Edgar Filing: Van Kampen Dynamic Credit Opportunities Fund

PROSPECTUS June 26, 2007
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71,000,000 SHARES

(VAN KAMPEN INVESTMENTS LOGO)
Van Kampen
Dynamic Credit
Opportunities Fund
COMMON SHARES
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INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGY. Van Kampen Dynamic
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 loan and debt instruments (and loan-related or debt-related
instruments) (collectively, "credit 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 (i.e., an issuer's
ability to make loan or debt payments when due), 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 (i.e., the cycle between positive economic
environments and less positive economic environments for credit securities) is
critical to achieving higher risk-adjusted returns relative to other
high-yielding investments, including high current income and/or capital
appreciation.

(continued on inside cover page)

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, INCLUDING THAT THE FUND MAY INVEST ALL OR A
SUBSTANTIAL PORTION OF ITS ASSETS IN BELOW INVESTMENT GRADE SECURITIES WHICH ARE
OFTEN REFERRED TO AS HIGH YIELD, HIGH RISK INVESTMENTS OR "JUNK" SECURITIES,
SUMMARIZED IN "PROSPECTUS SUMMARY--PRINCIPAL INVESTMENT RISKS" BEGINNING ON PAGE
7 OF THIS PROSPECTUS AND THE FURTHER DISCUSSION OF RISKS DESCRIBED IN
"INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS" BEGINNING ON
PAGE 17 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.

PRICE TO PUBLIC SALES LOAD(1) PROCEEDS TO FUND(2)
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Per share $ 20.00 $ 0.90 $ 19.10
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Total $ 1,420,000,000 $ 63,900,000 $ 1,356,100,000
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Total assuming full exercise of the over-allotment option $ 1,633,000,000 $ 73,485,000 $ 1,559,515,000
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(See notes on inside cover page)

The underwriters are offering the common shares subject to various conditions
and expect to deliver the common shares to purchasers on or about June 29, 2007.

UBS INVESTMENT BANK MORGAN STANLEY
A.G. EDWARDS RAYMOND JAMES
OPPENHEIMER & CO. RBC CAPITAL MARKETS WELLS FARGO SECURITIES

ROBERT W. BAIRD & CO. BB&T CAPITAL MARKETS FERRIS, BAKER WATTS STIFEL NICOLAUS
INCORPORATED

(notes continued from previous page)

(1) The Fund's adviser (not the Fund) will pay a shareholder servicing fee to
UBS Securities LLC, a marketing and structuring fee to Morgan Stanley & Co.
Incorporated and an incentive fee to Raymond James & Associates, Inc. See
"Underwriting." This amount is not reflected under estimated offering
expenses in the table above. The total compensation received by the
Underwriters (including sales loads, servicing fees, additional
compensation or any marketing and structuring fees) will not exceed 9.00%
of the aggregate initial offering price of the common shares offered
hereby.

(2) In addition to the sales load, the Fund will pay offering expenses up to an
aggregate of $0.04 per common share, estimated to total $2,840,000, which
will reduce the "Proceeds to 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 $0.04 per common share. The Fund's
adviser has agreed to reimburse all Fund organizational costs.

(continued from previous page)

In positive economic environments characterized by, among other things, low
default rates, the Fund expects to emphasize high current income by investing
primarily in Senior Loans (as defined herein), and will generally invest to a
much lesser degree in second lien or other subordinated loans or debt. In less
positive economic environments characterized by, among other things, high
default rates, the Fund will continue to seek high current income and capital
appreciation by exploiting market inefficiencies and will emphasize more
balanced investments among Senior Loans and second lien or other subordinated
loans or debt, including stressed and distressed credit securities. 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.

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 credit securities: (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 or debt; 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; these securities are commonly known as "junk" securities 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, index and interest rate swaps. To
the extent that the Fund invests in structured products or swaps that adjust
exposure to credit securities, such investments will be counted for purposes of
the Fund's 80% policy.

The Fund may invest in credit securities 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 (each
as defined under "Prospectus summary--Investment Objectives and Principal
Investment Strategies--Portfolio contents"), 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 generally 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 credit
securities 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 will likely have a low average duration (generally, four years
or less).

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 swaps and other hedging transactions. Under normal market conditions,
the Fund expects to invest a portion of its assets 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
(as defined under "Prospectus summary--Investment Objectives and Principal
Investment Strategy--Portfolio contents"), the Fund may do so if it determines
that such investments are appropriate for the Fund.

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 33 1/3% of its total
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. This may create a conflict of interest between the Fund's investment
adviser and holders of common shares, as providers of the credit facility or
holders of the preferred shares 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 proceed. This means that holders
of common shares effectively bear the entire investment advisory fee.

The Fund's investment adviser is Van Kampen Asset Management (the "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
$118 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, together with its affiliates managed
approximately $8.1 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
private investment funds not registered under the Investment Company Act of
1940, as amended, 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 $13.1 billion in assets under management. Morgan Stanley owns an
indirect, non-controlling interest in the Subadviser.

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iii

The Fund's common shares have been approved for listing on the New York Stock
Exchange and the Chicago Stock Exchange, subject to notice of issuance, under
the symbol "VTA."

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 June 26, 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 67 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.

The underwriters named in this Prospectus may purchase up to 10,650,000
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.

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.

Until July 21, 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
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PAGE
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Prospectus summary.................... 1
Summary of Fund expenses.............. 15
The Fund.............................. 17
Use of proceeds....................... 17
Investment objectives, principal
investment strategies and risks..... 17
Management of the Fund................ 49
Distributions......................... 51
Tax matters........................... 52
Closed-end fund structure............. 55
Dividend reinvestment plan............ 56
Description of capital structure...... 57

PAGE
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Underwriting.......................... 63
Dividend paying agent, transfer agent
and registrar....................... 66
Custodian............................. 66
Legal opinions........................ 66
Reports to shareholders............... 66
Independent registered public
accounting firm..................... 66
Additional information................ 67
Table of contents for the statement of
additional information.............. 67
The Fund's privacy policy............. 67

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iv

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
SAI.

THE FUND

Van Kampen Dynamic Credit Opportunities Fund (the "Fund") is a newly organized,
diversified, closed-end management investment company.

THE OFFERING

The Fund is offering 71,000,000 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
10,650,000 additional Common Shares to cover over-allotments, if any. The
initial public offering price is $20.00 per Common Share. The minimum purchase
in this offering is 100 Common Shares ($2,000). 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 $0.04 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.

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 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 higher risk-adjusted returns
relative to other high-yielding investments, including high current income
and/or capital appreciation. In positive economic environments characterized by,
among other things, low default rates, the Fund expects to emphasize high
current income by investing primarily in Senior Loans (as defined herein), and
will generally invest to a much lesser degree in second lien or other
subordinated loans or debt. In less positive economic environments characterized
by, among other things, high default rates, the Fund will continue to seek high
current income and capital appreciation by exploiting market inefficiencies and
will emphasize more balanced investments among Senior Loans and second lien or
other subordinated loans or debt, including stressed and distressed credit
securities. 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.

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 credit securities: (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 or debt; and (iii) other debt obligations,
including high-yield,

high-risk obligations (commonly known as "junk" securities). 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, index and interest
rate swaps. To the extent that the Fund invests in structured products or swaps
that adjust exposure to credit securities, such investments will be counted for
purposes of the Fund's 80% policy.

The Fund may invest, without limitation, in credit securities 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. ("Moody's"), or unrated securities that are deemed to be of
comparable quality, commonly known as "junk" securities. 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 (as
defined herein), 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
"Investment philosophy" below and "Management of the Fund--Portfolio
Management--Potential Conflicts of Interest of the Subadviser" in the SAI.
"Distressed issuers" generally refers to those issuers that are unable to
service their debt and thus, have entered into default, bankruptcy or are likely
to do so. "Stressed issuers" generally refers to those issuers that the market
expects to be "distressed" in the near future. "Non-stressed issuers" are those
issuers that generally are performing and currently not undergoing the same
financial experiences as "stressed" and "distressed" issuers. The Fund may
invest in credit securities 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 will likely have a low average duration
(generally, four years or less).

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
utilize credit securities 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. The Fund may invest without limitation in obligations for
which there is no readily available trading market or which are otherwise
illiquid. 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 swaps and other hedging transactions. Under normal market conditions,
the Fund expects to invest a portion of its assets 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. The Fund considers emerging market countries to be those countries
that the international financial community, including the International Bank for
Reconstruction and Development (more commonly known as The World Bank) and the
International Finance Corporation, considers to be emerging or developing
countries on the basis of such factors as trade initiatives, per capita income
and level of industrialization.

INVESTMENT PHILOSOPHY

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 utilization of the
secondary market for loans to manage risk (i.e., diversifying interest rate and
credit risk among investors). 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 from the top-down of the overall credit securities market
and detailed fundamental analysis from the bottom-up related to credit
securities of specific issuers (i.e., examining issuers' financials and
operations, including sales, earnings, growth potential, assets, debt,
management and competition).

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 based on the Adviser's assessments of market
conditions and such allocations will change over time without limitation. After
assessments among credit instruments and markets are made, it is currently
expected that the Adviser will focus primarily, but not exclusively, on
implementing the Fund's strategy in the U.S. markets. It is currently expected
that the Subadviser will invest 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 (particularly in the Middle East, Africa and
North America). 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.

The Subadviser will generally invest its portion of the Fund's assets 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
(for example, as of the date of this Prospectus, the Avenue-Credit Thresholds
for floating rate obligations based on LIBOR are those obligations with total
yields below LIBOR plus 350 basis points). Along the credit spectrum of
non-stressed, stressed and distressed securities, securities with total yields
below the Avenue-Credit Thresholds generally will be more in the range of
non-stressed or stressed securities and generally will not be distressed
securities. For additional information on the applicable yields, spreads and
benchmarks of the Avenue-Credit Thresholds on various obligations, please see
"Management of the Fund--Portfolio Management--Potential Conflicts of Interest
of the Subadviser" in the SAI.

and prospective industry trends affecting an investment opportunity. Such
analysis may include a review of the industry's growth potential, cyclicality,
barriers to entry, substitutability, capacity utilization, end market customer
and relevant legal or regulatory issues. Second, the Subadviser evaluates an
issuer's fundamentals (e.g., issuer's financials and operations, including, but
not limited to, sales, earnings, growth potential, assets and debt) and
management. The Subadviser will typically make non-controlling investments in
companies to provide maximum trading flexibility and will generally purchase
Euro-denominated securities.

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. To the extent that the Subadviser
serves as an investment manager to other accounts in the future that have an
investment strategy that is substantially similar to that of the Fund's, the
Subadviser will, to the extent practicable, allocate investment opportunities
among the Fund and such other accounts on a pro-rata basis. 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 33 1/3% of its
total 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. 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. If
preferred shares are used, holders of preferred shares will have rights to elect
a minimum of two trustees. This voting power may negatively affect holders of
Common Shares (or the interests of holders of preferred shares may differ from
the interests of holders of Common Shares).

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. This may create a conflict of interest between
the Adviser and holders of Common Shares, as providers of the credit facility or
holders of the preferred shares 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. This 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."

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--Strategic Transactions."

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. 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 $118 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, together with its
affiliates managed approximately $8.1 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.

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 $13.1 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 45 days after completion of this offering and to pay that initial
monthly dividend approximately 60 to 90 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, of which the Fund intends to distribute all
or substantially all on an annual basis to meet the requirements for
qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code"). 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" and "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."

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.
Additionally, the Fund has no limitation on investments in illiquid securities
(closed-end funds are not required to have any such limitation) and indeed may
invest all or a portion of its assets in illiquid securities. In order to meet
redemptions upon request by shareholders, open-end funds typically cannot have
more than 15% of their assets in illiquid securities. Thus, if the Fund were to
convert to an open-end fund, it would have to adopt a limitation on illiquid
securities and may need to revise its investment objectives, strategies and
policies. 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 funds unless significant changes in portfolio
holdings, including with respect to certain illiquid securities, and investment
policies are made. 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 capital structure."

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 values 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 values 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

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 Ba or lower by Moody's or BB or lower by
S&P) are commonly referred to as "junk" securities. 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 than the market
for other securities, 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.

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.

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 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. 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 the Adviser and the Subadviser.

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 the credit
analysis abilities of the Adviser and the 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.

The Fund may act as one of the group of original lenders originating a Senior
Loan and 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 OR DEBT

Second lien or other subordinated or unsecured loans or debt generally are
subject to similar risks associated with investments in Senior Loans. Because
second lien or other subordinated or unsecured loans or debt 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 or debt, 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 or debt, which are not backed by a security
interest in any specific collateral. Second lien or subordinated loans or debt,
both secured and unsecured, are expected to have greater price volatility than
Senior Loans and may be less liquid. There is also a possibility that
originators will not be able to sell participations in second lien loans and
subordinated loans or debt, both secured and unsecured, which would create
greater credit risk exposure. Second lien or other subordinated or unsecured
loans or debt 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 or the entity that sold assets to the special purpose
trust. 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 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 credit default, total
return, index and interest rate 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 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
or 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. If preferred
shares are used, holders of preferred shares will have rights to elect a minimum
of two trustees. This voting power may negatively affect holders of Common
Shares (or the interests of holders of preferred shares may differ from the
interests of holders 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. This may create a conflict
of interest between the Adviser and holders of Common Shares as providers of the
credit facility or holders of preferred shares 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. This 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 may impose specific restrictions
as condition to borrowing. The credit facility fees may include, among other
things, up front structuring fees, on-going commitment fees (including fees on
amounts undrawn on the facility) in addition to the traditional interest expense
on amounts borrowed. The credit facility may involve a lien on the Fund's
assets. 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 fees, covenants and investment restrictions of the rating
agency as a result. Such covenants and 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."

FOREIGN SECURITIES RISK

The Fund will invest in credit securities of issuers 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.

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.

Since the Fund may invest in credit securities of foreign issuers denominated in
the local currency, changes in foreign currency exchange rates will affect the
value of credit 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, 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 as currency futures contracts, currency forward contracts and
options on currencies. 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."

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" and "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 (collectively, referred to as "Strategic Transactions").
The Fund may invest up to 20% of its net assets in Strategic Transactions (which
limit is not applicable to foreign currency hedging 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.

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. 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.

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 capital
structure."

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.

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

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 leverage in the form of borrowings in
an amount equal to 33 1/3% 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................................ 0.20%(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.............................................. 1.87%
Interest payments on borrowed funds....................... 2.81%
Acquired fund fees and expenses........................... None
Other expenses(1)(3)...................................... 0.15%
-----------------
Total annual expenses.................................. 4.83%

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
71,000,000 Common Shares. See "Management of the Fund" and "Dividend
reinvestment plan."

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 $2), assuming (i) total net annual expenses of 4.83% of net
assets attributable to Common Shares in years one through ten and (ii) a 5%
annual return(5):

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------

$93 $186 $279 $512

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.
------------

(1) The Fund will pay offering costs (other than the sales load) up to an
aggregate of $0.04 per share of the Fund's Common Shares (0.20% 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 $0.04 per Common Share. The aggregate offering
expenses (other than the sales load) currently are estimated to be
$525,000. 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 $2.50 service charge and pay a transaction and
processing fee of $0.15 per Common Share if you direct the Plan Agent (as
defined under "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."

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15

SUMMARY OF FUND EXPENSES
--------------------------------------------------------------------------------

(4) Stated as percentages of net assets attributable to Common Shares assuming
no leverage, 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.............................................. 1.25%
Interest payments on borrowed funds....................... None
Acquired fund fees and expenses........................... None
Other expenses............................................ 0.11%
Total annual expenses................................... 1.36%

(5) 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.

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16

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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
$1,356,100,000 (or $1,559,515,000 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 $0.04 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

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17

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------

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 credit securities: (i) Senior Loans; (ii) second lien or other
subordinated or unsecured floating rate and fixed rate loans or debt; and (iii)
other debt obligations, including high-yield, high-risk obligations (commonly
known as "junk" securities). 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, index and interest rate swaps. To the
extent that the Fund invests in structured products or swaps that gain exposure
to credit securities, such investments will be counted for purposes of the
Fund's 80% policy.

The Fund may invest, without limitation, in credit securities that are rated
below investment grade by a NRSRO or unrated securities that are deemed to be of
comparable quality. Below investment grade securities 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. "Distressed issuers" generally refers to those
issuers that are unable to service their debt and thus, have entered into
default, bankruptcy or are likely to do so. "Stressed issuers" generally refers
to those issuers that the market expects to be "distressed" in the near future.
"Non-stressed issuers" are those issuers that generally are performing and
currently not undergoing the same financial experiences as "stressed" and
"distressed" issuers. The Fund may invest in credit securities 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 will likely have
a low average duration (generally, four years or less).

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
utilize credit securities 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. 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. The Fund may invest without limitation in obligations for which there is no
readily available trading market or which are otherwise illiquid. 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 swaps and other hedging transactions. Under normal market conditions,
the Fund expects to 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. The Fund
considers emerging countries to be those countries that the international
financial community, including the International Bank for Reconstruction and
Development (more commonly known as The World Bank) and the International
Finance Corporation, considers to be emerging or developing countries on the
basis of such factors as trade initiatives, per capita income and level of
industrialization.

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18

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------

The Fund will assess the market and make an assessment regarding the current
economic environment and outlook and then determine which investments are
appropriate for the Fund. You will find information about the Fund in its annual
and semiannual reports to shareholders. The annual report explains the market
conditions and investment strategies affecting the Fund's performance during its
last fiscal year.

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 (i.e., risk, liquidity and potential return
of one investment relative to another). 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 utilization of the secondary market for loans to
manage risk (i.e., diversifying interest rate and credit risk among investors).
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 (i.e., examining
issuers' financials and operations, including sales, earnings, growth potential,
assets, debt, management and competition).

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19

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------

Thresholds generally will be more in the range of non-stressed or stressed
securities and generally will not be distressed securities. For an example of
the applicable yields, spreads and benchmarks of the Avenue-Credit Thresholds,
please see "Management of the Fund--Portfolio Management--Potential Conflicts of
Interest of the Subadviser" in the SAI.

Subject to these constraints, the Subadviser seeks to maximize risk adjusted
returns. The Subadviser seeks to achieve the Fund's investment objectives 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 macro and bottom-up fundamental approach and credit research to find
undervalued opportunities. The Subadviser engages in two parallel exercises to
identify investment opportunities for the Fund. First, the Subadviser seeks to
understand historic and prospective industry trends affecting an investment
opportunity. Such analysis may include a review of the industry's growth
potential, cyclicality, barriers to entry, substitutability, capacity
utilization, end market customer and relevant legal or regulatory issues.
Second, the Subadviser evaluates an issuer's fundamentals (e.g., issuer's
financials and operations, including, but not limited to, sales, earnings,
growth potential, assets and debt) and management. The Subadviser will typically
make non-controlling investments in companies to provide maximum trading
flexibility and will generally purchase Euro-denominated securities.

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. To the extent that the Subadviser
serves as an investment manager to other accounts in the future that have an
investment strategy that is substantially similar to that of the Fund's, the
Subadviser will, to the extent practicable, allocate investment opportunities
among the Fund and such other accounts on a pro-rata basis. 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 Ba or lower by
Moody's or BB or lower by S&P) are commonly referred to as "junk" securities 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. Lower-grade securities are more susceptible to non-payment
of interest and

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20

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------

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
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. Credit securities that are or become stressed or distressed
generally trade at prices below par, thus creating opportunities for capital
appreciation (or loss) as the values of such securities change over time. 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.

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21

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------

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.

The Fund may sell securities without regard to the length of time they have been
held to take advantage of new investment opportunities, when the Adviser or the
Subadviser believes the potential for high current income or capital
appreciation has lessened, or for other reasons. The Fund's portfolio turnover
rate may vary from year to year. Under normal market conditions, the Fund
generally expects its portfolio turnover to be less than 100%. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs (including
brokerage commissions and dealer costs), which would adversely impact a fund's
performance. Higher portfolio turnover may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. The
portfolio turnover rate will not be a limiting factor, however, if the Adviser
or the Subadviser considers portfolio changes appropriate.

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 that Senior Loans of borrowers

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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------

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 borrower may
experience financial difficulty and/or the value of collateral may decline. 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. Investing in
Senior Loans involves 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

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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
borrower could cause a permanent decrease in the Fund's net asset value. See
"Investment objectives, principal investment strategies and risks--Other Risks
of Investing in the Fund."

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.

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SECOND LIEN OR OTHER SUBORDINATED OR UNSECURED LOANS OR DEBT

The Fund may invest in second lien or other subordinated or unsecured loans or
debt. Such loans or debt 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 or debt 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 or debt may, and generally will, rank lower in priority of
payment to one or more Senior Loans and second lien interests of the borrower.
Subordinated secured loans or debt 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 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 or debt 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

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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. For CDOs, CBOs and CLOs, the cashflows are split into
two or more portions, called tranches, varying in risk and yield. 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. 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
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).

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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 or the entity that sold the assets to the special purpose trust.
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.
Structured products may be private investment funds (structured as trusts or
other types of pooled investment companies that are excluded from the definition
of "investment company" under the 1940 Act by the operation of Section 3(c)(1)
or 3(c)(7) thereof) or investment companies that are registered under the 1940
Act. Investment in such products involve operating expenses and fees that are in
addition to the expenses and fees of the Fund, and such expenses and fees are
borne indirectly by holders of the Fund's Common Shares. For structured products
that are registered under the 1940 Act, please also see "Other
Investments - Securities of other investment companies." 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

The Fund may enter into swap transactions, including credit default, total
return, index and interest rate 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 (which may be the entire notional amount of the swap) 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.

Total return and index 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.

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.

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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.

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, to manage and mitigate
credit and interest rate risks and to gain exposure to credit securities. 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 and puts).

The Fund complies with applicable regulatory requirements when implementing
swaps, 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.

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, 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

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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.

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 relatively robust and mature
industries and securities markets that trade only 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 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 "Foreign
currency transactions" below.

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requirements. See "Distributions" and "Dividend reinvestment plan." 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 also enter into currency swap transactions. 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 also usually involve initial and
final exchanges of the designated currency that correspond to an agreed upon
notional amount. 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.

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 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

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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 may invest up to 20% of its net assets in Strategic Transactions (which
limit is not applicable to foreign currency hedging 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. 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. 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.

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.

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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 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. See "Investment objectives, policies and risks -- Strategic
Transactions" 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 merits of such 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.

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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 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.

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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.

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

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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 objectives 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 33 1/3%
of its total assets (including the amount obtained through leverage). The Fund
generally will not use financial leverage if it anticipates that the use of
leverage would result in a lower return to holders of Common Shares. The Fund's
Board will regularly review the Fund's use of financial leverage (i.e., the
relative costs and benefits of

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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," if preferred shares are used, holders of preferred shares
will have rights to elect a minimum of two trustees. This voting power may
negatively affect holders of Common Shares (or the interests of holders of
preferred shares may differ from the interests 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

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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 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. Prohibitions on dividends and other distributions on the Fund's Common
Shares could impair the Fund's ability to qualify as a regulated investment
company under the Code. 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 33 1/3% of the Fund's
total assets and an annual interest rate on indebtedness of 5.32% 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 1.77%. 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
33 1/3% of the Fund's total assets, assuming hypothetical annual returns of the
Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage
generally increases the return to 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 33 1/3% leverage.............. (17.55)% (10.08)% (2.62)% 4.84% 12.31%

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.

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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.

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 values 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 values 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

The Fund may invest in loan and 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

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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.

INCOME RISK

PREPAYMENT OR CALL RISK

RISKS OF SENIOR LOANS

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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 result in fluctuations in the
Fund's net asset value.

The Fund may acquire Senior Loans of borrowers that are experiencing, or are
more likely to experience financial difficulty, including Senior Loans 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 the credit
analysis abilities of the Adviser and the 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.

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

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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 OR DEBT

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 or the entity that sold
assets to the special purpose trust. 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.

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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 credit default, total
return, index and interest rate 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 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 forecast of market values, interest rates
or currency exchange rates, the investment performance of the Fund would be less
favorable than it would have been if these investment techniques were not used.

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. This may create a
conflict of interest between the Adviser and holders of Common Shares as
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 issuance of preferred shares and/or borrowings. This 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."

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Any lender in connection with a credit facility 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."

FOREIGN SECURITIES RISK

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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, 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 as currency futures contracts, currency forward
contracts and options on currencies. 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."

STRATEGIC TRANSACTIONS RISK

The Fund may utilize options, forward contracts, futures contracts and options
on 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.

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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. 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.

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.

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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
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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 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

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 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

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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
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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 fair value, as well as its ability to fairly value such investments and 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

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.

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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
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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 may
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 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.
In order for the Fund to qualify as a regulated investment company in any
taxable year, the Fund must meet certain asset diversification tests. In
addition, at least 90% of its gross income for such year must be comprised of
certain types of qualifying income. 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 on 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 Morgan Stanley & Co. Incorporated, 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

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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
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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.

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 total 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").

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49

MANAGEMENT OF THE FUND
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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, as of March 31, 2007, managed approximately $8.1 billion in senior loan
assets. 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

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 private investment funds not
registered under the 1940 Act 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 $13.1 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 will pay the Subadviser an annual fee,
payable monthly, in an amount equal to 1.25% of the portion of the Managed
Assets of the Fund managed by the Subadviser.

Richard Furst, Senior Portfolio Manager of the Subadviser, and Raul Ramirez, a
Portfolio Manager of the Subadviser, 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 Bank
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.

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MANAGEMENT OF THE FUND
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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. On an annual basis, the
Fund intends to 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) to meet the requirements for qualification as
a regulated investment company under the Code. 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. 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.

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.

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51

DISTRIBUTIONS
--------------------------------------------------------------------------------

Common Shareholders will automatically reinvest some or all of their
distributions in additional Common Shares pursuant to the Fund's dividend
reinvestment plan, unless such shareholders contact the Plan Agent and elect to
receive distributions in cash. See "Dividend reinvestment plan."

Tax matters

The following discussion summarizes certain U.S. federal income tax
considerations affecting the Fund and, except as otherwise noted, its
shareholders that are U.S. persons as defined for U.S. federal income tax
purposes. For more information, please see the section of the SAI entitled "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 to its shareholders
annually all or substantially all of such income.

Distributions paid, or deemed 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 currently
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.

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52

TAX MATTERS
--------------------------------------------------------------------------------

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 during the
preceding year. Ordinary income dividends and capital gain dividends may also be
subject to state and local taxes.

If you sell or otherwise dispose of Common Shares of the 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 foreign 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 shareholder will be entitled,
subject to certain limitations, to either deduct its allocable share of such
foreign income taxes in computing its taxable income or to use it as a foreign
tax credit against U.S. income taxes, if any.

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. A shareholder's ability to claim a credit for foreign taxes paid by the
Fund may also be limited by applicable holding period requirements. 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.

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53

TAX MATTERS
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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
generally 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 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.

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54

TAX MATTERS
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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.

NOTICES

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. 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 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.

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55

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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.

Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A.,
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.

If the Fund declares an income dividend or a realized capital gains distribution
payable either in the Fund's shares or in cash, as shareholders may have
elected, non-participants in the Plan will receive cash and participants in the
Plan will receive shares. If the market price per share on the valuation date
equals or exceeds net asset value per share on that date, the Fund will issue
new shares to participants at net asset value unless the net asset value is less
than 95% of the market price on the valuation date, in which case, shares will
be issued at 95% of the market price. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the exchange
on which the Fund's shares are then listed, the next preceding trading day. If
the net asset value exceeds the market price of shares at such time, or if the
Fund should declare a dividend or capital gains distribution payable only in
cash, the Plan Agent will, as agent for the participants, buy the Fund's shares
in the open market, or elsewhere, with the cash in respect of the dividend or
distribution, for the participants' account on, or shortly after, the payment
date.

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.

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,

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56

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

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.

The automatic reinvestment of dividends and distributions does not relieve
participants of any income tax that may be payable on such dividends and
distributions. See "Tax matters."

Common shareholders may terminate their participation in the Plan at anytime by
calling (800) 341-2929, by writing to the Plan Agent, Computershare Trust
Company, N.A. at P.O. Box 43011, Providence, R.I. 02940-3011 or by visiting
vankampen.com. If you terminate, shares will be held by the Plan Agent in
non-certificated form in the name of the participant. Common shareholders of the
Fund may again elect to participate in the Plan at any time by calling (800)
341-2929, by writing to the Plan Agent at the address listed above or by
visiting vankampen.com.

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.

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57

DESCRIPTION OF CAPITAL STRUCTURE
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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 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, principal investment strategies
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 shareholders. The Common Shares have no preemptive rights.

The Fund will not issue certificates for the Common Shares.

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.

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58

DESCRIPTION OF CAPITAL STRUCTURE
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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 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

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59

DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------

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 credit
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 credit facility/commercial paper 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 credit facility/commercial
paper program against liabilities they may incur in connection with the credit
facility/commercial paper 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 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/commercial paper 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/commercial paper 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/commercial paper 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.

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60

DESCRIPTION OF CAPITAL STRUCTURE
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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 (i) by a vote
of the holders of at least a majority of the shares then outstanding, cast in
person or by proxy at any meeting called for the purpose or (ii) by a written
declaration signed by holders of not less than a majority of the shares then
outstanding.

In addition, the Fund's Agreement and Declaration of Trust requires the
affirmative vote of at least three-fourths of the Fund's outstanding shares of
each affected class or series entitled to be cast, voting separately as a class
or series, to approve, adopt or authorize certain transactions, unless the
transaction has been approved by a two-thirds vote of the Trustees, in which
case the affirmative vote of a majority of the aggregate number of votes
entitled to be cast thereon shall be required.

The transactions subject to these special approval requirements are:

- the merger or consolidation of the Fund (in which the Fund is not the
surviving party);

- the dissolution of the Fund;

- the sale of all or any substantially all of the assets of the Fund to any
"person" (as defined in the 1940 Act);

- any amendment to, repeal of or adoption of any provision inconsistent with the
Fund's Declaration of Trust regarding election and term of Trustees;

- any amendment to the Declaration of Trust that reduces the three-fourths vote
required to authorize these transactions listed.

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.

CONVERSION TO OPEN-END FUND

The Fund may be converted to an open-end management investment company at any
time if approved by (ii) the affirmative vote of at least three-fourths of the
Fund's outstanding shares of each class entitled to be cast or (ii) if such
conversion has been approved by a two-thirds vote of the Trustees, then approval
shall require the affirmative vote of the lesser of (a) 67% or more of the
outstanding voting securities of the Fund at a shareholder meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy or (b) more than 50% of the outstanding voting securities of
the Fund. 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

--------------------------------------------------------------------------------
61

DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------

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, the Chicago 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.

--------------------------------------------------------------------------------
62

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

Underwriting

The Underwriters named below, acting through UBS Securities LLC, 299 Park
Avenue, New York, New York, and Morgan Stanley & Co. Incorporated, 1585
Broadway, New York, New York, as lead managers and A.G. Edwards & Sons, Inc.,
Raymond James & Associates, Inc., Oppenheimer & Co. Inc., RBC Capital Markets
Corporation, Wells Fargo Securities LLC, Robert W. Baird & Co. Incorporated,
BB&T Capital Markets, a division of Scott & Stringfellow, Inc., Ferris, Baker
Watts, Incorporated and Stifel, Nicolaus & Company, Incorporated, 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.......................................... 20,000,000
Morgan Stanley & Co. Incorporated........................... 36,400,000
A.G. Edwards & Sons, Inc. .................................. 2,000,000
Raymond James & Associates, Inc. ........................... 4,000,000
Oppenheimer & Co. Inc. ..................................... 2,000,000
RBC Capital Markets Corporation............................. 2,000,000
Wells Fargo Securities, LLC ................................ 2,000,000
BB&T Capital Markets, a division of Scott & Stringfellow,
Inc. ..................................................... 200,000
Ferris, Baker Watts, Incorporated .......................... 200,000
Robert W. Baird & Co. Incorporated.......................... 200,000
Stifel, Nicolaus & Company, Incorporated.................... 200,000
Capital Growth Financial, LLC............................... 100,000
Deutsche Bank Securities Inc. .............................. 100,000
Gunnallen Financial, Inc. .................................. 100,000
HSBC Securities (USA) Inc. ................................. 100,000
M. L. Stern & Co., LLC...................................... 100,000
Morgan Keegan & Company, Inc................................ 100,000
Ryan Beck & Co., Inc. ...................................... 100,000
Sterne, Agee & Leach, Inc. ................................. 100,000
Suntrust Robinson Humphrey.................................. 100,000
Advanced Equities Inc. ..................................... 50,000
City Securities Corporation................................. 50,000
Crowell, Weedon & Co. ...................................... 50,000
David A. Noyes & Company.................................... 50,000
First Allied Securities, Inc. .............................. 50,000
Gilford Securities Incorporated............................. 50,000
Huntleigh Securities Corporation............................ 50,000
International Assets Advisory LLC........................... 50,000
McGinn, Smith & Co., Inc. .................................. 50,000
Regal Securities, Inc. ..................................... 50,000
Royal Alliance Associates, Inc. ............................ 50,000
SMH Capital Inc. ........................................... 50,000
Southwest Securities, Inc. ................................. 50,000
Stanford Group Company...................................... 50,000

--------------------------------------------------------------------------------
63

UNDERWRITING
--------------------------------------------------------------------------------

NUMBER OF
UNDERWRITERS COMMON SHARES
----------------------------------------------------------------------------

Stonnington Group, LLC...................................... 50,000
Strand, Atkinson, Williams & York, Inc. .................... 50,000
Wayne Hummer Investments L.L.C.............................. 50,000
Wedbush Morgan Securities Inc. ............................. 50,000
----------
Total..................................................... 71,000,000
==========

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 10,650,000 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
$0.90 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
$0.60 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 $0.10 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 $0.04 per Common Share.
Investors must pay for any Common Shares purchased on or before June 29, 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 ($2,000).

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 Subadviser separately has entered into a similar
agreement with the several Underwriters.

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

--------------------------------------------------------------------------------
64

UNDERWRITING
--------------------------------------------------------------------------------

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 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 TO UNDERWRITERS 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, and consult with representatives of the Adviser in connection
therewith; and (iv) provide information to and consult with the Adviser 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, of 0.10% 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 3.535% 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 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
1.25% 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 $15,093,750. The marketing and structuring
fee paid to Morgan Stanley & Co. Incorporated will not exceed 0.924% of the
total price to the public of the Common

--------------------------------------------------------------------------------
65

UNDERWRITING
--------------------------------------------------------------------------------

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.

The Adviser (and not the Fund) has agreed to pay, from its own assets, an
incentive fee to Raymond James & Associates, Inc. of up to $646,875, which will
not exceed 0.040% of the aggregate initial offering price of the Common Shares
offered hereby.

The sum of the fees described above to be paid by the Adviser to UBS Securities
LLC, Morgan Stanley & Co. Incorporated and Raymond James & Associates, Inc. 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
Underwriters 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.

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

Deloitte & Touche LLP, Chicago, Illinois, is the Fund's independent registered
public accounting firm and will audit the Fund's financial statements.

--------------------------------------------------------------------------------
66

DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
--------------------------------------------------------------------------------

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.
--------------------------------------------------------------------------------

Table of contents for the
statement of additional information

Investment objectives, policies and
risks............................. B-2
Investment restrictions............. B-15
Management of the Fund.............. B-16
Other agreements.................... B-34
Portfolio transaction and brokerage
allocation........................ B-35
Net asset value..................... B-37
Description of shares............... B-38
Repurchase of common shares......... B-38
Tax matters......................... B-40
Proxy voting policy and proxy voting
record............................ B-46
Independent registered public
accounting firm................... B-46
Legal counsel....................... B-46
Additional information.............. B-46
Report of independent registered
public accounting firm............ F-1
Financial statements................ F-2
Appendix A: Description of
securities ratings................ A-1
Appendix B: Proxy voting
guidelines........................ BB-1

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

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.

--------------------------------------------------------------------------------
67

THE FUND'S PRIVACY POLICY
--------------------------------------------------------------------------------

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 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.

--------------------------------------------------------------------------------
68

(VAN KAMPEN INVESTMENTS LOGO)

VTAPRO 6/07

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

(VAN KAMPEN INVESTMENTS LOGO)
Van Kampen Dynamic
Credit Opportunities Fund

STATEMENT OF ADDITIONAL INFORMATION

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

Van Kampen Dynamic 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............................. B-2
Investment restrictions............. B-15
Management of the Fund.............. B-16
Other agreements.................... B-34
Portfolio transactions and brokerage
allocation........................ B-35
Net asset value..................... B-37
Description of shares............... B-38
Repurchase of common shares......... B-38
Tax matters......................... B-40
Proxy voting policy and proxy voting
record............................ B-46
Independent registered public
accounting firm................... B-46
Legal counsel....................... B-46
Additional information.............. B-46
Report of independent registered
public accounting firm............ F-1
Financial statements................ F-2
Appendix A: Description of
securities ratings................ A-1
Appendix B: Proxy voting
guidelines........................ BB-1

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

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JUNE 26, 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 June 26, 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.

--------------------------------------------------------------------------------
B-1

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

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

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.

--------------------------------------------------------------------------------
B-2

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

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 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

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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 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

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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.

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

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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.

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.

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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.

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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

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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 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.

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.

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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.

In addition, futures contracts, options on futures contracts and forward
contracts 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.

FOREIGN CURRENCY TRANSACTIONS

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

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INVESTMENT OBJECTIVES, POLICIES AND RISKS
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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 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.

Options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign 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

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B-11

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

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.

SWAP TRANSACTIONS

The Fund may enter into swap transactions, including 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.

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

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B-12

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

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.

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.

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INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

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 and swaps, 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.

--------------------------------------------------------------------------------
B-14

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

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 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.

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 loans or 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) 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 (however, not including
private purpose industrial development bonds issued on behalf of
non-government issuers), 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

--------------------------------------------------------------------------------
B-15

INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------

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.

Thus, according to the Fund's fundamental investment restrictions, the
Fund currently may not:

1. 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.

2. 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 or sell
mortgage-related securities and (e) hold and sell real estate acquired by
the Fund as a result of the ownership of securities.

The latter part of certain of the Fund's fundamental investment
restrictions (i.e., the references to "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")
provide the Fund with flexibility to change its limitations in connection
with changes in applicable law, rules, regulations or exemptive relief.
The language used in these restrictions provides the necessary
flexibility to allow the Fund's Board to respond efficiently to these
kinds of developments without the delay and expense of a shareholder
meeting.

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.

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B-16

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

INDEPENDENT TRUSTEES

NAME, AGE AND TERM OF OFFICE PRINCIPAL NUMBER OF FUNDS IN
ADDRESS OF POSITION(S) HELD AND LENGTH OF OCCUPATIONS(S) FUND COMPLEX
INDEPENDENT TRUSTEE(1) WITH FUND(1) TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE

David C. Arch (61) Trustee Trustee since Chairman and Chief Executive 74
Blistex Inc. 2007 Officer of Blistex Inc., a
1800 Swift Drive consumer health care
Oak Brook, IL 60523 products manufacturer.
Director of the Heartland
Alliance, a nonprofit
organization serving human
needs based in Chicago.
Former Director of St.
Vincent de Paul Center, a
Chicago based day care
facility serving the
children of low income
families. Board member of
the Illinois Manufacturers'
Association.

Jerry D. Choate (68) Trustee Trustee since Prior to January 1999, 74
33971 Selva Road 2007 Chairman and Chief Executive
Suite 130 Officer of the Allstate
Dana Point, CA 92629 Corporation ("Allstate") and
Allstate Insurance Company.
Prior to January 1995,
President and Chief
Executive Officer of
Allstate. Prior to August
1994, various management
positions at Allstate.

NAME, AGE AND
ADDRESS OF OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE(1) HELD BY TRUSTEE

David C. Arch (61) Trustee/Director/
Blistex Inc. Managing General
1800 Swift Drive Partner of funds
Oak Brook, IL 60523 in the Fund
Complex.

Jerry D. Choate (68) Trustee/Director/
33971 Selva Road Managing General
Suite 130 Partner of funds
Dana Point, CA 92629 in the Fund
Complex. Director
of H&R Block,
Amgen Inc., a
biotechnological
company, and
Director of Valero
Energy
Corporation, an
independent
refining company.

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B-17

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

Rod Dammeyer (66) Trustee Trustee since President of CAC, llc., a 74
CAC, llc. 2007 private company offering
4350 LaJolla Village Drive capital investment and
Suite 980 management advisory
San Diego, CA 92122-6223 services. Prior to February
2001, Vice Chairman and
Director of Anixter
International, Inc., a
global distributor of wire,
cable and communications
connectivity products.

NAME, AGE AND
ADDRESS OF OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE(1) HELD BY TRUSTEE

Rod Dammeyer (66) Trustee/Director/
CAC, llc. Managing General
4350 LaJolla Village Drive Partner of funds
Suite 980 in the Fund
San Diego, CA 92122-6223 Complex. Director
of Quidel
Corporation,
Stericycle, Inc.
and Ventana
Medical Systems,
Inc. and Trustee
of The Scripps
Research
Institute. Prior
to April 2007,
Director of GATX
Corporation. Prior
to January 2005,
Trustee of the
University of
Chicago Hospitals
and Health
Systems. Prior to
April 2004,
Director of
TheraSense, Inc.
Prior to January
2004, Director of
TeleTech Holdings
Inc. and Arris
Group, Inc. Prior
to May 2002,
Director of
Peregrine Systems
Inc. Prior to
February 2001,
Director of IMC
Global Inc.

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B-18

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

Linda Hutton Heagy+ (58) Trustee Trustee since Managing Partner of Heidrick 74
Heidrick & Struggles 2007 & Struggles, an
233 South Wacker Drive international executive
Suite 7000 search firm. Trustee on the
Chicago, IL 60606 University of Chicago
Hospitals Board, Vice Chair
of the Board of the YMCA of
Metropolitan Chicago and a
member of the Women's Board
of the University of
Chicago. Prior to 1997,
Partner of Ray & Berndtson,
Inc., an executive
recruiting firm. Prior to
1996, Trustee of The
International House Board, a
fellowship and housing
organization for
international graduate
students. Prior to 1995,
Executive Vice President of
ABN AMRO, N.A., a bank
holding company. Prior to
1990, Executive Vice
President of The Exchange
National Bank.

R. Craig Kennedy (55) Trustee Trustee since Director and President of 74
1744 R Street, NW 2007 the German Marshall Fund of
Washington, D.C. 20009 the United States, an
independent U.S. foundation
created to deepen
understanding, promote
collaboration and stimulate
exchanges of practical
experience between Americans
and Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and option
company that invests money
for individuals and
institutions. Prior to 1992,
President and Chief
Executive Officer, Director
and member of the Investment
Committee of the Joyce
Foundation, a private
foundation.

Howard J Kerr (71) Trustee Trustee since Prior to 1998, President and 74
14 Huron Trace 2007 Chief Executive Officer of
Galena, IL 61036 Pocklington Corporation,
Inc., an investment holding
company. Director of the
Marrow Foundation.

NAME, AGE AND
ADDRESS OF OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE(1) HELD BY TRUSTEE

Linda Hutton Heagy+ (58) Trustee/Director/
Heidrick & Struggles Managing General
233 South Wacker Drive Partner of funds
Suite 7000 in the Fund
Chicago, IL 60606 Complex.

R. Craig Kennedy (55) Trustee/Director/
1744 R Street, NW Managing General
Washington, D.C. 20009 Partner of funds
in the Fund
Complex.

Howard J Kerr (71) Trustee/Director/
14 Huron Trace Managing General
Galena, IL 61036 Partner of funds
in the Fund
Complex. Director
of the Lake Forest
Bank & Trust.

--------------------------------------------------------------------------------
B-19

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

Jack E. Nelson (71) Trustee Trustee since President of Nelson 74
423 Country Club Drive 2007 Investment Planning
Winter Park, FL 32789 Services, Inc., a financial
planning company and
registered investment
adviser in the State of
Florida. President of Nelson
Ivest Brokerage Services
Inc., a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board. President
of Nelson Sales and Services
Corporation, a marketing and
services company to support
affiliate companies.

Hugo F. Sonnenschein (66) Trustee Trustee since President Emeritus and 74
1126 E. 59th Street 2007 Honorary Trustee of the
Chicago, IL 60637 University of Chicago and
the Adam Smith Distinguished
Service Professor in the
Department of Economics at
the University of Chicago.
Prior to July 2000,
President of the University
of Chicago. Trustee of the
University of Rochester and
a member of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and a
fellow of the American
Academy of Arts and
Sciences. Prior to 2006,
Director of Winston
Laboratories, Inc.

NAME, AGE AND
ADDRESS OF OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE(1) HELD BY TRUSTEE

Jack E. Nelson (71) Trustee/Director/
423 Country Club Drive Managing General
Winter Park, FL 32789 Partner of funds
in the Fund
Complex.

Hugo F. Sonnenschein (66) Trustee/Director/
1126 E. 59th Street Managing General
Chicago, IL 60637 Partner of funds
in the Fund
Complex.

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B-20

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

Suzanne H. Woolsey, Ph.D. (65) Trustee Trustee since Chief Communications Officer 74
815 Cumberstone Road 2007 of the National Academy of
Harwood, MD 20776 Sciences/National Research
Council, an independent,
federally chartered policy
institution, from 2001 to
November 2003 and Chief
Operating Officer from 1993
to 2001. Director of the
Institute for Defense
Analyses, a federally funded
research and development
center, Director of the
German Marshall Fund of the
United States, Director of
the Rocky Mountain Institute
and Trustee of California
Institute of Technology and
the Colorado College. Prior
to 1993, Executive Director
of the Commission on
Behavioral and Social
Sciences and Education at
the National Academy of
Sciences/National Research
Council. From 1980 through
1989, Partner of Coopers &
Lybrand. Director of
Neurogen Corporation, a
pharmaceutical company, from
January 1998 until June
2006.

NAME, AGE AND
ADDRESS OF OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE(1) HELD BY TRUSTEE

Suzanne H. Woolsey, Ph.D. (65) Trustee/Director/
815 Cumberstone Road Managing General
Harwood, MD 20776 Partner of funds
in the Fund
Complex. Director
of Fluor Corp., an
engineering,
procurement and
construction
organization,
since January
2004. Director of
Intelligent
Medical Devices, a
symptom based
diagnostic tool
for physicians and
clinical labs.

INTERESTED TRUSTEE

NAME, AGE AND TERM OF OFFICE PRINCIPAL NUMBER OF FUNDS IN
ADDRESS OF POSITION(S) HELD AND LENGTH OF OCCUPATIONS(S) FUND COMPLEX
INTERESTED TRUSTEE WITH FUND TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE
----------------------------------------------------------------------------------------------------------------------

Wayne W. Whalen(1)* (67) Trustee Trustee since Partner in the law firm of 74
333 West Wacker Drive 2007 Skadden, Arps, Slate,
Chicago, IL 60606 Meagher & Flom LLP, legal
counsel to funds in the Fund
Complex.

NAME, AGE AND
ADDRESS OF OTHER DIRECTORSHIPS
INTERESTED TRUSTEE HELD BY TRUSTEE
-------------------------------

Wayne W. Whalen(1)* (67) Trustee/Director/
333 West Wacker Drive Managing General
Chicago, IL 60606 Partner of funds
in the Fund
Complex. Director
of the Abraham
Lincoln
Presidential
Library Foundation

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

+ As indicated above, Ms. Heagy is an employee of Heidrick and Struggles, an
international executive search firm ("Heidrick"). Heidrick has been (and
may continue to be) engaged by Morgan Stanley from time to time to perform
executive searches. Such searches have been unrelated to Van Kampen's or
Morgan Stanley's asset management businesses and have been done by
professionals at Heidrick without any involvement by Ms. Heagy. Ethical
wall procedures exist to ensure that Ms. Heagy will not have any
involvement with any searches performed by Heidrick for Morgan Stanley. Ms.
Heagy does not receive any compensation, directly or indirectly, for
searches performed by Heidrick for Morgan Stanley. Ms. Heagy does own
common shares of Heidrick (representing less than 1% of Heidrick's
outstanding common shares).

--------------------------------------------------------------------------------
B-21

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

* Mr. Whalen 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. Arch, Choate and Kerr and Ms. Woolsey, as Class I trustees, are
expected to stand for re-election at the Fund's 2008 annual meeting of
shareholders.

-- Messrs. Dammeyer and Whalen and Ms. Heagy, as Class II trustees, are
expected to stand for re-election at the Fund's 2009 annual meeting of
shareholders.

-- Messrs. Kennedy, Nelson and Sonnenschein, as Class III trustees, are
expected to stand for re-election at the Fund's 2010 annual meeting of
shareholders.

OFFICERS

TERM OF OFFICE PRINCIPAL
POSITION(S) HELD AND LENGTH OF OCCUPATION(S)
NAME, AGE, AND ADDRESS OF OFFICER WITH FUND TIME SERVED DURING PAST 5 YEARS
-----------------------------------------------------------------------------------------------------------------------------------

Ronald E. Robison (68) President and Officer since President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal 2007 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Executive since May 2003. Managing Director of Van Kampen Advisors
Officer Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan Stanley
& Co. Incorporated. Managing Director and Director of Morgan
Stanley Investment Management Inc. Chief Administrative
Officer, Managing Director and Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Managing Director and Director of Morgan Stanley
Distributors Inc. and Morgan Stanley Distribution Inc. Chief
Executive Officer and Director of Morgan Stanley Trust.
Executive Vice President and Principal Executive Officer of
the Institutional and Retail Morgan Stanley Funds. Director
of Morgan Stanley SICAV. Previously, Chief Global Operations
Officer of Morgan Stanley Investment Management Inc. and
Executive Vice President of funds in the Fund Complex from
May 2003 to September 2005.

Dennis Shea (53) Vice President Officer since Managing Director of Morgan Stanley Investment Advisors
1221 Avenue of the Americas 2007 Inc., Morgan Stanley Investment Management Inc., the Adviser
New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment
Officer -- Global Equity of the same entities since February
2006. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006. Previously, Managing
Director and Director of Global Equity Research at Morgan
Stanley from April 2000 to February 2006.

J. David Germany (52) Vice President Officer since Managing Director of Morgan Stanley Investment Advisors
20 Bank Street, 2007 Inc., Morgan Stanley Investment Management Inc., the Adviser
Canary Wharf and Van Kampen Advisors Inc. Chief Investment
London, GRB E14 4AD Officer -- Global Fixed Income of the same entities since
December 2005. Managing Director and Director of Morgan
Stanley Investment Management Ltd. Director of Morgan
Stanley Investment Management (ACD) Limited since December
2003. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006.

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MANAGEMENT OF THE FUND
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Amy R. Doberman (45) Vice President Officer since Managing Director and General Counsel-U.S. Investment
1221 Avenue of the Americas 2007 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management Inc., Morgan Stanley Investment Advisors Inc. and
the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.

Stefanie V. Chang (40) Vice President Officer since Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary 2007 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.

John L. Sullivan (51) Chief Compliance Officer since Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer 2007 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.

Stuart N. Schuldt (45) Chief Financial Officer since Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza Officer and 2007 Inc. since June 2007. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex since June 2007. Prior to June
2007, Senior Vice President of Northern Trust Company,
Treasurer and Principal Financial Officer for Northern Trust
U.S. mutual fund complex.

Howard Tiffen (57) Vice President Officer since Managing Director of the Adviser and Van Kampen Advisors
1 Parkview Plaza 2007 Inc. Vice President of the senior loan funds advised by the
Oakbrook Terrace, IL 60181 Adviser. Prior to 1999, senior portfolio manager for Pilgrim
Investments. Associate of the Chartered Institute of Bankers
and a member of the Economic Club of Chicago.

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 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-

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MANAGEMENT OF THE FUND
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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
------------------------------------------------------
ESTIMATED
AGGREGATE
AGGREGATE PENSION OR
COMPENSATION RETIREMENT AGGREGATE ESTIMATED
BEFORE BENEFITS MAXIMUM ANNUAL TOTAL COMPENSATION
DEFERRAL ACCRUED AS BENEFITS FROM THE BEFORE DEFERRAL
FROM PART OF FUND COMPLEX UPON FROM FUND
NAME THE FUND(1) EXPENSES(2) RETIREMENT(3) COMPLEX(4)
------------------------------------------------------------------------------------------------------

INDEPENDENT TRUSTEES
David C. Arch $840 $ 35,373 $105,000 $259,418
Jerry D. Choate 840 80,600 105,000 254,394
Rod Dammeyer 840 64,051 105,000 259,418
Linda Hutton Heagy 840 25,769 105,000 254,394
R. Craig Kennedy 840 18,372 105,000 254,394
Howard J Kerr 840 140,735 143,750 259,418
Jack E. Nelson 840 92,953 105,000 238,523
Hugo F. Sonnenschein 840 64,671 105,000 259,418
Suzanne H. Woolsey 840 57,060 105,000 254,394
INTERESTED TRUSTEE
Wayne W. Whalen 840 67,997 105,000 259,418

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

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

--------------------------------------------------------------------------------
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MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

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 Jerry D. Choate, Rod Dammeyer and R.
Craig Kennedy. 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. Each member of the Fund's
audit committee is deemed an audit committee financial expert.

The Board's governance committee consists of David C. Arch, Howard J Kerr and
Jack E. Nelson. 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 Linda Hutton Heagy,
Hugo F. Sonnenschein and Suzanne H. Woolsey. 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.

--------------------------------------------------------------------------------
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MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

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.

2006 TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES

INDEPENDENT TRUSTEES

TRUSTEES
---------------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-----------------------------------------------------------------------------------------------------------------------

DOLLAR RANGE OF EQUITY
SECURITIES IN THE
FUND.................. none none none none none none none none none
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES
IN ALL REGISTERED
INVESTMENT COMPANIES
OVERSEEN BY TRUSTEE IN
THE FUND COMPLEX...... over $10,001- over $50,001- over $1- $1- $50,001- over
$100,000 $50,000 $100,000 $100,000 $100,000 $10,000 $10,000 $100,000 $100,000

INTERESTED TRUSTEE

TRUSTEE
--------
WHALEN
----------------------------------------------------------------------

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.............................................. over
$100,000

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

DOLLAR RANGE OF EQUITY
SECURITIES AND
DEFERRED COMPENSATION
IN THE FUND........... none none none none none none none none none
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES
AND DEFERRED
COMPENSATION IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
TRUSTEE IN THE FUND
COMPLEX............... over over over over over over over over over
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000

--------------------------------------------------------------------------------
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MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

INTERESTED TRUSTEE

TRUSTEE
--------
WHALEN
----------------------------------------------------------------------

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................... over
$100,000

As of May 15, 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 Inc. ("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

--------------------------------------------------------------------------------
B-27

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

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 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 the aggregate liquidation
preference of any preferred shares and/or the aggregate amount of any borrowings
for investment purposes ("Managed Assets").

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.

LITIGATION INVOLVING THE ADVISER

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

--------------------------------------------------------------------------------
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MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

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

The Adviser has entered into an investment subadvisory agreement with the
Subadviser (the "Subadvisory Agreement"). Under the Subadvisory Agreement, the
Adviser retains the Subadviser to manage that portion of the Fund's assets that
are allocated to the Subadviser. The Adviser will pay the Subadviser an annual
fee, payable monthly, in an amount equal to 1.25% of the portion of the Managed
Assets of the Fund managed by the Subadviser. The initial term, the process for
continuance, and the termination provisions of the Subadvisory Agreement are
substantially similar to those described above for the Advisory Agreement.

INITIAL APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND INVESTMENT SUBADVISORY
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.

The 1940 Act requires that the Advisory Agreement between the Fund and the
Adviser and the Subadvisory Agreement between the Adviser and the Subadviser
(collectively, the "Advisory Agreements") be approved both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.

On April 17, 2007, the Board of Trustees, and the independent Trustees voting
separately, determined that the terms of the Advisory Agreements are fair and
reasonable and approved the Advisory Agreements as being in the best interests
of the Fund and its shareholders. In making its determination, the Board of
Trustees considered materials that were specifically prepared by the Adviser and
the Subadviser at the request of the Board and Fund counsel relating to the
contract review process. The Board also considered information received about
the investment strategy, portfolio management team and projected fees and
expenses of the Fund. The Board of Trustees considered the contracts over two
meetings and the non-management trustees held sessions both with the Adviser and
Subadviser and separate from the Adviser and Subadviser in reviewing and
considering the contracts.

In approving the Advisory Agreements, the Board of Trustees considered, among
other things, the nature, extent and quality of the services to be provided by
the Adviser and Subadviser, the projected fees and expenses of the Fund compared
to other similar funds and other products, the projected

--------------------------------------------------------------------------------
B-29

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

expenses in providing the services and the projected profitability. The Board of
Trustees considered the extent to which economies of scale, if any, could be
experienced in managing the Fund and noted the lack of proposed breakpoints
given the proposed nature of the Fund's portfolio. The Board of Trustees
considered comparative advisory fees of the Fund and other investment companies
and/or other products at different asset levels, and considered the trends in
the industry versus projected assets of the Fund. The Board of Trustees
evaluated other benefits the Adviser, the Subadviser or their affiliates may
derive from their relationship with the Fund. The Board of Trustees discussed
the financial strength of the Adviser, Subadviser and their affiliates and the
capability of their personnel, and specifically the strength and background of
the portfolio management personnel. The Board of Trustees reviewed the statutory
and regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of factors
control or dominate the review process, and, after considering all factors
together, has determined, in the exercise of its business judgment, that
approval of the Advisory Agreements is in the best interests of the Fund and its
shareholders. The following summary provides more detail on certain matters
considered but does not detail all matters considered.

Nature, Extent and Quality of the Services to be Provided. The Board of
Trustees considers the roles and responsibilities of the Adviser and Subadviser
as a whole and for those specific portfolio managers, support and trading
functions anticipated to be servicing the Fund. The trustees discussed with the
Adviser and the Subadviser the resources available in managing the Fund. The
Fund discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discussed certain other services
which are provided on a cost-reimbursement basis by the Adviser or its
affiliates to the Van Kampen funds including certain accounting, administrative
and legal services. The Board has determined that the nature, extent and quality
of the services to be provided by the Adviser and Subadviser support its
decision to approve the Advisory Agreements.

Projected Fees and Expenses of the Fund. The Board of Trustees reviewed the
projected fees and expenses of the Fund compared to its peers. The trustees
discussed with the Adviser the performance goals in managing the Fund. When
considering a fund's performance, the trustees noted their expected emphasis on
trends and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance). The trustees
discussed with the Adviser and the Subadviser the level of advisory fees for
this Fund relative to comparable funds and other products advised by the Adviser
and Subadviser and others in the marketplace. The trustees reviewed not only the
proposed advisory fee arrangement but other projected fees and expenses (whether
paid to the Adviser, its affiliates or others) and the Fund's overall projected
expense ratio. The Fund discloses more information about its fees and expenses
in its prospectus. The Board has determined that the projected fees and expenses
of the Fund support its decision to approve the Advisory Agreements.

Expenses in Providing the Service and Profitability. At least annually, the
trustees expect to review the expenses in providing services to the Fund and the
profitability of the Adviser and Subadviser. With respect to other Van Kampen
funds, these profitability reports have been put together by the Adviser with
the oversight of a special ad hoc committee of the board. In connection with the
Fund, the trustees discussed the projected revenues and expenses, including
among other things, revenues for advisory services, portfolio management-related
expenses, other costs and allocated expenses both on an aggregate basis and per
fund. The Board has determined that the projected expenses in providing the
service and the projected profitability support its decision to approve the
Advisory Agreements.

Economies of Scale. The Board of Trustees considered the projected size and
growth prospects of the Fund and how that relates to the Fund's expense ratio.
The trustees discussed how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
arrangement is appropriate relative to projected asset levels. The Board has
determined

--------------------------------------------------------------------------------
B-30

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

that its review of the potential economies of scale of the Fund support its
decision to approve the Advisory Agreements.

PORTFOLIO MANAGEMENT

OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS

As of March 31, 2007, Howard Tiffen managed five registered investment companies
with a total of approximately $6.2 billion in assets; no pooled investment
vehicles other than registered investment companies; and one other account with
a total of approximately $518 million in assets.

As of March 31, 2007, Christina Jamieson managed two registered investment
companies with a total of approximately $4.4 billion in assets; no pooled
investment vehicles other than registered investment companies; and no other
accounts.

As of March 31, 2007, Richard Furst managed no registered investment companies;
three pooled investment vehicles other than registered investment companies with
a total of approximately $1.6 billion in assets; and no other accounts.

As of March 31, 2007, Raul Ramirez managed no registered investment companies;
three pooled investment vehicles other than registered investment companies with
a total of approximately $1.6 billion in assets; and no other accounts.

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.

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

Cash Bonus.

- 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.

- 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.

- 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:

- 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 (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
Lipper Loan Participation Funds. 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.

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

- Contribution to the business objectives of the Adviser.

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

- Market compensation survey research by independent third parties.

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

- 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

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MANAGEMENT OF THE FUND
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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 generally 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:

- for floating rate investments, LIBOR plus 350 basis points, EUROLIBOR plus 350
basis points, and Sterling LIBOR plus 350 basis points, as applicable; and

- for fixed rate investments, current US Treasury plus 350 basis points, Bundes
Obligationen ("OBL") plus 350 basis points, Bundes Republic Deutschland
("DBR") plus 350 basis points, Bundes Schatzanweisungen ("BKO") plus 350 basis
points and UK Gilt rates plus 350 basis points, as applicable, depending upon
the currency and term of the investment.

The Subadviser will generally purchase obligations with total yields above the
Avenue-Credit Thresholds for its other clients, and will generally purchase
obligations with total yields below the applicable Avenue-Credit Thresholds for
the Fund. The Subadviser may use credit default swaps, and may do so to a
significant extent, to take active long or short positions with respect to the
likelihood of a default by an issuer. The Subadviser, on behalf of its other
clients, will be able to sell short (including purchasing 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. The Subadviser
receives from the Adviser an annual fee, payable monthly, in an amount equal to
1.25% of the portion of the Managed Assets of the Fund 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

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MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

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 each 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 May 15, 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 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,

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B-34

OTHER AGREEMENTS
--------------------------------------------------------------------------------

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 advised by the Adviser also receive legal services
from Van Kampen Investments. Of the total costs for legal services provided to
funds advised 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 "Prospectus
summary -- Principal Investment Risks -- Risks of Senior Loans" 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 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.

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B-35

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
--------------------------------------------------------------------------------

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.

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PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
--------------------------------------------------------------------------------

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 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.

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, 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 loans, securities and assets of the Fund are valued at fair value in good
faith following procedures established by the Board of 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.

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. For purposes of calculating net asset value per share, all assets and

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B-37

NET ASSET VALUE
--------------------------------------------------------------------------------

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.

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

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B-38

REPURCHASE OF COMMON SHARES
--------------------------------------------------------------------------------

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.

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

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B-39

REPURCHASE OF COMMON SHARES
--------------------------------------------------------------------------------

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.

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

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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.

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.

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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 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

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TAX MATTERS
--------------------------------------------------------------------------------

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;

- 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

--------------------------------------------------------------------------------
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TAX MATTERS
--------------------------------------------------------------------------------

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 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

--------------------------------------------------------------------------------
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TAX MATTERS
--------------------------------------------------------------------------------

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

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B-45

TAX MATTERS
--------------------------------------------------------------------------------

their own tax advisors with regard to the tax consequences under the laws of
state, local, foreign or other taxing jurisdictions.
Proxy voting policy and proxy voting record

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 day-to-day responsibility to the Adviser to vote the
Fund's proxies with respect to the portion of the Fund's assets managed by the
Adviser. The Board has retained the day-to-day responsibility to vote the Fund's
proxies with respect to the portion of the Fund's assets managed by the
Subadviser. Proxies are voted (by the Adviser and by the Board) pursuant to the
Board approved proxy guidelines, a copy of which as currently in effect as of
the date of this Statement of Additional Information is attached hereto as
Appendix B.

The proxy voting guidelines are subject to change over time and investors
seeking the most current copy of the proxy voting guidelines should go to our
web site at www.vankampen.com. 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 Deloitte & Touche LLP, located at 111 South Wacker Drive, 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.

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B-46

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

Report of independent registered public accounting firm

To the Board of Trustees and Shareholder of
Van Kampen Dynamic Credit Opportunities Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Dynamic Credit Opportunities Fund (the "Fund"), as of May 10, 2007. This
statement of assets and liabilities is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this statement of
assets and liabilities based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
of assets and liabilities is free of material misstatement. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Van Kampen
Dynamic Credit Opportunities Fund as of May 10, 2007, in conformity with
accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
May 17, 2007

--------------------------------------------------------------------------------
F-1

VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
--------------------------------------------------------------------------------

Statement of Assets and Liabilities
MAY 10, 2007

ASSETS:
Cash........................................................ $100,000
Deferred offering costs..................................... 525,000
--------
Total Assets.............................................. $625,000
--------
LIABILITIES:
Payable for deferred offering costs......................... $525,000
--------
Net Assets applicable to 5,236 shares of $0.01 par value
common shares outstanding................................. $100,000
========
Net asset value per common share outstanding, $100,000/5,236
shares outstanding........................................ $19.10
========
Offering price per common share outstanding, (100/95.5 of
$19.10)................................................... $20.00
========

See accompanying notes to statements of assets and liabilities.

--------------------------------------------------------------------------------
F-2

VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
--------------------------------------------------------------------------------

Notes to Statements of Assets and Liabilities

NOTE 1. ORGANIZATION

The Van Kampen Dynamic Credit Opportunities Fund (the "Fund") was organized
under the laws of the state of Delaware on March 15, 2007, and is registered as
a diversified, closed-end management investment company 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 investment
objective of capital appreciation. The Fund is authorized to issue an unlimited
number of shares of $0.01 par value common stock. The Fund has had no operations
to date other than matters relating to its organization and registration and the
sale and issuance to Van Kampen Investments Inc., an affiliate of Van Kampen
Asset Management (the "Adviser"), of 5,236 shares of common stock at an
aggregate purchase price of $100,000 on May 10, 2007.

The Adviser, on behalf of the Fund, will incur all of the Fund's organizational
costs, estimated at $10,000. The Adviser also has agreed to pay the amount by
which the offering costs of the Fund (other than the sales load) exceed $0.04
per share of the Fund's common stock. The aggregate offering expenses (other
than the sales load) currently are estimated to be $525,000. Offering costs
borne by the Fund, currently estimated at $525,000, will result in a reduction
of capital of the Fund attributable to common shares at the time of issuance of
common shares.

NOTE 2. ACCOUNTING POLICIES

Use of Estimates & Indemnifications. The following significant accounting
policies are in conformity with accounting principles generally accepted in the
United States of America. Such policies are consistently followed by the Fund in
the preparation of its financial statements. Accounting principles generally
accepted in the United States of America may require management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results may differ from those estimates.

The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.

Federal Income Tax. The Fund intends to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements.

NOTE 3. AGREEMENTS

Investment Advisory and Subadvisory Agreements. Van Kampen Asset Management
(the "Adviser") provides certain day to day investment management services to
the Fund under the terms of an investment advisory agreement (the "Agreement").
Under the 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").

Avenue Europe International Management, L.P. (the "Subadviser") provides
subadvisory services under an investment subadvisory agreement. The Adviser pays
the Subadviser a portion of the investment advisory fee that the Adviser
receives from the Fund.

Custodian Agreement. State Street Bank and Trust Company (the "Custodian") 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.

--------------------------------------------------------------------------------
F-3

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

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.

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.

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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.

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APPENDIX A--DESCRIPTION OF SECURITIES RATINGS
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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.

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APPENDIX A--DESCRIPTION OF SECURITIES RATINGS
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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.

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.

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APPENDIX A--DESCRIPTION OF SECURITIES RATINGS
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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.

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.

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Appendix B--Proxy voting guidelines

I. POLICY STATEMENT

Introduction--Morgan Stanley Investment Management's ("MSIM") policy and
procedures for voting proxies ("Policy") with respect to securities held in the
accounts of clients applies to those MSIM entities that provide discretionary
investment management services and for which a MSIM entity has authority to vote
proxies. This Policy is reviewed and updated as necessary to address new and
evolving proxy voting issues and standards.

The MSIM entities covered by this Policy currently include the following: Morgan
Stanley Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley
Investment Management Inc., Morgan Stanley Investment Management Limited, Morgan
Stanley Investment Management Company, Morgan Stanley Asset & Investment Trust
Management Co., Limited, Morgan Stanley Investment Management Private Limited,
Van Kampen Asset Management, and Van Kampen Advisors Inc. (each an "MSIM
Affiliate" and collectively referred to as the "MSIM Affiliates" or as "we"
below).

Each MSIM Affiliate will use its best efforts to vote proxies as part of its
authority to manage, acquire and dispose of account assets. With respect to the
MSIM registered management investment companies (Van Kampen, Institutional and
Advisor Funds--collectively referred to herein as the "MSIM Funds"), each MSIM
Affiliate will vote proxies under this Policy pursuant to authority granted
under its applicable investment advisory agreement or, in the absence of such
authority, as authorized by the Board of Directors/Trustees of the MSIM Funds.
An MSIM Affiliate will not vote proxies if the "named fiduciary" for an ERISA
account has reserved the authority for itself, or in the case of an account not
governed by ERISA, the investment management or investment advisory agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will vote
proxies in a prudent and diligent manner and in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which the MSIM Affiliates manage assets, consistent with the objective of
maximizing long-term investment returns ("Client Proxy Standard"). In certain
situations, a client or its fiduciary may provide an MSIM Affiliate with a proxy
voting policy. In these situations, the MSIM Affiliate will comply with the
client's policy.

Proxy Research Services--Institutional Shareholder Services ("ISS") and Glass
Lewis (together with other proxy research providers as we may retain from time
to time, the "Research Providers") are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided include in-depth research, global
issuer analysis, and voting recommendations. While we may review and utilize the
recommendations of the Research Providers in making proxy voting decisions, we
are in no way obligated to follow such recommendations. In addition to research,
ISS provides vote execution, reporting, and recordkeeping.

Voting Proxies for Certain Non-U.S. Companies--Voting proxies of companies
located in some jurisdictions, particularly emerging markets, may involve
several problems that can restrict or prevent the ability to vote such proxies
or entail significant costs. These problems include, but are not limited to: (i)
proxy statements and ballots being written in a language other than English;
(ii) untimely and/or inadequate notice of shareholder meetings; (iii)
restrictions on the ability of holders outside the issuer's jurisdiction of
organization to exercise votes; (iv) requirements to vote proxies in person; (v)
the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate our voting instructions. As a
result, we vote clients' non-U.S. proxies on a best efforts basis only, after
weighing the costs and benefits of voting such proxies, consistent with the
Client Proxy Standard. ISS has been retained to provide assistance in connection
with voting non-U.S. proxies.

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APPENDIX B--PROXY VOTING GUIDELINES
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II. GENERAL PROXY VOTING GUIDELINES

To promote consistency in voting proxies on behalf of its clients, we follow
this Policy (subject to any exception set forth herein), including the
guidelines set forth below. These guidelines address a broad range of issues,
and provide general voting parameters on proposals that arise most frequently.
However, details of specific proposals vary, and those details affect particular
voting decisions, as do factors specific to a given company. Pursuant to the
procedures set forth herein, we may vote in a manner that is not in accordance
with the following general guidelines, provided the vote is approved by the
Proxy Review Committee and is consistent with the Client Proxy Standard. Morgan
Stanley AIP GP LP will follow the procedures as described in Appendix A.

We endeavor to integrate governance and proxy voting policy with investment
goals and to follow the Client Proxy Standard for each client. At times, this
may result in split votes, for example when different clients have varying
economic interests in the outcome of a particular voting matter (such as a case
in which varied ownership interests in two companies involved in a merger result
in different stakes in the outcome). We also may split votes at times based on
differing views of portfolio managers, but such a split vote must be approved by
the Proxy Review Committee.

A. ROUTINE MATTERS. We generally support routine management proposals. The
following are examples of routine management proposals:

- Approval of financial statements and auditor reports.

- General updating/corrective amendments to the charter.

- Most proposals related to the conduct of the annual meeting, with the
following exceptions. We may oppose proposals that relate to "the transaction
of such other business which may come before the meeting," and open-ended
requests for adjournment. However, where management specifically states the
reason for requesting an adjournment and the requested adjournment is
necessary to permit a proposal that would otherwise be supported under this
Policy to be carried out (i.e. an uncontested corporate transaction), the
adjournment request will be supported. Finally, we generally support
shareholder proposals advocating confidential voting procedures and
independent tabulation of voting results.

B. BOARD OF DIRECTORS

1. Election of directors: In the absence of a proxy contest, we
generally support the board's nominees for director except as follows:

a. We withhold or vote against interested directors if the
company's board does not meet market standards for director
independence, or if otherwise we believe board independence is
insufficient. We refer to prevalent market standards, generally as
promulgated by a stock exchange or other authority within a given
market (e.g., New York Stock Exchange or Nasdaq rules for most
U.S. companies, and The Combined Code on Corporate Governance in
the United Kingdom). Thus, for a NYSE company with dispersed
ownership, we would expect that at a minimum a majority of
directors should be independent as defined by NYSE.
Non-independent directors under NYSE standards include an employee
or an individual with an immediate family member who is an
executive (or in either case was in such position within the
previous three years). A director's consulting arrangements with
the company, or material business relationships between the
director's employer and the company, also impair independence.
Market standards notwithstanding, we generally do not view long
board tenure alone as a basis to classify a director as
non-independent. Where we

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APPENDIX B--PROXY VOTING GUIDELINES
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view market standards as inadequate, we may withhold votes based
on stronger independence standards.

b. Depending on market standards, we consider withholding support
from or voting against a nominee who is interested and who is
standing for election as a member of the company's compensation,
nominating or audit committees.

c. We consider withholding support or voting against a nominee if
we believe a direct conflict exists between the interests of the
nominee and the public shareholders. This includes consideration
for withholding support or voting against individual board members
or an entire slate if we believe the board is entrenched and
dealing inadequately with performance problems, and/or with
insufficient independence between the board and management.

d. We consider withholding support from or voting against a
nominee standing for election if the board has not taken action to
implement generally accepted governance practices for which there
is a "bright line" test. In the context of the U.S. market, these
would include elimination of dead hand or slow hand poison pills,
requiring audit, compensation or nominating committees to be
composed of independent directors and requiring a majority
independent board.

e. We generally withhold support from or vote against a nominee
who has failed to attend at least 75% of board meetings within a
given year without a reasonable excuse.

f. We consider withholding support from or voting against a
nominee who serves on the board of directors of more than six
companies (excluding investment companies). We also consider
voting against a director who otherwise appears to have too many
commitments to serve adequately on the board of the company.

2. Board independence: We generally support proposals requiring that a
certain percentage (up to 66 2/3%) of the company's board members be
independent directors, and promoting all-independent audit, compensation
and nominating/governance committees.

3. Board diversity: We consider on a case-by-case basis proposals
urging diversity of board membership with respect to social, religious or
ethnic group.

4. Majority voting: We generally support proposals requesting or
requiring majority voting policies in election of directors, so long as
there is a carve-out for plurality voting in the case of contested
elections.

5. Proposals to elect all directors annually: We generally support
proposals to elect all directors annually at public companies (to
"declassify" the Board of Directors) where such action is supported by
the board, and otherwise consider the issue on a case-by-case basis.

6. Cumulative voting: We generally support proposals to eliminate
cumulative voting (which provides that shareholders may concentrate their
votes for one or a handful of candidates, a system that can enable a
minority bloc to place representation on a board). Proposals to establish
cumulative voting in the election of directors generally will not be
supported.

7. Separation of Chairman and CEO positions: We vote on shareholder
proposals to separate the Chairman and CEO positions and/or to appoint a
non-executive Chairman based in part on prevailing practice in particular
markets, since the context for such a practice varies. In many non-U.S.
markets, we view separation of the roles as a market standard practice,
and support division of the roles in that context.

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APPENDIX B--PROXY VOTING GUIDELINES
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8. Director retirement age: Proposals recommending set director
retirement ages are voted on a case-by-case basis.

9. Proposals to limit directors' liability and/or broaden
indemnification of directors. Generally, we will support such proposals
provided that the officers and directors are eligible for indemnification
and liability protection if they have acted in good faith on company
business and were found innocent of any civil or criminal charges for
duties performed on behalf of the company.

C. CORPORATE TRANSACTIONS AND PROXY FIGHTS. We examine proposals relating to
mergers, acquisitions and other special corporate transactions (i.e., takeovers,
spin-offs, sales of assets, reorganizations, restructurings and
recapitalizations) on a case-by-case basis. However, proposals for mergers or
other significant transactions that are friendly and approved by the Research
Providers generally will be supported and in those instances will not need to be
reviewed by the Proxy Review Committee, where there is no portfolio manager
objection and where there is no material conflict of interest. We also analyze
proxy contests on a case-by-case basis.

D. CHANGES IN LEGAL AND CAPITAL STRUCTURE. We generally vote in favor of
management proposals for technical and administrative changes to a company's
charter, articles of association or bylaws. We review non-routine proposals,
including reincorporation to a different jurisdiction, on a case-by-case basis.

1. We generally support the following:

- Proposals that eliminate other classes of stock and/or eliminate
unequal voting rights.

- Proposals to increase the authorization of existing classes of
common stock (or securities convertible into common stock) if:
(i) a clear and legitimate business purpose is stated; (ii) the
number of shares requested is reasonable in relation to the
purpose for which authorization is requested; and (iii) the
authorization does not exceed 100% of shares currently
authorized and at least 30% of the new authorization will be
outstanding.

- Proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital.

- Proposals to authorize share repurchase plans.

- Proposals to reduce the number of authorized shares of common or
preferred stock, or to eliminate classes of preferred stock.

- Proposals to effect stock splits.

- Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set forth in
the corporate charter. Reverse stock splits that do not adjust
proportionately to the authorized share amount generally will be
approved if the resulting increase in authorized shares
coincides with the proxy guidelines set forth above for common
stock increases.

- Proposals for higher dividend payouts.

2. We generally oppose the following (notwithstanding management
support):

- Proposals that add classes of stock that would substantially
dilute the voting interests of existing shareholders.

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APPENDIX B--PROXY VOTING GUIDELINES
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- Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights or
supervoting rights.

- Proposals to create "blank check" preferred stock.

- Proposals relating to changes in capitalization by 100% or more.

E. TAKEOVER DEFENSES AND SHAREHOLDER RIGHTS

1. Shareholder rights plans: We support proposals to require
shareholder approval or ratification of shareholder rights plans (poison
pills).

2. Supermajority voting requirements: We generally oppose requirements
for supermajority votes to amend the charter or bylaws, unless the
provisions protect minority shareholders where there is a large
shareholder. In line with this view, in the absence of a large
shareholder we support reasonable shareholder proposals to limit such
supermajority voting requirements.

3. Shareholder rights to call meetings: We consider proposals to
enhance shareholder rights to call meetings on a case-by-case basis.

4. Anti-greenmail provisions: Proposals relating to the adoption of
anti-greenmail provisions will be supported, provided that the proposal:
(i) defines greenmail; (ii) prohibits buyback offers to large block
holders (holders of at least 1% of the outstanding shares and in certain
cases, a greater amount, as determined by the Proxy Review Committee) not
made to all shareholders or not approved by disinterested shareholders;
and (iii) contains no anti-takeover measures or other provisions
restricting the rights of shareholders.

F. AUDITORS. We generally support management proposals for selection or
ratification of independent auditors. However, we may consider opposing such
proposals with reference to incumbent audit firms if the company has suffered
from serious accounting irregularities, or if fees paid to the auditor for
non-audit-related services are excessive. Generally, to determine if non-audit
fees are excessive, a 50% test will be applied (i.e., non-audit-related fees
should be less than 50% of the total fees paid to the auditor). Proposals
requiring auditors to attend the annual meeting of shareholders will be
supported. We generally vote against proposals to indemnify auditors.

G. EXECUTIVE AND DIRECTOR REMUNERATION.

1. We generally support the following proposals:

- Proposals relating to director fees, provided the amounts are
not excessive relative to other companies in the country or
industry.

- Proposals for employee stock purchase plans that permit
discounts up to 15%, but only for grants that are part of a
broad-based employee plan, including all non-executive
employees.

- Proposals for employee equity compensation plans and other
employee ownership plans, provided that our research does not
indicate that approval of the plan would be against shareholder
interest. Such approval may be against shareholder interest if
it authorizes excessive dilution and shareholder cost,
particularly in the context of high usage ("run rate") of equity
compensation in the recent past; or if there are objectionable
plan design and provisions.

- Proposals for the establishment of employee retirement and
severance plans, provided that our research does not indicate
that approval of the plan would be against shareholder interest.

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APPENDIX B--PROXY VOTING GUIDELINES
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2. Blanket proposals requiring shareholder approval of all severance
agreements will not be supported, but proposals that require shareholder
approval for agreements in excess of three times the annual compensation
(salary and bonus) generally will be supported.

3. Proposals advocating stronger and/or particular pay-for-performance
models will be evaluated on a case-by-case basis, with consideration of
the merits of the individual proposal within the context of the
particular company and its current and past practices.

4. Proposals to U.S. companies that request disclosure of executive
compensation in addition to the disclosure required by the Securities and
Exchange Commission ("SEC") regulations generally will not be supported.

5. We generally support proposals advocating reasonable senior executive
and director stock ownership guidelines and holding requirements for
shares gained in option exercises.

6. Management proposals effectively to re-price stock options are
considered on a case-by-case basis. Considerations include the company's
reasons and justifications for a re-pricing, the company's competitive
position, whether senior executives and outside directors are excluded,
potential cost to shareholders, whether the re-pricing or share exchange
is on a value-for-value basis, and whether vesting requirements are
extended.

H. SOCIAL, POLITICAL AND ENVIRONMENTAL ISSUES. We consider proposals relating
to social, political and environmental issues on a case-by-case basis to
determine whether they will have a financial impact on shareholder value.
However, we generally vote against proposals requesting reports that are
duplicative, related to matters not material to the business, or that would
impose unnecessary or excessive costs. We may abstain from voting on proposals
that do not have a readily determinable financial impact on shareholder value.
We generally oppose proposals requiring adherence to workplace standards that
are not required or customary in market(s) to which the proposals relate.

I. FUND OF FUNDS. Certain Funds advised by an MSIM Affiliate invest only in
other MSIM Funds. If an underlying fund has a shareholder meeting, in order to
avoid any potential conflict of interest, such proposals will be voted in the
same proportion as the votes of the other shareholders of the underlying fund,
unless otherwise determined by the Proxy Review Committee.

III. ADMINISTRATION OF POLICY

The MSIM Proxy Review Committee (the "Committee") has overall responsibility for
creating and implementing the Policy, working with an MSIM staff group (the
"Corporate Governance Team"). The Committee, which is appointed by MSIM's Chief
Investment Officer of Global Equities ("CIO"), consists of senior investment
professionals who represent the different investment disciplines and geographic
locations of the firm. Because proxy voting is an investment responsibility and
impacts shareholder value, and because of their knowledge of companies and
markets, portfolio managers and other members of investment staff play a key
role in proxy voting, although the Committee has final authority over proxy
votes.

The Committee Chairperson is the head of the Corporate Governance Team, and is
responsible for identifying issues that require Committee deliberation or
ratification. The Corporate Governance Team, working with advice of investment
teams and the Committee, is responsible for voting on routine items and on
matters that can be addressed in line with these Policy guidelines. The
Corporate Governance Team has responsibility for voting case-by-case where
guidelines and precedent provide adequate guidance, and to refer other
case-by-case decisions to the Proxy Review Committee.

The Committee will periodically review and have the authority to amend, as
necessary, the Policy and establish and direct voting positions consistent with
the Client Proxy Standard.

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A. COMMITTEE PROCEDURES

The Committee will meet at least monthly to (among other matters) address any
outstanding issues relating to the Policy or its implementation. The Corporate
Governance Team will timely communicate to ISS MSIM's Policy (and any amendments
and/or any additional guidelines or procedures the Committee may adopt).

The Committee will meet on an ad hoc basis to (among other matters): (1)
authorize "split voting" (i.e., allowing certain shares of the same issuer that
are the subject of the same proxy solicitation and held by one or more MSIM
portfolios to be voted differently than other shares) and/or "override voting"
(i.e., voting all MSIM portfolio shares in a manner contrary to the Policy); (2)
review and approve upcoming votes, as appropriate, for matters for which
specific direction has been provided in this Policy; and (3) determine how to
vote matters for which specific direction has not been provided in this Policy.

Members of the Committee may take into account Research Providers'
recommendations and research as well as any other relevant information they may
request or receive, including portfolio manager and/or analyst research, as
applicable. Generally, proxies related to securities held in accounts that are
managed pursuant to quantitative, index or index-like strategies ("Index
Strategies") will be voted in the same manner as those held in actively managed
accounts, unless economic interests of the accounts differ. Because accounts
managed using Index Strategies are passively managed accounts, research from
portfolio managers and/or analysts related to securities held in these accounts
may not be available. If the affected securities are held only in accounts that
are managed pursuant to Index Strategies, and the proxy relates to a matter that
is not described in this Policy, the Committee will consider all available
information from the Research Providers, and to the extent that the holdings are
significant, from the portfolio managers and/or analysts.

B. MATERIAL CONFLICTS OF INTEREST

In addition to the procedures discussed above, if the Committee determines that
an issue raises a material conflict of interest, the Committee will request a
special committee to review, and recommend a course of action with respect to,
the conflict(s) in question ("Special Committee").

The Special Committee shall be comprised of the Chairperson of the Proxy Review
Committee, the Chief Compliance Officer or his/her designee, a senior portfolio
manager (if practicable, one who is a member of the Proxy Review Committee)
designated by the Proxy Review Committee, and MSIM's relevant Chief Investment
Officer or his/her designee, and any other persons deemed necessary by the
Chairperson. The Special Committee may request the assistance of MSIM's General
Counsel or his/her designee who will have sole discretion to cast a vote. In
addition to the research provided by Research Providers, the Special Committee
may request analysis from MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.

C. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST

A potential material conflict of interest could exist in the following
situations, among others:

1. The issuer soliciting the vote is a client of MSIM or an affiliate of
MSIM and the vote is on a material matter affecting the issuer.

2. The proxy relates to Morgan Stanley common stock or any other
security issued by Morgan Stanley or its affiliates except if echo voting
is used, as with MSIM Funds, as described herein.

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3. Morgan Stanley has a material pecuniary interest in the matter
submitted for a vote (e.g., acting as a financial advisor to a party to a
merger or acquisition for which Morgan Stanley will be paid a success fee
if completed).

If the Chairperson of the Committee determines that an issue raises a potential
material conflict of interest, depending on the facts and circumstances, the
Chairperson will address the issue as follows:

1. If the matter relates to a topic that is discussed in this Policy,
the proposal will be voted as per the Policy.

2. If the matter is not discussed in this Policy or the Policy indicates
that the issue is to be decided case-by-case, the proposal will be voted
in a manner consistent with the Research Providers, provided that all the
Research Providers have the same recommendation, no portfolio manager
objects to that vote, and the vote is consistent with MSIM's Client Proxy
Standard.

3. If the Research Providers' recommendations differ, the Chairperson
will refer the matter to the Committee to vote on the proposal. If the
Committee determines that an issue raises a material conflict of
interest, the Committee will request a Special Committee to review and
recommend a course of action, as described above. Notwithstanding the
above, the Chairperson of the Committee may request a Special Committee
to review a matter at any time as he/she deems necessary to resolve a
conflict.

D. PROXY VOTING REPORTING

The Committee and the Special Committee, or their designee(s), will document in
writing all of their decisions and actions, which documentation will be
maintained by the Committee and the Special Committee, or their designee(s), for
a period of at least 6 years. To the extent these decisions relate to a security
held by a MSIM Fund, the Committee and Special Committee, or their designee(s),
will report their decisions to each applicable Board of Trustees/Directors of
those Funds at each Board's next regularly scheduled Board meeting. The report
will contain information concerning decisions made by the Committee and Special
Committee during the most recently ended calendar quarter immediately preceding
the Board meeting.

The Corporate Governance Team will timely communicate to applicable portfolio
managers and to ISS, decisions of the Committee and Special Committee so that,
among other things, ISS will vote proxies consistent with their decisions.

MSIM will promptly provide a copy of this Policy to any client requesting it.
MSIM will also, upon client request, promptly provide a report indicating how
each proxy was voted with respect to securities held in that client's account.

MSIM's Legal Department is responsible for filing an annual Form N-PX on behalf
of each MSIM Fund for which such filing is required, indicating how all proxies
were voted with respect to such Fund's holdings.

ANNEX A

The following procedures apply to accounts managed by Morgan Stanley AIP GP LP
("AIP").

Generally, AIP will follow the guidelines set forth in Section II of MSIM's
Proxy Voting Policy and Procedures. To the extent that such guidelines do not
provide specific direction, or AIP determines that consistent with the Client
Proxy Standard, the guidelines should not be followed, the Proxy Review
Committee has delegated the voting authority to vote securities held by accounts
managed by AIP to the Liquid Markets investment team and the Private Markets
investment team of AIP. A summary of

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decisions made by the investment teams will be made available to the Proxy
Review Committee for its information at the next scheduled meeting of the Proxy
Review Committee.

In certain cases, AIP may determine to abstain from determining (or
recommending) how a proxy should be voted (and therefore abstain from voting
such proxy or recommending how such proxy should be voted), such as where the
expected cost of giving due consideration to the proxy does not justify the
potential benefits to the affected account(s) that might result from adopting or
rejecting (as the case may be) the measure in question.

Waiver of Voting Rights
For regulatory reasons, AIP may either 1) invest in a class of securities of an
underlying fund (the "Fund") that does not provide for voting rights; or 2)
waive 100% of its voting rights with respect to the following:

1. Any rights with respect to the removal or replacement of a director,
general partner, managing member or other person acting in a similar
capacity for or on behalf of the Fund (each individually a "Designated
Person," and collectively, the "Designated Persons"), which may include,
but are not limited to, voting on the election or removal of a Designated
Person in the event of such Designated Person's death, disability,
insolvency, bankruptcy, incapacity, or other event requiring a vote of
interest holders of the Fund to remove or replace a Designated Person;
and

2. Any rights in connection with a determination to renew, dissolve,
liquidate, or otherwise terminate or continue the Fund, which may
include, but are not limited to, voting on the renewal, dissolution,
liquidation, termination or continuance of the Fund upon the occurrence
of an event described in the Fund's organizational documents; provided,
however, that, if the Fund's organizational documents require the consent
of the Fund's general partner or manager, as the case may be, for any
such termination or continuation of the Fund to be effective, then AIP
may exercise its voting rights with respect to such matter.

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