional portfolios and had more than $ billion
under management or supervision as of March 31, 2007. Van Kampen Investments is
an indirect wholly owned subsidiary of Morgan Stanley, a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses: securities, asset management and credit services.
Morgan Stanley is a full service securities firm engaged in securities trading
and brokerage activities, investment banking, research and analysis, financing
and financial advisory services. The Adviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020.

Avenue Europe International Management, L.P. is the Fund's investment
subadviser. The Subadviser is one of three SEC registered investment advisers
included in the Avenue Capital Group. The Subadviser is 99% owned by Avenue GL
Europe, LLC, a limited partner, and is 1% owned and controlled by Avenue Europe
International Management GenPar, LLC, its general partner. Both the limited
partner and the general partner are controlled by Marc Lasry and Sonia Gardner.
The Subadviser, located at 535 Madison Avenue, New York, New York 10022, has
experience managing investment portfolios and investment funds and, as of March
31, 2007, had more than $[1.6] billion in assets under management, and together
with its affiliates, as of March 31, 2007, had more than $[13.2] billion in
assets under management. Morgan Stanley owns an indirect, non-controlling
interest in the Subadviser.

The Adviser and the Subadviser are collectively referred to herein as the
"Advisers."

DISTRIBUTIONS

Commencing with the Fund's initial dividend, the Fund intends to make regular
monthly distributions of all or a portion of the net interest and other
investment company taxable income to common shareholders. The Fund expects to
declare the initial monthly dividend on the Fund's Common Shares within
approximately [ ] days after completion of this offering and to pay that initial
monthly dividend approximately to days after completion of this offering. The
Fund expects to pay its shareholders annually all or substantially all of its
investment company taxable income. In addition, the Fund intends to distribute,
on an annual basis, all or substantially all of any net capital gains to its
common shareholders.

Various factors will affect the level of the Fund's net interest and other
investment company taxable income. To permit the Fund to maintain more stable
monthly distributions, the Fund may from time to time distribute less than the
entire amount of income earned in a particular period. The undistributed income
would be available to supplement future distributions. As a result, the
distributions paid by the Fund for any particular month may be more or less than
the amount of income actually earned by the Fund during that period.
Undistributed income will add to the Fund's net asset value and,
correspondingly, distributions from undistributed income, if any, will reduce
the Fund's net asset value. Shareholders will automatically have all dividends
and distributions reinvested in Common Shares issued by the Fund or Common
Shares of the Fund purchased in the open market in accordance with the Fund's
dividend reinvestment plan unless an election is made to receive cash. See
"Distributions; Dividend reinvestment plan."

CUSTODIAN

State Street Bank and Trust Company ("State Street") will serve as custodian
(the "Custodian") for the Fund. See "Custodian." State Street also provides
accounting services to the Fund.

DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR

Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A.
(collectively, "Computershare") will serve together as the Fund's dividend
paying agent, transfer agent and registrar. See "Dividend Paying Agent, Transfer
Agent and Registrar."

- 5 -

CLOSED-END STRUCTURE

Closed-end funds differ from open-end management investment companies (commonly
referred to as mutual funds) in that closed-end funds generally list their
shares for trading on a securities exchange and do not redeem their shares at
the option of the shareholder. By comparison, mutual funds issue securities
redeemable at net asset value at the option of the shareholder and typically
engage in a continuous offering of their shares. Mutual funds are subject to
continuous asset in-flows and out-flows that can complicate portfolio
management, whereas closed-end funds generally can stay more fully invested in
securities consistent with the closed-end fund's investment objectives and
policies. In addition, in comparison to open-end funds, closed-end funds have
greater flexibility in the employment of financial leverage and in the ability
to make certain types of investments, including investments in illiquid
securities.

However, shares of closed-end funds frequently trade at a discount from their
net asset value. In recognition of the possibility that the Common Shares might
trade at a discount to net asset value and that any such discount may not be in
the interest of holders of Common Shares, the Fund's Board of Trustees (the
"Board"), in consultation with the Adviser, from time to time may review
possible actions to reduce any such discount. The Board might consider open
market repurchases or tender offers for Common Shares at net asset value. There
can be no assurance that the Board will decide to undertake any of these actions
or that, if undertaken, such actions would result in the Common Shares trading
at a price equal to or close to net asset value per Common Share. The Board
might also consider the conversion of the Fund to an open-end mutual fund. The
Board believes, however, that the closed-end structure is desirable, given the
Fund's investment objectives, strategies and policies. Investors should assume,
therefore, that it is highly unlikely that the Board would vote to convert the
Fund to an open-end investment company. Investors should note that the issuance
of preferred shares to provide investment leverage could make a conversion to an
open-end fund more difficult because of the voting rights of preferred
shareholders, the costs of redeeming preferred shares and other factors. See
"Description of Shares."

PRINCIPAL INVESTMENT RISKS

Investing in the Fund involves risks, including the risk that you may receive
little or no return on your investment or that you may lose part or all of your
investment. Therefore, you should consider carefully the following principal
risks before investing in the Fund.

Market risk

Market risk is the possibility that the market values of securities owned by the
Fund will decline. The prices of fixed income securities tend to fall as
interest rates rise, and such declines tend to be greater among fixed income
securities with longer maturities. Market risk is often greater among certain
types of fixed income securities, such as zero coupon bonds which do not make
regular interest payments but are instead bought at a discount to their face
values and paid in full upon maturity. As interest rates change, these
securities often fluctuate more in price than securities that make regular
interest payments and therefore subject the Fund to greater market risk than a
fund that does not own these types of securities. The prices of adjustable,
variable or floating rate income securities tend to have less fluctuation in
response to changes in interest rates, but will have some fluctuation
particularly when the next interest rate adjustment on such security is further
away in time or adjustments are limited in amount over time. The Fund has no
policy limiting the maturity of loans and debts it purchases. Such obligations
often have mandatory and optional prepayment provisions and because of
prepayments, the actual remaining maturity of loans and debts may be
considerably less than their stated maturity. Obligations with longer maturities
or durations generally expose the Fund to more market risk. When-issued and
delayed delivery transactions are subject to changes in market conditions from
the time of the commitment until settlement. This may adversely affect the
prices or yields of the securities being purchased. The greater the Fund's
outstanding commitments for these securities, the greater the Fund's exposure to
market price fluctuations.

Credit risk

- 6 -

generally regarded as predominantly speculative with respect to the capacity to
pay interest or repay principal in accordance with their terms. Lower-grade
securities are more susceptible to non-payment of interest and principal and
default than higher-grade securities and are more sensitive to specific issuer
developments or real or perceived general adverse economic changes than
higher-grade securities. The market for lower-grade securities also may have
less information available, further complicating evaluations and valuations of
such securities and placing more emphasis on the experience, judgment and
analysis of each of the Adviser and the Subadviser with respect to the portion
of the Fund's portfolio that each manages than other securities.

Loans and debt obligations of stressed, distressed and bankrupt issuers
(including those that are in covenant or payment default) are subject to a
multitude of legal, industry, market, economic and governmental forces that make
analysis of these companies inherently difficult. The Adviser and the Subadviser
rely on company management, outside experts, market participants and personal
experience to analyze potential investments for the portion of the Fund's
portfolio that each manages. There can be no assurance that any of these sources
will provide credible information, or that each of the Adviser's or the
Subadviser's analysis will produce conclusions that lead to profitable
investments for the portion of the Fund's portfolio that each manages.
Obligations of stressed, distressed and bankrupt issuers generally trade
significantly below par and are considered speculative. The repayment of
defaulted obligations is subject to significant uncertainties. Defaulted
obligations might be repaid only after lengthy workout or bankruptcy proceedings
or result in only partial recovery of cash payments or an exchange of the
defaulted obligation for other debt or equity securities of the issuer or its
affiliates, which may in turn be illiquid or speculative.

There are a number of significant risks inherent in the bankruptcy process. Many
events in a bankruptcy are the product of contested matters and adversary
proceedings and are beyond the control of the creditors. There can be no
assurance that a bankruptcy court would not approve actions that would be
contrary to the interests of the Fund. A bankruptcy filing by an issuer may
cause such issuer to lose its market position and key employees and otherwise
become incapable of restoring itself as a viable entity and its liquidation
value may be less than its value was believed to be at the time of investment.
In addition, the duration of a bankruptcy proceeding is difficult to predict
and, as such, a creditor's return on investment can be adversely affected by
delays while the plan of reorganization is being negotiated, approved by the
creditors and confirmed by the bankruptcy court and until it ultimately becomes
effective. The administrative costs in connection with a bankruptcy proceeding
are frequently high and would be paid out of the debtor's estate prior to any
return to creditors. Further, in the early stages of the bankruptcy process it
is often difficult to estimate the extent of any contingent claims that might be
made and as such, there exists the risk that the Fund's influence with respect
to the class of obligations it owns can be lost by increases in the number and
amount of claims in that class or by different classification and treatment. A
creditor, such as the Fund, can also lose its ranking and priority if it is
determined that such creditor exercised "domination and control" over a debtor
and other creditors can demonstrate that they have been harmed by such actions.
In addition, certain claims have priority by law, such as claims for taxes,
which may be substantial and could affect the ability of the Fund to be repaid.

In any investment involving stressed and distressed debt obligations, there
exists the risk that the transaction involving such debt obligations will be
unsuccessful, take considerable time or will result in a distribution of cash or
a new security or obligation in exchange for the stressed and distressed debt
obligations, the value of which may be less than the Fund's purchase price of
such debt obligations. Furthermore, if an anticipated transaction does not
occur, the Fund may be required to sell its investment at a loss.

Income risk

The income you receive from the Fund is based primarily on interest rates, which
can vary widely over the short- and long-term. If interest rates drop, your
income from the Fund may drop as well. The more the Fund invests in adjustable,
variable or floating rate securities or in securities susceptible to prepayment
risk, the greater the Fund's income risk.

Prepayment or call risk

If interest rates fall, it is possible that issuers of fixed income securities
with high interest rates will prepay or "call" their securities before their
maturity dates. In this event, the proceeds from the prepaid or called
securities would likely be reinvested by the Fund in securities bearing the new,
lower interest rates, resulting in a possible decline in the Fund's income and
distributions to shareholders.

- 7 -

Risks of Senior Loans

There is less readily available, reliable information about most Senior Loans
than is the case for many other types of securities. Senior Loans generally are
not listed on any national securities exchange or automated quotation system and
as such, many Senior Loans are less liquid, meaning that the Fund may not be
able to sell them quickly at a fair price. However, many Senior Loans are of a
large principal amount and are held by a large number of owners, which should
enhance their liquidity. In addition, in recent years the number of
institutional investors purchasing Senior Loans has increased. To the extent
that a secondary market does exist for certain Senior Loans, the market is more
volatile than for liquid, listed securities and may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods.
The market for Senior Loans could be disrupted in the event of an economic
downturn or a substantial increase or decrease in interest rates, resulting in
fluctuations in the Fund's net asset value. Although the Fund believes that its
investments in adjustable rate Senior Loans could limit fluctuations in the
Fund's net asset value as a result of changes in interest rates, extraordinary
and sudden changes in interest rates could nevertheless disrupt the market for
such Senior Loans and nevertheless result in fluctuations in the Fund's net
asset value.

Senior Loans, like most other debt obligations, are subject to the risk of
default. Default in the payment of interest or principal on a Senior Loan will
result in a reduction in income to the Fund, a reduction in the value of the
Senior Loan and a potential decrease in the Fund's net asset value. The risk of
default will increase in the event of an economic downturn or a substantial
increase in interest rates. There is no minimum rating or other independent
evaluation of a borrower or its securities limiting the Fund's investments, and
the Adviser [and the Subadviser] relies primarily on its own evaluation of
borrower credit quality rather than on any available independent sources. As a
result, the Fund is particularly dependent on the analytical abilities of its
Adviser[s].

The Fund may acquire Senior Loans of borrowers that are experiencing, or are
more likely to experience financial difficulty, including Senior Loans issued in
highly leveraged transactions. The Fund may even acquire and retain in its
portfolio Senior Loans of borrowers that have filed for bankruptcy protection.
Borrowers may have outstanding debt obligations that are rated below investment
grade. More recently, rating agencies have begun rating Senior Loans, and Senior
Loans in the Fund's portfolio may themselves be rated below investment grade.
The Fund may invest a substantial portion of its assets in Senior Loans of
borrowers that have outstanding debt obligations rated below investment grade or
unrated securities deemed to be of comparable quality. Senior Loans may not be
rated at the time that the Fund purchases them. If a Senior Loan is rated at the
time of purchase, the Fund may consider the rating when evaluating the Senior
Loan but, in any event, does not view ratings as a determinative factor in
investment decisions. As a result, the Fund is more dependent on its Adviser[s]'
credit analysis abilities. Because of the protective terms of Senior Loans, the
Fund believes that the Fund is more likely to recover more of its investment in
a defaulted Senior Loan than would be the case for most other types of defaulted
debt securities. The values of Senior Loans of borrowers that have filed for
bankruptcy protection or that are experiencing payment difficulty could be
affected by, among other things, the assessment of the likelihood that the
lenders ultimately will receive repayment of the principal amount of such Senior
Loans, the likely duration, if any, of a lapse in the scheduled payment of
interest and repayment of principal and prevailing interest rates. There is no
assurance that the Fund will be able to recover any amount on Senior Loans of
such Borrowers. Even in the case of collateralized Senior Loans, there is no
assurance that sale of the collateral would raise enough cash to satisfy the
borrower's payment obligation or that the collateral can or will be liquidated.
In the case of bankruptcy, liquidation may not occur and the court may not give
lenders the full benefit of their senior position.

The Fund may acquire Senior Loan assignments or participations. The purchaser of
an assignment typically succeeds to all the rights and obligations of the
assigning institution and becomes a lender under the credit agreement with
respect to the debt obligation; however, its rights can be more restricted than
those of the assigning institution, and, in any event, the Fund may not be able
unilaterally to enforce all rights and remedies under the loan and any
associated collateral. A participation typically results in a contractual
relationship only with the institution participating out the interest, not with
the borrower. In purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan agreement
or any rights of setoff against the borrower, and the Fund may not directly
benefit from the collateral supporting the debt obligation in which it has
purchased the participation. As a result, the Fund will be exposed to the credit
risk of both the borrower and the institution selling the participation.

Risks of second lien or other subordinated or unsecured loans

- 8 -

Second lien or other subordinated or unsecured loans generally are subject to
similar risks associated with investments in Senior Loans. Because second lien
or other subordinated or unsecured loans are lower in priority of payment to
Senior Loans, they are subject to additional risk that the cash flow of the
borrower and property securing the loan, if any, may be insufficient to meet
scheduled payments after giving effect to the senior secured obligations of the
borrower. This risk is generally higher for subordinated unsecured loans, which
are not backed by a security interest in any specific collateral. Second lien or
subordinated loans, both secured and unsecured, are expected to have greater
price volatility than Senior Loans and may be less liquid. Subordinated or
unsecured loans are expected to experience greater price volatility than Senior
Loans. There is also a possibility that originators will not be able to sell
participations in second lien loans and subordinated loans, both secured and
unsecured, which would create greater credit risk exposure. Second lien or other
subordinated or unsecured loans of below investment grade quality share the same
risks of other below investment grade securities.

Risks of structured products

The Fund may invest in structured products, including collateralized debt
obligations ("CDOs"), collateralized bond obligations ("CBOs"), collateralized
loan obligations ("CLOs"), structured notes, credit-linked notes and other types
of structured products. Holders of structured products bear risks of the
underlying investments, index or reference obligation and are subject to
counterparty risk. The Fund may have the right to receive payments to which it
is entitled only from the structured product, and generally does not have direct
rights against the issuer. While certain structured products enable the investor
to acquire interests in a pool of securities without the brokerage and other
expenses associated with directly holding the same securities, investors in
structured products generally pay their share of the structured product's
administrative and other expenses. When investing in structured products, it is
impossible to predict whether the underlying index or prices of the underlying
securities will rise or fall, but prices of the underlying indices and
securities (and, therefore, the prices of structured products) will be
influenced by the same types of political and economic events that affect
particular issuers of securities and capital markets generally. Certain
structured products may be thinly traded or have a limited trading market and
may have the effect of increasing the Fund's illiquidity to the extent that the
Fund, at a particular point in time, may be unable to find qualified buyers for
these securities.

CBOs, CLOs and other CDOs are typically privately offered and sold, and thus,
are not registered under the securities laws. As a result, investments in CDOs
may be characterized by the Fund as illiquid securities; however an active
dealer market may exist for CDOs allowing a CDO to be considered liquid in some
circumstances. In addition to the general risks associated with fixed income
securities discussed herein, CDOs carry additional risks including, but are not
limited to: (i) the possibility that distributions from collateral securities
will not be adequate to make interest or other payments; (ii) the quality of the
collateral may decline in value or default; (iii) the possibility that the CDOs
are subordinate to other classes; and (iv) the complex structure of the security
may not be fully understood at the time of investment and may produce disputes
with the issuer or unexpected investment results.

Investments in structured notes involve risks including income risk, credit risk
and market risk. Where the Fund's investments in structured notes are based upon
the movement of one or more factors, including currency exchange rates, interest
rates, referenced bonds and stock indices, depending on the factor used and the
use of multipliers or deflators, changes in interest rates and movement of the
factor may cause significant price fluctuations. Additionally, changes in the
reference instrument or security may cause the interest rate on the structured
note to be reduced to zero and any further changes in the reference instrument
may then reduce the principal amount payable on maturity. Structured notes may
be less liquid than other types of securities and more volatile than the
reference instrument or security underlying the note.

Risks of swaps

The Fund may enter into swap transactions, including, but not limited to, credit
default, total return, interest rate and currency swap agreements, as well as
options thereon, and may purchase or sell interest rate caps, floors and
collars. Such transactions are subject to market risk, risk of default by the
other party to the transaction, risk of imperfect correlation and manager risk
and may involve commissions or other costs. Swaps generally do not involve
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to swaps generally is limited to the net amount of
payments that the Fund is contractually obligated to make, or in the case of the
other party to a swap defaulting, the net amount of payments that the Fund is
contractually entitled to receive. The swap market has grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become

- 9 -

relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps. If the Adviser and the Subadviser
are incorrect in their forecasts of market values, interest rates, and currency
exchange rates, the investment performance of that portion of the Fund managed
by each of the Adviser and the Subadviser, respectively, would be less favorable
than it would have been if these investment techniques were not used.

Financial leverage risk

There can be no assurance that a financial leveraging strategy will be utilized
by the Fund or that, if utilized, it will be successful during any period in
which it is employed. Leverage creates risks for holders of Common Shares,
including the likelihood of greater volatility of net asset value and market
price of, and distributions on, the Common Shares and the risk that fluctuations
in distribution rates on any preferred shares and costs of borrowings may affect
the return to holders of Common Shares. To the extent the income derived from
investments purchased with proceeds received from leverage exceeds the cost of
leverage, the Fund's distributions will be greater than if leverage had not been
used. Conversely, if the income from the investments purchased with such
proceeds is not sufficient to cover the cost of the financial leverage, the
amount available for distribution to holders of Common Shares will be less than
if leverage had not been used. In the latter case, the Fund may nevertheless
maintain its leveraged position if such action is deemed to be appropriate based
on market conditions. The costs of an offering of preferred shares and/or
borrowing program will be borne by holders of Common Shares and consequently,
will result in a reduction of the net asset value of Common Shares.

The investment advisory fees paid by the Fund will be calculated on the basis of
the Fund's managed assets, which includes proceeds from the credit facility
and/or the preferred shares, so the investment advisory fee paid by the Fund
will be higher when financial leverage is utilized. In this regard, providers of
the credit facility or holders of preferred securities do not bear the
investment advisory fee. Rather, holders of Common Shares bear the portion of
the investment advisory fee attributable to the assets purchased with the
proceeds from the credit facility or the preferred shares, which means that
holders of Common Shares effectively bear the entire investment advisory fee.
See "Investment objectives, principal investment strategies and risks--Use of
Leverage and Related Risks" and "Management of the Fund - The Adviser."

Any lender in connection with a credit facility or commercial paper program may
impose specific restrictions as condition to borrowing. Similarly, to the extent
the Fund issues preferred shares, the Fund currently intends to seek an AAA or
equivalent credit rating from one or more rating agencies on any preferred
shares it issues and the Fund may be subject to investment restrictions of the
rating agency as a result. Such restrictions imposed by a rating agency or
lender may include asset coverage or portfolio composition requirements that are
more stringent than those imposed on the Fund by the 1940 Act. It is not
anticipated that these covenants or guidelines will impede the Adviser or the
Subadviser in managing its respective portion of the Fund's portfolio in
accordance with its investment objectives and policies. See "Description of
capital structure--Preferred Shares" and "Description of capital structure -
Credit Facility/Commercial Paper Program."

Financial leverage may also be achieved through the purchase of certain
derivative instruments. The Fund's use of derivative instruments exposes the
Fund to special risks. See "Investment objectives, principal investment
strategies and risks--Portfolio Composition" and "Investment objectives,
principal investment strategies, and risks--Additional Risk Considerations."

Foreign securities risk

The Fund will invest in credit securities of borrowers that are organized or
located in countries other than the United States, including non-U.S. dollar
denominated securities. Investment in non-U.S. issuers involves special risks,
including that non-U.S. issuers may be subject to less rigorous accounting and
reporting requirements than U.S. issuers, less rigorous regulatory requirements,
different legal systems and laws relating to creditors' rights, the potential
inability to enforce legal judgments, the potential for political, social and
economic adversity and currency risk. Currency risk is the risk that
fluctuations in the exchange rates between the U.S. dollar and non-U.S.
currencies may negatively affect an investment. The value of investments
denominated in non-U.S. currencies may fluctuate based on changes in the value
of those currencies relative to the U.S. dollar, and a decline in applicable
foreign exchange rates could reduce the value of such investments held by the
Fund.

- 10 -

relatively unstable governments, economies based on only a few industries and
securities markets that trade a small number of securities. Securities issued by
companies located in these countries tend to be especially volatile and may be
less liquid than securities traded in developed countries. In the past,
securities in these countries have been characterized by greater potential loss
than securities of companies located in developed countries. Investments in the
securities of issuers located in emerging markets could be affected by risks
associated with expropriation and/or nationalization, armed conflict,
confiscatory taxation, restrictions on transfers of assets, lack of uniform
accounting and auditing standards, less publicly available financial and other
information and potential difficulties in enforcing contractual obligations.

Since the Fund may invest in debt obligations of foreign issuers denominated in
the local currency, changes in foreign currency exchange rates will affect the
value of securities in the Fund's portfolio and the unrealized appreciation or
depreciation of investments. In addition to changes in the value of the Fund's
portfolio investments resulting from currency fluctuations, the Fund may incur
costs in connection with conversions between various currencies. The Fund may
also invest directly in currencies. The Fund is subject to the risk that those
currencies will decline in value relative to the U.S. dollar. The values of the
currencies of the emerging market countries in which the Fund may invest may be
subject to a high degree of fluctuation due to changes in interest rates, the
effects of monetary policies of the United States, foreign governments, central
banks or supranational entities, the imposition of currency controls or due to
other national or global political or economic developments. Foreign exchange
dealers realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer normally will
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire immediately to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward, futures
or options contracts to purchase or sell foreign currencies. Therefore, the
Fund's exposure to foreign currencies may result in reduced returns to the Fund.
The Fund may also engage in foreign currency hedging transactions. See
"Investment objectives, principal investment strategies and risks - Portfolio
Composition - Foreign securities - Foreign currency transactions" and
"Investment objectives, principal investment strategies and risks - Portfolio
Composition - Strategic transactions."

The Fund will compute and expects to distribute its income in U.S. dollars, and
the computation of income is made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. If the value of the
foreign currencies in which the Fund receives its income falls relative to the
U.S. dollar between the date of earning of the income and the time at which the
Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. dollars to meet distribution requirements. See
"Distributions; Dividend reinvestment plan." The liquidation of investments, if
required, may have an adverse impact on the Fund's performance.

Strategic Transactions risk

The Fund may utilize options, forward contracts, futures contracts and options
on futures contracts, and may enter into various currency transactions, such as
currency forward contracts, currency futures contracts, currency swaps, or
options on currencies or currency futures contracts (collectively, referred to
as "Strategic Transactions.") Strategic Transactions involve risks, including
the imperfect correlation between the value of such instruments and the
underlying assets, the possible default by the other party to the transaction,
illiquidity of the derivative instrument and, to the extent the prediction as to
certain market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. In
addition, such transactions may involve commissions and other costs, which may
increase the Fund's expenses and reduce its return. Thus, the use of Strategic
Transactions may result in losses greater than if they had not been used, may
require the Fund to sell or purchase portfolio securities at inopportune times
or for prices other than current market values, may limit the amount of
appreciation the Fund can otherwise realize on an investment, or may cause the
Fund to hold a security that it might otherwise sell. In addition, amounts paid
as premiums and cash or other assets held in margin accounts with respect to
Strategic Transactions are not otherwise available to the Fund for investment
purposes.

- 11 -

loss due to a decline in the value of the hedged position and, at the same time,
limit any potential gain to the Fund that might result from an increase in value
of the position. There is no limit on the amount of the Fund's assets that can
be put at risk through the use of forward contracts, options and futures
contracts. In addition, the daily variation margin requirements for futures
contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial
premium and transaction costs. Losses resulting from the use of hedging will
reduce the Fund's net asset value, and possibly income, and the losses can be
greater than if hedging had not been used. Forward contracts may limit gains on
portfolio securities that could otherwise be realized had they not been utilized
and could result in losses. The contracts also may increase the Fund's
volatility and may involve a significant amount of risk relative to the
investment of cash. The use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The Fund will be subject to credit risk with respect to the
counterparties to any Strategic Transactions engaged in by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations
under a derivative contract due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery under the derivative
contract in bankruptcy or other reorganization proceeding. The Fund may obtain
only a limited recovery or may obtain no recovery in such circumstances.

When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (v) lower
trading volume and liquidity.

The Fund may, from time to time, seek to protect the value of some portion or
all of its portfolio holdings against currency risks by engaging in currency
hedging transactions. Such transactions may include entering into forward
currency exchange contracts, currency futures contracts and options on such
futures contracts, as well as purchasing put or call options on currencies, in
U.S. or foreign markets. Currency hedging involves special risks, including
possible default by the other party to the transaction, illiquidity and, to the
extent the view as to certain market movements is incorrect, the risk that the
use of hedging could result in losses greater than if they had not been used. In
addition, in certain countries in which the Fund may invest, currency hedging
opportunities may not be available. The use of currency transactions can result
in the Fund incurring losses because of the imposition of exchange controls,
suspension of settlements or the inability of the Fund to deliver or receive a
specified currency. See "Investment objectives, Principal investment strategies
and risks - Portfolio Composition - Foreign securities - Foreign currency
transactions."

Net asset value discount

Frequently, shares of closed-end investment companies, such as the Fund, trade
at a price below their net asset value, commonly referred to as a "discount."
Historically, shares of closed-end funds, have traded at a discount to their net
asset value, and the Fund cannot predict whether its shares will trade at a
discount to their net asset value. Immediately following the offering, the net
asset value of the Fund's shares will be reduced by offering costs paid by the
Fund. Because the market price of the Fund's shares may be determined by factors
such as net asset value, there is an increased risk that the Fund will trade
below its offering price for a period following the offering. Therefore, there
is an added risk to investors who may sell their shares shortly after the
offering. Before making an investment decision, a prospective investor should
consider the suitability of this investment with respect to the investor's
investment objectives and personal situation. See "Description of Shares."

Manager risk

As with any managed fund, the Adviser and the Subadviser may not be successful
in selecting the best-performing securities or investment techniques for its
respective portion of the Fund's portfolio that it manages, and the Fund's
performance may lag behind that of similar funds.

- 12 -

Summary of Fund expenses

The purpose of the table below is to assist you in understanding the fees and
expenses that you, as a holder of Common Shares in the Fund, will bear directly
or indirectly. The following table assumes borrowings through a commercial paper
program in an amount equal to % of the Fund's total assets (including the
proceeds of all such leverage), and shows Fund expenses as a percentage of net
assets attributable to Common Shares.

Common shareholder transaction expenses
Sales load paid by you (as a percentage of offering
price)............................................... 4.50%
Expenses borne by the Fund........................... 0. %(1)
Dividend reinvestment plan fees...................... None (2)

Percentage of
Net Assets Attributable to Common
Shares (Assuming Leverage as
Described Above) (4)
-------------------------------------------- ----------------------------------
Annual expenses
Advisory fee ............................ %
Interest payments on borrowings ......... %
Acquired fund fees and expenses ......... %
Other expenses(1)(3)..................... %
Total annual expenses.................... %

-----------------------
(1) The Fund will pay offering costs (other than the sales load) up to an
aggregate of $ per share of the Fund's Common Shares ( % of the offering
price) sold in this offering. The Adviser has agreed to pay the amount by
which the aggregate of all of the Fund's offering costs (other than the
sales load) exceed $0.0 per Common Share. The aggregate offering expenses
(other than the sales load) to be incurred by the Fund currently are
estimated to be $ (including amounts to be incurred by the Adviser on
behalf of the Fund). Offering costs borne by the Fund will result in a
reduction of capital of the Fund attributable to Common Shares. The Adviser
has agreed to reimburse all Fund organizational costs.

(2) You will be charged a $ service charge and pay a brokerage commission of $
per Common Share sold if you direct the Plan Agent (as defined under
"Dividends and Distributions; Dividend Reinvestment Plan") to sell your
Common Shares held in a dividend reinvestment account.

(3) Other expenses have been estimated based on estimated asset levels and
expenses for the current fiscal year. See "Management of the Fund."
(4) Stated as percentages of net assets attributable to Common Shares assuming
no issuance of preferred shares or borrowings, the Fund's expenses would be
estimated to be as follows:
Percentage of Net Assets
Attributable to Common Shares
(Assuming No Leverage)
Annual expenses
Advisory fee.......................... %
Interest payments on borrowings....... None
Acquired fund fees and expenses....... %
Other expenses........................ %
Total expenses........................ %
=========
The expenses shown in the table above are based on estimated amounts for the
Fund's first year of operations and assume that the Fund issues approximately
Common Shares. If the Fund issues fewer than Common Shares in this
offering, estimated expenses could be higher as a percentage of net assets
attributable to Common Shares, which could adversely affect the investment
performance of the Fund. See "Management of the Fund" and "Dividend reinvestment
plan."

- 13 -

EXAMPLE

The following example illustrates the expenses that you would pay on a $1,000
investment in Common Shares (including a sales load of $45 and estimated
offering expenses of $ ), assuming (i) total net annual expenses of % of net
assets attributable to Common Shares and (ii) a 5% annual return*:

1 Year 3 Years 5 Years 10 Years
------------------- ------------------- ------------------- -------------------

$ $ $ $

The Example should not be considered a representation of future expenses or
returns. Actual expenses may be higher or lower than those assumed for purposes
of the Example.

------------------------------------------------------------------
* The Example assumes that the estimated Other expenses set forth in the
Annual expenses table are accurate and that all dividends and distributions
are reinvested at net asset value. Actual expense may be greater or less
than those assumed. Moreover, the Fund's actual rate of return may be
greater or less than the hypothetical 5% return shown in the Example.

- 14 -

The Fund

The Fund is a newly organized, diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized under the laws of
the State of Delaware on March 15, 2007. The Fund has no operating history. The
Fund's principal office is located at 1221 Avenue of the Americas, New York, New
York 10020, and its telephone number is (800) 847-2424.

Use of proceeds

The net proceeds of this offering of Common Shares will be approximately
$ (or $ if the Underwriters exercise their over-allotment option in
full), which, after payment of the estimated offering costs, will be invested in
accordance with the Fund's investment objectives and policies as soon as
practicable, but in no event, under normal market conditions, later than three
months after the completion of this offering. The Adviser has agreed to pay the
amount by which the aggregate of all of the Fund's offering costs (other than
the sales load) exceed $0.0 per Common Share. The Adviser has also agreed to
reimburse all of the Fund's organizational expenses.

Investment objectives, principal investment strategies and risks

INVESTMENT OBJECTIVES AND PRIMARY INVESTMENT STRATEGY

The Fund's primary investment objective is to seek a high level of current
income, with a secondary objective of capital appreciation.

RATIONALE

PORTFOLIO CONTENTS

Under normal market conditions, the Fund will invest at least 80% of its net
assets (including borrowings for investment purposes) in any combination of the
following: (i) Senior Loans; (ii) second lien or other subordinated or unsecured
floating rate and fixed rate loans; and (iii) other debt obligations, including
high-yield, high-risk obligations (commonly known as "junk bonds"). The Fund
also may invest up to 20% of its assets in structured products, including
collateralized debt and loan obligations (collectively, "structured products").
The Fund also may invest in swaps, including credit default, total return and
interest rate swaps and other credit derivatives. The Fund may invest, without
limitation, in loans, debt and other credit securities obligations that are
rated below investment grade by a NRSRO or unrated securities that are deemed to
be of comparable quality (commonly known as "junk bonds"), which are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Any of the Fund's investments may be issued by
non-stressed, stressed and distressed issuers, including issuers in bankruptcy,
provided that with respect to the portion of the Fund's assets to be managed by
the Subadviser, the Subadviser will not invest in securities that at the time of
investment have a total yield above the applicable Avenue-Credit Thresholds. See
"Management of the Fund - Portfolio Management - Potential Conflicts of Interest
of the Subadviser" in the SAI. The Fund may invest in loans, debt and other
credit securities obligations of any maturity or duration, and although the Fund
will not be managed for maturity or duration, given the nature of

- 15 -

the Fund's portfolio, the Fund's portfolio [may] [will likely] have a low
average duration. In addition, the Fund may invest up to 20% of its assets in
equity securities obtained through debt restructurings or bankruptcy
proceedings. The Fund may also invest in derivative instruments (defined as
"Strategic Transactions" under "Prospectus Summary--Principal Investment
Risks"). From time to time, the Fund may also invest in short-term debt
securities such as U.S. government securities, commercial paper and other money
market instruments and cash equivalents. Under normal market conditions, the
Fund will not invest 25% or more of its total assets in issuers that conduct
their principal businesses in the same industry. Under normal market conditions,
the Fund will not invest more than 20% of its total assets in obligations not
making current interest and principal payments when due. There can be no
assurance that the Fund will achieve its investment objectives.

The Fund will invest in obligations of U.S. and non-U.S. issuers and such
obligations may be U.S. dollar denominated as well as non-U.S. dollar
denominated. To address foreign currency risks, the Fund may enter into foreign
currency hedging transactions. The Fund may invest in issuers located anywhere
in the world and, although under current market conditions the Fund does not
intend to invest in obligations of issuers located in emerging market countries,
the Fund may so do if it determines that such investments are appropriate for
the Fund. Under normal market conditions, the Fund will invest in securities of
issuers located in at least [three] different countries, including the United
States.

INVESTMENT PHILOSOPHY

- 16 -

risk/return within the capital structure of a company, as well as the industry
and asset class. The Subadviser looks to maintain trading flexibility and to
preserve capital. The Subadviser conducts thorough in-depth research and employs
a disciplined investment philosophy and a consistent investment approach in its
focus on event-driven investment opportunities. The Subadviser's investment team
conducts extensive research and analysis using a top-down/bottom-up approach and
credit research to find undervalued opportunities. The Subadviser will typically
make non-controlling investments in companies to provide maximum trading
flexibility and will generally purchase securities denominated in benchmark
currencies. The Subadviser manages that portion of the Fund's assets that are
allocated to the Subadviser by the Adviser. The Subadviser also manages assets
for other accounts. The Subadviser generally will not be making investments in
the same securities for the Fund that it will be making for its other accounts.
The expected risk and return profile for the Subadviser's portion of the Fund's
assets is lower than for the Subadviser's other accounts. Thus, the Subadviser
will allocate investments with a total yield at the time of investment below the
Avenue-Credit Thresholds to the Fund and investments above the Avenue-Credit
Thresholds to the Subadviser's other accounts. Investors should also note that
the investment advisory fee structure of Avenue's other accounts is computed
differently and is generally higher than the investment advisory fee structure
of the Fund. See "Management of the Fund - Portfolio Management - Potential
Conflicts of Interest of the Subadviser" in the SAI, for more information on the
Avenue-Credit Thresholds, advisory fees and the Subadviser's policies and
procedures to address conflicts of interest. This Fund offers an opportunity for
the Fund's investors to have some access to the Subadviser which normally is not
directly available to retail investors, albeit only at the lower risk and return
segment of the market.

PORTFOLIO COMPOSITION

The Fund's investments (primarily in Senior Loans, subordinated loans and debt,
other debt obligations, structured products and swaps -- each of which is
described in more detail below) may be all or substantially in investments that
are generally considered to have a credit quality rated below investment grade
by an NRSRO or unrated securities that are deemed to be of comparable quality.
Below investment grade securities (that is, securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P) are commonly referred to as "junk bonds" and are
regarded as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligations
and involve major risk exposure to adverse conditions. Generally, lower-grade
securities provide a higher yield than higher-grade securities of similar
maturity but are subject to greater risks, such as greater credit risk, greater
market risk and volatility, greater liquidity concerns and potentially greater
manager risk. Such securities are generally regarded as predominantly
speculative with respect to the capacity to pay interest or repay principal in
accordance with their terms. Lower-grade securities are more susceptible to
non-payment of interest and principal and default than higher-grade securities.
Adverse changes in the economy or to the individual issuer often have a more
significant impact on the ability of lower-grade issuers to make payments, meet
projected goals or obtain additional financing. When an issuer of such
securities is in financial difficulties, the Fund may incur additional
expenditures or invest additional assets in an effort to obtain partial or full
recovery on amounts due. Some of the securities held by the Fund, which may not
be paying interest currently or may be in payment default, may be comparable to
securities rated as low as C by Moody's or CCC or lower by S&P. These securities
are considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default, to
be unlikely to have the capacity to pay interest and repay principal when due in
the event of adverse business, financial or economic conditions and/or to be in
default or not current in the payment of interest or principal.

While all credit securities tend to fluctuate inversely with changes in interest
rates, the prices of lower-grade securities generally are less sensitive to
changes in interest rates and are more sensitive to specific issuer developments
or real or perceived general adverse economic changes than higher-grade
securities. A projection of an economic downturn, for example, could cause a
decline in prices of lower-grade securities because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its securities or obtain additional financing when
necessary. A significant increase in market interest rates or a general economic
downturn could severely disrupt the market as well as the market values of such
securities. Such securities also often experience more volatility in prices than
higher-grade securities. The secondary trading market for lower-grade securities
may be less liquid than the market for higher-grade securities. Prices of
lower-grade securities may decline rapidly in the event a significant number of
holders decide to sell. Changes in expectations regarding an individual issuer,
an industry or lower-grade securities generally could reduce market liquidity
for such securities and make their sale by the Fund more difficult, at least in
the absence of price concessions. The market for lower-grade securities also may
have less information available, further complicating evaluations and valuations

- 17 -

of such securities and placing more emphasis on the Advisers' experience,
judgment and analysis than higher-grade securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of securities rated below investment grade and
unrated securities especially in a market characterized by a low volume of
trading.

The Fund may invest in the loans and other debt obligations of stressed,
distressed and bankrupt issuers, including obligations that are in covenant or
payment default. Such obligations are subject to a multitude of legal, industry,
market, economic and governmental forces that make analysis of these companies
inherently difficult. The Adviser and the Subadviser rely on company management,
outside experts, market participants and personal experience to analyze
potential investments for the portion of the Fund's portfolio managed by each.
There can be no assurance that any of these sources will provide credible
information, or that the analysis of the Adviser or the Subadviser will produce
conclusions that lead to profitable investments for the respective portion of
the Fund's portfolio managed by each. Obligations of stressed, distressed and
bankrupt issuers generally trade significantly below par and are considered
speculative. The repayment of defaulted obligations is subject to significant
uncertainties. Defaulted obligations might be repaid only after lengthy workout
or bankruptcy proceedings or result in only partial recovery of cash payments or
an exchange of the defaulted obligation for other debt or equity securities of
the issuer or its affiliates, which may in turn be illiquid or speculative.

There are a number of significant risks inherent in the bankruptcy process. Many
events in a bankruptcy are the product of contested matters and adversary
proceedings and are beyond the control of the creditors. There can be no
assurance that a bankruptcy court would not approve actions that would be
contrary to the interests of the Fund. A bankruptcy filing by an issuer may
cause such issuer to lose its market position and key employees and otherwise
become incapable of restoring itself as a viable entity and its liquidation
value may be less than its value was believed to be at the time of investment.
In addition, the duration of a bankruptcy proceeding is difficult to predict and
as such, a creditor's return on investment can be adversely affected by delays
while the plan of reorganization is being negotiated, approved by the creditors
and confirmed by the bankruptcy court and until it ultimately becomes effective.
The administrative costs in connection with a bankruptcy proceeding are
frequently high and would be paid out of the debtor's estate prior to any return
to creditors. Further, in the early stages of the bankruptcy process it is often
difficult to estimate the extent of any contingent claims that might be made and
as such, there exists the risk that the Fund's influence with respect to the
class of obligations it owns can be lost by increases in the number and amount
of claims in that class or by different classification and treatment. A
creditor, such as the Fund, can also lose its ranking and priority if it is
determined that such creditor exercised "domination and control" over a debtor
and other creditors can demonstrate that they have been harmed by such actions.
In addition, certain claims have priority by law, such as claims for taxes,
which may be substantial and could affect the ability of the Fund to be repaid.

Senior Loans

Senior Loans are business loans made to borrowers that may be corporations,
partnerships or other entities that operate in a variety of industries and
geographic regions. Senior Loans generally are negotiated between a borrower and
several financial institution lenders represented by one or more lenders acting
as agent of all the lenders. The agent is responsible for negotiating the loan
agreement that establishes the terms and conditions of the Senior Loan and the
rights of the borrower and the lenders. The Fund may act as one of the group of
original lenders originating a Senior Loan, may purchase assignments (as defined
below) of portions of Senior Loans from third parties and may invest in
participations (as defined below) in Senior Loans. Senior Loans have the most
senior position in a borrower's capital structure or share the senior position
with other senior debt securities of the borrower. This capital structure
position generally gives holders of Senior Loans a priority claim on some or all
of the borrower's assets in the event of default. Senior Loans also have
contractual terms designed to protect lenders. The Fund generally acquires
Senior Loans of borrowers that, among other things, in the Adviser's or the
Subadviser's judgment, can make timely payments on their Senior Loans and that
satisfy other credit standards established by the Adviser or the Subadviser.
Because of their protective features, the Fund, the Adviser and the Subadviser
believe

- 18 -

that Senior Loans of borrowers that are experiencing, or are more likely to
experience, financial difficulty may represent attractive investment
opportunities.

Interest rates on Senior Loans may be fixed or may float periodically. On
floating rate Senior Loans, the interest rates typically are adjusted based on a
base rate plus a premium or spread over the base rate. The base rate usually is
the London Inter-Bank Offered Rate ("LIBOR"), the prime rate offered by one or
more major U.S. banks (the "Prime Rate") or the certificate of deposit rate (the
"CD Rate") or other base lending rates used by commercial lenders. Floating rate
Senior Loans may adjust over different time periods, including daily, monthly,
quarterly, semi-annually or annually. The Fund may use interest rate swaps and
other investment practices to shorten the effective interest rate adjustment
period of floating rate Senior Loans or to adjust the overall interest rate
exposure of the Fund.

When interest rates rise, the values of fixed income securities generally
decline. When interest rates fall, the values of fixed income securities
generally increase. The prices of adjustable, variable or floating rate income
securities tend to have less fluctuation in response to changes in interest
rates, but will have some fluctuation particularly when the next interest rate
adjustment on such security is further away in time or adjustments are limited
in amount over time.

The Fund's Senior Loan investments will be secured by specific assets of the
borrower. These Senior Loans will frequently be secured by all assets of the
borrower that qualify as collateral, such as trademarks, accounts receivable,
inventory, buildings, real estate, franchises and common and preferred stock in
its subsidiaries and affiliates. Collateral may also include guarantees or other
credit support by affiliates of the borrower. In some cases, a Senior Loan may
be secured only by stock of the borrower or its subsidiaries. The loan agreement
may or may not require the borrower to pledge additional collateral to secure
the Senior Loan if the value of the initial collateral declines. In certain
circumstances, the loan agreement may authorize the agent to liquidate the
collateral and to distribute the liquidation proceeds pro rata among the
lenders. As described below, the Fund may also invest in loans that are not
secured by specific collateral. Such unsecured loans involve a greater risk of
loss.

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

The proceeds of Senior Loans that the Fund will purchase typically will be used
by borrowers to finance leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, debt refinancings and, to a lesser extent, for
general operating and other purposes.

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

The Fund generally invests in a Senior Loan if, in the Adviser's or the
Subadviser's' judgment, the borrower can meet its payment obligations. The
Adviser and the Subadviser perform their own independent credit analysis of the
borrower in addition to utilizing information prepared and supplied by the agent
or other lenders with respect to the portion of the Fund's portfolio managed by
each. When evaluating a borrower, the Adviser or the Subadviser considers many
factors, including the borrower's past and future projected financial
performance. The Adviser or the Subadviser also considers a borrower's
management, collateral and industry. The Fund generally acquires a
collateralized Senior Loan if the Adviser or the Subadviser believes that the
collateral coverage equals or exceeds the outstanding principal amount of the
Senior Loan. The Adviser or the Subadviser continues to monitor a borrower on an
ongoing basis for so long as the Fund continues to own the Senior Loan. Although
the Adviser or the Subadviser will use their best judgment in selecting Senior
Loans, there can be no assurance that such analysis will disclose factors that
may impair the value of a Senior Loan. The Fund's net asset value will fluctuate
as a result of changes in the credit quality of borrowers and other factors. A
serious deterioration in the credit quality of a

- 19 -

borrower could cause a permanent decrease in the Fund's net asset value. See
"Investment objectives, policies and risks - Additional Risk Considerations."

There is no minimum rating or other independent evaluation of a borrower or its
securities limiting the Fund's investments. Although a Senior Loan may not be
rated by any rating agency at the time the Fund purchases the Senior Loan,
rating agencies have become more active in rating Senior Loans, and at any given
time a substantial portion of the Senior Loans in the Fund's portfolio may be
rated. There is no limit on the percentage of the Fund's assets that may be
invested in Senior Loans that are rated below investment grade or that are
unrated but deemed to be of comparable quality.

Senior Loan assignments and participations. The Fund may purchase Senior Loans
by assignment from a participant in the original syndicate of lenders or from
subsequent assignees of such interests. The purchaser of an assignment typically
succeeds to all the rights and obligations under the loan agreement of the
assigning lender and becomes a lender under the loan agreement. Assignments may,
however, be arranged through private negotiations, and the rights and
obligations acquired by the purchaser of an assignment may differ from, and be
more limited than, those held by the assigning lender. The Fund may also
purchase participations in the original syndicate making Senior Loans. When the
Fund purchases a participation in a Senior Loan, the Fund will usually have a
contractual relationship only with the lender selling the participation and not
with the borrower. The Fund may have the right to receive payments of principal,
interest and any fees to which it is entitled only from the lender selling the
participation and only upon receipt by the lender of such payments from the
borrower. As a result, the Fund may assume the credit risk of both the borrower
and the lender selling the participation. In the event of insolvency of the
lender selling a participation, the Fund may be treated as a general creditor of
the lender.

To minimize these risks, the Fund will only acquire participations if the lender
selling the participation and any other persons positioned between the Fund and
the lender has, at the time of investment, outstanding debt or deposit
obligations rated investment grade by a rating agency or that are determined to
be of comparable quality and has entered into an agreement which provides for
the holding of assets in safekeeping for, or the prompt disbursement of assets
to, the Fund.

The Fund generally will not have the right to enforce compliance by the borrower
with the loan agreement, nor rights to any funds acquired by other lenders
through set-off against the borrower. In addition, when the Fund holds a
participation in a Senior Loan, it may not have the right to vote on whether to
waive enforcement of any restrictive covenant breached by a borrower. Lenders
voting in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and may not consider the interests of
the Fund. The Fund may not benefit directly from the collateral supporting a
Senior Loan in which it has purchased the Participation, although lenders that
sell Participations generally are required to distribute liquidation proceeds
received by them pro rata among the holders of such Participations.

Second lien or other subordinated or unsecured loans

The Fund may invest in second lien or other subordinated or unsecured loans.
Such loans are made by public and private corporations and other
non-governmental entities and issuers for a variety of purposes. As in the case
of Senior Loans, the Fund may purchase interests in second lien or other
subordinated or unsecured loans through Assignments or Participations.

Second lien loans have characteristics as Senior Loans except that such
interests are second in lien property rather than first. Second lien interests
are second in priority of payment to one or more Senior Loans of the related
borrower and are typically secured by a second priority security interest or
lien to or on specified collateral securing the borrower's obligation under the
interest. They typically have similar protections and rights as Senior Loans.
Second lien interests are not (and by their terms cannot become) subordinate in
priority of payment to any obligation of the related borrower other than Senior
Loans of such borrower. Second lien interests, may have fixed or floating rate
interest payments. Because second lien interests are second to Senior Loans,
they present a greater degree of investment risk but often pay interest at
higher rates reflecting this additional risk. In addition, second lien interests
of below investment grade quality share many of the risk characteristics of
other non-investment grade securities.

Subordinated loans may rank lower in priority of payment to one or more Senior
Loans and second lien interests of the borrower. Subordinated secured loans
typically are secured by a lower priority security interest or lien to or on
specified collateral securing the borrower's obligation under the loan, and
typically have more subordinated protections and rights than Senior Loans and
second lien interests. Subordinated interests may have fixed or adjustable
floating rate interest payments. Because subordinated interests may rank lower
as to priority of payment

- 20 -

than Senior Loans and second lien interests of the borrower, they may present a
greater degree of investment risk than Senior Loans and second lien interests
but often pay interest at higher rates reflecting this additional risk. Other
than their more subordinated status, such investments have many characteristics
and risks similar to Senior Loans and second lien loans discussed above.
Subordinated interests of below investment grade quality share risks of other
below investment grade securities.

Unsecured loans generally have lower priority in right of payment compared to
holders of secured interests of the borrower. Unsecured interests are not
secured by a security interest or lien to or on specified collateral securing
the borrower's obligation under the interest. Unsecured interests by their terms
may be or may become subordinate in right of payment to other obligations of the
borrower, including Senior Loans, second lien interests and other interests.
Unsecured interests may have fixed or adjustable floating rate interest
payments. Because unsecured interests are subordinate to the Senior Loans and
secured debt of the borrower, they present a greater degree of investment risk
but often pay interest at higher rates reflecting this additional risk. Such
investments generally are of non-investment grade quality. Unsecured interests
of below investment grade quality share the same risks of other below investment
grade securities.

Structured products

The Fund also may invest in structured products, including CDOs, CBOs, CLOs,
structured notes, credit-linked notes and other types of structured products.
Generally, investments in structured products are interests in entities
organized and operated for the purpose of restructuring the investment
characteristics of underlying investment interests or securities. These
investment entities may be structured as trusts or other types of pooled
investment vehicles. This type of restructuring generally involves the deposit
with or purchase by an entity of the underlying investments and the issuance by
that entity of one or more classes of securities backed by, or representing
interests in, the underlying investments or referencing an indicator related to
such investments. The cash flow or rate of return on the underlying investments
may be apportioned among the newly issued securities to create different
investment characteristics, such as varying maturities, credit quality, payment
priorities and interest rate provisions. The cash flow or rate of return on a
structured product may be determined by applying a multiplier to the rate of
total return on the underlying investments or referenced indicator. 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 the underlying investments or
referenced indicator could result in a relatively large loss in the value of a
structured product. Holders of structured products bear risks of the underlying
investment, index or reference obligation (including income risk, credit risk
and market risk) and are subject to counterparty risk.

CDOs, CBOs and CLOs are types of asset-backed securities issued by special
purpose vehicles created to reapportion the risk and return characteristics of a
pool of assets. The underlying pool for a CLO, for example, may include domestic
and foreign senior secured loans, senior unsecured loans and subordinate
corporate loans, including loans that may be rated below investment grade or
equivalent unrated loans. The assets, typically Senior Loans, are used as
collateral supporting the various debt tranches issued by the special purpose
vehicle. The key feature of these structures is the prioritization of the cash
flows from a pool of underlying securities among the several classes of
securities issued by a structured product. CBOs are structured debt securities
backed by a diversified pool of high yield, public or private fixed income
securities. These may be fixed pools or may be "market value" (or managed) pools
of collateral. For CDOs, CBOs and CLOs, the cashflows from the trust are split
into two or more portions, called tranches, varying in risk and yield. The
riskiest portion is the "equity" tranche which bears the bulk of defaults from
the bonds or loans in the trust and serves to protect the other, more senior
tranches from default in all but the most severe circumstances. Since it is
partially protected from defaults, a senior tranche typically has higher ratings
and lower yields than their underlying securities, and can be rated investment
grade. Despite the protection from the equity tranche, the various tranches can
experience substantial losses due to actual defaults, increased sensitivity to
defaults due to collateral default and disappearance of protecting tranches,
market anticipation of defaults, as well as aversion to such securities as a
class.

CBOs, CLOs and other CDOs are typically privately offered and sold, and thus,
are not registered under the securities laws. As a result, investments in CDOs
may be characterized by the Fund as illiquid securities; however an active
dealer market may exist for certain CDOs allowing a CDO to be considered liquid
in some circumstances. In addition to the general risks associated with fixed
income securities discussed herein, CDOs carry additional risks including, but
are not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the collateral may decline in value or default; (iii) the possibility

- 21 -

that the CDOs are subordinate to other classes; and (iv) the complex structure
of the security may not be fully understood at the time of investment and may
produce disputes with the issuer or unexpected investment results.

Structured notes are derivative securities for which the amount of principal
repayment and/or interest payments is based on the movement of one or more
"factors." These factors include, but are not limited to: currency exchange
rates, interest rates (such as the prime lending rate or LIBOR), referenced
bonds and stock indices. Some of these factors may or may not correlate to the
total rate of return on one or more underlying instruments referenced in such
notes. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. A credit-linked note is
a derivative instrument that is a synthetic obligation between two or more
parties where the payment of principal and/or interest is based on the
performance of some obligation (a reference obligation).

The Fund may have the right to receive payments to which it is entitled only
from the structured product, and generally does not have direct rights against
the issuer. While certain structured products enable the investor to acquire
interests in a pool of securities without the brokerage and other expenses
associated with directly holding the same securities, investors in structured
products generally pay their share of the structured product's administrative
and other expenses. Certain structured products may be thinly traded or have a
limited trading market and may have the effect of increasing the Fund's
illiquidity to the extent that the Fund, at a particular point in time, may be
unable to find qualified buyers for these securities.

Swaps, caps, floors and collars

The Fund may enter into swap transactions, including, but not limited to, credit
default, total return, interest rate and currency swap agreements, as well as
options thereon, and may purchase or sell interest rate caps, floors and
collars. A swap is a derivative in the form of an agreement to exchange the
return generated by one instrument for the return generated by another
instrument. A swap transaction involves swapping one or more investment
characteristics of a security or a basket of securities with another party. The
payment streams are calculated by reference to the investment characteristic(s)
chosen applied to an agreed upon notional amount.

A credit default swap is an agreement between two parties to exchange the credit
risk of a particular issuer or reference entity. In a credit default swap
transaction, a buyer pays periodic fees in return for payment by the seller
which is contingent upon an adverse credit event occurring in the underlying
issuer or reference entity. The seller collects periodic fees from the buyer and
profits if the credit of the underlying issuer or reference entity remains
stable or improves while the swap is outstanding, but the seller in a credit
default swap contract would be required to pay an agreed upon amount to the
buyer in the event of an adverse credit event in the reference entity. A buyer
of a credit default swap is said to buy protection whereas a seller of a credit
default swap is said to sell protection.
A total return swap is an agreement in which one party makes payments based on a
set rate, either fixed or variable, while the other party makes payments based
on the return of an underlying asset plus any capital gains and losses over the
payment period. The underlying asset is typically an index, loan or a basket of
assets. Total return swaps provide the Fund with the additional flexibility of
gaining exposure to a market or index by using the most cost-effective vehicle
available.

An interest rate swap involves the exchange by the Fund with another party of
their respective commitments to pay or receive interest. 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 on a
contractually-based principal amount from the party selling the 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 on a contractually-based principal amount from the
party selling the interest rate floor. An interest rate collar combines the
elements of purchasing a cap and selling a floor. The collar protects against an
interest rate rise above the maximum amount but foregoes the benefit of an
interest rate decline below the minimum amount.

A currency swap generally involves an agreement to pay interest streams in one
currency based on a specified index in exchange for receiving interest streams
denominated in another currency. Such swaps may involve initial and final
exchanges that correspond to an agreed upon notional amount.

The Fund may write (sell) and purchase put and call swap options. A swap option
is a contract that gives a counterparty the right (but not the obligation) to
enter into a new swap agreement or to shorten, extend, cancel or otherwise
modify an existing swap agreement, at some designated future time on specified
terms.

- 22 -

Swaps generally do not involve the delivery of securities, other underlying
assets or principal. Accordingly, the risk of loss with respect to swaps is
limited to the net amount of payments that the Fund is contractually obligated
to make. If the other party to a swap defaults, the Fund's risk of loss consists
of the net amount of payments that the Fund is contractually entitled to
receive. Currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, in general, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

The Fund may engage in swap options for hedging purposes or to manage and
mitigate credit and interest rate risks. The use of swap options involves risks,
including, among others, (i) changes in the market value of securities held by
the Fund, and of swap options relating to those securities may not be
proportionate, (ii) there may not be a liquid market to sell a swap option,
which could result in difficulty closing a position, (iii) swap options can
magnify the extent of losses incurred due to changes in the market value of the
securities to which they relate and (iv) counterparty risk.

The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities to avoid any potential leveraging of the Fund. The Fund may enter
into over-the-counter derivatives transactions (swaps, caps, floors, puts).

Foreign securities

The Fund may invest without limitation in securities of borrowers that are
organized or located in countries other than the United States, including
non-U.S. dollar denominated securities, and may invest without limitation in
obligations of issuers located in emerging market countries. The percentage of
assets invested in securities of a particular country or denominated in a
particular currency will vary in accordance with the Fund's assessment of the
relative yield, appreciation potential and the relationship of a country's
currency to the U.S. dollar, which is based upon such factors as fundamental
economic strength, credit quality and interest rate trends. Investments in
securities of foreign issuers present certain risks not ordinarily associated
with investments in securities of U.S. issuers. Investment in non-U.S. issuers
involves special risks, including that non-U.S. issuers may be subject to less
rigorous accounting and reporting requirements than U.S. issuers, less rigorous
regulatory requirements, different and perhaps not as well formulated and
defined legal systems and laws relating to creditors' rights, the potential
inability to enforce legal judgments and the potential for political, social and
economic adversity. Investments by the Fund in non-U.S. dollar denominated
investments will be subject to substantially similar risks to those associated
with direct investment in securities of foreign issuers, and are subject to
currency risk as well. Currency risk is the risk that fluctuations in the
exchange rates between the U.S. dollar and non-U.S. currencies may negatively
affect an investment. The value of investments denominated in non-U.S.
currencies may fluctuate based on changes in the value of those currencies
relative to the U.S. dollar, and a decline in applicable foreign exchange rates
could reduce the value of such investments held by the Fund. The Fund also may
hold non-U.S. dollar denominated Senior Loans or other securities received as
part of a reorganization or restructuring. In addition, the underlying issuers
of certain depositary receipts, particularly unsponsored or unregistered
depositary receipts, are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities.

- 23 -

located in developed countries. Investments in the securities of issuers located
in emerging markets could be affected by risks associated with expropriation
and/or nationalization, armed conflict, confiscatory taxation, restrictions on
transfers of assets, lack of uniform accounting and auditing standards, less
publicly available financial and other information and potential difficulties in
enforcing contractual obligations.

Since the Fund may invest in securities of foreign issuers denominated in the
local currency, changes in foreign currency exchange rates will affect the value
of securities in the Fund's portfolio and the unrealized appreciation or
depreciation of investments. In addition to changes in the value of the Fund's
portfolio investments resulting from currency fluctuations, the Fund may incur
costs in connection with conversions between various currencies. The Fund may
also invest directly in currencies. The Fund is subject to the risk that those
currencies will decline in value relative to the U.S. dollar. The values of the
currencies of the emerging market countries in which the Fund may invest may be
subject to a high degree of fluctuation due to changes in interest rates, the
effects of monetary policies issued by the United States, foreign governments,
central banks or supranational entities, the imposition of currency controls or
due to other national or global political or economic developments. Foreign
exchange dealers realize a profit based on the difference between the prices at
which they are buying and selling various currencies. Thus, a dealer normally
will offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire immediately to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward, futures
or options contracts to purchase or sell foreign currencies. Therefore, the
Fund's exposure to foreign currencies may result in reduced returns to the Fund.
The Fund may also engage in foreign currency hedging transactions. See
"Investment objectives, policies and risks - Portfolio Composition - Foreign
securities - Foreign currency transactions" and "Investment objectives, policies
and risks - Portfolio Composition - Strategic transactions."

The Fund will compute and expects to distribute its income in U.S. dollars, and
the computation of income is made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. If the value of the
foreign currencies in which the Fund receives its income falls relative to the
U.S. dollar between the date of earning of the income and the time at which the
Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. dollars to meet distribution requirements. See
"Dividends and Distributions; Dividend Reinvestment." The liquidation of
investments, if required, may have an adverse impact on the Fund's performance.

Foreign currency transactions. The Fund may enter into forward foreign currency
exchange contracts ("forward contracts") for purposes of gaining exposure to the
currency of non-U.S. issuers or as a hedge against fluctuations in future
foreign exchange rates. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial and
investment banks) and their customers. A non-deliverable currency forward
contract is a short-term forward contract on a thinly traded non-convertible
foreign currency where the profit and loss is the difference between a specified
exchange rate and the spot rate at the time of settlement. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. By entering into a forward contract for the purchase or sale,
for a fixed amount of dollars or other currency, of the amount of foreign
currency involved in the underlying security transactions, the Fund may be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar or other currency which is being used
for the security purchase and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received. They also
may be used to lock in the current exchange rate of the currency in which those
securities anticipated to be purchased are denominated. At times, the Fund may
enter into "cross-currency" hedging transactions involving currencies other than
those in which securities that are held or proposed to be purchased are
denominated.

The Fund may conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. The Fund will not enter into forward contracts or maintain a net
exposure to these contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities. When required by law, the Fund will
cause its custodian bank to earmark cash or other liquid portfolio securities in
an amount equal to the net amounts of the Fund's currency exposure under its
forward contracts. If the value of the securities so earmarked declines,
additional cash or liquid

- 24 -

securities will be earmarked on a daily basis so that the value of such
securities will equal the net amount of the Fund's currency exposure with
respect to such contracts. Forward contracts may limit gains on portfolio
securities that could otherwise be realized had they not been utilized and could
result in losses. The contracts also may increase the Fund's volatility and may
involve a significant amount of risk relative to the investment of cash.

Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.

Strategic Transactions

The Fund generally seeks to use certain Strategic Transactions as portfolio
management or hedging techniques. In doing so, the Fund seeks to protect against
possible adverse changes in the market value of securities held in or to be
purchased for the Fund's portfolio, protect the Fund's unrealized gains,
facilitate the sale of certain securities for investment purposes, protect
against changes in currency exchange rates or adjust the exposure to a
particular currency, manage the effective maturity or duration of the Fund's
portfolio, or establish positions in the derivatives markets as a substitute for
purchasing or selling particular securities. The Fund may also use Strategic
Transactions to earn income. Among the Strategic Transactions the Fund may
utilize are forward contracts, options, futures contracts and options on futures
contracts, and the Fund may enter into various currency transactions, such as
currency forward contracts, currency futures contracts, currency swaps, or
options on currencies or currency futures contracts. In addition, the Fund may
invest in other derivative instruments that are developed over time if their use
would be consistent with the objectives of the Fund.

Strategic Transactions have risks, including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction and illiquidity of the derivative instrument.
Furthermore, the ability to successfully use Strategic Transactions depends on
the ability of the Fund to predict pertinent market movements, which cannot be
assured. In addition, such transactions may involve commissions and other costs,
which may increase the Fund's expenses and reduce its return. Thus, the use of
Strategic Transactions may result in losses greater than if they had not been
used, may require the Fund to sell or purchase portfolio securities at
inopportune times or for prices other than current market values, may limit the
amount of appreciation the Fund can otherwise realize on an investment, or may
cause the Fund to hold a security that it might otherwise sell. The use of
currency transactions can result in the Fund incurring losses because of the
imposition of exchange controls, suspension of settlements or the inability of
the Fund to deliver or receive a specified currency. In addition, amounts paid
as premiums and cash or other assets held in margin accounts with respect to
Strategic Transactions are not otherwise available to the Fund for investment
purposes.

When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S. and (v) lower trading volume and liquidity.

The Fund can engage in options transactions on securities, indices or on futures
contracts to attempt to manage the Fund's risk in advancing or declining
markets. For example, the value of a put option generally increases as the value
of the underlying security declines. Value is protected against a market decline
to the degree the performance of the put correlates with the performance of the
Fund's investment portfolio. If the market remains stable or advances, the Fund
can refrain from exercising the put and its portfolio will participate in the
advance, having incurred only the premium cost for the put. The Fund may
purchase and sell listed and over-the-counter options ("OTC Options"). OTC
Options are subject to certain additional risks including default by the other
party to the transaction and the liquidity of the transactions.

The Fund may enter into contracts for the purchase or sale for future delivery
of securities or contracts based on financial indices including any index of
domestic or foreign government securities (futures contracts) and may purchase
and write put and call options to buy or sell futures contracts (options on
futures contracts). A sale of a

- 25 -

futures contract means the acquisition of a contractual obligation to deliver
the securities called for by the contract at a specified price on a specified
date. A purchase of a futures contract means the incurring of a contractual
obligation to acquire the securities called for by the contract at a specified
price on a specified date. The purchaser of a futures contract on an index
agrees to take delivery of an amount of cash equal to the difference between a
specified multiple of the value of the index on the expiration date of the
contract and the price at which the contract was originally struck. No physical
delivery of the fixed income securities underlying the index is made. These
investment techniques generally are used to protect against anticipated future
changes in interest rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the price of
securities which the Fund intends to purchase at a later date. In certain cases,
the options and futures contracts markets provide investment or risk management
opportunities that are not available from direct investments in underlying
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures contracts markets rather than
purchasing or selling portfolio securities. However, such transactions involve
risks different from those involved with direct investments in underlying
securities.

The Fund complies with applicable regulatory requirements when implementing
Strategic Transactions, including the segregation of cash and/or liquid
securities on the books of the Fund's custodian, as mandated by SEC rules or SEC
staff positions. A more complete discussion of Strategic Transactions and their
risks is contained in the Fund's SAI.

Equity securities

Common stock generally represents an ownership or equity interest in an issuer,
without preference over any other class of securities, including such issuer's
debt securities, preferred stock and other senior equity securities. Common
stocks are entitled to the income and increase in the value of the assets and
business of the issuer after all its debt obligations and obligations to
preferred stockholders are satisfied. Common stocks generally have voting
rights. Common stocks fluctuate in price in response to many factors including
historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. They may or may not pay dividends, as some issuers reinvest all of
their profits back into their businesses, while others pay out some of their
profits to stockholders as dividends, while others do not generate sufficient
income to support a dividend.

OTHER INVESTMENTS

Securities of other investment companies

The Fund may invest its assets in securities of other open- and closed-end
investment companies, including affiliated registered investment companies to
the extent permitted by the 1940 Act. As a shareholder in an investment company,
the Fund will bear its ratable share of that investment company's expenses, and
will remain subject to payment of the Fund's investment advisory and other fees
and expenses with respect to assets so invested. Holders of Common Shares will
therefore be subject to duplicative expenses to the extent that the Fund invests
in other investment companies. Expenses will be taken into account when
evaluating the investment merits of an investment in an investment company
relative to available investments. In addition, the securities of other
investment companies may also be leveraged and will therefore be subject to
certain leverage risks. The net asset value and market value of leveraged
securities will be more volatile and the yield to stockholders will tend to
fluctuate more than the yield generated by unleveraged securities. Investment
companies may have investment policies that differ from those of the Fund.

Zero coupon bonds

Certain debt obligations purchased by the Fund may take the form of zero coupon
bonds. A zero coupon bond is a bond that does not pay interest either for the
entire life of the obligation or for an initial period after the issuance of the
obligation. When held to its maturity, its return comes from the difference
between the purchase price and its maturity value. A zero coupon bond is
normally issued and traded at a deep discount from face value. Zero coupon bonds
allow an issuer to avoid or delay the need to generate cash to meet current
interest payments and, as a result, may involve greater market risk and credit
risk than bonds that pay interest currently or in cash. The Fund would be
required to distribute the income on any of these instruments as it accrues,
even though the Fund will not receive all of the income on a current basis or in
cash. Thus, the Fund may have to sell other investments, including when it may
not be advisable to do so, to make income distributions to its stockholders.

Repurchase agreements and reverse repurchase agreements

The Fund may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn incremental income on temporarily available
cash which would otherwise be uninvested. A repurchase agreement is

- 26 -

a short-term investment in which the purchaser (i.e., the Fund) acquires
ownership of a security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the holding
period. Repurchase agreements involve certain risks in the event of default by
the other party. The Fund may enter into repurchase agreements with
broker-dealers, banks and other financial institutions deemed to be
creditworthy.

For the purpose of investing in repurchase agreements, the Adviser may aggregate
the cash that certain funds advised or subadvised by the Adviser or certain of
its affiliates would otherwise invest separately into a joint account. The cash
in the joint account is then invested in repurchase agreements and the funds
that contributed to the joint account share pro rata in the net revenue
generated. The Adviser believes that the joint account produces efficiencies and
economies of scale that may contribute to reduced transaction costs, higher
returns, higher quality investments and greater diversity of investments for the
Fund than would be available to the Fund investing separately. The manner in
which the joint account is managed is subject to conditions set forth in an
exemptive order from the SEC permitting this practice, which conditions are
designed to ensure the fair administration of the joint account and to protect
the amounts in that account.

Repurchase agreements are required to be fully collateralized by the underlying
securities and are considered to be loans under the 1940 Act. The Fund pays for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement will be required to maintain the value of the underlying
collateral securities marked-to-market daily at not less than the repurchase
price. The underlying securities (normally securities of the U.S. government and
its agencies or instrumentalities) may have maturity dates exceeding one year.

The Fund may borrow through entering into reverse repurchase agreements, under
which, the Fund sells portfolio securities to financial institutions such as
banks and broker-dealers and agrees to repurchase them at a particular date and
price. Such agreements are considered to be borrowings under the 1940 Act unless
the Fund segregates an amount of cash and/or liquid securities equal to the
amount of the Fund's obligations under the reverse repurchase agreements. The
Fund may utilize reverse repurchase agreements when it is anticipated that the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction.

When-issued and delayed delivery securities

The Fund may purchase and sell securities on a "when-issued" or "delayed
delivery" basis whereby the Fund buys or sells a security with payment and
delivery taking place in the future. The payment obligation and the interest
rate are fixed at the time the Fund enters into the commitment. No income
accrues to the Fund on securities in connection with such transactions prior to
the date the Fund actually takes delivery of such securities. These transactions
are subject to market risk as the value or yield of a security at delivery may
be more or less than the purchase price or the yield generally available on
securities when delivery occurs. In addition, the Fund is subject to
counterparty risk because it relies on the buyer or seller, as the case may be,
to consummate the transaction, and 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 segregate cash and/or liquid securities having an
aggregate value at least equal to the amount of such purchase commitments until
payment is made. An increase in the percentage of the Fund's assets committed to
the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value.

Private placements and restricted securities

The Fund may invest in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"). These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of these
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering the securities for resale and the risk of
substantial delays in effecting the registration.

The Fund has no liquidity limitation or restriction; thus, some or all of the
Fund investments may be in illiquid securities. At times, private placements or
restricted securities, as well as other securities in which the Fund may invest,
may be deemed illiquid. Investments in illiquid securities tend to restrict the
Fund's ability to dispose of instruments in a timely fashion and restrict the
Fund's ability to take advantage of market opportunities.

- 27 -

Short sales

The Fund may engage in short sales. A short sale is a transaction in which the
Fund sells securities it owns or has the right to acquire at no added cost
(i.e., "against the box") or does not own (but has borrowed) in anticipation of
a decline in the market price of the securities. To deliver the securities to
the buyer, the Fund arranges through a broker to borrow the securities and, in
so doing, the Fund becomes obligated to replace the securities borrowed at their
market price at the time of replacement. When selling short, the Fund intends to
replace the securities at a lower price and therefore, profit from the
difference between the cost to replace the securities and the proceeds received
from the sale of the securities. When the Fund makes a short sale, the proceeds
it receives from the sale will be held on behalf of a broker until the Fund
replaces the borrowed securities. The Fund may have to pay a premium to borrow
the securities and must pay any dividends or interest payable on the securities
until they are replaced. The Fund's obligation to replace the securities
borrowed in connection with a short sale will be secured by collateral deposited
with the broker that consists of cash and/or liquid securities. In addition, the
Fund will place in a segregated account an amount of cash and/or liquid
securities equal to the difference, if any, between (i) the market value of the
securities sold at the time they were sold short, and (ii) any cash and/or
liquid securities deposited as collateral with the broker in connection with the
short sale. Short sales involve certain risks and special considerations. If the
Fund incorrectly predicts that the price of the borrowed security will decline,
the Fund will have to replace the securities with securities with a greater
value than the amount received from the sale. As a result, losses from short
sales differ from losses that could be incurred from a purchase of a security,
because losses from short sales may be unlimited, whereas losses from purchases
can equal only the total amount invested.

Warrants

Warrants give holders the right, but not the obligation, to buy common stock of
an issuer at a given price, usually higher than the market price at the time of
issuance, during a specified period. Warrants are usually freely transferable.
The risk of investing in a warrant is that the warrant may expire prior to the
market value of the common stock exceeding the price fixed by the warrant.
Warrants have a subordinate claim on a borrower's assets compared with Senior
Loans. As a result, the values of warrants generally are 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 may be more volatile than those of Senior Loans and this may increase
the volatility of the Fund's net asset value.

Temporary investments

During periods in which the Fund believes that changes in economic, financial or
political conditions make it advisable to do so, the Fund may, for temporary
defensive purposes, reduce its primary investment holdings and invest in certain
short-term (less than one year to maturity) and medium-term (not greater than
five years to maturity) debt securities or hold cash. The short-term and
medium-term debt securities in which the Fund may invest consist of (i)
obligations of the U.S. government, its agencies or instrumentalities; (ii) bank
deposits and bank obligations (including certificates of deposit, time deposits
and bankers' acceptances) of U.S. or foreign banks denominated in any currency;
(iii) floating rate securities and other instruments denominated in any currency
issued by various governments or international development agencies; (iv)
finance company and corporate commercial paper and other short-term corporate
debt obligations of U.S. or foreign corporations; and (v) repurchase agreements
with banks and broker-dealers with respect to such securities. The Fund intends
to invest for temporary defensive purposes only in short-term and medium-term
debt securities that the Fund believes to be of high quality, i.e., subject to
relatively low risk of loss of interest or principal. In taking such defensive
position, the Fund temporarily would not be pursuing and may not achieve its
investment objectives.

USE OF LEVERAGE AND RELATED RISKS

The Fund may utilize financial leverage for investment purposes (i.e., to use
such financial leverage to purchase additional portfolio securities consistent
with the Fund's investment objective and primary investment strategy) to benefit
the Fund's Common Shares. There can be no assurance that the Fund will utilize
financial leverage, or that, if utilized, the Fund will be successful during any
period in which leverage is employed. Generally speaking, if the Fund can invest
the proceeds from financial leverage (i.e., money from borrowings or issuing
preferred shares) in portfolio securities that have higher rates of return than
the costs of such financial leverage and other expenses of the Fund, then the
holders of Common Shares would have a net benefit. The Fund's policy on
financial leverage allows the Fund to use financial leverage in the form of
borrowings and/or preferred shares to the maximum extent allowable under the
1940 Act. The Fund expects to utilize financial leverage either through the
issuance of preferred shares or through the use of a credit facility. The Fund
intends initially to utilize financial leverage equal to approximately % of
its managed assets (including the amount obtained through leverage). The Fund
generally

- 28 -

will not use financial leverage if it anticipates that the use of leverage would
result in a lower return to holders of Common Shares over time. The Fund's Board
will regularly review the Fund's use of financial leverage (i.e., the relative
costs and benefits of leverage on the Fund's Common Shares) and review the
alternative means to leverage (i.e., the relative benefits and costs of
borrowing versus issuing preferred shares).The Fund also may borrow money as a
temporary measure for extraordinary or emergency purposes, including the payment
of distributions and the settlement of securities transactions which otherwise
might require untimely dispositions of Fund investments.

Leverage creates risks for holders of the Common Shares, including the
likelihood of greater volatility of net asset value and market price of, and
distributions on, the Common Shares. There is a risk that fluctuations in the
distribution rates on any outstanding preferred shares may adversely affect the
return to the holders of the Common Shares. If the income from the investments
purchased with such funds is not sufficient to cover the cost of leverage, the
return on the Fund will be less than if leverage had not been used, and
therefore the amount available for distribution to holders of Common Shares will
be reduced. The Fund in its best judgment nevertheless may determine to maintain
the Fund's leveraged position if it deems such action to be appropriate in the
circumstances.

Changes in the value of the Fund's investment portfolio (including investments
bought with the proceeds of leverage) will be borne entirely by the holders of
Common Shares. If there is a net decrease (or increase) in the value of the
Fund's investment portfolio, the leverage will decrease (or increase) the net
asset value per Common Share to a greater extent than if the Fund were not
leveraged. During periods in which the Fund is using leverage, the fees paid by
the Fund for investment advisory services will be higher than if the Fund did
not use leverage because the investment advisory fees paid will be calculated on
the basis of the Fund's managed assets, including the proceeds from the issuance
of preferred shares and/or borrowings. As discussed under "Description of
capital structure," the Fund's issuance of preferred shares may alter the voting
power of holders of Common Shares.

Capital raised through leverage will be subject to distribution and/or interest
payments, which may exceed the income and appreciation on the assets purchased.
The issuance of preferred shares involves offering expenses and other costs and
may limit the Fund's freedom to pay distributions on Common Shares or to engage
in other activities. The issuance of a class of preferred shares having priority
over the Fund's Common Shares creates an opportunity for greater return per
Common Share, but at the same time such leveraging is a speculative technique
that will increase the Fund's exposure to capital risk. Unless the income and
appreciation, if any, on assets acquired with offering proceeds exceed the cost
of issuing additional classes of securities (and other Fund expenses), the use
of leverage will diminish the investment performance of the Fund's Common Shares
compared with what it would have been without leverage.

Any lender in connection with a credit facility may impose specific restrictions
as a condition to borrowing. Similarly, to the extent the Fund issues preferred
shares, the Fund may be subject to certain restrictions on investments imposed
by guidelines of one or more rating agencies that may issue ratings for
preferred shares issued by the Fund. These restrictions may impose asset
coverage or Fund composition requirements that are more stringent than those
imposed on the Fund by the 1940 Act. It is not anticipated that these covenants
or guidelines will impede the Adviser or the Subadviser from managing its
respective portion of the Fund's portfolio in accordance with the Fund's
investment objectives and policies.

Under the 1940 Act, a fund is not permitted to incur indebtedness unless
immediately after such incurrence the fund has an asset coverage of at least
300% of the aggregate outstanding principal balance of the indebtedness (i.e.
such indebtedness may not exceed 33 1/3% of the fund's total assets).
Additionally, under the 1940 Act, a fund may not declare any dividend or other
distribution upon any class of its capital shares, or purchase any such capital
shares, unless the aggregate indebtedness of the fund has, at the time of the
declaration of such dividend or distribution, or at the time of any such
purchase, an asset coverage of at least 300% after deducting the amount of such
dividend, distribution or purchase price, as the case may be. Under the 1940
Act, a fund is not permitted to issue preferred shares unless immediately after
such issuance the net asset value of the fund's portfolio is at least 200% of
the liquidation value of the outstanding preferred shares (i.e., such
liquidation value may not exceed 50% of the Fund's total assets). In addition, a
fund is not permitted to declare any cash dividend or other distribution on its
Common Shares unless, at the time of such distribution, the net asset value of
the fund's portfolio (determined after deducting the amount of such dividend or
other distribution) is at least 200% of such liquidation value. If using a
combination of borrowing and issuing preferred shares, the maximum allocable
leverage is somewhere between 300% and 200% based on the relative amounts
borrowed and preferred shares issued.

To qualify for federal income taxation as a "regulated investment company," the
Fund must distribute in each taxable year at least 90% of its net investment
income (including net interest income and net short-term gain). The

- 29 -

Fund also will be required to distribute annually substantially all of its
income and capital gain, if any, to avoid imposition of a nondeductible 4%
federal excise tax. If the Fund is precluded from making distributions on the
Common Shares because of any applicable asset coverage requirements, the terms
of the preferred shares may provide that any amounts so precluded from being
distributed, but required to be distributed for the Fund to meet the
distribution requirements for qualification as a regulated investment company,
will be paid to the holders of the preferred shares as a special distribution.
This distribution can be expected to decrease the amount that holders of
preferred shares would be entitled to receive upon redemption or liquidation of
the shares.

The Fund's willingness to issue preferred securities or borrow for leverage
purposes, and the amount of leverage the Fund will assume, will depend on many
factors, the most important of which are market conditions and interest rates.
Successful use of a leveraging strategy may depend on the Fund's ability to
predict correctly interest rates and market movements, and there is no assurance
that a leveraging strategy will be successful during any period in which it is
employed.

Assuming the utilization of leverage in the amount of % of the Fund's total
assets and an annual interest rate on indebtedness of % payable on such leverage
based on market rates as of the date of this Prospectus, the additional income
that the Fund must earn (net of expenses) in order to cover such dividend
payments is %. The Fund's actual cost of leverage will be based on market rates
at the time the Fund undertakes a leveraging strategy, and such actual costs of
leverage may be higher or lower than that assumed in the previous example.

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

Assumed portfolio return (net of
expenses)............................... (10%) (5%) 0% 5% 10%

Corresponding Common Share return
assuming % leverage..............

Until the Fund issues preferred shares or borrows money, the Common Shares will
not be leveraged, and the risks and special considerations related to leverage
described in this Prospectus will not apply. Such leveraging of the Common
Shares cannot be achieved until the proceeds resulting from the use of leverage
have been invested in accordance with the Fund's investment objectives and
policies.

- 30 -

PRINCIPAL INVESTMENT RISKS OF THE FUND'S PRINCIPAL INVESTMENT STRATEGIES

Market risk

Market risk is the possibility that the market values of securities owned by the
Fund will decline. The prices of fixed income securities tend to fall as
interest rates rise, and such declines tend to be greater among fixed income
securities with longer maturities. Market risk is often greater among certain
types of fixed income securities, such as zero coupon bonds which do not make
regular interest payments but are instead bought at a discount to their face
values and paid in full upon maturity. As interest rates change, these
securities often fluctuate more in price than securities that make regular
interest payments and therefore subject the Fund to greater market risk than a
fund that does not own these types of securities. The prices of adjustable,
variable or floating rate income securities tend to have less fluctuation in
response to changes in interest rates, but will have some fluctuation
particularly when the next interest rate adjustment on such security is further
away in time or adjustments are limited in amount over time. The Fund has no
policy limiting the maturity of loans and debts that it purchases. Such
obligations often have mandatory and optional prepayment provisions and because
of prepayments, the actual remaining maturity of loans and debts may be
considerably less than their stated maturity. Obligations with longer maturities
or durations generally expose the Fund to more market risk. When-issued and
delayed delivery transactions are subject to changes in market conditions from
the time of the commitment until settlement. This may adversely affect the
prices or yields of the securities being purchased. The greater the Fund's
outstanding commitments for these securities, the greater the Fund's exposure to
market price fluctuations.

Credit risk

Credit risk refers to the possibility that the issuer of a security will be
unable to make timely interest payments and/or repay the principal on its debt.
Because the Fund may invest, without limitation, in securities that are below
investment grade, the Fund is subject to a greater degree of credit risk than a
fund investing primarily in investment grade securities. Below investment grade
securities (that is, securities rated Ba1 or lower by Moody's or BB+ or lower by
S&P) are commonly referred to as "junk bonds." Generally, lower-grade securities
provide a higher yield than higher-grade securities of similar maturity but are
subject to greater risks, such as greater credit risk, greater market risk and
volatility, greater liquidity concerns and potentially greater manager risk.
Such securities are generally regarded as predominantly speculative with respect
to the capacity to pay interest or repay principal in accordance with their
terms. Lower-grade securities are more susceptible to non-payment of interest
and principal and default than higher-grade securities and are more sensitive to
specific issuer developments or real or perceived general adverse economic
changes than higher-grade securities. The market for lower-grade securities also
may have less information available, further complicating evaluations and
valuations of such securities and placing more emphasis on the experience,
judgment and analysis of each of the Adviser and the Subadviser with respect to
the portion of the Fund's portfolio that each manages than other securities.

The Fund may invest in debt obligations of stressed, distressed and bankrupt
issuers including those that are in covenant or payment default. Such
obligations are subject to a multitude of legal, industry, market, economic and
governmental forces that make analysis of these companies inherently difficult.
The Adviser and the Subadviser rely on company management, outside experts,
market participants and personal experience to analyze potential investments for
the portion of the Fund's assets that they respectively manage. There can be no
assurance that any of these sources will provide credible information, or that
each of the Adviser's and the Subadviser's analysis will produce conclusions
that lead to profitable investments for the portion of the Fund's portfolio that
each manages. Obligations of stressed, distressed and bankrupt issuers generally
trade significantly below par and are considered speculative. The repayment of
defaulted obligations is subject to significant uncertainties. Defaulted
obligations might be repaid only after lengthy workout or bankruptcy proceedings
or result in only partial recovery of cash payments or an exchange of the
defaulted obligation for other debt or equity securities of the issuer or its
affiliates, which may in turn be illiquid or speculative.

- 31 -

being negotiated, approved by the creditors and confirmed by the bankruptcy
court and until it ultimately becomes effective. The administrative costs in
connection with a bankruptcy proceeding are frequently high and would be paid
out of the debtor's estate prior to any return to creditors. Further, in the
early stages of the bankruptcy process it is often difficult to estimate the
extent of any contingent claims that might be made and as such, there exists the
risk that the Fund's influence with respect to the class of obligations it owns
can be lost by increases in the number and amount of claims in that class or by
different classification and treatment. A creditor, such as the Fund, can also
lose its ranking and priority if it is determined that such creditor exercised
"domination and control" over a debtor and other creditors can demonstrate that
they have been harmed by such actions. In addition, certain claims have priority
by law, such as claims for taxes, which may be substantial and could affect the
ability of the Fund to be repaid.

Income risk

Prepayment or call risk

Risks of Senior Loans

Senior Loans, like most other debt obligations, are subject to the risk of
default. Default in the payment of interest or principal on a Senior Loan will
result in a reduction in income to the Fund, a reduction in the value of the
Senior Loan and a potential decrease in the Fund's net asset value. The risk of
default will increase in the event of an economic downturn or a substantial
increase in interest rates. There is no minimum rating or other independent
evaluation of a borrower or its securities limiting the Fund's investments, and
each of the Adviser [and the Subadviser] relies primarily on its own evaluation
of borrower credit quality rather than on any available independent sources. As
a result, the Fund is particularly dependent on the analytical abilities of each
of its Adviser[s].

- 32 -

Loans, and Senior Loans in the Fund's portfolio may themselves be rated below
investment grade. The Fund may invest a substantial portion of its assets in
Senior Loans of borrowers that have outstanding debt obligations rated below
investment grade or unrated securities deemed to be of comparable quality.
Senior Loans may not be rated at the time that the Fund purchases them. If a
Senior Loan is rated at the time of purchase, the Fund may consider the rating
when evaluating the Senior Loan but, in any event, does not view ratings as a
determinative factor in investment decisions. As a result, the Fund is more
dependent on the credit analysis abilities of its Adviser [and its Subadviser].
Because of the protective terms of Senior Loans, the Fund believes that the Fund
is more likely to recover more of its investment in a defaulted Senior Loan than
would be the case for most other types of defaulted debt securities. The values
of Senior Loans of borrowers that have filed for bankruptcy protection or that
are experiencing payment difficulty could be affected by, among other things,
the assessment of the likelihood that the lenders ultimately will receive
repayment of the principal amount of such Senior Loans, the likely duration, if
any, of a lapse in the scheduled payment of interest and repayment of principal
and prevailing interest rates. There is no assurance that the Fund will be able
to recover any amount on Senior Loans of such Borrowers. Even in the case of
collateralized Senior Loans, there is no assurance that sale of the collateral
would raise enough cash to satisfy the borrower's payment obligation or that the
collateral can or will be liquidated. In the case of bankruptcy, liquidation may
not occur and the court may not give lenders the full benefit of their senior
position.

Risks of second lien or other subordinated or unsecured loans

Risks of structured products

The Fund may invest in structured products, CDOs, CBOs, CLOs, structured notes,
credit-linked notes and other types of structured products. Holders of
structured products bear risks of the underlying investments, index or reference
obligation and are subject to counterparty risk. The Fund may have the right to
receive payments to which it is entitled only from the structured product, and
generally does not have direct rights against the issuer. While certain
structured products enable the investor to acquire interests in a pool of
securities without the brokerage and other expenses associated with directly
holding the same securities, investors in structured products generally pay
their share of the structured product's administrative and other expenses. When
investing in structured products, it is impossible to predict whether the
underlying index or prices of the underlying securities will rise or fall, but
prices of the underlying indices and securities (and, therefore, the prices of
structured products) will be influenced by the same types of political and
economic events that affect particular issuers of securities and capital markets
generally. Certain structured products may be thinly traded or have a limited
trading market and may have the effect of increasing the Fund's illiquidity to
the extent that the Fund, at a particular point in time, may be unable to find
qualified buyers for these securities.

- 33 -

Risks of swaps

Financial leverage risk

The investment advisory fees paid by the Fund will be calculated on the basis of
the Fund's managed assets, which includes proceeds from the issuance of
preferred shares and/or borrowings, so the investment advisory fee paid by the
Fund will be higher when financial leverage is utilized. In this regard, holders
of debt or preferred securities do not bear the investment advisory fee. Rather,
holders of Common Shares bear the portion of the investment advisory fee
attributable to the assets purchased with the proceeds from the issuance of
preferred shares and/or borrowings, which means that holders of Common Shares
effectively bear the entire investment advisory fee. See "Investment objectives,
principal investment strategies and risks--Use of Leverage and Related Risks"
and "Management of the Fund - The Adviser."

- 34 -

Any lender in connection with a credit facility or commercial paper program may
impose specific restrictions as condition to borrowing. Similarly, to the extent
the Fund issues preferred shares, the Fund currently intends to seek an AAA or
equivalent credit rating from one or more rating agencies on any preferred
shares it issues and the Fund may be subject to investment restrictions of the
rating agency as a result. Such restrictions imposed by a rating agency or
lender may include asset coverage or portfolio composition requirements that are
more stringent than those imposed on the Fund by the 1940 Act. It is not
anticipated that these covenants or guidelines will impede the Fund's advisors
in managing the Fund's portfolio in accordance with its investment objectives
and policies. See "Description of capital structure--Preferred Shares" and
"Description of capital structure - Credit Facility/Commercial Paper Program."

Foreign securities risk

The foreign securities in which the Fund may invest may be issued by companies
located in emerging market countries. Compared to the United States and other
developed countries, emerging market countries may have relatively unstable
governments, economies based on only a few industries and securities markets
that trade a small number of securities. Securities issued by companies located
in these countries tend to be especially volatile and may be less liquid than
securities traded in developed countries. In the past, securities in these
countries have been characterized by greater potential loss than securities of
companies located in developed countries. Investments in the securities of
issuers located in emerging markets could be affected by risks associated with
expropriation and/or nationalization, armed conflict, confiscatory taxation,
restrictions on transfers of assets, lack of uniform accounting and auditing
standards, less publicly available financial and other information and potential
difficulties in enforcing contractual obligations.

- 35 -

Strategic Transactions risk

The use of forward contracts, options and futures transactions entails certain
special risks. In particular, the use of such transactions by the Fund could
create the possibility that losses on the instrument would be greater than gains
in the value of the Fund's position. In addition, futures and options markets
could be illiquid in some circumstances, and certain over-the-counter options
could have no markets. As a result, in certain markets, the Fund might not be
able to close out a position without incurring substantial losses. To the extent
that the Fund utilizes forward contracts, futures contracts or options
transactions for hedging, such transactions should tend to minimize the risk of
loss due to a decline in the value of the hedged position and, at the same time,
limit any potential gain to the Fund that might result from an increase in value
of the position. There is no limit on the amount of the Fund's assets that can
be put at risk through the use of forward contracts, options and futures
contracts. In addition, the daily variation margin requirements for futures
contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial
premium and transaction costs. Losses resulting from the use of hedging will
reduce the Fund's net asset value, and possibly income, and the losses can be
greater than if hedging had not been used. Forward contracts may limit gains on
portfolio securities that could otherwise be realized had they not been utilized
and could result in losses. The contracts also may increase the Fund's
volatility and may involve a significant amount of risk relative to the
investment of cash. The use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The Fund will be subject to credit risk with respect to the
counterparties to any Strategic Transactions engaged in by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations
under a derivative contract due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery under the derivative
contract in bankruptcy or other reorganization proceeding. The Fund may obtain
only a limited recovery or may obtain no recovery in such circumstances.

- 36 -

Net asset value discount

Manager risk

As with any managed fund, the Adviser and the Subadviser may not be successful
in selecting the best-performing securities or investment techniques in managing
its respective portion of the Fund's portfolio, and the Fund's performance may
lag behind that of similar funds.

OTHER RISKS OF INVESTING IN THE FUND

No operating history
The Fund is a newly organized, closed-end management investment company with no
operating history and is designed for long-term investors and not as a trading
vehicle.

Investment risk

You may lose money by investing in the Fund, including the possibility that you
may lose all of your investment. An investment in the Fund is not a deposit in a
bank and is not insured or guaranteed by the U.S. Federal Deposit Insurance
Corporation or any other governmental agency.

The Fund is intended to be a long-term investment vehicle and is not designed to
provide investors with a means of speculating on short-term stock market
movements. Investors should not consider the Fund a complete investment program.

Risks of investing in other investment companies

The Fund may acquire shares in other investment companies, including foreign
investment companies to the extent permitted by the 1940 Act. The market value
of the shares of other investment companies may differ from the net asset value
of the particular fund. As a shareholder in an investment company, the Fund
would bear its ratable share of that entity's expenses, including its investment
advisory and administration fees. At the same time, the Fund would continue to
pay its own investment advisory and administration fees and other expenses. As a
result, the Fund and its shareholders, in effect, will be absorbing duplicate
levels of fees with respect to investments in other investment companies.

Zero coupon securities risk

- 37 -

bonds allow an issuer to avoid or delay the need to generate cash to meet
current interest payments and, as a result, may involve greater credit risk than
bonds that pay interest currently or in cash. The Fund would be required to
distribute the income on any of these instruments as it accrues, even though the
Fund will not receive all of the income on a current basis or in cash. Thus, the
Fund may have to sell other investments, including when it may not be advisable
to do so, to make income distributions to its stockholders.

Inflation risk

Inflation risk is the risk that the value of assets or income from investments
will be worth less in the future as inflation decreases the value of money. To
the extent that inflation occurs, it will reduce the real value of dividends
paid by the Fund and the Fund's shares. Most emerging market countries have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Inflation and rapid fluctuations in inflation rates have had and
may continue to have very negative effects on the economies and securities
markets of certain emerging market countries. In an attempt to control
inflation, wage and price controls have been imposed at times in certain
countries.

Repurchase agreements and reverse repurchase agreements risk

The Fund may invest in repurchase agreements and reverse repurchase agreements.
In its purchase of repurchase agreements, the Fund does not bear the risk of a
decline in the value of the underlying security unless the seller defaults under
its repurchase obligation. In the event of the bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including possible decline in
the value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, possible lack of access to income on the underlying
security during this period, and expenses of enforcing its rights.

The Fund's use of reverse repurchase agreements involve many of the same risks
involved in the Fund's use of financial leverage, as the proceeds from reverse
repurchase agreements generally will be invested in additional securities. There
is a risk that the market value of the securities acquired in the reverse
repurchase agreement may decline below the price of the securities that the Fund
has sold but remains obligated to repurchase. In addition, there is a risk that
the market value of the securities retained by the Fund may decline. If the
buyer of securities under a reverse repurchase agreement were to file for
bankruptcy or experience insolvency, the Fund may be adversely affected. Also,
in entering into reverse repurchase agreements, the Fund would bear the risk of
loss to the extent that the proceeds of the reverse repurchase agreement are
less than the value of the underlying securities. In addition, due to the
interest costs associated with reverse repurchase agreements, the Fund's net
asset value will decline, and, in some cases, the investment performance of the
Fund would be less favorable than it would have been if the Fund had not used
such instruments.

When-issued and delayed delivery securities

The Fund may purchase and sell securities on a "when-issued" or "delayed
delivery" basis whereby the Fund buys or sells a security with payment and
delivery taking place in the future. These transactions are subject to market
risk as the value or yield of a security at delivery may be more or less than
the purchase price or the yield generally available on securities when delivery
occurs. In addition, the Fund is subject to counterparty risk because it relies
on the buyer or seller, as the case may be, to consummate the transaction, and
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
segregate cash and/or liquid securities having an aggregate value at least equal
to the amount of such purchase commitments until payment is made. An increase in
the percentage of the Fund's assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the Fund's
net asset value.

Illiquid investments risk

The Fund's investments in relatively illiquid securities and loans may restrict
the ability of the Fund to dispose of its investments in a timely fashion and
for a fair price, as well as its ability to take advantage of market
opportunities. The risks associated with illiquidity will be particularly acute
in situations in which the Fund's operations require cash, such as when the Fund
pays dividends or distributions, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale of illiquid
investments.

Short sales risk

- 38 -

The Fund may engage in short sales. Short sales involve certain risks and
special considerations. If the Fund incorrectly predicts that the price of the
borrowed security will decline, the Fund will have to replace the securities
with securities with a greater value than the amount received from the sale. As
a result, losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.

Warrants risk

The Fund may invest in warrants. The risk of investing in a warrant is that the
warrant may expire prior to the market value of the common stock exceeding the
price fixed by the warrant. Warrants have a subordinate claim on a borrower's
assets compared with Senior Loans. As a result, the values of warrants generally
are 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 may be more volatile than those of Senior Loans and this my
increase the volatility of the Fund's net asset value.

Temporary investments risk

Tax risk

The Fund intends to elect to be treated and to qualify each year as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). If the Fund qualifies as a regulated investment company, it generally
will not be subject to U.S. federal income tax on its net investment income,
including net capital gain, that it distributes (or is deemed to have
distributed, as described below) to shareholders, provided that, for each
taxable year, the Fund distributes (or is treated as distributing) to its
shareholders an amount at least equal to 90% of its "investment company taxable
income" as that term is defined in the Code (which includes, among other things,
dividends, taxable interest, and the excess of any net short-term capital gains
over net long-term capital losses, as reduced by certain deductible expenses).
The Fund intends to distribute annually all or substantially all of its
investment company taxable income and net capital gain. If for any taxable year
the Fund did not qualify as a regulated investment company, it would be treated
as a corporation subject to U.S. federal income tax or its net income and
capital gains at the 35% U.S. federal corporate income tax rate (without a
deduction for distributions to shareholders) and, when such income is
distributed, to a further tax at the shareholder level at ordinary income tax
rates to the extent of the Fund's current or accumulated earnings and profits.
Accordingly, in such event, the Fund's ability to achieve its investment
objectives would be adversely affected, and common shareholders would be subject
to the risk of diminished investment returns.

Certain affiliations risk

Certain broker-dealers, including , will be considered to be affiliated
persons of the Fund or the Adviser. Absent an exemption from the SEC or other
regulatory relief, the Fund is generally precluded from effecting certain
principal transactions with affiliated brokers, and its ability to purchase
securities being underwritten by an affiliated broker or syndicate including an
affiliated broker or to utilize affiliated brokers for agency transactions is
subject to restrictions. This could limit the Fund's ability to engage in
securities transactions and take advantage of market opportunities. In addition,
until the underwriting syndicate is broken in connection with the initial public
offering of the Common Shares, the Fund will be precluded from effecting
principal transactions with brokers who are members of the syndicate.

Market disruption

The aftermath of the war in Iraq and the continuing occupation of Iraq,
instability in the Middle East and terrorist attacks around the world, as well
as concerns over the outbreak of infectious diseases, have resulted in market
volatility and may have long-term effects on the U.S. and worldwide financial
markets and may cause further economic uncertainties in the United States and
worldwide. The Fund does not know how long the securities markets will continue
to be affected by these events and cannot predict the effects of the occupation
or similar events in the future on the U.S. economy and global securities
markets.

- 39 -

Anti-takeover provisions

The Fund's Agreement and Declaration of Trust and Bylaws include provisions that
could limit the ability of other entities or persons to acquire control of the
Fund or convert the Fund to open-end status and delay or limit the ability of
other persons to acquire control of the Fund. These provisions could deprive the
holders of Common Shares of opportunities to sell their Common Shares at a
premium over the then-current market price of the common shares or at net asset
value. The Fund's Board has determined that these provisions are in the best
interests of shareholders generally.

Management of the Fund

BOARD OF TRUSTEES

The management of the Fund, including general supervision of the duties
performed by the Advisers, is the responsibility of the Fund's Board under the
laws of the State of Delaware and the 1940 Act.

THE ADVISER

The Adviser will provide certain day-to-day investment management services to
the Fund. Under an investment advisory agreement, the Adviser will receive an
annual fee, payable monthly, in an amount equal to 1.25% of the Fund's average
daily managed assets, which shall mean the average daily gross net asset value
of the Fund minus the sum of accrued liabilities other than the aggregate
liquidation preference of any preferred shares and/or the aggregate amount of
any borrowings for investment purposes ("Managed Assets"). See "Management of
the Fund."

Howard Tiffen, Managing Director of the Adviser and Vice President of the senior
loan funds advised by the Adviser, and Christina Jamieson, Executive Director of
the Adviser and assistant portfolio manager of the senior loan funds advised by
the Adviser, are jointly and primarily responsible for the overall management of
the Fund and for the day-to-day management of the Adviser's portion of the
Fund's assets. Mr. Tiffen has been associated with the Adviser in an investment
management capacity since 1999 and has over 30 years of investment experience
and manages, as of March 31, 2007, approximately $ billion in senior loan assets
for Van Kampen Investments. Prior to joining the Adviser, Mr. Tiffen was senior
portfolio manager for Pilgrim Investments' Senior Floating Rate Investment
Management business from 1995 to 1999, where he managed the Pilgrim Prime Rate
Trust and other structured senior loan portfolios. From 1982 to 1995, Mr. Tiffen
held positions in the lending and capital markets functions at Bank of America,
and its predecessor, Continental Bank. Mr. Tiffen is an associate of the
Chartered Institute of Bankers and a member of the Economic Club of Chicago.

Ms. Jamieson has been associated with the Adviser in an investment management
capacity since 2000. Ms. Jamieson has over 22 years of investment experience.
Prior to joining the Adviser in 2000, Ms. Jamieson was Senior Vice President and
Credit Officer at Bank One/First Chicago where she had responsibility for the
credit quality and portfolio management of four business units. These included
the Retailing Industry Portfolio, the Transportation Industry Portfolio, the
Principal Investor/Leverage Finance Portfolio and the Par Loan Trading Activity.
Ms. Jamieson is also a Certified Public Accountant and previously completed her
public accounting work at PricewaterhouseCoopers in Boston.

THE SUBADVISER

- 40 -

Management GenPar, LLC, its general partner. Both the limited partner and the
general partner are controlled by Marc Lasry and Sonia Gardner. The Subadviser,
located at 535 Madison Avenue, New York, New York 10022, has experience managing
investment portfolios and investment funds and, as of March 31, 2007, had more
than $[1.6] billion in assets under management, and together with its
affiliates, as of March 31, 2007, had more than $[13.2] billion in assets under
management. Morgan Stanley owns an indirect, non-controlling interest in the
Subadviser.

Under an investment subadvisory agreement with the Adviser, the Subadviser,
subject to the control and supervision of the Fund, its officers, the Board and
the Adviser, and in accordance with the investment objectives, policies and
restrictions of the Fund as well as the Avenue-Credit Thresholds, makes certain
day-to-day investment decisions for the Fund and places certain of the Fund's
purchase and sales orders. The Adviser pays the Subadviser a portion of the
investment advisory fee that the Adviser receives from the Fund.

Richard Furst, Senior Portfolio Manager of the Subadviser, and Raul Ramirez, a
Portfolio Manager of the Subadviesr, are jointly and primarily responsible for
the day-to-day management of the Subadviser's portion of the Fund's assets. Mr.
Furst is responsible for the overall execution of the investment strategy of the
Fund with respect to the portion of the Fund's portfolio managed by the
Subadviser. Mr. Furst has been associated with the Subadviser in an investment
management capacity since 2004. Prior to joining the Subadviser, he was a
portfolio manager with Moore Capital Group, managing approximately $1.0 billion
of U.S. and European distressed and high yield securities. Prior to that, he was
a Managing Director and Head of U.S. Special Situations Trading group for Banc
of America, managing $300 million in capital. Previously, Mr. Furst was a Vice
President in the High Yield and Distressed Trading and Research department of
Salomon Brothers, Inc., after serving as an Analyst in their Mergers,
Acquisitions, and Restructuring group.

Mr. Ramirez has been associated with the Subadviser in an investment management
capacity since 2006. Prior to joining the Subadviser, Mr. Ramirez was a
portfolio manager based in London at Goldentree Asset Management UK, focused on
European investments. Previously, Mr. Ramirez was Executive Director of the
Special Situations Group at Morgan Stanley, focused on the European energy
sector. While at Morgan Stanley, Mr. Ramirez was also the Head of European
Distressed Research.

The Fund's SAI provides additional information about the portfolio managers'
compensation structure, other accounts managed by the portfolio managers and the
portfolio managers' ownership of securities in the Fund.

Distributions

Commencing with the Fund's initial distribution, the Fund intends to make
regular monthly distributions to Common Shareholders. The amount of each monthly
distribution will vary depending on a number of factors, including distributions
payable on the preferred shares or other costs of financial leverage. As
portfolio and market conditions change, the rate of distribution on the Common
Shares and the Fund's distribution policy could change. Over time, the Fund will
distribute all or substantially all of its net investment income (after it pays
accrued distributions on any outstanding preferred shares or other costs of
financial leverage). The initial distribution to Common Shareholders is expected
to be declared approximately 45 days and paid approximately 60 to 90 days after
the completion of this offering, depending on market conditions.

The net investment income of the Fund will consist of all interest income
accrued on portfolio investments, short-term capital gain (including short-term
gains on options, futures and forward positions and gains on the sale of
portfolio investments held for one year or less) in excess of long-term capital
loss and income from certain hedging transactions, less all expenses of the
Fund. Expenses of the Fund will be accrued each day. The Fund intends to
distribute all or substantially all of the Fund's investment company taxable
income each year. In addition, at least annually the Fund intends to distribute
any net capital gain (which is the excess of net long-term capital gain over net
short-term capital loss). To the extent that the Fund's net investment income
and net capital gain for any year exceed the total distributions paid during the
year, the Fund will make a special distribution at or near year-end of such
excess amount as may be required. If the Fund's total distributions in any year
exceed the amount of its net investment income and net capital gain for the
year, any such excess would be characterized as a return of capital for federal
income tax purposes. Under the 1940 Act, for any distribution that includes
amounts from sources other than net income, the Fund is required to provide
Common Shareholders a written statement regarding the components of such
distribution. Such a statement will be provided at the time of any distribution
believed to include any such amounts.

- 41 -

If, for any calendar year, the total distributions made exceed the Fund's
current and accumulated earnings and profit, the excess will, for U.S. federal
income tax purposes, be treated as a tax-free return of capital to each Common
Shareholder up to the amount of the Common Shareholder's basis in his or her
Common Shares, and thereafter as gain from the sale of Common Shares. The amount
treated as a tax-free return of capital will reduce the Common Shareholder's
adjusted basis in his or her Common Shares, thereby increasing his or her
potential gain or reducing his or her potential loss on the subsequent sale of
his or her Common Shares. To the extent the Fund's distribution policy results
in distributions in excess of its net investment taxable income and net capital
gain, such distributions will decrease its total assets and increase its expense
ratio to a greater extent than would have been the case if distributions were
limited to these amounts. Distributions in any year may or may not include a
substantial return of capital component.

Common Shareholders may automatically reinvest some or all of their
distributions in additional Common Shares pursuant to the Fund's dividend
reinvestment plan. See "Dividend reinvestment plan."

Tax matters

The following discussion summarizes certain U.S. federal income tax
considerations affecting the Fund and its shareholders that are U.S. persons as
defined for U.S. federal income tax purposes. For more information, please see
the SAI, under "Tax Matters." Because each shareholder's tax situation is
unique, ask your tax professional about the tax consequences to you of an
investment in the Fund.

The Fund intends to qualify annually as a regulated investment company under the
Code. Accordingly, the Fund generally will not be subject to U.S. federal income
tax on its net investment income and net realized capital gains that the Fund
distributes to its shareholders. The Fund expects to pay its shareholders
annually all or substantially all of such income.

Distributions paid to you by the Fund from its net realized long-term capital
gains, if any, that the Fund designates as capital gain dividends ("capital gain
dividends") are taxable as long-term capital gains, regardless of how long you
have held your Common Shares. All other dividends paid to you by the Fund
(including dividends from short-term capital gains) from its current or
accumulated earnings and profits ("ordinary income dividends") will generally be
subject to tax as ordinary income.

In general, the Fund does not expect that a significant portion of its ordinary
income dividends will be treated as qualified dividend income, which is eligible
for taxation at the rates applicable to long-term capital gains in the case of
individual shareholders, or that a corporate shareholder will be able to claim a
dividends received reduction with respect to any significant portion of Fund
distributions.

If, for any calendar year, the Fund's total distributions exceed both current
earnings and profits and accumulated earnings and profits, the excess will
generally be treated as a tax-free return of capital up to the amount of a
shareholder's tax basis in the Common Shares. The amount treated as a tax-free
return of capital will reduce a shareholder's tax basis in the Common Shares,
thereby increasing such shareholder's potential gain or reducing such or her
potential loss on the sale of the Common Shares. Any amounts distributed to a
shareholder in excess of such shareholder's tax basis in the Common Shares will
be taxable to the shareholder as capital gain (assuming the Common Shares are
held as a capital asset).

Dividends and other taxable distributions are taxable to you even if they are
reinvested in additional Common Shares of the Fund. Dividends and other
distributions paid by the Fund are generally treated as received by you at the
time the dividend or distribution is made. If, however, the Fund pays you a
dividend in January that was declared in the previous October, November or
December and you were the shareholder of record on a specified date in one of
such months, then such dividend will be treated for tax purposes as being paid
by the Fund and received by you on December 31 of the year in which the dividend
was declared.

The price of Common Shares purchased at any time may reflect the amount of a
forthcoming distribution. If you purchase Common Shares just prior to a
distribution, you will receive a distribution that will be taxable to you even
though it represents in part a return of your invested capital.

The Fund will send you information after the end of each year setting forth the
amount and tax status of any distributions paid to you by the Fund. Ordinary
income dividends and capital gain dividends may also be subject to state and
local taxes.

- 42 -

If you sell or otherwise dispose of Common Shares of the Fund (including
exchanging them for Common Shares of another fund), you will generally recognize
a gain or loss in an amount equal to the difference between your tax basis in
such Common Shares of the Fund and the amount you receive in exchange for such
Common Shares. If you hold your Common Shares as capital assets, any such gain
or loss generally will be long-term capital gain or loss if you have held such
Common Shares for more than one year at the time of sale.

The Fund may be required to withhold, for U.S. federal backup withholding tax
purposes, a portion of the dividends, distributions and redemption proceeds
payable to a non-corporate holder of the Fund's Common Shares who fails to
provide the Fund (or its agent) with the shareholder's correct taxpayer
identification number (in the case of an individual, generally, such
individual's social security number) or to make the required certification, or
who has been notified by the Internal Revenue Service (the "IRS") that such
shareholder is subject to backup withholding. Certain shareholders are exempt
from backup withholding. Backup withholding is not an additional tax and any
amount withheld may be refunded or credited against your U.S. federal income tax
liability, if any, provided that you furnish the required information to the
IRS.

Foreign Tax Credits

The Fund may be subject to certain taxes imposed by the emerging market
countries in which it invests with respect to dividends, capital gains and
interest income. Under the Code, if more than 50% of the value of the Fund's
total assets at the close of any taxable year consists of stocks or securities
of foreign corporations, the Fund may elect, for U.S. federal tax purposes, to
treat any foreign country's income or withholding taxes paid by the Fund that
can be treated as income taxes under U.S. income tax principles, as paid by its
shareholders. The Fund expects to qualify for and may make this election. For
any year that the Fund makes such an election, each shareholder will be required
to include in its income an amount equal to its allocable share of such taxes
paid by the Fund to the foreign government and the shareholders will be
entitled, subject to certain limitations, to either deduct their allocable share
of such foreign income taxes in computing their taxable income or to use it as a
foreign tax credit against U.S. income taxes, if any. This treatment will not
apply with respect to amounts the Fund reserves in anticipation of the
imposition of withholding taxes not currently in effect (as discussed above). If
these amounts are used to pay any tax liability of the Fund in a later year,
they will be treated as paid by the stockholders in such later year, even if
they are imposed with respect to income of an earlier year.

The amount of foreign taxes that may be credited against a shareholder's U.S.
federal income tax liability generally will be limited, however, to an amount
equal to the shareholder's U.S. federal income tax rate multiplied by its
foreign source taxable income. For this purpose, the Fund's gains and losses
from the sale of securities, and currency gains and losses, will generally be
treated as derived from U.S. sources. In addition, this limitation must be
applied separately to certain categories of foreign source income. As a
consequence, certain shareholders may not be able to claim a foreign tax credit
for the full amount of their proportionate share of foreign taxes paid by the
Fund. Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether, pursuant to the election described above, the
foreign taxes paid by the Fund will be treated as paid by its shareholders for
that year and, if so, such notification will designate (i) such shareholder's
portion of the foreign taxes paid to such country and (ii) the portion of the
Fund's dividends and distributions that represents income derived from sources
within such country.

Foreign Shareholders

A "foreign investor" is an investor that, for U.S. federal income tax purposes,
is a nonresident alien individual, a foreign corporation, a foreign partnership
or a foreign estate trust. Taxation of a shareholder who, as to the United
States, is a foreign investor depends, in part, on whether the shareholder's
income from the Fund is "effectively connected" with a United States trade or
business carried on by the shareholder.

If the foreign investor's income from the Fund is not effectively connected with
a United States trade or business carried on by the foreign investor,
distributions of net investment income and net short-term capital gains will be
subject to a 30% (or lower treaty rate) U.S. withholding tax. For the Fund's
taxable years beginning on or before December 31, 2007, the Fund may pay
"interest-related dividends" and "short-term capital gain dividends" to Non-U.S.
Shareholders without having to withhold on such dividends at the 30% rate. The
amount of "interest-related dividends" that the Fund may pay each year is
limited to the amount of "qualified interest income" received by the Fund during
that year, less the amount of the Fund's expenses properly allocable to such
interest income. "Qualified interest income" includes, among other items,
interest paid on debt obligations of a U.S. issuer and interest paid on deposits
with U.S. banks, subject to certain exceptions. The amount of "short-term
capital gain dividends" that the

- 43 -

Fund may pay each year generally is limited to the excess of the Fund's net
short-term capital gains over its net long-term capital losses, without any
reduction for the Fund's expenses allocable to such gains (with exceptions for
certain gains). The exemption from 30% withholding tax for "short-term capital
gain dividends" does not apply with respect to Non-U.S. Shareholders that are
present in the United States for more than 182 days during the taxable year.

Foreign investors may be subject to an increased U.S. federal income tax on
their income resulting from the Fund's election (described above) to
"pass-through" amounts of foreign taxes paid by the Fund, but may not be able to
claim a credit or deduction with respect to the foreign taxes paid by the Fund
treated as having been paid by them. Distributions of net realized long-term
capital gains, amounts retained by the Fund that are designated as undistributed
capital gains, and gains realized upon the sale of shares of the Fund will not
be subject to U.S. federal income tax unless a foreign investor who is a
nonresident alien individual is physically present in the United States for more
than 182 days during the taxable year and, in the case of gain realized upon the
sale of Fund shares, unless (i) such gain is attributable to an office or fixed
place of business in the United States or (ii) such nonresident alien individual
has a tax home in the United States and such gain is not attributable to an
office or fixed place of business located outside the United States. However, a
determination by the Fund not to distribute long-term capital gains may reduce a
foreign investor's overall return from an investment in the Fund, since the Fund
will incur a U.S. federal tax liability with respect to retained long-term
capital gains, thereby reducing the amount of cash held by the Fund that is
available for distribution, and the foreign investor may not be able to claim a
credit or deduction with respect to such taxes. A foreign investor may be
required to establish it is not a U.S. person in order to avoid backup
withholding tax on payments that would not otherwise be subject to the 30%
withholding tax described above. Backup withholding is not a separate tax and
may be refunded to a foreign shareholder; however, a foreign shareholder would
generally have to file a U.S. tax return to claim this refund.

If a foreign investor is a resident alien or if dividends or distributions from
the Fund are effectively connected with a U.S. trade or business carried on by
the foreign investor, dividends of net investment income, distributions of net
short-term and long-term capital gains, amounts retained by the Fund that are
designated as undistributed capital gains and any gains realized upon the sale
of shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. persons and a foreign investor that is a corporation may also
be subject to an additional 30% (or lower treaty rate) branch profits tax.

The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described in this section.
Shareholders may be required to provide appropriate documentation to establish
their entitlement to claim treaty benefits. Foreign investors are advised to
consult their own tax advisers with respect to (a) whether their income from the
Fund is effectively connected with a U.S. trade or business carried on by them,
(b) whether they may claim the benefits of an applicable tax treaty and (c) any
other tax consequences to them of an investment in the Fund.

Shareholders will be notified annually by the Fund as to the U.S. federal income
tax status of the dividends, distributions and deemed distributions made by the
Fund to its shareholders. Furthermore, shareholders will be sent, if
appropriate, various written notices after the close of the Fund's taxable year
regarding the U.S. federal income tax status of certain dividends, distributions
and deemed distributions that were paid (or that were treated as having been
paid) by the Fund to its shareholders during the preceding taxable year.

The foregoing is a general and abbreviated summary of the provisions of the Code
and the Treasury regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders and does not constitute tax advice.
For complete provisions, reference should be made to the pertinent Code sections
and Treasury regulations. The Code and the Treasury regulations are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Fund transactions. Holders of Common Shares are
advised to consult their own tax advisors for more detailed information
concerning the U.S. federal income taxation of the Fund and the income tax
consequences to its holders of Common Shares. Holders of Common Shares are also
advised to consult their own tax advisors with regard to the tax consequences
under the laws of state, local, foreign or other taxing jurisdictions.

Closed-end fund structure

The Fund is a closed-end management investment company with no operating history
(commonly referred to as a closed-end fund). Closed-end funds differ from
open-end management investment companies (which are generally referred to as
mutual funds) in that closed-end funds generally list their shares for trading
on a stock exchange and

- 44 -

do not redeem their shares at the request of the shareholder. This means that if
you wish to sell your shares of a closed-end fund you must trade them on the
market like any other stock at the prevailing market price at that time. In a
mutual fund, if the shareholder wishes to sell shares of the fund, the mutual
fund will redeem or buy back the shares at "net asset value." Also, mutual funds
generally offer new shares on a continuous basis to new investors, and
closed-end funds generally do not. The continuous in-flows and out-flows of
assets in a mutual fund can make it difficult to manage a mutual fund's
investments. By comparison, closed-end funds are generally able to stay more
fully invested in securities that are consistent with their investment
objectives, and also have greater flexibility to make certain types of
investments, and to use certain investment strategies, such as financial
leverage and investments in illiquid securities.

Shares of closed-end funds frequently trade at a discount to their net asset
value. Because of this possibility and the recognition that any such discount
may not be in the interest of shareholders, the Fund's Board might consider from
time to time engaging in open-market repurchases, tender offers for shares or
other programs intended to reduce the discount. We cannot guarantee or assure,
however, that the Fund's Board will decide to engage in any of these actions.
Nor is there any guarantee or assurance that such actions, if undertaken, would
result in the shares trading at a price equal or close to net asset value per
common share. The Board might also consider converting the Fund to an open-end
mutual fund, which would also require a vote of the shareholders of the Fund.

Dividend reinvestment plan

The Fund offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
distributions of dividends and all capital gains on Common Shares are
automatically reinvested in additional Common Shares, unless a common
shareholder specifically elects to receive cash.

State Street Bank and Trust Company, as plan agent (the "Plan Agent"), serves as
agent for the holders of Common Shares of each Fund in administering the Plan.
All Fund common shareholders are deemed to be participants in the Plan unless
they specifically elect not to participate.

Common Shares will be acquired by the Plan Agent or an independent broker-dealer
for the participants' accounts, depending upon the circumstances described
below, either (i) through receipt of additional previously authorized but
unissued Common Shares from the Fund ("newly issued Common Shares") or (ii) by
purchase of outstanding Common Shares on the open market ("open-market
purchases") on the New York Stock Exchange or elsewhere. If on the payment date
for the distribution, the net asset value per Common Share is equal to or less
than the market price per Common Share plus estimated brokerage commissions
(such condition being referred to herein as "market premium"), the Plan Agent
will invest the distribution amount in newly issued Common Shares on behalf of
the participants. The number of newly issued Common Shares to be credited to
each participant's account will be determined by dividing the dollar amount of
the distribution by the net asset value per Common Share on the date the Common
Shares are issued, provided that the discount from the then current market price
per Common Share on the date of issuance may not exceed 5%. If on the
distribution payment date the net asset value per Common Share is greater than
the market value plus estimated brokerage commissions (such condition being
referred to herein as "market discount"), the Plan Agent will invest the
distribution amount in Common Shares acquired on behalf of the participants in
open-market purchases.

In the event of a market discount on the distribution payment date, the Plan
Agent will have up to 30 days after the distribution payment date to invest the
distribution amount in Common Shares acquired in open-market purchases. If,
before the Plan Agent has completed its open-market purchases, the market price
of a Common Share exceeds the net asset value per Common Share, the average per
Common Share purchase price paid by the Plan Agent may exceed the net asset
value of the Fund's Common Shares, resulting in the acquisition of fewer Common
Shares than if the distribution had been paid in newly issued Common Shares on
the distribution payment date. Therefore, the Plan provides that if the Plan
Agent is unable to invest the full distribution amount in open-market purchases
during the purchase period or if the market discount shifts to a market premium
during the purchase period, the Plan Agent will cease making open-market
purchases and will invest the uninvested portion of the distribution amount in
newly issued Common Shares.

The Plan Agent maintains all Common Shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by Common Shareholders for tax records. Common Shares in the
account of each Plan participant will be held by the Plan Agent on behalf of the
Plan participant, and each Common Shareholder proxy will include those Common
Shares purchased or received pursuant to the Plan.

- 45 -

The Plan Agent will forward all proxy solicitation materials to participants and
vote proxies for Common Shares held pursuant to the Plan in accordance with the
instructions of the participants.

In the case of Common Shareholders such as banks, brokers or nominees that 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 Shareholder's name and held for the account of
beneficial owners who participate in the Plan.

There will be no brokerage charges to Common Shareholders with respect to Common
Shares issued directly by the Fund as a result of distributions payable either
in Common Shares or in cash. 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 distributions.

Common Shareholders participating in the Plan may receive benefits not available
to Common Shareholders not participating in the Plan. If the market price (plus
commissions) of the Fund's Common Shares is above their net asset value,
participants in the Plan will receive Common Shares of the Fund at less than
they could otherwise purchase them and will have Common Shares with a cash value
greater than the value of any cash distribution they would have received on
their Common Shares. If the market price plus commissions is below the net asset
value, participants will receive distributions in Common Shares with a net asset
value greater than the per Common Share value of any cash distribution they
would have received on their Common Shares. However, there may be insufficient
Common Shares available in the market to make distributions in Common Shares at
prices below the net asset value. Also, since the Fund does not redeem its
Common Shares, the price on resale may be more or less than the net asset value.

Common shareholders may withdraw from the Plan at anytime by calling (800)
341-2929 or by writing to the Plan Agent at P.O. Box 8200, Boston, Massachusetts
02101. If you withdraw, you will receive, without charge, a share certificate
issued in your name for all full Common Shares credited to your account under
the Plan, and a cash payment will be made for any fractional common share
credited to your account under the Plan. Common shareholders of the Fund may
again elect to participate in the Plan at any time by calling (800) 341-2929 or
by writing to the Fund at 2800 Post Oak Boulevard, Houston, Texas 77056,
Attention: Closed-End Funds.

Description of capital structure

The Fund is a statutory trust organized under the laws of the State of Delaware
pursuant to an Agreement and Declaration of Trust dated March 15, 2007. The Fund
is authorized to issue an unlimited number of Common Shares of beneficial
interest, par value $0.01 per share. The Fund intends to hold annual meetings of
shareholders so long as the Common Shares are listed on a national securities
exchange and such meetings are required as a condition to such listing.

COMMON SHARES

The Declaration of Trust permits the Fund to issue an unlimited number of full
and fractional Common Shares of beneficial interest, $0.01 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 distributions when, as and if declared
by the Board. The 1940 Act or the terms of any borrowings or preferred shares
may limit the payment of distributions 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 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 Common
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.

While there are any borrowings or preferred shares outstanding, the Fund may not
be permitted to declare any cash distribution on its Common Shares, unless at
the time of such declaration, (i) all accrued distributions on preferred shares
or accrued interest on borrowings have been paid and (ii) the value of the
Fund's total assets (determined after deducting the amount of such
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

- 46 -

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 the
applicable redemption premium, if any, together with any accrued and unpaid
distributions 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 rating agency. 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 for
federal income tax purposes. The Fund intends, however, to the extent possible
to purchase or redeem preferred shares or reduce borrowings from time to time to
maintain compliance with such asset coverage requirements and may pay special
distributions 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, policies and risks" and
"Distributions." 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 to the holders thereof.

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 Board. 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 generally will not issue Common 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.
Common Share certificates that have been issued to an investor may be returned
at any time.

REPURCHASE OF COMMON SHARES

Because shares of closed-end funds frequently trade at a discount to their net
asset values, the Board has determined that from time to time it may be in the
interest of holders of Common Shares for the Fund to take corrective actions.
The Board, in consultation with the Adviser, will review at least annually 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, effect on the Fund's expenses, 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
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 recognition of the
possibility that the Common Shares might trade at a discount to net asset value
and that any such discount may not be in the interest of holders of Common
Shares, the Board, in consultation with the Adviser, from time to time may
review possible actions to reduce any such discount.

PREFERRED SHARES

The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with preference rights, including preferred shares
(the "preferred shares"), having a par value of $0.01 per share, in one or more
series, with rights as determined by the Board, by action of the Board without
the approval of the holders of Common Shares.

Under the requirements of the 1940 Act, the Fund must, immediately after the
issuance of any preferred shares, have an "asset coverage" of at least 200%.
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 the applicable redemption
premium, if any, together with any accrued and unpaid distributions thereon (on
a cumulative basis), whether or not earned or declared. The terms of the
preferred shares, including their distribution rate, voting rights, liquidation
preference and redemption provisions, will be determined by the Board (subject
to applicable law and the Fund's Declaration of Trust) if and

- 47 -

when it authorizes the preferred shares. The Fund may issue preferred shares
that provide for the periodic redetermination of the distribution rate at
relatively short intervals through an auction or remarketing procedure, although
the terms of the preferred shares may also enable the Fund to lengthen such
intervals. At times, the distribution rate on the Fund's preferred shares may
exceed the Fund's return after expenses on the investment of proceeds from the
preferred shares, resulting in a lower rate of return to Common Shareholders
than if the preferred shares were not outstanding.

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

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 distributions on the
preferred shares are unpaid in an amount equal to two full years' distributions
thereon, the holders of all outstanding preferred shares, voting as a class,
will be allowed to elect a majority of the Fund's Trustees until all
distributions in arrears have been paid or declared and set apart for payment.
In addition, if required by a rating agency rating the preferred shares or if
the Board 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 in other
circumstances, for example, if one payment on the preferred shares is in
arrears.

The Fund currently intends to seek an AAA or equivalent credit rating from one
or more rating agencies on any preferred shares that the Fund issues. The Fund
intends that, as long as preferred shares are outstanding, the composition of
its portfolio will reflect guidelines established by such rating agency.
Although, as of the date hereof, no rating agency has established guidelines
relating to the Fund's preferred shares, based on previous guidelines
established by Rating Agencies for the securities of other issuers, the Fund
anticipates that the guidelines with respect to the preferred shares will
establish a set of tests for portfolio composition and asset coverage that
supplement (and in some cases are more restrictive than) the applicable
requirements under the 1940 Act. Although, at this time, no assurance can be
given as to the nature or extent of the guidelines which may be imposed in
connection with obtaining a rating of the preferred shares, 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 investments 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 a rating agency will be more or less restrictive than as
described in this Prospectus.

CREDIT FACILITY/COMMERCIAL PAPER PROGRAM

The Fund currently intends to leverage through borrowings and intends to enter
into definitive agreements with respect to a credit facility/commercial paper
program or other borrowing program. The Fund may negotiate with commercial banks
to arrange a credit facility/commercial paper program pursuant to which the Fund
would expect to be entitled to borrow an amount equal to approximately one-third
of the Fund's total assets (inclusive of the amount borrowed) following the
closing of the offer and sale of the Common Shares offered hereby. Any such
borrowings would constitute financial leverage. Such a facility/commercial paper
program is not expected to be convertible into any other securities of the Fund,
outstanding amounts are expected to be prepayable by the Fund prior to final
maturity without significant penalty and there are not expected to be any
sinking fund or mandatory retirement provisions. Outstanding amounts would be
payable at maturity or such earlier times as required by the agreement. The Fund
may be required to prepay outstanding amounts under the facility/program or
incur a penalty rate of interest upon the occurrence of certain events of
default. The Fund would be expected to indemnify the lenders under the
facility/program against liabilities they may incur in connection with the
facility/program.

Under the 1940 Act, the Fund is not permitted to incur indebtedness, including
through the issuance of debt securities, unless immediately thereafter the total
asset value of the Fund's portfolio is at least 300% of the liquidation value of
the outstanding indebtedness (i.e., such liquidation value may not exceed 33
1/3% of the Fund's total assets). In addition, the Fund is not permitted to
declare any cash distribution on its Common Shares unless, at the time of such
declaration, the net asset value of the Fund's portfolio (determined after
deducting the amount of

- 48 -

such distribution) is at least 300% of such liquidation value. If the Fund
borrows money or enters into credit facility/ commercial paper program, the Fund
intends, to the extent possible, to retire outstanding debt, from time to time,
to maintain coverage of any outstanding indebtedness of at least 300%.

In addition, the Fund expects that a credit facility/program would contain
covenants that, among other things, likely will limit the Fund's ability to pay
distributions in certain circumstances, incur additional debt, change its
fundamental investment policies and engage in certain transactions, including
mergers and consolidations, and may require asset coverage ratios in addition to
those required by the 1940 Act. The Fund may be required to pledge its assets
and to maintain a portion of its assets in cash or high-grade securities as a
reserve against interest or principal payments and expenses. The Fund expects
that any credit facility/program would have customary covenant, negative
covenant and default provisions. There can be no assurance that the Fund will
enter into an agreement for a credit facility/ commercial paper program on terms
and conditions representative of the foregoing, or that additional material
terms will not apply. In addition, if entered into, any such credit
facility/program may in the future be replaced or refinanced by one or more
credit facilities having substantially different terms or by the issuance of
preferred shares or debt securities.

ANTI-TAKEOVER PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST

The Fund presently has provisions in its Agreement and Declaration of Trust and
By-laws governing documents which could have the effect of limiting, in each
case, (i) the ability of other entities or persons to acquire control of the
Fund, (ii) the Fund's freedom to engage in certain transactions or (iii) the
ability of the Fund's Trustees or shareholders to amend the Agreement and
Declaration of Trust and By-laws or effectuate changes in the Fund's management.
These provisions of the Agreement and Declaration of Trust and By-laws of the
Fund may be regarded as "anti-takeover" provisions. The Board is divided into
three classes, with the terms 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. A Trustee may be removed from office by the action
of a majority of the remaining Trustees or by a vote of the holders of at least
a majority of the shares then entitled to vote for the election of the
respective Trustee.

In addition, the Fund's Agreement and Declaration of Trust requires the
favorable vote of a majority of the Fund's Board followed by the favorable vote
of the holders of at least 75% of the outstanding shares of each affected class
or series of the Fund, voting separately as a class or series, to approve, adopt
or authorize certain transactions with 5% or greater holders of a class or
series of shares and their associates, unless the transaction has been approved
by at least 80% of the Trustees, in which case "a majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Fund shall be required.
For purposes of these provisions, a 5% or greater holder of a class or series 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 or series of
shares of beneficial interest of the Fund.

The 5% holder transactions subject to these special approval
requirements are:

o the merger or consolidation of the Fund or any subsidiary of the
Fund with or into any Principal Shareholder;

o the issuance of any securities of the Fund to any Principal
Shareholder for cash (other than pursuant to any automatic
dividend reinvestment plan);

o 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

o the sale, lease or exchange to the Fund or any subsidiary of the
Fund, 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 purposes of
such computation all assets sold, leased or exchanged in any
series of similar transactions within a twelve-month period.

To liquidate the Fund, the Fund's Agreement and Declaration of Trust requires
the favorable vote of a majority of the Board or the favorable vote of the
holders of at least a majority of the outstanding shares of each affected class
or series of the Fund, voting separately as a class or series.

- 49 -

The Board has determined that provisions with respect to the Board and the
shareholder voting requirements described above, which voting requirements are
greater than the minimum requirements under Delaware law or the 1940 Act, are in
the best interest of shareholders generally. Reference should be made to the
Agreement and Declaration of Trust on file with the SEC for the full text of
these provisions. See "Additional Information."

CONVERSION TO OPEN-END FUND

The Fund may be converted to an open-end management investment company at any
time if approved by the lesser of (i) two-thirds or more of the Fund's then
outstanding Common Shares and preferred shares (if any), each voting separately
as a class, or (ii) more than 50% of the then outstanding Common Shares and
preferred shares (if any), each voting separately as a class, if such conversion
is recommended by at least 75% of the Trustees then in office. 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 and/or its investment policies could prohibit the Fund from
complying with regulations of the SEC applicable to open-end management
investment companies unless significant changes in portfolio holdings and
investment policies are made. Conversion of the Fund to an open-end management
investment company also would require the redemption of any outstanding
preferred shares and could require the repayment of borrowings, which would
reduce 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. The Board believes, however, that the closed-end structure is desirable,
given the Fund's investment objectives and policies. Investors should assume,
therefore, that it is unlikely that the Board would vote to convert the Fund to
an open-end management investment company. Common Shareholders of an open-end
management investment company can 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. If converted to an open-end fund, the
Fund expects to pay all 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 would be sold at net asset value plus
a sales load.

- 50 -

Underwriting

The Underwriters named below, acting through UBS Securities LLC and Morgan
Stanley & Co. Incorporated, as lead manager and [ ], as their
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement with the Fund and the Adviser
(the "Underwriting Agreement"), to purchase from the Fund the number of Common
Shares set forth below opposite their respective names. The Underwriters are
committed to purchase and pay for all such Common Shares (other than those
covered by the over-allotment option described below) if any are purchased.

Number of
Underwriters Common Shares
-------------
UBS Securities LLC ...........................................
Morgan Stanley & Co. Incorporated.............................
-------------

Total...........................................
=============

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

The Fund has agreed to pay a commission to the Underwriters in the amount of
$0. per Common Share (4.50% of the public offering price per Common Share). The
Representatives have advised the Fund that the Underwriters may pay up to
$ per Common Share from such commission to selected dealers who sell the
Common Shares and that such dealers may reallow a concession of up to $ per
Common Share to certain other dealers who sell Common Shares. The Adviser has
agreed to (i) reimburse all organizational costs and (ii) pay all offering costs
of the Fund (other than sales loads) that exceed $_____ per Common Share.
Investors must pay for any Common Shares purchased on or before , 2007.

Prior to this offering, there has been no public market for the Common Shares or
any other securities of the Fund. Consequently, the offering price for the
Common Shares was determined by negotiation among the Fund and the
Representatives. There can be no assurance, however, that the price at which
Common Shares sell after this offering will not be lower than the price at which
they are sold by the Underwriters or that an active trading market in the Common
Shares will develop and continue after this offering. The minimum investment
requirement is 100 Common Shares ($ ).

The Fund and the Adviser have each agreed to indemnify the several Underwriters
for or to contribute to the losses arising out of certain liabilities, including
liabilities under the Securities Act, except in the cases of willful
misfeasance, bad faith or gross negligence or reckless disregard of applicable
obligations and duties.

The Fund has agreed not to offer, sell or register with the SEC any additional
equity securities of the Fund, other than issuances of Common Shares, including
pursuant to the Fund's Dividend Reinvestment Plan, and issuances in connection
with any preferred shares, each as contemplated in this Prospectus, for a period
of 180 days after the date of the Underwriting Agreement without the prior
written consent of the Representatives.

In connection with this offering, the Underwriters may purchase and sell Common
Shares in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Shares and syndicate short positions involve
the sale by the Underwriters of a greater number of Common Shares than they are
required to purchase from the Fund in this offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Common Shares sold in this offering
for their account may be reclaimed by the syndicate if such Common Shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Shares, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if

- 51 -

commenced, may be discontinued at any time without notice. These transactions
may be effected on the New York Stock Exchange or otherwise.

The Fund anticipates that the Representatives and certain other Underwriters may
from time to time act as brokers or dealers in connection with the execution of
its portfolio transactions after they have ceased to be Underwriters and,
subject to certain restrictions, may act as such brokers while they are
Underwriters.

In connection with the offering, certain of the Underwriters or selected dealers
may distribute Prospectuses electronically.

SHAREHOLDER SERVICING FEE, ADDITIONAL COMPENSATION AND OTHER RELATIONSHIPS

Pursuant to a shareholder servicing agreement (the "Shareholder Servicing
Agreement") between UBS Securities LLC and the Adviser, UBS Securities LLC,
following the completion of this offering, will at the request of and as
specified by the Adviser: (i) undertake to make available public information
pertaining to the Fund on an ongoing basis and to communicate to investors and
prospective investors the Fund's features and benefits, (ii) make available to
investors and prospective investors market price, net asset value, yield and
other information regarding the Fund, if reasonably obtainable, for the purpose
of maintaining the visibility of the Fund in the investor community (provided
that services described in (i) and (ii) above shall not include customary market
research information provided by UBS Securities LLC or its registered
broker-dealer affiliates in the ordinary course of their business); (iii)
provide certain economic research and statistical information and reports, if
reasonably obtainable, on matters including the Fund's market performance and
comparative information regarding the Fund and other investment funds, to the
Adviser or the Fund, and consult with representatives of the Adviser and the
Board of Trustees of the Fund in connection therewith; and (iv) provide
information to and consult with the Adviser and/or the Board of Trustees of the
Fund with respect to applicable strategies designed to address market value
discounts, including providing information concerning the use and impact of such
strategies by other market participants; provided, however, that under the terms
of the Shareholder Servicing Agreement, UBS Securities LLC is not obligated to
render any opinions, valuations or recommendations of any kind or to perform any
such similar services. For these services, the Adviser (and not the Fund) will
pay UBS Securities LLC a fee computed daily and payable quarterly equal, on an
annual basis, to [ ]% of the Fund's Managed Assets. The total of all of the
payments payable to UBS Securities LLC under the Shareholder Servicing Agreement
will not exceed [ ]% of the aggregate initial offering price of the Common
Shares offered hereby. Under the terms of the Shareholder Servicing Agreement,
UBS Securities LLC is relieved from liability to the Adviser or the Fund for any
act or omission to act in the course of its performances under the Shareholder
Servicing Agreement in the absence of bad faith, gross negligence or willful
misconduct on the part of UBS Securities LLC. The Shareholder Servicing
Agreement will continue so long as the investment management agreement remains
in effect between the Fund and the Adviser or any successor in interest or
affiliate of the Adviser as and to the extent that the investment management
agreement is renewed periodically in accordance with the 1940 Act.

[In connection with this transaction, Morgan Stanley & Co. Incorporated will be
paid a marketing and structuring fee by the Adviser (and not the Fund) equal to
[ ] % of the aggregate price to the public of the common shares sold by Morgan
Stanley & Co. Incorporated (including shares over-allotted by Morgan Stanley &
Co. Incorporated regardless of whether the underwriters' over-allotment option
is exercised), and which will total $ . The marketing and structuring fee paid
to Morgan Stanley & Co. Incorporated will not exceed % of the total price to the
public of the common shares sold in this offering. In contrast to the
underwriting discounts and commissions (earned under the underwriting agreement
by the underwriting syndicate as a group), this marketing and structuring fee
will be earned by and paid to Morgan Stanley & Co. Incorporated by the Adviser
for advice to the Adviser on the design and structuring of, and marketing
assistance with respect to, the Fund and the distribution of its common shares.
These services provided by Morgan Stanley & Co. Incorporated to the Adviser are
unrelated to the Adviser's function of advising the Fund as to its investments
in securities.

- 52 -

The Adviser (and not the Fund) may also pay certain qualifying underwriters a
sales incentive fee if certain sales thresholds are met in connection with the
offering.

The Adviser (and not the Fund) has agreed pursuant to an additional compensation
agreement (the "Additional Compensation Agreement") to pay to certain qualifying
Underwriters who meet specified sales targets ("Qualifying Underwriters"),
quarterly in arrears, an annual fee of up to 0. % of the Fund's average daily
gross assets attributable to Common Shares sold by such Qualifying Underwriters
(including a proportionate allocation of the Fund's assets that may in the
future be acquired using leverage, thus increasing the total amount of assets on
which the fee is paid). Such sales targets may be waived or lowered with respect
to any Underwriter in the sole discretion of the Adviser. These fee payments
will remain in effect only so long as the Advisory Agreement remains in effect
between the Fund and the Adviser or any successor in interest or affiliate of
the Adviser, as and to the extent that such Advisory Agreement is renewed
periodically in accordance with the 1940 Act. will receive additional
compensation which will not exceed % of the aggregate initial offering price
of the Common Shares offered hereby. Additionally, the Adviser (and not the
Fund) will pay to from its own assets a fee for advice relating to the
structure and design of the Fund and the organization of the Fund as well as
services related to the sale and distribution of the Fund's Common Shares in an
amount up to approximately $ which will not exceed % of the aggregate
initial offering price of the Common Shares offered hereby. It is not
anticipated that would be obligated to provide ongoing shareholder or
other services to the Fund in consideration of such fee.

The sum of the noted fees to be paid by the Adviser to the Qualifying
Underwriters and to and the sales load to be paid by the Fund will not
exceed 9.00% of the aggregate initial offering price of the Common Shares
offered hereby. None of the compensation to be received by Underwriters with
respect to additional compensation transactions will be subject to any discount
methodology.

Morgan Stanley & Co. Incorporated is an affiliate of the Adviser.

Dividend paying agent, transfer agent and registrar

Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A.
will act as the Fund's dividend paying agent, transfer agent and the registrar
for the Fund's Common Shares. The principal address of the Transfer Agent is
Computershare Trust Company, N.A., 250 Royall Street, Canton, Massachusetts
02021.

Custodian

State Street Bank and Trust Company will serve as custodian for the Fund. The
Custodian will hold cash, securities, and other assets of the Fund as required
by the 1940 Act. Custody fees are payable monthly based on assets held in
custody, investment purchases and sales activity and account maintenance fees,
plus reimbursement for certain out-of-pocket expenses. The principal business
address of the Custodian is One Lincoln Street, Boston, Massachusetts 02111.

Legal opinions

With respect to matters of U.S. law, the validity of the Common Shares offered
hereby will be passed on for the Fund by Skadden, Arps, Slate, Meagher & Flom
LLP, Chicago, Illinois. Certain legal matters will be passed on for the
Underwriter by Clifford Chance US LLP, New York, New York, who may rely on the
opinion of Skadden, Arps, State, Meagher & Flom LLP as to matters of Delaware
law. Davis Polk & Wardwell has advised the Subadviser with respect to certain
matters in connection with the offering.

- 53 -

Reports to shareholders

The Fund will send to holders of Common Shares unaudited semi-annual and audited
annual reports, including a list of investments held.

Independent registered public accounting firm

, Chicago, Illinois, are the Fund's independent registered
public accounting firm and will audit the Fund's financial statements.

Additional information

The Prospectus and the SAI do not contain all of the information set forth in
the Registration Statement that the Fund has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by its rules and regulations. The SAI can be obtained without charge
by calling 1-800-847-2424.

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.

- 54 -

Table of contents for the Statement of Additional Information

Investment Objectives, Policies and Risks...................
Investment Restrictions.....................................
Management of the Fund......................................
Other Agreements............................................
Portfolio Transaction and Brokerage Allocation..............
Net Asset Value.............................................
Description of Shares.......................................
Repurchase of Common Shares.................................
Tax Matters.................................................
Proxy Voting and Proxy Voting Record........................
Independent Registered Public Accounting Firm...............
Legal Counsel...............................................
Additional Information......................................
Appendix A: Ratings.........................................

- 55 -

The Fund's privacy policy

WE RESPECT YOUR PRIVACY

Van Kampen Investments and the Adviser appreciate that you have provided us with
your personal financial information. We strive to maintain the privacy of such
information while we help you achieve your financial objectives. This Privacy
Policy (the "Policy") describes what non-public personal information we collect
about you, why we collect it, and when we may share it with others.

We hope this Policy will help you understand how we collect and share non-public
personal information that we gather about you. Throughout this Policy, we refer
to the non-public information that personally identifies you or your accounts as
"personal information."

1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?

To serve you better and manage our business, it is important that we collect
and maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.

For example:

-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.

-- We may obtain information about account balances, your use of account(s)
and the types of products and services you prefer to receive from us through
your dealings and transactions with us and other sources.

-- We may obtain information about your creditworthiness and credit history
from consumer reporting agencies.

-- We may collect background information from and through third-party vendors
to verify representations you have made and to comply with various regulatory
requirements.

-- If you interact with us through our public and private Web sites, we may
collect information that you provide directly through online communications
(such as an e-mail address). We may also collect information about your Internet
service provider, your domain name, your computer's operating system and Web
browser, your use of our Web sites and your product and service preferences,
through the use of "cookies." "Cookies" recognize your computer each time you
return to one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting offerings
that may interest you. Please consult the Terms of Use of these sites for more
details on our use of cookies.

2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?

To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.

A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.

B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal

- 56 -

information with these companies, they are required to limit their use of
personal information to the particular purpose for which it was shared and they
are not allowed to share personal information with others except to fulfill that
limited purpose.

3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?

We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.

- 57 -

The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting offers to buy these securities in any jurisdiction where the
offer or sale is not permitted.

Subject to Completion
Dated April 2, 2007

VAN KAMPEN GLOBAL CREDIT OPPORTUNITIES FUND

STATEMENT OF ADDITIONAL INFORMATION

Van Kampen Global Credit Opportunities Fund (the "Fund") is a
diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund's primary
investment objective is to seek a high level of current income, with a secondary
objective of capital appreciation.

TABLE OF CONTENTS

Investment Objectives, Policies and Risks....................
Investment Restrictions......................................
Management of the Fund.......................................
Other Agreements.............................................
Portfolio Transactions and Brokerage Allocation..............
Net Asset Value..............................................
Description of Shares........................................
Repurchase of Common Shares..................................
Tax Matters..................................................
Proxy Voting Policy and Proxy Voting Record..................
Independent Registered Public Accounting Firm................
Legal Counsel................................................
Additional Information.......................................
Appendix A: Description of Securities Ratings...............

This Statement of Additional Information is dated , 2007.

This Statement of Additional Information (the "SAI") is not a
prospectus and is authorized for distribution to prospective investors only if
preceded or accompanied by the Prospectus for the Fund dated , 2007, as
supplemented from time to time, which is incorporated herein by reference. This
SAI should be read in conjunction with such Prospectus, a copy of which may be
obtained without charge by contacting your financial intermediary or by calling
the Fund at 1-800-847-2424. You may also obtain a copy of the Prospectus on the
Securities and Exchange Commission's (the "SEC") web site (http://www.sec.gov).

Capitalized terms used but not defined in this SAI have the meanings
ascribed to them in the Prospectus.

INVESTMENT OBJECTIVES, POLICIES AND RISKS

The following disclosure supplements the disclosure set forth under the
caption "Investment Objectives, Principal Investment Strategies and Risks" in
the Prospectus and does not, standing alone, present a complete or accurate
explanation of the matters disclosed. Readers must refer also to this caption in
the Prospectus for a complete presentation of the matters disclosed below.

Senior Loans

B-1

The Senior Loan Process

Senior Loans are generally negotiated between a borrower and several
lenders represented by one or more lenders acting as agent of all the lenders.
The agent is responsible for negotiating the loan agreement that establishes the
terms and conditions of the Senior Loan and the rights of the borrower and the
lenders. The agent is paid a fee by the borrower for its services.

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

The Fund normally relies on the agent to collect principal of and
interest on a Senior Loan. Furthermore, the Fund also relies in part on the
agent to monitor compliance by the borrower with the restrictive covenants in
the loan agreement and to notify the Fund (or the lender from whom the Fund has
purchased a Participation (as defined below)) of any adverse change in the
borrower's financial condition. The Fund will not purchase interests in Senior
Loans unless the agent, lender and any other person positioned between the Fund
and the borrower has entered into an agreement that provides for the holding of
assets in safekeeping for, or the prompt disbursement of assets to, the Fund.
Insolvency of the agent or other persons positioned between the Fund and the
borrower could result in losses for the Fund.

The Fund may be required to pay and may receive various fees and
commissions in connection with purchasing, selling and holding interests in
Senior Loans. The fees normally paid by borrowers include three primary types:
facility fees, commitment fees and prepayment penalties. Facility fees are paid
to lenders when a Senior Loan is originated. Commitment fees are paid to lenders
on an ongoing basis based on the unused portion of a Senior Loan commitment.
Lenders may receive prepayment penalties when a borrower prepays a Senior Loan.
The Fund receives these fees directly from the borrower if the Fund is an
original lender (as defined below) or, in the case of commitment fees and
prepayment penalties, if the Fund acquires an Assignment (as defined below).
Whether the Fund receives a facility fee in the case of an Assignment, or any
fees in the case of a Participation (as defined below), depends on negotiations
between the Fund and the lender selling such interests. When the Fund buys an
Assignment, it may be required to pay a fee to the lender selling the
Assignment, or to forgo a portion of interest and fees payable to the Fund.
Occasionally, the assignor pays a fee to the assignee. A person selling a
Participation to the Fund may deduct a portion of the interest and any fees
payable to the Fund as an administrative fee. The Fund may be required to pass
along to a person that buys a Senior Loan from the Fund a portion of any fees
that the Fund is entitled to.

The Fund may have obligations under a loan agreement, including the
obligation to make additional loans in certain circumstances. The Fund intends
to reserve against such contingent obligations by segregating cash and/or liquid
securities.

Types of Senior Loan Investments

The Fund may act as one of a group of lenders originating a Senior Loan
(an "original lender"), may purchase assignments or novations ("Assignments") of
portions of Senior Loans from third parties and may invest in participations
("Participations") in Senior Loans.

Original Lender. When the Fund acts as an original lender, it may
participate in structuring the Senior Loan. When the Fund is an original lender,
it will have a direct contractual relationship with the borrower, may enforce
compliance of the borrower with the terms of the loan agreement and may have
rights with respect to any funds acquired by other lenders through set-off.
Lenders also have full voting and consent rights under the applicable loan
agreement. Action subject to lender vote or consent generally requires the vote
or consent of the holders of some specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as reducing the
amount of interest on or principal of a Senior Loan, releasing collateral,
changing the maturity

B-2

of a Senior Loan or a change in control of the borrower, frequently require the
unanimous vote or consent of all lenders affected. The Fund will never act as
the agent or principal negotiator or administrator of a Senior Loan.

Assignment. The purchaser of an Assignment typically succeeds to all
the rights and obligations under the loan agreement of the assigning lender and
becomes a lender under the loan agreement. Assignments may, however, be arranged
through private negotiations, and the rights and obligations acquired by the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning lender.

Participations. When the Fund purchases a Participation in a Senior
Loan, the Fund will usually have a contractual relationship only with the lender
selling the Participation and not with the borrower. The Fund may have the right
to receive payments of principal, interest and any fees to which it is entitled
only from the lender selling the Participation and only upon receipt by the
lender of such payments from the borrower. As a result, the Fund may assume the
credit risk of both the borrower and the lender selling the Participation. In
the event of insolvency of the lender selling a Participation, the Fund may be
treated as a general creditor of the lender.

The Fund generally will not have the right to enforce compliance by the
borrower with the loan agreement, nor rights to any funds acquired by other
lenders through set-off against the borrower. In addition, when the Fund holds a
Participation in a Senior Loan, it may not have the right to vote on whether to
waive enforcement of any restrictive covenant breached by a borrower. lenders
voting in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and may not consider the interests of
the Fund. The Fund may not benefit directly from the collateral supporting a
Senior Loan in which it has purchased the Participation, although lenders that
sell Participations generally are required to distribute liquidation proceeds
received by them pro rata among the holders of such Participations.

Lower Grade Loans and Debt

The Fund's investments may include obligations with the lowest grade
assigned by recognized rating organizations and unrated obligations of
comparable quality. Obligations assigned the lowest grade ratings include those
of companies that are in default or are in bankruptcy or reorganization.
Obligations of such companies are regarded by the rating agencies as having
extremely poor prospects of ever attaining any real investment standing and are
usually available at deep discounts from the face values of the instruments. A
security purchased at a deep discount may currently pay a very high effective
yield. In addition, if the financial condition of the issuer improves, the
underlying value of the obligation may increase, resulting in capital
appreciation. If the company defaults on its obligations or remains in default,
or if the plan of reorganization does not provide sufficient payments for
debtholders, the deep discount obligations may stop generating income and lose
value or become worthless. The Adviser will balance the benefits of deep
discount obligations with their risks. While a diversified portfolio may reduce
the overall impact of a deep discount obligation that is in default or loses its
value, the risk cannot be eliminated.

Few lower-grade obligations are listed for trading on any national
securities exchange, and issuers of lower-grade obligations may choose not to
have a rating assigned to their obligations by any nationally recognized
statistical rating organization. As a result, the Fund's portfolio may consist
of a higher portion of unlisted or unrated obligations as compared with a fund
that invests primarily in higher-grade obligations. Unrated obligations are
usually not as attractive to as many buyers as are rated obligations, a factor
which may make unrated obligations less marketable. These factors may have the
effect of limiting the availability of the obligations for purchase by the Fund
and may also limit the ability of the Fund to sell such obligations at their
fair value either to meet redemption requests or in response to changes in the
economy or the financial markets. Further, to the extent the Fund owns or may
acquire illiquid or restricted lower-grade obligations, these obligations may
involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.

The markets for lower-grade loans and debt obligations may be less
liquid than the markets for higher-grade obligations. Liquidity relates to the
ability of a fund to sell an obligation in a timely manner at a price which
reflects the value of that obligation. To the extent that there is no
established retail market for some of the lower-grade securities in which the
Fund may invest, trading in such securities may be relatively inactive. Prices
of lower-grade obligations may decline rapidly in the event a significant number
of holders decide to sell. Changes in expectations regarding an individual
issuer of lower-grade obligations generally could reduce market liquidity for

B-3

such obligations and make their sale by the Fund more difficult, at least in the
absence of price concessions. The effects of adverse publicity and investor
perceptions may be more pronounced for securities for which no established
retail market exists as compared with the effects on securities for which such a
market does exist. An economic downturn or an increase in interest rates could
severely disrupt the market for such obligations and adversely affect the value
of outstanding obligations or the ability of the issuers to repay principal and
interest. Further, the Fund may have more difficulty selling such obligations in
a timely manner and at their stated value than would be the case for obligations
for which an established retail market does exist.

During periods of reduced market liquidity or in the absence of readily
available market quotations for lower-grade obligations held in the Fund's
portfolio, the ability of the Fund to value the Fund's obligations becomes more
difficult and the judgment of the Fund may play a greater role in the valuation
of the Fund's obligations due to the reduced availability of reliable objective
data.

The Fund will rely on the Adviser's or the Subadviser's judgment,
analysis and experience in evaluating the creditworthiness of an issuer. The
amount of available information about the financial condition of certain
lower-grade issuers may be less extensive than other issuers. In their analysis,
the Adviser and the Subadviser may consider the credit ratings of recognized
rating organizations in evaluating obligations although the Adviser and the
Subadviser do not rely primarily on these ratings. Credit ratings of securities
rating organizations evaluate only the safety of principal and interest
payments, not the market risk. In addition, ratings are general and not absolute
standards of quality, and credit ratings are subject to the risk that the
creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Adviser and the Subadviser continuously
monitor the issuers of obligations held in their respective managed portions of
the Fund. Additionally, since most foreign income obligations are not rated, the
Fund will invest in such obligations based on the analysis of the Adviser and
the Subadviser without any guidance from published ratings. Because of the
number of investment considerations involved in investing in lower-grade
obligations and foreign income obligations, achievement of the Fund's investment
objectives may be more dependent upon the credit analysis of the Adviser and the
Subadviser than is the case with investing in higher-grade obligations.

New or proposed laws may have an impact on the market for lower-grade
obligations. The Fund is unable at this time to predict what effect, if any,
legislation may have on the market for lower-grade obligations.

Strategic Transactions

The Fund may, but is not required to, use various investment strategies
as described below ("Strategic Transactions") to earn income, to facilitate
portfolio management and to mitigate risks. Techniques and instruments may
change over time as new instruments and strategies are developed or as
regulatory changes occur. Although the Adviser or the Subadviser seek to use
such transactions to further the Fund's investment objectives, no assurance can
be given that the use of these transactions will achieve this result. The Fund's
activities involving Strategic Transactions may be limited by the requirements
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code" or
"Code"), for qualification as a regulated investment company.

Call and Put Options

The Fund may purchase and sell call or put options on securities,
including U.S. Treasury and agency securities, foreign sovereign debt,
mortgage-backed securities, corporate debt securities, Eurodollar instruments
and foreign debt securities that are traded on U.S. and foreign securities
exchanges and in the over-the-counter ("OTC") markets and may also purchase
related futures contracts on such securities, indices and currencies. All calls
sold by the Fund must be "covered" (i.e., the Fund must own the securities or
futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though the
Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold. In selling put options, there is a risk that
the Fund may be required to buy the underlying security at a disadvantageous
price above the market price.

B-4

Selling Call and Put Options

Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option selling program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Selling options on portfolio securities is likely to result in a higher
portfolio turnover rate.

Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund owns or has the
right to acquire securities of the type that it would be obligated to deliver if
any outstanding option were exercised. An option is for cross-hedging purposes
if it is not covered by the security subject to the option, but is designed to
provide a hedge against another security which the Fund owns or has the right to
acquire. In such circumstances, the Fund collateralizes the option by
segregating cash and/or liquid securities in an amount at least equal to the
market value of the underlying security, marked to market daily, while the
option is outstanding.

The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would segregate cash and/or liquid securities in an amount at least equal
to the exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.

Closing Purchase Transactions and Offsetting Transactions. To terminate
its position as a writer of a call or put option, the Fund could enter into a
"closing purchase transaction," which is the purchase of a call (put) on the
same underlying security and having the same exercise price and expiration date
as the call (put) previously sold by the Fund. The Fund would realize a gain
(loss) if the premium plus commission paid in the closing purchase transaction
is lesser (greater) than the premium it received on the sale of the option. The
Fund would also realize a gain if an option it has written lapses unexercised.

The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in OTC transactions. The Fund could close
out its position as a seller of an option only if a liquid secondary market
exists for options of that series, but there is no assurance that such a market
will exist, particularly in the case of OTC options, since they can be closed
out only with the other party to the transaction. Alternatively, the Fund could
purchase an offsetting option, which would not close out its position as a
seller, but would provide an asset of equal value to its obligation under the
option sold. If the Fund is not able to enter into a closing purchase
transaction or to purchase an offsetting option with respect to an option it has
sold, it will be required to maintain the securities subject to the call or the
collateral securing the option until a closing purchase transaction can be
entered into (or the option is exercised or expires) even though it might not be
advantageous to do so.

Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.

Purchasing Call and Put Options

The Fund could purchase call options to protect against anticipated
increases in the prices of securities it wishes to acquire. Alternatively, call
options could be purchased for capital appreciation. Since the premium paid for
a call option is typically a small fraction of the price of the underlying
security, a given amount of funds will purchase call options covering a much
larger quantity of such security than could be purchased directly. By purchasing
call options, the Fund could benefit from any significant increase in the price
of the underlying security to a greater extent than had it invested the same
amount in the security directly. However, because of the very high volatility of
option premiums, the Fund would bear a significant risk of losing the entire
premium if the price of the underlying security did not rise sufficiently, or if
it did not do so before the option expired.

B-5

Put options may be purchased to protect against anticipated declines in
the market value of either specific portfolio securities or of the Fund's assets
generally. Alternatively, put options may be purchased for capital appreciation
in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options. In any case, the purchase of options for
capital appreciation would increase the Fund's volatility by increasing the
impact of changes in the market price of the underlying securities on the Fund's
net asset value.

OTC Options

The Fund is authorized to purchase and sell OTC options. OTC options
are purchased from or sold to securities dealers, financial institutions of
other parties ("Counterparties") through direct bilateral agreement with the
Counterparty.

Futures Contracts

The Fund may engage in transactions involving futures contracts and
options on futures contracts in accordance with the rules and interpretations of
the Commodity Futures Trading Commission (the "CFTC") under which the Fund would
be exempt from registration as a "commodity pool." An index futures contract is
an agreement pursuant to which two parties agree to take and make delivery of an
amount of cash equal to a specified dollar amount multiplied by the difference
between the index value at a specified time and the price at which the futures
contract originally was struck. No physical delivery of the underlying
securities in the index is made. An interest rate futures contract is an
agreement pursuant to which a party agrees to take or make delivery of a
specified debt security (such as U.S. Treasury bonds or notes) or to take or
make delivery of cash based upon the change in value of a basket or index of
securities at a specified future time and at a specified price. Interest rate
futures contracts also include cash settlement contracts based upon a specified
interest rate such as the London interbank offering rate for dollar deposits or
LIBOR.

Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit an amount of cash and/or
liquid securities equal to a percentage (which will normally range between 1%
and 10%) of the contract amount with either a futures commission merchant
pursuant to rules and regulations promulgated under the 1940 Act or with its
custodian in an account in the broker's name. This amount is known as initial
margin. The nature of initial margin in futures contract transactions is
different from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transaction. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract, which is returned to the
Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the initial margin
account, called variation margin, are made on a daily basis as the price of the
underlying securities or index fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as marking to
market. At any time prior to expiration of the futures contract, the Fund may
elect to terminate the position by taking an opposite position. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or a gain.

Futures Contract Strategies. When the Fund anticipates a significant
market or market sector advance, the purchase of a futures contract affords a
hedge against not participating in the advance at a time when the Fund is
otherwise fully invested ("anticipatory hedge"). Such purchase of a futures
contract would serve as a temporary substitute for the purchase of individual
securities, which may be purchased in an orderly fashion once the market has
stabilized. As individual securities are purchased, an equivalent amount of
futures contracts could be terminated by offsetting sales. The Fund may sell
futures contracts in anticipation of or in a general market or market sector
decline that may adversely affect the market value of the Fund's securities
("defensive hedge"). To the extent that the Fund's portfolio of securities
changes in value in correlation with the underlying security or index, the sale
of futures contracts would substantially reduce the risk to the Fund of a market
decline and, by so doing provides an alternative to the liquidation of
securities positions in the Fund. Ordinarily transaction costs associated with
futures contract transactions are lower than transaction costs that would be
incurred in the purchase and sale of the underlying securities.

B-6

Special Risks Associated with Futures Contract Transactions. There are
several risks connected with the use of futures contracts. These include the
risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities or index; the risk of market
distortion; the risk of illiquidity; and the risk of error in anticipating price
movement. There may be an imperfect correlation (or no correlation) between
movements in the price of the futures contracts and of the securities being
hedged. The risk of imperfect correlation increases as the composition of the
securities being hedged diverges from the securities upon which the futures
contract is based. If the price of the futures contract moves less than the
price of the securities being hedged, the hedge will not be fully effective. To
compensate for the imperfect correlation, the Fund could buy or sell futures
contracts in a greater dollar amount than the dollar amount of securities being
hedged if the historical volatility of the securities being hedged is greater
than the historical volatility of the securities underlying the futures
contract. Conversely, the Fund could buy or sell futures contracts in a lesser
dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is less than the historical
volatility of the securities underlying the futures contracts. It is also
possible that the value of futures contracts held by the Fund could decline at
the same time as portfolio securities being hedged; if this occurred, the Fund
would lose money on the futures contract in addition to suffering a decline in
value in the portfolio securities being hedged.

There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures contract market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures contract market and
the securities or index underlying the futures contract. Second, from the point
of view of speculators, the deposit requirements in the futures contract market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures contract markets may cause
temporary price distortions. Due to the possibility of price distortion in the
futures contract markets and because of the imperfect correlation between
movements in futures contracts and movements in the securities underlying them,
a correct forecast of general market trends by the Adviser may still not result
in a successful hedging transaction.

There is also the risk that futures contract markets may not be
sufficiently liquid. Futures contracts may be closed out only on an exchange or
board of trade that provides a market for such futures contracts. Although the
Fund intends to purchase or sell futures contracts only on exchanges and boards
of trade where there appears to be an active secondary market, there can be no
assurance that an active secondary market will exist for any particular contract
or at any particular time. In the event of such illiquidity, it might not be
possible to close a futures contract position and, in the event of adverse price
movement, the Fund would continue to be required to make daily payments of
variation margin. Since the securities being hedged would not be sold until the
related futures contract is sold, an increase, if any, in the price of the
securities may to some extent offset losses on the related futures contract. In
such event, the Fund would lose the benefit of the appreciation in value of the
securities.

Successful use of futures contracts is also subject to the Adviser's or
the Subadviser's ability to correctly predict the direction of movements in the
market. For example, if the Fund hedges against a decline in the market, and
market prices instead advance, the Fund will lose part or all of the benefit of
the increase in value of its securities holdings because it will have offsetting
losses in futures contracts. In such cases, if the Fund has insufficient cash,
it may have to sell portfolio securities at a time when it is disadvantageous to
do so to meet the daily variation margin.

Although the Fund intends to enter into futures contracts only if there
is an active market for such contracts, there is no assurance that an active
market will exist for the contracts at any particular time. Most U.S. futures
contract exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures contract positions and
subjecting some futures contract traders to substantial losses. In such event,
and in the event of adverse price movements, the Fund would be required to make
daily cash payments of variation margin. In such circumstances, an increase in
the value of the portion of the portfolio being hedged, if any, may partially or
completely offset losses on

B-7

the futures contract. However, there is no guarantee that the price of the
securities being hedged will, in fact, correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures contract.

Options on Futures Contracts

The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures contract position is accompanied by cash representing the difference
between the current market price of the futures contract and the exercise price
of the option. The Fund could purchase put options on futures contracts in lieu
of, and for the same purposes as the sale of a futures contract; at the same
time, it could write put options at a lower strike price (a "put bear spread")
to offset part of the cost of the strategy to the Fund. The purchase of call
options on futures contracts is intended to serve the same purpose as the actual
purchase of the futures contracts.

Risks of Transactions in Options on Futures Contracts. In addition to
the risks described above which apply to all options transactions, there are
several special risks relating to options on futures contracts. The Adviser and
the Subadviser will not purchase options on futures contracts on any exchange
unless in the Adviser's or the Subadviser's opinion, a liquid secondary exchange
market for such options exists. Compared to the use of futures contracts, the
purchase of options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of the underlying security or index, when the
use of an option on a future contract would result in a loss to the Fund when
the use of a future contract would not.

Options on Foreign Currencies

The Fund may purchase and write options on foreign currencies in a
manner similar to that in which forward contracts or futures contracts on
foreign currencies will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. To protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Fund will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a foreign currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.

The Fund may write options on foreign currencies for the same types of
purposes. For example, where the Fund anticipates a decline in the dollar value
of foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received. Similarly, instead of
purchasing a call option to protect against an anticipated increase in the
dollar cost of securities to be acquired, the Fund could write a put option on
the relevant currency which, if rates move in the manner projected, will expire
unexercised and allow the Fund to protect against such increased cost up to the
amount of the premium. As in the case of other types of options, however, the
writing of a foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Fund would be required
to purchase or sell the underlying currency at a loss which may not be offset by
the amount of the premium. Through the writing of options on foreign currencies,
the Fund also may be required to

B-8

forego all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.

The value of a foreign currency option is dependent upon the value of
the underlying foreign currency relative to the U.S. dollar. As a result, the
price of the option position may vary with changes in the value of either or
both currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.

The Fund may write call options on foreign currencies for cross-hedging
purposes. A call option on a foreign currency is for cross-hedging purposes if
it is not covered, but is designed to protect against a decline in the U.S.
dollar value of a security which the Fund owns or has the right to acquire and
which is denominated in the currency underlying the option due to an adverse
change in the exchange rate. In such circumstances, the Fund collateralizes the
option by segregating cash and/or liquid securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked to market
daily.

Combined Transactions

The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures contracts transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures contracts, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

Additional Risks of Options, Futures Contracts and Options on Futures Contracts

Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.

In the event of the bankruptcy of a broker through which the Fund
engages in transactions in options, futures contracts or options on futures
contracts, the Fund could experience delays and/or losses in liquidating open
positions purchased or incur a loss of all or part of its margin deposits.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Adviser.

Unlike transactions entered into by the Fund in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign

B-9

currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges,
subject to SEC regulation. Similarly, options on currencies may be traded OTC.
In an OTC trading environment, many of the protections afforded to exchange
participants will not be available. For example, there are no daily price
fluctuation limits, and adverse market movements could, therefore, continue to
an unlimited extent over a period of time. Although the purchaser of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, the option writer and a trader of
forward contracts could lose amounts substantially in excess of their initial
investments, due to the margin and collateral requirements associated with such
positions.

Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the OTC market, potentially permitting the Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the OTC market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political, legal, and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (v) lesser trading volume.

Swap Transactions

The Fund may enter into swap transactions, including, but not limited
to, currency, credit default, total return and interest rate swap agreements, as
well as options thereon, and may purchase or sell caps, floors and collars.

The Fund may enter into total return swaps. Total return swaps are used
as substitutes for owning the physical securities that compose a given market
index, or to obtain non-leveraged exposure in markets where no physical
securities are available such as an interest rate index. Total return refers to
the payment (or receipt) of an index's total return, which is then exchanged for
the receipt (or payment) of a floating interest rate. Total return swaps provide
the Fund with the additional flexibility of gaining exposure to a market or
sector index by using the most cost-effective vehicle available. Total return
swaps provide the Fund with the opportunity to actively manage the cash
maintained by the Fund as a result of not having to purchase securities to
replicate a given index. Similar to interest rate swaps, the cash backing total
return swaps is actively managed to earn a premium in excess of the floating
rate paid on the swap.

B-10

The Fund may enter into credit default swap contracts or credit-linked
notes for hedging purposes or to gain exposure to a credit in which the Fund may
otherwise invest. A credit default swap is an agreement between two parties to
exchange the credit risk of an issuer (reference entity). A buyer of a credit
default swap is said to buy protection by paying periodic fees in return for a
contingent payment from the seller if the reference entity has a credit event
such as bankruptcy, a failure to pay outstanding obligations or deteriorating
credit while the swap is outstanding. A seller of a credit default swap is said
to sell protection and thus collects the periodic fees and profits if the credit
of the reference entity remains stable or improves while the swap is outstanding
but the seller in a credit default swap contract would be required to pay an
agreed-upon amount to the buyer in the event of an adverse credit event of the
reference entity. A credit-linked note is a synthetic security, typically issued
by a special purpose vehicle, that trades like a bond issued by the reference
entity but with the economics of the credit default swap. For this security, the
buyer of protection sells the note. The buyer of protection (note seller) will
pay periodic payments and profit if the reference entity defaults. Unlike the
swap, the buyer of protection in a credit-linked note will receive money at the
time of transaction from the sale of the note, and will return this money at the
contract's maturity if no credit event occurs. Conversely, the seller of
protection purchases the notes. As with a credit default swap, the note
purchaser (protection seller) receives periodic payments. Unlike the swap
transaction, the protection seller must pay for the note at the time of the
transaction and will collect this money at the contract's maturity if no credit
event occurs.

Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. 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 on a contractually-based principal amount from the
party selling the 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 on a
contractually-based principal amount from the party selling the interest rate
floor. An interest rate collar combines the elements of purchasing a cap and
selling a floor. The collar protects against an interest rate rise above the
maximum amount but foregoes the benefit of an interest rate decline below the
minimum amount. Interest rate swaps, caps, floors and collars will be treated as
illiquid securities and will, therefore, be subject to the Fund's investment
restriction limiting investment in illiquid securities.

The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.

The Fund will enter into swap, cap or floor transactions only with
counterparties approved by the Adviser in accordance with guidelines established
by the Fund's Board of Trustees. The Adviser will monitor the creditworthiness
of counterparties to the Fund's swap, cap, floor and collar transactions on an
ongoing basis. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction. The Fund may enter into swaps, caps, floors and collars on
either an asset-based or liability-based basis, and will usually enter into
swaps on a net basis, i.e., the two payment streams are netted out, 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 swap will be accrued on a daily basis and
the Fund segregates an amount of cash and/or liquid securities having an
aggregate net asset value at least equal to the accrued excess. If the Fund
enters into a swap transaction on other than a net basis, the Fund would
segregate the full amount accrued on a daily basis of the Fund's obligations
with respect to the swap. To the extent the Fund sells (i.e., writes) caps,
floors and collars, it will segregate cash and/or liquid securities having an
aggregate net asset value at least equal to the full amount, accrued on a daily
basis, of the Fund's net obligations with respect to the caps, floors or
collars.

A swap option is a contract that gives a counterparty the right (but
not the obligation) to enter into a new swap agreement or to shorten, extend,
cancel or otherwise modify an existing swap agreement, at some designated future
time on specified terms. The Fund may write (sell) and purchase put and call
swap options.

B-11

The use of swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in its forecasts
of the market values, interest rates and other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these investment techniques were not used. The use of swaps, caps,
collars and floors may also have the effect of shifting the recognition of
income between current and future periods.

Structured Notes

Structured notes are derivative debt securities, the interest rate or
principal of which is determined by an unrelated indicator. Indexed securities
include structured notes as well as securities other than debt securities, the
interest rate or principal of which is determined by an unrelated indicator.
Indexed securities may include a multiplier that multiplies the indexed element
by a specified factor and, therefore, the value of such securities may be very
volatile. The terms of the structured and indexed securities may provide that in
certain circumstances no principal is due at maturity and therefore, may result
in a loss of invested capital. Structured and indexed securities may be
positively or negatively indexed, so that appreciation of the reference may
produce an increase or a decrease in the interest rate or the value of the
structured or indexed security at maturity may be calculated as a specified
multiple of the change in the value of the reference; therefore, the value of
such security may be very volatile. Structured and indexed securities may entail
a greater degree of market risk than other types of debt securities because the
investor bears the risk of the reference. Structured or indexed securities may
also be more volatile, less liquid, and more difficult to accurately price than
less complex securities or more traditional debt securities. To the extent the
Fund invests in these securities, however, the Adviser and the Subadviser
analyze these securities with respect to the portion of the Fund's portfolio
each manages in their overall assessment of the effective maturity of the Fund's
portfolio in an effort to monitor the Fund's interest rate exposure.

Use of Segregated and Other Accounts

Many Strategic Transactions, in addition to other requirements, require
that the Fund segregate cash and/or liquid securities to the extent Fund
obligations are not otherwise "covered" as described above. In general, either
the full amount of any obligation by the Fund to pay or deliver securities or
assets must be covered at all times by the securities, instruments or currency
required to be delivered (or securities convertible into the needed securities
without additional consideration), or, subject to any regulatory restrictions,
the Fund must segregate cash and/or liquid securities in an amount at least
equal to the current amount of the obligation. In the case of a futures contract
or an option on a futures contract, the Fund must deposit initial margin and
possible daily variation margin in addition to segregating cash and/or liquid
securities sufficient to meet its obligation to purchase or provide securities
or currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Strategic Transactions may be covered by other means when
consistent with applicable regulatory policies. The Fund also may enter into
offsetting transactions so that its combined position, coupled with any
segregated cash and/or liquid securities, equals its net outstanding obligation.

Investment Restrictions

The following are fundamental investment restrictions of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities (which for this purpose and under the 1940
Act means the lesser of (i) 67% or more of the Fund's voting securities present
at a meeting at which more than 50% of the Fund's outstanding voting securities
are present or represented by proxy or (ii) more than 50% of the Fund's
outstanding voting securities). Except as otherwise noted, all percentage
limitations set forth below apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting from
market fluctuations does not require any action. With respect to the limitations
on the issuance of senior securities and in the case of borrowings, the
percentage limitations apply at the time of issuance and on an ongoing basis.
The Fund may not:

1. Invest in a manner inconsistent with its classification as a "diversified
company" as provided by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief applicable to the Fund from
the provisions of the 1940 Act, as amended from time to time.

B-12

2. Issue senior securities nor borrow money, except the Fund may issue senior
securities or borrow money to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended
from time to time.

3. Act as an underwriter of securities issued by others, except to the extent
that, in connection with the disposition of portfolio securities, it may be
deemed to be an underwriter under applicable securities laws.

4. Invest in any security if, as a result, 25% or more of the value of the
Fund's total assets, taken at market value at the time of each investment, are
in the securities of issuers in any particular industry except (a) excluding
securities issued or guaranteed by the U.S. government and its agencies and
instrumentalities or securities of state and municipal governments or their
political subdivisions, or (b) as otherwise provided by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended
from time to time.

5. Purchase or sell real estate except that the Fund may: (a) acquire or lease
office space for its own use, (b) invest in securities of issuers that invest in
real estate or interests therein or that are engaged in or operate in the real
estate industry, (c) invest in securities that are secured by real estate or
interests therein, (d) purchase and sell mortgage-related securities, (e) hold
and sell real estate acquired by the Fund as a result of the ownership of
securities and (f) as otherwise permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other relief
applicable to the Fund from the provisions of the 1940 Act, as amended from time
to time.

6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; provided that this restriction
shall not prohibit the Fund from purchasing or selling options, futures
contracts and related options thereon, forward contracts, swaps, caps, floors,
collars and any other financial instruments or from investing in securities or
other instruments backed by physical commodities or as otherwise permitted by
(i) the 1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief applicable to the Fund from the provisions of
the 1940 Act, as amended from time to time.

7. Make loans of money or property to any person, except (a) to the extent that
securities or interests in which the Fund may invest are considered to be loans,
(b) through the loan of portfolio securities, (c) by engaging in repurchase
agreements or (d) as may otherwise be permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended
from time to time.

MANAGEMENT OF THE FUND

Trustees and Officers

The business and affairs of the Fund are managed under the direction of
the Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by the trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), the Adviser, the Subadviser, Van Kampen
Distributors Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser or its affiliates as of the date of this Statement of Additional
Information. Trustees serve three year terms or until their successors are duly
elected and qualified. Officers are annually elected by the Trustees.

B-13

Independent Trustees

Number of
Funds in
Term of Fund
Position(s) Office and Complex
Name, Age and Address of Held with Length of Principal Occupations(s) Overseen Other Directorships
Independent Trustee (1) Fund (1) Time Served During Past 5 Years By Trustee Held by Trustee

Interested Trustee

Number of
Funds in
Term of Fund
Position(s) Office and Complex
Name, Age and Address of Held with Length of Principal Occupations(s) Overseen Other Directorships
Independent Trustee Fund Time Served During Past 5 Years By Trustee Held by Trustee

* Such trustee is an "interested person" (within the meaning of section 2(a)(19)
of the 1940 Act) of the funds in the Fund Complex by reason of each of he and
his firm currently providing legal services to such funds in the Fund Complex.

(1) After a trustee's initial term, each trustee is expected to serve a
three-year term concurrent with the class of trustees for which he serves:

---Messrs. and , as Class I trustees, are
expected to stand for re-election at the Fund's 2008 annual
meeting of shareholders.
---Messrs. and , as Class II trustees, are
expected to stand for re-election at the Fund's 2009 annual
meeting of shareholders.
---Messrs. and , as Class III trustees, are
expected to stand for re-election at the Fund's 2010 annual
meeting of shareholders.

Officers

Term of
Office and
Name, Age, and Position(s) Length of Principal Occupation(s)
Address of Officer Held with Fund Time Served During Past 5 Years

Compensation

Each trustee who is not an affiliated person (as defined in the 1940 Act)
of Van Kampen Investments, the Adviser, the Subadviser or the Distributor (each
a "Non-Affiliated Trustee") is compensated by an annual retainer and meeting
fees for services to funds in the Fund Complex. Each fund in the Fund Complex
(except Van Kampen Exchange Fund) provides a deferred compensation plan to its
Non-Affiliated Trustees that allows such trustees to defer receipt of their
compensation until retirement and earn a return on such deferred amounts.
Amounts deferred are retained by the Fund and earn a rate of return determined
by reference to the return on the common shares of the

B-14

Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee. To the extent permitted by the 1940 Act, the Fund may
invest in securities of those funds selected by the Non-Affiliated Trustees in
order to match the deferred compensation obligation. The deferred compensation
plan is not funded and obligations thereunder represent general unsecured claims
against the general assets of the Fund. Deferring compensation has the same
economic effect as if the Non-Affiliated Trustee reinvested his compensation
into the funds. Each fund in the Fund Complex (except Van Kampen Exchange Fund)
provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met. Under the retirement plan, a
Non-Affiliated Trustee who is receiving compensation from the Fund prior to such
Non-Affiliated Trustee's retirement, has at least 10 years of service (including
years of service prior to adoption of the retirement plan) and retires at or
after attaining the age of 60, is eligible to receive a retirement benefit per
year for each of the 10 years following such retirement from the Fund.
Non-Affiliated Trustees retiring prior to the age of 60 or with fewer than 10
years but more than five years of service may receive reduced retirement
benefits from the Fund.

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

Compensation Table

Fund Complex
------------------------------------------------------------

Aggregate
Estimated Estimated
Aggregate Maximum Annual
Aggregate Pension or Benefits from Total
Compensation Retirement the Compensation
before Benefits Fund Complex before Deferral
Deferral from Accrued As Part Upon from Fund
Name the Fund of Expenses (2) Retirement(3) Complex
----------------------------------------------------------------------------------------------------------------
Independent Trustees
--------------------------------------

Interested Trustee
--------------------------------------

(1) The amounts shown in this column represent an estimate of the aggregate
compensation before deferral with respect to the Fund's first full fiscal year.

(2) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating funds in the Fund Complex for each of the
trustees for the funds' respective fiscal years ended in 2006. The retirement
plan is described above the Compensation Table.

(3) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex as of the date of this Statement of
Additional Information for each year of the 10-year period commencing in the
year of such trustee's anticipated retirement. The retirement plan is described
above the Compensation Table.

(4) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 2006 before deferral
by the trustees under the deferred compensation plan. Because the

B-15

funds in the Fund Complex have different fiscal year ends, the amounts shown in
this column are presented on a calendar year basis.

Board Committees

The Board of Trustees' has three committees, an audit committee, a
governance committee and a brokerage and services committee. Each of the Board's
committees are comprised solely of "Independent Trustees", which is defined for
purposes herein as trustees who: (1) are not "interested persons" of the Fund as
defined by the 1940 Act and (2) are "independent" of the Fund as defined by the
New York Stock Exchange, American Stock Exchange and Chicago Stock Exchange
listing standards. In addition to being Independent Trustees as defined above,
each of these trustees also meets the additional independence requirements for
audit committee members and nominating committee members as defined by the New
York Stock Exchange, American Stock Exchange and Chicago Stock Exchange listing
standards.

The Board's audit committee consists of Messrs. .
The audit committee makes recommendations to the Board of Trustees concerning
the selection of the Fund's independent registered public accounting firm,
reviews with such independent registered public accounting firm the scope and
results of the Fund's annual audit and considers any comments which the
independent registered public accounting firm may have regarding the Fund's
financial statements, accounting records or internal controls. The Board of
Trustees has adopted a formal written charter for the audit committee which sets
forth the audit committee's responsibilities. The Fund's audit committee
financial expert is Mr. .

The Board's governance committee consists of Messrs. .
The governance committee identifies individuals qualified to serve as
Independent Trustees on the Board and on committees of the Board, advises the
Board with respect to Board composition, procedures and committees, develops and
recommends to the Board a set of corporate governance principles applicable to
the Fund, monitors corporate governance matters and makes recommendations to the
Board, and acts as the administrative committee with respect to Board policies
and procedures, committee policies and procedures and codes of ethics. The
Independent Trustees of the Fund select and nominate any other nominee
Independent Trustees for the Fund. While the Independent Trustees of the Fund
expect to be able to continue to identify from their own resources an ample
number of qualified candidates for the Board of Trustees as they deem
appropriate, they will consider nominations from shareholders to the Board.
Nominations from shareholders should be in writing and sent to the Independent
Trustees as described below.

The Board's brokerage and services committee consists of
Mesdames and Mr. . The brokerage and services
committee reviews the Fund's allocation of brokerage transactions, if any, and
reviews transfer agency and shareholder servicing arrangements.

Shareholder Communications

Shareholders may send communications to the Board of Trustees.
Shareholders should send communications intended for the Board by addressing the
communication directly to the Board (or individual Board members) and/or
otherwise clearly indicating in the salutation that the communication is for the
Board (or individual Board members) and by sending the communication to either
the Fund's office or directly to such Board member(s) at the address specified
for such trustee above. Other shareholder communications received by the Fund
not directly addressed and sent to the Board will be reviewed and generally
responded to by management, and will be forwarded to the Board only at
management's discretion based on the matters contained therein.

Share Ownership

As of December 31, 2006, the most recently completed calendar year
prior to the date of this Statement of Additional Information, no shares of the
Fund had been issued, thus no trustees show any ownership in the Fund. As of
such date, excluding deferred compensation balances as described in the
Compensation Table, each trustee of the Fund beneficially owned equity
securities of all of the funds in the Fund Complex overseen by the trustee in
the dollar range amounts specified below.

B-16

2006 Trustee Beneficial Ownership of Securities

Independent Trustees

Trustees
--------

Dollar range of equity none none none none none none none none none
securities in the Fund

Aggregate dollar range of
equity securities in all
registered investment
companies overseen by
trustee in the Fund
Complex.....................

Interested Trustee

Trustee
-------

Dollar range of equity securities in the Fund............................................. none

Aggregate dollar range of equity securities in all registered investment
companies overseen by trustee in the Fund Complex.........................................

As of December 31, 2006, the most recently completed calendar year
prior to the date of this Statement of Additional Information, no shares of the
Fund had been issued, thus no trustees show any ownership in the Fund. As of
such date, including deferred compensation balances (which are amounts deferred
and thus retained as described in the Compensation Table), each trustee of the
Fund had in the aggregate, combining beneficially owned equity securities and
deferred compensation all of the funds in the Fund Complex overseen by the
trustee, the dollar range amounts specified below.

2006 Trustee Beneficial Ownership and Deferred Compensation

Independent Trustees

Trustees
--------

Dollar range of equity none none none none none none none none none
securities and deferred
compensation in the Fund

Aggregate dollar range of
equity securities and
deferred compensation in
all registered investment
companies overseen by
trustee in the Fund
Complex.....................

B-17

Interested Trustee

Trustee
-------

Dollar range of equity securities and deferred compensation in the Fund................... none
Aggregate dollar range of equity securities and deferred compensation in all
registered investment companies overseen by trustee in the Fund Complex...................

As of , 2007, trustees and officers of the Fund as a group owned
less than 1% of the Shares.

Codes of Ethics

The Fund, the Adviser and the Subadviser have each adopted a Codes of
Ethics (the "Codes of Ethics") that sets forth general and specific standards
relating to the securities trading activities of their employees. The Codes of
Ethics do not prohibit employees from acquiring securities that may be purchased
or held by the Fund, but are intended to ensure that all employees conduct their
personal transactions in a manner that does not interfere with the portfolio
transactions of the Fund or other Van Kampen funds, or that such employees take
unfair advantage of their relationship with the Fund. Among other things, the
Codes of Ethics prohibits certain types of transactions absent prior approval,
imposes various trading restrictions (such as time periods during which personal
transactions may or may not be made) and requires quarterly reporting of
securities transactions and other reporting matters. All reportable securities
transactions and other required reports are to be reviewed by appropriate
personnel for compliance with the Codes of Ethics. Additional restrictions apply
to portfolio managers, traders, research analysts and others who may have access
to non-public information about the trading activities of the Fund or other Van
Kampen funds or who otherwise are involved in the investment advisory process.
Exceptions to these and other provisions of the Codes of Ethics may be granted
in particular circumstances after review by appropriate personnel. The Code of
Ethics can be reviewed and copied at the SEC's public reference room in
Washington, DC (call 1-202-551-8090 for information on the operation of the
public reference room); on the EDGAR Database on the SEC's Internet site
http://www.sec.gov; or, upon payment of copying fees, by writing the SEC's
public reference section, Washington, DC 20549-0102, or by electronic mail at
publicinfo@sec.gov.

Adviser

The Fund's investment adviser is Van Kampen Asset Management. The
Adviser is a wholly owned subsidiary of Van Kampen Investments. Van Kampen
Investments is an indirect wholly owned subsidiary of Morgan Stanley. The
Adviser's principal office is located at 1221 Avenue of the Americas, New York,
New York 10020.

Investment Advisory Agreement

The Fund and the Adviser are parties to an investment advisory
agreement (the "Advisory Agreement"). Under the Investment Advisory Agreement,
the Fund retains the Adviser to manage the investment of the Fund's assets,
including and placing of orders for the purchase and sale of portfolio
securities. The Adviser obtains and evaluates economic, statistical and
financial information to formulate strategy and implement the Fund's investment
objectives. The Adviser also furnishes offices, necessary facilities and
equipment, renders periodic reports to the Fund's Board of Trustees and permits
its officers and employees to serve without compensation as trustees or officers
of the Fund if elected to such positions.

Under the terms of the Advisory Agreement, the Adviser will supervise
the investment activities of the Fund; obtain and evaluate such information and
advice relating to the economy, securities, securities markets and commodities
markets as it deems necessary or useful to discharge its duties under the
Advisory Agreement; continuously manage the assets of the Fund in a manner
consistent with the investment objectives and policies of the

B-18

Fund; determine the securities to be purchased, sold or otherwise disposed of by
the Fund and the timing of such purchases, sales and dispositions; and shall
take such further action, including the placing of purchase and sale orders on
behalf of the Fund, as the Adviser shall deem necessary or appropriate. The
Adviser will also furnish to or place at the disposal of the Fund such of the
information, evaluations, analyses and opinions formulated or obtained by the
Adviser in the discharge of its duties as the Fund may, from time to time,
reasonably request.

The Fund will pay all of its other expenses, including, among others,
legal fees and expenses of counsel to the Fund; auditing and accounting
expenses; taxes and governmental fees; listing fees; dues and expenses incurred
in connection with membership in investment company organizations; fees and
expenses of the Fund's custodians, transfer agents and registrars; fees and
expenses with respect to administration, except as may be provided otherwise
pursuant to administration agreements; expenses for portfolio pricing services
by a pricing agent, if any; other expenses in connection with the issuance,
offering and underwriting of shares issued by the Fund; expenses relating to
investor and public relations; expenses of registering or qualifying securities
of the Fund for public sale; freight, insurance and other charges in connection
with the shipment of the Fund's portfolio securities; brokerage commissions and
other costs of acquiring or disposing of any portfolio holding of the Fund;
expenses of preparation and distribution of reports, notices and dividends to
shareholders; expenses of the dividend reinvestment plan (except for brokerage
expenses paid by participants in such plan); costs of stationery; any litigation
expenses; and costs of shareholders' and other meetings.

For services under the Advisory Agreement, the Adviser is paid a fee
computed daily and payable monthly at an annual rate of 1.25% of the Fund's
average daily managed assets, which shall mean the average daily total asset
value of the Fund minus the sum of accrued liabilities other than any proceeds
from the issuance of preferred shares and/or the aggregate amount of any
borrowings for investment purposes.

Under the Advisory Agreement, the Adviser is permitted to provide
investment advisory services to other clients. Conversely, information furnished
by others to the Adviser in the course of providing services to clients other
than the Fund may be useful to the Adviser in providing services to the Fund.

The Advisory Agreement will continue for an initial term of two years
and may be continued thereafter from year to year provided such continuance is
specifically approved at least annually by (i) a vote of a majority of those
members of the Board of Trustees who are not "interested persons" of the Adviser
or the Fund, cast in person at a meeting called for the purpose of voting on
such approval and (ii) by a majority vote of either the Fund's Board of Trustees
or the Fund's outstanding voting securities. The Advisory Agreement may be
terminated at any time without payment of penalty by the Fund or by the Adviser
upon 60 days' written notice. The Advisory Agreement will automatically
terminate in the event of its assignment, as defined under the 1940 Act.

The Advisory Agreement provides that the Adviser will not be liable for
any act or omission, error of judgment or mistake of law, or for any loss
suffered by the Fund in connection with matters to which the Advisory Agreement
relates, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its duties, or
from reckless disregard by it of its obligations and duties under the Advisory
Agreement.

The 1940 Act requires that the Fund's Advisory Agreement be approved
both by a majority of the Board of Trustees and by a majority of the independent
trustees voting separately. [discussion to come]

Litigation Involving the Adviser

The Adviser and certain affiliates of the Adviser are named as
defendants in a derivative action which additionally names as defendants
individual trustees of certain Van Kampen funds. The named investment companies
are listed as nominal defendants. The complaint alleges that defendants caused
the Van Kampen funds to pay economic incentives to a proprietary sales force to
promote the sale of Van Kampen funds. The complaint also alleges that the Van
Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in
connection with the sales of the funds. The complaint seeks, among other things,
the removal of the current trustees of the funds, rescission of the management
contracts for the funds, disgorgement of profits by Morgan Stanley and its
affiliates and monetary damages. This derivative action was coordinated with a
direct action alleging related violations of defendants' statutory disclosure
obligations and fiduciary duties with respect to the payments described

B-19

above. In addition, this derivative action was stayed by agreement of the
parties pending rulings on the motion to dismiss the direct action and the
motion to dismiss another derivative action, brought by the same plaintiff that
brought this derivative action, alleging market timing and late trading in the
Van Kampen funds. In April 2006, the court granted defendants' motion to dismiss
the direct action. In June 2006, the court granted defendants' motion to dismiss
the market timing action. Accordingly, the stay on this action was lifted.
Plaintiff and defendants have agreed that this action should be dismissed in
light of the rulings dismissing the two cases discussed above. The court has
approved a notice to shareholders regarding the dismissal.

The Adviser and one of the investment companies advised by the Adviser
are named as defendants in a class action complaint generally alleging that the
defendants breached their duties of care to long-term shareholders of the
investment company by valuing portfolio securities at the closing prices of the
foreign exchanges on which they trade without accounting for significant market
information that became available after the close of the foreign exchanges but
before calculation of net asset value. As a result, the complaint alleges,
short-term traders were able to exploit stale pricing information to capture
arbitrage profits that diluted the value of shares held by long-term investors.
The complaint seeks unspecified compensatory damages, punitive damages, fees and
costs. On October 16, 2006, pursuant to an order of the United States Supreme
Court finding a lack of appellate jurisdiction, the federal court of appeals
vacated a prior order of the federal district court dismissing the case with
prejudice, and remanded the case to the Illinois state court where it had been
filed. In November 2006, defendants again removed the case to the federal
district court based on intervening authority. In December 2006, plaintiffs
moved to remand the case back to Illinois state court. While defendants believe
that they have meritorious defenses, the ultimate outcome of this matter is not
presently determinable at this stage in the litigation.

The Subadviser

The Fund's investment subadviser is Avenue Europe International
Management, L.P. The Subadviser's principal office is located at 535 Madison
Avenue, 15th Floor, New York, New York 10022.

Investment Subadvisory Agreement

[TO COME]

Portfolio Management

Other Accounts Managed by the Portfolio Managers

As of , 2007, Howard Tiffen managed registered investment
companies with a total of approximately $ billion in assets; pooled
investment vehicles other than registered investment companies; and other
accounts with a total of approximately $ million in assets.

As of , 2007, Christina Jamieson managed registered investment
companies with a total of approximately $ billion in assets; pooled
investment vehicles other than registered investment companies; and other
accounts.

As of , 2007, Richard Furst managed registered investment
companies with a total of approximately $ in assets; pooled investment
vehicles other than registered investment companies; and other accounts
with a total of approximately $ in assets.

As of , 2007, Raul Ramirez managed registered investment
companies with atotal of approximately $ in assets; pooled investment
vehicles other than registered investment companies; and other accounts.

B-20

Potential Conflicts of Interest of the Adviser

Because the portfolio managers may manage assets for other investment
companies, pooled investment vehicles and/or other accounts (including
institutional clients, pension plans and certain high net worth individuals),
there may be an incentive to favor one client over another resulting in
conflicts of interest. For instance, the Adviser may receive fees from certain
accounts that are higher than the fee it receives from the Fund, or it may
receive a performance-based fee on certain accounts. In those instances, the
portfolio managers may have an incentive to favor the higher and/or
performance-based fee accounts over the Fund. In addition, a conflict of
interest could exist to the extent the Adviser has proprietary investments in
certain accounts, where portfolio managers have personal investments in certain
accounts or when certain accounts are investment options in the Adviser's
employee benefits and/or deferred compensation plans. The portfolio manager may
have an incentive to favor these accounts over others. If the Adviser manages
accounts that engage in short sales of securities of the type in which the Fund
invests, the Adviser could be seen as harming the performance of the Fund for
the benefit of the accounts engaging in short sales if the short sales cause the
market value of the securities to fall. The Adviser has adopted trade allocation
and other policies and procedures that they believe are reasonably designed to
address these and other conflicts of interest.

The Adviser's Portfolio Manager Compensation Structure

Portfolio managers of the Adviser receive a combination of base
compensation and discretionary compensation, comprising a cash bonus and several
deferred compensation programs described below. The methodology used to
determine portfolio manager compensation is applied across all funds/accounts
managed by the portfolio managers.

Base Salary Compensation. Generally, portfolio managers of the Adviser
receive base salary compensation based on the level of their position with the
Adviser.

Discretionary Compensation. In addition to base compensation, portfolio
managers of the Adviser may receive discretionary compensation. Discretionary
compensation can include:

Cash Bonus.

o Morgan Stanley's Long Term Incentive Compensation Awards--a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards or other
investments based on Morgan Stanley common stock or other
investments that are subject to vesting and other conditions.

o Investment Management Alignment Plan (IMAP) awards--a mandatory
program that defers a portion of discretionary year-end
compensation and notionally invests it in designated funds advised
by the Adviser or its affiliates. The award is subject to vesting
and other conditions. Portfolio managers must notionally invest a
minimum of 25% to a maximum of 100% of the IMAP deferral into a
combination of the designated funds they manage that are included
in the IMAP fund menu, which may or may not include the Fund.

o Voluntary Deferred Compensation Plans--voluntary programs that
permit certain employees to elect to defer a portion of their
discretionary year-end compensation and directly or notionally
invest the deferred amount: (1) across a range of designated
investment funds, including funds advised by the Adviser or its
affiliates; and/or (2) in Morgan Stanley stock units.

Several factors determine discretionary compensation for a portfolio
manager of the Adviser, which can vary by portfolio management team and
circumstances. In order of relative importance, these factors include:

o Investment performance. A portfolio manager's compensation is
linked to the pre-tax investment performance of the funds/accounts
managed by the portfolio manager. Investment performance is
calculated for the one-, three-and five-year periods measured
against an appropriate securities market index

B-21

(or indices) for the funds/accounts managed by the portfolio
manager. In the case of the Fund, the Fund's investment performance
will be measured against the . Other funds/accounts
managed by the same portfolio manager may be measured against this
same index, if appropriate, or against another index (or indices)
that is deemed a more appropriate size-and/or style-specific to
such fund/account as disclosed in such fund's/account's disclosure
materials or guidelines. The assets managed by the portfolio
managers in funds, pooled investment vehicles and other accounts
are described above under "Other Accounts Managed by the Portfolio
Managers." Generally, the greatest weight is placed on the
three-and five-year periods.

o Revenues generated by the investment companies, pooled investment
vehicles and other accounts managed by the portfolio manager.

o Contribution to the business objectives of the Adviser.

o The dollar amount of assets managed by the portfolio manager.

o Market compensation survey research by independent third parties.

o Other qualitative factors, such as contributions to client
objectives.

o Performance of Morgan Stanley and Morgan Stanley Investment
Management, and the overall performance of the investment team(s)
of which the portfolio manager is a member.

Potential Conflicts of Interest of the Subadviser

The Subadviser manages that portion of the Fund's assets that are
allocated to the Subadviser by the Adviser. The Subadviser also manages assets
for other accounts. The Subadviser generally will not be making investments in
the same securities for the Fund that it will be making for its other accounts.
The expected risk and return profile for the Subadviser's portion of the Fund's
assets is lower than for the Subadviser's other accounts.

To avoid conflicts of interest between assets managed for the Fund and
other accounts, the Subadviser has adopted allocation policies and procedures
which allocate investments eligible for the Fund and the other accounts managed
by the Subadviser. The Subadviser will invest its portion of the Fund's assets
only in obligations with total yields at the time of purchase that are below an
applicable benchmark plus a credit spread as set from time to time by the
Subadviser (the "Avenue-Credit Thresholds"). The credit spread portion of the
Avenue-Credit Thresholds shall be determined periodically by the Subadviser, in
its sole discretion, as the markets change. A committee of the Subadviser will
meet periodically to review market conditions, and to determine whether the
allocation policy, including the credit spread portion of the Avenue-Credit
Thresholds requires modification. The committee will not make changes to the
allocation policy, including the Avenue-Credit Thresholds, with particular
investments in mind. Any revisions to the credit spread portion of the
Avenue-Credit Thresholds are made independent of individual investment
decisions. The committee, which consists of members of the Subadviser may
receive and consider input from the Adviser. A change to the credit spread
portion of the Avenue-Credit Thresholds shall require majority approval of the
committee members. Fund shareholders will be notified of any material change to
the allocation policies and procedures.

As an example, as of the date of this Statement of Additional
Information, the "Avenue-Credit Thresholds" (which is subject to change from
time to time) are obligations which, at the time of investment, have yields in
excess of the following benchmarks:

o for floating rate investments, LIBOR plus 400 basis points,
EUROLIBOR plus 400 basis points, and Sterling LIBOR plus 400 basis
points, as applicable; and
o for fixed rate investments, current US Treasury plus 400 basis
points, Bundes Obligationen ("OBL") plus 400 basis points, Bundes
Republic Deutschland ("DBR") plus 400 basis points, Bundes
Schatzanweisungen ("BKO") plus 400 basis points and UK Gilt rates
plus 400 basis points, as applicable, depending upon the currency
and term of the investment.

B-22

The Subadviser will purchase obligations with total yields above the
Avenue-Credit Thresholds for its other clients, and will purchase obligations
with total yields below the applicable Avenue-Credit Thresholds for the Fund.
The Subadviser, on behalf of its other clients, will be able to sell short
(including entering into a credit default swap) obligations below the applicable
Avenue-Credit Thresholds for hedging or other purposes (and thus at times the
Subadviser may purchase the same obligations for both its other clients and the
Fund). The Subadviser, on behalf of the Fund will only be able to sell short
investments below the applicable Avenue-Credit Thresholds.

The Subadviser receives advisory fees for assets it manages. From the
Fund, the Subadviser receives that portion of the overall investment advisory
fees paid by the Fund related to the managed assets of the Fund that are managed
by the Subadviser. For other accounts it manages, the Subadviser receives fees
that are calculated differently than the fees paid by the Fund, and generally
are higher and include performance-based fees. Because it manages assets for the
Fund and other accounts and because it receives different fees for assets it
manages, there could be an incentive to favor one client over another resulting
in a conflict of interest. Other conflicts of interest also could arise, for
example, the Subadviser or its affiliates may invest in certain accounts or
otherwise have the same or similar investments in securities as their clients.
In order to address these conflicts of interest, the Subadviser has adopted the
policies and procedures described above and other policies and procedures that
the Subadviser believes are reasonably designed to address these and other
conflicts of interest.

The Subadviser's Portfolio Manager Compensation Structure

The Subadviser believes it has implemented a highly competitive
compensation plan, which seeks to attract and retain exceptional investment
professionals who have demonstrated that they can consistently provide
attractive returns to our clients. The Subadviser's investment professionals,
including the portfolio managers that provide investment advisory services to
the Fund (the "Portfolio Managers") and to its other clients, are eah paid a
base salary that is determined based on their job function and responsibilities.
The base salary is deemed to be competitive with the marketplace for the
financial services industry, specifically investment advisory firms.

In addition to the base salary, each investment professional, including
the Portfolio Managers, is paid a discretionary bonus [based on the performance
of the Subadviser], each Portfolio Manger is paid a share of the carried
interest generated from managing the assets of clients (other than the Fund),
which is subject to various vesting schedules. The discretionary bonus and
carried interest portion of an investment professional's compensation package is
designed to reward and retain investment professionals, including portfolio
managers and other investment professionals for their contributions to a
portfolio's performance.

The basis for determining an investment professional's total
compensation is determined through a subjective process that evaluates an
investment professional's performance against several quantitative and
qualitative factors including the performance of the Subadviser's clients
relative to their peers, the investment professional's ability to work well with
other members of the Subadviser, the investment professional's contributions to
the Subadviser's overall success and other factors. Each investment
professional's salary and bonus is reviewed not less than annually (at his or
her annual review) and may be adjusted based upon the performance of the
individual.

Securities Ownership of Portfolio Managers

As of , 2007, none of the portfolio managers owned any
securities of the Fund.

OTHER AGREEMENTS

Accounting Services Agreement

The Fund has entered into an accounting services agreement with the
Adviser pursuant to which the Adviser provides accounting services to the Fund
supplementary to those provided by the custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund pays all costs

B-23

and expenses related to such services, including all salary and related benefits
of accounting personnel, as well as the overhead and expenses of office space
and the equipment necessary to render such services. The Fund shares together
with the other Van Kampen funds in the cost of providing such services with 25%
of such costs shared proportionately based on the respective number of classes
of securities issued per fund and the remaining 75% of such costs based
proportionately on the respective net assets per fund.

Legal Services Agreement

The Fund and certain other Van Kampen funds advised by the Adviser or
its affiliates have entered into a Legal Services Agreement pursuant to which
Van Kampen Investments 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 funds for such services is made on a cost basis for the
salary and salary related benefits, including but not limited to bonuses, group
insurance and other regular wages for the employment of personnel. Other funds
distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Adviser or its affiliates, 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.

Chief Compliance Officer Employment Agreement

The Fund has entered into an employment agreement with John Sullivan
and Morgan Stanley pursuant to which Mr. Sullivan, an employee of Morgan
Stanley, serves as Chief Compliance Officer of the Fund and other Van Kampen
funds. The Fund's Chief Compliance Officer and his staff are responsible for
administering the compliance policies and procedures of the Fund and other Van
Kampen funds. The Fund reimburses Morgan Stanley for the costs and expenses of
such services, including compensation and benefits, insurance, occupancy and
equipment, information processing and communication, office services,
conferences and travel, postage and shipping. The Fund shares together with
other Van Kampen funds in the cost of providing such services with 25% of such
costs shared proportionately based on the respective number of classes of
securities issued per fund and the remaining 75% of such costs based
proportionately on the respective net assets per fund.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser and the Subadviser are responsible for decisions to buy and
sell securities for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of prices and any brokerage commissions on such
transactions. While the Adviser and the Subadviser will be primarily responsible
for the placement of the Fund's portfolio business, the policies and practices
in this regard are subject to review by the Fund's Board of Trustees.

With respect to interests in Senior Loans, the Fund generally will
engage in privately negotiated transactions for purchase or sale in which the
Adviser and/or the Subadviser 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 and/or the Subadviser 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. The illiquidity of many Senior Loans
may restrict the ability of the Adviser and/or the Subadviser 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 "Risks" in
the Prospectus. Affiliates of the Adviser may participate in the primary and
secondary market for Senior Loans. Because of certain limitations imposed by the
1940 Act, this may restrict the Fund's ability to acquire some Senior Loans. The
Adviser does not believe that this will have a material effect on the Fund's
ability to acquire Senior Loans consistent with its investment policies.

As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the

B-24

issuer or in the OTC market from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on an exchange, which are effected through brokers who
charge a commission for their services.

The Adviser and the Subadviser are responsible for placing portfolio
transactions and they do so in a manner deemed fair and reasonable to the Fund
and not according to any formula. The primary consideration in all portfolio
transactions is prompt execution of orders in an effective manner at the most
favorable price. In selecting broker-dealers and in negotiating prices and any
brokerage commissions on such transactions, the Adviser and the Subadviser
consider the firm's reliability, integrity and financial condition and the
firm's execution capability, the size and breadth of the market for the
security, the size of and difficulty in executing the order, and the best net
price. There may be instances when, in the judgment of the Adviser and the
Subadviser, more than one firm can offer comparable execution services. In
selecting among such firms, consideration may be given to those firms which
supply research and other services in addition to execution services. The
Adviser and the Subadviser are authorized to pay higher commissions to brokerage
firms that provide it with investment and research information than to firms
which do not provide such services if the Adviser or the Subadviser determines
that such commissions are reasonable in relation to the overall services
provided. No specific value can be assigned to such research services which are
furnished without cost to the Adviser or the Subadviser. Since statistical and
other research information is only supplementary to the research efforts of the
Adviser and the Subadviser to the Fund and still must be analyzed and reviewed
by its staff, the receipt of research information is not expected to reduce its
expenses materially. The investment advisory fee is not reduced as a result of
the Adviser's or the Subadviser's receipt of such research services. Services
provided may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser or the Subadviser in servicing all of
its advisory accounts; not all of such services may be used by the Adviser or
the Subadviser in connection with the Fund.

The Adviser or the Subadviser also may place portfolio transactions, to
the extent permitted by law, with brokerage firms affiliated with the Fund, the
Adviser or the Subadviser if they reasonably believe that the quality of
execution and the commission are comparable to that available from other
qualified firms. Similarly, to the extent permitted by law and subject to the
same considerations on quality of execution and comparable commission rates, the
Adviser or the Subadviser may direct an executing broker to pay a portion or all
of any commissions, concessions or discounts to a firm supplying research or
other services.

The Adviser and the Subadviser may place portfolio transactions at or
about the same time for other advisory accounts, including other investment
companies. The Adviser and the Subadviser seek to allocate portfolio
transactions equitably whenever concurrent decisions are made to purchase or
sell securities for the Fund and another advisory account. In some cases, this
procedure could have an adverse effect on the price or the amount of securities
available to the Fund. In making such allocations among the Fund and other
advisory accounts, the main factors considered by the Adviser and the Subadviser
are the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.

Certain broker-dealers, through which the Fund may effect securities
transactions, are affiliated persons (as defined in the 1940 Act) of the Fund or
affiliated persons of such affiliates, including Morgan Stanley or its
subsidiaries. The Fund's Board of Trustees has adopted certain policies
incorporating the standards of Rule 17e-1 issued by the SEC under the 1940 Act
which require that the commissions paid to affiliates of the Fund must be
reasonable and fair compared to the commissions, fees or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time.
The rule and procedures also contain review requirements and require the Adviser
and the Subadviser to furnish

B-25

reports to the trustees and to maintain records in connection with such reviews.
After consideration of all factors deemed relevant, the trustees will consider
from time to time whether the advisory fee for the Fund will be reduced by all
or a portion of the brokerage commission paid to affiliated brokers.

The placing and execution of orders for the Fund also is subject to
restrictions under U.S. securities laws, including certain prohibitions against
trading among the Fund and its affiliates (including the Adviser and the
Subadviser or its affiliates). The Fund may utilize affiliates of the Adviser in
connection with the purchase or sale of securities in accordance with rules
adopted or exemptive orders granted by the SEC when the Adviser or the
Subadviser believe that the charge for the transaction does not exceed usual and
customary levels. In addition, the Fund may purchase securities in a placement
for which affiliates of the Adviser and the Subadviser have acted as agent to or
for issuers, consistent with applicable rules adopted by the SEC or regulatory
authorization, if necessary. The Fund will not purchase securities from or sell
securities to any affiliate of the Adviser or the Subadviser acting as
principal. The Adviser and the Subadviser are prohibited from directing
brokerage transactions on the basis of the referral of clients or the sale of
shares of advised investment companies.

Net Asset Value

The net asset value per share of the Fund's shares is determined no
less frequently than the close of business on the last business day of each week
by calculating the total value of the Fund's assets, deducting its total
liabilities, and dividing the result by the number of common shares outstanding.
The Fund reserves the right to calculate the net asset value more frequently if
deemed desirable.

Senior Loans and securities will be valued by the Fund following
valuation guidelines established and periodically reviewed by the Fund's Board
of Trustees. Under the valuation guidelines, Senior Loans and securities for
which reliable market quotes are readily available are valued at the mean of
such bid and ask quotes and all other Senior Loans, securities and assets of the
Fund are valued at fair value in good faith following procedures established by
the Board of Trustees. Subject to criteria established by the Fund's Board of
Trustees about the availability and reliability of market indicators obtained
from independent pricing sources approved by the Board, certain Senior Loans
will be valued on the basis of such indicators. Other Senior Loans will be
valued by independent pricing sources approved by the Fund's Board of Trustees
based upon pricing models developed, maintained and operated by those pricing
sources or valued by the Adviser and/or the Subadviser by considering a number
of factors including consideration of market indicators, transactions in
instruments which the Adviser and/or the Subadviser believe may be comparable
(including comparable credit quality, interest rate, interest rate
redetermination period and maturity), the creditworthiness of the borrower, the
current interest rate, the period until the next interest rate redetermination
and the maturity of such Senior Loan interests. Consideration of comparable
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. The fair value of Senior
Loans are reviewed and approved by the Fund's Valuation Committee and by the
Fund's Trustees.

Short-term obligations held by the Fund that mature in 60 days or less
are valued at amortized cost, if their original term to maturity when acquired
by the Fund was 60 days or less, or are 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 agreement will be valued at
cost plus accrued interest. Securities for which there exist no price quotation
or valuations and all other assets are valued at fair value as determined in
good faith by or on behalf of the Trustees.

If events materially affecting the price of foreign portfolio
securities occur between the time when their price was last determined on such
foreign securities exchange or market and the time when the Fund's net asset
value was last calculated (for example, movements in certain U.S. securities
indices which demonstrate strong correlation to movements in certain foreign
securities markets), such securities may be valued at their fair value as
determined in good faith in accordance with procedures established by the Fund's
Board of Trustees, an effect of which may be to foreclose opportunities
available to market timers or short-term traders. For purposes of calculating
net asset value per share, all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the mean of the bid
price and asked price of such currencies against the U.S. dollar as quoted by a
major bank.

B-26

Description of Shares

Common Shares

The Fund's common shares are described in the Prospectus. The Fund
intends to hold annual meetings of shareholders so long as the common shares are
listed on a national securities exchange and such meetings are required as a
condition to such listing.

Preferred Shares

The terms of any preferred shares (the "Preferred Shares") issued by
the Fund, 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 Agreement and Declaration of Trust) if and when
it authorizes a Preferred Shares offering.

If the Board of Trustees determines to proceed with an offering of
Preferred Shares, the terms of the Preferred Shares may be the same as, or
different from, the terms described in the common shares' prospectus, subject to
applicable law and the Fund's Agreement and Declaration of Trust. The Board of
Trustees, without the approval of the holders of common shares, may authorize an
offering of Preferred Shares or may determine not to authorize such an offering,
and may fix the terms of the Preferred Shares to be offered.

Other Shares
The Board of Trustees (subject to applicable law and the Fund's
Agreement and Declaration of Trust) may authorize an offering, without the
approval of the holders of either common shares or Preferred Shares, of other
classes of shares, or other classes or series of shares, as they determine to be
necessary, desirable or appropriate, having such terms, rights, preferences,
privileges, limitations and restrictions as the Board of Trustees sees fit. The
Fund currently does not expect to issue any other classes of shares, or series
of shares, except for the common shares and the Preferred Shares.

REPURCHASE OF COMMON SHARES

The Fund is a closed-end management investment company and as such its
shareholders will not have the right to cause the Fund to redeem their shares.
Instead, the Fund's common shares will trade in the open market at a price that
will be a function of several factors, including dividend levels (which are in
turn affected by expenses), net asset value, call protection, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic conditions and other factors. Because shares of a closed-end
investment company may frequently trade at prices lower than net asset value,
the Fund's Board of Trustees may consider action that might be taken to reduce
or eliminate any material discount from net asset value in respect of common
shares, which may include the repurchase of such shares in the open market or in
private transactions, the making of a tender offer for such shares or the
conversion of the Fund to an open-end investment company. The Board of Trustees
may decide not to take any of these actions. In addition, there can be no
assurance that share repurchases or tender offers, if undertaken, will reduce
market discount.

Notwithstanding the foregoing, at any time when the Fund's Preferred
Shares are outstanding, the Fund may not purchase, redeem or otherwise acquire
any of its common shares unless (1) all accrued Preferred Shares dividends have
been paid and (2) at the time of such purchase, redemption or acquisition, the
net asset value of the Fund's portfolio (determined after deducting the
acquisition price of the common shares) is at least 200% of the liquidation
value of the outstanding Preferred Shares (expected to equal the original
purchase price per share plus any accrued and unpaid dividends thereon). Any
service fees incurred in connection with any tender offer made by the Fund will
be borne by the Fund and will not reduce the stated consideration to be paid to
tendering shareholders.

Subject to its investment restrictions, the Fund may borrow to finance
the repurchase of shares or to make a tender offer. Interest on any borrowings
to finance share repurchase transactions or the accumulation of cash by the Fund
in anticipation of share repurchases or tenders will reduce the Fund's net
income. Any share repurchase, tender offer or borrowing that might be approved
by the Fund's Board of Trustees would have to comply with the Securities
Exchange Act of 1934, as amended, the 1940 Act and the rules and regulations
thereunder.

B-27

Although the decision to take action in response to a discount from net
asset value will be made by the Board of Trustees at the time it considers such
issue, it is the Board's present policy, which may be changed by the Board of
Trustees, not to authorize repurchases of common shares or a tender offer for
such shares if: (1) such transactions, if consummated, would (a) result in the
delisting of the common shares from the New York Stock Exchange [and/or the
Chicago Stock Exchange], or (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 income to be taxed at the corporate level in addition to the
taxation of shareholders who receive dividends from the Fund) or as a registered
closed-end investment company under the 1940 Act; (2) the Fund would not be able
to liquidate portfolio securities in an orderly manner and consistent with the
Fund's investment objective and policies in order to repurchase shares; or (3)
there is, in the board's judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) general suspension of or limitation on prices
for trading securities on the New York Stock Exchange [or the Chicago Stock
Exchange], (c) declaration of a banking moratorium by Federal or state
authorities or any suspension of payment by U.S. or New York banks, (d) material
limitation affecting the Fund or the issuers of its portfolio securities by
Federal or state authorities on the extension of credit by lending institutions
or on the exchange of foreign currency, (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 (including any adverse tax effect) on the Fund or its
shareholders if shares were repurchased. The Board of Trustees may in the future
modify these conditions in light of experience.

The repurchase by the Fund of its shares at prices below net asset
value will result in an increase in the net asset value of those shares that
remain outstanding. However, there can be no assurance that share repurchases or
tender offers at or below net asset value will result in the Fund's shares
trading at a price equal to their net asset value. Nevertheless, the fact that
the Fund's shares may be the subject of repurchase or tender offers from time to
time, or that the Fund may be converted to an open-end investment company, may
reduce any spread between market price and net asset value that might otherwise
exist.

In addition, a purchase by the Fund of its common shares will decrease
the Fund's managed assets which would likely have the effect of increasing the
Fund's expense ratio. Any purchase by the Fund of its common shares at a time
when Preferred Shares are outstanding will increase the leverage applicable to
the outstanding common shares then remaining.

Before deciding whether to take any action if the common shares trade
below net asset value, the Fund's Board of Trustees would likely consider all
relevant factors, including the extent and duration of the discount, the
liquidity of the Fund's portfolio, the impact of any action that might be taken
on the Fund or its shareholders and market considerations. Based on these
considerations, even if the Fund's shares should trade at a discount, the Board
of Trustees may determine that, in the interest of the Fund and its
shareholders, no action should be taken.

TAX MATTERS

The following is a discussion of certain U.S. federal income tax
consequences to a shareholder of acquiring, holding and disposing of Shares of
the Fund. The discussion reflects applicable tax laws of the United States as of
the date of this prospectus, which tax laws may be changed or subject to new
interpretations by the courts or the Internal Revenue Service (the "IRS")
retroactively or prospectively. No attempt is made to present a detailed
explanation of all U.S. federal, state, local and foreign tax concerns affecting
the Fund and its shareholders (including shareholders owning a large position in
the Fund), and the discussion set forth herein does not constitute tax advice.
Investors are urged to consult their own tax advisers to determine the tax
consequences to them of investing in the Fund.

Taxation of the Fund

The Fund intends to elect and to qualify as a regulated investment
company under Subchapter M of the Code. To qualify as a regulated investment
company, the Fund must comply with certain requirements of the Code relating to,
among other things, the sources of its income and diversification of its assets.

B-28

In order to qualify to be taxed as a regulated investment company, the
Fund must, among other things: (i) derive in each taxable year at least 90% of
its gross income from (a) dividends, interest (including tax-exempt interest),
payments with respect to certain securities loans, and gains from the sale or
other disposition of stock, securities, or foreign currencies, or other income
(including but not limited to gain from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies and (b) net income derived from interests in certain publicly traded
partnerships that are treated as partnerships for U.S. federal income tax
purposes and that derive less than 90% of their gross income from the items
described in (a) above (each a "Qualified Publicly Traded Partnership"); and
(ii) diversify its holdings so that, at the end of each quarter of each taxable
year (a) at least 50% of the value of the Fund's total assets is represented by
cash and cash items, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and not more than 10% of the outstanding voting
securities of such issuer and (b) not more than 25% of the value of the Fund's
total assets is invested in the securities of (I) any one issuer (other than
U.S. Government securities and the securities of other regulated investment
companies), (II) any two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related trades or
businesses or (III) any one or more Qualified Publicly Traded Partnerships.

If the Fund so qualifies and distributes each year to its shareholders
at least 90% of its investment company taxable income (generally including
ordinary income and net short-term capital gain, but not net capital gain, which
is the excess of net long-term capital gain over net short-term capital loss),
it will not be required to pay federal income taxes on any income it distributes
to shareholders. The Fund intends to distribute at least the minimum amount
necessary to satisfy the 90% distribution requirement. The Fund will not be
subject to federal income tax on any net capital gain distributed to
shareholders and designated as capital gain dividends.

To avoid a nondeductible 4% excise tax, the Fund will be required to
distribute, by December 31st of each year at least an amount equal to the sum of
(i) 98% of its ordinary income for such year, (ii) 98% of its capital gain net
income (the excess of its realized capital gains over its realized capital
losses generally computed on the basis of the one-year period ending on October
31st of such year), and (iii) 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 were distributed to its shareholders) and all distributions out of
earnings and profits would be taxed to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized gains, pay taxes
and make distributions (which could be subject to interest charges) before
requalifying for taxation as a regulated investment company.

Some of the Fund's investment practices are subject to special
provisions of the Code that, among other things, may (i) disallow, suspend or
otherwise limit the allowance of certain losses or deductions, (ii) convert
lower taxed long-term capital gain into higher taxed short-term capital gain or
ordinary income, (iii) convert an ordinary loss or a deduction into a capital
loss (the deductibility of which is more limited), (iv) cause the Fund to
recognize income or gain without a corresponding receipt of 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, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions. The Fund will monitor its transactions
and may make certain tax elections 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 securities issued at a discount, the
Fund generally will be required to accrue daily as income a portion of the
discount and to distribute such income each year to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. To
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.

B-29

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.

If the Fund purchases shares in certain foreign investment entities,
called passive foreign investment companies ("PFICs"), the Fund may be subject
to U.S. federal income tax on a portion of any "excess distribution" or gain
from the disposition of such shares even if such income is distributed as a
taxable dividend by the Fund to the shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. Elections may be available to the Fund
to mitigate the effect of this tax, but such elections generally accelerate the
recognition of income without the receipt of cash.

If the Fund invests in the stock of a PFIC, or any other investment
that produces income that is not matched by a corresponding cash distribution to
the Fund, the Fund could be required to recognize income that it has not yet
received. Any such income would be treated as income earned by the Fund and
therefore would be subject to the distribution requirements of the Code. This
might prevent the Fund from meeting the 90% distribution requirement in any
taxable year, or might prevent the Fund from distributing enough ordinary income
and capital gain net income to avoid completely the imposition of the excise
tax. To avoid this result, the Fund may be required to borrow money or dispose
of securities to be able to make required distributions to shareholders.

The Fund may acquire Senior Loans of borrowers that are experiencing,
or are more likely to experience, financial difficulty, including Senior Loans
of borrowers that have filed for bankruptcy protection. Investments in Senior
Loans that are at risk of or in default may present special tax issues for the
Fund. Federal income tax rules are not entirely clear about issues such as when
the Fund may cease to accrue interest, original issue discount or market
discount, when and to what extent deductions may be taken for bad debts or
worthless securities, how payments received on obligations in default should be
allocated between principal and interest and whether exchanges of debt
obligations in a bankruptcy or workout context are taxable. These and other
issues will be addressed by the Fund, in the event that they arise with respect
to Senior Loans it owns, in order to seek to ensure that it distributes
sufficient income to preserve its status as a regulated investment company and
does not become subject to U.S. federal income or excise tax.

Foreign currency gains will generally be treated as regulated
investment company qualifying income for purposes of the 90% gross income
requirement as long as such gains are derived with respect to the regulated
investment company's business of investing in such currencies. However,
regulations may be issued in the future by the U.S. Treasury Department that
could treat some or all of the Fund's foreign currency gains as non-qualifying
income, thereby jeopardizing the Fund's status as a regulated investment company
for all years to which the regulations are applicable.

Taxation of Shareholders

Distributions of the Fund's investment company taxable income are
taxable to shareholders as ordinary income to the extent of the Fund's earnings
and profits, whether paid in cash or reinvested in additional Shares. Because
the Fund intends to invest primarily in Senior Loans and other senior debt
securities, ordinary income dividends paid by the Fund generally will not be
eligible for the reduced rates applicable to "qualified dividend income" and
will not be eligible for the corporate dividends received deduction.
Distributions of the Fund's net capital gains designated as capital gain
dividends, if any, are taxable to shareholders as long-term capital gains,
regardless of the length of time Shares have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will constitute a
tax-free return of capital to the extent of the adjusted tax basis of a
shareholder's Shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such shareholder (assuming such Shares are held as a
capital asset).

The Fund will determine either to distribute or to retain for
reinvestment all or part of its net capital gain. If any such gain is retained,
the Fund will be subject to a corporate income tax (currently at a maximum rate
of 35%) on such retained amount. In that event, the Fund expects to designate
the retained amount as undistributed capital gain in a notice to its
shareholders, each of whom: (i) will be required to include in income for U.S.
federal tax purposes as long-term capital gain its share of such undistributed
amounts, (ii) will be entitled to credit its

B-30

proportionate share of the tax paid by the Fund against its U.S. federal income
tax liability and to claim refunds to the extent that the credit exceeds such
liability and (iii) will increase its basis in its Shares of the Fund by an
amount equal to 65% of the amount of undistributed capital gain included in such
shareholder's gross income.

The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.

Shareholders receiving distributions in the form of additional Shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the Shares
received, determined as of the distribution date. The tax basis of such Shares
will be equal to their fair market value 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 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 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.

Sale of Shares

The sale of Shares (including transfers in connection with a repurchase
of Shares) will be a taxable transaction for federal income tax purposes. Except
as discussed below, selling shareholders will generally recognize a gain or loss
in an amount equal to the difference between their adjusted tax basis in the
Shares sold and the amount received. If the Shares have been held for more than
one year at the time of sale and are a capital asset in the hands of a
shareholder, the gain or loss will be long-term capital gain or loss. Any loss
recognized upon a taxable disposition of Shares held for six months or less will
be treated as a long-term capital loss to the extent of any capital gain
dividends received with respect to such Shares. For purposes of determining
whether Shares have been held for six months or less, the holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property or through certain options or short sales.

Any loss a shareholder realizes on a sale or exchange of Shares of the
Fund will be disallowed if such shareholder acquires other Shares of the Fund
(whether through the automatic reinvestment of dividends or otherwise) within a
61-day period beginning 30 days before and ending 30 days after such
shareholder's sale or exchange of the Shares. In such case, the basis of the
Shares acquired will be adjusted to reflect the disallowed loss. Present law
taxes both long-term and short-term capital gains of corporations at the rates
applicable to ordinary income.

Prior to purchasing Shares, an investor should carefully consider the
impact of dividends which are expected to be or have been declared, but not
paid. Any dividend declared shortly after a purchase of such Shares prior to the
record date will have the effect of reducing the per Share net asset value by
the per Share amount of the dividend.

Withholding on Payments to Non-U.S. Shareholders

For purposes of this and the following paragraphs, a "Non-U.S.
Shareholder" shall include a beneficial owner of Shares other than a partnership
who is not:

- an individual who is a citizen or resident of the United
States;

- a corporation , any other entity treated as a corporation
for U.S. federal income tax purposes, or a partnership created
or organized under the laws of the United States or any state
or political subdivision thereof;

B-31

- an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or

- a trust that (i) is subject to the primary supervision of a
U.S. court and which has one or more U.S. fiduciaries who have
the authority to control all substantial decisions of the
trust, or (ii) has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a U.S. person.

A Non-U.S. Shareholder generally will be subject to withholding of U.S.
federal income tax at a 30% rate (or lower applicable treaty rate), rather than
backup withholding (discussed below), on dividends from the Fund (other than
capital gain dividends, interest-related dividends and short-term capital gain
dividends) that are not "effectively connected" with a U.S. trade or business
carried on by such shareholder, provided that the shareholder furnishes to the
Fund a properly completed IRS Form W-8BEN certifying the shareholder's
non-United States status. If an income tax treaty applies and such dividends are
attributable to a permanent establishment or fixed base maintained by the
Non-U.S. Shareholder in the U.S., the distributions will be subject to federal
income tax at the rates applicable to U.S. persons, plus, in certain cases where
the Non-U.S. Shareholder is a corporation, a branch profits tax at a 30% rate
(or lower rate provided by an applicable treaty), and the Fund will not be
required to withhold federal tax if the Non-U.S. Shareholder complies with
applicable certification and disclosure requirements. Special certification
requirements apply to a Non-U.S. Shareholder that is a foreign partnership or a
foreign trust, and such entities are urged to consult their own tax advisers.

Under current law, the Fund may pay "interest-related dividends" and
"short-term capital gain dividends" to Non-U.S. Shareholders without having to
withhold on such dividends at the 30% rate. The amount of "interest-related
dividends" that the Fund may pay each year is limited to the amount of
"qualified interest income" received by the Fund during that year, less the
amount of the Fund's expenses properly allocable to such interest income.
"Qualified interest income" includes, among other items, interest paid on debt
obligations of a U.S. issuer and interest paid on deposits with U.S. banks,
subject to certain exceptions. The amount of "short-term capital gain dividends"
that the Fund may pay each year generally is limited to the excess of the Fund's
net short-term capital gains over its net long-term capital losses, without any
reduction for the Fund's expenses allocable to such gains (with exceptions for
certain gains). The exemption from 30% withholding tax for "short-term capital
gain dividends" does not apply with respect to Non-U.S. Shareholders that are
present in the United States for more than 182 days during the taxable year. If
the Fund's income for a taxable year includes "qualified interest income" or net
short-term capital gains, the Fund may designate dividends as "interest-related
dividends" or "short-term capital gain dividends" by written notice mailed to
Non-U.S. Shareholders not later than 60 days after the close of the Fund's
taxable year. These provisions apply to dividends paid by the Fund with respect
to the Fund's taxable years beginning on or before December 31, 2007.

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

If income from the Fund or gains realized from the sale of Shares are
effectively connected with a Non-U.S. Shareholder's U.S. trade or business, then
such amounts will not be subject to the 30% withholding described above, but
rather will be subject to U.S. federal income tax on a net basis at the tax
rates applicable to U.S. citizens and residents or domestic corporations. To
establish that income from the Fund or gains realized from the sale of Shares
are effectively connected with a U.S. trade or business, a Non-U.S. Shareholder
must provide the Fund with a properly completed IRS Form W-8ECI certifying that
such amounts are effectively connected with the Non-U.S. Shareholder's U.S.
trade or business. Non-U.S. Shareholders that are corporations may also be
subject to an additional "branch profits tax" at a 30% rate (or lower rate
provided by an applicable treaty) with respect to income from the Fund that is
effectively connected with a U.S. trade or business.

The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. To claim tax treaty benefits, Non-U.S. Shareholders will be

B-32

required to provide the Fund with a properly completed IRS Form W-8BEN
certifying their entitlement to the benefits. In addition, in certain cases
where payments are made to a Non-U.S. Shareholder that is a partnership or other
pass-through entity, both the entity and the persons holding an interest in the
entity will need to provide certification. For example, an individual Non-U.S.
Shareholder who holds Shares in the Fund through a non-U.S. partnership must
provide an IRS Form W-8BEN to claim the benefits of an applicable tax treaty.
Non-U.S. Shareholders are advised to consult their advisers with respect to the
tax implications of purchasing, holding and disposing of Shares of the Fund.

Backup Withholding

The Fund may be required to withhold federal income tax at a rate of
28% (through 2010) ("backup withholding") from dividends and proceeds from the
repurchase of Shares paid to non-corporate shareholders. This tax may be
withheld from dividends paid to a shareholder (other than a Non-U.S. Shareholder
that properly certifies its non-United States status) if (i) the shareholder
fails to properly furnish the Fund with its correct taxpayer identification
number or to certify its non-U.S. status (in the case of a Non-U.S.
Shareholders), (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that the taxpayer identification number provided is correct, that the
shareholder is not subject to backup withholding and that the shareholder is a
U.S. person (as defined for U.S. federal income tax purposes). Repurchase
proceeds may be subject to backup withholding under the circumstances described
in (i) above.

Generally, dividends paid to Non-U.S. Shareholders that are subject to
the 30% federal income tax withholding described above under "Withholding on
Payments to Non-U.S. Shareholders" are not subject to backup withholding. To
avoid backup withholding on capital gain dividends, interest-related dividends,
short-term capital gain dividends and gross proceeds from the repurchase of
Shares, Non-U.S. Shareholders must provide a properly completed IRS Form W-8BEN
(or an acceptable substitute form) or must otherwise meet documentary evidence
requirements for establishing that such shareholders are Non-U.S. shareholders
or must otherwise establish an exemption from backup withholding.

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

Information Reporting

The Fund must report annually to the IRS and to each shareholder (other
than a Non-U.S. Shareholder that properly certifies its non-United States
status) the amount of dividends, capital gain dividends or repurchase proceeds
paid to such shareholder and the amount, if any, of tax withheld pursuant to
backup withholding rules with respect to such amounts. In the case of a Non-U.S.
Shareholder, the Fund must report to the IRS and such Shareholder the amount of
dividends, capital gain dividends, interest-related dividends, short-term
capital gain dividends or repurchase proceeds paid that are subject to
withholding (including backup withholding, if any) and the amount of tax
withheld, if any, with respect to such amounts. This information may also be
made available to the tax authorities in the Non-U.S. Shareholder's country of
residence.

General

The federal income tax discussion set forth above is for general
information only and is a general and abbreviated summary of the provisions of
the Code and the Treasury regulations presently in effect as they directly
govern the taxation of the Fund and its shareholders. For complete provisions,
reference should be made to the pertinent Code sections and Treasury
regulations. The Code and the Treasury regulations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions. Holders of Shares are advised to consult
their own tax advisers for more detailed information concerning the U.S. federal
income taxation of the Fund and the income tax consequences to its holders of
Shares. Holders of Shares are also advised to consult their own tax advisors
with regard to the tax consequences under the laws of state, local, foreign or
other taxing jurisdictions.

B-33

Proxy Voting Policy and Proxy Voting Record

The Adviser's Policy

The Board believes that the voting of proxies on securities to be held
by the Fund is an important element of the overall investment process. As such,
the Board has delegated the responsibility to vote such proxies to the Adviser.
The following is a summary of the Adviser's Proxy Voting Policy ("Proxy
Policy").

The Adviser will use its best efforts to vote proxies on securities
held in the Fund as part of its authority to manage, acquire and dispose of Fund
assets. In this regard, the Adviser has formed a Proxy Review Committee
("Committee") comprised of senior investment professionals that is responsible
for creating and implementing the Proxy Policy. The Committee will meet monthly
but may meet more frequently as conditions warrant. The Proxy Policy provides
that the Adviser will vote proxies in the best interests of clients consistent
with the objective of maximizing long-term investment returns. The Proxy Policy
provides that the Adviser will generally vote proxies in accordance with
pre-determined guidelines contained in the Proxy Policy. The Adviser may vote in
a manner that is not consistent with the pre-determined guidelines, provided
that the vote is approved by the Committee.

The Proxy Policy provides that, unless otherwise determined by the
Committee, votes will be cast in the manner described below:

o Generally, routine proposals will be voted in support of
management.

o With regard to the election of directors, where no conflict exists
and where no specific governance deficiency has been noted, votes
will be cast in support of management's nominees.

o The Adviser will vote in accordance with management's
recommendation with respect to certain non-routine proposals (i.e.,
reasonable capitalization changes, stock repurchase programs, stock
splits, certain compensation-related matters, certain anti-takeover
measures, etc.).

o The Adviser will vote against certain non-routine proposals (i.e.,
unreasonable capitalization changes, establishment of cumulative
voting rights for the election of directors, requiring
supermajority stockholder votes to amend by-laws, indemnification
of auditors, etc.) (notwithstanding management support).

o The Adviser will vote in its discretion with respect to certain
non-routine proposals (i.e., mergers, acquisitions, takeovers,
spin-offs, etc.) which may have a substantive financial or best
interest impact on an issuer.

o The Adviser will vote for certain proposals it believes call for
reasonable charter provisions or corporate governance practices
(i.e., requiring auditors to attend annual stockholder meetings,
requiring that members of compensation, nominating and audit
committees be independent, reducing or eliminating supermajority
voting requirements, etc.).

o The Adviser will vote against certain proposals it believes call
for unreasonable charter provisions or corporate governance
practices (i.e., proposals to declassify boards, proposals to
require a company to prepare reports that are costly to provide or
that would require duplicative efforts or expenditure that are of a
non-business nature or would provide no pertinent information from
the perspective of institutional stockholders, etc.).

o Certain other proposals (i.e., proposals requiring directors to own
large amounts of company stock to be eligible for election,
proposals requiring diversity of board membership relating to broad
based social, religious or ethnic groups, etc.) generally are
evaluated by the Committee based on the nature of the proposal and
the likely impact on shareholders.

B-34

While the proxy voting process is well-established in the United States
and other developed markets with a number of tools and services available to
assist an investment manager, voting proxies of non-U.S. companies located in
certain jurisdictions, particularly emerging markets, may involve a number of
problems that may restrict or prevent the Adviser's ability to vote such
proxies. As a result, non-U.S. proxies will be voted on a best efforts basis
only, after weighing the costs and benefits to the Fund of voting such proxies.

Conflicts of Interest. If the Committee determines that an issue raises
a potential material conflict of interest, or gives rise to the appearance of a
potential material conflict of interest, the Committee will request a special
committee to review, and recommend a course of action with respect to, the
conflict in question, and that special committee will have the sole discretion
to vote.

Third Parties. To assist in its responsibility for voting proxies, the
Adviser may retain third-party services as experts in the proxy voting and
corporate governance area. These proxy research providers are referred to herein
as "Research Providers." The services provided to the Adviser by the Research
Providers include in-depth research, global issuer analysis, and voting
recommendations. While the Adviser may review and utilize recommendations made
by the Research Providers in making proxy voting decisions, it is in no way
obligated to follow such recommendations. In addition to research, Institutional
Shareholder Services provides vote execution, reporting, and recordkeeping. The
Committee carefully monitors and supervises the services provided by the
Research Providers.

Further Information. A copy of the Proxy Policy, as well as the Fund's
most recent proxy voting record to be filed with the SEC, will be available
without charge on our web site at www.vankampen.com. The Fund's proxy voting
record will also be available without charge on the SEC's web site at
www.sec.gov.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

An independent registered public accounting firm for the Fund performs
an annual audit of the Fund's financial statements. The Fund's Board of Trustees
has engaged , located at , Chicago, Illinois 60606, to be the
Fund's independent registered public accounting firm.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom LLP.

ADDITIONAL INFORMATION

A registration statement on Form N-2, including amendments thereto,
relating to the shares offered hereby, has been filed by the Fund with the SEC.
The Prospectus and this Statement of Additional Information do not contain all
of the information set forth in the registration statement, including any
exhibits and schedules thereto. For further information with respect to the Fund
and the shares offered hereby, reference is made to the registration statement.
Statements contained in the Prospectus and this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement may be reviewed and copied at
the SEC's Public Reference Room in Washington, DC or on the EDGAR database on
the SEC's internet site (http://www.sec.gov). Information on the operation of
the SEC's Public Reference Room may be obtained by calling the SEC at (202)
551-8090. You can also request copies of these materials, upon payment of a
duplicating fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference Section of the SEC,
Washington, DC 20549-0102.

B-35

APPENDIX A -- DESCRIPTION OF SECURITIES RATINGS

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

1. Long-Term Obligation Ratings

Moody's long-term obligation ratings are opinions of the relative credit
risk of fixed-income obligations with an original maturity of one year or more.
They address the possibility that a financial obligation will not be honored as
promised. Such ratings reflect both the likelihood of default and any financial
loss suffered in the event of default.

Moody's Long-Term Rating Definitions:

Aaa: Obligations rated Aaa are judged to be of the highest quality,
with minimal credit risk.

Aa: Obligations rated Aa are judged to be of high quality and are
subject to very low credit risk.

A: Obligations rated A are considered upper-medium grade and are
subject to low credit risk.

Baa: Obligations rated Baa are subject to moderate credit risk. They
are considered medium-grade and as such may possess certain speculative
characteristics.

Ba: Obligations rated Ba are judged to have speculative elements and
are subject to substantial credit risk.

B: Obligations rated B are considered speculative and are subject to
high credit risk.

Caa: Obligations rated Caa are judged to be of poor standing and are
subject to very high credit risk.

Ca: Obligations rated Ca are highly speculative and are likely in, or
very near, default, with some prospect of recovery of principal and interest.

C: Obligations rated C are the lowest rated class of bonds and are
typically in default, with little prospect for recovery of principal or
interest.

Note: Moody's appends numerical modifiers 1, 2, and 3 to each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

Short-Term Debt Ratings

There are three rating categories for short-term municipal obligations
that are considered investment grade. These ratings are designated as Municipal
Investment Grade (MIG) and are divided into three levels--MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are
designated SG, or speculative grade. MIG ratings expire at the maturity of the
obligation.

MIG 1. This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support, or demonstrated broad-based access to the market for refinancing.

MIG 2. This designation denotes strong credit quality. Margins of
protection are ample, although not as large as in the preceding group.

A-1

MIG 3. This designation denotes acceptable credit quality. Liquidity
and cash-flow protection may be narrow, and market access for refinancing is
likely to be less well-established.

SG. This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.

Demand Obligation Ratings

In the case of variable rate demand obligations (VRDOs), a
two-component rating is assigned; a long or short-term debt rating and a demand
obligation rating. The first element represents Moody's evaluation of the degree
of risk associated with scheduled principal and interest payments. The second
element represents Moody's evaluation of the degree of risk associated with the
ability to receive purchase price upon demand ("demand feature"), using a
variation of the MIG rating scale, the Variable Municipal Investment Grade or
VMIG rating.

When either the long- or short-term aspect of a VRDO is not rated, that
piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.

VMIG rating expirations are a function of each issue's specific
structural or credit features.

VMIG 1. This designation denotes superior credit quality. Excellent
protection is afforded by the superior short-term credit strength of the
liquidity provider and structural and legal protections that ensure the timely
payment of purchase price upon demand.

VMIG 2. This designation denotes strong credit quality. Good protection
is afforded by the strong short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.

VMIG 3. This designation denotes acceptable credit quality. Adequate
protection is afforded by the satisfactory short-term credit strength of the
liquidity provider and structural and legal protections that ensure the timely
payment of purchase price upon demand.

SG. This designation denotes speculative-grade credit quality. Demand
features rated in this category may be supported by a liquidity provider that
does not have an investment grade short-term rating or may lack the structural
and/or legal protections necessary to ensure the timely payment of purchase
price upon demand.

2. Short-Term Ratings

Moody's short-term ratings are opinions of the ability of issuers to
honor short-term financial obligations. Ratings may be assigned to issuers,
short-term programs or to individual short-term debt instruments. Such
obligations generally have an original maturity not exceeding thirteen months,
unless explicitly noted.

Moody's employs the following designations to indicate the relative
repayment ability of rated issuers:

P-1 Issuers (or supporting institutions) rated Prime-1 have a superior
ability to repay short-term debt obligations.

P-2 Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay short-term debt obligations.

P-3 Issuers (or supporting institutions) rated Prime-3 have an
acceptable ability to repay short-term obligations.

NP Issuers (or supporting institutions) rated Not Prime do not fall
within any of the Prime rating categories.

Note: Canadian issuers rated P-1 or P-2 have their short-term ratings
enhanced by the senior-most long-term rating of the issuer, its guarantor or
support-provider.

A-2

Standard & Poor's

A brief description of the applicable Standard & Poor's (S&P) rating symbols and
their meanings (as published by S&P) follows:

Issue Credit Rating Definitions

A S&P issue credit rating is a current opinion of the creditworthiness
of an obligor with respect to a specific financial obligation, a specific class
of financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated.

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

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

Issue credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days -- including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.

Long-Term Issue Credit Ratings

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

- Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of the
obligation;

- Nature of and provisions of the obligation;

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

The issue ratings definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.

AAA: An obligation rated 'AAA' has the highest rating assigned by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated 'AA' differs from the highest-rated obligations
only to a small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.

A: An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

A-3

BBB: An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC, CC, and C: Obligations rated 'BB', 'B', 'CCC', 'CC', and
'C' are regarded as having significant speculative characteristics. 'BB'
indicates the least degree of speculation and 'C' the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.

BB: An obligation rated 'BB' is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.

B: An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB', but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated 'CC' is currently highly vulnerable to
nonpayment.

C: A subordinated debt or preferred stock obligation rated 'C' is
currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action taken,
but payments on this obligation are being continued. A 'C' also will be assigned
to a preferred stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.

D: An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.

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

N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.

Short-Term Issue Credit Ratings

A-1: A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations is
extremely strong.

A-2: A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

A-3: A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

A-4

B: A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. Ratings of 'B-1', 'B-2', and 'B-3' may be assigned
to indicate finer distinctions within the 'B' category. The obligor currently
has the capacity to meet its financial commitment on the obligation; however, it
faces major ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.

B-1: A short-term obligation rated 'B-1' is regarded as having
significant speculative characteristics, but the obligor has a relatively
stronger capacity to meet its financial commitments over the short-term compared
to other speculative-grade obligors.

B-2: A short-term obligation rated 'B-2' is regarded as having
significant speculative characteristics, and the obligor has an average
speculative-grade capacity to meet its financial commitments over the short-term
compared to other speculative-grade obligors.

B-3: A short-term obligation rated 'B-3' is regarded as having
significant speculative characteristics, and the obligor has a relatively weaker
capacity to meets its financial commitments over the short-term compared to
other speculative-grade obligors.

C: A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.

D: A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
'D' rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.

A-5

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

[TO COME BY AMENDMENT]

FINANCIAL STATEMENTS

VAN KAMPEN GLOBAL CREDIT OPPORTUNITIES FUND

STATEMENT OF NET ASSETS

, 2007

[TO COME BY AMENDMENT]

VAN KAMPEN GLOBAL CREDIT OPPORTUNITIES FUND

NOTES TO FINANCIAL STATEMENTS

, 2007

[TO COME BY AMENDMENT]

PART C

Other Information

Item 24. Financial Statements And Exhibits

(1) Financial Statements

Part A--None

Part B--Statement of Net Assets

(2) Exhibits

(a) Agreement and Declaration of Trust(1)

(b) By-Laws(1)

(d) Form of Specimen Certificate(1)

(e) Automatic Dividend Reinvestment Plan(1)

(f) Inapplicable

(g)(1) Investment Advisory Agreement(1)

(g)(2) Investment Subadvisory Agreement(1)

(h) Form of Underwriting Agreement(1)

(i)(1) Form of Trustee Deferred Compensation Plan(1)

(i)(2) Form of Trustee Retirement Plan(1)

(j)(1) Form of Custodian Agreement(1)

(j)(2) Form of Foreign Custody Manager Agreement(1)

(k)(1) Form of Stock Transfer Agency Agreement(1)

(k)(2) Form of Administration Agreement(1)

(k)(3) Form of Fund Accounting Agreement(1)

(k)(4) Form of Legal Services Agreement(1)

(k)(5) Form of Credit Agreement(1)

(l)(1) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP(1)

(l)(2) Consent of Skadden, Arps, Slate, Meagher & Flom LLP(1)

(m) Inapplicable

(n) Consent of Independent Public Accountants(1)

(o) Inapplicable

C-1

(p) Initial Subscription Agreement(1)

(q) Inapplicable

(r)(1) Code of Ethics of the Fund(1)

(r)(2) Code of Ethics of the Adviser(1)

(r)(3) Code of Ethics of the Subadviser(1)

(s) Power of Attorney

---------------------------
(1) To be filed by amendment.

Item 25. Marketing Arrangements

Reference is made to the Form of Underwriting Agreement for the
Registrant's shares of beneficial interest to be filed by amendment to this
Registration Statement.

Item 26. Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

Registration fee...............................................$
NYSE listing fee...............................................$
Printing (other than certificates).............................$
Engraving and printing certificates............................$
Accounting fees and expenses...................................$
Legal fees and expenses........................................$
NASD fee.......................................................$
Miscellaneous..................................................$
Total.....................................................$

Item 27. Persons Controlled By Or Under Common Control With The Registrant

None.

Item 28. Number of Holders of Shares

As of , 2007

Number of
Title Of Class Record Holders
-------------- --------------

Common Shares of Beneficial Interest 0

Item 29. Indemnification

Section 8 of the Fund's Declaration of Trust provides as follows:

SECTION 8.1 Trustees, Shareholders, etc, Not Personally Liable; Notice.
The Trustees, officers, employees and agents of the Trust, in incurring any
debts, liabilities or obligations, or in limiting or omitting any other actions
for or in connection with the Trust, are or shall be deemed to be acting as
Trustees, officers, employees or agents of the Trust and not in their own
capacities. No Shareholder shall be subject to any personal liability whatsoever
in tort, contract or otherwise to any other Person or Persons in connection with
the assets or the affairs of the Trust or of any

C-2

Series, and subject to Section 8.4 hereof, no Trustee, officer, employee or
agent of the Trust shall be subject to any personal liability whatsoever in
tort, contract, or otherwise, to any other Person or Persons in connection with
the assets or affairs of the Trust or of any Series, save only that arising from
his own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or the discharge of his
functions. The Trust (or if the matter relates only to a particular Series, that
Series) shall be solely liable for any and all debts, claims, demands,
judgments, decrees, liabilities or obligations of any and every kind, against or
with respect to the Trust or such Series in tort, contract or otherwise in
connection with the assets or the affairs of the Trust or such Series, and all
Persons dealing with the Trust or any Series shall be deemed to have agreed that
resort shall be had solely to the Trust Property of the Trust or the Series
Assets of such Series, as the case may be, for the payment or performance
thereof.

The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that a Certificate of
Trust, referring to the Declaration of Trust, is on file with the Secretary of
the state of Delaware and shall recite to the effect that the same was executed
or made by or on behalf of the Trust or by them as Trustees or Trustee or as
officers or officer, and not individually, and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, or the particular
Series in question, as the case may be, but the omission thereof shall not
operate to bind any Trustees or Trustee or officers or officer or Shareholders
or Shareholder individually, or to subject the Series Assets of any Series to
the obligations of any other Series.

SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being or
having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request by
the Shareholder) may assume the defense against such charge and satisfy any
judgment thereon or may reimburse the Shareholders for expenses, and the
Shareholder or former Shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled (but solely
out of the assets of the Series of which such Shareholder or former Shareholder
is or was the holder of Shares) to be held harmless from and indemnified against
all loss and expense arising from such liability.

SECTION 8.4. Indemnification of Trustees, Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 8.4, the Trust
shall indemnify (from the assets of the Series or Series to which the conduct in
question relates) each of its Trustees, officers, employees and agents
(including Persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter, together with such Person's
heirs, executors, administrators or personal representative, referred to as a
"Covered Person")) against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust; (ii)
had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(iii) for a criminal proceeding, had reasonable cause to believe that his
conduct was unlawful (the conduct described in (i), (ii) and (iii) being
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by reason of Disabling Conduct,
(ii) dismissal of a court action or an administrative proceeding against a
Covered Person for insufficiency of evidence of Disabling Conduct, or (iii) a
reasonable determination, based upon a review of the facts, that the indemnitee
was not liable by reason of Disabling Conduct by (a) a vote of a majority of a
quorum of Trustees who are neither "interested persons" of the Trust as defined
in Section 2(a)(19) of the 1940 Act nor parties to the proceeding (the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any

C-3

such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by one or
more Series to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided that the Covered
Person shall have undertaken to repay the amounts so paid to such Series if it
is ultimately determined that indemnification of such expenses is not authorized
under this Article 8 and (i) the Covered Person shall have provided security for
such undertaking, (ii) the Trust shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees, or an independent legal counsel in a written opinion,
shall have determined, based on a review of readily available facts (as opposed
to a full trial type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.

Item 30. Business and Other Connections of Adviser and Subadviser

For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of the Adviser and
Subadviser, reference is made to the Adviser's current Form ADV (File No.
801-1669) and the Subadviser's Form ADV (File No. 801-63319 ), each filed under
the Investment Adviser's 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, as amended, and the rules and regulations
thereunder to be maintained (i) by the Registrant, will be maintained at its
offices located at 1221 Avenue of the Americas, New York, New York 10020, Van
Kampen Investor Services Inc., Harborside Financial Center, Plaza 2, Jersey
City, New Jersey 07303-0947 or at the State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, Massachusetts; (ii) by the Adviser, will be
maintained at its offices located at 1221 Avenue of the Americas, New York, New
York 10020; and (iii) by the Subadviser, will be maintained at its offices
located at 535 Madison Avenue, New York, New York 10022.

Item 32. Management Services

Not Applicable.

Item 33. Undertakings

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

(2) Not applicable.

(3) Not applicable.

(4) Not applicable.

(5) (a) For the purposes 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 under Rule 497 (h)
under the Securities Act of 1933 shall be deemed to be part of the 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 the 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, any Statement of Additional Information.

C-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 2nd day
of April, 2007.

VAN KAMPEN GLOBAL CREDIT OPPORTUNITIES FUND

By: /s/ Ronald E. Robison
--------------------------------------
Ronald E. Robison
President and Chief Executive Officer

Name Title
------------------------------------ ---------------------------------------

/s/ Ronald E. Robison President, Chief Executive Officer and
------------------------------------ Trustee
Ronald E. Robison