N-2/A

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2004 1933 ACT FILE NO. 333-111002 1940 ACT FILE NO. 811-08743 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM N-2 [X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No. ____ (Check appropriate box or boxes) --------------------- VAN KAMPEN SENIOR INCOME TRUST (Exact Name of Registrant as Specified in Agreement and Declaration of Trust) 1 PARKVIEW PLAZA, P.O. BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555 (Address of Principal Executive Offices) TELEPHONE NUMBER: (630) 684-6000 (Area Code and Telephone Number) A. THOMAS SMITH III, ESQ. MANAGING DIRECTOR AND GENERAL COUNSEL VAN KAMPEN INVESTMENTS INC. 1221 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 (212) 762-5260 (Name and Address of Agent for Service) --------------------- COPIES TO: WAYNE W. WHALEN, ESQ. CHARLES B. TAYLOR, ESQ. CYNTHIA G. COBDEN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP SIMPSON THACHER & BARTLETT LLP 333 WEST WACKER DRIVE 425 LEXINGTON AVENUE CHICAGO, ILLINOIS 60606 NEW YORK, NEW YORK 10017 (312) 407-0700 (212) 455-2000 Approximate Date of Proposed Public Offering: As soon as practical after the effective date of this Registration Statement. If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ] CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:

- -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF BEING REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------- Shares of Auction Rate Cumulative Preferred Shares, par value $0.01 per share..... 28,000 $25,000 $700,000,000 $88,690(1) - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------

(1) $80.90 of which has been paid previously. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities Exchange Commission, acting pursuant to Section 8(a) of the Securities Act of 1933, as amended, may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2004 PRELIMINARY PROSPECTUS $700,000,000 VAN KAMPEN SENIOR INCOME TRUST AUCTION RATE CUMULATIVE PREFERRED SHARES 5,600 SHARES, SERIES M 5,600 SHARES, SERIES T 5,600 SHARES, SERIES W 5,600 SHARES, SERIES TH 5,600 SHARES, SERIES F LIQUIDATION PREFERENCE $25,000 PER SHARE --------------------- Van Kampen Senior Income Trust (the "Fund") is a non-diversified, closed-end management investment company. The Fund's investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund seeks to achieve its objective by investing primarily in a professionally managed portfolio of interests in floating or variable rate senior loans ("Senior Loans") to corporations, partnerships and other entities ("Borrowers") which operate in a variety of industries and geographical regions. The Fund's investment adviser is Van Kampen Asset Management (the "Adviser"). The Fund is offering 5,600 Series M, 5,600 Series T, 5,600 Series W, 5,600 Series TH and 5,600 Series F Auction Rate Cumulative Preferred Shares (collectively, the "Preferred Shares"). The minimum purchase amount for Preferred Shares is $25,000. --------------------- AN INVESTMENT IN THE PREFERRED SHARES MAY NOT BE APPROPRIATE FOR ALL INVESTORS AND THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. SEE RISK FACTORS OF THE FUND DESCRIBED IN THE SECTION "RISK FACTORS" BEGINNING ON PAGE 24 OF THIS PROSPECTUS. Neither the Securities and Exchange Commission ("SEC") nor any state securities commission has approved or disapproved of these securities or determined that this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ---------------------

Per Share Total ----- ----- Public Offering Price(1) $25,000 $700,000,000 Sales Load $ $ Proceeds to Fund (before expenses)(2) $ $

- --------------------- (1) The public offering price per share will be increased by the amount of dividends, if any, that have accumulated from the date the Preferred Shares are first issued. (2) Not including offering expenses incurred by the Fund, estimated to be $ . The underwriters are offering the Preferred Shares subject to various conditions. The underwriters expect to deliver the Preferred Shares to an investor's broker-dealer, in book-entry form through The Depository Trust Company, on or about February , 2004. --------------------- CITIGROUP MERRILL LYNCH & CO. A.G. EDWARDS & SONS, INC. LEHMAN BROTHERS WACHOVIA SECURITIES February , 2004 Senior Loans in which the Fund invests generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally the prime rate offered by one or more major United States banks, the London Inter-Bank Offered Rate, the Certificate of Deposit rate or other base lending rates used by commercial lenders. Senior Loans generally hold the most senior position in the capital structure of the Borrowers and generally are secured with specific collateral, which may include guarantees, although the Fund may also invest in Senior Loans that are not secured by any collateral. The terms of Senior Loans typically include various restrictive covenants which are designed to limit certain activities of the Borrowers. It is anticipated that the proceeds of the Senior Loans in which the Fund acquires interests will be used primarily to finance leveraged buyouts, recapitalizations, mergers, acquisitions and stock repurchases and, to a lesser extent, to finance internal growth and for other corporate purposes of Borrowers. Senior Loans in which the Fund invests generally have a claim on the assets of an issuer senior to that of subordinated debt, preferred stock and common stock of such issuer. Senior Loans in which the Fund may invest generally are not registered with the SEC or listed on any national securities exchange, and there is no express limitation on the percentage of the Fund's assets that may be invested in illiquid securities or the percentage of the Fund's assets that may be invested in below investment grade Senior Loans, which are considered speculative by rating agencies (and which are often referred to as "junk securities"). Investors in Preferred Shares will be entitled to receive cash dividends at an annual rate that may vary for the successive dividend periods for such shares. The dividend rate on the Series M Preferred Shares for the initial dividend period from and including the date of issue to but excluding , 2004 will be %. The dividend rate on the Series T Preferred Shares for the initial dividend period from and including the date of issue to but excluding , 2004 will be %. The dividend rate on the Series W Preferred Shares for the initial dividend period from and including the date of issue to but excluding , 2004 will be %. The dividend rate on the Series TH Preferred Shares for the initial dividend period from and including the date of issue to but excluding , 2004 will be %. The dividend rate on the Series F Preferred Shares for the initial dividend period from and including the date of issue to but excluding , 2004 will be %. For each subsequent dividend period, the auction agent will determine the dividend rate for a particular period by an auction conducted on the business day prior to that period. The Preferred Shares are not listed on an exchange. Investors in Preferred Shares may participate in auctions through broker-dealers that have entered into an agreement with the auction agent and the Fund in accordance with the procedures specified herein. Broker-dealers are not required to maintain a secondary market in Preferred Shares, and there can be no assurance that a secondary market will develop, or if it does develop a secondary market may not provide you with liquidity. The Fund may redeem Preferred Shares as described under "Description of Preferred Shares." The Preferred Shares will be senior to the Fund's outstanding common shares, par value $0.01 per share. The Fund's common shares are traded on the New York Stock Exchange ("NYSE") under the symbol "VVR." It is a condition of closing this offering that the Preferred Shares be offered with a rating of "Aaa" from Moody's Investors Service, Inc. ("Moody's") and "AAA" from Fitch Ratings ("Fitch"). This Prospectus sets forth concisely the information that prospective investors should know before investing in Preferred Shares, including information about risks. Investors should read this Prospectus before investing and keep the Prospectus for future reference. The Fund's Statement of Additional Information ("SAI") dated February , 2004, contains additional information about the Fund and is incorporated by reference into this Prospectus. You may obtain a copy of the SAI without charge by calling (800) 847-2424 (or (800) 421-2833 for the hearing impaired) or by writing to the Fund at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555. A table of contents to the SAI is located at page 53 of this Prospectus. The SAI has been filed with the SEC and is available along with other Fund-related materials at the SEC's internet site (http://www.sec.gov). The Preferred Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. THE FUND HAS NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANYONE 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, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. THE FUND'S BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATION AND PROSPECTS MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS. TABLE OF CONTENTS

PAGE ---- Prospectus Summary.......................................... 1 Financial Highlights........................................ 10 Senior Securities........................................... 11 The Fund.................................................... 11 Use of Proceeds............................................. 11 Capitalization.............................................. 12 Portfolio Composition....................................... 12 Investment Objective and Investment Policies................ 13 Use of Leverage............................................. 19 Other Investment Practices.................................. 21 Risk Factors................................................ 24 Description of Commercial Paper Program..................... 29 Net Asset Value............................................. 30 Description of Preferred Shares............................. 32 Rating Agency Guidelines.................................... 39 Management of the Fund...................................... 40 Custodian and Auction Agent, Transfer Agent, Dividend Paying Agent and Registrar....................................... 42 Federal Taxation............................................ 43 Description of Capital Structure............................ 45 Underwriting................................................ 51 Legal Matters............................................... 52 Experts..................................................... 52 Further Information......................................... 52 Table of Contents for the Statement of Additional Information............................................... 53

PROSPECTUS SUMMARY This summary highlights selected information from this Prospectus. It may not contain all of the information that is important to you. To understand the offering of the Preferred Shares fully, you should read this entire Prospectus carefully, including the risk factors. The following summary is qualified in its entirety by reference to the more detailed information included elsewhere in this Prospectus, the SAI and the Fund's Certificate of Vote (the "Certificate") attached as Appendix B to the SAI. The Fund................... Van Kampen Senior Income Trust is a non-diversified, closed-end management investment company. The Fund was organized as a Massachusetts business trust on April 8, 1998, and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund commenced investment operations on June 23, 1998 upon the closing of an initial public offering of its common shares of beneficial interest, par value $0.01 per share. The Fund's common shares are traded on the NYSE under the symbol "VVR." As of December 31, 2003, the Fund had total assets of approximately $2.2 billion and net assets of approximately $1.5 billion. The Offering............... The Fund is offering 5,600 Series M Preferred Shares, 5,600 Series T Preferred Shares, 5,600 Series W Preferred Shares, 5,600 Series TH Preferred Shares and 5,600 Series F Preferred Shares, each series with a par value of $0.01 at a purchase price of $25,000 per share plus dividends, if any, that have accumulated from the commencement date of the dividend period during which the Fund first issues the Preferred Shares. The Fund is offering the Preferred Shares through a group of underwriters led by Citigroup Global Markets Inc. See "Underwriting." The Preferred Shares of the Fund will entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods for such shares. In general, except as described under "Description of Preferred Shares -- Dividends and Dividend Periods," the dividend period for each series will be seven days. The auction agent will determine the dividend rate for a particular dividend period by an auction conducted on the business day immediately prior to the start of that dividend period. See "Description of Preferred Shares -- Summary of Auction Procedures." The Preferred Shares are not listed on an exchange. Investors and potential investors in Preferred Shares may participate in auctions for the Preferred Shares through broker-dealers that have entered into an agreement with the auction agent and the Fund. Generally, an investor in Preferred Shares will not receive certificates representing ownership of his or her shares. The securities depository (The Depository Trust Company or any successor) or its nominee for the account of the investor's broker-dealer will maintain record ownership of the Preferred Shares in book-entry form. An investor's broker-dealer, in turn, will maintain records of that investor's beneficial ownership of Preferred Shares. The Fund will not issue Preferred Shares unless such shares have a rating of "Aaa" from Moody's and "AAA" from Fitch. A rating is not a financial guarantee and can change. The Fund may at some future 1 time seek to have the Preferred Shares rated by another rating agency. See "Description of Preferred Shares." Use of Proceeds............ The Fund will use all of the net proceeds of the offering to (i) pay down amounts borrowed by the Fund under its commercial paper program by approximately $640 million and (ii) invest the remaining proceeds in accordance with the Fund's investment objective and policies as soon as practicable following the offering. Investment Objective and Investment Policies...... The Fund's investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund seeks to achieve its objective by investing primarily in a professionally managed portfolio of interests in Senior Loans to Borrowers which operate in a variety of industries and geographical regions (including domestic and foreign entities). Senior Loans in which the Fund invests generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally the prime rate offered by one or more major United States banks ("Prime Rate"), the London Inter-Bank Offered Rate ("LIBOR"), the Certificate of Deposit ("CD") rate or other base lending rates used by commercial lenders. The value of the Fund's portfolio may be affected by changes in the credit quality of Borrowers with respect to Senior Loan interests in which the Fund invests. No assurance can be given that the Fund will achieve its investment objective. Senior Loans generally hold the most senior position in the capital structure of the Borrowers and generally are secured with specific collateral, which may include guarantees, although the Fund may also invest in Senior Loans that are not secured by any collateral. The terms of Senior Loans typically include various restrictive covenants which are designed to limit certain activities of the Borrowers. Senior Loans generally are arranged through private negotiations between a Borrower and several financial institutions ("Lenders") represented in each case by one or more such Lenders acting as agent ("Agent") of the several Lenders. On behalf of the several Lenders, the Agent will be primarily responsible for negotiating the loan agreement ("Loan Agreement") that establishes the relative terms and conditions of the Senior Loan and rights of the Borrower and the several Lenders. The Fund may invest in participations ("Participations") in Senior Loans, may purchase assignments ("Assignments") of portions of Senior Loans from third parties and may act as one of the group of Lenders originating a Senior Loan (an "Original Lender"). The Fund will purchase an Assignment or act as Original Lender with respect to a syndicated Senior Loan only where the Agent with respect to the Senior Loan at the time of investment has outstanding debt or deposit obligations rated investment grade (BBB or A-3 or higher by Standard & Poor's Ratings Group ("S&P") or Baa or P-3 or higher by Moody's) or determined by the Adviser to be of comparable quality. Under normal market conditions, at least 80% of the Fund's total assets are invested in Senior Loans (either as an Original Lender or as a purchaser of an Assignment or Participation) of domestic Borrowers or foreign Borrowers (so long as Senior Loans to such foreign Borrowers are U.S. dollar denominated and payments of interest and 2 repayments of principal pursuant to such Senior Loans are required to be made in U.S. dollars). It is anticipated that the proceeds of the Senior Loans in which the Fund acquires interests will be used primarily to finance leveraged buyouts, recapitalizations, mergers, acquisitions and stock repurchases and, to a lesser extent, to finance internal growth and for other corporate purposes of Borrowers. Senior Loans generally have the most senior position in a Borrower's capital structure, although some Senior Loans may hold an equal ranking with other senior securities of the Borrower. Senior Loans generally are secured by specific collateral, which may include guarantees. Such guaranteed Senior Loans may be guaranteed by, or fully secured by assets of, shareholders, owners or affiliated entities of the Borrower, even if the Senior Loans are not otherwise collateralized by assets of the Borrower. The Fund may invest up to 20% of its total assets in interests in Senior Loans which are not secured by any collateral. Senior loans which are not secured by specific collateral generally pose a greater risk of non-payment of interest or loss of principal than do collateralized Senior Loans. The Fund may also acquire warrants, equity securities and, in limited circumstances, junior debt securities in connection with its investments in Senior Loans. Such equity securities and junior debt securities will not be treated by the Fund as Senior Loans. Investments in Senior Loans which are not secured by specific collateral and in warrants, equity securities and junior debt securities entail certain risks in addition to those associated with investments in collateralized Senior Loans. The Fund is not subject to any restrictions with respect to the maturity of Senior Loans held in its portfolio. The Fund's assets invested in Senior Loans generally consist of Senior Loans with stated maturities of between three and ten years, and with rates of interest which are redetermined either daily, monthly, quarterly or semi-annually; provided, however, that the Fund may invest up to 5% of its total assets in Senior Loans which permit the Borrower to select an interest rate redetermination period of up to one year. Investments in Senior Loans with longer interest rate redetermination periods may increase fluctuations in the value of the Fund's portfolio as a result of changes in interest rates. The Senior Loans in the Fund's portfolio will at all times have a dollar-weighted average time until next interest rate redetermination of 90 days or less. Because of prepayment provisions, the actual remaining maturity of Senior Loans may vary substantially from the stated maturity of such loans. The Fund estimates that the actual maturities of Senior Loans in the portfolio generally range between 18 and 24 months. The Adviser generally relies on its own credit analyses of Borrowers and not on analyses prepared by ratings agencies or other independent parties. There is no minimum rating or other independent evaluation of a Borrower or its securities limiting the Fund's investments. Although a Senior Loan 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. The lack of a rating does not necessarily imply that a Senior Loan is of lesser investment quality. There is no limit on the 3 percentage of the Fund's assets that may be invested in Senior Loans that are rated below investment grade or that are unrated but of comparable quality, which are commonly referred to as "junk securities." The Fund invests only in those Senior Loans with respect to which the Borrower, in the opinion of the Adviser, demonstrates one or more of the following characteristics: sufficient cash flow to service debt; adequate liquidity; successful operating history; strong competitive position; experienced management; and, with respect to collateralized Senior Loans, adequate collateral coverage of the Senior Loans. In addition, the Adviser may consider, and may rely in part, on analyses performed by Lenders other than the Fund. Under normal market conditions, the Fund may invest up to 20% of its total assets in (i) high quality, short-term debt securities with remaining maturities of one year or less and (ii) warrants, equity securities and, in limited circumstances, junior debt securities acquired in connection with the Fund's investments in Senior Loans. If the Adviser determines that market conditions temporarily warrant a defensive investment policy, the Fund may, subject to its ability to liquidate its relatively illiquid portfolio of Senior Loans, invest up to 100% of its assets in cash and such high quality, short-term securities. The Fund may also lend its portfolio securities to other parties and may enter into repurchase and reverse repurchase agreements for securities, subject to certain restrictions. For further discussion of the Fund's investment objective and policies and its investment practices and the associated considerations, see "Investment Objective and Investment Policies" and "Other Investment Practices." Use of Leverage............ The Fund uses financial leverage for investment purposes. Including the proceeds of the offering of the Preferred Shares, it is currently anticipated that the amount of leverage will represent approximately 32% (and in no event will it exceed 50%) of the Fund's total assets. As discussed below, in addition to issuing Preferred Shares, the Fund borrows money through a commercial paper program. See "Use of Leverage." The Fund's obligations under the commercial paper program are senior to the Preferred Shares. Payments to holders of Preferred Shares (the "Preferred Shareholders") in liquidation or otherwise will be subject to the prior payment of all outstanding indebtedness, including the Fund's obligations under the commercial paper program. There can be no assurance that the commercial paper will remain outstanding or that the Fund will continue such borrowing. The issuance of Preferred Shares and the use of borrowing for investment purposes are forms of financial leverage and as such pose certain risks. The Fund generally will not utilize financial leverage if it anticipates that it would result in a lower return to common shareholders over time. Use of financial leverage creates an opportunity for increased income for common shareholders but, at the same time, creates the possibility for greater loss (including the likelihood of greater volatility of net asset value and market price of the common shares and of dividends), and, under certain circumstances, the Fund's use of financial leverage may impair the ability of the Fund to maintain its qualification, for federal income tax purposes, as a regulated investment company. There can be no assurance that a 4 leveraging strategy will be successful during any period in which it is employed. The fees paid to the Adviser and the Administrator (as defined below) are calculated on the basis of the Fund's managed assets, and those fees will be higher when leverage is utilized. The Fund currently has a fundamental investment restriction that the Fund may not issue senior securities (including borrowing money or entering into reverse repurchase agreements) in excess of 33 1/3% of its total assets (including the amount of senior securities issued but excluding any liabilities and indebtedness not constituting senior securities) except that the Fund may borrow up to an additional 5% of its total assets for temporary purposes, or pledge its assets other than to secure such issuance or in connection with hedging transactions, when-issued and delayed delivery transactions and similar investment strategies. The Fund has filed a proxy statement seeking a shareholder vote to amend the aforementioned investment restriction regarding the Fund's use of financial leverage to allow the Fund to utilize financial leverage to the maximum extent allowable under the 1940 Act. The Fund expects to hold a shareholder meeting to vote on this proposal on April 8, 2004. For a description of the limitations on financial leverage under the 1940 Act, see "Use of Leverage." Principal Investment Risks...................... Risk is inherent in all investing. The primary risks of investing in Preferred Shares are: - the Fund will not be permitted to declare dividends or other distributions with respect to the Preferred Shares or redeem the Preferred Shares unless the Fund meets certain asset coverage requirements and is not in default under the terms of any senior indebtedness; - in extraordinary circumstances, the Fund may not earn sufficient income from its investments to pay dividends on the Preferred Shares; - senior indebtedness of the Fund may also constitute a substantial lien and burden on the common shares and the Preferred Shares by reason of its prior claim against the income of the Fund and against the net assets of the Fund in liquidation; - if a Preferred Share auction fails, investors may not be able to sell any or all of their Preferred Shares; - because of the nature of the market for Preferred Shares, investors may receive less than the price paid for their Preferred Shares if sold outside of the auction, especially when market interest rates are rising; - although broker-dealers may maintain a secondary market in the Preferred Shares, they are not obligated to do so and no secondary market may develop or exist at any time; - a rating agency or agencies could downgrade the ratings assigned to the Preferred Shares, which could affect liquidity; and - the Fund may be forced to redeem the Preferred Shares to meet regulatory or rating agency requirements or may voluntarily redeem the Preferred Shares in certain circumstances. 5 The primary risks of investing in the Fund are: - borrowers under Senior Loans may default on obligations to pay principal or interest when due; - although, with respect to collateralized Senior Loans, the Fund generally will invest only in Senior Loans that the Adviser believes are secured by specific collateral, which may include guarantees, the value of which exceeds the principal amount of the Senior Loan at the time of initial investment, there can be no assurance that the liquidation of any such collateral would satisfy the Borrower's obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated; moreover, to the extent that a Senior Loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose all or substantially all of its value in the event of bankruptcy of the Borrower; - although it is growing, the secondary market for Senior Loans is currently limited and Senior Loans generally are not listed on any national securities exchange or automated quotation system and no active trading market may exist for many of the Senior Loans in which the Fund will invest; accordingly, Senior Loans are generally less liquid than many other types of investments and the Fund may be restricted in its ability to sell its Senior Loans in a timely fashion and at a fair price; - interest rates are near historical lows and it is likely that they will rise, and if long-term rates rise, the value of the Fund's investment portfolio may decline thereby reducing asset coverage for the Preferred Shares, although such risk may be reduced by the floating or variable rate nature of Senior Loans held by the Fund; - the Fund's use of financial leverage will result in greater volatility in the net asset value of the Fund's common shares; - in certain circumstances, the Fund may not earn sufficient income from its investments to pay interest on the Fund's indebtedness or dividends; - to the extent the Fund invests in non-U.S. issuers, the Fund may be subject to special risks; and - the Fund is a non-diversified Fund and to the extent the Fund invests a relatively high percentage of its assets in obligation of a limited number of issuers, the Fund may be more susceptible than a diversified company to any single corporate, economic, political or regulatory occurrence. For further discussion of the risks of investing in the Preferred Shares and the Fund, see "Risk Factors." Investment Adviser and Administrator............ Van Kampen Asset Management is the Fund's investment adviser. The Adviser is a wholly owned subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is the Fund's administrator (in such capacity, the "Administrator"). Van Kampen Investments is a diversified asset management company 6 that administers more than three million retail investor accounts, has extensive capabilities for managing institutional portfolios and has more than $84 billion under management or supervision as of December 31, 2003. Van Kampen Investments has more than 50 open-end funds, more than 30 closed-end funds and more than 2,700 unit investment trusts that are distributed by authorized dealers nationwide. The Fund pays the Adviser a monthly fee (accrued daily and paid monthly) computed based upon an annual rate of 0.85% applied to the average daily managed assets of the Fund (which, for purposes of determining such fee, shall mean the average daily gross asset value of the Fund minus the sum of accrued liabilities other than the aggregate amount of any borrowings undertaken by the Fund). The Fund pays the Administrator a monthly fee (accrued daily and paid monthly) computed based upon an annual rate of 0.20% applied to the average daily managed assets of the Fund (as defined above). Because leverage will increase the amount of the Fund's total assets, the Fund will pay a greater amount of advisory and administrative fees when leverage is utilized. Dividends and Dividend Periods.................... The table below shows the dividend rates for the initial dividend periods for each series of the Preferred Shares offered in this Prospectus. For subsequent dividend periods, the Preferred Shares will pay dividends based on a rate set at auctions, normally held every 7 days. In most instances, dividends are also payable every 7 days, on the first business day following the end of the dividend period. See "Description of Preferred Shares." The table below also shows the date from which dividends on the Preferred Shares will accumulate at the initial rate, the dividend payment date for the initial dividend period and the day on which dividends will normally be paid. If the day on which dividends otherwise would be paid is not a business day, then dividends will be paid on the first business day that falls after that day. Finally, the table below shows the number of days of the initial dividend periods for the Preferred Shares. Subsequent dividend periods generally will be 7 days. The dividend payment date for special dividend periods of more than 7 days will be set out in the notice designating a special dividend period. See "Description of Preferred Shares -- Designation of Special Dividend Periods."

DIVIDEND PAYMENT DATE NUMBER OF INITIAL DATE OF FOR INITIAL SUBSEQUENT DAYS OF INITIAL PREFERRED DIVIDEND ACCUMULATION DIVIDEND DIVIDEND DIVIDEND SHARES RATE OF INITIAL RATE PERIOD PAYMENT DAY PERIOD --------- -------- --------------- ------------ ----------- --------------- Series M.... Series T.... Series W.... Series TH... Series F....

7 Asset Maintenance.......... The Fund's Certificate, attached as Appendix B to the SAI, establishes and fixes the rights and preferences of the Preferred Shares. The Certificate provides that the Fund must maintain: - asset coverage of the Preferred Shares as required by the rating agency or agencies rating the Preferred Shares, and - asset coverage of the Preferred Shares as required by the 1940 Act (which currently requires asset coverage of at least 200%). Based on the Fund's assets and liabilities as of December 31, 2003, the asset coverage of the Preferred Shares as measured pursuant to the 1940 Act would be approximately 310% if the Fund were to issue all of the Preferred Shares offered in this Prospectus and apply the proceeds as set forth under "Use of Proceeds" below. In addition, under the commercial paper program, the Fund may not permit the Fund's asset coverage ratio (as defined separately by related credit agreements) to fall below 300% at any time without causing an event of default under the credit agreements. Redemption................. Although the Fund ordinarily does not expect to redeem Preferred Shares, it may be required to redeem Preferred Shares if, for example, the Fund does not correct a failure to meet an asset coverage ratio required by law or a rating agency guideline in a timely manner. The Fund may also voluntarily redeem Preferred Shares under certain conditions. See "Description of Preferred Shares -- Redemption." Liquidation Preference..... The liquidation preference (that is, the amount the Fund must pay to Preferred Shareholders if the Fund is liquidated) for Preferred Shares will be $25,000 per share plus accumulated but unpaid dividends, if any, whether or not earned or declared. See "Description of Preferred Shares -- Liquidation Preference." Voting Rights.............. The 1940 Act requires that the Preferred Shareholders, and the holders of any other series of preferred shares of the Fund, voting as a separate class, have the right to: - elect at least two trustees at all times, and - elect a majority of the trustees at any time when dividends on any series of the Preferred Shares, or any other series of preferred shares of the Fund, are unpaid for two full years, and they will continue to be so represented until all dividends in arrears shall have been paid or otherwise provided for. The holders of common shares will elect the remaining trustees. The Preferred Shareholders, and the holders of any other series of preferred shares of the Fund, will vote as a separate class or series on other matters as required under the Fund's Agreement and Declaration of Trust, as amended (the "Declaration of Trust"), the Certificate, the 1940 Act and Massachusetts law. Each common share, each Preferred Share and each share of any other series of preferred shares of the Fund is entitled to one vote per share. See "Description of Preferred Shares -- Voting Rights." Secondary Market Trading... The Preferred Shares are not listed on an exchange. Instead, you may buy or sell Preferred Shares at an auction that is normally held every 8 7 days by submitting orders to a broker-dealer that has entered into an agreement with the auction agent and the Fund (a "Broker-Dealer") or to a broker-dealer that has entered into a separate agreement with a Broker-Dealer. Broker-dealers may, but are not obligated to, maintain a secondary market in Preferred Shares outside of auctions. There can be no assurance that a secondary market will develop or, if it does develop, that it will provide owners with liquidity of investment. Preferred Shares may be transferred outside of auctions only to or through a broker-dealer. Federal Income Taxes....... The distributions with respect to Preferred Shares (other than distributions in redemption of Preferred Shares subject to Section 302(b) of the Internal Revenue Code of 1986, as amended (the "Code")) will constitute dividends to the extent of the Fund's current or accumulated earnings and profits, as calculated for federal income tax purposes. Such dividends generally will be taxable as ordinary income to holders. Because the Fund's portfolio income will consist principally of interest income, corporate investors in the Preferred Shares generally will not be entitled to the dividends received deduction and individual investors generally will not be entitled to the reduced rates of taxation available for "qualified dividend income." Distributions to holders of net capital gain (the excess of net long-term capital gain over net short-term capital loss) that are designated by the Fund as capital gain dividends will be treated as long-term capital gains in the hands of such holders. The Internal Revenue Service currently requires that a regulated investment company that has two or more classes of stock allocate to each such class proportionate amounts of each type of its income (such as ordinary income and capital gains). Accordingly, the Fund intends to designate distributions of net capital gain made with respect to Preferred Shares as capital gain dividends in proportion to the Preferred Shares' share of total dividends paid during the year. 9 FINANCIAL HIGHLIGHTS The table below sets forth selected financial information for a single common share of beneficial interest of the Fund outstanding throughout the periods presented. The financial highlights for the fiscal years ended July 31, 2003, 2002, 2001 and 2000 have been audited by Deloitte & Touche LLP, independent auditors, whose report, along with the Fund's most recent financial statements, are included in the SAI. The information for the fiscal year ended July 31, 1999 and for the fiscal period ended July 31, 1998 was audited by the Fund's former independent auditors.

JUNE 24, 1998 (COMMENCEMENT OF YEAR ENDED JULY 31, INVESTMENT ---------------------------------------------------- OPERATIONS) TO 2003 2002(E) 2001 2000 1999 JULY 31, 1998 -------- -------- -------- -------- -------- ---------------- Net Asset Value, Beginning of the Period(a)............................. $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07 $ 9.99 -------- -------- -------- -------- -------- -------- Net Investment Income................. .46 .49 .79 .81 .77 .07 Net Realized and Unrealized Gain/Loss........................... .14 (.55) (1.10) (.42) -0- .01 -------- -------- -------- -------- -------- -------- Total from Investment Operations........ .60 (.06) (.31) .39 .77 .08 -------- -------- -------- -------- -------- -------- Less: Distributions from Net Investment Income.............................. .44 .51 .83 .81 .76 -0- Distributions from Net Realized Gain................................ -0- -0- -0- .01 -0- -0- -------- -------- -------- -------- -------- -------- Total Distributions..................... .44 .51 .83 .82 .76 -0- -------- -------- -------- -------- -------- -------- Net Asset Value, End of the Period...... $ 8.10 $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07 ======== ======== ======== ======== ======== ======== Common Share Market Price at End of the Period................................ $ 7.84 $ 6.67 $ 7.79 $ 8.75 $ 9.56 $ 10.06 Total Return(b)......................... 25.06% -8.05% -1.42% .61% 2.98% .63%** Net Assets at End of the Period (In millions)............................. $1,458.6 $1,430.0 $1,532.7 $1,736.5 $1,815.1 $1,812.1 Ratio of Operating Expenses to Average Net Assets excluding Borrowings*...... 1.59% 1.48% 1.63% 1.75% 1.66% 1.18% Ratio of Interest Expense to Average Net Assets excluding Borrowings........... .62% .53% 2.15% 2.49% 2.37% .28% Ratio of Gross Expense to Average Net Assets excluding Borrowings*.......... 2.21% 2.01% 3.78% 4.24% 4.03% 1.46% Ratio of Net Investment Income to Average Net Assets excluding Borrowings*........................... 5.98% 6.02% 8.90% 8.19% 7.72% 6.94% Portfolio Turnover(c)................... 78% 65% 55% 57% 28% 3%** Supplemental Ratios: Ratio of Operating Expenses to Average Net Assets including Borrowings*...... 1.19% 1.22% 1.20% 1.24% 1.18% N/A Ratio of Interest Expense to Average Net Assets including Borrowings........... .46% .44% 1.58% 1.77% 1.67% N/A Ratio of Gross Expense to Average Net Assets including Borrowings*.......... 1.65% 1.66% 2.78% 3.01% 2.85% N/A Ratio of Net Investment Income to Average Net Assets including Borrowings*........................... 4.47% 4.95% 6.55% 5.83% 5.46% N/A Senior Indebtedness: Total Borrowing Outstanding (In thousands)............................ $401,000 $370,159 $375,000 $700,000 $800,000 $400,000 Asset Coverage Per $1,000 Unit of Senior Indebtedness(d)....................... 4,637 4,863 5,087 3,481 3,269 5,530

- ------------ * If certain expenses had not been voluntarily assumed by the Adviser, total return would have been lower and the Ratio of Operating Expenses to Average Net Assets and the Ratio of Net Investment Income to Average Net Assets would have been 1.21% and 6.90% for the period ended July 31, 1998. ** Non-Annualized (a) Net asset value on June 24, 1998 of $10.00 is adjusted for common share offering costs of $.013. 10 (b) Total return based on common share market price assumes an investment at the common share market price at the beginning of the period indicated, reinvestment of all distributions for the period in accordance with the Fund's dividend reinvestment plan, and sale of all shares at the closing common share market price at the end of the period indicated. (c) Calculation includes the proceeds from principal repayments and sales of variable rate senior loan interest. (d) Calculated by subtracting the Fund's total liabilities (not including the Borrowings) from the Fund's total assets and dividing by the total number of senior indebtedness units, where one unit equals $1,000 of senior indebtedness. (e) As required, effective August 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities. The effect of this change for the year ended July 31, 2002 was to decrease the ratio of net investment income to average net asset applicable to common shares by .01%. Net investment income per share and net realized and unrealized gains and losses per share were unaffected by the adjustments. Per share, ratios and supplemental data for the periods prior to July 31, 2002 have not been restated to reflect this change in presentation. NA--Not Applicable SENIOR SECURITIES

AVERAGE DAILY AVERAGE DAILY BALANCE OF AVERAGE AMOUNT AMOUNT OF DEBT BALANCE OF DEBT ASSET COVERAGE SHARES OF DEBT OUTSTANDING AT OUTSTANDING PER $1,000 OF OUTSTANDING PER SHARE FISCAL YEAR ENDED END OF YEAR DURING YEAR INDEBTEDNESS DURING YEAR DURING YEAR - ----------------- -------------- --------------- -------------- -------------- -------------- (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) July 31, 2000.......... $737,000 $718,075 $3,481 180,010 $3,989 July 31, 2001.......... 375,000 578,000 5,087 180,010 3,211 July 31, 2002.......... 370,159 334,000 4,863 180,010 1,855 July 31, 2003.......... 401,000 472,687 4,637 180,010 2,626

THE FUND The Fund is a non-diversified, closed-end management investment company. The Fund was organized as a Massachusetts business trust on April 8, 1998, and is registered under the 1940 Act. The Fund commenced investment operations on June 23, 1998 upon the closing of an initial public offering of its common shares of beneficial interest. As of December 31, 2003, the Fund had total assets of approximately $1.5 billion and net assets of approximately $2.2 billion. On December 31, 2003, the Fund had outstanding 180,010,000 common shares. The Fund's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555, and its telephone number is (630) 684-6000. USE OF PROCEEDS The estimated net proceeds of this offering will be $693,150,000 after payment of offering expenses and the sales load. The Fund will use all of the net proceeds of the offering to (i) pay down amounts borrowed by the Fund under its commercial paper program by approximately $640 million and (ii) invest the remaining proceeds in accordance with the Fund's investment objective and policies as soon as practicable, but in no event, under normal market conditions, later than three months after the receipt thereof. Pending such investment, the proceeds may be invested in high-quality, short-term securities. 11 CAPITALIZATION The following table sets forth the unaudited capitalization of the Fund as of December 31, 2003, and as adjusted to give effect to the issuance of the Preferred Shares offered hereby and repayments of the commercial paper program (including estimated offering expenses and sales load of $6,850,000).

AS OF DECEMBER 31, 2003 ------------------------------- ACTUAL AS ADJUSTED -------------- -------------- Shareholders' equity Preferred Shares, par value $0.01 per share (no shares issued; shares issued, as adjusted, at $25,000 per share liquidation preference)........ $ -- $ 700,000,000 Common shares, par value $0.01 per share, 180,010,000 shares outstanding................... $ 1,800,100 $ 1,800,100 Capital in excess of par value........................ $1,795,669,290 $1,788,819,290 Undistributed net investment income................... $ 3,177,328 $ 3,177,328 Net accumulated realized gain (loss) from investment transactions........................................ $ (253,937,719) $ (253,937,719) Net unrealized depreciation of investments............ $ (24,602,696) $ (24,602,696) Total net assets less liquidation value of Preferred Shares.............................................. $1,522,106,303 $1,515,256,303

PORTFOLIO COMPOSITION The following tables set forth the unaudited portfolio characteristics, top ten Senior Loan industries as a percentage of assets, the top ten Senior Loans as a percentage of assets and the ratings of Senior Loans held by the Fund, in each case as of December 31, 2003. PORTFOLIO CHARACTERISTICS Net assets.................................................. $1,522,106,303 Total assets................................................ $2,190,055,917 Assets invested in Senior Loans and other loans............. $2,026,119,717 Average amount outstanding per loan......................... $ 6,720,000 Total number of industries.................................. 46 Weighted average days to next interest rate reset........... 56.9 Assets invested in other debt obligations................... $ 29,967,375 TOP 10 SENIOR LOAN INDUSTRIES AS A PERCENTAGE OF ASSETS ON DECEMBER 31, 2003

DECEMBER 31, 2003 ----------------- Beverage, Food and Tobacco.................................. 7.88% Printing and Publishing..................................... 7.81% Medical Products/Supplies................................... 6.44% Broadcasting -- Cable....................................... 6.39% Hotel/Motel/Inn/Gaming...................................... 5.19% Health Care Providers....................................... 4.64% Chemicals, Plastics & Rubber................................ 4.58% Automotive.................................................. 3.64% Leisure and Entertainment................................... 3.56% Telecommunications-Wireless................................. 3.53%

12 TOP 10 SENIOR LOANS AS A PERCENTAGE OF ASSETS ON DECEMBER 31, 2003 Allied Waste North America.................................. 2.4% Rite Aid Corporation........................................ 2.0 Charter Communications...................................... 1.9 Community Health Systems.................................... 1.7 Davita, Inc................................................. 1.6 Aladdin Gaming LLC.......................................... 1.5 Federal-Mogul Corporation................................... 1.4 Ispat Inland, L.P........................................... 1.3 Dex Media West LLC.......................................... 1.2 Aurora Foods, Inc........................................... 1.2 SECURITIES RATINGS The table below reflects the ratings of Senior Loans only, representing approximately 90% of the Fund's total assets as of December 31, 2003.

PERCENTAGE NUMBER OF OF TOTAL S&P* MOODY'S* ISSUES VALUE ASSETS - ---- -------- --------- -------------- ---------- (IN THOUSANDS) AAA Aaa 0 $ 0 0% AA Aa 0 0 0 A A 0 0 0 BBB Baa 11 71,880 3.5 BB Ba 139 846,777 41.2 B B 134 639,294 31.1 CCC Caa 13 30,551 1.5 Unrated 110 467,585 22.7 --- ---------- ----- Total 407 $2,056,087 100.0%

- ------------ * Ratings: Using the higher of S&P's or Moody's ratings. S&P rating categories may be modified further by a plus (+) or minus (-) in the AA, A, BBB, BB, B and CCC ratings. Moody's rating categories may be modified further by a 1, 2, or 3 in the Aa, A, Baa, Ba, B and Caa ratings. + Senior Loans that are not rated by S&P or Moody's. Such Senior Loans may be rated by nationally recognized statistical rating organizations other than S&P or Moody's, or may not be rated by any such organization. With respect to the percentage of the Fund's assets invested in such Senior Loans, the Adviser believes that these are of comparable quality to rated Senior Loans in which the Fund may invest. This determination is based on the Adviser's own internal evaluation and does not necessarily reflect how such Senior Loans would be rated by S&P or Moody's if either were to rate the securities. INVESTMENT OBJECTIVE AND INVESTMENT POLICIES INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income, consistent with preservation of capital. 13 INVESTMENT POLICIES The Fund seeks to achieve its objective by investing primarily in a professionally managed portfolio of Senior Loans to Borrowers which operate in a variety of industries and geographical regions (including domestic and foreign entities). Although the Fund's net asset value per common share ("NAV") will vary, the Fund's policy of acquiring interests in floating or variable rate Senior Loans is expected to minimize fluctuations in the Fund's NAV as a result of changes in interest rates. No assurance can be given that the Fund will achieve its investment objective. Senior Loans generally are arranged through private negotiations between a Borrower and Lenders represented in each case by one or more such Lenders acting as Agent of the several Lenders. On behalf of the several Lenders, the Agent, which is frequently the commercial bank or other entity that originates the Senior Loan and the person that invites other parties to join the lending syndicate, will be primarily responsible for negotiating the Loan Agreement(s) that establish the relative terms, conditions and rights of the Borrower and the several Lenders. In larger transactions it is common to have several Agents; however, generally only one such Agent has primary responsibility for documentation and administration of the Senior Loan. Agents are typically paid a fee or fees by the Borrower for their services. The Fund may invest in Participations in Senior Loans, may purchase Assignments of portions of Senior Loans from third parties and may act as one of the group of Original Lenders. Under normal market conditions, at least 80% of the Fund's total assets are invested in Senior Loans (either as an Original Lender or as a purchaser of an Assignment or Participation) of domestic Borrowers or foreign Borrowers (so long as Senior Loans to foreign Borrowers are U.S. dollar denominated and payments of interest and repayments of principal pursuant to such Senior Loans are required to be made in U.S. dollars). It is anticipated that the proceeds of the Senior Loans in which the Fund will acquire interests primarily will be used to finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser extent, to finance internal growth and for other corporate purposes of Borrowers. Senior Loans have the most senior position in a Borrower's capital structure, although some Senior Loans may hold an equal ranking with other senior securities of the Borrower. The capital structure of a Borrower may include Senior Loans, senior and junior subordinated debt (which may include "junk bonds"), preferred stock and common stock issued by the Borrower, typically in descending order of seniority with respect to claims on the Borrower's assets. Senior Loans generally are secured by specific collateral, which may include guarantees. Such guaranteed Senior Loans may be guaranteed by, or fully secured by assets of, shareholders, owners or affiliated entities of the Borrower, even if the Senior Loans are not otherwise collateralized by assets of the Borrower. The Fund may invest up to 20% of its total assets in Senior Loans which are not secured by any collateral. Senior Loans that are not secured by specific collateral generally pose a greater risk of non-payment of interest or loss of principal than do collateralized Senior Loans. As discussed below, the Fund may also acquire warrants, equity securities and junior debt securities issued by a Borrower or its affiliates as part of a package of investments in the Borrower or its affiliates. Warrants, equity securities and junior debt securities will not be treated as Senior Loans and thus assets invested in such securities will not count toward the 80% of the Fund's total assets that normally will be invested in Senior Loans. The Fund will acquire such interests in warrants, equity securities and junior debt securities only as an incident to the intended purchase of interests in Senior Loans. In order to borrow money pursuant to collateralized Senior Loans, a Borrower will frequently, for the term of the Senior Loan, pledge as collateral assets, including but not limited to trademarks, accounts receivable, inventory, buildings, real estate, franchises and common and preferred stock in its subsidiaries. In addition, in the case of some Senior Loans, there may be additional collateral pledged in the form of guarantees or other credit support by and/or securities of affiliates of the Borrowers. In certain instances, a collateralized Senior Loan may be secured only by stock in the Borrower or its subsidiaries. Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the liquidation of such assets would satisfy fully a Borrower's obligations under a Senior Loan. 14 Loan Agreements may include various restrictive covenants designed to limit the activities of the Borrower in an effort to protect the right of the Lenders to receive timely payments of interest on and repayment of principal of the Senior Loans. Restrictive covenants may include mandatory prepayment provisions arising from excess cash flows and typically include restrictions on dividend payments, specific mandatory minimum financial ratios, limits on total debt and other financial tests. Breach of such covenants, if not waived by the Lenders, is generally an event of default under the applicable Loan Agreement and may give the Lenders the right to accelerate principal and interest payments. The Adviser will consider the terms of such restrictive covenants in deciding whether to invest in Senior Loans for the Fund's portfolio. When the Fund holds a Participation in a Senior Loan, it may not have the right to vote to waive enforcement of any restrictive covenant breached by a Borrower. Lenders voting in connection with a potential waiver of a restrictive covenant may have interests different from those of the Fund, and such Lenders may not consider the interests of the Fund in connection with their votes. Senior Loans in which the Fund invests generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates generally are the Prime Rate, LIBOR, the CD rate or other base lending rates used by commercial lenders. The Prime Rate quoted by a major U.S. bank is generally the interest rate at which such bank is willing to lend U.S. dollars to its most creditworthy borrowers, although it may not be the bank's lowest available rate. LIBOR, as provided for in Loan Agreements, is generally an average of the interest rates quoted by several designated banks as the rates at which such banks would offer to pay interest to major financial institutional depositors in the London interbank market on U.S. dollar denominated deposits for a specified period of time. The CD rate, as provided for in Loan Agreements, is generally the average rate paid on large certificates of deposit traded in the secondary market. The Fund may invest in the Senior Loans of non-U.S. issuers. Investment in the Senior Loans of non-U.S. issuers involves special risks, including that non-U.S. issuers may be subject to less rigorous accounting and reporting requirements than U.S. issuers, less rigorous regulatory requirements, differing legal systems and laws relating to creditors' rights, the potential inability to enforce legal judgments and foreclose on collateral, possible restrictions on expatriation and repatriation of capital and the potential for political, social and economic adversity. The Fund is not subject to any restrictions with respect to the maturity of Senior Loans held in its portfolio. The Fund's assets invested in Senior Loans generally consist of Senior Loans with stated maturities of between three and ten years, and with rates of interest which are redetermined either daily, monthly, quarterly or semi-annually; provided, however, that the Fund may invest up to 5% of its total assets in Senior Loans which permit the Borrower to select an interest rate redetermination period of up to one year. Investment in Senior Loans with longer interest rate redetermination periods may increase fluctuations in the Fund's NAV as a result of changes in interest rates. The Senior Loans in the Fund's portfolio will at all times have a dollar-weighted average time until the next interest rate redetermination of 90 days or less. As a result, as short-term interest rates increase, interest payable to the Fund from its investments in Senior Loans should increase, and as short-term interest rates decrease, interest payable to the Fund from its investments in Senior Loans should decrease. The amount of time required to pass before the Fund will realize the effects of changing short-term market interest rates on its portfolio will vary with the dollar-weighted average time until the next interest rate redetermination on the Senior Loans in the Fund's portfolio. The Fund may utilize certain investment practices to, among other things, shorten the effective interest rate redetermination period of Senior Loans in its portfolio. In such event, the Fund will consider such shortened period to be the interest rate redetermination period of the Senior Loan; provided, however, that the Fund will not invest in Senior Loans which permit the Borrower to select an interest rate redetermination period in excess of one year. Because most Senior Loans in the Fund's portfolio will be subject to mandatory and/or optional prepayment and there may be significant economic incentives for a Borrower to prepay its loans, prepayments of Senior Loans in the Fund's portfolio may occur. Accordingly, the actual remaining maturity of the Fund's portfolio invested in Senior Loans may vary substantially from the average stated maturity of the Senior Loans held in the Fund's portfolio. As a result of expected prepayments from time to time of Senior Loans in the Fund's portfolio, the Fund 15 estimates that the actual maturities of Senior Loans held in its portfolio generally range between 18 and 24 months. When interest rates decline, the value of a portfolio invested in fixed-rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a portfolio invested in fixed-rate obligations can be expected to decline. Although the Fund's NAV will vary, the Fund's management expects the Fund's policy of acquiring interests in floating or variable rate Senior Loans to minimize fluctuations in NAV as a result of changes in interest rates. Accordingly, the Fund's management expects the value of the Fund's portfolio to fluctuate less than a portfolio of fixed-rate, longer term obligations as a result of interest rate changes. However, changes in prevailing interest rates can be expected to cause some fluctuation in the Fund's NAV. In addition to changes in interest rates, changes in the credit quality of Borrowers will also affect the Fund's NAV. Further, a serious deterioration in the credit quality of a Borrower could cause a prolonged or permanent decrease in the Fund's NAV. Fluctuations in NAV may be magnified as a result of the Fund's use of leverage. The Fund may purchase and retain in its portfolio Senior Loan interests in Borrowers which have filed for protection under the federal bankruptcy laws or have had an involuntary bankruptcy petition filed against them by their creditors. The values of such Senior Loan interests, if any, will reflect, among other things, of the likelihood that the Fund ultimately will receive full repayment of the principal amount of such Senior Loan interests, the likely duration, if any, of a lapse in the scheduled repayment of principal and prevailing interest rates. At times, in connection with the restructuring of a Senior Loan either outside of bankruptcy court or in the context of bankruptcy court proceedings, the Fund may determine or be required to accept equity securities or junior debt securities in exchange for all or a portion of a Senior Loan interest. Depending upon, among other things, the Adviser's evaluation of the potential value of such securities in relation to the price that could be obtained by the Fund at any given time upon sale thereof, the Fund may determine to hold such securities in its portfolio. Any equity securities and junior debt securities held by the Fund will not be treated as Senior Loans and thus will not count toward the 80% of the Fund's total assets that normally will be invested in Senior Loans. Senior Loans historically have not been rated by nationally recognized statistical rating organizations. Because of the senior capital structure position of Senior Loans and the collateralized or guaranteed nature of most Senior Loans, the Fund and the Adviser believe that ratings of other securities issued by a Borrower do not necessarily reflect adequately the relative quality of a Borrower's Senior Loans. Therefore, although the Adviser may consider such ratings in determining whether to invest in a particular Senior Loan, the Adviser is not required to consider such ratings and such ratings will not be the determinative factor in the Adviser's analysis. The Fund may invest a substantial portion of its assets in Senior Loans, the Borrowers with respect to which have outstanding debt securities which are rated below investment grade by a nationally recognized statistical rating organization or are unrated but determined by the Adviser to be of comparable quality to such securities. Debt securities rated below investment grade or unrated but of comparable quality commonly are referred to as "junk bonds." The Fund will invest only in those Senior Loans with respect to which the Borrower, in the opinion of the Adviser, demonstrates one or more of the following characteristics: sufficient cash flow to service debt; adequate liquidity; successful operating history; strong competitive position; experienced management; and, with respect to collateralized Senior Loans, collateral coverage that equals or exceeds the outstanding principal amount of the Senior Loan. In addition, the Adviser will consider, and may rely in part, on the analyses performed by the Agent and other Lenders, including such persons' determinations with respect to collateral securing a Senior Loan. The Fund may invest up to 100% of its assets in Participations. The selling Lenders and other persons interpositioned between such Lenders and the Fund with respect to such Participations will likely conduct their principal business activities in the banking, finance and financial services industries. Although, as discussed below, the Fund has taken measures which it believes reduce its exposure to any risks incident to such policy, the Fund may be more susceptible than an investment company without such a policy to any single economic, political or regulatory occurrence affecting such industries. Persons engaged in such industries may be more susceptible than are persons engaged in some other industry to, among other 16 things, fluctuations in interest rates, changes in the Federal Open Market Committee's monetary policy, governmental regulations concerning such industries and concerning capital raising activities generally and fluctuations in the financial markets generally. Participations by the Fund in a Lender's portion of a Senior Loan typically will result in the Fund having a contractual relationship only with such Lender, not with the Borrower. As a result, the Fund may have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by such Lender of such payments from the Borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the Borrower with the terms of the Loan Agreement, nor any rights with respect to any funds acquired by other Lenders through set-off against the Borrower, and the Fund may not directly benefit from the collateral supporting the Senior Loan in which it has purchased the Participation. As a result, the Fund may assume the credit risk of both the Borrower and the Lender selling the Participation. In the event of the insolvency of the Lender selling a Participation, the Fund may be treated as a general creditor of such Lender. The Fund has taken the following measures in an effort to minimize such risks. The Fund will only acquire Participations if the Lender selling the Participation, and any other persons interpositioned between the Fund and the Lender, (i) at the time of investment has outstanding debt or deposit obligations rated investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by Moody's) or determined by the Adviser to be of comparable quality and (ii) has entered into an agreement which provides for the holding of assets in safekeeping for, or the prompt disbursement of assets to, the Fund. Long-term debt rated BBB by S&P is regarded by S&P as having adequate capacity to pay interest and repay principal, and debt rated Baa by Moody's is regarded by Moody's as a medium grade obligation, i.e., it is neither highly protected nor poorly secured. Commercial paper rated A-3 by S&P indicates that S&P believes such obligations exhibit adequate protection parameters but that adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation, and issues of commercial paper rated P-3 by Moody's are considered by Moody's to have an acceptable ability for repayment of short-term debt obligations but the effect of industry characteristics and market compositions may be more pronounced. The Fund ordinarily will purchase a Participation only if, at the time of such purchase, the Fund believes that the party from whom it is purchasing such Participation is retaining an interest in the underlying Senior Loan. In the event that the Fund does not so believe, it will only purchase such a Participation if, in addition to the requirements set forth above, the party from whom the Fund is purchasing such Participation (i) is a bank, a member of a national securities exchange or other entity designated in the 1940 Act, as qualified to serve as a custodian for a registered investment company and (ii) has been approved as a custodian by the Board of Trustees of the Fund (a "Designated Custodian"). The Fund may also purchase Assignments from Lenders. The purchaser of an Assignment typically succeeds to all the rights and obligations under the Loan Agreement of the assigning Lender and becomes a Lender under the Loan Agreement with the same rights and obligations as the assigning Lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Lender. When the Fund is an Original Lender originating a Senior Loan it may share in a fee paid to the Original Lenders. The Fund will never act as the Agent or principal negotiator or administrator of a Senior Loan. When the Fund is a Lender, it will have a direct contractual relationship with the Borrower, may enforce compliance by the Borrower with the terms of the Loan Agreement and may have rights with respect to any funds acquired by other Lenders through set-off. Lenders also have full voting and consent rights under the applicable Loan Agreement. Action subject to Lender vote or consent generally requires the vote or consent of the holders of some specified percentage of the outstanding principal amount of the Senior Loan. Certain decisions, such as reducing the amount or increasing the time for payment of interest on or repayment of principal of a Senior Loan, or releasing collateral therefor, frequently require the unanimous vote or consent of all Lenders affected. 17 The Fund will purchase an Assignment or act as a Lender with respect to a syndicated Senior Loan only where the Agent with respect to such Senior Loan at the time of investment has outstanding debt or deposit obligations rated investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by Moody's) or determined by the Adviser to be of comparable quality. Further, the Fund will not purchase interests in Senior Loans unless such Agent, Lender or interpositioned person has entered into an agreement which provides for the holding of assets in safekeeping for, or the prompt disbursement of assets to, the Fund. Loan Agreements typically provide for the termination of the Agent's agency status in the event that it fails to act as required under the relevant Loan Agreement, becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership or, if not FDIC insured, enters into bankruptcy. Should such an Agent, Lender or assignor with respect to an Assignment interpositioned between the Fund and the Borrower become insolvent or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of such person and any loan payment held by such person for the benefit of the Fund should not be included in such person's estate. If, however, any such amount were included in such person's estate, the Fund would incur certain costs and delays in realizing payment or could suffer a loss of principal or interest. In such event, the Fund could experience a decrease in NAV. The Fund may be required to pay and may receive various fees and commissions in connection with purchasing, selling and holding interests in Senior Loans. The fees normally paid by Borrowers may include three types: facility fees, commitment fees and prepayment penalties. Facility fees are paid to Lenders upon origination of a Senior Loan. Commitment fees are paid to Lenders on an ongoing basis based upon the undrawn portion committed by the Lenders of the underlying Senior Loan. Lenders may receive prepayment penalties when a Borrower prepays all or part of a Senior Loan. The Fund will receive these fees directly from the Borrower if the Fund is an Original Lender, or, in the case of commitment fees and prepayment penalties, if the Fund acquires an interest in a Senior Loan by way of Assignment. Whether or not the Fund receives a facility fee from the Lender in the case of an Assignment, or any fees in the case of a Participation, depends upon negotiations between the Fund and the Lender selling such interests. When the Fund is an assignee, it may be required to pay a fee, or forgo a portion of interest and any fees payable to it, to the Lender selling the Assignment. Occasionally, the assignor will pay a fee to the assignee based on the portion of the principal amount of the Senior Loan which is being assigned. A Lender selling a Participation to the Fund may deduct a portion of the interest and any fees payable to the Fund as an administrative fee prior to payment thereof to the Fund. The Fund may be required to pay over or pass along to a purchaser of an interest in a Senior Loan from the Fund a portion of any fees that the Fund would otherwise be entitled to. Pursuant to the relevant Loan Agreement, a Borrower may be required in certain circumstances, and may have the option at any time, to prepay the principal amount of a Senior Loan, often without incurring a prepayment penalty. Because the interest rates on Senior Loans are periodically redetermined at relatively short intervals, the Fund and the Adviser believe that the prepayment of, and subsequent reinvestment by the Fund in, Senior Loans will not have a materially adverse impact on the yield on the Fund's portfolio and may have a beneficial impact on income due to receipt of prepayment penalties, if any, and any facility fees earned in connection with reinvestment. A Lender may have certain obligations pursuant to a Loan Agreement, which may include the obligation to make additional loans in certain circumstances. The Fund currently intends to reserve against such contingent obligations by segregating cash, liquid securities and/or liquid Senior Loans sufficient to cover such commitments. The Fund will not purchase interests in Senior Loans that would require the Fund to make any such additional loans if such additional loan commitments in the aggregate would exceed 20% of the Fund's total assets or would cause the Fund to fail to meet the diversification requirements set forth under the heading "Investment Restrictions" in the SAI. Under normal market conditions, the Fund may invest up to 20% of its total assets (including assets maintained by the Fund as a reserve against any additional loan commitments) in (i) high quality, short-term debt securities with remaining maturities of one year or less and (ii) warrants, equity securities and 18 junior debt securities acquired in connection with the Fund's investments in Senior Loans. Such high quality, short-term securities may include commercial paper rated at least in the top two rating categories of either S&P or Moody's, or unrated commercial paper considered by the Adviser to be of similar quality, interests in short-term loans of Borrowers having short-term debt obligations rated or a short-term credit rating at least in such top two rating categories or having no such rating but determined by the Adviser to be of comparable quality, certificates of deposit and bankers' acceptances and securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. Such high quality, short-term securities may pay interest at rates which are periodically redetermined or may pay interest at fixed rates. If the Adviser determines that market conditions temporarily warrant a defensive investment policy, the Fund may invest, subject to its ability to liquidate its relatively illiquid portfolio of Senior Loans, up to 100% of its assets in cash and such high quality, short-term debt securities. The Fund will acquire such warrants, equity and junior debt securities only as an incident to the purchase or intended purchase of interests in collateralized Senior Loans. Although the Fund generally will acquire interests in warrants, equity and junior debt securities only when the Adviser believes that the relative value being given by the Fund in exchange for such interests is substantially outweighed by the potential value of such instruments, investment in warrants, equity and junior debt securities entail certain risks in addition to those associated with investments in Senior Loans. Warrants and equity securities have a subordinate claim on a Borrower's assets as compared with debt securities, and junior debt securities have a subordinate claim on such assets as compared with Senior Loans. As such, the values of warrants and equity securities generally are more dependent on the financial condition of the Borrower and less dependent on fluctuations in interest rates than are the values of many debt securities. The values of warrants, equity securities and junior debt securities may be more volatile than those of Senior Loans. The Fund also may invest up to 5% of its total assets in structured notes with rates of return determined by reference to the total rate of return on one or more loans referenced in such notes. The rate of return on the structured note may be determined by applying a multiplier to the rate of total return on the referenced loan or loans. Application of a multiplier is comparable to the use of financial leverage, a speculative technique. Leverage magnifies the potential for gain and the risk of loss; as a result, a relatively small decline in the value of a referenced note could result in a relatively large loss in the value of a structured note. Structured notes will be treated as Senior Loans for purposes of the Fund's policy of normally investing at least 80% of its assets in Senior Loans. USE OF LEVERAGE The Fund uses financial leverage for investment purposes. The Fund has authority to do so through borrowings, including the issuance of debt securities, or the issuance of preferred shares, or through the use of certain other transactions which have the effect of financial leverage. Including the proceeds of the offering of the Preferred Shares, it is currently anticipated that the amount of leverage will represent approximately 32% (and in no event will it exceed 50%) of the Fund's total assets. In addition to issuing Preferred Shares, the Fund borrows money through a commercial paper program. The Fund's obligations under the commercial paper program are senior to the Preferred Shares. Payments to Preferred Shareholders in liquidation or otherwise will be subject to the prior payment of all outstanding indebtedness, including the Fund's obligations under the commercial paper program. There can be no assurance that the commercial paper will remain outstanding or that the Fund will continue such borrowing. The Fund currently has a fundamental investment restriction that the Fund may not issue senior securities (including borrowing money or entering into reverse repurchase agreements) in excess of 33 1/3% of its total assets (including the amount of senior securities issued but excluding any liabilities and indebtedness not constituting senior securities), except that the Fund may borrow up to an additional 5% of its total assets for temporary purposes, or pledge its assets other than to secure such issuance or in connection with hedging transactions, when-issued and delayed delivery transactions and similar investment strategies. The Fund has filed a proxy statement seeking a shareholder vote to amend the aforementioned 19 investment restriction regarding the Fund's use of financial leverage to allow the Fund to utilize financial leverage to the maximum extent allowable under the 1940 Act (see the 1940 Act limitations described below). Until the Fund receives shareholder approval to amend its fundamental investment restriction regarding the use of financial leverage, the Fund may issue senior securities (which includes the Preferred Shares and any borrowing under its existing commercial paper program) up to the current limitation (i.e. 33% of its total assets) and, upon receiving such approval, may increase its use of senior securities (by maintaining the Preferred Shares and increasing borrowing under the commercial paper program) up to the leverage limitations under the 1940 Act. See "Description of Commercial Paper Program." The Fund expects to hold a shareholder meeting to vote on this proposal on April 8, 2004. Under the 1940 Act, the 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 indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the Fund's total assets). Additionally, under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such capital shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any 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, the 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, the Fund is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the 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. The use of financial leverage creates the opportunity for increased net income and NAV appreciation for the Fund's common shares. The concept of leveraging is based on the premise that the return on the underlying portfolio assets (including assets obtained from the leverage) will exceed the costs related to such leverage. As the difference between the return on the underlying assets and costs of leverage narrow, the return provided by leverage is reduced and a decline in the value of portfolio assets may completely offset any benefits of leverage. Leverage creates risks for common shareholders, including the likelihood of greater volatility of NAV and market price of the common shares and the possibility that fluctuations in interest rates on borrowings and short-term debt or in the dividend rates on any preferred shares may affect the return to common shareholders. To the extent the income or capital growth derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital growth from the securities purchased with such funds is not sufficient to cover the cost of leverage, the Fund's return will be less than if leverage had not been used, and therefore the amount available for distribution to common shareholders as dividends and other distributions will be reduced. The Fund generally will not utilize financial leverage if it anticipates that it would result in a lower return to common shareholders over time. As discussed under "Management of the Fund," the fees paid to the Adviser and the Administrator are calculated on the basis of the Fund's average daily managed assets, including proceeds from borrowings for leverage and the issuance of preferred shares, and thus those fees will be higher when leverage is utilized. Certain types of borrowings, including borrowings under the Fund's commercial paper program, may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage and portfolio composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies which may issue ratings for corporate debt securities or any additional series of preferred shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. It is not anticipated that these covenants or guidelines will impede the Adviser from managing the Fund's portfolio in accordance with the Fund's investment objective and policies. See "Description of Commercial Paper Program" and "Description of Preferred Shares." 20 The Fund's willingness to borrow money and issue new securities for investment purposes, and the amount the Fund will borrow or issue, will depend on many factors, the most important of which are investment outlook, market conditions and interest rates. Successful use of a leveraging strategy depends on the Adviser'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. The amount of outstanding leverage may vary with prevailing market or economic conditions. OTHER INVESTMENT PRACTICES In connection with the investment objective and policies described above, the Fund may engage in interest rate and other hedging transactions, lend portfolio holdings, purchase and sell interests in Senior Loans and other portfolio debt securities on a "when issued" or "delayed delivery" basis and enter into repurchase and reverse repurchase agreements. These investment practices involve certain special risk considerations. The Adviser may use some or all of the following investment practices when, in the opinion of the Adviser, their use is appropriate. Although the Adviser believes that these investment practices may further the Fund's investment objective, no assurance can be given that these investment practices will achieve this result. Interest Rate and Other Hedging Transactions. The Fund may enter into various interest rate hedging and risk management transactions. Certain of these interest rate hedging and risk management transactions may be considered to involve derivative instruments. A derivative is a financial instrument whose performance is derived at least in part from the performance of an underlying index, security or asset. The values of certain derivatives can be affected dramatically by even small market movements, sometimes in ways that are difficult to predict. There are many different types of derivatives, with many different uses. The Fund expects to enter into these transactions primarily to seek to preserve a return on a particular investment or portion of its portfolio, and may also enter into such transactions to seek to protect against decreases in the anticipated rate of return on floating or variable rate financial instruments the Fund owns or anticipates purchasing at a later date, or for other risk management strategies such as managing the effective dollar-weighted average duration of the Fund's portfolio. In addition, the Fund may also engage in hedging transactions to seek to protect the value of its portfolio against declines in NAV resulting from changes in interest rates or other market changes. The Fund does not intend to engage in such transactions to enhance the yield on its portfolio or to increase income available for distributions. Market conditions will determine whether and in what circumstances the Fund would employ any of the hedging and risk management techniques described below. The Fund will not engage in any of the transactions for speculative purposes and will use them only as a means to hedge or manage the risks associated with assets held in, or anticipated to be purchased for, the Fund's portfolio or obligations incurred by the Fund. The successful utilization of hedging and risk management transactions requires skills different from those needed in the selection of the Fund's portfolio securities. The Fund believes that the Adviser possesses the skills necessary for the successful utilization of hedging and risk management transactions. The Fund will incur brokerage and other costs in connection with its hedging transactions. The Fund may enter into interest rate swaps or purchase or sell interest rate caps or floors. The Fund will not sell interest rate caps or floors that it does not own. Interest rate swaps involve the exchange by the Fund with another party of their respective obligations to pay or receive interest, e.g., an exchange of an obligation to make floating rate payments for an obligation to make fixed rate payments. For example, the Fund may seek to shorten the effective interest rate redetermination period of a Senior Loan in its portfolio the Borrower of which has selected an interest rate redetermination period of one year. The Fund could exchange the Borrower's obligation to make fixed rate payments for one year for an obligation to make payments that readjust monthly. In such event, the Fund would consider the interest rate redetermination period of such Senior Loan to be the shorter period. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest at the difference of the index and the predetermined rate on a notional principal amount (the reference amount with respect to which 21 interest obligations are determined although no actual exchange of principal occurs) from the party selling such interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest at the difference of the index and the predetermined rate on a notional principal amount from the party selling such interest rate floor. The Fund will not enter into swaps, caps or floors if, on a net basis, the aggregate notional principal amount with respect to such agreements exceeds the net assets of the Fund. In circumstances in which the Adviser anticipates that interest rates will decline, the Fund might, for example, enter into an interest rate swap as the floating rate payor or, alternatively, purchase an interest rate floor. In the case of purchasing an interest rate floor, if interest rates declined below the floor rate, the Fund would receive payments from its counterparty which would wholly or partially offset the decrease in the payments it would receive in respect of the portfolio assets being hedged. In the case where the Fund purchases an interest rate swap, if the floating rate payments fell below the level of the fixed rate payment set in the swap agreement, the Fund's counterparty would pay the Fund amounts equal to interest computed at the difference between the fixed and floating rates over the notional principal amount. Such payments would offset or partially offset the decrease in the payments the Fund would receive in respect of floating rate portfolio assets being hedged. The successful use of swaps, caps and floors to preserve the rate of return on a portfolio of financial instruments depends on the Adviser's ability to predict correctly the direction and extent of movements in interest rates. Although the Fund believes that use of the hedging and risk management techniques described above will benefit the Fund, if the Adviser's judgment about the direction or extent of the movement in interest rates is incorrect, the Fund's overall performance would be worse than if it had not entered into any such transactions. For example, if the Fund had purchased an interest rate swap or an interest rate floor to hedge against its expectation that interest rates would decline but instead interest rates rose, the Fund would lose part or all of the benefit of the increased payments it would receive as a result of the rising interest rates because it would have to pay amounts to its counterparty under the swap agreement or would have paid the purchase price of the interest rate floor. Inasmuch as these hedging transactions are entered into for good-faith risk management purposes, the Adviser and the Fund believe such obligations do not constitute senior securities. The Fund will usually enter into interest rate swaps on a net basis, i.e., where the two parties make net payments with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of the Fund's obligations over its entitlements with respect to each interest rate swap will be accrued and the Fund will segregate an amount of cash or liquid assets having an aggregate NAV at least equal to the accrued excess. If the Fund enters into a swap on other than a net basis, the Fund will segregate an amount of cash or liquid assets equal to the full amount of the Fund's obligations under such swap. Accordingly, the Fund does not treat swaps as senior securities. The Fund may enter into swaps, caps and floors with member banks of the Federal Reserve System, members of the NYSE or other entities determined by the Adviser, pursuant to procedures adopted and reviewed on an ongoing basis by the Board of Trustees, to be creditworthy. If a default occurs by the other party to such transaction, the Fund will have contractual remedies pursuant to the agreements related to the transaction, but such remedies may be subject to bankruptcy and insolvency laws which could affect the Fund's rights as a creditor. The swap market has grown substantially in recent years with a large number of banks and financial services firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Caps and floors are more recent innovations and they are less liquid than swaps. There can be no assurance, however, that the Fund will be able to enter into interest rate swaps or to purchase interest rate caps or floors at prices or on terms the Adviser believes are advantageous to the Fund. In addition, although the terms of interest rate swaps, caps and floors may provide for termination, there can be no assurance that the Fund will be able to terminate an interest rate swap or to sell or offset interest rate caps or floors that it has purchased. New financial products continue to be developed and the Fund may invest in any such products as may be developed to the extent consistent with its investment objective and the regulatory and federal tax requirements applicable to investment companies. 22 Lending of Portfolio Holdings. The Fund may seek to increase its income by lending financial instruments in its portfolio in accordance with present regulatory policies, including those of the Board of Governors of the Federal Reserve System and the SEC. Such loans may be made, without limit, to brokers, dealers, banks or other recognized institutional borrowers of financial instruments and would be required to be secured continuously by collateral, including cash, cash equivalents or U.S. Treasury bills maintained on a current basis at an amount at least equal to the market value of the financial instruments loaned. The Fund would have the right to call a loan and obtain the financial instruments loaned at any time on five days' notice. For the duration of a loan, the Fund would continue to receive the equivalent of the interest paid by the issuer on the financial instruments loaned and also may receive compensation from the investment of the collateral. The Fund would not have the right to vote any financial instruments having voting rights during the existence of the loan, but the Fund could call the loan in anticipation of an important vote to be taken among holders of the financial instruments or in anticipation of the giving or withholding of their consent on a material matter affecting the financial instruments. As with other extensions of credit, risks of delay in recovery or even loss of rights in the collateral exist should the borrower of the financial instruments fail financially. However, the loans would be made only to firms deemed by the Adviser to be of good standing and when, in the judgment of the Adviser, the consideration which can be earned currently from loans of this type justifies the attendant risk. The creditworthiness of firms to which the Fund lends its portfolio holdings will be monitored on an ongoing basis by the Adviser pursuant to procedures adopted and reviewed, on an ongoing basis, by the Board of Trustees of the Fund. No specific limitation exists as to the percentage of the Fund's assets which the Fund may lend. "When Issued" and "Delayed Delivery" Transactions. The Fund may also purchase and sell interests in Senior Loans and other portfolio securities on a "when issued" and "delayed delivery" basis. No income accrues to the Fund on such interests or securities in connection with such purchase transactions prior to the date the Fund actually takes delivery of such interests or securities. These transactions are subject to market fluctuation; the value of the interests in Senior Loans and other portfolio debt securities at delivery may be more or less than their purchase price, and yields generally available on such interests or securities when delivery occurs may be higher or lower than yields on the interests or securities obtained pursuant to such transactions. Because the Fund relies on the buyer or seller, as the case may be, to consummate the transaction, failure by the other party to complete the transaction may result in the Fund missing the opportunity of obtaining a price or yield considered to be advantageous. When the Fund is the buyer in such a transaction, however, it will segregate cash and/or liquid assets having an aggregate value equal to the amount of such purchase commitments until payment is made. The Fund will make commitments to purchase such interests or securities on such basis only with the intention of actually acquiring these interests or securities, but the Fund may sell such interests or securities prior to the settlement date if such sale is considered to be advisable. To the extent the Fund engages in "when issued" and "delayed delivery" transactions, it will do so for the purpose of acquiring interests or securities for the Fund's portfolio consistent with the Fund's investment objective and policies and not for the purpose of investment leverage. No specific limitation exists as to the percentage of the Fund's assets which may be used to acquire securities on a "when issued" or "delayed delivery" basis. Repurchase Agreements. The Fund may enter into repurchase agreements (a purchase of, and a simultaneous commitment to resell, a financial instrument at an agreed upon price on an agreed upon date) only with member banks of the Federal Reserve System and member firms of the NYSE. When participating in repurchase agreements, the Fund buys securities from a vendor, e.g., a bank or brokerage firm, with the agreement that the vendor will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for the Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the vendor is unable to meet its obligation to repurchase. Under the 1940 Act, repurchase agreements are deemed to be collateralized loans of money by the Fund to the seller. In evaluating whether to enter into a repurchase agreement, the Adviser will consider carefully the creditworthiness of the vendor. If the member bank or member firm that is the party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to the 23 U.S. Bankruptcy Code, the law regarding the rights of the Fund is unsettled. The securities underlying a repurchase agreement will be marked to market every business day so that the value of the collateral is at least equal to the value of the loan, including the accrued interest thereon, and the Adviser will monitor the value of the collateral. No specific limitation exists as to the percentage of the Fund's assets which may be used to participate in repurchase agreements. Reverse Repurchase Agreements. The Fund may enter into reverse repurchase agreements with respect to debt obligations which could otherwise be sold by the Fund. A reverse repurchase agreement is an instrument under which the Fund may sell an underlying debt instrument and simultaneously obtain the commitment of the purchaser (a commercial bank or a broker or dealer) to sell the security back to the Fund at an agreed upon price on an agreed upon date. The Fund will segregate an amount of cash or liquid assets at least equal to its obligations with respect to reverse repurchase agreements. The Fund receives payment for such securities only upon physical delivery or evidence of book entry transfer by its custodian. Regulations of the SEC require either that securities sold by the Fund under a reverse repurchase agreement be segregated pending repurchase or that the proceeds be segregated on the Fund's books and records pending repurchase. Reverse repurchase agreements could involve certain risks in the event of default or insolvency of the other party, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. An additional risk is that the market value of securities sold by the Fund under a reverse repurchase agreement could decline below the price at which the Fund is obligated to repurchase them. Reverse repurchase agreements will be considered borrowings by the Fund and as such would be subject to the restrictions on borrowing as described herein and in the SAI under "Investment Restrictions." The Fund will not hold more than 5% of the value of its total assets in reverse repurchase agreements. RISK FACTORS Risk is inherent in all investing. Before investing you should consider carefully the following risks that you assume when you invest in Preferred Shares. Payment and Redemption Restrictions. Under the terms of the credit agreement governing the commercial paper program, the Fund is not permitted to declare dividends or other distributions, including dividends and distributions with respect to Preferred Shares, or purchase or redeem shares, including Preferred Shares, unless (i) at the time thereof the Fund meets the Credit Agreement Asset Coverage Test (as defined herein) and (ii) there is no event of default under the credit facility program. See "Description of Commercial Paper Program." Leverage Risk. The Fund uses financial leverage for investment purposes by employing leverage instruments (e.g., borrowing, issuing commercial paper or notes and preferred shares of beneficial interest). The amount of leverage represented by the commercial paper program as of December 31, 2003 was approximately 29% of the Fund's total assets. It is currently anticipated that, after issuing the Preferred Shares offered in this Prospectus and paying down a portion of the commercial paper program with the proceeds, the amount of leverage will represent approximately 32% (and in no event will it exceed 50%) of the Fund's total assets. If the proposal to amend the Fund's fundamental investment restriction on senior securities is approved by shareholders, the Fund may increase its leverage ratio to the maximum amount allowed under the 1940 Act. Under the requirements of the 1940 Act, the value of the Fund's total assets, less all liabilities and indebtedness of the Fund not represented by senior securities, must be at least equal, immediately after any borrowing, to 300% of the aggregate value of borrowings represented by senior securities. Any lender with respect to borrowings by the Fund may require additional asset coverage provisions as well as restrictions on the Fund's investment practices. Under the requirements of the 1940 Act, the value of the Fund's total assets, less all liabilities and indebtedness of the Fund not represented by senior securities, must at least be equal, immediately after the issuance of any preferred shares, to 200% of the aggregate liquidation value of the preferred shares plus the aggregate amount of senior securities representing indebtedness. 24 The liquidation value of the Preferred Shares offered hereby is equal their aggregate original purchase price plus a redemption premium, if any, together with any accrued and unpaid dividends thereon (on a cumulative basis), whether or not earned or declared. The Fund seeks an "Aaa" rating by Moody's and an "AAA" rating from Fitch for the Preferred Shares, and to obtain such ratings, asset coverage provisions in addition to and more stringent than those required by the 1940 Act have been imposed. In addition, restrictions have been imposed on certain investment practices in which the Fund may otherwise engage. The rating agency requirements impose certain minimum issue size, issuer geographical diversification and other requirements for determining portfolio assets that are eligible for computing compliance with their asset coverage requirements. A rating of the Preferred Shares does not reflect a direct assessment of the credit quality of the Fund's portfolio and is not an assessment of the investment characteristics of the Preferred Shares. If the Fund's ratings on the Preferred Shares are subsequently lowered or withdrawn, the Fund would likely be required to pay higher dividends on the Preferred Shares. See "Description of Preferred Shares." The Fund's leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. Borrowed funds pursuant to any credit facility constitute a substantial lien and burden on the Preferred Shares by reason of their prior claim against the income of the Fund and against the total assets of the Fund in liquidation. In the event of a default under the commercial paper program, the lenders have the right to cause a liquidation of the collateral (i.e., sell Senior Loans and other assets of the Fund), and if any such default is not cured within five days of written notice by the lenders, the lenders can control the liquidation as well. Investors should note that there are risks associated with issuing Preferred Shares or borrowing in an effort to increase the yield on the common shares, including higher volatility of both the NAV and the market value of the common shares, and that fluctuations in the dividend rates on the Preferred Shares or interest rates on the borrowing may affect the yield to common shareholders. So long as the Fund is able to realize a higher return after expenses on its investment of the proceeds of the Preferred Shares offering or of any borrowing than the then current dividend rates on the Preferred Shares or interest rates on the borrowing, the effect of the leverage will be to cause the common shareholders to realize a higher current rate of return than if the Fund were not so leveraged. On the other hand, to the extent that the then current dividend rates on the Preferred Shares or interest rates on the borrowing approaches the return on such proceeds after expenses or the value of portfolio securities otherwise declines, the benefit of leverage to the common shareholders may be reduced or eliminated and could even result in a lower rate of return to the common shareholders than if the Fund were not leveraged. Since any decline in the net asset value of the Fund's investments is borne entirely by the common shareholders, the effect of leverage in a declining market would result in a greater decrease in net asset value to the common shareholders than if the Fund were not so leveraged. Any such decrease would likely be reflected in a decline in the market price for common shares. The floating or variable rate nature of Senior Loans in which the Fund invests helps mitigate against the risks of increased dividend or interest costs as a result of increasing interest rates. The Adviser may also seek to manage certain of the risks of financial leverage in anticipation of changes in interest rates in a number of ways, including extending the length of the dividend period on the Preferred Shares or the interest rate period on any borrowing so as to fix a dividend or an interest rate for a period of time, "deleveraging" the Fund by redeeming all or a portion of the outstanding Preferred Shares or repaying all or a portion of any outstanding borrowing, entering into certain transactions in an effort to hedge against changes in interest rates and purchasing securities the terms of which have elements of, or are similar in effect to, certain hedging transactions in which the Fund may engage. There can be no assurance that the Adviser can successfully manage the risks of leverage. The issuance of the Preferred Shares or borrowing by the Fund entails certain initial costs and expenses and certain ongoing administrative and accounting expenses. These costs and expenses will be borne by the Fund and will reduce the income or net assets available to common shareholders. If the Fund's current investment income were not sufficient to meet dividend requirements on the Preferred Shares or interest expenses on any borrowing, the Fund might have to liquidate certain of its investments in order to meet required dividend or interest payments, thereby reducing the net asset value attributable 25 to the Fund's common shares. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the Fund meets certain asset coverage requirements (determined after deducting the amount of such dividend or distribution). Such prohibition on the payment of dividends or other distributions might impair the ability of the Fund to maintain its qualification, for federal income tax purposes, as a regulated investment company. The Fund intends, however, to the extent possible, to purchase or redeem Preferred Shares from time to time or to repay borrowing, which may involve the payment by the Fund of a premium and the sale by the Fund of portfolio securities at a time when it may be disadvantageous to do so, to maintain such asset coverage requirements. Subject to the restrictions of the 1940 Act, the Fund may "releverage" through the reissuance of preferred shares or incurrence of new borrowing, and in connection with which the Fund, and indirectly the common shareholders, would incur the expenses of such releveraging. If there are no preferred shares issued and outstanding, common shareholders elect all of the trustees of the Fund. If there are preferred shares issued and outstanding, holders of any preferred shares, including the Preferred Shares, elect two trustees. Under the 1940 Act, upon failure by the Fund to pay dividends on the preferred shares in an amount equal to two full years' dividends arrearage, the holders of preferred shares, including the Preferred Shares, are entitled to elect a majority of the Board of Trustees until all such dividends arrearage has been paid or provided for. The lenders with respect to any borrowing by the Fund may be entitled to elect a majority of the Board of Trustees if certain asset coverage requirements are not maintained. Restrictions imposed on the declaration and payment of dividends or other distributions to the holders of the Fund's common shares and preferred shares, both by the 1940 Act and by reason of requirements imposed by lenders and rating agencies, might impair the Fund's ability to maintain its qualification as a regulated investment company for federal income tax purposes. While the Fund intends to pay down borrowings and redeem Preferred Shares in order to permit the Fund to distribute its income as required to maintain its qualification as a regulated investment company under the Code, there can be no assurance that such actions can be effected in time to meet Code requirements. See "Federal Taxation." Because the fees paid to the Adviser and the Administrator will be calculated on the basis of the Fund's average daily managed assets, those fees are higher when leverage is utilized, giving the Adviser an incentive to utilize leverage. Auction Risk. You may not be able to sell your Preferred Shares at an auction if the auction fails, that is, if there are more Preferred Shares offered for sale than there are buyers for those shares. Also, if you place hold orders (orders to retain Preferred Shares) at an auction only at a specified rate, and that bid rate exceeds the rate set at the auction, you will not retain your Preferred Shares. Finally, if you buy Preferred Shares or elect to retain Preferred Shares without specifying a rate below which you would not wish to continue to hold those shares, and the auction sets a below-market rate, you may receive a lower rate of return on your Preferred Shares than the market rate. Secondary Market Risk. Preferred Shares will not be listed on a stock exchange or the NASDAQ Stock Market. Broker-dealers may maintain a secondary trading market in Preferred Shares outside of auctions, but may discontinue this activity any time. You may transfer Preferred Shares outside of auctions only to or through a broker-dealer or such other persons who may be permitted by the Fund. If you try to sell your Preferred Shares between auctions, you may not be able to sell any or all of your shares, or you may not be able to sell them for $25,000 per share or $25,000 per share plus accumulated dividends. If the Fund has designated a special dividend period (a dividend period of more than 7 days), changes in interest rates could affect the price you would receive if you sold your shares in the secondary market. Broker-dealers that maintain a secondary trading market for Preferred Shares are not required to maintain this market, and the Fund is not required to redeem Preferred Shares if an auction or an attempted secondary market sale fails because of a lack of buyers. If you sell your Preferred Shares to a broker-dealer between auctions, you may receive less than the price you paid for them, especially when market interest rates have risen since the last auction and especially during a special dividend period. 26 Ratings and Asset Coverage Risk. While Moody's and Fitch assign ratings of "Aaa" or "AAA" to the Preferred Shares, respectively, the ratings do not eliminate or necessarily mitigate the risks of investing in Preferred Shares. A rating agency could downgrade the Preferred Shares, which may make the shares less liquid at an auction or in the secondary market. If a rating agency downgrades the Preferred Shares, the dividend rate on the Preferred Shares will be the applicable maximum rate based on the credit rating of the Preferred Shares. See "Description of Preferred Shares" for a description of the asset maintenance tests the Fund must meet. The following are general risks of investing in the Fund: Credit Risks and Realization of Investment Objective. Senior Loans, like other corporate debt obligations, are subject to the risk of non-payment of scheduled interest or principal. Issuers of Senior Loans may have either issued debt securities that are rated lower than investment grade, i.e., rated lower than "Baa" by Moody's or "BBB" by Fitch, or, if they had issued debt securities, such debt securities would likely be rated lower than investment grade. Debt securities rated lower than investment grade are frequently called "junk bonds," and are generally considered predominantly speculative with respect to the issuing company's ability to meet principal and interest payments. Such non-payment would result in a reduction of income to the Fund, a potential reduction in the value of the Senior Loan experiencing non-payment and a potential decrease in the NAV of the Fund. Because the primary source of income for the Fund is the interest and principal payments on the Senior Loans in which it invests, any payment default by an issuer of a Senior Loan would have a negative impact on the Fund's ability to pay dividends on the common shares or the Preferred Shares, and could result in the redemption of some or all of the Preferred Shares. As of December 31, 2003, approximately 3% of the Fund's net assets and 2% of total assets consisted of non-performing Senior Loans. Although, with respect to collateralized Senior Loans, the Fund generally will invest only in Senior Loans that the Adviser believes are secured by specific collateral, which may include guarantees, the value of which exceeds the principal amount of the Senior Loan at the time of initial investment, there can be no assurance that the liquidation of any such collateral would satisfy the Borrower's obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated. In the event of the bankruptcy of a Borrower, the Fund could experience delays or limitations with respect to its ability to realize the benefits of the collateral securing a Senior Loan. To the extent that a Senior Loan is collateralized by stock in the Borrower or its subsidiaries, such stock may lose all or substantially all of its value in the event of bankruptcy of the Borrower. The Agent generally is responsible for determining that the Lenders have obtained a perfected security interest in the collateral securing the Senior Loan. In the event that the Fund does not believe that a perfected security interest has been obtained with respect to a collateralized Senior Loan, the Fund will only obtain an interest in such Senior Loan if the Agent is a Designated Custodian. Some Senior Loans in which the Fund may invest are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate such Senior Loans to presently existing or future indebtedness of the Borrower or take other action detrimental to the holders of Senior Loans, such as the Fund, including, under certain circumstances, invalidating such Senior Loans. Lenders commonly have certain obligations pursuant to the Loan Agreement, which may include the obligation to make additional loans or release collateral in certain circumstances. On behalf of the several Lenders, the Agent generally will be required to administer and manage the Senior Loan and, with respect to collateralized Senior Loans, to service or monitor the collateral. In this connection, the valuation of assets pledged as collateral will reflect market value and the Agent may rely on independent appraisals as to the value of specific collateral. The Agent, however, may not obtain an independent appraisal as to the value of assets pledged as collateral in all cases. The Fund normally will rely primarily on the Agent (where the Fund is an Original Lender or owns an Assignment) or the selling Lender (where the Fund owns a Participation) to collect principal of and interest on a Senior Loan. Furthermore, the Fund usually will rely on the Agent (where the Fund is an Original Lender or owns an Assignment) or the selling Lender (where the Fund owns a Participation) to monitor compliance by the Borrower with the restrictive covenants in the Loan Agreement and notify the Fund of any adverse change 27 in the Borrower's financial condition or any declaration of insolvency. Collateralized Senior Loans will frequently be secured by all assets of the Borrower that qualify as collateral, which may include common stock of the Borrower or its subsidiaries. Additionally, the terms of the Loan Agreement may require the Borrower to pledge additional collateral to secure the Senior Loan, and enable the Agent, upon proper authorization of the Lenders, to take possession of and liquidate the collateral and to distribute the liquidation proceeds pro rata among the Lenders. If the terms of a Senior Loan do not require the Borrower to pledge additional collateral in the event of a decline in the value of the original collateral, the Fund will be exposed to the risk that the value of the collateral will not at all times equal or exceed the amount of the Borrower's obligations under the Senior Loan. Lenders that have sold Participation interests in such Senior Loan will distribute liquidation proceeds received by the Lenders pro rata among the holders of such Participations. The Adviser will also monitor these aspects of the Fund's investments and, where the Fund is an Original Lender or owns an Assignment, will be directly involved with the Agent and the other Lenders regarding the exercise of credit remedies. Senior Loans in which the Fund will invest historically have not been rated by a nationally recognized statistical rating organization, will not be registered with the SEC or any state securities commission and will not be listed on any national securities exchange. Although the Fund will generally have access to financial and other information made available to the Lenders in connection with Senior Loans, the amount of public information available with respect to Senior Loans will generally be less extensive than that available for rated, registered or exchange-listed securities. As a result, the performance of the Fund and its ability to meet its investment objective is more dependent on the analytical ability of the Adviser than would be the case for an investment company that invests primarily in rated, registered or exchange-listed securities. To the extent that legislation or state or federal regulations governing certain financial institutions impose additional requirements or restrictions with respect to the ability of such institutions to make loans in connection with highly leveraged transactions, the availability of Senior Loan interests for investment by the Fund may be adversely affected. In addition, such requirements or restrictions may reduce or eliminate sources of financing for certain Borrowers. Further, to the extent that legislation or federal or state regulations governing certain financial institutions require such institutions to dispose of Senior Loan interests relating to highly leveraged transactions or subject such Senior Loan interests to increased regulatory scrutiny, such financial institutions may determine to sell such Senior Loan interests in a manner that results in a price which, in the opinion of the Adviser, is not indicative of fair value. Were the Fund to attempt to sell a Senior Loan interest at a time when a financial institution was engaging in such a sale with respect to such Senior Loan interest, the price at which the Fund could consummate such a sale might be adversely affected. Limited Secondary Market For Senior Loans. Although it is growing, the secondary market for Senior Loans is currently limited. Senior Loans, at present, generally are not readily marketable and may be subject to restrictions on resale. Interests in Senior Loans generally are not listed on any national securities exchange or automated quotation system and no active trading market may exist for many of the Senior Loans in which the Fund will invest. To the extent that a secondary market may exist for certain of the Senior Loans in which the Fund invests, such market may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Senior Loans are thus relatively illiquid, which illiquidity may impair the Fund's ability to realize the full value of its assets in the event of a voluntary or involuntary liquidation of such assets. Liquidity relates to the ability of the Fund to sell an investment in a timely manner. The market for relatively illiquid securities tends to be more volatile than the market for more liquid securities. The Fund has no limitation on the amount of its assets which may be invested in securities which are not readily marketable or are subject to restrictions on resale. The substantial portion of the Fund's assets invested in Senior Loan interests may restrict the ability of the Fund to dispose of its investments in a timely fashion and at a fair price, and could result in capital losses to the Fund and common shareholders. However, many of the Senior Loans in which the Fund expects to purchase interests are of a relatively large principal amount and are held by a relatively large number of owners which should, in the Adviser's opinion, enhance the relative liquidity of such interests. 28 Interest Rate Risk. When interest rates decline, the value of a portfolio invested in Senior Loans may rise. Conversely, when interest rates rise, the value of a portfolio invested in Senior Loans may decline. Interest rates are near historical lows and, as a result, it is likely that they will rise. Because floating or variable rates on Senior Loans only reset periodically, changes in prevailing interest rates may cause some fluctuations in the Fund's NAV. Similarly, a sudden and significant increase in market interest rates may cause a decline in the Fund's NAV. A material decline in the Fund's NAV may impair the Fund's ability to maintain required levels of asset coverage. Investment in Non-U.S. Issuers. The Fund may invest in Senior Loans and debt securities of Borrowers that are organized or located in countries other than the United States, provided that such Senior Loans and debt securities are denominated in U.S. dollars and provide for the payment of interest and repayment of principal in U.S. dollars. Investments in non-U.S. issuers involve special risks, including that non-U.S. issuers may be subject to less rigorous accounting and reporting requirements than U.S. issuers, less rigorous regulatory requirements, differing legal systems and laws relating to creditors' rights, the potential inability to enforce legal judgments and foreclose on collateral, possible restrictions on expatriation and repatriation of capital and the potential for political, social and economic adversity. Leverage. The Fund uses financial leverage for investment purposes. The use of financial leverage will, among other things, result in greater volatility in the net asset value of the Fund's common shares and may, in certain circumstances, result in periods in which the Fund may not earn sufficient income from investments to pay interest on indebtedness or dividends. See the discussion of the risks of leverage above under the subheading "Leverage Risks." Income Risk. The Fund invests primarily in Senior Loans whose interest rates reset frequently. If market interest rates fall, these interest rates will be reset at lower levels, reducing the Fund's income. Non-Diversification. The Fund has registered as a "non-diversified" investment company so that, subject to its investment restrictions, it will be able to invest more than 5% of the value of its assets in the obligations of any single issuer, including Senior Loans of a single Borrower or Participations purchased from a single Lender. See "Investment Restrictions" in the SAI. The Fund does not intend, however, to invest more than 5% of the value of its assets in interests in Senior Loans of a single Borrower. To the extent the Fund invests a relatively high percentage of its assets in obligations of a limited number of issuers, the Fund will be more susceptible than a more widely diversified investment company to any single corporate, economic, political or regulatory occurrence. DESCRIPTION OF COMMERCIAL PAPER PROGRAM The Fund has entered into a $700 million revolving credit agreement with Corporate Receivables Corporation and Preferred Receivables Funding Corporation (together with their permitted successors and assigns, the "Conduit Lenders") and with Citicorp North America, Inc. and Bank One, NA (Main Office Chicago) (together with their permitted assigns, the "Secondary Lenders") whereby the Conduit Lenders and the Secondary Lenders from time to time agree to make advances to the Fund on the terms and subject to the conditions in the revolving credit agreement (the "Credit Agreement"). Each of the Conduit Lenders has the authority to lend a maximum of $350 million to the Fund, and a Secondary Lender may lend to the Fund in the event a related Conduit Lender declines to make advances to the Fund. The Credit Agreement is secured by the assets of the Fund. For the fiscal year ended July 31, 2003, the average daily balance of borrowings under the Credit Agreement was $472,686,578 with a weighted average interest rate of 1.35%. A copy of the Credit Agreement is filed as an exhibit to the Registration Statement relating to the Preferred Shares and the description of the Credit Agreement herein is qualified by reference to the Credit Agreement. The Credit Agreement includes usual and customary covenants for their respective type of transaction, including limits on the Fund's ability to (i) incur liens or pledge portfolio securities, (ii) change its investment objective or fundamental investment restrictions without the approval of lenders, (iii) participate in any merger, consolidation, reorganization, liquidation or sale of substantially all of the 29 Fund's assets without the consent of the lenders, (iv) make certain changes in its capital structure, (v) amend the Fund documents in a manner which could adversely affect the rights, interests or obligations of any of the lenders, (vi) engage in any business other than as contemplated by the Fund's prospectus, investment policies and investment restrictions, (vii) create, incur, assume or permit to exist certain debt except for certain specified types of debt and (viii) permit any of its affiliates under the Employee Retirement Income Security Act of 1974 ("ERISA") to cause or permit to occur an event that could result in the imposition of a lien under the Code or ERISA. In addition, the Credit Agreement does not permit the Fund's asset coverage ratio (as defined in the Credit Agreements) to fall below 300% at any time (the "Credit Agreement Asset Coverage Test"). The Credit Agreement limits the Fund's ability to pay dividends or make other distributions, including with respect to the Preferred Shares, or purchase or redeem shares, including Preferred Shares, unless the Fund complies with the Credit Agreement Asset Coverage Test. In addition, the Credit Agreement does not permit the Fund to declare dividends or other distributions with respect to the Preferred Shares or purchase or redeem Preferred Shares (i) at any time that an event of default under a Credit Agreement for the credit facility program has occurred and is continuing or (ii) if, after giving effect to such declaration, the Fund would not meet the asset coverage ratios set forth in the Credit Agreement. Under the requirements of the 1940 Act, the Fund must have asset coverage of at least 300% immediately after any borrowing, including borrowings under the credit facility program. For this purpose, asset coverage means the ratio which the value of the total assets of the Fund, less liabilities and indebtedness not represented by senior securities, bears to the aggregate amount of borrowings representing indebtedness of the Fund. The Credit Agreement has specified events of default which permit the lenders to seek remedies against the assets of the Fund. These events of default are customary for the types of transaction reflected by the Credit Agreement and include: (i) cross-default and cross-acceleration events with respect to the Fund or the Adviser; (ii) a bankruptcy or insolvency event with respect to the Fund or the Adviser; (iii) specified judgments against the Fund or the Adviser; (iv) misrepresentations by the Fund or the Adviser to the lenders; (v) liens by certain governmental agencies against the Fund or the Adviser; (vi) failure for the lenders to have a first priority perfected security interest in the assets of the Fund; (vii) material modifications of certain specified transaction documents; (viii) a material reduction in the value of the Fund's investments; (ix) change of control or change of management in the Adviser; and (x) failure to comply with terms of the Credit Agreement. Without preferred shares issued and outstanding, common shareholders elect all of the trustees of the Fund. With preferred shares issued and outstanding, holders of any preferred shares, including the Preferred Shares, will elect two trustees. Under the 1940 Act, upon failure by the Fund to pay dividends on preferred shares in an amount equal to two full years' dividends arrearage, the holders of preferred shares, including the Preferred Shares, shall be entitled to elect a majority of the Board of Trustees until all such dividends arrearage has been paid or provided for. The lenders with respect to any borrowing by the Fund may be entitled to elect a majority of the Board of Trustees if certain asset coverage requirements are not maintained. In addition, failure to maintain certain asset coverage requirements may result in a default under the terms of any preferred shares or borrowing. The terms of any borrowing or preferred share issuance may entitle holders of any preferred shares or lenders, as the case may be, to elect a majority of the Board of Trustees in certain other circumstances. See "Description of Capital Structure." NET ASSET VALUE The NAV per share of the Fund's common shares is determined by calculating the total value of the Fund's assets, including assets attributable to any preferred shares outstanding, deducting its total liabilities and the liquidation preference of any preferred shares outstanding, including the Preferred Shares (without giving effect to any potential redemption premium with respect to such preferred shares), and dividing the 30 result by the number of common shares outstanding. The NAV is computed on each business day as of 5:00 p.m. Eastern time. The Fund reserves the right to calculate the NAV more frequently if deemed desirable. Senior Loans are valued by the Fund following valuation guidelines established and periodically reviewed by the Fund's Board of Trustees. Under the valuation guidelines, Senior Loans and securities for which reliable market quotes are readily available are valued at the mean of such bid and ask quotes, and all other Senior Loans, securities and assets of the Fund are valued at fair value in good faith following procedures established by the Board of Trustees. Subject to criteria established by the Fund's Board of Trustees about the availability and reliability of market indicators obtained from independent pricing sources approved by the Board of Trustees, certain Senior Loans will be valued on the basis of such indicators. Other Senior Loans will be valued by independent pricing sources approved by the Fund's Board of Trustees based upon pricing models developed, maintained and operated by those pricing sources or valued by the Adviser by considering a number of factors including consideration of market indicators, transactions in instruments which the Adviser believes may be comparable (including comparable credit quality, interest rate, interest rate redetermination period and maturity), the credit worthiness of the Borrower, the current interest rate, the period until next interest rate redetermination and the maturity of such Senior Loan interests. Consideration of comparable instruments may include commercial paper, negotiable certificates of deposit and short-term variable rate securities which have adjustment periods comparable to the Senior Loan interests in the Fund's portfolio. The fair value of Senior Loans are reviewed and approved by the Fund's Valuation Committee and by the Fund's Board of Trustees. To the extent that an active secondary trading market in Senior Loan interests develops to a reliable degree, the Fund may rely to an increasing extent on market prices and quotations in valuing Senior Loan interests in the Fund's portfolio. The Fund and the Board of Trustees will continue to monitor developments in the Senior Loan market and will make modifications to the current valuation methodology as deemed appropriate. It is expected that the Fund's NAV will fluctuate as a function of interest rate and credit factors. Because of the short-term, adjustable rate nature of such instruments held by the Fund, however, the Fund's NAV is expected to fluctuate less in response to changes in interest rates than the net asset values of investment companies with portfolios consisting primarily of traditional longer-term, fixed-income securities. In light of the senior nature of Senior Loan interests that may be included in the Fund's portfolio, and taking into account the Fund's access to non-public information with respect to Borrowers relating to such Senior Loan interests, the Fund does not currently believe that consideration on a systematic basis of ratings provided by any nationally recognized statistical rating organization or price fluctuations with respect to long- or short-term debt of such Borrowers subordinate to the Senior Loans of such Borrowers is necessary for a determination of the value of such Senior Loan interests. Accordingly, the Fund generally will not systematically consider (but may consider in certain instances) and, in any event, will not rely upon such ratings or price fluctuations in determining the value of Senior Loan interests in the Fund's portfolio. Securities other than Senior Loans held in the Fund's portfolio (other than short-term obligations, but including listed issues) may be valued on the basis of prices furnished by one or more pricing services that determine prices for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities that are generally recognized by institutional traders. In certain circumstances, portfolio securities will be valued at the last sale price on the exchange that is the primary market for the securities, or the last quoted bid price for those securities for which the over-the-counter market is the primary market or for listed securities in which there were no sales during the day. The value of interest rate swaps will be determined in accordance with a discounted present value formula and then confirmed by obtaining a bank quotation. Short-term obligations 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. 31 Repurchase agreements will be valued at cost plus accrued interest. Securities for which there exist no price quotations or valuations and all other assets are valued at fair value as determined in good faith by or on behalf of the Board of Trustees. DESCRIPTION OF PREFERRED SHARES The following is a brief description of the terms of the Preferred Shares. For the complete terms of the Preferred Shares, you may refer to the Fund's Certificate attached as Appendix B to the Fund's SAI. The Fund's Declaration of Trust authorizes the issuance of up to 100,000,000 shares of beneficial interest with preference rights, including the Preferred Shares, having a par value of $0.01 per share, in one or more series, with rights as determined by the Board of Trustees, by action of the Board of Trustees without the approval of the common shareholders. Under the requirements of the 1940 Act, the Fund must, immediately after the issuance of the Preferred Shares, have an "asset coverage" of at least 200%. With respect to the Preferred Shares, asset coverage means the ratio which the value of the total assets of the Fund, less all liabilities 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. LIQUIDATION PREFERENCE Subject to the rights of holders of any series ranking on a parity with Preferred Shares with respect to the distribution of assets upon liquidation of the Fund, whether voluntary or involuntary, the holders of Preferred Shares then outstanding will be entitled to receive and to be paid out of the assets of the Fund available for distribution to its shareholders, before any payment or distribution shall be made on the common shares but after payments are made on the Fund's commercial paper program and other senior obligations, a preferential liquidating distribution equal to the liquidation preference with respect to such shares ($25,000 per share), plus redemption premium, if any, plus an amount equal to all dividends thereon (whether or not earned or declared) accumulated but unpaid to and including the date of final distribution. After the payment of the full preferential amounts provided for as described herein, Preferred Shareholders as such shall have no right or claim to any of the remaining assets of the Fund. Neither the consolidation nor merger of the Fund with or into any other corporation or corporations, nor the sale, lease, exchange or transfer by the Fund of all or substantially all of its property and assets, shall be deemed to be a liquidation, dissolution or winding up of the Fund for the purposes of the foregoing paragraph. SUMMARY OF AUCTION PROCEDURES The following is a brief summary of the auction procedures. They are described in more detail in the SAI. The auction determines the dividend rate for Preferred Shares, but the dividend rate will not be higher than the maximum rate. See "-- Dividends and Dividend Periods" below. You may buy, sell or hold Preferred Shares in the auction. If you own Preferred Shares, you may instruct, orally or in writing, a broker-dealer to enter an order in the auction. Existing Preferred Shareholders can enter three kinds of orders regarding their Preferred Shares: sell, bid, and hold. - Sell Order -- If you enter a sell order, you indicate that you want to sell shares of such series at $25,000 per share, without regard to the applicable rate for such series for the next dividend period. - Bid -- If you enter a bid (or "hold at a rate") order, you indicate that you want to sell shares of such series at $25,000 per share only if the next dividend period's dividend rate is less than the rate you specify in a bid. 32 - Hold Order -- If you enter a hold order, you indicate that you want to continue to own such series, without regard to the applicable rate for shares of such series for the next dividend period. You may submit different types of orders for your Preferred Shares, as well as orders for additional Preferred Shares. All orders must be for whole shares. All orders you submit are irrevocable. There are a fixed number of Preferred Shares, and the dividend rate likely will vary from auction to auction depending on the number of bidders, the number of shares the bidders seek to buy and general economic conditions, including current interest rates. If you own Preferred Shares and submit a bid higher than the maximum rate, your bid will be treated as a sell order. If you do not enter an order, the broker-dealer will assume that you want to continue to hold Preferred Shares, but if you fail to submit an order and the dividend period is longer than 7 days, the broker-dealer will treat your failure to submit a bid as a sell order. If you do not currently own Preferred Shares, or want to buy more shares, you may instruct a broker-dealer to enter a bid order to buy shares in an auction at $25,000 per share at or above a specified dividend rate. If your bid specifies a rate higher than the maximum rate, your order will not be accepted. Broker-dealers will submit orders from existing and potential shareholders to the auction agent. Neither the Fund nor the auction agent will be responsible for a broker-dealer's failure to submit orders from existing shareholders and potential shareholders. A broker-dealer's failure to submit orders for Preferred Shares held by it or its customers will be treated in the same manner as a shareholder's failure to submit an order to the broker-dealer. A broker-dealer may submit orders to the auction agent for its own account provided it is not an affiliate of the Fund. The auction agent after each auction for Preferred Shares will pay to each broker-dealer, from funds provided by the Fund, a service charge at the annual rate of 1/4 of 1% in the case of any auction immediately preceding a 7-day dividend period, or a percentage agreed to by the Fund and the broker-dealers, in the case of any auction immediately preceding a special dividend period, of the purchase price of Preferred Shares placed by the broker-dealers at the auction. If the number of Preferred Shares subject to bid orders with a dividend rate equal to or lower than the maximum rate for Preferred Shares is at least equal to the number of Preferred Shares subject to sell orders, then the dividend rate for the next dividend period will be the lowest rate submitted which, taking into account that rate and all lower rates submitted in order from existing and potential shareholders, would result in existing and potential shareholders owning all the Preferred Shares available for purchase in the auction. If the number of Preferred Shares subject to bid orders with a dividend rate equal to or lower than the maximum rate for Preferred Shares is less than the number of Preferred Shares subject to sell orders, then the auction is considered to be a failed auction, and the dividend rate will be the maximum rate. In that event, existing shareholders that have submitted sell orders (or are treated as having submitted sell orders) may not be able to sell any or all of the shares for which they submitted sell orders. The auction agent will not accept a bid above the maximum rate. The purpose of the maximum rate is to place an upper limit on dividends of Preferred Shares and in so doing to help protect the earnings available to pay common share dividends, and to serve as the dividend rate in the event of a failed auction (that is, an auction where there are more Preferred Shares offered for sale than there are buyers for those shares). If broker-dealers submit or are deemed to submit hold orders for all outstanding Preferred Shares, that is considered an "all hold" auction and the dividend rate for the next dividend period will be the all hold rate. The "all hold rate" is 80% of the Reference Rate. The Reference Rate is, with respect to a dividend period having 364 or fewer days, the LIBOR Rate and, with respect to a dividend period having 365 or more days, the Treasury Index Rate (each as defined below). The auction procedures include a pro rata allocation of shares for purchase and sale. This allocation process may result in an existing shareholder continuing to hold or selling, or a potential shareholder buying, fewer shares than the number of shares in its order. If this happens, broker-dealers will be required to make appropriate pro rata allocations among their customers. 33 Settlement of purchases and sales will be made on the next business day (which also is a dividend payment date) after the auction date through The Depository Trust Company. Purchasers will pay for their shares through broker-dealers in same-day funds to The Depository Trust Company against delivery to the broker-dealers. The Depository Trust Company will make payment to the sellers' broker-dealers in accordance with its normal procedures, which require broker-dealers to make payment against delivery in same-day funds. Throughout this Prospectus, a business day is a day on which the NYSE is open for trading, and which is neither a Saturday, Sunday nor any other day on which banks in New York, New York are authorized or obligated by law to close. The auctions for each series of Preferred Shares will normally be held every seven days, and each subsequent dividend period will normally begin on the following business day. The following is a simplified example of how a typical auction works. Assume that the Fund has 1,000 outstanding Preferred Shares, and three current shareholders. The three current shareholders and three potential shareholders submit orders through broker-dealers at the auction: Current Shareholder A Owns 500 shares, wants to sell Bid order of 1.5% for all 500 all 500 shares if auction rate shares is less than 1.5% Current Shareholder B Owns 300 shares, wants to hold Hold order -- will take the auction rate Current Shareholder C Owns 200 shares, wants to sell Bid order of 1.3% rate for all all 200 shares if auction rate 200 shares is less than 1.3% Potential Shareholder D Wants to buy 200 shares Places order to buy at or above 1.4% Potential Shareholder E Wants to buy 300 shares Places order to buy at or above 1.3% Potential Shareholder F Wants to buy 200 shares Places order to buy at or above 1.5% The lowest dividend rate that will result in all 1,000 Preferred Shares continuing to be held by either current or potential Preferred Shareholders is 1.4% (the offer by D). Therefore, the dividend rate will be 1.4%. Current Shareholders B and C will continue to own their shares. Current Shareholder A will sell its shares because A's dividend rate bid was higher than the dividend rate. Potential Shareholder D will buy 200 shares and Potential Shareholder E will buy 300 shares because their bid rates were at or below the dividend rate. Potential Shareholder F will not buy any shares because its bid rate was above the dividend rate. SECONDARY MARKET TRADING AND TRANSFER OF PREFERRED SHARES The broker-dealers (including the underwriters) expect, but are not obligated, to maintain a secondary trading market in Preferred Shares outside of auctions, and may discontinue such activity at any time. There can be no assurance that a secondary trading market for Preferred Shares will develop or, if it does develop, that it will provide owners with liquidity of investment. The Preferred Shares will not be registered on any stock exchange or on the NASDAQ Stock Market. Investors who purchase Preferred Shares in an auction for a special dividend period should note that because the dividend rate on such shares will be fixed for the length of that dividend period, the value of such shares may fluctuate in response to the changes in interest rates, and may be more or less than their original cost if sold on the open market in advance of the next auction thereof, depending on market conditions. An existing shareholder may sell, transfer, or otherwise dispose of Preferred Shares only in whole shares and only (1) pursuant to a bid or sell order placed with the auction agent in accordance with the auction procedures or (2) to or through a broker-dealer; provided, however, that (a) a sale, transfer or other disposition of Preferred Shares from a customer of a broker-dealer who is listed on the records of that broker-dealer as the holder of such shares to that broker-dealer or another customer of that broker-dealer shall not be deemed to be a sale, transfer or other disposition for purposes of the foregoing if such broker-dealer remains the existing shareholder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to auctions, 34 the broker-dealer (or other person, if permitted by the Fund) to whom such transfer is made shall advise the auction agent of such transfer. DIVIDENDS AND DIVIDEND PERIODS General. The following is a general description of dividends and dividend periods for the Preferred Shares. See the SAI for a more detailed discussion of this topic. The dividend rate for the initial dividend period for Preferred Shares offered in this Prospectus will be the rate set out on the inside front cover of this Prospectus. For subsequent dividend periods, Preferred Shares will pay dividends based on a rate set at the auction, normally held weekly, but the rate set at the auction will not exceed the maximum rate. Dividend periods generally will be 7 days, and a dividend period generally will begin on the first calendar day after an auction for such series. In most instances, dividends are also paid weekly, on the business day following the end of the dividend period. The Fund, subject to some limitations, may change the length of dividend periods, designating them as "special dividend periods." See "-- Designation of Special Dividend Periods" below. Dividend Payments. Except as provided below, the dividend payment date will be the first business day after the dividend period ends. The dividend payment date for special dividend periods of more than 7 days will be set out in the notice designating a special dividend period. See "-- Designation of Special Dividend Periods" below for a discussion of payment dates for a special dividend period. Dividends on Preferred Shares will be paid on the dividend payment date to holders of record as their names appear on the Fund's record books on the business day next preceding the dividend payment date. If dividends are in arrears, they may be declared and paid at any time to holders of record as their names appear on the Fund's record books on such date, not more than 15 days before the payment date, as the Fund's Board of Trustees may fix. The Depository Trust Company, in accordance with its current procedures, is expected to credit in same-day funds on each dividend payment date dividends received from the Fund to the accounts of broker-dealers who act on behalf of Preferred Shareholders. Such broker-dealers, in turn, are expected to distribute dividend payments to the person for whom they are acting as agents. If a broker-dealer does not make dividends available to holders of Preferred Shares in same-day funds, these shareholders will not have funds available until the next business day. Dividend Rate Set at Auction. Preferred Shares pay dividends based on a rate set at auction. The auction usually is held weekly, but may be held less frequently. The auction sets the dividend rate, and Preferred Shares may be bought and sold at the auction. The Bank of New York, the auction agent, reviews orders from broker-dealers on behalf of existing shareholders that wish to sell, hold at the auction rate or hold only at a specified rate, and on behalf of potential shareholders that wish to buy Preferred Shares. The auction agent then determines the lowest dividend rate that will result in all of the outstanding Preferred Shares continuing to be held. The Preferred Shares in this offering will trade at auctions starting in the week following this offering. See "-- Summary of Auction Procedures" above. Determination of Dividend Rates. The Fund computes the dividends per share of each series of Preferred Shares by multiplying the dividend rate determined at the auction by a fraction, the numerator of which normally is 7 and the denominator of which is 360. This rate is then multiplied by $25,000 to arrive at the dividend per share. The numerator may be different if the dividend period includes a holiday. If an auction for any subsequent dividend period of Preferred Shares is not held for any reason other than as described below, the dividend rate on those shares will be the maximum rate on the auction date for that subsequent dividend period. Maximum Rate. The dividend rate that results from an auction for Preferred Shares will not be greater than the "maximum rate." The maximum rate for any regular dividend period will be the higher of the applicable percentage of the reference rate, or the applicable spread plus the reference rate. The reference rate will be the applicable LIBOR Rate (as defined below) (for a dividend period of fewer than 365 days) or the Treasury Index Rate (as defined below) (for a dividend period of 365 days or more). 35 The applicable percentage and applicable spread for any regular dividend period will generally be determined on the credit ratings assigned to the Preferred Shares by Moody's and Fitch on the auction date for such period (as set forth in the table below). If Moody's and/or Fitch shall not make such rating available, the rate shall be determined by reference to equivalent ratings issued by a substitute rating agency. In the case of a special dividend period, (1) the maximum applicable rate will be specified by the Fund in the notice of special dividend period for such dividend payment period, (2) the applicable percentage and applicable spread will be determined on the date two business days before the first day of such special dividend period and (3) the reference rate will be the applicable LIBOR Rate (for a dividend period of fewer than 365 days) or the Treasury Index Rate (for a dividend period of 365 days or more). In no event shall the maximum rate be more than 18%.

MOODY'S CREDIT RATING FITCH'S CREDIT RATING APPLICABLE PERCENTAGE APPLICABLE SPREAD - --------------------- --------------------- --------------------- ----------------- Aaa.................. AAA 150% 150 bps Aa3 to Aa1........... AA- to AA+ 250% 250 bps A3 to A1............. A- to A+ 350% 350 bps Baa1 and lower....... BBB+ and lower 550% 550 bps

The Fund will take all reasonable action necessary to enable Moody's and Fitch to provide ratings for each series of Preferred Shares. If such ratings are not made available by Moody's or Fitch, the underwriters or their affiliates and successors, after consultation with the Fund, will select one or more other rating agencies to act as substitute rating agencies. The "LIBOR Rate" is the applicable London Inter-Bank Offered Rate for deposits in U.S. dollars for the period most closely approximating the applicable dividend period for a series of Preferred Shares. For a more detailed description, please see the Certificate. The "Treasury Index Rate" is the average yield to maturity for certain U.S. Treasury securities having substantially the same length to maturity as the applicable dividend period for a series of Preferred Shares. For a more detailed description, please see the Certificate. Assuming the Fund maintains an Aaa/AAA rating on the Preferred Shares, the practical effect of the different methods used to calculate the maximum rate is shown in the table below:

METHOD USED TO MAXIMUM RATE USING MAXIMUM RATE USING DETERMINE MAXIMUM REFERENCE RATE APPLICABLE PERCENTAGE APPLICABLE SPREAD RATE -------------- --------------------- ------------------ ----------------- 1% 1.50% 2.50% Spread 2% 3.00% 3.50% Spread 3% 4.50% 4.50% Either 4% 6.00% 5.50% Percentage 5% 7.50% 6.50% Percentage

Effect of Failure to Pay Dividends in a Timely Manner. If the Fund fails to pay, in a timely manner, the auction agent the full amount of any dividend on any Preferred Shares, but the Fund cures the failure and pays any late charge before 12:00 noon New York City time on the third business day following the date the failure occurred, no auction will be held for Preferred Shares of that series for the first subsequent dividend period thereafter, and the dividend rate for Preferred Shares of that series for that subsequent dividend period will be the maximum rate. However, if the Fund does not effect a timely cure, no auction will be held for Preferred Shares of that series for the first subsequent dividend period thereafter (and for any dividend period thereafter, to and including the dividend period during which the failure is cured and the late charge is paid), and the dividend rate for Preferred Shares of that series for each subsequent dividend period will be the default rate. 36 The default rate means 300% of the LIBOR Rate for a dividend period of fewer than 184 days and 300% of the applicable Treasury Index Rate for a dividend period of 184 days or more. Late charges are also calculated at the applicable default rate. Restrictions on Dividends and Other Distributions. When the Fund has any Preferred Shares outstanding, the Fund may not pay any dividend or distribution (other than a dividend or distribution paid in shares, or options, warrants or rights to subscribe for or purchase, common shares) in respect of common shares or call for redemption, redeem, purchase or otherwise acquire for consideration any common shares (except by conversion into or exchange for shares of the Fund ranking junior to the Preferred Shares as to the payment of dividends and the distribution of assets upon liquidation), unless (1) it has paid all cumulative dividends on Preferred Shares; (2) it has redeemed any Preferred Shares that it has called for mandatory redemption; and (3) after paying the dividend, the Fund meets both asset coverage requirements described under "Rating Agency Guidelines." Except as set forth in the next sentence, no dividends shall be declared or paid or set apart for payment on any series of shares of the Fund ranking, as to the payment of dividends, on a parity with the Preferred Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the Preferred Shares through their most recent dividend payment date. When dividends are not paid in full upon the Preferred Shares through their most recent dividend payment date or upon any other series of shares ranking on a parity as to the payment of dividends with Preferred Shares through their most recent respective dividend payment dates, all dividends declared upon Preferred Shares and any other such series of shares ranking on a parity as to the payment of dividends with Preferred Shares shall be declared pro rata so that the amount of dividends declared per share on Preferred Shares and such other series of preferred shares shall in all cases bear to each other the same ratio that accumulated dividends per share on the Preferred Shares and such other series of preferred shares bear to each other. DESIGNATION OF SPECIAL DIVIDEND PERIODS The Fund may instruct the auction agent to hold auctions and pay dividends less frequently than weekly. The Fund may do this if, for example, the Fund expects that short-term rates might increase or market conditions otherwise change, in an effort to optimize the effect of the Fund's leverage on common shareholders. The Fund does not currently expect to hold auctions and pay dividends less frequently than weekly in the near future. If the Fund designates a special dividend period, changes in interest rates could affect the price received if the Preferred Shares were sold in the secondary market. Before the Fund designates a special dividend period: (1) at least 7 business days (or 2 business days in the event the duration of the dividend period prior to such special dividend period is less than 8 days) and not more than 30 business days before the first day of the proposed special dividend period, the Fund must issue a press release stating its intention to designate a special dividend period and inform the auction agent of the proposed special dividend period by telephonic or other means and confirm it in writing promptly thereafter and (2) the Fund must inform the auction agent of the proposed special dividend period by 3:00 p.m. New York City time on the second business day before the first day of the proposed special dividend period. VOTING RIGHTS In addition to voting rights described below under "Description of Capital Structure" and in the SAI under "Investment Restrictions," holders of preferred shares, including the Preferred Shares, voting as a separate class, are entitled to elect (1) two trustees of the Fund at all times and (2) a majority of the trustees if at any time dividends on any preferred shares shall be unpaid in an amount equal to two years' dividends thereon, and to continue to be so represented until all dividends in arrears shall have been paid or otherwise provided for. Common shareholders will elect the remaining trustees. So long as any of the Preferred Shares are outstanding, the Fund will not, without the affirmative vote of the holders of a majority of the outstanding Preferred Shares: (i) amend, alter or repeal any of the preferences, rights or 37 powers of such class so as to affect materially and adversely such preferences, rights or powers; (ii) increase the authorized number of Preferred Shares; (iii) create, authorize or issue shares of any class of shares ranking senior to or on parity with the Preferred Shares or any other series of preferred shares with respect to the payment of dividends or the distribution of assets on liquidation; (iv) institute any proceedings to be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or file a petition seeking or consenting to reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Fund or a substantial part of its property, or make any assignment for the benefit of creditors, or, except as may be required by applicable law, admit in writing its inability to pay its debts generally as they become due or take any corporate action in furtherance of any such action; (v) create, incur or suffer to exist, or agree to create, incur or suffer to exist, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of any material lien, mortgage, pledge, charge, security interest, security agreement, conditional sale or trust receipt or other material encumbrance of any kind upon any of the Fund's assets as a whole, except (A) liens the validity of which are being contested in good faith by appropriate proceedings, (B) liens for taxes that are not then due and payable or that can be paid thereafter without penalty, (C) liens, pledges, charges, security interests, security agreements or other encumbrances arising in connection with any indebtedness senior to the Preferred Shares, (D) liens, pledges, charges, security interests, security agreements or other encumbrances arising in connection with any indebtedness permitted under clause (vi) below and (E) liens to secure payment for services rendered including, without limitation, services rendered by the Fund's dividend paying agent and the auction agent; or (vi) create, authorize, issue, incur or suffer to exist any indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness, except the Fund may borrow as may be permitted by the Fund's investment restrictions; provided, however, that transfers of assets by the Fund subject to an obligation to repurchase shall not be deemed to be indebtedness for purposes of this provision to the extent that after any such transaction the Fund has eligible assets with an aggregate discounted value at least equal to the Preferred Shares Basic Maintenance Amount as of the immediately preceding valuation date. For a description of the Preferred Shares Basic Maintenance Amount, see "Rating Agency Guidelines." In addition, the affirmative vote of the holders of a majority of the outstanding Preferred Shares shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares or any action requiring a vote of security holders of the Fund under Section 13(a) of the 1940 Act. In the event a vote of Preferred Shareholders is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund shall, not later than ten business days prior to the date on which such vote is to be taken, notify each rating agency that such vote is to be taken and the nature of the action with respect to which such vote is to be taken and shall, not later than ten business days after the date on which such vote is taken, notify each rating agency of the results of such vote. The affirmative vote of the holders of a majority of the outstanding Preferred Shares of any series, voting separately from any other series, shall be required with respect to any matter that materially and adversely affects the rights, preferences, or powers of that series in a manner different from that of other series or classes of the Fund's shares of beneficial interest. For purposes of the foregoing, no matter shall be deemed to adversely affect any right, preference or power unless such matter: (i) alters or abolishes any preferential right of such series; (ii) creates, alters or abolishes any right in respect of redemption of such series; or (iii) creates or alters (other than to abolish) any restriction on transfer applicable to such series. The vote of holders of any series described in this paragraph will in each case be in addition to a separate vote of the requisite percentage of common shares and/or preferred shares necessary to authorize the action in question. REDEMPTION Mandatory Redemption. In the event the Fund does not timely cure a failure to (1) maintain a discounted value of its portfolio equal to the Preferred Shares Basic Maintenance Amount, (2) maintain 38 the 1940 Act Preferred Shares Asset Coverage (as defined under "Rating Agency Guidelines" below) or (3) file a required certificate related to asset coverage on time, the Preferred Shares will be subject to mandatory redemption out of funds legally available therefor in accordance with the Declaration of Trust, the Certificate and applicable law, at the redemption price of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed for redemption. Any such redemption will be limited to the number of Preferred Shares necessary to restore the required discounted value or the 1940 Act Preferred Shares Asset Coverage, as the case may be. In determining the number of Preferred Shares required to be redeemed in accordance with the foregoing, the Fund will allocate the number of shares required to be redeemed to satisfy the Preferred Shares Basic Maintenance Amount or the 1940 Act Preferred Shares Asset Coverage, as the case may be, pro rata among the Preferred Shares and other preferred shares of the Fund, subject to redemption or retirement. If fewer than all outstanding shares of any series are, as a result, to be redeemed, the Fund may redeem such shares by lot or other method that it deems fair and equitable. Optional Redemption. To the extent permitted under the 1940 Act and Massachusetts law, the Fund at its option may redeem Preferred Shares having a dividend period of one year or less, in whole or in part, on the business day after the last day of such dividend period upon not less than 15 calendar days and not more than 40 calendar days prior notice. The optional redemption price per share shall be $25,000 per share, plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the date fixed for redemption. Preferred Shares having a dividend period of more than one year are redeemable at the option of the Fund, in whole or in part, prior to the end of the relevant dividend period, subject to any specific redemption provisions, which may include the payment of redemption premiums to the extent required under any applicable specific redemption provisions. The Fund shall not effect any optional redemption unless after giving effect thereto (i) the Fund has available certain deposit securities with maturity or tender dates not later than the day preceding the applicable redemption date and having a value not less than the amount (including any applicable premium) due to holders of Preferred Shares by reason of the redemption of Preferred Shares on such date fixed for the redemption and (ii) the Fund would have eligible assets with an aggregate discounted value at least equal to the Preferred Shares Basic Maintenance Amount. Notwithstanding the foregoing, no Preferred Shares may be redeemed at the option of the Fund unless all dividends in arrears on all outstanding preferred shares, including the Preferred Shares, have been or are being contemporaneously paid or set aside for payment; provided however, that the foregoing shall not prevent the purchase or acquisition of outstanding preferred shares pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to holders of all outstanding preferred shares. RATING AGENCY GUIDELINES The Fund is required under Moody's and Fitch guidelines to maintain assets having in the aggregate a discounted value at least equal to the Preferred Shares Basic Maintenance Amount. Moody's and Fitch have each established separate guidelines for determining discounted value. To the extent any particular portfolio holding does not satisfy the applicable rating agency's guidelines, all or a portion of such holding's value will not be included in the calculation of discounted value (as defined by such rating agency). The Moody's and Fitch guidelines also impose certain diversification requirements on the Fund's overall portfolio. The Preferred Shares Basic Maintenance Amount includes the sum of (i) the aggregate liquidation preference of the Preferred Shares then outstanding, (ii) the total principal of any senior debt (plus accrued and projected dividends), (iii) certain Fund expenses and (iv) certain other current liabilities. The Fund is also required under rating agency guidelines to maintain, with respect to the Preferred Shares, as of the last business day of each month in which any Preferred Shares are outstanding, asset coverage of at least 200% with respect to senior securities which are shares of beneficial interest in the 39 Fund, including Preferred Shares (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares of a closed-end investment company as a condition of declaring dividends on its common shares) ("1940 Act Preferred Shares Asset Coverage"). Based on the Fund's assets and liabilities as of December 31, 2003 the 1940 Act Preferred Shares Asset Coverage with respect to Preferred Shares, assuming the issuance of all Preferred Shares offered hereby and the use of the proceeds as intended, and assuming $25,000,000 of borrowing under the Fund's commercial paper program, would be computed as follows: Value of Fund assets less liabilities not constituting senior securities $2,247,106,303 - --------------------------------------------- = -------------- = 310% Senior securities representing indebtedness $725,000,000 plus liquidation value of the Preferred Shares In the event the Fund does not timely cure a failure to maintain (i) a discounted value of its portfolio equal to the Preferred Shares Basic Maintenance Amount or (ii) the 1940 Act Preferred Shares Asset Coverage, in each case in accordance with the requirements of the rating agency or agencies then rating the Preferred Shares, the Fund will be required to redeem Preferred Shares as described above under "Description of Preferred Shares -- Redemption." The Fund may, but is not required to, adopt any modifications to the guidelines that may hereafter be established by Moody's or Fitch. Failure to adopt any such modifications, however, may result in a change in the ratings described above or a withdrawal of ratings altogether. In addition, any rating agency providing a rating for the Preferred Shares may, at any time, change or withdraw any such rating. The Board of Trustees may, without shareholder approval, amend, alter, add to or repeal any or all of the definitions and related provisions which have been adopted by the Fund pursuant to the rating agency guidelines in the event the Fund receives written confirmation from Moody's or Fitch, or both, as appropriate, that any such change would not impair the ratings then assigned by Moody's and Fitch to Preferred Shares. As described by Moody's and Fitch, a preferred share rating is an assessment of the capacity and willingness of an issuer to pay preferred share obligations. The ratings on the Preferred Shares are not recommendations to purchase, hold or sell Preferred Shares, inasmuch as the ratings do not comment as to market price or suitability for a particular investor. The rating agency guidelines described above also do not address the likelihood that an owner of Preferred Shares will be able to sell such shares in an auction or otherwise. The ratings are based on current information furnished to Moody's and Fitch by the Fund and the Adviser, and information obtained from other sources. The ratings may be changed, suspended or withdrawn as a result of changes in, or the unavailability of, such information. The rating agency guidelines will apply to Preferred Shares only so long as such rating agency is rating such shares. The Fund will pay fees to Moody's or Fitch, or both, for rating Preferred Shares. MANAGEMENT OF THE FUND BOARD OF TRUSTEES The Fund's Board of Trustees is responsible for the overall management and supervision of the Fund's business, including the review and supervision of the duties performed by the Adviser under the Fund's investment advisory agreement. THE ADVISER Van Kampen Asset Management is the Fund's Adviser. On November 30, 2003, the Fund's investment adviser, Van Kampen Investment Advisory Corp., was merged with and into its affiliate, Van Kampen Asset Management. The Adviser is a wholly-owned subsidiary of Van Kampen Investments. Van Kampen Investments is a diversified asset management company that administers more than 40 three million retail investor accounts, has extensive capabilities for managing institutional portfolios and has more than $84 billion under management or supervision as of December 31, 2003. Van Kampen Investments has more than 50 open-end funds, more than 30 closed-end funds and more than 2,700 unit investment trusts that are distributed by authorized dealers nationwide. Van Kampen Investments is an indirect wholly-owned subsidiary of Morgan Stanley. 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 place of business is located at 1221 Avenue of the Americas, New York, New York 10020. INVESTMENT ADVISORY AGREEMENT The investment advisory agreement (the "Advisory Agreement") between the Adviser and the Fund provides that the Adviser will supply investment research and portfolio management, including the selection of securities for the Fund to purchase, hold or sell and the selection of financial institutions through whom the Fund's portfolio transactions are executed. For the services provided by the Adviser under the Advisory Agreement, the Fund pays the Adviser a monthly fee (accrued daily and paid monthly) computed based upon an annual rate equal to 0.85% applied to the average daily managed assets of the Fund (which for purposes of determining such fee, shall mean the average daily gross asset value of the Fund, minus the sum of accrued liabilities other than the aggregate amount of any borrowings undertaken by the Fund). Because leverage will increase the amount of total assets, the Fund will pay a greater amount of advisory fees when leverage is utilized. Under the Advisory Agreement, the Adviser also furnishes offices and necessary facilities and equipment, and permits its officers and employees to serve without compensation as trustees and officers of the Fund if duly elected to such positions. The Fund pays all other expenses incurred in the operation of the Fund including, but not limited to, direct charges relating to the purchase and sale of financial instruments in its portfolio, interest charges, fees and expenses of legal counsel and independent auditors, taxes and governmental fees, cost of share certificates, expenses (including clerical expenses) of issuance, sale or repurchase of any of the Fund's portfolio holdings, expenses in connection with the Fund's dividend reinvestments, membership fees in trade associations, expenses of registering and qualifying the common shares of the Fund for sale under federal and state securities laws, expenses of printing and distributing reports, notices and proxy materials to existing holders of common shares, expenses of filing reports and other documents filed with governmental agencies, expenses of annual and special meetings of common shareholders, fees and disbursements of the transfer agents, custodians and sub-custodians, expenses of disbursing dividends and distributions, fees, expenses and out-of-pocket costs of trustees of the Fund who are not affiliated with the Adviser, insurance premiums, indemnification and other expenses not expressly provided for in the Advisory Agreement or the Administration Agreement (as defined below) and any extraordinary expenses of a non-recurring nature. The Adviser may in its sole discretion from time to time waive all or a portion of the advisory fee or reimburse the Fund for all or a portion of its other expenses. The Advisory Agreement continues from year to year, unless earlier terminated as described below, if approved annually (a) by the Board of Trustees of the Fund or by a majority of the Fund's common shares and (b) by a majority of the trustees who are not parties to the agreement or interested persons of any such party, in compliance with the requirements of the 1940 Act. The Advisory Agreement may be terminated without penalty upon 60 days written notice by either party and will automatically terminate in the event of assignment. The Advisory Agreement provides that the Adviser shall not be liable for any error of judgment or of law, or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations and duties under the Advisory Agreement. 41 PORTFOLIO MANAGEMENT Howard Tiffen, Senior Vice President of the Adviser and Vice President of the Senior Loan funds advised by the Adviser, is primarily responsible for the day-to-day management of the Fund. Mr. Tiffen assumed portfolio management responsibilities for the Fund in December 1999. Mr. Tiffen also has primary responsibility for the day-to-day management of Van Kampen Senior Loan Fund, a continuously offered closed-end investment company investing primarily in Senior Loans and having investment objectives and policies substantially similar to those of the Fund. Mr. Tiffen has over 25 years of investment experience and manages, as of December 31, 2003, over $3.7 billion in Senior Loan assets for Van Kampen. Prior to joining the Adviser, Mr. Tiffen was a senior portfolio manager for the Senior Loan fund of another investment management company from 1995 to 1999. 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 received a bachelor's degree from Northwestern University, Chicago, Illinois. He also is an associate of the Chartered Institute of Bankers and a member of the Economic Club of Chicago. THE ADMINISTRATOR The Administrator for the Fund is Van Kampen Investments. The Administrator's principal business address is 1221 Avenue of the Americas, New York, New York 10020. The Administrator is an indirect wholly-owned subsidiary of Morgan Stanley. The Administrator maintains offices and regional representatives in major cities across the nation. Pursuant to the administration agreement between the Fund and the Administrator (the "Administration Agreement") and in consideration of its administrative fee, the Administrator will (i) monitor the provisions of the Loan Agreements and any agreements with respect to Participations and Assignments and be responsible for recordkeeping with respect to Senior Loans in the Fund's portfolio; (ii) arrange for the printing and dissemination of proxies and reports to holders of the Fund's shares; (iii) in connection with the issuance of any preferred shares by the Fund, calculate, monitor and provide to any rating agencies rating any preferred shares such asset coverage and liquidity reports as the Board of Trustees deems advisable; (iv) negotiate the terms and conditions under which custodian services will be provided to the Fund and the fees to be paid by the Fund in connection therewith; (v) negotiate the terms and conditions under which dividend disbursing services will be provided to the Fund, and the fees to be paid by the Fund in connection therewith and review the provision of dividend disbursing services to the Fund; (vi) provide the Fund's dividend disbursing agent and custodian with such information as is required for such parties to effect payment of dividends and distributions and to implement the Fund's dividend reinvestment plan; (vii) make such reports and recommendations to the Board of Trustees as the trustees reasonably request or deem appropriate; and (viii) provide certain shareholder services to holders or potential holders of the Fund's securities. For the services rendered to the Fund and related expenses borne by the Administrator, the Fund pays the Administrator a monthly fee (accrued daily and paid monthly) computed based upon an annual rate equal to 0.20% applied to the Fund's average daily managed assets (which for purposes of determining such fee, shall mean the average daily gross asset value of the Fund, minus the sum of accrued liabilities other than the aggregate amount of any borrowings undertaken by the Fund). Because leverage will increase the amount of total assets, the Fund will pay a greater amount of administration fees when leverage is utilized. CUSTODIAN AND AUCTION AGENT, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR The Fund's securities and cash are held pursuant to a custodian agreement by State Street Bank and Trust Company, whose principal place of business is 225 West Franklin Street, Boston, Massachusetts 02015-1713. Boston Equiserve, L.P., whose principal place of business is Blue Hills Office Park, 150 Royal Street, Canton, Massachusetts 02021, serves as transfer agent, dividend paying agent and registrar for the Fund's common shares. The Depository Trust Company will act as securities depository for the Preferred 42 Shares. The Bank of New York, whose principal place of business is 100 Church Street, 8th Floor New York, New York 10286, will act as auction agent, transfer agent, dividend paying agent and registrar for the Preferred Shares. FEDERAL TAXATION The following federal tax discussion is only a summary of certain federal income tax considerations generally applicable to investments in the Fund. It is based on the Code, existing Treasury regulations, rulings published by the Internal Revenue Service (the "Service") and other applicable authority, as of the date of this Prospectus. These authorities are subject to change by legislative or administrative action (retroactively or prospectively). For additional information regarding tax considerations, see the SAI. There may be other tax considerations applicable to particular investors. In addition, income earned through an investment in the Fund may be subject to state, local and foreign taxes. FEDERAL TAXATION OF THE FUND The Fund has elected to be and intends to qualify each year for taxation as a regulated investment company under Subchapter M of the Code. Provided that the Fund so qualifies and distributes at least 90% of the sum of its investment company taxable income (as that term is defined in the Code, but without regard to the deduction for dividends paid) and certain other income, it will not be subject to federal income tax on income distributed timely to its shareholders in the form of dividends or capital gain dividends. The Fund intends to distribute all of its investment company taxable income and net capital gain (which is the excess of net long-term capital gain over net short-term capital loss) each year. To satisfy the distribution requirement applicable to regulated investment companies, amounts paid as dividends by the Fund to its shareholders, including its Preferred Shareholders, must qualify for the dividends-paid deduction. In certain circumstances, the Service could take the position that dividends paid on the Preferred Shares constitute preferential dividends under Section 562(c) of the Code, and thus do not qualify for the dividends-paid deduction. If this position were upheld, the Fund could be subject to tax and/or could fail to qualify to be taxed as a regulated investment company. The Fund believes, however, that such a position, if asserted by the Service, would be unlikely to prevail if the issue were properly litigated. If at any time the Fund does not meet applicable asset coverage requirements, it may be required to suspend distributions until the requisite asset coverage is restored. Any such suspension may prevent the Fund from qualifying as a regulated investment company or may cause the Fund to pay a nondeductible 4% federal excise tax (imposed on regulated investment companies that fail to distribute for a given calendar year, generally, at least 98% of their net investment income and capital gain net income plus certain other amounts). The Fund may call Preferred Shares to maintain or restore the requisite asset coverage. If the Fund were to fail to qualify as a regulated investment company, the Fund would be taxed in the same manner as an ordinary corporation and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. In addition, the Fund's distributions, to the extent derived from the Fund's current or accumulated earnings and profits, would be taxable to shareholders as ordinary dividends. Such distributions generally will be eligible (i) for the dividends received deduction in the case of corporate shareholders and (ii) for treatment as "qualified dividend income" in the case of individual shareholders. FEDERAL INCOME TAXATION OF PREFERRED SHAREHOLDERS The Fund believes that the Preferred Shares will constitute stock of the Fund and distributions with respect to the Preferred Shares (other than distributions in redemption of Preferred Shares that are treated as exchanges of stock under Section 302(b) of the Code) thus will constitute dividends to the extent attributable to the Fund's current and accumulated earnings and profits. It is possible, however, that the 43 Service might take a contrary position asserting, for example, that the Preferred Shares constitute debt of the Fund. If this position were upheld, distributions by the Fund to Preferred Shareholders would constitute interest, whether or not they exceeded the Fund's earnings and profits, and would be taxed as ordinary income. The Fund believes, however, that such a position, if asserted by the Service, would be unlikely to prevail if the issue were properly litigated. On May 28, 2003, President Bush signed into the law the Jobs and Growth Tax Relief Reconciliation Act of 2003, which contains provisions that reduce the U.S. federal income tax rates on (1) long-term capital gains received by individuals and (2) "qualified dividend income" received by individuals from certain domestic and foreign corporations. The reduced rates apply to long-term capital gains from sales or exchanges in taxable years ending on or after May 6, 2003 and cease to apply for taxable years beginning after December 31, 2008. 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 generally will not qualify for the dividends received deduction available to corporations. Distributions from the Fund designated as capital gain dividends will be eligible for the rate applicable to long-term capital gains. Distributions, if any, in excess of the Fund's current and accumulated earnings and profits will first reduce the tax basis of the Preferred Shares and, after such basis has been reduced to zero, will constitute capital gains (assuming such Preferred Shares are held as a capital asset). Distributions of net capital gain that are designated by the Fund as capital gain dividends will be treated as long-term capital gains in the hands of holders regardless of the holders' respective holding periods for their Preferred Shares. The Service currently takes the position that a regulated investment company that has two or more classes of stock must allocate to each such class proportionate amounts of each type of its income (such as ordinary income and capital gains). Accordingly, the Fund intends to designate the portion of its distributions as capital gain dividends in compliance with this position. The sale of Preferred Shares will be a taxable transaction for federal income tax purposes. Selling Preferred Shareholders will generally recognize gain or loss in an amount equal to the difference between the amount received in exchange for the Preferred Shares and their basis in the Preferred Shares. If such Preferred Shares are held as a capital asset, the gain or loss will generally be a capital gain or loss. Similarly, a redemption (including a redemption resulting from liquidation of the Fund), if any, of Preferred Shares by the Fund generally will give rise to capital gain or loss if the redemption is treated as an exchange of stock under Section 302(b) of the Code. Generally, a holder's gain or loss will be a long-term gain or loss if the shares have been held for more than one year. Any loss realized upon a taxable disposition of Preferred 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 by the shareholder with respect to such shares. Also, any loss realized upon a taxable disposition of Preferred Shares may be disallowed if other Preferred Shares are acquired within a 61-day period beginning 30 days before and ending 30 days after the date the shares are disposed of. If disallowed, the loss will be reflected by an upward adjustment to the basis of the shares acquired. BACKUP WITHHOLDING The Fund may be required to withhold, for U.S. federal income taxes, a certain percentage of all dividends and redemption proceeds payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or who fail to make required certifications, or if the Fund or a shareholder has been notified by the Service that they are subject to backup withholding. Corporate shareholders and other shareholders specified in the Code are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder's U.S. federal income tax liability if the appropriate information is provided to the Service. OTHER TAXATION Foreign shareholders, including shareholders who are non-resident aliens, may be subject to U.S. withholding tax on certain distributions at a rate of 30% or such lower rate as may be prescribed by any applicable treaty. (This U.S. federal tax rate may significantly exceed the effective U.S. federal tax 44 that would apply if such foreign investors held their share of the Fund's assets directly rather than indirectly through their investment in the Fund.) Investors are advised to consult their own tax advisors with respect to the application to their own circumstances of the above-described general U.S. federal taxation rules and with respect to the state, local or foreign tax consequences to them of an investment in Preferred Shares. TAX SHELTER REPORTING REGULATIONS Under recently promulgated Treasury regulations, if a shareholder recognizes a loss with respect to shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder in any single taxable year (or a greater loss over a combination of years), the shareholder must file with the Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Preferred Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances. DESCRIPTION OF CAPITAL STRUCTURE The Fund is an unincorporated business trust established under the laws of the Commonwealth of Massachusetts by the Declaration of Trust dated April 7, 1998. The Declaration of Trust provides that the Board of Trustees of the Fund may authorize separate classes of shares of beneficial interest. The Board of Trustees has authorized an unlimited number of shares of beneficial interest, par value $0.01 per share, all of which were initially classified as common shares. The Declaration of Trust also authorizes 100,000,000 shares of beneficial interest with preference rights, including preferred shares, having a par value of $0.01 per share, in one or more series, with rights as determined by the Board of Trustees, by action of the Board of Trustees without the approval of the common shareholders. The following table shows the amount of (i) shares authorized, (ii) shares held by the Fund for its own account and (iii) shares outstanding, for each class of authorized securities of the Fund as of December 31, 2003.

AMOUNT HELD BY FUND FOR ITS TITLE OF CLASS AMOUNT AUTHORIZED OWN ACCOUNT AMOUNT OUTSTANDING - -------------- ----------------- --------------- ------------------ Common shares................................ Unlimited 0 180,010,000 Preferred Shares, Series M................... 5,600 0 0 Preferred Shares, Series T................... 5,600 0 0 Preferred Shares, Series W................... 5,600 0 0 Preferred Shares,Series TH................... 5,600 0 0 Preferred Shares, Series F................... 5,600 0 0

Each common share represents an equal proportionate interest in the assets of the Fund with each other common share in the Fund. Common shareholders will be entitled to the payment of dividends when, as and if declared by the Board of Trustees. The 1940 Act or the terms of any borrowings or Preferred Shares may limit the payment of dividends to the common shareholders. Each whole common share shall be entitled to one vote as to matters on which it is entitled to vote pursuant to the terms of the Fund's Declaration of Trust on file with the SEC. Upon liquidation of the Fund, after paying or adequately providing for the payment of all liabilities of the Fund and the liquidation preference with respect to any outstanding Preferred Shares, and upon receipt of such releases, indemnities and refunding agreements as they deem necessary for their protection, the Board of Trustees may distribute the remaining assets of the Fund among the common shareholders. The Declaration of Trust provides that shareholders are not liable for any liabilities of the Fund, requires inclusion of a clause to that effect in every agreement entered into by the Fund and indemnifies 45 shareholders against any such liability. Although shareholders of an unincorporated business trust established under Massachusetts law, in certain limited circumstances, may be held personally liable for the obligations of the trust as though they were general partners, the provisions of the Declaration of Trust described in the foregoing sentence make the likelihood of such personal liability remote. The Declaration of Trust further provides that obligations of the Fund are not binding upon trustees individually but only upon the property of the Fund and that the trustees will not be liable for errors of judgment or mistakes of fact or law, but nothing in the Declaration of Trust protects a trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. While there are any Preferred Shares or borrowings outstanding, the Fund may not declare any cash dividend or other distribution on its common shares, unless at the time of such declaration, (1) all accrued dividends on Preferred Shares or accrued interest on borrowings has been paid and (2) the value of the Fund's total assets (determined after deducting the amount of such dividend or other distribution), less all liabilities and indebtedness of the Fund not represented by senior securities, is at least 300% of the aggregate amount of such securities representing indebtedness and at least 200% of the aggregate amount of securities representing indebtedness plus the aggregate liquidation value of the Preferred Shares (expected to equal the aggregate original purchase price of the Preferred Shares plus redemption premium, if any, together with any accrued and unpaid dividends thereon, whether or not earned or declared and on a cumulative basis). In addition, the Fund is required to comply with other asset coverage requirements as a condition of the Fund obtaining a rating of the Preferred Shares from a nationally recognized statistical rating organization and as a condition to borrowing money. This limitation on the Fund's ability to make distributions on its common shares could in certain circumstances impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company. The Fund intends, however, to the extent possible to purchase or redeem Preferred Shares or to repay borrowings from time to time to maintain compliance with such asset coverage requirements and may pay special dividends to Preferred Shareholders in certain circumstances in connection with any such impairment of the Fund's status as a regulated investment company. Depending on the timing of any such redemption or repayment, the Fund may be required to pay a premium in addition to the liquidation preference of the Preferred Shares or the principal amount of the borrowings to the holders thereof. See "-- Borrowings" below. The Fund has no present intention of offering additional common shares. Other offerings of its common shares, if made, will require approval of the Fund's Board of Trustees. Any additional offering will not be sold at a price per common share below the then current NAV (exclusive of underwriting discounts and commissions) except in connection with an offering to existing common shareholders or with the consent of a majority of the Fund's outstanding common shares. The common shares have no preemptive rights. The common shares trade on the NYSE under the symbol "VVR." The following table shows for the Fund's common shares for the periods indicated: (1) the high and low closing prices as shown on the NYSE Composite Transaction Tape; (2) the NAV per common share represented by each of the high and low closing prices as shown on the NYSE Composite Transaction Tape; and (3) the discount from or premium to NAV per common share (expressed as a percentage) represented by these closing prices. The table also sets forth the average daily volume of shares traded as shown on the NYSE Composite Transaction Tape during the respective quarter.

PREMIUM/(DISCOUNT) MARKET PRICE PRICE NAV TO NAV AVERAGE ------------- ------------- ------------------ DAILY CALENDAR QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW VOLUME - ---------------------- ----- ----- ----- ----- ------- -------- ------- March 31, 2003............... $7.29 $6.71 $7.74 $7.64 (5.81)% (12.17)% 343,721 June 30, 2003................ $7.89 $7.23 $8.03 $7.70 (1.74)% (6.10)% 435,211 September 30, 2003........... $8.19 $7.73 $8.24 $8.04 (0.61)% (3.86)% 438,798 December 31, 2003............ $8.74 $7.93 $8.46 $8.26 3.31% (4.00)% 408,890

46 On December 31, 2003, the last reported sales price of the Fund's common shares on the NYSE was $8.63 and the Fund's NAV was $8.46, representing a 2% premium of market price to NAV as of that date. BORROWINGS The Fund's current fundamental investment restriction regarding senior securities allows the Fund, without prior approval of the common shareholders, to borrow money in an amount up to 33 1/3% of the Fund's total assets. In this connection, the Fund may issue notes or other evidence of indebtedness (including bank borrowings or commercial paper) and may secure any such borrowings by mortgaging, pledging or otherwise subjecting as security the Fund's assets. In connection with such borrowing, the Fund may be required to maintain minimum average balances with the lender or to pay a commitment or other fee to maintain a line of credit. Any such requirements will increase the cost of borrowing over the stated interest rate. Under the requirements of the 1940 Act, the Fund, immediately after any such borrowings, must have an "asset coverage" of at least 300%. With respect to any such borrowing, asset coverage means the ratio which the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowing represented by senior securities by the Fund. Certain types of borrowing may result in the Fund being subject to covenants in credit agreements relating to asset coverages or portfolio composition or otherwise. Such restrictions may be more stringent than those imposed by the 1940 Act. The rights of lenders to the Fund to receive interest on and repayment of principal of any such borrowings will be senior to those of the common shareholders, and the terms of any such borrowings may contain provisions which limit certain activities of the Fund, including the payment of dividends to common shareholders in certain circumstances. In the event that such provisions would impair the Fund's status as a regulated investment company, the Fund, subject to its ability to liquidate its relatively illiquid portfolio, intends to repay the borrowings. Further, the terms of any such borrowing may and the 1940 Act does (in certain circumstances) require that the lenders to the Fund have certain voting rights in the event of a failure to maintain certain asset coverage requirements. Any borrowing will likely rank senior to or pari passu with all other existing and future borrowings of the Fund. The Fund may also borrow up to an additional 5% of its total assets for temporary purposes. See "Investment Restrictions" in the SAI. The Fund has filed a proxy statement seeking a shareholder vote to amend the aforementioned investment restriction regarding the Fund's use of financial leverage to allow the Fund to utilize financial leverage to the maximum extent allowable under the 1940 Act. The Fund expects to hold a shareholder meeting to vote on this proposal on April 8, 2004. CONVERSION TO OPEN-END FUND The Fund may be converted to an open-end investment company at any time by an amendment to the Declaration of Trust. The Declaration of Trust provides that such an amendment would require the approval of (a) a majority of the trustees, including the approval by a majority of the disinterested trustees of the Fund and (b) the lesser of (i) 67% or more of the Fund's common shares and preferred shares, each voting as a class, present at a meeting at which holders of more than 50% of the outstanding shares of each class are present in person or by proxy or (ii) more than 50% of the outstanding common shares and preferred shares, each voting as a class. If approved in the foregoing manner, conversion of the Fund could not occur until 90 days after the shareholders' meeting at which such conversion was approved and would also require at least 30 days' prior notice to all shareholders. The composition of the Fund's portfolio likely would prohibit the Fund from complying with regulations of the SEC applicable to open-end investment companies. Accordingly, conversion likely would require significant changes in the Fund's investment policies and liquidation of a substantial portion of its relatively illiquid portfolio. Conversion of the Fund to an open-end investment company also would require the redemption of all outstanding preferred shares, including the Preferred Shares, and could require the repayment of borrowings, which would eliminate the leveraged capital structure of the Fund with respect to the common shares. In the event of conversion, the common shares would cease to be listed on the NYSE or other national securities 47 exchange or market system. Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their NAV, less such redemption charge, if any, as might be in effect at the time of a redemption. The Fund expects to pay all such redemption requests in cash, but intends to reserve the right to pay redemption requests in a combination of cash or securities. If such partial payment in securities were made, investors may incur brokerage costs in converting such securities to cash. If the Fund were converted to an open-end fund, it is likely that new common shares will be sold at NAV plus a sales load. REPURCHASE OF COMMON SHARES Shares of closed-end management investment companies frequently trade at a discount to their NAVs but in some cases trade at a premium. In recognition of the possibility that the Fund's common shares might similarly trade at a discount, the Fund's Board of Trustees has determined that from time to time it may be in the interest of common shareholders for the Fund to take action to attempt to reduce or eliminate a market value discount from NAV. The Board of Trustees, in consultation with the Adviser, will review on a quarterly basis the possibility of open market repurchases and/or tender offers for the common shares and will consider such factors as the market price of the common shares, the NAV of the common shares, the liquidity of the assets of the Fund, whether such transactions would impair the Fund's status as a regulated investment company or result in a failure to comply with applicable asset coverage requirements, general economic conditions and such other events or conditions which may have a material effect on the Fund's ability to consummate such transactions. There are no assurances that the Board of Trustees will, in fact, decide to undertake either of these actions or, if undertaken, that such actions will result in the Fund's common shares trading at a price which is equal to or approximates their NAV. In addition, the Board of Trustees will not necessarily announce when it has given consideration to these matters. Common shares will not be repurchased unless after such repurchase the Fund would continue to satisfy the 1940 Act asset coverage requirements with respect to the Preferred Shares or any borrowing and any asset coverage requirements which may be imposed by any rating service as a condition of its rating of the Preferred Shares or by any lender with respect to any borrowing. Although the Board of Trustees believes that common share repurchases and tenders generally could have a favorable effect on the market price of the Fund's common shares, it should be recognized that the acquisition of common shares by the Fund will decrease the total assets of the Fund and, therefore, have the effect of increasing the Fund's expense ratio and decreasing the asset coverage available with respect to the Preferred Shares and any borrowing. Because of the nature of the Fund's investment objective and policies and the Fund's portfolio, the Adviser anticipates potential difficulty in disposing of portfolio securities in order to consummate tender offers for the common shares. As a result, the Fund may be required to borrow money in order to finance repurchases and tender offers. Interest on any such borrowings will reduce the Fund's net investment income. See "Description of Capital Structure -- Borrowings." Disposition of portfolio securities may increase the Fund's portfolio turnover rate and will result in related costs to the Fund. Even if a tender offer has been made, it is the Board of Trustees' announced policy, which may be changed by the Board of Trustees, that the Fund cannot accept tenders or effect repurchases if (1) such transactions, if consummated, would (a) result in the delisting of the Fund's common shares from the NYSE or other national securities exchange (the Fund understands that the NYSE would consider delisting if the aggregate market value of the Fund's outstanding common shares is less than $5,000,000, the number of publicly held common shares falls below 600,000 or the number of round-lot holders falls below 1,200), (b) impair the Fund's status as a regulated investment company under the Code (which would make the Fund a taxable entity, causing the Fund's taxable income to be taxed at the Fund level) or (c) result in a failure to comply with applicable asset coverage requirements; (2) the amount of securities tendered would require liquidation of such a substantial portion of the Fund's securities that the Fund would not be able to liquidate portfolio securities in an orderly manner in light of the existing market conditions and such liquidation would have an adverse effect on the NAV of the Fund to the detriment of non-tendering shareholders; or (3) there is, in the Board of Trustees' judgment, any (a) material legal 48 action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund, (b) suspension of or limitation on prices for trading in securities generally on the NYSE, the American Stock Exchange or other national securities exchange or national market system, (c) declaration of a banking moratorium by federal or state authorities or any suspension of payment by banks in the United States or New York State, (d) limitation affecting the Fund or the issuers of its portfolio securities imposed by federal or state authorities on the extension of credit by lending institutions, (e) threatened or actual conditions of war, armed hostilities or other international or national calamity directly or indirectly involving the United States or (f) any other event or condition which would have a material adverse effect on the Fund or its shareholders if common shares were repurchased. The Board of Trustees may modify these conditions in light of experience. Under the requirements of the 1940 Act, the Fund cannot accept tenders or effect repurchases of the common shares unless, after deducting the amount of the tender or repurchase price, the value of the Fund's total assets, 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 Preferred Shares (expected to equal the aggregate original purchase price of the Preferred Shares plus redemption premium, if any, together with any accrued and unpaid dividends thereon, whether or not earned or declared and on a cumulative basis). In addition, the Fund may be precluded from accepting tenders or effecting repurchases at any time dividends on the Preferred Shares or payment of interest or repayment of principal on any borrowings are in arrears. Any tender offer made by the Fund for its common shares will be at a price equal to the NAV of the common shares determined at the close of business on the day the offer ends. During the pendency of any tender offer by the Fund, the Fund will calculate daily the NAV of the common shares and will establish procedures which will be specified in the tender offer documents, to enable common shareholders to ascertain readily such NAV. The relative illiquidity of some of the Fund's portfolio securities could adversely impact the Fund's ability to calculate NAV in connection with determinations of pricing for tender offers, if any. Each offer will be made and common shareholders notified in accordance with the requirements of the Securities Exchange Act of 1934, as amended, and the 1940 Act, either by publication or mailing or both. Each offering document will contain such information as is prescribed by such laws and the rules and regulations promulgated thereunder. Should the Fund determine to make a tender offer for its common shares, a notice describing the tender offer, containing information common shareholders should consider in deciding whether to tender their common shares and including instructions on how to tender common shares will be sent to shareholders of record. Information concerning the purchase price to be paid by the Fund and the manner in which shareholders may ascertain NAV during the pendency of a tender offer will also be set forth in the notice. When a tender offer is authorized to be made by the Fund's Board of Trustees, a common shareholder wishing to accept the offer will be required to tender all (but not less than all) of the common shares owned by such shareholder (or attributed to him for federal income tax purposes under Section 318 of the Code). The Fund will purchase all common shares tendered in accordance with the terms of the offer unless it determines in accordance with the terms of the offer to accept none of them. Each person tendering common shares will pay to the Fund a reasonable service charge, currently anticipated to be $25.00, subject to change, to help defray certain costs, including the processing of tender forms, effecting payment, postage and handling. It is the position of the staff of the SEC that such service charge may not be deducted from the proceeds of the purchase. The Fund's transfer agent will receive a fee as an offset to these costs. The Fund expects that the cost to the Fund of effecting a tender offer will exceed the aggregate of all service charges received from those who tender their common shares. Costs associated with the tender will be charged against capital. Tendered common shares that have been accepted and purchased by the Fund will be held in treasury and may be retired by the Board of Trustees. Treasury common shares will be recorded and reported as an offset to shareholders' equity and accordingly will reduce the Fund's total assets. If treasury common shares are retired, common shares issued and outstanding and capital in excess of par value will be reduced accordingly. 49 PREFERRED SHARES Under the 1940 Act, the Fund is permitted to have outstanding more than one series of preferred shares as long as no single series has priority over another series as to the distribution of assets of the Fund or the payment of dividends. Neither holders of common shares nor holders of preferred shares have pre-emptive rights to purchase any Preferred Shares or any other preferred shares that might be issued. The Fund's Declaration of Trust authorizes the issuance of a class of preferred shares (which class may be divided into two or more series) as the Board of Trustees may, without shareholder approval, authorize. The Preferred Shares have such preferences, voting powers, terms of redemption, if any, and special or relative rights or privileges (including conversion rights, if any) as the Board of Trustees may determine and as are set forth in the Fund's Certificate establishing the terms of the Preferred Shares. The number of shares of the preferred class or series authorized is limited to 100,000,000 and the shares authorized may be represented in part by fractional shares. Under the Fund's Certificate, the Board of Trustees has authorized the creation of 28,000 Auction Rate Cumulative Preferred Shares, having a par value of $0.01 per share, with a liquidation preference of $25,000 per share, classified as Series M, T, W, TH and F Auction Rate Cumulative Preferred Shares. 50 UNDERWRITING Citigroup Global Markets Inc. is acting as a representative of the underwriters named below (the "Underwriters"). Subject to the terms and conditions in the underwriting agreement dated the date hereof (the "Underwriting Agreement"), each Underwriter named below has severally agreed to purchase, and the Fund has agreed to sell to such Underwriter, the number of Preferred Shares set forth opposite the name of such Underwriter.

UNDERWRITERS SERIES M SERIES T SERIES W SERIES TH SERIES F - ------------ -------- -------- -------- --------- -------- Citigroup Global Markets Inc. .......... Merrill Lynch, Pierce, Fenner & Smith Incorporated............... A.G. Edwards & Sons, Inc. .............. Lehman Brothers Inc. ................... Wachovia Capital Markets, LLC........... Total............................

The Underwriting Agreement provides that the obligations of the Underwriters to purchase the shares included in this offering are subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to purchase all the Preferred Shares if they purchase any of the Preferred Shares. The Underwriters propose to offer some of the shares directly to the public at the public offering price set forth on the cover page of this Prospectus and some of the shares to certain dealers at the public offering price less a concession not in excess of $ per share. The sales load the Fund will pay of $ per share is equal to % of the initial offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share on sales to certain other dealers. If all of the Preferred Shares are not sold at the initial offering price, the representative may change the public offering price and other selling terms. Investors must pay for any Preferred Shares purchased on or before February , 2004. The Fund and the Adviser have each agreed that, for a period of 180 days from the date of the Underwriting Agreement, they will not, without the prior written consent of Citigroup Global Markets Inc., on behalf of the Underwriters, sell, contract to sell, or otherwise dispose of any senior securities (as defined in the 1940 Act) of the Fund, or any securities convertible into or exchangeable for senior securities or grant any options or warrants to purchase senior securities of the Fund other than Preferred Shares. Citigroup Global Markets Inc., on behalf of the Underwriters, in its sole discretion may release any of the securities subject to those lock-up agreements at any time without notice. Because an affiliate of Citigroup Global Markets Inc. will receive a portion of the net proceeds, this offering is being conducted pursuant to conduct Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. The Fund anticipates that from time to time certain Underwriters may act as brokers or dealers in connection with the execution of the Fund's portfolio transaction after they have ceased to be Underwriters and, subject to certain conditions, may act as brokers while they are Underwriters. The Fund anticipates that the Underwriters or one of their respective affiliates may, from time to time, act in auctions as Broker-Dealers and receive fees set forth under "Description of Preferred Shares" and in the SAI. The Fund and the Adviser have agreed to indemnify the Underwriters in connection with this offering against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or to contribute payments the Underwriters may be required to make for any of those liabilities. Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to trustees, officers and controlling persons of the registrant pursuant to the foregoing 51 provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Fund will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The principal business address of Citigroup Global Markets Inc. is 388 Greenwich Street, New York, New York 10013. LEGAL MATTERS Certain legal matters in connection with the Preferred Shares offered hereby will be passed upon for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois, and for the Underwriters by Simpson Thacher & Bartlett LLP, New York, New York. EXPERTS The financial statements of the Fund at July 31, 2003 and the selected per share data and ratios set forth under the caption "Financial Highlights" for each of the fiscal years ended 2000 through 2003 have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report incorporated by reference in the SAI, and are included in reliance upon their report given upon Deloitte & Touche LLP's authority as experts in accounting and auditing. The address of Deloitte & Touche LLP is 180 North Stetson Avenue, Chicago, Illinois. The selected per share data and ratios set forth under the caption "Financial Highlights" for the fiscal year ended July 31, 1999 and for the fiscal period ended July 31, 1998 were audited by the Fund's former independent auditors. FURTHER INFORMATION The Fund has filed with the SEC, Washington, DC, a registration statement under the Securities Act with respect to the Preferred Shares offered hereby. Further information concerning these securities and the Fund may be found in the registration statement, of which this Prospectus constitutes a part, on file with the SEC. The Fund is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith files other Fund-related reports and information with the SEC. The Fund's registration statement, reports, proxy and information statements and other information may be inspected without charge at the SEC's public reference room at 450 Fifth Street, N.W., Washington, DC 20549, and copies of all or any part thereof may be obtained from such officer after payment of the fees prescribed by the SEC. Call 1-800-SEC-0330 for information about the SEC's public reference room. Such reports and other information concerning the Fund may also be inspected at the offices of the NYSE located at 20 Broad Street, New York, New York 10005. 52 TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION The Fund.................................................... B-2 Investment Restrictions..................................... B-2 Trustees and Officers....................................... B-4 Portfolio Transactions...................................... B-10 Investment Management and Other Services.................... B-12 Repurchase Of Shares........................................ B-13 Fund Structure.............................................. B-14 Portfolio Turnover Rate..................................... B-15 Additional Information Concerning the Auctions for Preferred Shares.................................................... B-15 Description of Preferred Shares............................. B-22 Federal Taxation............................................ B-29 Appendix A: Ratings of Investments.......................... A-1 Appendix B: Form of Certificate of Vote..................... B-1 Appendix C: Proxy Voting Policies and Procedures............ C-1 Financial Statements........................................ F-1 53 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $700,000,000 VAN KAMPEN SENIOR INCOME TRUST AUCTION RATE CUMULATIVE PREFERRED SHARES 5,600 SHARES, SERIES M 5,600 SHARES, SERIES T 5,600 SHARES, SERIES W 5,600 SHARES, SERIES TH 5,600 SHARES, SERIES F $25,000 LIQUIDATION PREFERENCE PER SHARE --------------------- PROSPECTUS FEBRUARY , 2004 --------------------- CITIGROUP MERRILL LYNCH & CO. A.G. EDWARDS & SONS, INC. LEHMAN BROTHERS WACHOVIA SECURITIES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2004 VAN KAMPEN SENIOR INCOME TRUST STATEMENT OF ADDITIONAL INFORMATION FEBRUARY , 2004 Van Kampen Senior Income Trust (the "Fund") is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund's investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund seeks to achieve its objective by investing primarily in a professionally managed portfolio of interests in floating or variable rate senior loans ("Senior Loans") to corporations, partnerships and other entities ("Borrowers") which operate in a variety of industries and geographical regions. The Fund's investment adviser is Van Kampen Asset Management ("Asset Management" or the "Adviser"). The Fund is offering 5,600 Series M, 5,600 Series T, 5,600 Series W, 5,600 Series TH and 5,600 Series F Auction Rate Cumulative Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per share (collectively "Preferred Shares"). This Statement of Additional Information ("SAI") relating to this offering does not constitute a prospectus, but should be read in conjunction with the Prospectus relating thereto dated February , 2004. This SAI does not include all information that a prospective investor should consider before purchasing Preferred Shares in this offering, and investors should obtain and read the Prospectus prior to purchasing such shares. A copy of the Prospectus may be obtained without charge, by calling (800) 847-2424 (or (800) 421-2833 for the hearing impaired) or by writing to the Fund at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555. Capitalized terms used in this SAI and not otherwise defined are defined in the Fund's Certificate of Vote (the "Certificate") attached hereto as Appendix B. TABLE OF CONTENTS

PAGE ---- The Fund.................................................... B-2 Investment Restrictions..................................... B-2 Trustees and Officers....................................... B-4 Portfolio Transactions...................................... B-10 Investment Management and Other Services.................... B-12 Repurchase of Shares........................................ B-13 Fund Structure.............................................. B-14 Portfolio Turnover Rate..................................... B-15 Additional Information Concerning the Auctions for Preferred B-15 Shares.................................................... Description of Preferred Shares............................. B-22 Federal Taxation............................................ B-29 Appendix A: Ratings of Investments.......................... A-1 Appendix B: Form of Certificate of Vote..................... B-1 Appendix C: Proxy Voting Policy and Procedures.............. C-1 Financial Statements........................................ F-1

The Prospectus and SAI omit certain information contained in the registration statement filed with the Securities and Exchange Commission ("SEC"), Washington, D.C. The registration statement may be obtained from the SEC upon payment of the fee prescribed or inspected at the SEC's office for no charge. The registration statement is also available on the SEC's website (WWW.SEC.GOV). THE FUND The Fund changed its name from "Van Kampen American Capital Senior Income Trust" to "Van Kampen Senior Income Trust" in 1998. The Fund's investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund seeks to achieve its objective by investing primarily in a professionally managed portfolio of interests in floating rate or variable rate senior loans ("Senior Loans") to corporations, partnerships, and other entities ("Borrowers") which operate in a variety of industries and geographical regions (including domestic and foreign entities). Senior Loans in which the Fund invests generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally the prime rate offered by one or more major United States banks ("Prime Rate"), the London Inter-Bank Offered Rate ("LIBOR"), the Certificate of Deposit ("CD") rate or other base lending rates used by commercial lenders. The value of the Fund's portfolio may be affected by changes in the credit quality of Borrowers with respect to Senior Loan interests in which the Fund invests. No assurance can be given that the Fund will achieve its investment objective. INVESTMENT RESTRICTIONS The Fund's investment objective and the following investment restrictions are fundamental and cannot be changed without the approval of the holders of a majority of the Fund's outstanding shares (defined as the lesser of (i) 67% or more of the voting securities present at a meeting of shareholders, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy at such meeting, or (ii) more than 50% of the outstanding voting securities). All other investment policies or practices are considered by the Fund not to be fundamental and accordingly may be changed without shareholder approval. If a percentage restriction on investment or use of assets set forth below is adhered to at the time a transaction is effected, later changes in percentage resulting from changing market values will not be considered a deviation from policy (except with respect to restriction number 3 below). In accordance with the foregoing, the Fund may not: 1. Purchase any securities (other than obligations issued or guaranteed by the United States Government or by its agencies or instrumentalities) if as a result more than 5% of the Fund's total assets would then be invested in securities of a single issuer or if as a result the Fund would hold more than 10% of the outstanding voting securities of any single issuer; provided that, with respect to 50% of the Fund's assets, the Fund may invest up to 25% of its assets in the securities of any one issuer. For purposes of this restriction, the term issuer includes both the Borrower under a loan agreement and the lender selling a participation to the Fund together with any other persons interpositioned between such lender and the Fund with respect to a participation. 2. Purchase any security if, as a result of such purchase, 25% or more of the Fund's total assets (taken at current value) would be invested in the securities of Borrowers and other issuers having their principal business activities in the same industry (the electric, gas, water and telephone utility industries, commercial banks, thrift institutions and finance companies being treated as separate industries for purposes of this restriction); provided, that this limitation shall not apply with respect to obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities. 3. Issue senior securities (including borrowing money or entering into reverse repurchase agreements) in excess of 33 1/3% of its total assets (including the amount of senior securities issued but excluding any liabilities and indebtedness not constituting senior securities) except that the Fund may borrow up to an additional 5% of its total assets for temporary purposes, or pledge its assets other than to secure such issuance or in connection with hedging transactions, when-issued and delayed delivery transactions and similar investment strategies. B-2 4. Make loans of money or property to any person, except for obtaining interests in Senior Loans in accordance with its investment objective, through loans of portfolio securities or the acquisition of securities subject to repurchase agreements. 5. Buy any security "on margin." Neither the deposit of initial or variation margin in connection with hedging transactions nor short-term credits as may be necessary for the clearance of such transactions is considered the purchase of a security on margin. 6. Sell any security "short," write, purchase or sell puts, calls or combinations thereof, or purchase or sell financial futures or options, except to the extent that the hedging transactions in which the Fund may engage would be deemed to be any of the foregoing transactions. 7. Act as an underwriter of securities, except to the extent the Fund may be deemed to be an underwriter in connection with the sale of or granting of interests in Senior Loans or other securities acquired by the Fund. 8. Make investments for the purpose of exercising control or participation in management, except to the extent that exercise by the Fund of its rights under loan agreements would be deemed to constitute such control or participation. 9. Invest in securities of other investment companies, except that the Fund may purchase securities of other investment companies to the extent permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption or other relief from the provisions of the 1940 Act. 10. Buy or sell oil, gas or other mineral leases, rights or royalty contracts except pursuant to the exercise by the Fund of its rights under loan agreements. In addition, the Fund may purchase securities of issuers which deal in, represent interests in or are secured by interests in such leases, rights or contracts. 11. Purchase or sell real estate, commodities or commodities contracts except pursuant to the exercise by the Fund of its rights under loan agreements, except to the extent the interests in Senior Loans the Fund may invest in are considered to be interests in real estate, commodities or commodities contracts and except to the extent that hedging instruments the Fund may invest in are considered to be commodities or commodities contracts. 12. Notwithstanding the investment policies and restrictions of the Fund, upon approval of the Board of Trustees, the Fund may invest all or part of its investable assets in a management investment company with substantially the same investment objective, policies and restrictions as the Fund. For purposes of investment restriction numbers 1 and 2, the Fund will consider all relevant factors in determining whether to treat the lender selling a participation and any persons interpositioned between such lender and the Fund as an issuer, including: the terms of the loan agreement and other relevant agreements (including inter-creditor agreements and any agreements between such person and the Fund's custodian); the credit quality of such lender or interpositioned person; general economic conditions applicable to such lender or interpositioned person; and other factors relating to the degree of credit risk, if any, of such lender or interpositioned person incurred by the Fund. For purposes of investment restriction number 9, as of the date of this SAI, the 1940 Act generally limits a fund's ability to invest in other investment companies as follows: the Fund and companies it controls cannot own more than 3% of an acquired fund's voting stock in; the securities of an acquired fund cannot exceed more than 5% of the assets of the Fund and companies it controls; and the securities of acquired funds as a group cannot exceed more than 10% of the assets of the Fund and companies it controls. The Fund will rely on representations of Borrowers in loan agreements in determining whether such Borrowers are investment companies. The Fund generally will not engage in the trading of securities for the purpose of realizing short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or anticipated market conditions to accomplish the Fund's investment objective. For example, the Fund may sell portfolio securities in anticipation of a movement in interest rates. Frequency of portfolio turnover will not be a limiting factor if the Fund considers it advantageous to purchase or sell securities. The Fund anticipates that the annual B-3 portfolio turnover rate of the Fund will not be in excess of 100%. A high rate of portfolio turnover involves correspondingly greater expenses than a lower rate, which expenses must be borne by the Fund and its shareholders. TRUSTEES AND OFFICERS The 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 trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Asset Management, Van Kampen Funds 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 Asset Management or its affiliates as of the date of this Statement of Additional Information. Trustees serve until reaching their retirement age or until their successors are duly elected and qualified. Officers are annually elected by the trustees. INDEPENDENT TRUSTEES

NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE David C. Arch (58) Trustee Trustee since Chairman and Chief Executive Officer of 88 Blistex Inc. 1998 Blistex Inc., a consumer health care products 1800 Swift Drive manufacturer. Former Director of the World Oak Brook, IL 60523 Presidents Organization-Chicago Chapter. Director of the Heartland Alliance, a nonprofit organization serving human needs based in Chicago.

NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE HELD BY TRUSTEE David C. Arch (58) Trustee/Director/ Blistex Inc. Managing General 1800 Swift Drive Partner of funds in Oak Brook, IL 60523 the Fund Complex.

B-4

NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE Rod Dammeyer (63) Trustee Trustee since President of CAC, llc., a private company 88 CAC, llc. 1998 offering capital investment and management 4350 LaJolla Village Drive advisory services. Prior to July 2000, Suite 980 Managing Partner of Equity Group Corporate San Diego, CA 92122-6223 Investment (EGI), a company that makes private investments in other companies. Howard J Kerr (68) Trustee Trustee since Prior to 1998, President and Chief Executive 88 736 North Western Avenue 1998 Officer of Pocklington Corporation, Inc., an P.O. Box 317 investment holding company. Director of the Lake Forest, IL 60045 Marrow Foundation. Hugo F. Sonnenschein (63) Trustee Trustee since President Emeritus and Honorary Trustee of 88 1126 E. 59th Street 1998 the University of Chicago and the Adam Smith Chicago, IL 60637 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.

NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE HELD BY TRUSTEE Rod Dammeyer (63) Trustee/Director/ CAC, llc. Managing General 4350 LaJolla Village Drive Partner of funds in Suite 980 the Fund Complex. San Diego, CA 92122-6223 Director of Stericycle, Inc., TheraSense, Inc., GATX Corporation, Vantana Medical Systems, Inc. and Trustee of The Scripps Research Institute and the University of Chicago Hospitals and Health Systems. Prior to January 2004, Director of TeleTech Holdings Inc. and Arris Group, Inc. Prior to May 2002, Director of Peregine Systems Inc. Prior to February 2001, Vice Chairman and Director of Anixter International, Inc. and IMC Global Inc. Prior to July 2000, Director of Allied Riser Communications Corp., Matria Healthcare Inc., Transmedia Networks, Inc., CNA Surety, Corp. and Grupo Azcarero Mexico (GAM). Prior to April 1999, Director of Metal Management, Inc. Howard J Kerr (68) Trustee/Director/ 736 North Western Avenue Managing General P.O. Box 317 Partner of funds in Lake Forest, IL 60045 the Fund Complex. Director of the Lake Forest Bank & Trust. Hugo F. Sonnenschein (63) Trustee/Director/ 1126 E. 59th Street Managing General Chicago, IL 60637 Partner of funds in the Fund Complex. Director of Winston Laboratories, Inc.

B-5 INTERESTED TRUSTEES*

NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE Richard F. Powers, III* (58) Trustee Trustee since Advisory Director of Morgan Stanley. Prior to 88 1 Parkview Plaza 1999 December 2002, Chairman, Director, President, P.O. Box 5555 Chief Executive Officer and Managing Director Oakbrook Terrace, IL 60181 of Van Kampen Investments and its investment advisory, distribution and other subsidiaries. Prior to December 2002, President and Chief Executive Officer of funds in the Fund Complex. Prior to May 1998, Executive Vice President and Director of Marketing at Morgan Stanley and Director of Dean Witter, Discover & Co. and Dean Witter Realty. Prior to 1996, Director of Dean Witter Reynolds Inc. Wayne W. Whalen* (64) Trustee Trustee since Partner in the law firm of Skadden, Arps, 88 333 West Wacker Drive 1998 Slate, Meagher & Flom LLP, legal counsel to Chicago, IL 60606 funds in the Fund Complex.

NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (58) Trustee/Director/ 1 Parkview Plaza Managing General P.O. Box 5555 Partner of funds in Oakbrook Terrace, IL 60181 the Fund Complex. Wayne W. Whalen* (64) Trustee/Director/ 333 West Wacker Drive Managing General Chicago, IL 60606 Partner of funds in the Fund Complex.

- ------------------------------------ * Such trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Mr. Powers is an interested person of funds in the Fund Complex and the Adviser by reason of his former positions with Morgan Stanley or its affiliates. OFFICERS

TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Mitchell Merin (50) President and Officer President and Chief Executive Officer of funds in the Fund 1221 Avenue of the Americas Chief Executive since 2002 Complex since November 2002. Trustee/Director/Managing New York, NY 10020 Officer General Partner of certain funds in the Fund Complex since 1999. Chairman, President, Chief Executive Officer and Director of the Adviser and Van Kampen Advisors Inc. since December 2002. Chairman, President and Chief Executive Officer of Van Kampen Investments since December 2002. Director of Van Kampen Investments since December 1999. Chairman and Chief Executive Officer and Director of Van Kampen Funds Inc. since December 2002. President, Director and Chief Operating Officer of Morgan Stanley Investment Management since December 1998. President and Director since April 1997 and Chief Executive Officer since June 1998 of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chairman, Chief Executive Officer and Director of Morgan Stanley Distributors Inc. since June 1998. Chairman since June 1998, and Director since January 1998 of Morgan Stanley Trust. Director of various Morgan Stanley subsidiaries and President of the Morgan Stanley Funds since May 1999. Chief Executive Officer from September 2002 to April 2003 and Vice President from May 1997 to April 1999 of the Morgan Stanley Funds. Chief Strategic Officer of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. and Executive Vice President of Morgan Stanley Distributors Inc. from April 1997 to June 1998.

B-6

TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Stephen L. Boyd (63) Vice President Officer Managing Director of Global Research Investment Management. 2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to 45th Floor December 2002, Chief Investment Officer of Van Kampen Houston, TX 77056 Investments and President and Chief Operations Officer of the Adviser and Van Kampen Advisors Inc. Prior to May 2002, Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Prior to May 2001, Managing Director and Chief Investment Officer of Van Kampen Investments, and Managing Director and President of the Adviser and Van Kampen Advisors Inc. Prior to December 2000, Executive Vice President and Chief Investment Officer of Van Kampen Investments, and President and Chief Operating Officer of the Adviser. Prior to April 2000, Executive Vice President and Chief Investment Officer for Equity Investments of the Adviser. Prior to October 1998, Vice President and Senior Portfolio Manager with AIM Capital Management, Inc. Prior to February 1998, Senior Vice President and Portfolio Manager of Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp. and Van Kampen American Capital Management, Inc. Stefanie V. Chang (37) Vice President Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex. New York, NY 10020 Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Chief Investment Management Inc. and Morgan Stanley Investments LP and Officer Director of Morgan Stanley Trust for over 5 years. Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Managing Director and Chief Investment Officer of Van Kampen Investments, the Adviser and Van Kampen Advisors Inc. since December 2002. John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Adviser 1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of Oakbrook Terrace, IL 60181 the Fixed Income Department of the Advisers and Van Kampen Advisors Inc. Prior to December 2000, Senior Vice President of the Adviser and Van Kampen Advisors Inc. Prior to May 2000, Senior Vice President of the investment grade taxable group for the Advisers. Prior to June 1999, Senior Vice President of the government securities bond group for Asset Management. Ronald E. Robison (65) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services. 1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of New York, NY 10020 Principal funds in the Fund Complex. Chief Global Operations Officer Executive Officer and Managing Director of Morgan Stanley Investment Management Inc. Managing Director of Morgan Stanley. Managing Director and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chief Executive Officer and Director of Morgan Stanley Trust. Vice President of the Morgan Stanley Funds. A. Thomas Smith III (47) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and 1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the Adviser, New York, NY 10020 Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Managing Director and General Counsel-Mutual Funds of Morgan Stanley Investment Advisors, Inc. Vice President and Secretary of funds in the Fund Complex. Prior to July 2001, Managing Director, General Counsel, Secretary and Director of Van Kampen Investments, the Adviser, the Distributor, Investor Services, and certain other subsidiaries of Van Kampen Investments. Prior to December 2000, Executive Vice President, General Counsel, Secretary and Director of Van Kampen Investments, the Adviser, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Prior to January 1999, Vice President and Associate General Counsel to New York Life Insurance Company ("New York Life"), and prior to March 1997, Associate General Counsel of New York Life. Prior to December 1993, Assistant General Counsel of The Dreyfus Corporation. Prior to August 1991, Senior Associate, Willke Farr & Gallagher. Prior to January 1989, Staff Attorney at the Securities and Exchange Commission, Division of Investment Management, Office of Chief Counsel.

B-7

TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS John L. Sullivan (48) Vice President, Officer Director and Managing Director of Van Kampen Investments, 1 Parkview Plaza Chief Financial since 1996 the Adviser, Van Kampen Advisors Inc. and certain other P.O. Box 5555 Officer and subsidiaries of Van Kampen Investments. Vice President, Oakbrook Terrace, IL 60181 Treasurer Chief Financial Officer and Treasurer of funds in the Fund Complex. Head of Fund Accounting for Morgan Stanley Investment Management. Prior to December 2002, Executive Director of Van Kampen Investments, the Adviser and Van Kampen Advisors Inc.

Each trustee who is not an affiliated person (as defined in the 1940 Act) of Van Kampen Investments, the Adviser 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 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-Affiliated Trustees retiring prior to the age of 60 or with fewer than 10 years but more than 5 years of service may receive reduced retirement benefits from the Fund. Additional information regarding compensation and benefits for trustees is set forth below for the periods described in the notes accompanying the table. COMPENSATION TABLE

Fund Complex --------------------------------------------- Aggregate Aggregate Estimated Pension or Maximum Total Retirement Annual Compensation Aggregate Benefits Benefits from before Compensation Accrued as the Fund Deferral from from the Part of Complex Upon Fund Name(1) Fund(2) Expenses(3) Retirement(4) Complex(5) ------- ------------ ----------- ------------- ------------- David C. Arch 17,977 $18,589 $147,500 $193,811 Rod Dammeyer 17,977 31,814 147,500 177,971 Howard J Kerr 17,977 58,713 147,500 193,811 Hugo F. Sonnenschein 17,977 32,178 147,500 193,811 Wayne W. Whalen 17,977 63,604 147,500 251,811

- --------------- (1) Trustees not eligible for compensation are not included in the Compensation Table. (2) The amounts shown in this column represent the aggregate compensation before deferral with respect to the Fund's fiscal year ended July 31, 2003. The following trustees deferred compensation from the Fund during the fiscal year ended July 31, 2003: Mr. Dammeyer, $17,977; Mr. Sonnenschein, $17,977; and B-8 Mr. Whalen, $17,977. The cumulative deferred compensation (including interest) accrued with respect to each trustee, including former trustees, from the Fund as of the Fund's fiscal year ended July 31, 2003 is as follows: Mr. Dammeyer, $74,882; Mr. Kerr, $8,033; Mr. Sonnenschein, $72,263; and Mr. Whalen, $82,459. The deferred compensation plan is described above the Compensation Table. (3) 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 2003. The retirement plan is described above the Compensation Table. In 2003, the boards of the various Van Kampen-related funds in the Fund Complex were combined. Prior to 2003, only Messrs. Whalen and Powers served as trustees/directors/managing general partners of all of the various Van Kampen-related funds in the Fund Complex; and during 2003, other trustees/directors/managing general partners were elected or appointed, as appropriate, to most of the respective boards of the underlying Van Kampen-related funds. The amounts in this column represent amounts for each trustee based on funds he oversaw for the period mentioned above; and thus it is anticipated that the amounts will increase in future compensation tables based on the increased number of funds overseen by such trustees going forward. (4) For each trustee, this is the sum of the estimated maximum annual benefits payable by the funds in the Fund Complex 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. (5) The amounts shown in this column represent the aggregate compensation paid by all of the funds in the Fund Complex as of December 31, 2003, 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. In 2003, the boards of the various Van Kampen-related funds in the Fund Complex were combined. Prior to 2003, only Messrs. Whalen and Powers served as trustees/directors/managing general partners of all of the various Van Kampen-related funds in the Fund Complex; and during 2003, other trustees/directors/managing general partners were elected or appointed, as appropriate, to most of the respective boards of the underlying Van Kampen-related funds. The amounts in this column represent amounts for each trustee based on funds he oversaw for the period mentioned above; and thus it is anticipated that the amounts will increase in future compensation tables based on the increased number of funds overseen by such trustees going forward. During the Fund's last fiscal year, the Board of Trustees had two standing committees (an audit committee and a retirement plan committee) and one ad hoc committee (a nominating committee). The Fund's audit committee consists of Messrs. Arch, Dammeyer, Kerr and Sonnenschein, all of whom are not interested persons of the Fund. The audit committee makes recommendations to the Board of Trustees concerning the selection of the Fund's independent public accountants, reviews with such accountants the scope and results of the Fund's annual audit and considers any comments which the accountants may have regarding the Fund's financial statements, books of account or internal controls. The Fund's audit committee financial expert is Mr. Dammeyer. The Board's retirement plan committee consists of Messrs. Arch, Dammeyer and Sonnenschein, all of whom are not interested persons of the Fund. The retirement plan committee is responsible for reviewing the terms of the Fund's retirement plan and reviews any administrative matters which arise with respect thereto. During the Fund's last fiscal year, the audit committee of the Board held two meetings. The retirement plan committee of the Board does not meet on a regular basis, but does meet on an ad hoc basis as necessary to administer the retirement plan. The non-interested trustees of the Fund select and nominate any other non-interested trustees of the Fund. While the non-interested 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 review nominations from shareholders to fill any vacancies. Nominations from shareholders should be in writing and addressed to the non-interested trustees at the Fund's office. In addition to deferred compensation balances as described in the Compensation Table, as of December 31, 2003, the most recently completed calendar year prior to the date of this SAI, each trustee of the Fund B-9 beneficially owned equity securities of the Fund and of all of the funds in the Fund Complex overseen by the trustee in the dollar range amounts specified below. 2003 TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES INDEPENDENT TRUSTEES

AGGREGATE DOLLAR RANGE OF EQUITY DOLLAR RANGE OF SECURITIES IN ALL REGISTERED INVESTMENT EQUITY SECURITIES COMPANIES OVERSEEN BY TRUSTEE NAME OF TRUSTEE IN THE FUND IN THE FUND COMPLEX - --------------- ----------------- --------------------------------------- David C. Arch $1 - $10,000 $50,001 - $100,000 Rod Dammeyer $1 - $10,000 Over $100,000 Howard J Kerr $1 - $10,000 $1 - $10,000 Hugo F. Sonnenschein $1 - $10,000 Over $100,000

INTERESTED TRUSTEES

AGGREGATE DOLLAR RANGE OF EQUITY DOLLAR RANGE OF SECURITIES IN ALL REGISTERED INVESTMENT EQUITY SECURITIES COMPANIES OVERSEEN BY TRUSTEE NAME OF TRUSTEE IN THE FUND IN THE FUND COMPLEX - --------------- ----------------- --------------------------------------- Richard F. Powers, III $1 - $10,000 Over $100,000 Wayne W. Whalen $1 - $10,000 Over $100,000

As of December 31, 2003, the trustees and officers of the Fund as a group owned less than 1% of the shares of the Fund. CODE OF ETHICS The Fund and the Adviser have adopted a code of ethics (the "Code of Ethics") that sets forth general and specific standards relating to the securities trading activities of their employees. The Code of Ethics does not prohibit employees from acquiring securities that may be purchased or held by the Fund, but is 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 Code 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 Code of Ethics. Additional restrictions apply to portfolio managers, traders, research analysts and others who may have access to nonpublic 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 Code of Ethics may be granted in particular circumstances after review by appropriate personnel. The Code of Ethics can be reviewed and copied at the Securities and Exchange Commission's public reference room in Washington, DC (call 1-202-942-8090 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 payment of copying fees, by writing the SEC's public reference section, Washington, DC 20549-0102, or by electronic mail at publicinfo@sec.gov. PORTFOLIO TRANSACTIONS With respect to interests in Senior Loans, the Fund generally will engage in privately negotiated transactions for purchase or sale in which the Adviser will negotiate on behalf of the Fund, although a more B-10 developed market may exist for certain Senior Loans. The Fund may be required to pay fees, or forgo a portion of interest and any fees payable to the Fund, to the lender selling participations or assignments to the Fund. The Adviser will determine the lenders from whom the Fund will purchase assignments and participations by considering their professional ability, level of service, relationship with the Borrower, financial condition, credit standards and quality of management. Although the Fund intends generally to hold interests in Senior Loans until maturity or prepayment of the Senior Loan, the illiquidity of many Senior Loans may restrict the ability of the Adviser to locate in a timely manner persons willing to purchase the Fund's interests in Senior Loans at a fair price should the Fund desire to sell such interests. See sections entitled "Investment Objective and Investment Policies and "Risk Factors" in the Prospectus. With respect to investments other than in Senior Loans, the Adviser will place orders for portfolio transactions for the Fund with broker-dealer firms giving consideration to the quality, quantity and nature of each firm's professional services. These services include execution, clearance procedures, wire service quotations and statistical and other research information provided to the Fund and the Adviser, including quotations necessary to determine the value of the Fund's net assets. Any research benefits so obtained are available for all clients of the Adviser. Because statistical and other research information only supplements the research efforts of the Adviser and still must be analyzed and reviewed by its staff, the receipt of research information is not expected to reduce materially its expenses. In selecting among the firms believed to meet the criteria for handling a particular transaction, the Adviser may take into consideration the fact that certain firms have sold common shares of the Fund and that certain firms provide market, statistical or other research information to the Fund and the Adviser and may select firms that are affiliated with the Fund, the Adviser or Van Kampen Investments. If it is believed to be in the best interest of the Fund, the Adviser may place portfolio transactions with brokers who provide the types of services described above, even if the Fund will have to pay a higher commission (or, if the broker's profit is part of the cost of the security, will have to pay a higher price for the security) than would be the case if the Adviser did not consider the broker's furnishing of such services. This will be done, however, only if, in the opinion of the Adviser, the amount of additional commission or increased cost is reasonable in relation to the value of the services. If purchases or sales of financial instruments for the Fund and for one or more other investment companies or clients advised by the Adviser are considered at or about the same time, transactions in such financial instruments will be allocated among the several investment companies and clients, in a manner deemed equitable by the Adviser, to each such investment company or client, taking into account their respective sizes and the aggregate amount of financial instruments to be purchased or sold. In this regard allocations of Senior Loans by the Adviser will be made taking into account a variety of factors, including the assets of such clients then available for investment in Senior Loans, such clients' relative net assets and such clients' investment objectives, policies and limitations. Although in some cases this procedure could have a detrimental effect on the price paid by the Fund for the financial instrument or the volume of the financial instrument purchased by the Fund, the ability to participate in volume transactions and to negotiate lower commissions, fees and expenses possibly could benefit the Fund. Although the Adviser will be responsible for the management of the Fund's portfolio, the policies and practices in this regard must be consistent with the foregoing and will be subject at all times to review by the Board of Trustees of the Fund. The Fund anticipates that the annual portfolio turnover rate will not exceed 100%. The Board of Trustees has adopted certain policies incorporating the standards of Rule 17e-1 issued by the SEC under the 1940 Act, which requires that the commissions paid to affiliates of the Fund, or to affiliates of such persons, be reasonable and fair compared to the commissions, fees or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar financial instruments during a comparable period of time. The rule and procedures also contain review requirements and require the Adviser to furnish reports to the Board of Trustees and to maintain records in connection with such reviews. After review of all factors deemed relevant, the Board of Trustees will consider from time to B-11 time whether the advisory fee will be reduced by all or a portion of the brokerage commissions given to brokers that are affiliated with the Fund. INVESTMENT MANAGEMENT AND OTHER SERVICES THE ADVISER The Adviser is a wholly-owned subsidiary of Van Kampen Investments. Van Kampen Investments is an indirect wholly-owned subsidiary of Morgan Stanley. The Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181. Van Kampen Investments is a diversified asset management company that administers more than three million retail investor accounts, has extensive capabilities for managing institutional portfolios, and has more than $84 billion under management or supervision as of December 31, 2003. Van Kampen Investments has more than 50 open-end and 30 closed-end funds and more than 2,700 unit investment trusts that are distributed by authorized dealers nationwide. Morgan Stanley is a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities, asset management and credit services. INVESTMENT ADVISORY AGREEMENT The investment advisory agreement (the "Advisory Agreement") between the Adviser and the Fund will continue in effect from year to year, unless terminated as described below, if approved annually (a) by the Board of Trustees of the Fund or by a majority of the Fund's common shares and (b) by a majority of the trustees who are not parties to the agreement or interested persons of any such party, in compliance with the requirements of the 1940 Act. The Advisory Agreement may be terminated without penalty upon 60 days written notice by either party (in the case of the Fund, such termination may be effected by the Board of Trustees or by a majority of the common shares) and will automatically terminate in the event of assignment. The Adviser may in its sole discretion from time to time waive all or a portion of the advisory fee or reimburse the Fund for all or a portion of its other expenses. In approving the Advisory Agreement, the Board of Trustees, including the non-interested trustees, considered the nature, quality and scope of the services provided by the Adviser, the performance, fees and expenses of the Fund compared to other similar investment companies, the Adviser's expenses in providing the services and the profitability of the Adviser and its affiliated companies. The Board of Trustees also reviewed the benefit to the Adviser of receiving third party research paid for by Fund assets and the propriety of such an arrangement and evaluated other benefits the Adviser derives from its relationship with the Fund. The Board of Trustees considered the extent to which any economies of scale experienced by the Adviser are shared with the Fund's shareholders. The Board of Trustees considered comparative advisory fees of the Fund and other investment companies. The Board of Trustees reviewed reports from third parties about the foregoing factors. The Board of Trustees discussed the financial strength of the Adviser and its affiliated companies and the capability of the personnel of the Adviser. The Board of Trustees reviewed the statutory and regulatory requirements for approval of advisory agreements. The Board of Trustees, including the non-interested trustees, evaluated all of the foregoing and determined, in the exercise of its business judgment, that approval of the Advisory Agreement was in the best interests of the Fund and its shareholders. The Advisory Agreement provides that the Adviser will supply investment research and portfolio management, including the selection of securities for the Fund to purchase, hold or sell and the selection of financial institutions through whom the Fund's portfolio transactions are executed. For the services provided by the Adviser under the Advisory Agreement, the Fund pays the Adviser a monthly fee (accrued daily and paid monthly) computed based upon an annual rate equal to 0.85% applied to the average daily managed assets of the Fund (which for purposes of determining such fee, shall mean the average daily gross asset value of the Fund, minus the sum of accrued liabilities other than the aggregate amount of any borrowings undertaken by the Fund). Because leverage will increase the amount of total assets, the Fund will pay a B-12 greater amount of advisory fees when leverage is utilized. Under the Advisory Agreement, the Adviser also furnishes offices and necessary facilities and equipment, and permits its officers and employees to serve without compensation as trustees and officers of the Fund if duly elected to such positions. The Fund pays all other expenses incurred in the operation of the Fund including, but not limited to, direct charges relating to the purchase and sale of financial instruments in its portfolio, interest charges, fees and expenses of legal counsel and independent auditors, taxes and governmental fees, cost of share certificates, expenses (including clerical expenses) of issuance, sale or repurchase of any of the Fund's portfolio holdings, expenses in connection with the Fund's dividend reinvestments, membership fees in trade associations, expenses of registering and qualifying the common shares of the Fund for sale under federal and state securities laws, expenses of printing and distributing reports, notices and proxy materials to existing holders of common shares, expenses of filing reports and other documents filed with governmental agencies, expenses of annual and special meetings of holders of common shares, fees and disbursements of the transfer agents, custodians and sub-custodians, expenses of disbursing dividends and distributions, fees, expenses and out-of-pocket costs of trustees of the Fund who are not affiliated with the Adviser, insurance premiums, indemnification and other expenses not expressly provided for in the Advisory Agreement or the administration agreement and any extraordinary expenses of a nonrecurring nature. The Adviser may in its sole discretion from time to time waive all or a portion of the advisory fee or reimburse the Fund for all or a portion of its other expenses. The Advisory Agreement provides that the Adviser shall not be liable for any error of judgment or of law, or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations and duties under the Advisory Agreement. The trustees are responsible for the overall management and supervision of the Fund's affairs. The Adviser's activities are subject to the review and supervision of the trustees to whom the Adviser renders periodic reports of the Fund's investment activities. THE ADMINISTRATOR The administrator for the Fund is Van Kampen Investments. OTHER AGREEMENTS LEGAL SERVICES AGREEMENT. The Fund has entered into a Legal Services Agreements pursuant to which Van Kampen Investments provides legal services, including without limitation: accurate maintenance of the Funds' minute books and records, preparation and oversight of the Funds' regulatory reports, and other information provided to shareholders, as well as responding to day-to-day legal issues on behalf of the funds. Payment by the Fund for such services is made on a cost basis for the salary and salary related benefits, including but not limited to bonuses, group insurances and other regular wages for the employment of personnel, as well as overhead and the expenses related to the office space and the equipment necessary to render the legal services. Certain other funds advised by the Adviser are distributed by the Distributors, an indirect affiliate of the Fund, and also receive legal services from Van Kampen Investments. Of the total costs for legal services provided to funds distributed by the Distributors 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. REPURCHASE OF SHARES Shares of closed-end management investment companies frequently trade at a discount to their NAVs but in some cases trade at a premium. In recognition of the possibility that the Fund's common shares might similarly trade at a discount, the Fund's Board of Trustees has determined that from time to time it may be in the interest of common shareholders for the Fund to take action to attempt to reduce or eliminate a market value discount from NAV. The Board of Trustees, in consultation with the Adviser, will review on a quarterly basis the possibility of open market repurchases and/or tender offers for the common shares and will consider B-13 such factors as the market price of the common shares, the NAV of the common shares, the liquidity of the assets of the Fund, whether such transactions would impair the Fund's status as a regulated investment company or result in a failure to comply with applicable asset coverage requirements, general economic conditions and such other events or conditions which may have a material effect on the Fund's ability to consummate such transactions. There are no assurances that the Board of Trustees will, in fact, decide to undertake either of these actions or if undertaken, that such actions will result in the Fund's common shares trading at a price which is equal to or approximates their NAV. In addition, the Board of Trustees will not necessarily announce when it has given consideration to these matters. common shares will not be repurchased unless after such repurchase the Fund would continue to satisfy the 1940 Act asset coverage requirements with respect to the Preferred Shares or any borrowing and any asset coverage requirements which may be imposed by any rating service as a condition of its rating of the Preferred Shares or by any lender with respect to any borrowing. Even if a tender offer has been made, the announced policy of the Board of Trustees, which may be changed by the Board of Trustees, is that the Fund cannot accept tenders if (1) in the reasonable judgment of the Board of Trustees, there is not sufficient liquidity of the assets of the Fund; (2) such transactions, if consummated, would (a) impair the Fund's status as a regulated investment company under the Internal Revenue Code (the "Code") (which would make the Fund a taxable entity, causing the Fund's taxable income to be taxed at the Fund level, as more fully described in "Taxation") or (b) result in a failure to comply with applicable asset coverage requirements; or (3) there is, in the Board of Trustees' reasonable judgment, any (a) material legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund, (b) suspension of or limitation on prices for trading securities generally on any United States national securities exchange or in the over-the-counter market, (c) declaration of a banking moratorium by federal or state authorities or any suspension of payment by banks in the United States or New York State, (d) limitation affecting the Fund or the issuers of its portfolio securities imposed by federal or state authorities on the extension of credit by lending institutions, (e) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States or (f) other event or condition which would have a material adverse effect on the Fund or the holders of its common shares if common shares were repurchased. The Board of Trustees may modify these conditions in light of experience. Any tender offer made by the Fund for its common shares will be at a price equal to the NAV of the common shares determined at the close of business on the day the offer ends. During the pendency of any tender offer by the Fund, the Fund will calculate daily the NAV of the common shares and will establish procedures which will be specified in the tender offer documents, to enable common shareholders to ascertain readily such NAV. The relative illiquidity of some of the Fund's portfolio securities could adversely impact the Fund's ability to calculate NAV in connection with determinations of pricing for tender offers, if any. Each offer will be made and common shareholders notified in accordance with the requirements of the Securities Exchange Act of 1934, as amended, and the 1940 Act, either by publication or mailing or both. Each offering document will contain such information as is prescribed by such laws and the rules and regulations promulgated thereunder. Tendered common shares that have been accepted and repurchased by the Fund will be held in treasury and may be retired by the Board of Trustees. Treasury common shares will be recorded and reported as an offset to shareholders' equity and accordingly will reduce the Fund's total assets. If Treasury common shares are retired, common shares issued and outstanding and capital in excess of par value will be reduced accordingly. If the Fund must liquidate portfolio securities in order to repurchase common shares tendered, the Fund may realize gains and losses. FUND STRUCTURE The Fund's fundamental investment policies and restrictions give the Fund the flexibility to pursue its investment objective through the future conversion to a fund structure commonly known as a "master-feeder" B-14 structure. If the Fund converts to a master-feeder structure, the existing shareholders of the Fund would continue to hold their shares of the Fund and the Fund would become a feeder-fund of the master-fund. The value of a shareholder's shares would be the same immediately after any conversion as the value immediately before such conversion. Use of this master-feeder structure potentially would result in increased assets invested among the collective investment vehicle of which the Fund would be a part, thus allowing operating expenses to be spread over a larger asset base, potentially achieving economies of scale. The Fund's Board of Trustees presently does not intend to effect any conversion of the Fund to a master-feeder structure. In addition, the Fund's Board of Trustees presently does not intend to effect any conversion in which (i) the master fund does not have substantially the same management team, investment objective, investment policies and investment restrictions as the Fund just prior to the conversion, (ii) the value of the shareholder's investment in Fund would not be the same immediately after the conversion as it was immediately before such conversion or (iii) an increase in the Fund's expense ratios is expected as a result of the conversion. PORTFOLIO TURNOVER RATE The annual rates of the Fund's total portfolio turnover for the periods ended July 31, 2000, July 31, 2001, July 31, 2002 and July 31, 2003, were 57%, 55%, 65% and 78%, respectively. The annual turnover rate of the Fund is generally expected to be between 50% and 100%, although as part of its investment policies, the Fund places no restrictions on portfolio turnover and the Fund may sell any portfolio security without regard to the period of time it has been held. The annual turnover rate of the Fund also includes Senior Loans for which the full payment on the Senior Loan has been prepaid by the borrower. ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES GENERAL The Certificate provides that the Applicable Rate for each Dividend Period of shares of each series shall be equal to the rate per annum that the Auction Agent advises has resulted on the Business Day preceding the first day of a Dividend Period for each such series (an "Auction Date") from implementation of the Auction Procedures set forth in the Certificate and summarized below, in which persons determine to hold or offer to sell or, based on dividend rates bid by them, offer to purchase or sell shares of such series. Each periodic implementation of the Auction Procedures is referred to herein as an "Auction." The following summary is qualified by reference to the Auction Procedures set forth in the Certificate. Capitalized terms used but not defined have the definitions set forth in the Certificate. AUCTION AGENCY AGREEMENT. The Fund has entered into an auction agency agreement (the "Auction Agency Agreement") with the Auction Agent (currently, The Bank of New York), which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for shares of each series of Preferred Shares so long as the Applicable Rate for shares of such series is to be based on the results of the Auction. BROKER-DEALER AGREEMENTS. Each Auction requires the participation of one or more Broker-Dealers. The Auction Agent has entered into agreements (collectively, the "Broker-Dealer Agreements") with several Broker-Dealers selected by the Fund, which provides for the participation of those Broker-Dealers in Auctions for shares of a series of Preferred Shares. See "Broker-Dealers" below. SECURITIES DEPOSITORY. The Depository Trust Company ("DTC") will act as the Securities Depository for the Agent Members with respect to shares of each series of Preferred Shares. One certificate for all of the shares of each series of Preferred Shares will be registered in the name of Cede & Co., as nominee of the Securities Depository. Such certificate will bear a legend to the effect that such certificate is issued subject to the provisions restricting transfers of Preferred Shares contained in the Certificate. The Fund will also issue stop-transfer instructions to the transfer agent for shares of each series of Preferred Shares. Prior to the commencement of the right of Holders of preferred shares to elect a majority of the Fund's Trustees, as described under "Description of Preferred Shares -- Voting Rights" in the Prospectus, Cede & Co. will be the B-15 Holder of all shares of each series of Preferred Shares and owners of such shares will not be entitled to receive certificates representing their ownership interest in such shares. DTC, a New York chartered limited purpose trust company, performs services for its participants (including Agent Members), some of whom (and/or their representatives) own DTC. DTC maintains lists of its participants and will maintain the positions (ownership interests) held by each such Agent Member in shares of each series of Preferred Shares, whether for its own account or as a nominee for another person. ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS On or prior to the Submission Deadline on each Auction Date for shares of a series of Preferred Shares: (a) each Beneficial Owner of shares of such series may submit to its Broker-Dealer by telephone or otherwise a: (i) "Hold Order" -- indicating the number of Outstanding shares, if any, of such series that such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for such shares of such series for the next succeeding Dividend Period of such shares; (ii) "Bid" -- indicating the number of Outstanding shares, if any, of such series that such Beneficial Owner offers to sell if the Applicable Rate for such shares of such series for the next succeeding Dividend Period shall be less than the rate per annum specified by such Beneficial Owner in such Bid; and/or (iii) "Sell Order" -- indicating the number of Outstanding shares, if any, of such that such Beneficial Owner offers to sell without regard to the Applicable Rate for such shares of such series for the next succeeding Dividend Period; and (b) Broker-Dealers shall contact customers who are Potential Beneficial Owners by telephone or otherwise to determine whether such customers desire to submit Bids, in which they will indicate the number of shares, if any, of such series that they offer to purchase if the Applicable Rate for shares of such series for the next succeeding Dividend Period is not less than the rate per annum specified in such Bids. The communication to a Broker-Dealer of the foregoing information is herein referred to as an "Order" and collectively as "Orders." A Beneficial Owner or a Potential Beneficial Owner placing an Order with its Broker-Dealer is herein referred to as a "Bidder" and collectively as "Bidders." The submission by a Broker-Dealer of an Order to the Auction Agent shall likewise be referred to herein as an "Order" and collectively as "Orders," and an Existing Holder or Potential Holder who places an Order with the Auction Agent or on whose behalf an Order is placed with the Auction Agent shall likewise be referred to herein as a "Bidder" and collectively as "Bidders." A Beneficial Owner may submit different types of Orders to its Broker-Dealer with respect to shares of a series of Preferred Shares then held by such Beneficial Owner. A Bid placed by a Beneficial Owner specifying a rate higher than the Applicable Rate determined in the Auction shall constitute an irrevocable offer to sell the shares subject thereto. A Beneficial Owner that submits a Bid to its Broker-Dealer having a rate higher than the Maximum Rate on the Auction Date thereof will be treated as having submitted a Sell Order to its Broker-Dealer. A Beneficial Owner that fails to submit to its Broker-Dealer prior to the Submission Deadline for shares of such series an Order or Orders covering all the Outstanding shares of such series held by such Beneficial Owner will be deemed to have submitted a Hold Order to its Broker-Dealer covering the number of Outstanding shares of such series held by such Beneficial Owner and not subject to Orders submitted to its Broker-Dealer; provided, however, that if a Beneficial Owner fails to submit to its Broker-Dealer prior to the Submission Deadline for shares of a series of Preferred Shares an Order or Orders covering all of the Outstanding shares of such series held by such Beneficial Owner for an Auction relating to a Special Dividend Period consisting of more than 7 Days, such Beneficial Owner will be deemed to have submitted a Sell Order to its Broker-Dealer covering the number of Outstanding shares of such series held by such Beneficial Owner and not subject to Orders submitted to its Broker-Dealer. A Sell Order shall constitute an irrevocable offer to sell the shares of such series of Preferred Shares subject thereto at a price per share equal to $25,000. A B-16 Beneficial Owner of shares of a series of Preferred Shares that offers to become the Beneficial Owner of additional shares of such series of Preferred Shares is, for purposes of such offer, a Potential Beneficial Owner. A Potential Beneficial Owner of shares of a series of Preferred Shares may submit to its Broker-Dealer Bids in which it offers to purchase shares of a series if the Applicable Rate for the next Dividend Period is not less than the rate specified in such Bid. A Bid placed by a Potential Beneficial Owner specifying a rate not higher than the Maximum Rate shall constitute an irrevocable offer to purchase the number of shares of a series of Preferred Shares specified in such Bid if the rate determined in the Auction is equal to or greater than the rate specified in such Bid. As described more fully below under "-- Submission of Orders by Broker-Dealers to Auction Agent," the Broker-Dealers will submit the Orders of their respective customers who are Beneficial Owners and Potential Beneficial Owners to the Auction Agent, designating themselves (unless otherwise permitted by the Fund) as Existing Holders in respect of shares of such series of Preferred Shares subject to Orders submitted or deemed submitted to them by Beneficial Owners and as Potential Holders in respect of shares of such series subject to Orders submitted to them by Potential Beneficial Owners. However, neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's failure to comply with the foregoing. Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or a Potential Holder will be treated in the same manner as an Order placed with a Broker-Dealer by a Beneficial Owner or a Potential Beneficial Owner, as described in the preceding paragraph. Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an Order in respect of any shares of a series of Preferred Shares held by it or its customers who are Beneficial Owners will be treated in the same manner as a Beneficial Owner's failure to submit to its Broker-Dealer an Order in respect of shares of a series of Preferred Shares held by it, as described in the second preceding paragraph. For information concerning the priority given to different types of Orders placed by Existing Holders, see "-- Submission of Orders by Broker-Dealers to Auction Agent" below. Neither the Fund nor an affiliate may submit an Order in any Auction, except that any Broker-Dealer that is an affiliate of the Fund may submit Orders in an Auction, but only if such Orders are not for its own account. The Auction Procedures include a pro rata allocation of shares for purchase and sale, which may result in an Existing Holder continuing to hold or selling, or a Potential Holder purchasing, a number of shares of a series of Preferred Share that is fewer than the number of shares of such series specified in its Order. See "-- Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below. To the extent the allocation procedures have that result, Broker-Dealers that have designated themselves as Existing Holders or Potential Holders in respect of customer Orders will be required to make appropriate pro rata allocations among their respective customers. Each purchase or sale shall be made for settlement on the Business Day next succeeding the Auction Date at a price per share equal to $25,000. See "-- Notification of Results; Settlement" below. As described above, any Bid specifying a rate higher than the Maximum Rate will (i) be treated as a Sell Order if submitted by a Beneficial Owner or an Existing Holder and (ii) not be accepted if submitted by a Potential Beneficial Owner or a Potential Holder. Accordingly, the Auction Procedures establish the Maximum Rate as a maximum rate per annum that can result from an Auction. See "-- Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" and "-- Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below. CONCERNING THE AUCTION AGENT The Auction Agent is acting as agent for the Fund in connection with Auctions. In the absence of bad faith or negligence on its part, the Auction Agent will not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Auction Agency Agreement and will not be liable for any error of judgment made in good faith unless the Auction Agent will have been negligent in ascertaining the pertinent facts. B-17 The Auction Agent may rely upon, as evidence of the identities of the Existing Holders of shares of a series of Preferred Shares, the Auction Agent's registry of Existing Holders, the results of Auctions and notices from any Broker-Dealer (or other person, if permitted by the Fund) with respect to transfers described under "Description of Preferred Shares -- Secondary Market Trading and Transfer of Preferred Shares" in the Prospectus and notices from the Fund. The Auction Agent is not required to accept any such notice for an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day preceding such Auction. The Auction Agent may terminate the Auction Agency Agreement upon notice to the Fund on a date no earlier than 60 days after such notice. If the Auction Agent should resign, the Fund will use its best efforts to enter into an agreement with a successor Auction Agent containing substantially the same terms and conditions as the Auction Agency Agreement. The Fund may remove the Auction Agent, provided that prior to such removal, the Fund shall have entered into such an agreement with a successor Auction Agent. BROKER-DEALERS The Auction Agent after each Auction for shares of a series of Preferred Shares will pay to each Broker-Dealer, from funds provided by the Fund, a service charge at the annual rate of 1/4 of 1% in the case of any Auction immediately preceding a Dividend Period of less than one year, or a percentage agreed to by the Fund and the Broker-Dealers in the case of any Auction immediately preceding a Dividend Period of one year or longer, of the purchase price of shares of such series of Preferred Shares placed by such Broker-Dealer at such Auction. For the purposes of the preceding sentence, shares of a series of Preferred Shares will be placed by a Broker-Dealer if such shares were (a) the subject of Hold Orders deemed to have been submitted to the Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its customers who are Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing Holder continuing to hold such shares as a result of the Auction or (ii) a Submitted Bid of a Potential Holder that resulted in such Potential Holder purchasing such shares as a result of the Auction or (iii) a valid Hold Order. The Fund may request the Auction Agent to terminate one or more Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer Agreement is in effect after such termination. The Broker-Dealer Agreement provides that a Broker-Dealer (other than an affiliate of the Fund) may submit Orders in Auctions for its own account, unless the Fund notifies all Broker-Dealers that they may no longer do so, in which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their own accounts. Any Broker-Dealer that is an affiliate of the Fund may submit Orders in Auctions, but only if such Orders are not for its own account. If a Broker-Dealer submits an Order for its own account in any Auction, it might have an advantage over other Bidders because it would have knowledge of all Orders submitted by it in that Auction. Such Broker-Dealer, however, would not have knowledge of Orders submitted by other Broker-Dealers in that Auction. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT Prior to 1:00 P.M., New York City time, on each Auction Date, or such other time on the Auction Date specified by the Auction Agent (i.e., the Submission Deadline), each Broker-Dealer will submit to the Auction Agent in writing all Orders obtained by it for the Auction to be conducted on such Auction Date, designating itself (unless otherwise permitted by the Fund) as the Existing Holder or Potential Holder, as the case may be, in respect of the shares of a series of Preferred Shares subject to such Orders. Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, shall be irrevocable. If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent will round such rate to the next highest one-thousandth (0.001) of 1%. B-18 If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding Preferred Shares of a series subject to an Auction held by such Existing Holder, such Orders will be considered valid in the following order of priority: (a) all Hold Orders for shares of such series will be considered valid, but only up to and including in the aggregate the number of Outstanding shares of such series held by such Existing Holder, and, if the number of shares of such series subject to such Hold Orders exceeds the number of Outstanding shares of such series held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding shares held by such Existing Holder; (b) (i) any Bid for shares of such series will be considered valid up to and including the excess of the number of shares of Outstanding shares of such series held by such Existing Holder over the number of shares of such series subject to any Hold Orders referred to in clause (a) above; (ii) subject to subclause (i), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with the same rate and the number of Outstanding shares of such series subject to such Bids is greater than such excess, such Bids will be considered valid up to and including the amount of such excess, and the number of shares of such series subject to each Bid with the same rate will be reduced pro rata to cover the number of shares of such series equal to such excess; (iii) subject to subclauses (i) and (ii), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with different rates, such Bids shall be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and (iv) in any such event, the number, if any, of such Outstanding shares of such series subject to any portion of Bids considered not valid in whole or in part under this clause (b) will be treated as the subject of a Bid for shares of such series by or on behalf of a Potential Holder at the rate specified therein; and (c) all Sell Orders for shares of such series will be considered valid up to and including the excess of the number of Outstanding shares of such series held by such Existing Holder over the sum of shares of such series subject to valid Hold Orders referred to in clause (a) above and valid Bids referred to in clause (b) above. If more than one Bid of a Potential Holder for shares of a series of Preferred Shares is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted will be a separate Bid with the rate and number of shares of such series therein specified. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE Not earlier than the Submission Deadline on each Auction Date for shares of a series of Preferred Shares, the Auction Agent will assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers (each such Hold Order, Bid or Sell Order as submitted or deemed submitted by a Broker-Dealer being herein referred to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and will determine the excess of the number of Outstanding shares of such series over the number of Outstanding shares of such series subject to Submitted Hold Orders (such excess being herein referred to as the "Available Preferred Shares") and whether Sufficient Clearing Bids have been made in the Auction. "Sufficient Clearing Bids" will have been made if the number of Outstanding shares of such series that are the subject of Submitted Bids of Potential Holders specifying rates not higher than the Maximum Rate for all Dividend Periods equals or exceeds the number of outstanding shares of such series that are the subject of Submitted Sell Orders (including the number of shares of such series subject to Bids of Existing Holders specifying rates higher than the Maximum Rate). If Sufficient Clearing Bids for shares of a series of Preferred Shares have been made, the Auction Agent will determine the lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for shares of such series) which, taking into account the rates in the Submitted Bids of Existing Holders, would result in Existing B-19 Holders continuing to hold an aggregate number of Outstanding shares of such series which, when added to the number of outstanding shares of such series to be purchased by Potential Holders, based on the rates in their Submitted Bids, would equal not less than the Available Preferred Shares. In such event, the Winning Bid Rate will be the Applicable Rate for the next Dividend Period for all shares of such series. If Sufficient Clearing Bids have not been made (other than because all of the outstanding shares of a series of Preferred Shares are subject to Submitted Hold Orders), the Applicable Rate for the next Dividend Period for all shares of such series will be equal to the Maximum Rate. If Sufficient Clearing Bids have not been made, Beneficial Owners that have submitted or that are deemed to have submitted Sell Orders may not be able to sell in the Auction all shares of such series subject to such Sell Orders but will continue to own shares of such series for the next Dividend Period. See "-- Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below. If all of the outstanding shares of a series of Preferred Shares are subject to Submitted Hold Orders, the Applicable Rate for all shares of such series for the next succeeding Dividend Period shall be the All Hold Rate. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND ALLOCATION OF SHARES Based on the determinations made under "-- Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to the discretion of the Auction Agent to round and allocate certain shares as described below, Submitted Bids and Submitted Sell Orders will be accepted or rejected in the order of priority set forth in the Auction Procedures, with the result that Existing Holders and Potential Holders of shares of a series of Preferred Shares will sell, continue to hold and/or purchase such shares as set forth below. Existing Holders that submitted or were deemed to have submitted Hold Orders (or on whose behalf Hold Orders were submitted or deemed to have been submitted) will continue to hold the shares of such series subject to such Hold Orders. If Sufficient Clearing Bids for shares of a series of Preferred Shares have been made: (a) Each Existing Holder that placed or on whose behalf was placed a Submitted Sell Order or Submitted Bid specifying any rate higher than the Winning Bid Rate will sell the outstanding shares of such series subject to such Submitted Sell Order or Submitted Bid; (b) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate lower than the Winning Bid Rate will continue to hold the Outstanding shares of such series subject to such Submitted Bid; (c) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate lower than the Winning Bid Rate will purchase the number of outstanding shares of such series subject to such Submitted Bid; (d) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to the Winning Bid Rate will continue to hold the shares of such series subject to such Submitted Bid, unless the number of Outstanding Preferred Shares of such series subject to all such Submitted Bids is greater than the number of Preferred Shares ("remaining shares") in excess of the Available Preferred Shares over the number of Preferred Shares accounted for in clauses (b) and (c) above, in which event each Existing Holder with such a Submitted Bid will continue to hold Preferred Shares of such series subject to such Submitted Bid determined on a pro rata basis based on the number of Outstanding Preferred Shares subject to all such Submitted Bids of such Existing Holders; and (e) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to the Winning Bid Rate for shares of such series will purchase any shares of Available Preferred Shares not accounted for in clauses (b) through (d) above on a pro rata basis based on the Outstanding Preferred Shares subject to all such Submitted Bids. B-20 If Sufficient Clearing Bids for shares of a series of Preferred Shares have not been made (unless this results because all Outstanding shares of such series are subject to Submitted Hold Orders): (a) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to or lower than the Maximum Rate for shares of such series will continue to hold the Preferred Shares subject to such Submitted Bid; (b) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to or lower than the Maximum Rate for shares of such series will purchase the number of Preferred Shares subject to such Submitted Bid; and (c) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate higher than the Maximum Rate for shares of such series or a Submitted Sell Order will sell a number of shares of such series subject to such Submitted Bid or Submitted Sell Order determined on a pro rata basis based on the number of Outstanding shares of such series subject to all such Submitted Bids and Submitted Sell Orders. If, as a result of the pro rata allocation described in clauses (d) or (e) of the second preceding paragraph or clause (c) of the next preceding paragraph, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of Preferred Shares of a series, the Auction Agent will, in such manner as, in its sole discretion, it will determine, round up or down to the nearest whole share the number of Preferred Shares of such series being sold or purchased on such Auction Date so that the number of shares of such series sold or purchased by each Existing Holder or Potential Holder will be whole shares of such series. If as a result of the pro rata allocation described in clause (e) of the second preceding paragraph, any Potential Holder would be entitled or required to purchase less than a whole share of a series of Preferred Shares, the Auction Agent will, in such manner as, in its sole discretion, it will determine, allocate shares of such series for purchase among Potential Holders so that only whole shares of such series are purchased by any such Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing shares of such series. NOTIFICATION OF RESULTS; SETTLEMENT The Auction Agent will be required to advise each Broker-Dealer that submitted an Order of the Applicable Rate for the next Dividend Period and, if the Order was a Bid or Sell Order, whether such Bid or Sell Order was accepted or rejected, in whole or in part, by telephone by approximately 3:00 P.M., New York City time, on each Auction Date. Each Broker-Dealer that submitted an Order for the account of a customer will then be required to advise such customer of the Applicable Rate for the next Dividend Period and, if such Order was a Bid or a Sell Order, whether such Bid or Sell Order was accepted or rejected, in whole or in part, will be required to confirm purchases and sales with each customer purchasing or selling shares of such series as a result of the Auction and will be required to advise each customer purchasing or selling Preferred Shares as a result of the Auction to give instructions to its Agent Member of the Securities Depository to pay the purchase price against delivery of such shares or to deliver such shares against payment therefor, as appropriate. The Auction Agent will be required to record each transfer of shares of a series of Preferred Shares on the registry of Existing Holders to be maintained by the Auction Agent. In accordance with the Securities Depository's normal procedures, on the Business Day after the Auction Date, the transactions described above will be executed through the Securities Depository and the accounts of the respective Agent Members at the Securities Depository will be debited and credited and shares delivered as necessary to effect the purchases and sales of shares of a series of Preferred Shares as determined in the Auction. Purchasers will make payment through their Agent Members in same-day funds to the Securities Depository against delivery through their Agent Members; the Securities Depository will make payment in accordance with its normal procedures, which now provide for payment against delivery by their Agent Members in same-day funds. If any Existing Holder selling shares of a series of Preferred Shares in an Auction fails to deliver such shares, the Broker-Dealer of any person that was to have purchased such shares in such Auction may deliver to such person a number of whole shares of such series that is less than the number of shares of such series B-21 that otherwise was to be purchased by such person. In such event, the number of shares of such series to be so delivered shall be determined by such Broker-Dealer. Delivery of such lesser number of shares of such series shall constitute good delivery. DESCRIPTION OF PREFERRED SHARES The descriptions of the Preferred Shares contained in this SAI do not purport to be complete and are subject to and qualified in their entireties by reference to the Declaration of Trust and the Certificate. A form of the Certificate is attached as Appendix B to this SAI. A copy of the Declaration of Trust is filed as an exhibit to the registration statement of which the Prospectus and this SAI are a part and may be inspected, and a copy thereof may be obtained, as described under "Further Information" in the Prospectus. GENERAL The Preferred Shares will rank on a parity with each other and with shares of any other series of Preferred Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund. DIVIDENDS AND DIVIDEND PERIODS GENERAL. Holders of Preferred Shares will be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available therefor, cumulative cash dividends on their shares, at the Applicable Rate determined as described under "-- Determination of Dividend Rate," payable on the respective dates set forth below. Dividends so declared and payable shall be paid to the extent permitted under the Code, and to the extent available and in preference to and priority over any dividend declared and payable on the common shares. On the Business Day next preceding each Dividend Payment Date, the Fund is required to deposit with the Paying Agent sufficient funds for the payment of declared dividends. The Fund does not intend to establish any reserves for the payment of dividends. Each dividend will be paid by the Paying Agent to the Holder, which Holder is expected to be the nominee of the Securities Depository. The Securities Depository will credit the accounts of the Agent Members of the beneficial owners in accordance with the Securities Depository's normal procedures. The Securities Depository's current procedures provide for it to distribute dividends in same-day funds to Agent Members who are in turn expected to distribute such dividends to the persons for whom they are acting as agents. The Agent Member of a beneficial owner will be responsible for holding or disbursing such payments on the applicable Dividend Payment Date to such beneficial owner in accordance with the instructions of such beneficial owner. Holders will not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends except as described under "-- Determination of Dividend Rate." No interest will be payable in respect of any dividend payment or payments which may be in arrears. See "-- Default Period." The amount of dividends per outstanding share payable (if declared) on each Dividend Payment Date of each Dividend Period (or in respect of dividends on another date in connection with a redemption during such Dividend Period) shall be computed by multiplying the Applicable Rate (or the Default Rate) for such Dividend Period (or a portion thereof) by a fraction, the numerator of which will be the number of days in such Dividend Period (or portion thereof) such share was outstanding and for which the Applicable Rate or the Default Rate was applicable and the denominator of which will be 360, multiplying the amount so obtained by the liquidation value, and rounding the amount so obtained to the nearest cent. DETERMINATION OF DIVIDEND RATE. The dividend rate for the initial Dividend Period (i.e. the period from and including the Date of Original Issue to and including the initial Auction Date) and the initial Auction Date for each Series are set forth on the inside cover page of the Prospectus. For each subsequent Dividend Period, subject to certain exceptions, the dividend rate will be the Applicable Rate that the Auction Agent advises the Fund has resulted from an Auction. B-22 Dividend Periods after the initial Dividend Period shall either be Standard Dividend Periods (7 days) or, subject to certain conditions and with notice to Holders, Special Dividend Periods. A Special Dividend Period will not be effective unless Sufficient Clearing Bids exist at the Auction in respect of such Special Dividend Period (that is, in general, the number of shares subject to Bids by Potential Beneficial Owners is at least equal to the number of shares subject to Sell Orders by Existing Holders). If Sufficient Clearing Bids do not exist at any Auction in respect of a Special Dividend Period, the Dividend Period commencing on the Business Day succeeding such Auction will be the Standard Dividend Period, and the Holders of the shares of the affected series will be required to continue to hold such shares for such Standard Dividend Period. Dividends will accumulate at the Applicable Rate from the Date of Original Issue and shall be payable on each Dividend Payment Date thereafter. Dividends will be paid through the Securities Depository on each Dividend Payment Date. The Applicable Rate resulting from an Auction will not be greater than the Maximum Rate. The Maximum Rate is subject to upward but not downward adjustment in the discretion of the Board of Trustees after consultation with the Broker-Dealers, provided that immediately following any such increase the Fund would be in compliance with the Preferred Shares Basic Maintenance Amount and with confirmation from each rating agency then rating the Preferred Shares that such action will not impair such agency's then-current rating of the Preferred Shares. The Maximum Rate for the Preferred Shares will apply automatically following an Auction for such shares in which Sufficient Clearing Bids have not been made (other than because all Preferred Shares were subject to Submitted Hold Orders) or following the failure to hold an Auction for any reason on the Auction Date scheduled to occur (except for circumstances in which the Dividend Rate is the Default Rate, as described below). The All Hold Rate will apply automatically following an Auction in which all of the Outstanding Preferred Shares for a particular Series are subject (or are deemed to be subject) to Hold Orders. Prior to each Auction, Broker-Dealers will notify Holders of the term of the next succeeding Dividend Period as soon as practicable after the Broker-Dealers have been so advised by the Fund. After each Auction, on the Auction Date, Broker-Dealers will notify Holders of the Applicable Rate for the next succeeding Dividend Period and of the Auction Date of the next succeeding Auction. NOTIFICATION OF DIVIDEND PERIOD. The Fund will designate the duration of Dividend Periods of the Preferred Shares; provided, however, that no such designation is necessary for a Standard Dividend Period and that any designation of a Special Dividend Period shall be effective only if (i) notice thereof shall have been given as provided herein, (ii) any failure to pay in the timely manner to the Auction Agent the full amount of any dividend on, or the redemption price of, the Preferred Shares shall have been cured as set forth under "-- Default Period," (iii) Sufficient Clearing Bids shall have existed in an Auction held on the Auction Date immediately preceding the first day of such proposed Special Dividend Period, (iv) if the Fund shall have mailed a notice of redemption with respect to any shares, as described under "-- Redemption," the Redemption Price with respect to such shares shall have been deposited with the Paying Agent, and (v) the Fund has confirmed that, as of the Auction Date next preceding the first day of such Special Dividend Period, it has Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount and has consulted with the Broker-Dealers and has provided notice and a Preferred Shares Basic Maintenance Certificate to each Rating Agency which is then rating the Preferred Shares and so requires. If the Fund proposes to designate any Special Dividend Period, not fewer than 7 Business Days (or two Business Days in the event the duration of the Special Dividend Period is fewer than 8 days) nor more than 30 Business Days prior to the first day of such Special Dividend Period, notice shall be (i) made by press release and (ii) communicated by the Fund by telephonic or other means to the Auction Agent and confirmed in writing promptly thereafter. Each such notice shall state (A) that the Fund proposes to exercise its option to designate a succeeding Special Dividend Period, specifying the first and last days thereof and (B) that the Fund will, by 3:00 p.m. New York City time, on the second Business Day next preceding the first day of such Special Dividend Period, notify the Auction Agent, who will promptly notify the Broker-Dealers, of either B-23 (x) its determination, subject to certain conditions, to proceed with such Special Dividend Period, in which case the Fund may specify the terms of any Specific Redemption Provisions, or (y) its determination not to proceed with such Special Dividend Period in which latter event the succeeding Dividend Period shall be a Standard Dividend Period. No later than 3:00 p.m., New York City time, on the second Business Day next preceding the first day of any proposed Special Dividend Period, the Fund shall deliver to the Auction Agent, who will promptly deliver to the Broker-Dealers and Existing Holders, either: (i) a notice stating (A) that the Fund has determined to designate the next succeeding Dividend Period as a Special Dividend Period, specifying the first and last days thereof and (B) the terms of the Specific Redemption Provisions, if any; or (ii) a notice stating that the Fund has determined not to exercise its option to designate a Special Dividend Period. If the Fund fails to deliver either such notice with respect to any designation of any proposed Special Dividend Period to the Auction Agent or is unable to make the confirmation described above by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such proposed Special Dividend Period, the Fund shall be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in clause (ii) above, thereby resulting in a Standard Dividend Period. DEFAULT PERIOD. A "Default Period" with respect to a particular Series will commence on any date the Fund fails to deposit irrevocably in Fund in same-day funds, with the Paying Agent by 12:00 noon, New York City time, (A) the full amount of any declared dividend on that Series payable on the Dividend Payment Date (a "Dividend Default") or (B) the full amount of any redemption price (the "Redemption Price") payable on the date fixed for redemption (the "Redemption Date") (a "Redemption Default") and, (together, a Dividend Default and a Redemption Default are hereinafter referred to as "Default"). A Default Period with respect to a Dividend Default or a Redemption Default shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid dividends and any unpaid Redemption Price shall have been deposited irrevocably in Fund in same-day funds with the Paying Agent. In the case of a Dividend Default, no Auction will be held during a Default Period applicable to that Series and the Applicable Rate for each Dividend Period commencing during a Default Period, will be equal to the Default Rate. Each subsequent Dividend Period commencing after the beginning of a Default Period shall be a Standard Dividend Period; provided, however, that the commencement of a Default Period will not by itself cause the commencement of a new Dividend Period. No Auction shall be held during a Default Period applicable to that Series. No Default Period with respect to a Dividend Default or Redemption Default shall be deemed to commence if the amount of any dividend or any Redemption Price due (if such default is not solely due to the willful failure of the Fund) is deposited irrevocably in trust, in same-day funds with the Paying Agent by 12:00 noon, New York City time within three Business Days after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount of such non-payment based on the actual number of days comprising such period divided by 360. The Default Rate shall be equal to the Reference Rate multiplied by three (3). RESTRICTIONS ON DIVIDENDS, REDEMPTION AND OTHER PAYMENTS Under the 1940 Act, the Fund may not (i) declare any dividend with respect to the Preferred Shares if, at the time of such declaration (and after giving effect thereto), asset coverage with respect to the Fund's senior securities representing indebtedness, including all outstanding senior indebtedness of the Fund, including the Fund's obligations under any credit facility program, would be less than 200% (or such other percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing stock of a closed-end investment company as a condition of declaring dividends on its preferred stock) or (ii) declare any B-24 other distribution on the Preferred Shares or purchase or redeem Preferred Shares if at the time of the declaration (and after giving effect thereto), asset coverage with respect to the Fund's senior securities representing indebtedness would be less than 300% (or such higher percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing stock of a closed-end investment company as a condition of declaring distributions, purchases or redemptions of its capital stock). A declaration of a dividend or other distribution on or purchase or redemption of Preferred Shares is prohibited unless there is no event of default under indebtedness senior to the Preferred Shares, if any, and immediately after such transaction, the Fund would have Eligible Assets with an aggregated Discounted Value at least equal to the asset coverage requirements under indebtedness senior to the Preferred Shares. For so long as the Preferred Shares are Outstanding, except as otherwise provided in the Certificate, the Fund will not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, common shares or other shares, ranking junior to the Preferred Shares as to dividends or upon liquidation) with respect to common shares or any other shares of the Fund ranking junior to the Preferred Shares as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any common shares or other shares ranking junior to the Preferred Shares (except by conversion into or exchange for shares of the Fund ranking junior to the Preferred Shares as to dividends and upon liquidation), unless (i) immediately after such transaction, the Fund would have Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount and the 1940 Act Preferred Shares Asset Coverage would be achieved, (ii) all cumulative and unpaid dividends due on or prior to the date of the transaction have been declared and paid in full with respect to the Fund's preferred shares, including the Preferred Shares, and (iii) the Fund has redeemed the full number of preferred shares required to be redeemed by any mandatory provision for redemption including shares of the Preferred Shares required to be redeemed by any provision for mandatory redemption contained in the Certificate. For so long as the Preferred Shares are Outstanding, except as set forth in the next sentence, the Fund will not declare, pay or set apart for payment on any series of shares of the Fund ranking, as to the payment of dividends, on a parity with the Preferred Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the Preferred Shares through their most recent Dividend Payment Date. When dividends are not paid in full upon the Preferred Shares through their most recent Dividend Payment Date or upon any other series of shares ranking on a parity as to the payment of dividends with Preferred Shares through their most recent respective Dividend Payment Dates, all dividends declared upon Preferred Shares and any other such series of shares ranking on a parity as to the payment of dividends with Preferred Shares shall be declared pro rata so that the amount of dividends declared per share on Preferred Shares and such other series of preferred shares shall in all cases bear to each other the same ratio that accumulated dividend per share on the Preferred Shares and such other series of preferred shares bear to each other. REDEMPTION OPTIONAL REDEMPTION. To the extent permitted under the 1940 Act and Massachusetts law, the Fund at its option may redeem Preferred Shares having a Dividend Period of one year or less, in whole or in part, on the Dividend Payment Date upon not less than 15 days' and not more than 40 days' prior notice. The optional redemption price per share shall be $25,000 per share, plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the date fixed for redemption. Preferred Shares having a Dividend Period of more than one year are redeemable at the option of the Fund, in whole or in part, prior to the end of the relevant Dividend Period, subject to any Specific Redemption Provisions, which may include the payment of redemption premiums to the extent required under any applicable Specific Redemption Provisions. The Fund shall not effect any optional redemption unless after giving effect thereto (i) the Fund has available certain Deposit Securities with maturity or tender dates not later than the day preceding the applicable redemption date and having a value not less than the amount (including any applicable premium) due to Holders of Preferred Shares by reason of the redemption of Preferred Shares on such date fixed for the redemption and (ii) the Fund would have Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount. B-25 MANDATORY REDEMPTION. If the Fund fails as of any Valuation Date to meet the Preferred Shares Basic Maintenance Amount Test or, as of the last Business Day of any month, the 1940 Act Preferred Shares Asset Coverage, and such failure is not cured within five Business Days following the relevant Valuation Date in the case of a failure to meet the Preferred Shares Basic Maintenance Amount Test or the last Business Day of the following month in the case of a failure to meet the 1940 Act Preferred Shares Asset Coverage (each an "Asset Coverage Cure Date"), the Preferred Shares will be subject to mandatory redemption out of funds legally available therefor. The number of Preferred Shares to be redeemed in such circumstances will be equal to the lesser of (A) the minimum number of Preferred Shares the redemption of which, if deemed to have occurred immediately prior to the opening of business on the relevant Asset Coverage Cure Date, would result in the Fund meeting the Preferred Shares Basic Maintenance Amount Test, and the 1940 Act Preferred Shares Asset Coverage, as the case may be, in either case as of the relevant Asset Coverage Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all Preferred Shares then Outstanding will be redeemed), and (B) the maximum number of Preferred Shares that can be redeemed out of funds expected to be available therefor on the Mandatory Redemption Date at the Mandatory Redemption Price. Preferred shares may be subject to mandatory redemption in accordance with the foregoing redemption provisions notwithstanding the terms of any Specific Redemption Provision. The Fund shall effect any required mandatory redemption pursuant to: (A) the Preferred Shares Basic Maintenance Amount Test, no later than 30 days after the Fund last met the Preferred Shares Basic Maintenance Amount Test or (B) the 1940 Act Preferred Shares Asset Coverage, no later than 30 days after the Asset Coverage Cure Date (the "Mandatory Redemption Date"), except that if the Fund does not have funds legally available for the redemption of, or is not otherwise legally permitted to redeem, all of the required number of Preferred Shares which are subject to mandatory redemption, or the Fund otherwise is unable to effect such redemption on or prior to such Mandatory Redemption Date, the Fund will redeem those Preferred Shares on the earliest practicable date on which the Fund will have such funds available, upon notice to record owners of Preferred Shares and the Paying Agent. The Fund's ability to make a mandatory redemption may be limited by the provisions of the 1940 Act or Massachusetts law. The redemption price per share in the event of any mandatory redemption will be $25,000 per share, plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) to the date fixed for redemption, plus (in the case of a Dividend Period of more than one year) any redemption premium, if any, determined by the Board of Trustees after consultation with the Broker-Dealers and set forth in any applicable Specific Redemption Provisions (the "Mandatory Redemption Price"). REDEMPTION PROCEDURE. Pursuant to Rule 23c-2 under the 1940 Act, the Fund will file a notice of its intention to redeem with the SEC so as to provide at least the minimum notice required by such Rule or any successor provision (notice currently must be filed with the SEC generally at least 30 days prior to the redemption date). The Auction Agent will use its reasonable efforts to provide telephonic notice to each Holder of Preferred Shares called for redemption not later than the close of business on the Business Day immediately following the Business Day on which the Auction Agent determines the shares to be redeemed (or, during a Default Period with respect to such shares, not later than the close of business on the Business Day immediately following the day on which the Auction Agent receives notice of redemption from the Fund). Such telephonic notice will be confirmed promptly in writing not later than the close of business on the third Business Day preceding the redemption date by providing the notice sent by the Paying Agent to each Holder of Preferred Shares called for redemption, the Paying Agent (if different from the Auction Agent) and the Securities Depository ("Notice of Redemption"). Notice of Redemption will be addressed to the registered owners of the Preferred Shares at their addresses appearing on the share records of the Fund. Such notice will set forth (i) the redemption date, (ii) the number and identity of Preferred Shares to be redeemed, (iii) the redemption price (specifying the amount of accumulated dividends to be included therein), (iv) that dividends on the shares to be redeemed will cease to accumulate on such redemption date, and (v) the provision under which redemption shall be made. B-26 If fewer than all of the shares of a series of Preferred Shares are redeemed on any date, the shares to be redeemed on such date will be selected by the Fund on a pro rata basis in proportion to the number of shares held by such Holders, by lot or by such other method as is determined by the Fund to be fair and equitable, subject to the terms of any Specific Redemption Provisions. Preferred Shares may be subject to mandatory redemption as described herein notwithstanding the terms of any Specific Redemption Provisions. The Auction Agent will give notice to the Securities Depository, whose nominee will be the Holder of all of the Preferred Shares, and the Securities Depository will determine the number of shares to be redeemed from the account of the Agent Member of each beneficial owner. Each Agent Member will determine the number of shares to be redeemed from the account of each beneficial owner for which it acts as agent. An Agent Member may select for redemption shares from the accounts of some beneficial owners without selecting for redemption any shares from the accounts of other beneficial owners. Notwithstanding the foregoing, if neither the Securities Depository nor its nominee is Holder of all of the shares, the particular shares to be redeemed shall be selected by the Fund by lot, on a pro rata basis between each series or by such other method as the Fund shall deem fair and equitable, as contemplated above. If Notice of Redemption has been given, then upon the deposit of funds sufficient to effect such redemption, all rights of the owners of the shares so called for redemption will cease, except the right of the owners of such shares to receive the redemption price, but without interest, and such shares will no longer be deemed to be outstanding for any purpose. The Fund shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent in excess of (i) the aggregate redemption price of the Preferred Shares called for redemption on such date and (ii) such other amounts, if any, to which Holders of Preferred Shares called for redemption may be entitled. The Fund will be entitled to receive, from time to time, from the Paying Agent the interest, if any, earned on such funds deposited with the Paying Agent and the owners of shares so redeemed will have no claim to any such interest. Any funds so deposited which are unclaimed two years after such redemption date will be paid by the Paying Agent to the Fund upon its request; provided, however, the Paying Agent shall notify all owners of the shares whose funds are unclaimed by placing a notice in the Wall Street Journal concerning the availability of such funds for three consecutive weeks. Thereupon the Paying Agent will be relieved of all responsibility to the owners of such shares and such owners may look only to the Fund for payment. So long as any Preferred Shares are held of record by the nominee of the Securities Depository, the redemption price for such shares will be paid on the redemption date to the nominee of the Securities Depository. The Securities Depository's normal procedures provide for it to distribute the amount of the redemption price to Agent Members who, in turn, are expected to distribute such funds to the person for whom they are acting as agent. Notwithstanding the provisions for redemption described above, no Preferred Shares may be redeemed at the option of the Fund unless all dividends in arrears on the outstanding Preferred Shares, and all shares of beneficial interest of the Fund ranking on a parity with the Preferred Shares with respect to the payment of dividends or upon liquidation, have been or are being contemporaneously paid or set aside for payment, except in connection with the liquidation of the Fund in which case all Preferred Shares and all shares ranking in a parity with the Preferred Shares must receive proportionate amounts. Except for the provisions described above, nothing contained in the Certificate limits any legal right of the Fund to purchase or otherwise acquire any Preferred Shares outside of an Auction at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on or the mandatory or optional redemption price with respect to, any Preferred Shares for which Notice of Redemption has been given and the Fund is in compliance with the 1940 Act Preferred Shares Asset Coverage and has Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount after giving effect to such purchase or acquisition on the date thereof. Any shares which are purchased, redeemed or otherwise acquired by the Fund shall have no voting rights. If fewer than all the outstanding Preferred Shares are redeemed or otherwise acquired by the Fund, the Fund shall give notice of such transaction to the Auction Agent, in accordance with the procedures agreed upon by the Board of Trustees. B-27 ASSET MAINTENANCE The Fund is required to satisfy two separate asset maintenance requirements in respect of the Preferred Shares: (i) the Fund must maintain assets in its portfolio that have a value, discounted in accordance with Rating Agency guidelines, at least equal to the aggregate liquidation preference of the Preferred Shares plus specified liabilities, payment obligations and other amounts; and (ii) the Fund must maintain asset coverage for Preferred Shares of at least 200%. PREFERRED SHARES BASIC MAINTENANCE AMOUNT. The Fund will be required under Rating Agency guidelines to maintain, as of each Business Day on which the Preferred Shares are outstanding, assets having in the aggregate a Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount established by the rating agency or agencies then rating the Preferred Shares. If the Fund fails to meet such requirement on any Valuation Date and such failure is not cured by the Asset Coverage Cure Date, the Fund will be required under certain circumstances to redeem certain of the Preferred Shares. "Preferred Shares Basic Maintenance Amount" as of any Valuation Date means the dollar amount equal to the sum of (i)(A) the product of the number of Outstanding shares of each Series of Preferred Shares on such date by the Liquidation Preference (and redemption premium, if any) per share of such Series; (B) the aggregate amount of dividends that will have accumulated at the respective Applicable Rates (whether or not earned or declared) to (but not including) the first respective Dividend Payment Dates for each Series of Preferred Shares outstanding that follows such Valuation Date; (C) the aggregate amount of dividends that would accumulate on Outstanding Preferred Shares from such first Dividend Payment Dates therefor referenced in (B) of this paragraph through the 45th day after such Valuation Date at the respective Applicable Rates referenced in (B) of this paragraph; (D) the amount of anticipated non-interest expenses of the Trust for the 90 days subsequent to such Valuation Date; (E) the amount of the current outstanding balances of any indebtedness or obligations of the Trust senior in right of payment to the Preferred Shares plus interest actually accrued together with 30 days additional interest on the current outstanding balances calculated at the current rate; and (F) any other current liabilities payable during the 30 days subsequent to such Valuation Date, including, without limitation, indebtedness due within one year and any redemption premium due with respect to the Preferred Shares for which a Notice of Redemption has been sent, as of such Valuation Date, to the extent not reflected in any of (i)(A) through (i)(E) (including, without limitation, any liabilities incurred for the purpose of clearing securities transactions) less (ii) the sum of any cash plus the value of any of the Trust's assets irrevocably deposited by the Trust for the payment of any of (i)(A) through (i)(F) ("value," for purposes of this clause (ii), means the Discounted Value of the security, except that if the security matures prior to the relevant redemption payment date and is either fully guaranteed by the U.S. Government or is rated P2 by Moody's and A2 by Fitch, it will be valued at its face value). The Discount Factors, the criteria used to value the Eligible Assets in the Fund's portfolio for purposes of determining compliance with the Preferred Shares Basic Maintenance Amount, and guidelines for determining the market value of the Fund's portfolio holdings for purposes of determining compliance with the Preferred Shares Basic Maintenance Amount, are based on the criteria established in connection with the rating the Preferred Shares. The Moody's Discount Factor and the Fitch Discount Factor relating to any asset of the Fund, the Preferred Shares Basic Maintenance Amount, the assets eligible for inclusion in the calculation of the Moody's Discount Factor and Fitch Discount Factor of the Fund's portfolio and certain definitions and methods of calculation relating thereto may be changed from time to time by the Fund, without shareholder approval, but only in event that the Fund receives written confirmation from each Rating Agency which is then rating the Preferred Shares and which so requires that any such changes would not impair the "Aaa" credit rating from Moody's or the "AAA" credit rating from Fitch. A Rating Agency's guidelines will apply to the Preferred Shares only so long as such Rating Agency is rating such shares. The Fund will pay certain fees to Moody's and Fitch for rating the Preferred Shares. The ratings assigned to Preferred Shares are not recommendations to buy, sell or hold Preferred Shares. Such ratings may be subject to revision or withdrawal by the assigning Rating Agency at any time. Any rating of Preferred Shares should be evaluated independently of any other rating. B-28 Upon any failure to maintain the required Discounted Value of the Fund's Eligible Assets, the Fund will seek to alter the composition of its portfolio to reattain the Preferred Shares Basic Maintenance Amount on or prior to the Preferred Shares Basic Maintenance Cure Date, thereby incurring additional transaction costs and possible losses and/or gains on dispositions of portfolio securities. 1940 ACT PREFERRED SHARES ASSET COVERAGE. The Fund is also required to maintain, as of the last Business Day on any month in which the Preferred Shares are outstanding, asset coverage of at least 200% (or such other percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing shares of a closed-end company as a condition of declaring dividends on its common shares). If the Fund fails to maintain the 1940 Act Preferred Shares Asset Coverage as of the last Business Day of any month and such failure is not cured as of the related Asset Coverage Cure Date, the Fund will be required to redeem certain Preferred Shares. VOTING All voting rights (as described in the Prospectus under "Description of Capital Structure" and "Description of Preferred Shares -- Voting Rights") will not apply with respect to Preferred Shares if, at or prior to the time when a vote is required, such shares have been (i) redeemed or (ii) called for redemption and sufficient funds have been deposited in Fund to effect such redemption. The Board of Trustees may without shareholder approval, amend, alter or repeal any or all of the definitions and related provisions required to be contained in the Certificate or Declaration of Trust by the Rating Agencies in the event the Fund receives written confirmation from Moody's or Fitch, or both, as appropriate, that any such amendment, alteration or repeal would not impair the ratings then assigned by Moody's or Fitch, as the case may be, to the Preferred Shares. RESTRICTIONS ON TRANSFER Preferred Shares may be transferred only (a) pursuant to an Order placed in an Auction, or (b) to or through a Broker-Dealer. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless the selling Existing Holder or the Agent Member of such Existing Holder, in the case of an Existing Holder whose shares are listed in its own name on the books of the Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer between persons holding Preferred Shares through different Broker-Dealers, advises the Auction Agent of such transfer. FEDERAL TAXATION The following is intended to be a generally summary of certain federal income tax considerations regarding the purchase, ownership and disposition of Preferred Shares of the Fund. It is not intended as a complete discussion of all of the potential federal income tax consequences that may be applicable to the Fund or to all categories of investors, some of which may be subject to special tax rules. Investors are therefore advised to consult with their tax advisors before making an investment in the Fund. The summary is based on the laws in effect on the date of this Statement of Additional Information and existing judicial and administrative interpretations thereof, all of which are subject to change, possible with retroactive effect. FEDERAL TAXATION OF THE FUND The Fund has elected to be, and intends to qualify each year for treatment as, a regulated investment company, under the Internal Revenue Code of 1986, as amended (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. 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 generally not be required to pay federal income taxes on any income (including any net capital gain) it distributes to shareholders. The Fund intends to distribute at least the minimum amount necessary to satisfy the 90% distribution requirement. B-29 In order to qualify as a regulated investment company, the Fund must derive at least 90% of its annual gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies, or other income (including but not limited to gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies. The Fund must also diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar or related trades or businesses. 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 and (ii) 98% of its capital gain net income (the latter of which generally is computed on the basis of the one-year period ending on October 31st of such year), plus any amounts that were not distributed in previous taxable years. For purposes of the excise tax, any ordinary income or capital gain net income retained by, and subject to federal income tax in the hands of, the Fund will be treated as having been distributed. If the Fund failed to qualify as a regulated investment company or failed to satisfy the 90% distribution requirement in any taxable year, the Fund would be taxed as an ordinary corporation on its taxable income (even if such income were distributed to its shareholders) and all distributions out of earnings and profits would be taxed to shareholders as ordinary dividends. Such distributions, however, would be eligible (i) to be treated as "qualified dividend income" in the case of shareholders taxed as individuals who satisfy certain holding period and other requirements and (ii) for the dividends received deduction in the case of corporate shareholders who satisfy certain holding period and other requirements. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and make distributions (which could be subject to interest charges) before requalifying for taxation as a regulated investment company. If the Fund does not meet the asset coverage requirements of the 1940 Act, the Fund intends to repurchase or redeem (to the extent permitted under the 1940 Act) Preferred Shares in order to maintain or restore the asset coverage and avoid failure to remain qualified as a regulated investment company. The determination to repurchase or redeem Preferred Shares and the amounts to be repurchased or redeemed, if any, will be made in the sole discretion of the Fund. 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 will be required to accrue as income each year 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. Some of the Fund's investment practices are subject to special provisions of the Code that may, among other things, (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, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur and/or (vi) adversely alter the characterization of certain complex financial transactions. These rules could therefore affect the character, amount and timing of distributions to shareholders. The Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of these provisions. B-30 FEDERAL INCOME TAXATION OF HOLDERS OF PREFERRED SHARES The Fund believes that the Preferred Shares will constitute stock of the Fund and distributions of the Fund's investment company taxable income will generally be taxable to shareholders as ordinary income to the extent of the Fund's earnings and profits. It is possible, however, that the Internal Revenue Service (the "IRS") might take a contrary position asserting, for example, that the Preferred Shares constitute debt of the Fund. If this position were upheld, distributions by the Fund to holders of Preferred Shares would constitute interest, whether or not they exceeded the Fund's earnings and profits, and would be taxed as ordinary income. The Fund believes, however, that such a position, if asserted by the IRS, would be unlikely to prevail if the issuer were properly litigated. On May 28, 2003, President Bush signed into the law the Jobs and Growth Tax Relief Reconciliation Act of 2003, which contains provisions that reduce the U.S. federal income tax rates on (1) long-term capital gains received by individuals and (2) "qualified dividend income" received by individuals from certain domestic and foreign corporations. The reduced rates apply to long-term capital gains from sales or exchanges in taxable years ending on or after May 6, 2003 and cease to apply for taxable years beginning after December 31, 2008. 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 generally will not qualify for the dividends received deduction available to corporations. Distributions from the Fund designated as capital gain dividends will be eligible for the rate applicable to long-term capital gains. Distributions of the Fund's net capital gain as capital gain dividends, if any, are taxable to shareholders as long-term capital gains regardless of the length of time shares of the Fund have been held by such shareholders. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a 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 inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year. Although dividends generally will be treated as distributed when paid, dividends declared in October, November or December, payable to shareholders of record on a specified date in such a month and paid during January of the following year will be treated as having been distributed by the Fund and received by the shareholders on the December 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 nondeductible 4% excise tax) during such taxable year. In such case, shareholders will be treated as having received such dividends in the taxable year in which the distribution was actually made. The sale of shares (including transfers in connection with a redemption or repurchase of shares) may be a taxable transaction for federal income tax purposes. Selling shareholders will generally recognize a gain or loss in an amount equal to the difference between the amount received in exchange for the shares and their adjusted tax basis in the shares sold. If the shares sold are held as a capital asset, the gain or loss will be a capital gain or loss. Such gain or loss generally will be treated as long-term gain or loss if the shares were held for more than one year and otherwise generally will be treated as short-term 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. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. If disallowed, the loss will be reflected by an upward adjustment to the basis of the shares acquired. For federal income tax purposes, the IRS currently requires that a regulated investment company that has two or more classes of shares allocated to each such class proportionate amounts of each type of its income (such as ordinary income and net capital gain) for each tax year. A class's proportionate share of a particular type of income is determined according to the percentage of total dividends paid by the regulated investment company during the year to such class. Accordingly, the Fund intends to designate distributions made to holders of common shares and holders of Preferred Shares in accordance with each such class's proportionate share of the total dividends paid to both classes. B-31 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. Certain foreign currency gains or losses attributable to currency exchange rate fluctuations are treated as ordinary income or loss. Such income or loss may increase or decrease (or possibly eliminate) the Fund's income available for distribution. If, under the rules governing the tax treatment of foreign currency gains and losses, the Fund's income available for distribution is decreased or eliminated, all or a portion of the dividends declared by the Fund may be treated for federal income tax purposes as a return of capital, or in some circumstances, as capital gains. Generally, a shareholder's tax basis in Fund shares will be reduced to the extent that an amount distributed to such shareholder is treated as a return of capital. WITHHOLDING ON PAYMENTS TO NON-U.S. SHAREHOLDERS Ordinary income dividends (but not capital gain dividends) paid to shareholders who are non-resident aliens or foreign entities ("Non-U.S. Shareholders") will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities, unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Non-U.S. Shareholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax. BACKUP WITHHOLDING The Fund may be required to withhold federal income tax ("backup withholding") from dividends and gross proceeds paid to non-corporate shareholders. This tax may be withheld from dividends if (i) the shareholder fails to properly furnish the Fund with its correct taxpayer identification number, (ii) the IRS notifies the Fund that the shareholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the shareholder fails to certify that 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). Redemption 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, Non-U.S. Shareholders must generally provide a properly completed IRS Form W-8BEN (or other applicable form) certifying their non-United States status. 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 the amount of dividends, capital gain dividends or gross 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 Non-U.S. shareholder the amount of dividends, capital gain dividends or gross proceeds paid that are subject to withholding (including backup withholding, if any) and the amount of tax withheld 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. The federal income tax discussion set forth above is for general information only. Shareholders and prospective investors should consult their advisers regarding the specific federal tax consequences of purchasing, holding and disposing of shares of the Fund, as well as the effects of state, local and foreign tax law and any proposed tax law changes. B-32 APPENDIX A -- RATINGS OF INVESTMENTS DESCRIPTION OF MOODY'S DEBT RATINGS Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa -- Bonds which are rated "Baa" are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds which are rated "B" generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca -- Bonds which are rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds which are rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note -- Those bonds in the "Aa", "A," "Baa," "Ba" and "B" categories which Moody's believes possess the strongest credit attributes within those categories are designated by the symbols "Aa1," "A1," "Baa1," "Ba1" and "B1." Short-term Notes -- The four ratings of Moody's for short-term notes are "MIG 1/VMIG1," "MIG 2/VMIG2," "MIG 3/VMIG3" and "MIG 4/VMIG4." "MIG 1/VMIG1" denotes "best quality . . . strong protection by established cash flows." "MIG2/VMIG2" denotes "high quality" with ample margins of protection. "MIG3/VMIG3" notes are of "favorable quality . . . but . . . lacking the undeniable strength of the preceding grades." "MIG 4/VMIG4" notes are of "adequate quality . . . [p]rotection commonly regarded as required of an investment security is present . . . there is specific risk." A-1 DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS Moody's Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or related supporting institutions) have a superior ability for repayment of short-term promissory obligations. Prime-1 repayment ability will often be evidenced by the following characteristics: leading market positions in well established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earning coverage of fixed financial charges and high internal cash generation; and well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or related supporting institutions) have a strong ability for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. DESCRIPTION OF STANDARD & POOR'S DEBT RATINGS A Standard & Poor's 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 Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any 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 ratings address the put features, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings. LONG-TERM ISSUE CREDIT RATINGS Issue ratings are based, in varying degrees, on the following considerations: 1. Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of obligation; 2. Nature of and provisions of the obligation; and A-2 3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. 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 Standard & Poor's. 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 in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A -- An obligation rated "A" is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt 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 to the obligation. BB, B, CCC, CC and C -- Obligations rated "BB", "B", "CCC", "CC" and "C" is regarded as having significant speculative characteristics. "BB" indicates the least degree of speculation and "C" the highest degree of speculation. While such bonds 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 non-payment 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 non-payment 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 non-payment 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. 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 non-payment. C -- A subordinated debt or preferred stock obligation rated "C" is currently highly vulnerable to non-payment. The "C" rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. A "C" rating will also 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. A-3 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. r -- This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit ratings. Examples include: obligations linked or indexed to equities, currencies or commodities; obligations exposed to severe prepayment risk -- such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. NR -- 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. DESCRIPTION OF STANDARD & POOR'S SHORT-TERM 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 financial commitment on these obligations is extremely strong. A-2 -- A short-term obligation rated "A-2" is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than the 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. 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. C -- A short-term obligation rated "C" is currently vulnerable to non-payment 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 interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. A-4 APPENDIX B -- FORM OF CERTIFICATE OF VOTE B-1 VAN KAMPEN SENIOR INCOME TRUST FORM OF CERTIFICATE OF VOTE ESTABLISHING A CLASS OF PREFERRED SHARES (THE "CERTIFICATE") Van Kampen Senior Income Trust, a Massachusetts business trust (the "Trust"), certifies that: FIRST: Article VI of the Trust's Declaration of Trust (which, as hereafter restated or amended from time to time, is together with this Certificate herein called the "Declaration") empowers the Board of Trustees of the Trust (the "Board") to authorize the issuance of one or more series of a class of preferred shares, provided that to the extent required by the Investment Company Act of 1940, as amended (the "1940 Act"), no such series shall have priority over any other series within its class upon the distribution of assets or in respect of the payment of dividends. SECOND: Pursuant to the authority so vested in the Board of Trustees of the Trust, the Board has, by resolution, authorized the creation of 28,000 Auction Rate Cumulative Preferred Shares, $0.01 par value, liquidation preference $25,000 per share, classified as Series M, T, W, TH and F (collectively, the "Series") Auction Rate Cumulative Preferred Shares (collectively, the "Preferred Shares"). THIRD: The preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each series of Preferred Shares are as follows: DESIGNATION SERIES M: A series of 5,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series M Auction Rate Cumulative Preferred Shares" ("Series M"). Each share of Series M may be issued on a date to be determined by the Board or pursuant to their delegated authority; have an initial Applicable Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series M shall constitute a separate series of Preferred Shares of the Trust. SERIES T: A series of 5,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series T Auction Rate Cumulative Preferred Shares" ("Series T"). Each share of Series T may be issued on a date to be determined by the Board or pursuant to their delegated authority; have an initial Applicable Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series T shall constitute a separate series of Preferred Shares of the Trust. SERIES W: A series of 5,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series W Auction Rate Cumulative Preferred Shares" ("Series W"). Each share of Series W may be issued on a date to be determined by the Board or pursuant to their delegated authority; have an initial Applicable Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series W shall constitute a separate series of Preferred Shares of the Trust. SERIES TH: A series of 5,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series TH Auction Rate Cumulative Preferred Shares" ("Series TH"). Each share of Series TH may be issued on a date to be determined by the Board or pursuant to their delegated authority; have an initial B-2 Applicable Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series TH shall constitute a separate series of Preferred Shares of the Trust. SERIES F: A series of 5,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series F Auction Rate Cumulative Preferred Shares" ("Series F"). Each share of Series F may be issued on a date to be determined by the Board or pursuant to their delegated authority; have an initial Applicable Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series F shall constitute a separate series of Preferred Shares of the Trust. Subject to the provisions of Section 3(j) of Part I of this Certificate, the Board may, in the future, authorize the issuance of additional series of the Trust's preferred shares, including additional Series of Preferred Shares, as long as any additional series of preferred shares has the same preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption and other terms of each of the respective Series herein described, except that the Applicable Rate for its initial Dividend Period, its initial Dividend Payment Date and any other changes in the terms herein set forth shall be as set forth in an amendment to this Certificate. As used in Part I and Part II of this Certificate, capitalized terms shall have the meanings provided in Section 19 of Part I of this Certificate. PART I: TERMS OF THE PREFERRED SHARES 1. NUMBER OF SHARES; RANKING. (a) The initial number of authorized shares constituting Series M is 5,600 shares. The initial number of authorized shares constituting Series T is 5,600 shares. The initial number of authorized shares constituting Series W is 5,600 shares. The initial number of authorized shares constituting Series TH is 5,600 shares. The initial number of authorized shares constituting Series F is 5,600 shares. No fractional shares of any Series shall be issued. (b) Shares of each Series which at any time have been redeemed or purchased by the Trust shall, after such redemption or purchase, have the status of authorized but unissued preferred shares. (c) Shares of each Series shall rank on a parity with shares of any other series of preferred shares (including any other Preferred Shares) as to the payment of dividends to which such shares are entitled and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust. (d) No Holder of shares of any Series shall have, solely by reason of being such a Holder, any preemptive or other right to acquire, purchase or subscribe for any shares of any Series, any Common Shares of the Trust or any other securities of the Trust which it may hereafter issue or sell. 2. DIVIDENDS. (a) The Holders of shares of each Series shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, cumulative cash dividends on their shares at the Applicable Rate, determined as set forth in paragraph (c) of this Section 2, and no more, payable on the respective dates determined as set forth in paragraph (b) of this Section 2. Dividends on the Outstanding shares of each Series issued on the Date of Original Issue shall accumulate from the Date of Original Issue. B-3 (b) (i) Dividends shall be payable when, as and if declared by the Board following the initial Dividend Payment Date, subject to subparagraph (b)(ii) of this Section 2, on the shares of each Series, as follows: (A) with respect to any Dividend Period of one year or less, on the Business Day following the last day of such Dividend Period; provided however, if the Dividend Period is more than 91 days, then on the 91st, 181st and 271st days within such period, if applicable, and on the Business Day following the last day of such Dividend Period; and (B) with respect to any Dividend Period of more than one year, on a quarterly basis on each January 1, April 1, July 1 and October 1 within such Dividend Period and on the Business Day following the last day of such Dividend Period. (ii) If a day for payment of dividends resulting from the application of subparagraph (b)(i) above is not a Business Day, then the Dividend Payment Date shall be the first Business Day following such day for payment of dividends. (iii) The Trust shall pay to the Paying Agent not later than 12:00 p.m., New York City time, on the Business Day next preceding each Dividend Payment Date for a Series, an aggregate amount of funds available on the next Business Day in the City of New York, New York, equal to the dividends to be paid to all Holders of shares of such Series on such Dividend Payment Date. The Trust shall not be required to establish any reserves for the payment of dividends. (iv) All moneys paid to the Paying Agent for the payment of dividends shall be held in trust for the payment of such dividends by the Paying Agent for the benefit of the Holders specified in subparagraph (b)(v) of this Section 2. Any moneys paid to the Paying Agent in accordance with the foregoing but not applied by the Paying Agent to the payment of dividends, including interest earned on such moneys, will, to the extent permitted by law, be repaid to the Trust at the end of 90 days from the date on which such moneys were to have been so applied. (v) Each dividend on each Series shall be paid on the Dividend Payment Date therefor to the Holders of shares of that Series as their names appear on the share ledger or share records of the Trust on the Business Day next preceding such Dividend Payment Date; provided, however, if dividends are in arrears, they may be declared and paid at any time to Holders as their names appear on the share ledger or share records of the Trust on such date not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board. No interest will be payable in respect of any dividend payment or payments which may be in arrears. (c) (i) The dividend rate on Outstanding shares of each Series during the period from and after the Date of Original Issue to and including the last day of the initial Dividend Period therefor shall be equal to the rate per annum set forth under "Designation" above. For each subsequent Dividend Period, the dividend rate shall be equal to the rate per annum that results from an Auction; provided, however, that if an Auction for any subsequent Dividend Period of a Series is not held for any reason or if Sufficient Clearing Orders have not been made in an Auction (other than as a result of all shares of any Series being the subject of Submitted Hold Orders), then the dividend rate on the shares of that Series for any such Dividend Period shall be the Maximum Rate (except (i) during a Default Period when the dividend rate shall be the Default Rate, as set forth in Section 2(c)(ii) below) or (ii) after a Default Period and prior to the beginning of the next Dividend Period when the dividend rate shall be the Maximum Rate at the close of business on the last day of such Default Period). The rate per annum at which dividends are payable on shares of each Series as determined pursuant to this Section 2(c)(i) shall be the "Applicable Rate." (ii) Subject to the cure provisions in Section 2(c)(iii) below, a "Default Period" with respect to a particular Series will commence on any date the Trust fails to deposit irrevocably in trust in same-day funds with the Paying Agent by 12:00 noon, New York City time, (A) the full amount of any declared dividend on that Series payable on the Dividend Payment Date (a "Dividend Default") or (B) the full amount of any redemption price (the "Redemption Price") payable on the date fixed for redemption (the "Redemption Date") (a "Redemption Default" and, together with a Dividend Default, a "Default"). B-4 Subject to the cure provisions of Section 2(c)(iii) below, a Default Period shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid dividends and any unpaid Redemption Price shall have been deposited irrevocably in trust in same-day funds with the Paying Agent. In the case of a Dividend Default, no Auction shall be held during a Default Period applicable to that Series, and the Applicable Rate for each Dividend Period commencing during a Default Period will be equal to the Default Rate, and each subsequent Dividend Period commencing after the beginning of a Default Period shall be a Standard Dividend Period; provided, however, that the commencement of a Default Period will not by itself cause the commencement of a new Dividend Period. (iii) No Default Period shall be deemed to commence if the amount of any dividend or any Redemption Price due (if such default is not solely due to the willful failure of the Trust) is deposited irrevocably in trust in same-day funds with the Paying Agent by 12:00 noon, New York City time, within three Business Days after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount of such non-payment based on the actual number of days comprising such period divided by 360. The Default Rate shall be equal to the Reference Rate multiplied by three (3). (iv) The amount of dividends per share payable (if declared) on each Dividend Payment Date of each Dividend Period (or in respect of dividends on another date in connection with a redemption during such Dividend Period) shall be computed by multiplying the Applicable Rate (or the Default Rate) for such Dividend Period (or a portion thereof) by a fraction, the numerator of which will be the number of days in such Dividend Period (or portion thereof) that such share was Outstanding and for which the Applicable Rate or the Default Rate was applicable and the denominator of which will be 360, multiplying the amount so obtained by $25,000, and rounding the amount so obtained to the nearest cent. (d) Any dividend payment made on shares of any Series shall first be credited against the earliest accumulated but unpaid dividends due with respect to such Series. (e) For so long as the Preferred Shares are Outstanding, except as otherwise contemplated by Part I of this Certificate, the Trust will not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Shares or other shares, ranking junior to the Preferred Shares as to dividends or upon liquidation) with respect to Common Shares or any other shares of the Trust ranking junior to the Preferred Shares as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Shares or other shares ranking junior to the Preferred Shares (except by conversion into or exchange for shares of the Trust ranking junior to the Preferred Shares as to dividends and upon liquidation), unless (i) immediately after such transaction, the Trust would have Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount and the 1940 Act Preferred Shares Asset Coverage, (ii) all cumulative and unpaid dividends due on or prior to the date of the transaction have been declared and paid in full with respect to the Trust's preferred shares, including the Preferred Shares, and (iii) the Trust has redeemed the full number of preferred shares required to be redeemed by any mandatory provision for redemption, including any Preferred Shares required to be redeemed by any provision for mandatory redemption contained in Section 3(a)(ii) of Part I of this Certificate. (f) For so long as the Preferred Shares are Outstanding, except as set forth in the next sentence, the Trust will not declare, pay or set apart for payment on any series of shares of the Trust ranking, as to the payment of dividends, on a parity with the Preferred Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the Preferred Shares through their most recent Dividend Payment Date. When dividends are not paid in full upon the Preferred Shares through their most recent Dividend Payment Date or upon any other series of shares ranking on a parity as to the payment of dividends with Preferred Shares through their most recent respective dividend payment dates, all dividends declared upon Preferred Shares and any other such series of shares ranking on a parity as to the payment of dividends with Preferred Shares shall be declared pro rata so that the amount of dividends declared per share on Preferred Shares and such other series of preferred shares shall in all cases bear to each other the same ratio that accumulated dividends per share on the Preferred Shares and such other series of preferred shares bear to each other. B-5 (g) The Trust will not declare, pay or set apart for payment any dividend or other distribution in respect to any Series (i) if there is any event of payment default which has occurred and is continuing under indebtedness senior to such Series (such senior indebtedness including but not limited to indebtedness under any commercial paper program) or (ii) unless immediately after such transaction, the Trust would have Eligible Assets with an aggregate Discounted Value at least equal to the asset coverage requirements under the indebtedness senior to such Series. 3. REDEMPTION. (a) (i) After the initial Dividend Period, subject to the provisions of this Section 3 and to the extent permitted under the 1940 Act and Massachusetts law, the Trust may, at its option, redeem in whole or in part, out of funds legally available therefor, shares of any Series herein designated as (A) having a Dividend Period of one year or less, on the Business Day after the last day of such Dividend Period, by delivering a notice of redemption not less than 15 calendar days and not more than 40 calendar days prior to the Redemption Date, at a redemption price per share equal to $25,000 plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the Redemption Date ("Redemption Price"), or (B) having a Dividend Period of more than one year, on any Business Day prior to the end of the relevant Dividend Period, by delivering a notice of redemption not less than 15 calendar days and not more than 40 calendar days prior to the Redemption Date, at the Redemption Price, plus a redemption premium, if any, determined by the Board after consultation with the Broker-Dealers and set forth in any applicable Specific Redemption Provisions at the time of the designation of such Dividend Period as set forth in Section 4 of Part I of this Certificate; provided, however, that during a Dividend Period of more than one year no shares of any Series will be subject to optional redemption except in accordance with any Specific Redemption Provisions approved by the Board after consultation with the Broker-Dealers at the time of the designation of such Dividend Period. Notwithstanding the foregoing, the Trust shall not give a notice of or effect any redemption pursuant to this Section 3(a)(i) unless, on the date on which the Trust gives such notice and on the Redemption Date, (A) the Trust has available Deposit Securities with maturity or tender dates not later than the day preceding the applicable Redemption Date and having a value not less than the amount (including any applicable premium) due to Holders of shares of each Series by reason of the redemption of each Series on the Redemption Date and (B) the Trust would have Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount immediately subsequent to such redemption, if such redemption were to occur on such date, it being understood that the provisions of paragraph (d) of this Section 3 shall be applicable in such circumstances in the event the Trust makes the deposit and takes the other action required thereby. (ii) If the Trust fails as of any Valuation Date to meet the Preferred Shares Basic Maintenance Amount Test or, as of the last Business Day of any month, the 1940 Act Preferred Shares Asset Coverage, and such failure is not cured within five Business Days following the relevant Valuation Date in the case of a failure to meet the Preferred Shares Basic Maintenance Amount Test or the last Business Day of the following month in the case of a failure to meet the 1940 Act Preferred Shares Asset Coverage (each an "Asset Coverage Cure Date"), the Preferred Shares will be subject to mandatory redemption out of funds legally available therefor. The number of Preferred Shares to be redeemed in such circumstances will be equal to the lesser of (A) the minimum number of Preferred Shares the redemption of which, if deemed to have occurred immediately prior to the opening of business on the relevant Asset Coverage Cure Date, would result in the Trust meeting the Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage, as the case may be, in either case as of the relevant Asset Coverage Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all Preferred Shares then Outstanding will be redeemed), and (B) the maximum number of Preferred Shares that can be redeemed out of funds expected to be available therefor on the Mandatory Redemption Date at the Mandatory Redemption Price set forth in subparagraph (a)(iv) of this Section 3. (iii) [Reserved] B-6 (iv) In determining the Preferred Shares required to be redeemed in accordance with the foregoing Section 3(a)(ii), the Trust shall allocate the number of shares required to be redeemed to satisfy the Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage, as the case may be, pro rata among the Holders of the Preferred Shares in proportion to the number of shares they hold and other preferred shares subject to mandatory redemption provisions similar to those contained in this Section 3, subject to the further provisions of this subparagraph (iv). The Trust shall effect any required mandatory redemption pursuant to: (A) the Preferred Shares Basic Maintenance Amount Test, as described in subparagraph (a)(ii) of this Section 3, no later than 30 days after the Trust last met the Preferred Shares Basic Maintenance Amount Test or (B) the 1940 Act Preferred Shares Asset Coverage, as described in subparagraph (a)(ii) of this Section 3, no later than 30 days after the Asset Coverage Cure Date (each a "Mandatory Redemption Date"), except that if the Trust does not have funds legally available for the redemption of, or is not otherwise legally permitted to redeem, the number of Preferred Shares which would be required to be redeemed by the Trust under clause (A) of subparagraph (a)(ii) of this Section 3 if sufficient funds were available, together with other preferred shares which are subject to mandatory redemption under provisions similar to those contained in this Section 3, or if the Trust otherwise is unable to effect such redemption on or prior to such Mandatory Redemption Date, the Trust shall redeem those Preferred Shares and other preferred shares which it was unable to redeem on the earliest practicable date on which the Trust will have such funds available upon notice pursuant to Section 3(b) to record owners of the Preferred Shares to be redeemed and the Paying Agent. The Trust will deposit with the Paying Agent funds sufficient to redeem the specified number of Preferred Shares with respect to a redemption required under subparagraph (a)(ii) of this Section 3, by 1:00 p.m., New York City time, of the Business Day immediately preceding the Mandatory Redemption Date. If fewer than all of the Outstanding Preferred Shares are to be redeemed pursuant to this Section 3(a)(iv), the number of shares to be redeemed shall be redeemed pro rata from the Holders of such shares in proportion to the number of such shares held by such Holders, by lot or by such other method as the Trust shall deem fair and equitable, subject, however, to the terms of any applicable Specific Redemption Provisions. "Mandatory Redemption Price" means the Redemption Price plus (in the case of a Dividend Period of one year or more only) a redemption premium, if any, determined by the Board of Trustees after consultation with the Broker-Dealers and set forth in any applicable Specific Redemption Provisions. (b) In the event of a redemption pursuant to the foregoing Section 3(a), the Trust will file a notice of its intention to redeem with the Securities and Exchange Commission (the "Commission") so as to provide at least the minimum notice required under Rule 23c-2 under the 1940 Act or any successor provision. In addition, the Trust shall deliver a notice of redemption to the Auction Agent (the "Notice of Redemption") containing the information set forth below (i) in the case of an optional redemption pursuant to Section 3(a)(i) above, one Business Day prior to the giving of notice to the Holders, (ii) in the case of a mandatory redemption pursuant to Section 3(a)(ii) above, on or prior to the 10th day preceding the Mandatory Redemption Date. The Auction Agent will use its reasonable efforts to provide telephonic notice to each Holder of shares of any Series called for redemption not later than the close of business on the Business Day immediately following the day on which the Auction Agent determines the shares to be redeemed (or, during a Default Period with respect to such shares, not later than the close of business on the Business Day immediately following the day on which the Auction Agent receives Notice of Redemption from the Trust). The Auction Agent shall confirm such telephonic notice in writing not later than the close of business on the third Business Day preceding the date fixed for redemption by providing the Notice of Redemption to each Holder of shares called for redemption, the Paying Agent (if different from the Auction Agent) and the Securities Depository. Notice of Redemption will be addressed to the registered owners of shares of any Series at their addresses appearing on the share records of the Trust. Such Notice of Redemption will set forth (i) the date fixed for redemption, (ii) the number and identity of shares of each Series to be redeemed, (iii) the redemption price (specifying the amount of accumulated dividends to be included therein), (iv) that dividends on the shares to be redeemed will cease to accumulate on such date fixed for redemption and (v) the provision under which redemption shall be made. No defect in the Notice of Redemption or in the transmittal or mailing thereof will affect the validity of the redemption proceedings, except as required by B-7 applicable law. If fewer than all shares held by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder shall also specify the number of shares to be redeemed from such Holder. (c) Notwithstanding the provisions of paragraph (a) of this Section 3, no preferred shares, including the Preferred Shares, may be redeemed at the option of the Trust unless all dividends in arrears on the Outstanding Preferred Shares and any other preferred shares have been or are being contemporaneously paid or set aside for payment; provided, however, that the foregoing shall not prevent the purchase or acquisition of outstanding preferred shares pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to holders of all outstanding preferred shares. (d) Upon the deposit of funds sufficient to redeem shares of any Series with the Paying Agent and the giving of the Notice of Redemption to the Auction Agent under paragraph (b) of this Section 3, dividends on such shares shall cease to accumulate and such shares shall no longer be deemed to be Outstanding for any purpose (including, without limitation, for purposes of calculating whether the Trust has met the Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage), and all rights of the Holders of the shares so called for redemption shall cease and terminate, except the right of such Holder to receive the Redemption Price specified herein, but without any interest or other additional amount. Such Redemption Price shall be paid by the Paying Agent to the nominee of the Securities Depository. The Trust shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent in excess of (i) the aggregate Redemption Price of the shares of any Series called for redemption on such date and (ii) such other amounts, if any, to which Holders of shares of any Series called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of two years from such Redemption Date shall, to the extent permitted by law, be paid to the Trust, after which time the Holders of shares of each Series so called for redemption may look only to the Trust for payment of the Redemption Price and all other amounts, if any, to which they may be entitled; provided, however, that the Paying Agent shall notify all Holders whose funds are unclaimed by placing a notice in the Wall Street Journal concerning the availability of such funds for three consecutive weeks. The Trust shall be entitled to receive, from time to time after the date fixed for redemption, any interest earned on the funds so deposited. (e) To the extent that any redemption for which Notice of Redemption has been given is not made by reason of the absence of legally available funds therefor, or is otherwise prohibited, such redemption shall be made as soon as practicable to the extent such funds become legally available or such redemption is no longer otherwise prohibited. A failure to redeem shares of any Series shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Trust shall have failed, for any reason whatsoever, to deposit in trust with the Paying Agent the Redemption Price with respect to any shares for which such Notice of Redemption has been given. Notwithstanding the fact that the Trust may not have redeemed shares of each Series for which a Notice of Redemption has been given, dividends may be declared and paid on shares of any Series and shall include those shares of any Series for which Notice of Redemption has been given but for which deposit of funds has not been made. (f) All moneys paid to the Paying Agent for payment of the Redemption Price of shares of any Series called for redemption shall be held in trust by the Paying Agent for the benefit of Holders of shares so to be redeemed. (g) So long as any shares of any Series are held of record by the nominee of the Securities Depository, the Redemption Price for such shares will be paid on the date fixed for redemption to the nominee of the Securities Depository for distribution to Agent Members for distribution to the persons for whom they are acting as agent. (h) Except for the provisions described above, nothing contained in this Certificate limits any right of the Trust to purchase or otherwise acquire any shares of any Series outside of an Auction at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on, or the mandatory or optional redemption price with respect to, any shares of any Series for which Notice of Redemption has been given and the Trust meets the 1940 Act Preferred Shares Asset Coverage and the Preferred Shares Basic Maintenance Amount Test after giving effect to such purchase or acquisition on the B-8 date thereof. Any shares of any Series which are purchased, redeemed or otherwise acquired by the Trust shall have no voting rights. If fewer than all the Outstanding shares of any Series are redeemed or otherwise acquired by the Trust, the Trust shall give notice of such transaction to the Auction Agent, in accordance with the procedures agreed upon by the Board. (i) In the case of any redemption pursuant to this Section 3, only whole shares of each Series shall be redeemed, and in the event that any provision of the Declaration would require redemption of a fractional share, the Auction Agent shall be authorized to round up so that only whole shares are redeemed. (j) Notwithstanding anything herein to the contrary, including, without limitation, Section 6(i) of Part I of this Certificate, the Board may authorize, create or issue other series of preferred shares, including other series of Preferred Shares and other series of preferred shares ranking on a parity with the Preferred Shares with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust, to the extent permitted by the 1940 Act, as amended, if upon issuance, the net proceeds from the sale of such preferred shares (or such portion thereof needed to redeem or repurchase the Outstanding Preferred Shares) are deposited with the Auction Agent in accordance with Section 3(d) of Part I of this Certificate, Notice of Redemption as contemplated by Section 3(b) of Part I of this Certificate has been delivered prior thereto or is sent promptly thereafter, and such proceeds are used to redeem all Outstanding Preferred Shares or, if upon the issuance of any such series, the Trust would meet the 1940 Act Preferred Shares Asset Coverage, the Preferred Shares Basic Maintenance Amount Test and the requirements of Section 12 of Part I of this Certificate. (k) Notwithstanding anything herein to the contrary, redemptions of preferred shares pursuant to this Section 3 shall comply with the terms and covenants of any commercial paper program and no such redemptions shall be permitted to the extent they will cause an event of default under such agreements. 4. DESIGNATION OF DIVIDEND PERIOD. (a) The initial Dividend Period for each Series is as set forth under "Designation" above. The Trust will designate the duration of subsequent Dividend Periods of each Series; provided, however, that no such designation is necessary for a Standard Dividend Period and, provided further, that any designation of a Special Dividend Period shall be effective only if (i) notice thereof shall have been given as provided herein, (ii) any failure to pay in a timely manner to the Auction Agent the full amount of any dividend on, or the Redemption Price of, each Series shall have been cured as provided above, (iii) Sufficient Clearing Orders shall have existed in an Auction held on the Auction Date immediately preceding the first day of such proposed Special Dividend Period, (iv) if the Trust shall have mailed a Notice of Redemption with respect to any shares of any Series, the redemption price with respect to such shares shall have been deposited with the Paying Agent, and (v) in the case of the designation of a Special Dividend Period, the Trust has confirmed that as of the Auction Date next preceding the first day of such Special Dividend Period, it has Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount, and the Trust has consulted with the Broker-Dealers and has provided notice of such designation and a Preferred Shares Basic Maintenance Certificate to each Rating Agency. (b) If the Trust proposes to designate any Special Dividend Period, not fewer than 7 Business Days (or two Business Days in the event the duration of the Dividend Period prior to such Special Dividend Period is fewer than 8 days) nor more than 30 Business Days prior to the first day of such Special Dividend Period, notice shall be (i) made by press release and (ii) communicated by the Trust by telephonic or other means to the Auction Agent and confirmed in writing promptly thereafter. Each such notice shall state (A) that the Trust proposes to exercise its option to designate a succeeding Special Dividend Period, specifying the first and last days thereof, and (B) that the Trust will, by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such Special Dividend Period, notify the Auction Agent, who will promptly notify the Broker-Dealers, of either (x) its determination, subject to certain conditions, to proceed with such Special Dividend Period, subject to the terms of any Specific Redemption Provisions, or (y) its determination not to proceed with such Special Dividend Period, in which latter event the succeeding Dividend Period shall be a Standard Dividend Period. No later than 3:00 p.m., New York City time, on the second Business Day B-9 next preceding the first day of any proposed Special Dividend Period, the Trust shall deliver to the Auction Agent, who will promptly deliver to the Broker-Dealers and Existing Holders, either: (i) a notice stating (A) that the Trust has determined to designate the next succeeding Dividend Period as a Special Dividend Period, specifying the first and last days thereof, and (B) the terms of any Specific Redemption Provisions; or (ii) a notice stating that the Trust has determined not to exercise its option to designate a Special Dividend Period. If the Trust fails to deliver either such notice with respect to any designation of any proposed Special Dividend Period to the Auction Agent or is unable to make the confirmation provided in clause (v) of Paragraph (a) of this Section 4 by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such proposed Special Dividend Period, the Trust shall be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in clause (ii) above, thereby resulting in a Standard Dividend Period. 5. RESTRICTIONS ON TRANSFER. Shares of each Series may be transferred only (a) pursuant to an order placed in an Auction, (b) to or through a Broker-Dealer or (c) to the Trust or any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless the selling Existing Holder or the Agent Member of such Existing Holder, in the case of an Existing Holder whose shares are listed in its own name on the books of the Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer between persons holding shares of any Series through different Broker-Dealers, advises the Auction Agent of such transfer. The certificates representing the shares of each Series issued to the Securities Depository will bear legends with respect to the restrictions described above and stop-transfer instructions will be issued to the Transfer Agent and/or Registrar. 6. VOTING RIGHTS. (a) Except as otherwise provided in the Declaration or as otherwise required by applicable law, (i) each Holder of shares of any Series shall be entitled to one vote for each share of any Series held on each matter submitted to a vote of shareholders of the Trust, and (ii) the holders of preferred shares, including shares of each Series, and Common Shares shall vote together as a single class on all matters submitted to shareholders; provided, however, that, at any meeting of the shareholders of the Trust held for the election of trustees, the holders of preferred shares, including shares of each Series, represented in person or by proxy at said meeting, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of shares of beneficial interest of the Trust, to elect two trustees of the Trust, with each preferred share entitling the holder thereof to one vote. Except as set forth in paragraph (b) of this Section 6, the class of preferred shares, including shares of each Series, shall not be entitled to participate in the election of any other trustees of the Trust. (b) During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of trustees constituting the Board shall be automatically increased by the smallest number that, when added to the two trustees elected exclusively by the holders of preferred shares, including shares of each Series, would constitute a majority of the Board as so increased by such smallest number; and the holders of preferred shares, including shares of each Series, shall be entitled, voting as a class on a one-vote-per-share basis (to the exclusion of the holders of all other securities and classes of shares of beneficial interest of the Trust), to elect such smallest number of additional trustees, together with the two trustees that such holders are in any event entitled to elect. A Voting Period shall commence: (i) If, at the close of business on any Dividend Payment Date, accumulated dividends (whether or not earned or declared) on preferred shares, including shares of each Series, equal to at least two full years' dividends shall be due and unpaid; or B-10 (ii) if at any time holders of any other preferred shares are entitled under the 1940 Act to elect a majority of the trustees of the Trust. Upon the termination of a Voting Period, the voting rights described in this paragraph (b) of Section 6 shall cease, subject always, however, to the revesting of such voting rights in the holders of preferred shares, including shares of each Series, upon the further occurrence of any of the events described in this paragraph (b) of Section 6. (c) As soon as practicable after the accrual of any right of the holders of preferred shares, including shares of each Series, to elect additional trustees as described in paragraph (b) of this Section 6, the Trust shall notify the Auction Agent, and the Auction Agent shall call a special meeting of such holders, by mailing a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more than 90 days after the date of mailing of such notice. If the Trust fails to send such notice to the Auction Agent or if the Auction Agent does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of preferred shares, including shares of each Series, held during a Voting Period at which trustees are to be elected, such holders, voting together as a class (to the exclusion of the holders of all other securities and classes of shares of beneficial interest of the Trust), shall be entitled to elect the number of trustees prescribed in paragraph (b) of this Section 6 on a one-vote-per-share basis. (d) The holders of preferred shares, including shares of each Series, may also have such other voting rights as are contemplated by Article III of the Trust's Declaration. (e) For purposes of determining any rights of the holders of preferred shares, including shares of each Series, to vote on any matter, whether such right is created by the Certificate, by statute or otherwise, if redemption of some or all of the preferred shares, including shares of each Series, is required, no holder of preferred shares, including shares of each Series, shall be entitled to vote and no preferred shares, including shares of each Series, shall be deemed to be "outstanding" for the purpose of voting or determining the number of shares required to constitute a quorum, if, prior to or concurrently with the time of determination, sufficient Deposit Securities for the redemption of such shares have been deposited, in the case of Preferred Shares, in trust with the Paying Agent for that purpose and the requisite Notice of Redemption with respect to such shares shall have been given as provided in Section 3(b) of Part I of this Certificate and, in the case of other preferred shares, the Trust has otherwise met the conditions for redemption applicable to such preferred shares. (f) The terms of office of all persons who are trustees of the Trust at the time of a special meeting of Holders of the Preferred Shares and holders of other preferred shares to elect trustees pursuant to paragraph (b) of this Section 6 shall continue, notwithstanding the election at such meeting by the holders of the number of trustees that they are entitled to elect and the persons so elected by such holders, together with the two incumbent trustees elected by such holders and the remaining incumbent trustees, shall constitute the duly elected trustees of the Trust. (g) Simultaneously with the termination of a Voting Period, the terms of office of the additional trustees elected by the Holders of the Preferred Shares and holders of other preferred shares pursuant to paragraph (b) of this Section 6 shall terminate, the remaining trustees shall constitute the trustees of the Trust and the voting rights of such holders to elect additional trustees pursuant to paragraph (b) of this Section 6 shall cease, subject to the provisions of the last sentence of paragraph (b) of this Section 6. (h) Unless otherwise required by law or in the Trust's charter documents, the Holders of Preferred Shares shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. In the event that the Trust fails to pay any dividends on the Preferred Shares of the Trust or fails to redeem any Preferred Shares which it is required to redeem, or any other event occurs which requires the mandatory redemption of Preferred Shares, and the required Notice of Redemption has not been given, other than the rights set forth in paragraph (a) of Section 3 of Part I of this Certificate, the exclusive remedy of the B-11 Holders of Preferred Shares shall be the right to vote for trustees pursuant to the provisions of paragraph (b) of this Section 6. In no event shall the Holders of Preferred Shares have any right to sue for, or bring a proceeding with respect to, such dividends or redemptions or damages for the failure to receive the same. (i) So long as any of preferred shares are outstanding, the Trust will not, without the affirmative vote of the holders of a majority of the outstanding preferred shares, (i) amend, alter or repeal any of the preferences, rights or powers of such class so as to affect materially and adversely such preferences, rights or powers; (ii) increase the authorized number of Preferred Shares; (iii) create, authorize or issue shares of any class of shares ranking senior to or on parity with the Preferred Shares or any other series of preferred shares with respect to the payment of dividends or the distribution of assets on liquidation; (iv) institute any proceedings to be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or file a petition seeking or consenting to reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trust or a substantial part of its property, or make any assignment for the benefit of creditors, or, except as may be required by applicable law, admit in writing its inability to pay its debts generally as they become due or take any corporate action in furtherance of any such action; (v) create, incur or suffer to exist, or agree to create, incur or suffer to exist, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of any material lien, mortgage, pledge, charge, security interest, security agreement, conditional sale or trust receipt or other material encumbrance of any kind upon any of the Trust's assets as a whole, except (A) liens the validity of which are being contested in good faith by appropriate proceedings, (B) liens for taxes that are not then due and payable or that can be paid thereafter without penalty, (C) liens, pledges, charges, security interests, security agreements or other encumbrances arising in connection with any indebtedness senior to the preferred shares, (D) liens, pledges, charges, security interests, security agreements or other encumbrances arising in connection with any indebtedness permitted under clause (vi) below and (E) liens to secure payment for services rendered including, without limitation, services rendered by the Trust's Paying Agent and the Auction Agent; or (vi) create, authorize, issue, incur or suffer to exist any indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness, except the Trust may borrow as may be permitted by the Trust's investment restrictions; provided, however, that transfers of assets by the Trust subject to an obligation to repurchase shall not be deemed to be indebtedness for purposes of this provision to the extent that after any such transaction the Trust has Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount as of the immediately preceding Valuation Date. (j) The affirmative vote of the holders of a majority of the outstanding preferred shares, including shares of each Series, voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares or any action requiring a vote of security holders of the Trust under Section 13(a) of the 1940 Act. In the event a vote of holders of preferred shares is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Trust shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify each Rating Agency that such vote is to be taken and the nature of the action with respect to which such vote is to be taken and shall, not later than ten Business Days after the date on which such vote is taken, notify each Rating Agency of the results of such vote. (k) The affirmative vote of the holders of a majority of the outstanding preferred shares of any series, voting separately from any other series, shall be required with respect to any matter that materially and adversely affects the rights, preferences or powers of that series in a manner different from that of other series or classes of the Trust's shares of beneficial interest. For purposes of the foregoing, no matter shall be deemed to adversely affect any right, preference or power unless such matter (i) alters or abolishes any preferential right of such series; (ii) creates, alters or abolishes any right in respect of redemption of such series; or (iii) creates or alters (other than to abolish) any restriction on transfer applicable to such series. The vote of holders of any series described in this Section 6(k) will in each case be in addition to a separate vote of the requisite percentage of Common Shares and/or preferred shares, if any, necessary to authorize the action in question. B-12 (l) The Board, without the vote or consent of any holder of preferred shares, including shares of each series, or any other shareholder of the Trust, may from time to time amend, alter or repeal any or all of the definitions contained herein, add covenants and other obligations of the Trust or confirm the applicability of covenants and other obligations set forth herein, all in connection with obtaining or maintaining the rating of any Rating Agency with respect to each Series, and any such amendment, alteration or repeal will not be deemed to affect the preferences, rights or powers of Preferred Shares or the Holders thereof, provided that the Board receives written confirmation from each relevant Rating Agency (with such confirmation in no event being required to be obtained from a particular Rating Agency with respect to definitions or other provisions relevant only to and adopted in connection with another Rating Agency's rating of any Series) that any such amendment, alteration or repeal would not adversely affect the rating then assigned by such Rating Agency. In addition, subject to compliance with applicable law, the Board may amend the definition of Maximum Rate to increase the percentage amount by which the Reference Rate is multiplied to determine the Maximum Rate shown therein without the vote or consent of the holders of preferred shares, including shares of each Series, or any other shareholder of the Trust, and without receiving any confirmation from any Rating Agency, after consultation with the Broker-Dealers, provided that immediately following any such increase the Trust would meet the Preferred Shares Basic Maintenance Amount Test. (m) Unless otherwise required by law, Holders of shares of each Series shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. The Holders of shares of each Series shall have no rights to cumulative voting. In the event that the Trust fails to pay any dividends on the shares of any Series, the exclusive remedy of the Holders shall be the right to vote for trustees pursuant to the provisions of this Section 6. (n) The foregoing voting provisions will not apply with respect to any series if, at or prior to the time when a vote is required, such shares have been (i) redeemed or (ii) called for redemption and sufficient funds shall have been deposited in trust to effect such redemption. 7. LIQUIDATION RIGHTS. (a) In the event of any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the holders of all outstanding preferred shares, including shares of each Series, shall be entitled to receive out of the assets of the Trust (or the proceeds thereof) available for distribution to shareholders, after claims of creditors but before any distribution or payment shall be made in respect of the Common Shares or any other shares of the Trust ranking junior to the preferred shares, as to liquidation payments, a liquidation distribution in the amount of $25,000 per share (the "Liquidation Preference"), plus an amount equal to all unpaid dividends accrued to and including the date fixed for such distribution or payment (whether or not declared by the Trust, but excluding interest thereon), but such holders shall be entitled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up. (b) If, upon any such liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the assets of the Trust available for distribution among the holders of all outstanding preferred shares, including shares of each Series, shall be insufficient to permit the payment in full to such holders of the amounts to which they are entitled, then such available assets shall be distributed among the holders of preferred shares, including shares of each Series, ratably in any such distribution of assets according to the respective amounts which would be payable on all such shares if all amounts thereon were paid in full. Unless and until payment in full of the liquidation distributions to which they are entitled has been made to the holders of preferred shares, including shares of each Series, no dividends or distributions will be made to holders of Common Shares or any shares of the Trust ranking junior to the preferred shares as to liquidation. (c) Upon the dissolution, liquidation or winding up of the affairs of the Trust, whether voluntary or involuntary, until payment in full is made to the Holders of the Preferred Shares of the liquidation distribution to which they are entitled, no dividend or other distribution shall be made to the holders of shares of Common Shares or any other class of shares of beneficial interest of the Trust ranking junior to the Preferred Shares B-13 upon dissolution, liquidation or winding up of the affairs of the Trust and no purchase, redemption or other acquisition for any consideration by the Trust shall be made in respect of the shares of Common Shares or any other class of shares of beneficial interest of the Trust ranking junior to the Preferred Shares upon dissolution, liquidation or winding up of the affairs of the Trust. (d) Neither the consolidation nor merger of the Trust with or into any other corporation or corporations, nor the sale, lease, exchange or transfer by the Trust of all or substantially all of its property and assets, shall be deemed to be a liquidation, dissolution or winding up of the Trust for purposes of this Section 7. (e) After the payment to Holders of Preferred Shares of the full preferential amounts provided for in this Section 7, the Holders of the Preferred Shares as such shall have no right or claim to any of the remaining assets of the Trust. (f) In the event the assets of the Trust or proceeds thereof available for distribution to the Holders of Preferred Shares, upon dissolution, liquidation or winding up of the affairs of the Trust, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of preferred shares unless proportionate distributive amounts shall be paid on account of the Preferred Shares, ratably, in proportion to the full distributable amounts to which holders of all preferred shares are entitled upon such dissolution, liquidation or winding up. (g) Subject to the rights of the holders of other preferred shares or after payment shall have been made in full to the Holders of Preferred Shares as provided in paragraph (a) of this Section 7, but not prior thereto, any other series or class of shares ranking junior to the Preferred Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders of the Preferred Shares shall not be entitled to share therein. 8. AUCTION AGENT. For so long as any Preferred Shares are Outstanding, the Auction Agent, duly appointed by the Trust to so act, shall be in each case a commercial bank, trust company or other financial institution independent of the Trust and its Affiliates (which, however, may engage or have engaged in business transactions with the Trust or its Affiliates), and at no time shall the Trust or any of its Affiliates act as the Auction Agent in connection with the Auction Procedures. If the Auction Agent resigns or for any reason its appointment is terminated during any period that any shares of any Series are Outstanding, the Trust shall use its best efforts promptly thereafter to appoint another qualified commercial bank, trust company or financial institution to act as the Auction Agent. 9. 1940 ACT PREFERRED SHARES ASSET COVERAGE. The Trust shall maintain, as of the last Business Day of each month in which any Preferred Shares are Outstanding, the 1940 Act Preferred Shares Asset Coverage; provided, however, that Section 3(a)(ii) shall be the sole remedy in the event the Trust fails to do so. 10. PREFERRED SHARES BASIC MAINTENANCE AMOUNT. So long as any Preferred Shares are Outstanding and any Rating Agency so requires, the Trust shall maintain, as of each Valuation Date, Moody's Eligible Assets and Fitch Eligible Assets, as applicable, having an aggregate Discounted Value equal to or greater than the Preferred Shares Basic Maintenance Amount; provided, however, that Section 3(a)(ii) shall be the sole remedy in the event the Trust fails to do so. B-14 11. [RESERVED] 12. CERTAIN OTHER RESTRICTIONS. So long as any Preferred Shares are Outstanding and any Rating Agency so requires, the Trust will not, unless it has received written confirmation from such Rating Agency that any such action would not impair the rating then assigned by such Rating Agency to the Preferred Shares, engage in any one or more of the following transactions: (a) purchase or sell futures contracts or options thereon with respect to portfolio securities or write put or call options on portfolio securities; (b) except in connection with a refinancing of the Preferred Shares, issue additional shares of any series of preferred shares, including any Series, or reissue any preferred shares, including any Series previously purchased or redeemed by the Trust; (c) engage in any short sales of securities; (d) lend portfolio securities; (e) merge or consolidate into or with any other corporation; (f) engage in any reverse repurchase agreement; or (g) change the Pricing Service to a service other than an Approved Pricing Service. 13. COMPLIANCE PROCEDURES FOR ASSET MAINTENANCE TESTS. For so long as any Preferred Shares are Outstanding and any Rating Agency so requires: (a) As of each Valuation Date, the Trust shall determine (i) the Market Value of each Eligible Asset owned by the Trust on that date, (ii) the Discounted Value of each such Eligible Asset, (iii) whether the Preferred Shares Basic Maintenance Amount Test is met as of that date, (iv) the value (as used in the 1940 Act) of the total assets of the Trust, less all liabilities, and (v) whether the 1940 Act Preferred Shares Asset Coverage is met as of that date. (b) Upon any failure to meet the Preferred Shares Basic Maintenance Amount Test or 1940 Act Preferred Shares Asset Coverage on any Valuation Date, the Trust may use reasonable commercial efforts (including, without limitation, altering the composition of its portfolio, purchasing Preferred Shares outside of an Auction or, in the event of a failure to file a certificate on a timely basis, submitting the requisite certificate), to meet (or certify in the case of a failure to file a certificate on a timely basis, as the case may be) the Preferred Shares Basic Maintenance Amount Test or 1940 Act Preferred Shares Asset Coverage on or prior to the Asset Coverage Cure Date. (c) [Reserved] (d) The Trust shall deliver to the Auction Agent and each Rating Agency a certificate which sets forth a determination of items (i)-(iii) of paragraph (a) of this Section 13 (a "Preferred Shares Basic Maintenance Certificate") as of (A) the Date of Original Issue, (B) the last Valuation Date of each month on or before the third Business day after such day, (C) any date requested by any Rating Agency, in each case on or before the third Business Day after such day, (D) a Business Day on or before any Asset Coverage Cure Date relating to the Trust's cure of a failure to meet the Preferred Shares Basic Maintenance Amount Test, (E) any day in which the Fund shall fail to have Moody's Eligible Assets or Fitch Eligible Assets with an aggregate Discounted Value at least equal to 105% of the Preferred Shares Basic Maintenance Amount, and (F) any day that Common or Preferred Shares are repurchased. Such Preferred Shares Basic Maintenance Certificate shall be delivered in the case of clause (i)(A) on the Date of Original Issue and in the case of all other clauses, except as otherwise noted above, on or before the seventh Business Day after the relevant Valuation Date or Asset Coverage Cure Date. B-15 (e) The Trust shall deliver to the Auction Agent and each Rating Agency a certificate which sets forth a determination of items (iv) and (v) of paragraph (a) of this Section 13 (a "1940 Act Preferred Shares Asset Coverage Certificate") (i) as of the Date of Original Issue, and (ii) as of (A) the last Valuation Date of each fiscal year thereafter, and (B) as of a Business Day on or before any Asset Coverage Cure Date relating to the failure to meet the 1940 Act Preferred Shares Asset Coverage. Such 1940 Act Preferred Shares Asset Coverage Certificate shall be delivered in the case of clause (i) on the Date of Original Issue and in the case of clause (ii) on or before the seventh Business Day after the relevant Valuation Date or the Asset Coverage Cure Date. The certificates required by paragraphs (d) and (e) of this Section 13 may be combined into a single certificate. (f) [Reserved] (g) Within ten Business Days of the Date of Original Issue, the Trust shall deliver to the Auction Agent and each Rating Agency a letter prepared by the Trust's independent auditors (an "Auditor's Certificate") regarding the accuracy of the calculations made by the Trust in the Preferred Shares Basic Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage Certificate required to be delivered by the Trust on the Date of Original Issue. Within ten Business Days after delivery of the Preferred Shares Basic Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage Certificate relating to the last Valuation Date of each fiscal year of the Trust, the Trust will deliver to the Auction Agent and each Rating Agency an Auditor's Certificate regarding the accuracy of the calculations made by the Trust in such Certificates. In addition, the Trust will deliver to the persons specified in the preceding sentence an Auditor's Certificate regarding the accuracy of the calculations made by the Trust on each Preferred Shares Basic Maintenance Certificate and 1940 Act Preferred Shares Asset Coverage Certificate delivered in relation to an Asset Coverage Cure Date within ten days after the relevant Asset Coverage Cure Date. If an Auditor's Certificate shows that an error was made in any such report, the calculation or determination made by the Trust's independent auditors will be conclusive and binding on the Trust. (h) The Auditor's Certificates referred to in paragraph (g) above will confirm, based upon the independent auditors review of portfolio data provided by the Trust, (i) the mathematical accuracy of the calculations reflected in the related Preferred Shares Basic Maintenance Amount Certificates and 1940 Act Preferred Shares Asset Coverage Certificates, (ii) that, based upon such calculations, the Trust had, at such Valuation Date, met the Preferred Shares Basic Maintenance Amount Test, and (iii) that the Trust met the Moody's General Portfolio Requirements and the Fitch General Portfolio Requirements, as applicable. (i) In the event that a Preferred Shares Basic Maintenance Certificate or 1940 Act Preferred Shares Asset Coverage Certificate with respect to an applicable Valuation Date is not delivered within the time periods specified in this Section 13, the Trust shall be deemed to have failed to meet the Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage, as the case may be, on such Valuation Date for purposes of Section 13(b) of Part I of this Certificate. In the event that a Preferred Shares Basic Maintenance Certificate, a 1940 Act Preferred Shares Asset Coverage Certificate or an applicable Auditor's Certificate with respect to an Asset Coverage Cure Date is not delivered within the time periods specified herein, the Trust shall be deemed to have failed to meet the Preferred Shares Basic Maintenance Amount Test or the 1940 Preferred Shares Asset Coverage, as the case may be, as of the related Valuation Date. 14. [RESERVED] 15. NOTICE. All notices or communications hereunder, unless otherwise specified in this Certificate, shall be sufficiently given if in writing and delivered in person, by telecopier or mailed by first-class mail, postage prepaid. Notices delivered pursuant to this Section 15 shall be deemed given on the earlier of the date received or the date five days after which such notice is mailed. B-16 16. WAIVER. To the extent permitted by Massachusetts law, holders of at least two-thirds of the Outstanding Preferred Shares, acting collectively, or each Series, acting as a separate series, may waive any provision hereof intended for their respective benefit in accordance with such procedures as may from time to time be established by the Board. 17. TERMINATION. In the event that no Preferred Shares are Outstanding, all rights and preferences of such shares established and designated hereunder shall cease and terminate, and all obligations of the Trust under this Certificate shall terminate. 18. AMENDMENT. Subject to the provisions of this Certificate, the Board may, by resolution duly adopted without shareholder approval (except as otherwise provided by this Certificate or required by applicable law), amend this Certificate to (1) reflect any amendments hereto which the Board is entitled to adopt pursuant to the terms of Section 6(l) of Part I of this Certificate without shareholder approval or (2) add additional shares of each Series (and terms relating thereto). All such additional shares shall be governed by the terms of this Certificate. To the extent permitted by applicable law, the Board may interpret, amend or adjust the provisions of this Certificate to resolve any inconsistency or ambiguity or to remedy any patent defect. 19. DEFINITIONS. As used in Part I and Part II of this Certificate, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "1940 Act" means the Investment Company Act of 1940, as amended. "1940 Act Preferred Shares Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Trust which are shares of beneficial interest, including all Outstanding Preferred Shares (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares of beneficial interest of a closed-end investment company as a condition of declaring dividends on its common shares), determined on the basis of values calculated as of a time within 48 hours (not including Sundays or holidays) next preceding the time of such determination. "1940 Act Preferred Shares Asset Coverage Certificate" means the certificate required to be delivered by the Trust pursuant to Section 13(e) of Part I of this Certificate. "Affiliate" means any person known to the Auction Agent to be controlled by, in control of or under common control with the Trust; provided that Van Kampen Asset Management shall not be deemed to be an Affiliate nor shall any corporation or any person controlled by, in control of or under common control with such corporation, one of the trustees, directors or executive officers of which is also a trustee, director or executive officer of the Trust, be deemed to be an Affiliate. "Agent Member" means a member of or a participant in the Securities Depository that will act on behalf of a Bidder. "All Hold Rate" means 80% of LIBOR. "Applicable Rate" (the rate per annum at which cash dividends are payable on each Series) means, with respect to each Series for each Dividend Period, (i) if Sufficient Clearing Orders exist for the Auction in respect thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist for the Auction in respect thereof, the Maximum Rate. B-17 "Approved Price" means the "fair value" as determined by the Trust in accordance with the valuation procedures adopted from time to time by the Board of Trustees and for which the Trust receives a marked-to-market price (which, for the purpose of clarity, shall not mean a Market Value Price) from an independent source at least semi-annually. "Approved Pricing Service" means Loan Pricing Corporation or any other quotation service designated in writing by the Trust provided that no Rating Agency has objected, in its reasonable discretion, in writing to the Trust within ten business days of receipt of the Trust's written notice of the designation of such quotation service. "Asset Coverage Cure Date" has the meaning set forth in Section 3(a)(ii) of this Certificate. "Auction" means each periodic operation of the procedures set forth under "Auction Procedures." "Auction Agent" means The Bank of New York Company unless and until another commercial bank, trust company or other financial institution appointed by a resolution of the Board enters into an agreement with the Trust to follow the Auction Procedures for the purpose of determining the Applicable Rate. "Auction Date" means the first Business Day next preceding the first day of a Dividend Period for each Series. "Auction Procedures" means the procedures for conducting Auctions set forth in Part II hereof. "Auditor's Certificate" has the meaning set forth in Section 13(g) of Part I of this Certificate. "Beneficial Owner," with respect to shares of each Series, means a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares of such series. "Bid" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate. "Bidder" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate; provided, however, that neither the Trust nor any Affiliate shall be permitted to be a Bidder in an Auction. "Board" means the Board of Trustees of the Trust or any duly authorized committee thereof as permitted by applicable law. "Broker-Dealer" means any broker-dealer or broker-dealers, or other entity permitted by law to perform the functions required of a Broker-Dealer by the Auction Procedures, that has been selected by the Trust and has entered into a Broker-Dealer Agreement with the Auction Agent that remains effective. "Broker-Dealer Agreement" means an agreement between the Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the Auction Procedures. "Business Day" means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in the City of New York, New York are authorized or obligated by law to close. "Commercial Paper Dealers" means Citigroup Global Markets Inc. and such other commercial paper dealer or dealers as the Trust may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors. "Commission" means the Securities and Exchange Commission. "Common Shares" means the common shares of beneficial interest, par value $0.01 per share, of the Trust. "Date of Original Issue" means the date on which a Series is originally issued by the Trust. "Default Period" has the meaning set forth in Sections 2(c) (ii) or (iii) of Part I of this Certificate. "Default Rate" means the Reference Rate multiplied by three (3). B-18 "Deposit Securities" means cash and any obligations or securities, including Short Term Money Market Instruments that are Eligible Assets, rated at least A2 (having a remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by Moody's or AAA or F-1 by Fitch. "Discounted Value" means the product of the Market Value (plus accrued interest) of an Eligible Asset multiplied by the applicable Advance Rate. "Dividend Default" has the meaning set forth in Section 2(c)(ii) of Part I of this Certificate. "Dividend Payment Date" means (i) with respect to any Dividend Period of one year or less, the Business Day next succeeding the last day thereof and, if any, the 91st, 181st and 271st days thereof, and (ii) with respect to any Dividend Period of more than one year, on a quarterly basis on each January 1, April 1, July 1 and October 1 and on the Business Day following the last day of such Dividend Period. "Dividend Period" means, with respect to each Series, the period commencing on the Date of Original Issue thereof and ending on the date specified for such series on the Date of Original Issue thereof and thereafter, as to such Series, the period commencing on the day following each Dividend Period for such Series and ending on the day established for such Series by the Trust. "Eligible Assets" means Moody's Eligible Assets (if Moody's is then rating the Preferred Shares) and Fitch Eligible Assets (if Fitch is then rating the Preferred Shares), whichever is applicable. "Existing Holder" has the meaning set forth in Section 1 of Part II of this Certificate. "Fitch" means Fitch Ratings and its successors at law. "Fitch Discount Factor" means, for purposes of determining the Discounted Value of any Fitch Eligible Asset, the percentage determined as follows. The Fitch Discount Factor for any Fitch Eligible Asset other than the securities set forth below will be the percentage provided in writing by Fitch. (i) Senior Loans: The Fitch Discount Factor applied to senior, secured floating rate Loans made to corporate and other business entities ("Senior Loans") shall be the percentage specified in the table below opposite such Fitch Loan Category:

FITCH LOAN CATEGORY DISCOUNT FACTOR - ------------------- --------------- A........................................................... 115% B........................................................... 130% C........................................................... 152% D........................................................... 370%

B-19 (ii) Corporate Debt Securities: The percentage determined by reference to the rating on such asset with reference to the remaining term to maturity of such asset, in accordance with the table set forth below. DISCOUNT FACTORS FOR CORPORATE DEBT SECURITIES INCLUDING NON-INVESTMENT GRADE BONDS (NON-CONVERTIBLES)

TERMS TO MATURITY OF NON-INVESTMENT GRADE BONDS AAA AA A BBB BB B NR(1) - -------------------------- --- --- --- --- --- --- ----- 1 year or less.................................. 106% 108% 110% 112% 130% 152% 152% 2 years or less (but longer than 1 year)........ 106 108 110 112 130 152 152 3 years or less (but longer than 2 years)....... 106 108 110 112 130 152 152 4 years or less (but longer than 3 years)....... 111 113 115 117 134 152 152 5 years or less (but longer than 4 years)....... 111 113 115 117 134 152 152 7 years or less (but longer than 5 years)....... 114 116 118 120 136 152 152 10 years or less (but longer than 7 years)...... 116 118 120 122 137 152 152 15 years or less (but longer than 10 years)..... 120 122 124 124 139 152 152 30 years or less (but longer than 15 years)..... 124 127 129 129 145 152 152 Greater than 30 years........................... 124 127 129 129 145 152 152

- --------------- (1) If a security is not rated by Fitch but is rated by two other Rating Agencies, then the lower of the ratings on the security from the two other Rating Agencies will be used to determine the Fitch Discount Factor (e.g., where the Moody's rating is Baa, a Fitch rating of BBB will be used). If a security is not rated by Fitch but is rated by only one other Rating Agency, then the rating on the security from the other Rating Agency will be used to determine the Fitch Discount Factor (e.g., where the only rating on a security is a Moody's rating of Ba, a Fitch rating of BB will be used). If a security is not rated by any Rating Agency, the Trust will use the percentage set forth under "not rated" in this table. Securities rated below B by Fitch shall be traded the same as securities not rated by Fitch. The Fitch Discount Factors presented in the immediately preceding table apply to corporate debt securities that are Performing and have a Market Value determined by a Pricing Service or an Approved Price. The Fitch Discount Factor noted in the table above for a debt security rated B by Fitch shall apply to any non-Performing debt security with a price equal to or greater than $0.90. The Fitch Discount Factor noted in the table above for a debt security rated CCC by Fitch shall apply to any non-Performing debt security with a price less than $0.90 but equal to or greater than $0.20. If a debt security does not have a Market Value determined by a Pricing Service or an Approved Price, a rating two rating categories below the actual rating on the debt security will be used (e.g., where the actual rating is A-, the rating for Debt Securities rated BB- will be used). The Fitch Discount Factor for a debt security issued by a limited partnership that is not a Rule 144A Security shall be the Discount Factor determined in accordance with the table set forth above multiplied by 105%. The Fitch Discount Factors presented in the immediately preceding table will also apply to corporate obligations backed by a guaranty, a letter of credit or insurance issued by a third party. If the third-party credit rating is the basis for the rating on the obligation, then the rating on the third party will be used to determine the Fitch Discount Factor in the table. (iii) Common stock: The Fitch Discount Factors for large-cap stocks (i.e., common stocks of companies with a market capitalization of greater than $10 billion) shall be 200%; for mid-cap stocks (i.e., common stocks of companies with a market capitalization of between $2 billion and $10 billion) shall be 233%; for small-cap stocks (i.e., common stocks of companies with a market capitalization of between $300 million and $2 billion) shall be 286%; and for all other common stocks shall be 370%. B-20 (iv) Preferred stock: The percentage determined by references to the rating of a preferred stock in accordance with the table set forth below:

PREFERRED STOCK(1) DISCOUNT FACTOR - ------------------ --------------- AAA......................................................... 130% AA.......................................................... 133% A........................................................... 135% BBB......................................................... 139% BB.......................................................... 154% Not rated or below BB....................................... 161% Investment Grade DRD........................................ 164% Not rated or below Investment Grade DRD..................... 200%

- --------------- (1) If a security is not rated by Fitch but is rated by two other Rating Agencies, then the lower of the ratings on the security from the two other Rating Agencies will be used to determine the Fitch Discount Factor (e.g., where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a security is not rated by Fitch but is rated by only one other Rating Agency, then the rating on the security from the other Rating Agency will be used to determine the Fitch Discount Factor (e.g., where the only rating on a security is an S&P rating of AAA, a Fitch rating of AAA will be used, and where the only rating on a security is a Moody's rating of Ba, a Fitch rating of BB will be used). If a security is not rated by any Rating Agency, the Trust will use the percentage set forth under "not rated" in this table. (v) Convertible securities: The Fitch Discount Factor applied to convertible securities is (A) 200% for investment grade convertibles and (B) 222% for below investment grade convertibles so long as such convertible debt securities have neither (x) conversion premium greater than 100% nor (y) have a yield to maturity or yield to worst of greater than 15.00% above the relevant Treasury curve. The Fitch Discount Factor applied to convertible debt securities which have conversion premiums of greater than 100% is (A) 152% for investment grade convertibles and (B) 179% for below investment grade convertibles so long as such convertible debt securities do not have a yield to maturity or yield to worst of greater than 15.00% above the relevant Treasury curve. The Fitch Discount Factor applied to convertible debt securities which have a yield to maturity or yield to worse of greater than 15.00% above the relevant Treasury curve is 370%. If a security is not rated by Fitch but is rated by two other Rating Agencies, then the lower of the ratings on the security from the two other Rating Agencies will be used to determine the Fitch Discount Factor (e.g., where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a security is not rated by Fitch but is rated by only one other Rating Agency, then the rating on the security from the other Rating Agency will be used to determine the Fitch Discount Factor (e.g., where the only rating on a security is an S&P rating of AAA, a Fitch rating of AAA will be used, and where the only rating on a security is a Moody's rating of Ba, a Fitch rating of BB will be used). If a security is not rated by any Rating Agency, the Trust will treat the security as if it were below investment grade. B-21 (vi) U.S. Government Securities:

TIME REMAINING TO MATURITY DISCOUNT FACTOR - -------------------------- --------------- 1 year or less.............................................. 101.5% 2 years or less (but longer than 1 year).................... 103% 3 years or less (but longer than 2 years)................... 105% 4 years or less (but longer than 3 years)................... 107% 5 years or less (but longer than 4 years)................... 109% 7 years or less (but longer than 5 years)................... 112% 10 years or less (but longer than 7 years).................. 114% 15 years or less (but longer than 10 years)................. 122% 20 years or less (but longer than 15 years)................. 130% 25 years or less (but longer than 20 years)................. 146% Greater than 30 years....................................... 154%

(vii) Short-Term Investments and Cash: The Fitch Discount Factor applied to short-term portfolio securities, including without limitation Debt Securities, Short Term Money Market Instruments and municipal debt obligations, will be (A) 100%, so long as such portfolio securities mature or have a demand feature at par exercisable within the Fitch Exposure Period; (B) 115%, so long as such portfolio securities mature or have a demand feature at par not exercisable within the Fitch Exposure Period; and (C) 125%, so long as such portfolio securities neither mature nor have a demand feature at par exercisable within the Fitch Exposure Period. A Fitch Discount Factor of 100% will be applied to cash. (viii) Rule 144A Securities: The Fitch Discount Factor applied to Rule 144A Securities shall be the Discount Factor determined in accordance with the table above under Corporate Debt Securities in subsection (i) multiplied by 110% until such securities are registered under the Securities Act. (ix) MBS, asset-backed and other mortgage-backed securities: MBS: U.S. Government Agency (FNMA, FHLMC or GNMA) conforming mortgage-backed securities with an original stated maturity of more than 15 years shall have a discount factor of 114% and conforming mortgage-backed securities with an original stated maturity of 15 years or less shall have a discount factor of 111%. B-22 Asset-backed and other mortgage-backed securities: The percentage determined by reference to the asset type in accordance with the table set forth below.

ASSET TYPE (WITH TIME REMAINING TO MATURITY, IF APPLICABLE) DISCOUNT FACTOR - ------------------------ --------------- U.S. Treasury/agency securities (10 years or less).......... 118% U.S. Treasury/agency securities (greater than 10 years)..... 127% U.S. agency sequentials (10 years or less).................. 120% U.S. agency sequentials (greater than 10 years)............. 142% U.S. agency principal only securities....................... 236% U.S. agency interest only securities (with Market Value greater than $0.40)....................................... 696% U.S. agency interest only securities (with Market Value less than or equal to $0.40)................................... 271% AAA Lock-Out securities, interest only...................... 236% U.S. agency planned amortization class bonds (10 years or less)..................................................... 115% U.S. agency planned amortization class bonds (greater than 10 years)................................................. 136% AAA sequentials (10 years or less).......................... 118% AAA sequentials (greater than 10 years)..................... 135% AAA planned amortization class bonds (10 years or less)..... 115% AAA planned amortization class bonds (greater than 10 years).................................................... 140% Jumbo mortgage rated AAA(1)................................. 123% Jumbo mortgage rated AA(1).................................. 130% Jumbo mortgage rated A(1)................................... 136% Jumbo mortgage rated BBB(1)................................. 159% Commercial mortgage-backed securities rated AAA............. 131% Commercial mortgage-backed securities rated AA.............. 139% Commercial mortgage-backed securities rated A............... 148% Commercial mortgage-backed securities rated BBB............. 177% Commercial mortgage-backed securities rated BB.............. 283% Commercial mortgage-backed securities rated B............... 379% Commercial mortgage-backed securities rated CCC or not rated..................................................... 950%

- --------------- (1) Applies to jumbo mortgages, credit cards, auto loans, home equity loans, manufactured housing and prime mortgage-backed securities not issued by a U.S. agency or instrumentality. (x) Futures and call options: For purposes of the Preferred Shares Basic Maintenance Amount, futures held by the Trust and call options sold by the Trust shall not be included as Fitch Eligible Assets. However, such assets shall be valued at Market Value by subtracting the good faith margin and the maximum daily trading variance as of a Valuation Date. For call options purchased by the Trust, the Market Value of the call option will be included as Fitch Eligible Asset subject to a Fitch Discount Factor mutually agreed to between the Trust and Fitch based on the characteristics of the option contract such as its maturity and the underlying security of the contract. (xi) Securities lending: The Trust may engage in securities lending in an amount not to exceed 15% of the Trust's total gross assets. For purposes of calculating the Preferred Shares Basic Maintenance Amount, such securities lent shall be included as Fitch Eligible Assets with the appropriate Fitch Discount Factor applied to such lent security. The obligation to return such collateral shall not be included as an obligation/liability for purposes of calculating the Preferred Shares Basic Maintenance Amount. However, the Fund may reinvest cash collateral for securities lent in conformity with its investment objectives and policies and the provisions of this Certificate of Vote. In such event, to the B-23 extent that securities lending collateral received is invested by the Fund in assets that otherwise would be Fitch Eligible Assets and the value of such assets exceeds the amount of the Fund's obligation to return the collateral on a Valuation Date, such excess amount shall be included in the calculation of Fitch Eligible Assets by applying the applicable Fitch Discount Factor to this amount and adding the product to total Fitch Eligible Assets. Conversely, if the value of assets in which securities lending collateral has been invested is less then the amount of the Fund's obligation to return the collateral on a Valuation Date, such difference shall be included as an obligation/liability of the Fund for purposes of calculating the Preferred Shares Basic Maintenance Amount. Collateral received by the Trust in a securities lending transaction and maintained by the Trust in the form received shall not be included as a Fitch Eligible Asset for purposes of calculating the Preferred Shares Basic Maintenance Amount. (xii) Swaps (including Total Return Swaps, Interest Rate Swaps and Credit Default Swaps): Total Return and Interest Rate Swaps are subject to the following provisions: If the Trust has an outstanding gain from a swap transaction on a Valuation Date, the gain will be included as a Fitch Eligible Asset subject to the Fitch Discount Factor on the counterparty to the swap transaction. At the time a swap is executed, the Trust will only enter into swap transactions where the counterparty has at least a Fitch rating of A- or Moody's rating of A3. (A) Only the cumulative unsettled profit and loss from a Total Return Swap transaction will be calculated when determining the Preferred Shares Basic Maintenance Amount. If the Trust has an outstanding liability from a swap transaction on a Valuation Date, the Trust count such liability as an outstanding liability from the total Fitch Eligible Assets in calculating the Preferred Shares Basic Maintenance Amount. (B) In addition, for swaps other than Total Return Swaps, the Market Value of the position (positive or negative) will be included as a Fitch Eligible Asset. The aggregate notional value of all swaps will not exceed the Liquidation Preference of the Outstanding Preferred Shares. (C) (1) The underlying securities subject to a Credit Default Swap sold by the Trust will be subject to the applicable Fitch Discount Factor for each security subject to the swap; (2) If the Trust purchases a Credit Default Swap and holds the underlying security, the Market Value of the Credit Default Swap and the underlying security will be included as a Fitch Eligible Asset subject to the Fitch Discount Factor assessed based on the counterparty risk; and (3) The Trust will not include a Credit Default Swap as a Fitch Eligible Asset purchased by the Trust without the Trust holding the underlying security or when the Trust buys a Credit Default Swap for a basket of securities without holding all the securities in the basket. "Fitch Eligible Asset" means: (i) Senior Loans; (ii) Cash (including interest and dividends due on assets rated (A) BBB or higher by Fitch or the equivalent by another Rating Agency if the payment date is within five (5) Business Days of the Valuation Date, (B) A or higher by Fitch or the equivalent by another Rating Agency if the payment date is within thirty days of the Valuation Date, and (C) A+ or higher by Fitch or the equivalent by another Rating Agency if the payment date is within the Fitch Exposure Period) and receivables for Fitch Eligible Assets sold if the receivable is due within five (5) Business Days of the Valuation Date, and if the trades which generated such receivables are settled within five (5) Business Days; (iii) Short Term Money Market Instruments so long as (A) such securities are rated at least F1+ by Fitch or the equivalent by another Rating Agency, (B) in the case of demand deposits, time deposits and overnight funds, the supporting entity is rated at least A by Fitch or the equivalent by another Rating Agency, or (C) in all other cases, the supporting entity (1) is rated at least A by Fitch or the equivalent by another Rating Agency and the security matures within one month, (2) is rated at least A by Fitch or B-24 the equivalent by another Rating Agency and the security matures within three months or (3) is rated at least AA by Fitch or the equivalent by another Rating Agency and the security matures within six months; (iv) U.S. Government Securities; (v) debt securities if such securities have been registered under the Securities Act or are restricted as to resale under federal securities laws but are eligible for resale pursuant to Rule 144A under the Securities Act as determined by the Trust's investment manager or portfolio manager acting pursuant to procedures approved by the Board of Trustees of the Trust; and such securities are issued by (1) a U.S. corporation, limited liability company or limited partnership, (2) a corporation, limited liability company or limited partnership domiciled in Argentina, Australia, Brazil, Chile, France, Germany, Italy, Japan, Korea, Mexico, Spain or the United Kingdom or other country if Fitch does not inform the Trust that including debt securities from such foreign country will adversely impact Fitch's rating of the APS (the "Approved Foreign Nations"), (3) the government of any Approved Foreign Nation or any of its agencies, instrumentalities or political subdivisions (the debt securities of Approved Foreign Nation issuers being referred to collectively as "Foreign Bonds"), (4) a corporation, limited liability company or limited partnership domiciled in Canada or (5) the Canadian government or any of its agencies, instrumentalities or political subdivisions (the debt securities of Canadian issuers being referred to collectively as "Canadian Bonds"). Foreign Bonds held by the Trust will qualify as Fitch Eligible Assets only up to a maximum of 20% of the aggregate Market Value of all assets constituting Fitch Eligible Assets. Similarly, Canadian Bonds held by the Trust will qualify as Fitch Eligible Assets only up to a maximum of 20% of the aggregate Market Value of all assets constituting Fitch Eligible Assets. Notwithstanding the limitations in the two preceding sentences, Foreign Bonds and Canadian Bonds held by the Trust will qualify as Fitch Eligible Assets only up to a maximum of 30% of the aggregate Market Value of all assets constituting Fitch Eligible Assets. All debt securities satisfying the foregoing requirements and restrictions of this paragraph (iv) are herein referred to as "Debt Securities;" (vi) Common stocks (i) (A) which are traded on the New York Stock Exchange, the American Stock Exchange or in the over-the-counter market, (B) which, if cash dividend paying, pay cash dividends in U.S. dollars, and (C) which may be sold without restriction by the Fund; provided, however, that (1) common stock which, while a Fitch Eligible Asset owned by the Fund, ceases paying any regular cash dividend will no longer be considered a Fitch Eligible Asset until 60 calendar days after the date of the announcement of such cessation, unless the issuer of the common stock has senior debt securities rated at least A- by Fitch and (2) the aggregate Market Value of the Fund's holdings of the common stock of any issuer in excess of 5% per U.S. issuer of the number of outstanding shares times the Market Value of such common stock shall not be a Fitch's Eligible Asset; (ii) securities denominated in any currency other than the U.S. dollar and securities of issuers formed under the laws of jurisdictions other than the United States, its states and the District of Columbia for which there are dollar-denominated American Depository Receipts ("ADRs") which are traded in the United States on exchanges or over-the-counter and are issued by banks formed under the laws of the United States, its states or the District of Columbia; provided, however, that the aggregate Market Value of the Fund's holdings of securities denominated in currencies other than the U.S. dollar and ADRs in excess of 3% of the aggregate Market Value of the Outstanding shares of common stock of such issuer or in excess of 10% of the Market Value of the Fund's Fitch Eligible Assets with respect to issuers formed under the laws of any single such non-U.S. jurisdiction other than Argentina, Australia, Brazil, Chile, France, Germany, Italy, Japan, Korea, Mexico, Spain or the United Kingdom (the "Approved Foreign Nations") shall not be a Fitch Eligible Asset; (vii) Preferred stocks if (i) dividends on such preferred stock are cumulative, (ii) such securities provide for the periodic payment of dividends thereon in cash in U.S. dollars or euros and do not provide for conversion or exchange into, or have warrants attached entitling the holder to receive equity capital at any time over the respective lives of such securities, (iii) the issuer of such a preferred stock has common stock listed on either the New York Stock Exchange or the American Stock Exchange, (iv) the issuer of such a preferred stock has a senior debt rating or preferred stock rating from Fitch of BBB- or higher or B-25 the equivalent rating by another Rating Agency. In addition, the preferred stocks issue must be at least $50 million; (viii) asset-backed and MBS; (ix) Rule 144A Securities; (x) Interest Rate Swaps entered into according to International Swap Dealers Association ("ISDA") standards if (1) the counterparty to the swap transaction has a short-term rating of not less than F1 by Fitch or the equivalent by another Rating Agency, or, if the swap counterparty does not have a short-term rating, the counterparty's senior unsecured long-term debt rating is AA or higher by Fitch or the equivalent by another Rating Agency and (2) the original aggregate notional amount of the Interest Rate Swap transaction or transactions is not greater than the liquidation preference of the Preferred Shares originally issued; (xi) swaps, including total return and Credit Default Swaps entered into according to ISDA; and (xii) Fitch Hedging Transactions. Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of the 1940 Act, not otherwise provided for in this definition may be included in Fitch Eligible Assets, but, with respect to any financial contract, only upon receipt by the Trust of a writing from Fitch specifying any conditions on including such financial contract in Fitch Eligible Assets and assuring the Trust that including such financial contract in the manner so specified would not affect the credit rating assigned by Fitch to the Preferred Shares. Where the Trust sells an asset and agrees to repurchase such asset in the future, the Discounted Value of such asset will constitute a Fitch Eligible Asset and the amount the Trust is required to pay upon repurchase of such asset will count as a liability for the purposes of the APS Basic Maintenance Amount. Where the Trust purchases an asset and agrees to sell it to a third party in the future, cash receivable by the Trust thereby will constitute a Fitch Eligible Asset if the long-term debt of such other party is rated at least A- by Fitch or the equivalent by another Rating Agency and such agreement has a term of 30 days or less; otherwise the Discounted Value of such purchased asset will constitute a Fitch Eligible Asset. Notwithstanding the foregoing, an asset will not be considered a Fitch Eligible Asset to the extent that it has been irrevocably deposited for the payment of (i)(A) through (i)(E) under the definition of Preferred Shares Basic Maintenance Amount or to the extent it is subject to any liens, except for (A) liens which are being contested in good faith by appropriate proceedings and which Fitch has indicated to the Trust will not affect the status of such asset as a Fitch Eligible Asset, (B) liens for taxes that are not then due and payable or that can be paid thereafter without penalty, (C) liens to secure payment for services rendered or cash advanced to the Trust by its investment manager or portfolio manager, the Trust's custodian, transfer agent or registrar or the Auction Agent and (D) liens arising by virtue of any repurchase agreement. Fitch Diversification Limitations: Portfolio holdings as described below must be within the following diversification and issue size requirements in order to be included in Fitch's Eligible Assets:

MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM SECURITY RATED AT LEAST ISSUER(1) INDUSTRY(1),(2) ISSUE SIZE - ----------------------- -------------- --------------- ------------------ ($ IN MILLION)(3) AAA.................................... 100% 100% $100 AA-.................................... 20 75 100 A-..................................... 10 50 100 BBB-................................... 6 25 100 BB-.................................... 4 16 50 B-..................................... 3 12 50 CCC.................................... 2 8 50

- --------------- (1) Percentages represent a portion of the aggregate Market Value of corporate debt securities. (2) Industries are determined according to Fitch's Industry Classifications, as defined herein. B-26 (3) Preferred stock has a minimum issue size of $50 million. If a security is not rated by Fitch but is rated by two other Rating Agencies, then the lower of the ratings on the security from the two other Rating Agencies will be used to determine the Fitch Discount Factor (e.g., where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a security is not rated by Fitch but is rated by only one other Rating Agency, then the rating on the security from the other Rating Agency will be used to determine the Fitch Diversification Limitations (e.g., where the only rating on a security is an S&P rating of AAA, a Fitch rating of AAA will be used, and where the only rating on a security is a Moody's rating of Ba, a Fitch rating of BB will be used). If a security is not rated by any Rating Agency, the Trust will use the percentage set forth under "not rated" in this table. "Fitch Exposure Period" means the period commencing on (and including) a given Valuation Date and ending 41 days thereafter. "Fitch General Portfolio Requirements" means that the Trust's portfolio must meet the following diversification requirements: (a) no more than 25% by par value of the Trust's total assets can be invested in the securities of borrowers and other issuers having their principal business activities in the same Fitch Industry Classification; provided, that this limitation shall not apply with respect to U.S. Government Securities and provided further that for purposes of this subsection (a), the term "issuer" shall not include a lender selling a participation to the Trust or any other person interpositioned between such lender and the Trust with respect to a participation and (b) no more than 10% by par value of the Trust's total assets can be invested in securities of a single issuer, and provided further that for purposes of this subsection (b), the term "issuer" includes both the borrower under a loan agreement and the lender selling a participation to the Trust together with any other persons interpositioned between such lender and the Trust with respect to such participation. "Fitch Hedging Transactions" means purchases or sales of exchange-traded financial futures contracts based on any index approved by Fitch, LIBOR or Treasury Bonds, and purchases, writings or sales of exchange-traded put options on such futures contracts, and purchases, writings or sales of exchange-traded call options on such financial futures contracts, and put and call options on such financial futures contracts ("Fitch Hedging Transactions"), subject to the following limitations: (i) The Trust may not engage in any Fitch Hedging Transaction based on any index approved by Fitch (other than transactions that terminate a futures contract or option held by the Trust by the Trust's taking the opposite position thereto ("closing transactions")) that would cause the Trust at the time of such transaction to own or have sold outstanding financial futures contracts based on such index exceeding in number 10% of the average number of daily traded financial futures contracts based on such index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal. (ii) The Trust will not engage in any Fitch Hedging Transaction based on Treasury Bonds or LIBOR (other than closing transactions) that would cause the Trust at the time of such transaction to own or have sold: (A) Outstanding financial futures contracts based on Treasury Bonds or LIBOR with such contracts having an aggregate Market Value exceeding 60% of the aggregate Market Value of Fitch Eligible Assets owned by the Trust and at least rated AA by Fitch (or, if not rated by Fitch Ratings, rated at least Aa by Moody's; or, if not rated by Moody's, rated AAA by S&P); or (B) Outstanding financial futures contracts based on Treasury Bonds or LIBOR with such contracts having an aggregate Market Value exceeding 40% of the aggregate Market Value of all Fitch Eligible Assets owned by the Trust (other than Fitch Eligible Assets already subject to a Fitch Hedging Transaction) and rated at least A or BBB by Fitch (or, if not rated by Fitch Ratings, rated at least Baa by Moody's; or, if not rated by Moody's, rated at least A or AA by S&P) (for purposes of the foregoing clauses (i) and (ii), the Trust shall be deemed to own futures contracts that underlie any outstanding options written by the Trust); B-27 (iii) The Trust may engage in closing transactions to close out any outstanding financial futures contract based on any index approved by Fitch if the amount of open interest in such index as reported by The Wall Street Journal is less than an amount to be mutually determined by Fitch and the Trust. (iv) The Trust may not enter into an option or futures transaction unless, after giving effect thereto, the Trust would continue to have Fitch Eligible Assets with an aggregate Discounted Value equal to or greater than the Preferred Shares Basic Maintenance Amount. "Fitch Industry Classification" means, for the purposes of determining Fitch Eligible Assets, each of the following industry classifications:

FITCH INDUSTRY CLASSIFICATIONS (MAJOR GROUPS) SIC CODE - ------------------------------ ------------------ Aerospace and Defense....................................... 37, 45 Automobiles................................................. 37, 55 Banking, Finance and Real Estate............................ 60, 65, 67 Broadcasting and Media...................................... 27, 48 Building and Materials...................................... 15-17, 32, 52 Cable....................................................... 48 Chemicals................................................... 28, 30 Computers and Electronics................................... 35, 36 Consumer Products........................................... 23, 51 Energy...................................................... 13, 29, 49 Environmental Services...................................... 87 Farming and Agriculture..................................... 1-3, 7-9 Food, Beverage and Tobacco.................................. 20, 21, 54 Gaming, Lodging and Restaurants............................. 70, 58 Health Care and Pharmaceuticals............................. 38, 28, 80 Industrial/Manufacturing.................................... 35 Insurance................................................... 63, 64 Leisure and Entertainment................................... 78, 79 Metals and Mining........................................... 10, 12, 14, 33, 34 Miscellaneous............................................... 50, 72-76, 99 Paper and Forest Products................................... 8, 24, 26 Retail...................................................... 53, 56, 59 Sovereign................................................... NA Supermarkets and Drug Stores................................ 54 Telecommunications.......................................... 48 Textiles and Furniture...................................... 22, 25, 31, 57 Transportation.............................................. 40, 42-47 Utilities................................................... 49 Structured Finance Obligations.............................. NA Packaging and Containers.................................... 26, 32, 34 Business Services........................................... 73, 87

The Trust shall use its discretion in determining which industry classification is applicable to a particular investment. B-28 "Fitch Loan Category" means the following four categories (and, for purposes of this categorization, the Market Value of a Fitch Eligible Asset trading at par is equal to $1.00): (i) "Fitch Loan Category A" means Performing Loans which have a Market Value or an Approved Price greater than or equal to $0.90. (ii) "Fitch Loan Category B" means: (A) Performing Loans which have a Market Value or an Approved Price of greater than or equal to $0.80 but less than $0.90; and (B) non-Performing Loans which have a Market Value or an Approved Price greater than or equal to $0.85. (iii) "Fitch Loan Category C" means: (A) Performing Loans which have a Market Value or an Approved Price of greater than or equal to $0.70 but less than $0.80; (B) non-Performing Loans which have a Market Value or an Approved Price of greater than or equal to $0.75 but less than $0.85; and (C) Performing Loans without an Approved Price rated BB- or higher by Fitch. If a security is not rated by Fitch but is rated by two other Rating Agencies, then the lower of the ratings on the security from the two other Rating Agencies will be used to determine the Fitch Discount Factor (e.g., where the S&P rating is A- and the Moody's rating is Baa1, a Fitch rating of BBB+ will be used). If a security is not rated by Fitch but is rated by only one other Rating Agency, then the rating on the security from the other Rating Agency will be used to determine the Fitch Discount Factor (e.g., where the only rating on a security is an S&P rating of AAA-, a Fitch rating of AAA- will be used, and where the only rating on a security is a Moody's rating of Ba3, a Fitch rating of BB- will be used). (iv) "Fitch Loan Category D" means Loans not described in any of the foregoing categories. Notwithstanding any other provision contained above, for purposes of determining whether a Fitch Eligible Asset falls within a specific Fitch Loan Category, to the extent that any Fitch Eligible Asset would fall within more than one of the Fitch Loan Categories, such Fitch Eligible Asset shall be deemed to fall into the Fitch Loan Category with the lowest applicable Fitch Discount Factor. "Hold Order" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate. "Holder" means, with respect to Preferred Shares, the registered holder of shares of each Series as the same appears on the share ledger or share records of the Trust. "Interest Equivalent" means a yield on a 360-day basis of a discount basis security which is equal to the yield on an equivalent interest-bearing security. "LIBOR" means the Londer Interbank Offered Rate. "Loan" means any assignment of or participation in any bank loan denominated in U.S. dollars including term loans, the funded and unfunded portions of revolving credit lines (provided that the Trust shall place in reserve an amount equal to any unfunded portion of any revolving credit line) and debtor-in possession financings; provided that such loan (a) is not extended for the purpose of purchasing or carrying any margin stock and (b) is similar to those typically made, syndicated, purchased or participated by a commercial bank in the ordinary course of business. "Mandatory Redemption Date" has the meaning set forth in Section 3(a)(iv) of Part I of this Certificate. "Mandatory Redemption Price" has the meaning set forth in Section 3(a)(iv) of Part I of this Certificate. "Market Value" means the Market Value Price or, if a Market Value Price is not readily available, the Approved Price of each Eligible Asset held by the Trust. "Market Value Price" means the price of an Eligible Asset which is the price obtained from an Approved Pricing Service or, if such price is not available, the lower of the bid prices quoted by two Dealers. "Maximum Rate" means, on any date on which the Applicable Rate is determined, the applicable percentage of the Reference Rate on the date of such Auction determined as set forth below based on the B-29 lower of the credit ratings assigned to the Preferred Shares by Moody's and Fitch subject to upward but not downward adjustment in the discretion of the Board of Trustees after consultation with the Broker-Dealers; provided that immediately following any such increase the Trust would be in compliance with the Preferred Shares Basic Maintenance Amount. In no event will the Maximum Rate be greater than 18%.

MOODY'S APPLICABLE PERCENTAGE APPLICABLE SPREAD CREDIT RATING FITCH CREDIT RATING OF REFERENCE RATE OVER REFERENCE RATE - ------------- ------------------- --------------------- ------------------- Aaa..................................... AAA 150% 150 bps Aa3 to Aa1.............................. AA- to AA+ 250% 250 bps A3 to A1................................ A- to A+ 350% 350 bps Baa1 and lower.......................... BBB+ and lower 550% 550 bps

"MBS" means mortgage backed securities that are issued, backed or otherwise guaranteed by the U.S. Government or its agencies or instrumentalities or that are issued by private issuers. "Moody's" means Moody's Investors Service, Inc. and its successors at law. "Moody's Discount Factor" means for purposes of determining the Discounted Value of any Moody's Eligible Asset, the percentage determined as follows. The Moody's Discount Factor for any Moody's Eligible Asset other than the securities set forth below will be the percentage provided in writing by Moody's. (i) CORPORATE DEBT SECURITIES: The percentage determined by reference to the rating on such asset with reference to the remaining term to maturity of such asset, in accordance with the table set forth below (non-convertibles).

MOODY'S RATING CATEGORY TERM TO MATURITY OF ---------------------------------------------- CORPORATE DEBT SECURITY (2) AAA AA A BAA BA B UNRATED(1) - --------------------------- --- --- --- --- --- --- ---------- 1 year or less................................ 109% 112% 115% 118% 137% 150% 250% 2 years or less (but longer than 1 year)...... 115 118 122 125 146 160 250 3 years or less (but longer than 2 years)..... 120 123 127 131 153 168 250 4 years or less (but longer than 3 years)..... 126 129 133 138 161 176 250 5 years or less (but longer than 4 years)..... 132 135 139 144 168 185 250 7 years or less (but longer than 5 years)..... 139 143 147 152 179 197 250 10 years or less (but longer than 7 years).... 145 150 155 160 189 208 250 15 years or less (but longer than 10 years)... 150 155 160 165 196 216 250 20 years or less (but longer than 15 years)... 150 155 160 165 196 228 250 30 years or less (but longer than 20 years)... 150 155 160 165 196 229 250 Greater than 30 years......................... 165 173 181 189 205 240 250

- --------------- (1) Unless conclusions regarding liquidity risk as well as estimates of both the probability and severity of default for the Corporation's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate debt security is unrated by Moody's, S&P or Fitch, the Fund will use the percentage set forth under "Unrated" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent. Split rated securities assigned by S&P and Fitch will be accepted at the lower of the two ratings. (2) The Moody's Discount Factors for debt securities shall also be applied to any interest rate swap or cap, in which case the rating of the counterparty shall determine the appropriate rating category. For corporate debt securities that do not pay interest in U.S. dollars, the fund sponsor will contact Moody's to obtain the applicable currency conversion rates. B-30 PREFERRED STOCK: The Moody's Discount Factor for taxable preferred stock shall be: Aaa......................................................... 150% Aa.......................................................... 155% A........................................................... 160% Baa......................................................... 165% Ba.......................................................... 196% B........................................................... 216% - --------------- (1) Rule 144A securities' Discount Factor will be increased by an additional 20%. Because of the size of the DRD market, these preferreds will be assigned a different discount factor to reflect their liquidity. Investment grade DRDs will receive a 165% discount factor and non-investment grade DRDs will receive a 216% discount factor. CONVERTIBLE SECURITIES (including convertible preferreds):

DISCOUNT FACTORS(1) ------------------------------------------------- RATINGS(2) UTILITY INDUSTRIAL FINANCIAL TRANSPORTATION - ---------- ------- ---------- --------- -------------- Aaa.......................................... 162% 256% 233% 250% Aa........................................... 167% 261% 238% 265% A............................................ 172% 266% 243% 275% Baa.......................................... 188% 282% 259% 285% Ba........................................... 195% 290% 265% 290% B............................................ 199% 293% 270% 295% NR........................................... 300% 300% 300% 300%

- --------------- (1) Discount factors are for 7-week exposure period. (2) Unless conclusions regarding liquidity risk as well as estimates of both the probability and severity of default for the Corporation's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a convertible corporate debt security is unrated by Moody's, S&P or Fitch, the Fund will use the percentage set forth under "NR" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent. Split rated securities assigned by S&P and Fitch will be accepted at the lower of the two ratings. Upon conversion to common stock, the discount Factors applicable to common stock will apply:

C. STOCK UTILITY INDUSTRIAL FINANCIAL - -------- ------- ---------- --------- 7 week exposure period.................................... 170% 264% 241%

SHORT-TERM INSTRUMENTS: The Moody's Discount Factor applied to short-term portfolio securities, including without limitation corporate debt securities, Short Term Money Market Instruments and municipal debt obligations, will be (A) 100%, so long as such portfolio securities mature or have a demand feature at par exercisable within the Moody's Exposure Period; (B) 115%, so long as such portfolio securities do not mature within the Moody's Exposure Period or have a demand feature at par not exercisable within the Moody's Exposure Period; and (C) 125%, if such securities are not rated by Moody's, so long as such portfolio securities are rated at least A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at par exercisable within the Moody's Exposure Period. A Moody's Discount Factor of 100% will be applied to cash. B-31 U.S. GOVERNMENT SECURITIES AND U.S. TREASURY STRIPS:

U.S. GOVERNMENT U.S. TREASURY SECURITIES STRIPS REMAINING TERM TO MATURITY DISCOUNT FACTOR DISCOUNT FACTOR - -------------------------- --------------- --------------- 1 year or less.......................................... 107% 107% 2 years or less (but longer than 1 year)................ 113 115 3 years or less (but longer than 2 years)............... 118 121 4 years or less (but longer than 3 years)............... 123 128 5 years or less (but longer than 4 years)............... 128 135 7 years or less (but longer than 5 years)............... 135 147 10 years or less (but longer than 7 years).............. 141 163 15 years or less (but longer than 10 years)............. 146 191 20 years or less (but longer than 15 years)............. 154 218 30 years or less (but longer than 20 years)............. 154 244

RULE 144A SECURITIES: The Moody's Discount Factor applied to Rule 144A Securities for Rule 144A Securities whose terms include rights to registration under the Securities Act within one year and Rule 144A Securities which do not have registration rights within one year will be 120% and 130%, respectively, of the Moody's Discount Factor which would apply were the securities registered under the Securities Act. SENIOR LOANS: The Moody's Discount Factor applied to Senior Loans shall be the percentage specified in accordance with the table set forth below (or such lower percentage as Moody's may approve in writing from time to time):

CAA AND BELOW MOODY'S RATING CATEGORY (INCLUDING - ------------------------------------------------------------------------- DISTRESSED AND TYPE OF LOAN AAA-A BAA AND BA(1) B(1) UNRATED)(1) - ------------ ----- ------------- ---- -------------- Senior Loans greater than $250 MM.......... 118% 136% 149% 250% non-Senior Loans greater than $250 MM...... 128% 146% 159% 250% loans less than $250 MM.................... 138% 156% 169% 270%

If a Senior Loan is not rated by any of Moody's, S&P or Fitch Ratings, the Fund will use the applicable percentage set forth under the column entitled "Caa and below (including distressed and unrated)" in the table above. Ratings assigned the S&P and/or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of securities for which the ratings by S&P and/or Fitch do not seem to approximate a Moody's rating equivalent. Split-rated securities assigned by S&P and Fitch (i.e., these rating agencies assign different rating categories to the security) will be accepted at the lower of the two ratings; provided however, that, in a situation where a security is rated "B" (or equivalent) by a given rating agency and rated "CCC" (or equivalent) by another rating agency, the Fund will use the applicable percentage set forth under the column entitled "B" in the table above. "Moody's Eligible Asset" means: (i) cash (including interest and dividends due on assets rated (A) Baa3 or higher by Moody's if the payment date is within five Business Days of the Valuation Date, (B) A2 or higher if the payment date is within thirty days of the Valuation Date, and (C) A1 or higher if the payment date is within the Moody's Exposure Period) and receivables for Moody's Eligible Assets sold if the receivable is due within five Business Days of the Valuation Date, and if the trades which generated such receivables are (A) settled through clearing house firms or (B) (1) with counterparties having a Moody's long-term debt rating of at least Baa3 or (2) with counterparties having a Moody's Short Term Money Market Instrument rating of at least P-1; (ii) Short Term Money Market Instruments so long as (A) such securities are rated at least P-1, (B) in the case of demand deposits, time deposits and overnight funds, the supporting entity is rated at B-32 least A2, or (C) in all other cases, the supporting entity (1) is rated A2 and the security matures within one month, (2) is rated A1 and the security matures within three months or (3) is rated at least Aa3 and the security matures within six months; provided, however, that for purposes of this definition, such instruments (other than commercial paper rated by S&P and not rated by Moody's) need not meet any otherwise applicable S&P rating criteria; (iii) U.S. Government Securities and U.S. Treasury Strips; (iv) Rule 144A Securities; (v) Senior Loans; (vi) Corporate debt securities if (A) such securities are rated B3 or higher by Moody's; (B) such securities provide for the periodic payment of interest in cash in U.S. dollars or euros, except that such securities that do not pay interest in U.S. dollars or euros shall be considered Moody's Eligible Assets if they are rated by Moody's or S&P or Fitch; (C) for securities which provide for conversion or exchange into equity capital at some time over their lives, the issuer must be rated at least B3 by Moody's and the discount factor will be 250%; (D) for debt securities rated Ba1 and below, no more than 10% of the original amount of such issue may constitute Moody's Eligible Assets; (E) such securities have been registered under the Securities Act or are restricted as to resale under federal securities laws but are eligible for resale pursuant to Rule 144A under the Securities Act as determined by the Fund's investment manager or portfolio manager acting pursuant to procedures approved by the Board of Trustees, except that such securities that are not subject to U.S. federal securities laws shall be considered Moody's Eligible Assets if they are publicly traded; and (F) such securities are not subject to extended settlement. Notwithstanding the foregoing limitations, (x) corporate debt securities not rated at least B3 by Moody's or not rated by Moody's shall be considered to be Moody's Eligible Assets only to the extent the Market Value of such corporate debt securities does not exceed 10% of the aggregate Market Value of all Moody's Eligible Assets; provided, however, that if the Market Value of such corporate debt securities exceeds 10% of the aggregate Market Value of all Moody's Eligible Assets, a portion of such corporate debt securities (selected by the Trust) shall not be considered Moody's Eligible Assets, so that the Market Value of such corporate debt securities (excluding such portion) does not exceed 10% of the aggregate Market Value of all Moody's Eligible Assets; and (y) corporate debt securities rated by neither Moody's nor S&P nor Fitch shall be considered to be Moody's Eligible Assets only to the extent such securities are issued by entities which (i) have not filed for bankruptcy within the past three years, (ii) are current on all principal and interest in their fixed income obligations, (iii) are current on all preferred stock dividends, and (iv) possess a current, unqualified auditor's report without qualified, explanatory language. (vii) Preferred stocks if (A) dividends on such preferred stock are cumulative, (B) such securities provide for the periodic payment of dividends thereon in cash in U.S. dollars or euros and do not provide for conversion or exchange into, or have warrants attached entitling the holder to receive, equity capital at any time over the respective lives of such securities, (C) the issuer of such a preferred stock has common stock listed on either the New York Stock Exchange or the American Stock Exchange, (D) the issuer of such a preferred stock has a senior debt rating from Moody's of Baa1 or higher or a preferred stock rating from Moody's of Baa3 or higher and (E) such preferred stock has paid consistent cash dividends in U.S. dollars or euros over the last three years or has a minimum rating of A1 (if the issuer of such preferred stock has other preferred issues outstanding that have been paying dividends consistently for the last three years, then a preferred stock without such a dividend history would also be eligible). In addition, the preferred stocks must have the following diversification requirements: (X) the preferred stock issue must be greater than $50 million and (Y) the minimum holding by the Trust of each issue of preferred stock is $500,000 and the maximum holding of preferred stock of each issue is $5 million. In addition, preferred stocks issued by transportation companies will not be considered Moody's Eligible Assets; B-33 (viii) common stocks (i) which (A) are traded on a nationally recognized stock exchange or in the over-the-counter market, (B) if cash dividend paying, pay cash dividends in US dollars and (C) may be sold without restriction by the Corporation; provided, however, that (y) common stock which, while a Moody's Eligible Asset owned by the Corporation, ceases paying any regular cash dividend will no longer be considered a Moody's Eligible Asset until 71 days after the date of the announcement of such cessation, unless the issuer of the common stock has senior debt securities rated at least A3 by Moody's and (z) the aggregate Market Value of the Corporation's holdings of the common stock of any issuer in excess of 4% in the case of utility common stock and 6% in the case of non-utility common stock of the aggregate Market Value of the Corporation's holdings shall not be Moody's Eligible Assets, (ii) which are securities denominated in any currency other than the US dollar or securities of issuers formed under the laws of jurisdictions other than the United States, its states and the District of Columbia for which there are dollar-denominated American Depository Receipts ("ADRs") or their equivalents which are traded in the United States on exchanges or over-the-counter and are issued by banks formed under the laws of the United States, its states or the District of Columbia or (iii) which are securities of issuers formed under the laws of jurisdictions other than the United States (and in existence for at least five years) for which no ADRs are traded; provided, however, that the aggregate Market Value of the Corporation's holdings of securities denominated in currencies other than the US dollar and ADRs in excess of (A) 6% of the aggregate Market Value of the Outstanding shares of common stock of such issuer thereof or (B) 10% of the Market Value of the Corporation's Moody's Eligible Assets with respect to issuers formed under the laws of any single such non-U.S. jurisdiction other than Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom, shall not be a Moody's Eligible Asset; (ix) Asset-backed and mortgage-backed securities: (A) Asset-backed securities if (1) such securities are rated at least Aa3 by Moody's or at least AA- by S&P or Fitch, (2) the securities are part of an issue that is $250 million or greater, or the issuer of such securities has a total of $500 million or greater of asset-backed securities outstanding at the time of purchase of the securities by the Trust and (3) the expected average life of the securities is not greater than 4 years; (B) Collateralized mortgage obligations ("CMOs"), including CMOs with interest rates that float at a multiple of the change in the underlying index according to a pre-set formula, provided that any CMO held by the Trust (1) has been rated Aaa by Moody's or AAA by S&P or Fitch, (2) does not have a coupon which floats inversely, (3) is not portioned as an interest-only or principal-only strip and (4) is part of an issuance that had an original issue size of at least $100 million; (C) Planned amortization class bonds ("PACs") and targeted amortization class bonds ("TACs") provided that such PACs or TACs are (1) backed by certificates of either the Federal National Mortgage Association ("FNMA"), the Government National Mortgage Association ("GNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") representing ownership in single-family first lien mortgage loans with original terms of 30 years, (2) part of an issuance that had an original issue size of at least $10 million, (3) part of PAC or TAC classes that have payment priority over other PAC or TAC classes, (4) if TACs, TACs that do not support PAC classes, and (5) if TACs, not considered reverse TACs (i.e., do not protect against extension risk); (D) Consolidated senior debt obligations of Federal Home Loan Banks ("FHLBs"), senior long-term debt of the FNMA, and consolidated system wide bonds and FCS Financial Assistance Corporation Bonds of Federal Farm Credit Banks ("FFCBs") (collectively, "FHLB, FNMA and FFCB Debentures"), provided that such FHLB, FNMA and FFCB Debentures are (1) direct issuance corporate debt rated Aaa by Moody's, (2) senior debt obligations backed by the FHLBs, FFCBs or FNMA, (3) part of an issue entirely denominated in U.S. dollars and (4) not callable or exchangeable debt issues; (E) Mortgage pass-throughs rated at least Aa by Moody's and pass-throughs issued prior to 1987 (if rated AA by S&P and based on fixed-rate mortgage loans) by Travelers Mortgage Services, B-34 Citicorp Homeowners, Citibank, N.A., Sears Mortgage Security or RFC -- Salomon Brothers Mortgage Securities, Inc., provided that (1) certificates must evidence a proportional, undivided interest in specified pools of fixed or adjustable rate mortgage loans, secured by a valid first lien, on one- to four-family residential properties and (2) the securities are publicly registered (not issued by FNMA, GNMA or FHLMC); (F) Private-placement mortgage pass-throughs provided that (1) certificates represent a proportional undivided interest in specified pools of fixed-rate mortgage loans, secured by a valid first lien, on one- to four-family residential properties, (2) documentation is held by a trustee or independent custodian, (3) pools of mortgage loans are serviced by servicers that have been approved by FNMA or FHLMC and funds shall be advanced to meet deficiencies to the extent provided in the pooling and servicing agreements creating such certificates, and (4) pools have been rated Aa or better by Moody's; and (G) Whole loans (e.g., direct investments in mortgages) provided that (1) at least 65% of such loans (a) have seasoning of no less than 6 months, (b) are secured by single-family detached residences, (c) are owner-occupied primary residences, (d) are secured by a first-lien, fully-documented mortgage, (e) are neither currently delinquent (30 days or more) nor delinquent during the preceding year, (f) have loan-to-value ratios of 80% or below, (g) carry normal hazard insurance and title insurance, as well as special hazard insurance, if applicable, (h) have original terms to maturity not greater than 30 years, with at least one year remaining to maturity, (i) have a minimum of $10,000 remaining principal balance, (j) for loans underwritten after January 1, 1978, FNMA and/or FHLMC forms are used for fixed-rate loans, and (k) such loans are whole loans and not participations; (2) for loans that do not satisfy the requirements set forth in the foregoing clause (1), (a) non-owner occupied properties represent no greater than 15% of the aggregate of either the adjustable-rate pool or the fixed-rate pool, (b) multi-family properties (those with five or more units) represent no greater than 15% of the aggregate of either the adjustable-rate pool or the fixed-rate pool, (c) condominiums represent no greater than 10% of the aggregate of either the adjustable-rate pool or the fixed-rate pool, and any condominium project must be 80% occupied at the time the loan is originated, (d) properties with loan-to-value ratios exceeding 80% represent no greater than 25% of the aggregate of either the adjustable-rate pool or the fixed-rate pool and the portion of the mortgage on any such property that exceeds a loan-to-value ratio of 80% is insured with Primary Mortgage Insurance from an insurer rated at least Baa3 by Moody's and (e) loan balances in excess of the current FHLMC limit plus $75,000 represent no greater than 25% of the aggregate of either the adjustable-rate pool or the fixed-rate pool, loan balances in excess of $350,000 represent no greater than 10% of the aggregate of either the adjustable-rate pool or the fixed-rate pool, and loan balances in excess of $1,000,000 represent no greater than 5% of the aggregate of either the adjustable-rate pool or the fixed-rate pool; (3) no greater than 5% of the pool of loans is concentrated in any one zip code; (4) the pool of loans contains at least 100 loans or $2 million in loans per servicer; (5) for adjustable-rate mortgages ("ARMs"), (a) any ARM is indexed to the National Cost of Funds index, the 11th District Cost of Funds index, the 1-year Treasury or the 6-month Treasury, (b) the margin over the given index is between 0.15% and 0.25% for either cost-of-funds index and between 0.175% and 0.325% for Treasuries, (c) the maximum yearly interest rate increase is 2%, (d) the maximum life-time interest rate increase is 6.25% and (e) ARMs may include Federal Housing Administration and Department of Veterans Affairs loans; (6) for "teaser" loans, (a) the initial discount from the current ARM market rate is no greater than 2%, (b) the loan is underwritten at the market rate for ARMs, not the "teaser" rate, and (c) the loan is seasoned six months beyond the "teaser" period. (ix) Any municipal debt obligation that (A) pays interest in cash, (B) does not have a Moody's rating, as applicable, suspended by Moody's, and (C) is part of an issue of municipal debt obligations of at least $5,000,000, except for municipal debt obligations rated below A by Moody's, in which case the minimum issue size is $10,000,000; (x) Structured notes and rated TRACERs and TRAINS. B-35 (xi) Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of the 1940 Act, not otherwise provided for in this definition but only upon receipt by the Trust of a letter from Moody's specifying any conditions on including such financial contract in Moody's Eligible Assets and assuring the Trust that including such financial contract in the manner so specified would not affect the credit rating assigned by Moody's to the Preferred Shares. Additionally, in order to merit consideration as an eligible asset, securities should be issued by entities which: - Have not filed for bankruptcy within the past year - Are current on all principle and interest in their fixed income obligations - Are current on all preferred stock dividends - Possess a current, unqualified auditor's report without qualified, explanatory language. In addition, portfolio holdings as described below must be within the following diversification and issue size requirements in order to be included in Moody's Eligible Assets:

MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM ISSUE RATINGS(1) ISSUER(2)(3) INDUSTRY(3)(4) SIZE(5) - ---------- -------------- -------------- ----------------- ($ IN MILLION) Aaa..................................... 100% 100% $100 Aa...................................... 20 60 100 A....................................... 10 40 100 Baa..................................... 6 20 100 Ba...................................... 4 12 506 B1-B2................................... 3 8 506 B3 or below............................. 2 5 506

- --------------- (1) Refers to the preferred stock and senior debt rating of the portfolio holding. (2) Companies subject to common ownership of 25% or more are considered as one issuer. (3) Percentages represent a portion of the aggregate Market Value of corporate debt securities. (4) Industries are determined according to Moody's Industry Classifications, as defined herein. (5) Except for preferred stock, which has a minimum issue size of $50 million. (6) Portfolio holdings from issues ranging from $50 million to $100 million and are limited to 20% of the Fund's total assets. "Moody's Exposure Period" means the period commencing on a given Valuation Date and ending 49 days thereafter. "Moody's General Portfolio Requirements" means that the Trust's portfolio must meet the following diversification requirements: (a) no more than 25% by par value of the Trust's total assets can be invested in the securities of borrowers and other issuers having their principal business activities in the same Moody's Industry Classification; provided, that this limitation shall not apply with respect to U.S. Government Securities and provided further that for purposes of this subsection (a), the term "issuer" shall not include a lender selling a participation to the Trust or any other person interpositioned between such lender and the Trust with respect to a participation and (b) no more than 10% by par value of the Trust's total assets can be invested in securities of a single issuer, and provided further that for purposes of this subsection (b), the term "issuer" includes both the borrower under a loan agreement and the lender selling a participation to the Trust together with any other persons interpositioned between such lender and the Trust with respect to such participation. "Moody's Hedging Transactions" has the meaning set forth in paragraph 8(a) of this Certificate of Vote. B-36 "Moody's Industry Classification" means, for the purposes of determining Moody's Eligible Assets, each of the following industry classifications (or such other classifications as Moody's may from time to time approve for application to the Preferred Shares: 1. Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft Manufacturing, Arms, and Ammunition 2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts Manufacturing, Personal Use Trailers, Motor Homes, Dealers 3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan, Agency, Factoring, Receivables 4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged Foods, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil 5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting, Engineering, Construction, Hardware, Forest Products (building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land Development 6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural), Industrial Gases, Sulfur, Plastics, Plastic Products, Abrasives, Coatings, Paints, Varnish, Fabricating 7. Containers, Packaging and Glass: Glass, Fiberglass, Containers made of: Glass, Metal, Paper, Plastic, Wood or Fiberglass 8. Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies 9. Diversified/Conglomerate Manufacturing 10. Diversified/Conglomerate Service 11. Diversified Natural Resources, Precious Metals and Minerals: Fabricating, Distribution 12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste Disposal 13. Electronics: Computer Hardware, Electric Equipment, Components, Controllers, Motors, Household Appliances, Information Service Communicating Systems, Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology 14. Finance: Investment Brokerage, Leasing, Syndication, Securities 15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals, Agricultural Equipment, Fertilizers 16. Grocery: Grocery Stores, Convenience Food Stores 17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs, Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment 18. Home and Office Furnishings, House wares, and Durable Consumer Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges 19. Hotels, Motels, Inns and Gaming 20. Insurance: Life, Property and Casualty, Broker, Agent, Surety 21. Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling, Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor Equipment (Camping), B-37 Tourism, Resorts, Games, Toy Manufacturing, Motion Picture Production Theaters, Motion Picture Distribution 22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic): Industrial, Machine Tools, and Steam Generators 23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales of the foregoing 24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling 25. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper Products, Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio, T.V., Cable Broadcasting Equipment 26. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport 27. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog, Showroom 28. Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph, Satellite, Equipment, Research, Cellular 29. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer, Leather Shoes 30. Personal Transportation: Air, Bus, Rail, Car Rental 31. Utilities: Electric, Water, Hydro Power, Gas 32. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national Agencies The Trust will use its discretion in determining which industry classification is applicable to a particular investment in consultation with the Independent Accountant and Moody's, to the extent the Trust considers necessary. "Notice of Redemption" means any notice with respect to the redemption of Preferred Shares pursuant to Section 3 of Part I of this Certificate. "Order" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate. "Outstanding" means, as of any date, Preferred Shares theretofore issued by the Trust except, without duplication, (i) Preferred Shares theretofore canceled, redeemed or repurchased by the Trust, or delivered to the Auction Agent for cancellation or with respect to which the Trust has given notice of redemption and irrevocably deposited with the Paying Agent sufficient funds to redeem such Preferred Shares and (ii) any Preferred Shares represented by any certificate in lieu of which a new certificate has been executed and delivered by the Trust. Notwithstanding the foregoing, (A) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any Preferred Shares as to which the Trust or any Affiliate shall be the Existing Holder shall be disregarded and not deemed Outstanding; (B) in connection with any Auction, any Preferred Shares as to which the Trust or any person known to the Auction Agent to be an Affiliate shall be the Existing Holder shall be disregarded and not deemed Outstanding; and (C) for purposes of determining the Preferred Shares Basic Maintenance Amount, Preferred Shares held by the Trust shall be disregarded and not deemed Outstanding, but shares held by any Affiliate shall be deemed Outstanding. "Paying Agent" means The Bank of New York unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as paying agent, which paying agent may be the same as the Auction Agent. "Performing" means that no default as to the payment of principal or interest has occurred and is continuing. B-38 "Person" or "person" means and includes an individual, a partnership, the Trust, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof. "Potential Beneficial Owner," has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate. "Preferred Shares" has the meaning set forth in paragraph SECOND of this Certificate. "Preferred Shares Basic Maintenance Amount" as of any Valuation Date means the dollar amount equal to the sum of (i)(A) the product of the number of Outstanding shares of each Series of Preferred Shares on such date by the Liquidation Preference (and redemption premium, if any) per share of such Series; (B) the aggregate amount of dividends that will have accumulated at the respective Applicable Rates (whether or not earned or declared) to (but not including) the first respective Dividend Payment Dates for each Series of Preferred Shares outstanding that follows such Valuation Date; (C) the aggregate amount of dividends that would accumulate on Outstanding Preferred Shares from such first Dividend Payment Dates therefor referenced in (B) of this paragraph through the 45th day after such Valuation Date at the respective Applicable Rates referenced in (B) of this paragraph; (D) the amount of anticipated non-interest expenses of the Trust for the 90 days subsequent to such Valuation Date; (E) the amount of the current outstanding balances of any indebtedness or obligations of the Trust senior in right of payment to the Preferred Shares plus interest actually accrued together with 30 days additional interest on the current outstanding balances calculated at the current rate; and (F) any other current liabilities payable during the 30 days subsequent to such Valuation Date, including, without limitation, indebtedness due within one year and any redemption premium due with respect to the Preferred Shares for which a Notice of Redemption has been sent, as of such Valuation Date, to the extent not reflected in any of (i)(A) through (i)(E) (including, without limitation, any liabilities incurred for the purpose of clearing securities transactions) less (ii) the sum of any cash plus the value of any of the Trust's assets irrevocably deposited by the Trust for the payment of any of (i)(A) through (i)(F) ("value," for purposes of this clause (ii), means the Discounted Value of the security, except that if the security matures prior to the relevant redemption payment date and is either fully guaranteed by the U.S. Government or is rated P2 by Moody's and A2 by Fitch, it will be valued at its face value). "Preferred Shares Basic Maintenance Amount Test" means a test which is met if: (a) the aggregate Discounted Values of the Moody's Eligible Assets meets or exceeds 1.0 times the Preferred Shares Basic Maintenance Amount and (b) the aggregate Discounted Values of the Fitch Eligible Assets meets or exceeds 1.0 times the Preferred Shares Basic Maintenance Amount. "Preferred Shares Basic Maintenance Certificate" means a report signed by any of the President, Treasurer, any Senior Vice President or any Vice President of the Trust which sets forth, as of the related Valuation Date, the assets of the Trust, the Market Value and the Discounted Value thereof (seriatim and in aggregate), the Preferred Shares Basic Maintenance Amount, the net asset value and market trading price per Common Share, and the total return percentage for the relevant valuation period. "Preferred Shares Basic Maintenance Cure Date," with respect to the failure by the Trust to satisfy the Preferred Shares Basic Maintenance Amount as of a given Valuation Date, means the second Business Day following such Valuation Date. "Rating Agency" means Moody's and Fitch as long as such rating agency is then rating the Preferred Shares. "Redemption Date" has the meaning set forth in Section 2(c)(ii) of Part I of this Certificate. "Redemption Default" has the meaning set forth in Section 2(c)(ii) of Part I of this Certificate. "Redemption Price" has the meaning set forth in Section 3(a)(i) of Part I of this Certificate. "Reference Rate" means, with respect to the determination of the Maximum Rate and the Default Rate, LIBOR (for a Dividend Period of fewer than 184 days) or the applicable Treasury Index Rate (for a Dividend Period of 184 days or more). B-39 "Registrar" means The Bank of New York unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as transfer agent. "Securities Act" means the Securities Act of 1933, as amended. "Securities Depository" means The Depository Trust Company and its successors and assigns or any successor securities depository selected by the Trust that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of each Series. "Sell Order" has the meaning set forth in Section 2(b) of Part II of this Certificate. "Senior Loan" means any secured Loan that is not subordinated by its terms to any other indebtedness of the borrower. "Series" means any of the series of Preferred Shares issued by the Trust. "Series F" means the shares of Series F of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series F of the Preferred Shares. "Series M" means the shares of Series M of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series M of the Preferred Shares. "Series T" means the shares of Series T of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series T of the Preferred Shares. "Series TH" means the shares of Series TH of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series TH of the Preferred Shares. "Series W" means the shares of Series W of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series W of the Preferred Shares. "Short Term Money Market Instruments" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Trust, the remaining term to maturity thereof is not in excess of 180 days (or 270 days for instruments rated at least Aaa for purposes of determining Moody's Eligible Assets): (i) commercial paper rated either F-1 by Fitch if such commercial paper matures in 30 days or P-1 by Moody's and F-1+ by Fitch if such commercial paper matures in over 30 days; (ii) demand or time deposits in, and banker's acceptances and certificates of deposit of, (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (B) a United States branch office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia); (iii) overnight funds; (iv) U.S. Government Securities; and (v) Eurodollar demand or time deposits in, or certificates of deposit of, the head office or the London branch office of a depository institution or trust company if the certificates of deposit, if any, and the long-term unsecured debt obligations (other than such obligations the ratings of which are based on the credit of a person or entity other than such depository institution or trust company) of such depository institution or trust company that have (1) credit ratings on each Valuation Date of at least P-1 from Moody's and F-1+ from Fitch, in the case of commercial paper or certificates of deposit, and (2) credit ratings on each Valuation Date of at least Aa3 from Moody's and AA from Fitch, in the case of long-term unsecured debt obligations; provided, however, that in the case of any such investment that matures in no more than one Business Day from the date of purchase or other acquisition by the Trust, all of the foregoing requirements shall be applicable except that the required long-term unsecured debt credit rating of such depository institution or trust company from Moody's and Fitch shall be at least A2, A-2 and A, respectively; and provided further, however, that the foregoing credit rating requirements shall be B-40 deemed to be met with respect to a depository institution or trust company if (1) such depository institution or trust company is the principal depository institution in a holding company system, (2) the certificates of deposit, if any, of such depository institution or trust company are not rated on any Valuation Date below P-1 by Moody's or F-1+ by Fitch and there is no long-term rating, and (3) the holding company shall meet all of the foregoing credit rating requirements (including the preceding proviso in the case of investments that mature in no more than one Business Day from the date of purchase or other acquisition by the Trust); and provided further, that the interest receivable by the Trust shall not be subject to any withholding or similar taxes. "Special Dividend Period" means a Dividend Period consisting of (i) a specified number of days (other than seven), evenly divisible by seven and not fewer than seven nor more than 364 or (ii) a specified period of one whole year or more but not greater than five years (in each case subject to adjustment as provided in paragraph 2(b)(i)). "Specific Redemption Provisions" means, with respect to a Special Dividend Period either, or any combination of, (i) a period (a "Non-Call Period") determined by the Board of Trustees of the Trust, after consultation with the Auction Agent and the Broker-Dealers, during which the Preferred Shares subject to such Dividend Period shall not be subject to redemption at the option of the Trust and (ii) a period (a "Premium Call Period"), consisting of a number of whole years and determined by the Board of Trustees of the Trust, after consultation with the Auction Agent and the Broker-Dealers, during each year of which the Preferred Shares subject to such Dividend Period shall be redeemable at the Trust's option at a price per share equal to $25,000 plus accumulated but unpaid dividends plus a premium expressed as a percentage of $25,000, as determined by the Board of Trustees of the Trust after consultation with the Auction Agent and the Broker-Dealers. "Standard Dividend Period" means a Dividend Period of 7 days, unless such 7th day is not a Business Day, then the number of days ending on the Business Day next preceding such 7th day. "Submission Deadline" means 1:00 P.M., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time. "Substitute Commercial Paper Dealers" means such Substitute Commercial Paper Dealer or Dealers as the Trust may from time to time appoint or, in lieu of any thereof, their respective affiliates or successors. "Transfer Agent" means The Bank of New York, unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as Transfer Agent. "Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable Dividend Period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all Dividend Periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, if the most recent such statistical release shall not have been published during the 15 days preceding the date of computation, the foregoing computations shall be based upon the average of comparable data as quoted to the Trust by at least three recognized dealers in U.S. Government securities selected by the Trust. "U.S. Government Securities" means direct obligations of the United States or by its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption. "Valuation Date" means each Business Day of each week. "Voting Period" has the meaning set forth in Section 6(b) of Part I of this Certificate. B-41 20. INTERPRETATION. References to sections, subsections, clauses, sub-clauses, paragraphs and subparagraphs are to such sections, subsections, clauses, sub-clauses, paragraphs and subparagraphs contained in this Part I or Part II hereof, as the case may be, unless specifically identified otherwise. PART II: AUCTION PROCEDURES 1. CERTAIN DEFINITIONS. As used in Part II of this Certificate, the following terms shall have the following meanings, unless the context otherwise requires and all section references below are to Part II of this Certificate except as otherwise indicated. Capitalized terms not defined in Section 1 of Part II of this Certificate shall have the respective meanings specified in Part I of this Certificate. "Available Preferred Shares" has the meaning set forth in Section 4(a)(i) of Part II of this Certificate. "Existing Holder" means (a) a person who beneficially owns those Preferred Shares listed in that person's name in the records of the Auction Agent or (b) the beneficial owner of those Preferred Shares which are listed under such person's Broker-Dealer's name in the records of the Auction Agent. "Potential Holder" means (a) any Existing Holder who may be interested in acquiring additional Preferred Shares or (b) any other person who may be interested in acquiring Preferred Shares or whose shares will be listed under such person's Broker-Dealer's name on the records of the Auction Agent. "Submitted Bid Order" has the meaning set forth in Section 4(a) of Part II of this Certificate. "Submitted Hold Order" has the meaning set forth in Section 4(a) of Part II of this Certificate. "Submitted Order" has the meaning set forth in Section 4(a) of Part II of this Certificate. "Submitted Sell Order" has the meaning set forth in Section 4(a) of Part II of this Certificate. "Sufficient Clearing Orders" means that all Preferred Shares are the subject of Submitted Hold Orders or that the number of Preferred Shares that are the subject of Submitted Bid Orders by Potential Holders specifying one or more rates equal to or less than the Maximum Rate exceeds or equals the sum of (A) the number of Preferred Shares that are subject of Submitted Hold/Sell Orders by Existing Holders specifying one or more rates higher than the Maximum Applicable Rate and (B) the number of Preferred Shares that are subject to Submitted Sell Orders. "Winning Bid Rate" means the lowest rate specified in the Submitted Orders which, if (A) each Submitted Hold/Sell Order from Existing Holders specifying such lowest rate and all other Submitted Hold/Sell Orders from Existing Holders specifying lower rates were accepted and (B) each Submitted Buy Order from Potential Holders specifying such lowest rate and all other Submitted Buy Orders from Potential Holders specifying lower rates were accepted, would result in the Existing Holders described in clause (A) above continuing to hold an aggregate number of Preferred Shares which, when added to the number of Preferred Shares to be purchased by the Potential Holders described in clause (B) above and the number of Preferred Shares subject to Submitted Hold Orders, would be equal to the number of Preferred Shares. 2. ORDERS (a) On or prior to the Submission Deadline on each Auction Date for shares of a Series of Preferred Shares: (i) each Beneficial Owner of shares of such Series may submit to its Broker-Dealer by telephone or otherwise information as to: (A) the number of Outstanding shares, if any, of such Series held by such Beneficial Owner which such Beneficial Owner desires to continue to hold without regard to the B-42 Applicable Rate for shares of such Series for the next succeeding Dividend Period of such shares; (B) the number of Outstanding shares, if any, of such Series held by such Beneficial Owner which such Beneficial Owner offers to sell if the Applicable Rate for shares of such Series for the next succeeding Dividend Period of shares of such Series shall be less than the rate per annum specified by such Beneficial Owner; and/or (C) the number of Outstanding shares, if any, of such Series held by such Beneficial Owner which such Beneficial Owner offers to sell without regard to the Applicable Rate for shares of such Series for the next succeeding Dividend Period of shares of such Series; and (ii) each Broker-Dealer, using lists of Potential Beneficial Owners, shall in good faith for the purpose of conducting a competitive Auction in a commercially reasonable manner, contact Potential Beneficial Owners (by telephone or otherwise), including Persons that are not Beneficial Owners, on such lists to determine the number of shares, if any, of such Series which each such Potential Beneficial Owner offers to purchase if the Applicable Rate for shares of such Series for the next succeeding Dividend Period of shares of such Series shall not be less than the rate per annum specified by such Potential Beneficial Owner. For the purposes hereof, the communication by a Beneficial Owner or Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent, of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this paragraph (a) is hereinafter referred to as an "Order" and collectively as "Orders" and each Beneficial Owner and each Potential Beneficial Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the Auction Agent, is hereinafter referred to as a "Bidder" and collectively as "Bidders"; an Order containing the information referred to in clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively as "Hold Orders"; an Order containing the information referred to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids"; and an Order containing the information referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as "Sell Orders." (b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a Series subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell: (A) the number of Outstanding shares of such Series specified in such Bid if the Applicable Rate for shares of such Series determined on such Auction Date shall be less than the rate specified therein; (B) such number or a lesser number of Outstanding shares of such Series to be determined as set forth in clause (iv) of paragraph (a) of Section 5 of this Part II if the Applicable Rate for shares of such Series determined on such Auction Date shall be equal to the rate specified therein; or (C) the number of Outstanding shares of such Series specified in such Bid if the rate specified therein shall be higher than the Maximum Rate for shares of such Series, or such number or a lesser number of Outstanding shares of such Series to be determined as set forth in clause (iii) of paragraph (b) of Section 5 of this Part II if the rate specified therein shall be higher than the Maximum Rate for shares of such Series and Sufficient Clearing Orders for shares of such Series do not exist. (ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of a Series subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell: (A) the number of Outstanding shares of such Series specified in such Sell Order; or (B) such number or a lesser number of Outstanding shares of such Series as set forth in clause (iii) of paragraph (b) of Section 5 of this Part II if Sufficient Clearing Orders for shares of such series do not exist; B-43 provided however, that a Broker-Dealer that is an Existing Holder with respect to shares of a Series shall not be liable to any Person for failing to sell such shares pursuant to a Sell Order described in the proviso to paragraph (c) of Section 3 of this Part II if (1) such shares were transferred by the Beneficial Owner thereof without compliance by such Beneficial Owner or its transferee Broker-Dealer (or other transferee person, if permitted by the Trust) with the provisions of Section 6 of this Part II or (2) such Broker-Dealer has informed the Auction Agent pursuant to the terms of its Broker-Dealer Agreement that, according to such Broker-Dealer's records, such Broker-Dealer believes it is not the Existing Holder of such shares. (iii) A Bid by a Potential Holder of shares of a Series subject to an Auction on any Auction Date shall constitute an irrevocable offer to purchase: (A) the number of Outstanding shares of such Series specified in such Bid if the Applicable Rate for shares of such Series determined on such Auction Date shall be higher than the rate specified therein; or (B) such number or a lesser number of Outstanding shares of such Series as set forth in clause (v) of paragraph (a) of Section 5 of this Part II if the Applicable Rate for shares of such Series determined on such Auction Date shall be equal to the rate specified therein. (c) No Order for any number of Preferred Shares other than whole shares shall be valid. 3. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT (a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders for shares of a Series subject to an Auction on such Auction Date obtained by such Broker-Dealer, designating itself (unless otherwise permitted by the Trust) as an Existing Holder in respect of shares subject to Orders submitted or deemed submitted to it by Beneficial Owners and as a Potential Holder in respect of shares subject to Orders submitted to it by Potential Beneficial Owners, and shall specify with respect to each Order for such shares: (i) the name of the Bidder placing such Order (which shall be the Broker-Dealer unless otherwise permitted by the Trust); (ii) the aggregate number of shares of such Series that are the subject of such Order; (iii) to the extent that such Bidder is an Existing Holder of shares of such Series: (A) the number of shares, if any, of such Series subject to any Hold Order of such Existing Holder; (B) the number of shares, if any, of such Series subject to any Bid of such Existing Holder and the rate specified in such Bid; and (C) the number of shares, if any, of such Series subject to any Sell Order of such Existing Holder; and (iv) to the extent such Bidder is a Potential Holder of shares of such Series, the rate and number of shares of such Series specified in such Potential Holder's Bid. (b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth (.001) of 1%. (c) If an Order or Orders covering all of the Outstanding Preferred Shares of a Series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding shares of such Series held by such Existing Holder and not subject to Orders submitted to the Auction Agent; provided, however, that if an Order or Orders covering all of the Outstanding shares of such Series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline for an Auction relating to a Special Dividend Period consisting of more than 7 Dividend Period days, the Auction Agent shall deem a Sell Order to have been submitted by or on B-44 behalf of such Existing Holder covering the number of Outstanding shares of such Series held by such Existing Holder and not subject to Orders submitted to the Auction Agent. (d) If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding Preferred Shares of a Series subject to an Auction held by such Existing Holder, such Orders shall be considered valid in the following order of priority: (i) all Hold Orders for shares of such Series shall be considered valid, but only up to and including in the aggregate the number of Outstanding shares of such Series held by such Existing Holder, and if the number of shares of such Series subject to such Hold Orders exceeds the number of Outstanding shares of such Series held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding shares of such Series held by such Existing Holder; (ii) (A) any Bid for shares of such Series shall be considered valid up to and including the excess of the number of Outstanding shares of such Series held by such Existing Holder over the number of shares of such Series subject to any Hold Orders referred to in clause (i) above; (B) subject to subclause (A), if more than one Bid of an Existing Holder for shares of such Series is submitted to the Auction Agent with the same rate and the number of Outstanding shares of such Series subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess, and the number of shares of such Series subject to each Bid with the same rate shall be reduced pro rata to cover the number of shares of such Series equal to such excess; (C) subject to subclauses (A) and (B), if more than one Bid of an Existing Holder for shares of such Series is submitted to the Auction Agent with different rates, such Bids shall be considered valid in the ascending order of their respective rates up to and including the amount of such excess; (D) in any such event, the number, if any, of such Outstanding shares of such Series subject to any portion of Bids considered not valid in whole or in part under this clause (ii) shall be treated as the subject of a Bid for shares of such Series by or on behalf of a Potential Holder at the rate therein specified; and (iii) all Sell Orders for shares of such Series shall be considered valid up to and including the excess of the number of Outstanding shares of such Series held by such Existing Holder over the sum of shares of such Series subject to valid Hold Orders referred to in clause (i) above and valid Bids referred to in clause (ii) above. (e) If more than one Bid for one or more shares of a Series is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted shall be a separate Bid with the rate and number of shares therein specified. (f) Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, shall be irrevocable. B-45 4. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE (a) Not earlier than the Submission Deadline on each Auction Date for shares of a Series, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers in respect of shares of such Series (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall determine for such Series: (i) the excess of the number of Outstanding shares of such Series over the number of Outstanding shares of such Series subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available Preferred Shares" of such Series); (ii) from the Submitted Orders for shares of such Series, whether: (A) the number of Outstanding shares of such Series subject to Submitted Bids of Potential Holders specifying one or more rates equal to or lower than the Maximum Rate (for all Dividend Periods) for shares of such Series exceeds or is equal to the sum of: (B) the number of Outstanding shares of such series subject to Submitted Bids of Existing Holders specifying one or more rates higher than the Maximum Rate (for all Dividend Periods) for shares of such series; and (C) the number of Outstanding shares of such series subject to Submitted Sell Orders (in the event such excess or such equality exists (other than because the number of shares of such series in subclauses (B) and (C) above is zero because all of the Outstanding shares of such series are subject to Submitted Hold Orders), such Submitted Bids in subclause (A) above being hereinafter referred to collectively as "Sufficient Clearing Bids" for shares of such series); and (iii) if Sufficient Clearing Bids for shares of such series exist, the lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for shares of such series) which if: (A) (I) each such Submitted Bid of Existing Holders specifying such lowest rate and (II) all other such Submitted Bids of Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of such series that are subject to such Submitted Bids; and (B) (I) each such Submitted Bid of Potential Holders specifying such lowest rate and (II) all other such Submitted Bids of Potential Holders specifying lower rates were accepted; would result in such Existing Holders described in subclause (A) above continuing to hold an aggregate number of Outstanding shares of such series which, when added to the number of Outstanding shares of such series to be purchased by such Potential Holders described in subclause (B) above, would equal not less than the Available Preferred Shares of such series. (b) Promptly after the Auction Agent has made the determinations pursuant to paragraph (a) of this Section 4, the Auction Agent shall advise the Trust of the Maximum Rate for shares of the Series for which an Auction is being held on the Auction Date and, based on such determination, the Applicable Rate for shares of such Series for the next succeeding Dividend Period thereof as follows: (i) if Sufficient Clearing Orders for shares of such Series exist, that the Applicable Rate for all shares of such Series for the next succeeding Dividend Period thereof shall be equal to the Winning Bid Rate for shares of such Series so determined; (ii) if Sufficient Clearing Orders for shares of such Series do not exist (other than because all of the Outstanding shares of such Series are subject to Submitted Hold Orders), that the Applicable Rate for all shares of such Series for the next succeeding Dividend Period thereof shall be equal to the Maximum Rate for shares of such Series; or B-46 (iii) if all of the Outstanding shares of such Series are subject to Submitted Hold Orders, that the Applicable Rate for all shares of such Series for the next succeeding Dividend Period thereof shall be the All Hold Rate. 5. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND ALLOCATION Existing Holders shall continue to hold the Preferred Shares that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to paragraph (a) of Section 4 of this Part II, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the Auction Agent shall take such other action as set forth below: (a) If Sufficient Clearing Orders for shares of a Series have been made, all Submitted Sell Orders with respect to shares of such Series shall be accepted and, subject to the provisions of paragraphs (d) and (e) of this Section 5, Submitted Bids with respect to shares of such Series shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids with respect to shares of such Series shall be rejected: (i) Existing Holders' Submitted Bids for shares of such Series specifying any rate that is higher than the Winning Bid Rate for shares of such Series shall be accepted, thus requiring each such Existing Holder to sell the Preferred Shares subject to such Submitted Bids; (ii) Existing Holders' Submitted Bids for shares of such Series specifying any rate that is lower than the Winning Bid Rate for shares of such Series shall be rejected, thus entitling each such Existing Holder to continue to hold the Preferred Shares subject to such Submitted Bids; (iii) Potential Holders' Submitted Bids for shares of such Series specifying any rate that is lower than the Winning Bid Rate for shares of such Series shall be accepted; (iv) each Existing Holder's Submitted Bid for shares of such Series specifying a rate that is equal to the Winning Bid Rate for shares of such Series shall be rejected, thus entitling such Existing Holder to continue to hold the Preferred Shares subject to such Submitted Bid, unless the number of Outstanding Preferred Shares subject to all such Submitted Bids shall be greater than the number of Preferred Shares ("remaining shares") in the excess of the Available Preferred Shares of such Series over the number of Preferred Shares subject to Submitted Bids described in clauses (ii) and (iii) of this paragraph (a), in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold Preferred Shares subject to such Submitted Bid, but only in an amount equal to the Preferred Shares of such Series obtained by multiplying the number of remaining shares by a fraction, the numerator of which shall be the number of Outstanding Preferred Shares held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Preferred Shares subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate for shares of such Series; and (v) each Potential Holder's Submitted Bid for shares of such Series specifying a rate that is equal to the Winning Bid Rate for shares of such Series shall be accepted but only in an amount equal to the number of shares of such Series obtained by multiplying the number of shares in the excess of the Available Preferred Shares of such Series over the number of Preferred Shares subject to Submitted Bids described in clauses (ii) through (iv) of this paragraph (a) by a fraction, the numerator of which shall be the number of Outstanding Preferred Shares subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Preferred Shares subject to such Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate for shares of such Series. (b) If Sufficient Clearing Orders for shares of a Series have not been made (other than because all of the Outstanding shares of such Series are subject to Submitted Hold Orders), subject to the provisions of paragraph (d) of this Section 5, Submitted Orders for shares of such Series shall be accepted or B-47 rejected as follows in the following order of priority and all other Submitted Bids for shares of such Series shall be rejected: (i) Existing Holders' Submitted Bids for shares of such Series specifying any rate that is equal to or lower than the Maximum Rate for shares of such Series shall be rejected, thus entitling such Existing Holders to continue to hold the Preferred Shares subject to such Submitted Bids; (ii) Potential Holders' Submitted Bids for shares of such Series specifying any rate that is equal to or lower than the Maximum Rate for shares of such Series shall be accepted; and (iii) Each Existing Holder's Submitted Bid for shares of such Series specifying any rate that is higher than the Maximum Rate for shares of such Series and the Submitted Sell Orders for shares of such Series of each Existing Holder shall be accepted, thus entitling each Existing Holder that submitted or on whose behalf was submitted any such Submitted Bid or Submitted Sell Order to sell the shares of such Series subject to such Submitted Bid or Submitted Sell Order, but in both cases only in an amount equal to the number of shares of such Series obtained by multiplying the number of shares of such Series subject to Submitted Bids described in clause (ii) of this paragraph (b) by a fraction, the numerator of which shall be the number of Outstanding shares of such Series held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding shares of such Series subject to all such Submitted Bids and Submitted Sell Orders. (c) If all of the Outstanding shares of a Series are subject to Submitted Hold Orders, all Submitted Bids for shares of such Series shall be rejected. (d) If, as a result of the procedures described in clause (iv) or (v) of paragraph (a) or clause (iii) of paragraph (b) of this Section 5, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of a Series on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, round up or down the number of shares of such Series to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date as a result of such procedures so that the number of shares so purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be whole shares of a Series of Preferred Shares. (e) If, as a result of the procedures described in clause (v) of paragraph (a) of this Section 5 any Potential Holder would be entitled or required to purchase less than a whole share of a Series on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, allocate shares of such Series for purchase among Potential Holders so that only whole shares of such Series are purchased on such Auction Date as a result of such procedures by any Potential Holder, even if such allocation results in one or more Potential Holders not purchasing shares of such Series on such Auction Date. (f) Based on the results of each Auction for shares of a Series, the Auction Agent shall determine the aggregate number of shares of such Series to be purchased and the aggregate number of shares of such Series to be sold by Potential Holders and Existing Holders and, with respect to each Potential Holder and Existing Holder, to the extent that such aggregate number of shares to be purchased and such aggregate number of shares to be sold differ, determine to which other Potential Holder(s) or Existing Holder(s) they shall deliver, or from which other Potential Holder(s) or Existing Holder(s) they shall receive, as the case may be, shares of such Series. Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder or Beneficial Owner of shares of a Series with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of Preferred Shares that have been made in respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares of such Series B-48 that have been accepted in whole or in part shall constitute good delivery to such Potential Holders and Potential Beneficial Owners. (g) Neither the Trust nor the Auction Agent nor any affiliate of either shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial Owner or its respective Agent Member to deliver shares of any Series or to pay for shares of any Series sold or purchased pursuant to the Auction Procedures or otherwise. 6. TRANSFER OF PREFERRED SHARES Unless otherwise permitted by the Trust, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose of Preferred Shares only in whole shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with the procedures described in this Part II or to a Broker-Dealer; provided, however, that (a) a sale, transfer or other disposition of Preferred Shares from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this Section 6 if such Broker-Dealer remains the Existing Holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to Auctions, the Broker-Dealer (or other Person, if permitted by the Trust) to whom such transfer is made shall advise the Auction Agent of such transfer. B-49 APPENDIX C MORGAN STANLEY INVESTMENT MANAGEMENT PROXY VOTING POLICY AND PROCEDURES I. POLICY STATEMENT Introduction -- Morgan Stanley Investment Management's ("MSIM") policies and procedures for voting proxies 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 the authority to vote their proxies. The policies and procedures and general guidelines in this section will be reviewed and, as necessary, updated periodically to address new or revised proxy voting issues. The MSIM entities covered by these policies and procedures currently include the following: Morgan Stanley Investment Advisors Inc., Morgan Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Group 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, Morgan Stanley Investments LP, Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP, Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as the "MSIM Affiliates"). Each MSIM Affiliate will 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 as the "MSIM Funds"), each MSIM Fund will vote proxies pursuant to authority granted under its applicable investment advisory agreement or, in the absence of such authority, as authorized by its Board of Directors or Trustees. A 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 Agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent and diligent manner, vote proxies in the best interests of clients, including beneficiaries of and participants in a client's benefit plan(s) for which we 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 a MSIM Affiliate with a statement of proxy voting policy. In these situations, the MSIM Affiliate will comply with the client's policy unless to do so would be inconsistent with applicable laws or regulations or the MSIM Affiliate's fiduciary responsibility. Proxy Research Services -- To assist the MSIM Affiliates in their responsibility for voting proxies and the overall global proxy voting process, Institutional Shareholder Services ("ISS") and the Investor Responsibility Research Center ("IRRC") have been retained as experts in the proxy voting and corporate governance area. ISS and IRRC are independent advisers that specialize in providing a variety of fiduciary-level proxyrelated services to institutional investment managers, plan sponsors, custodians, consultants, and other institutional investors. The services provided to MSIM Affiliates include in-depth research, global issuer analysis, and voting recommendations. In addition to research, ISS provides vote execution, reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor and supervise the services provided by the proxy research services. Voting Proxies for certain Non-US Companies -- While the proxy voting process is well established in the United States and other developed markets with a number of tools and services available to assist an investment manager, voting proxies of non-US companies located in certain jurisdictions, particularly emerging markets, may involve a number of problems that may restrict or prevent a MSIM Affiliate's ability to vote such proxies. 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 the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies C-1 will be voted on a best efforts basis only, consistent with the Client Proxy Standard. ISS has been retained to provide assistance to the MSIM Affiliates in connection with voting their clients' non-US proxies. II. GENERAL PROXY VOTING GUIDELINES To ensure consistency in voting proxies on behalf of its clients, MSIM Affiliates will follow (subject to any exception set forth herein) these Proxy Voting Policies and Procedures, including the guidelines set forth below. These guidelines address a broad range of issues, including board size and composition, executive compensation, anti-takeover proposals, capital structure proposals and social responsibility issues and are meant to be general voting parameters on issues that arise most frequently. The MSIM Affiliates, however, may vote in a manner that is contrary to the following general guidelines, pursuant to the procedures set forth in Section IV. below, provided the vote is consistent with the Client Proxy Standard. III. GUIDELINES A. MANAGEMENT PROPOSALS 1. When voting on routine ballot items the following proposals are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. - Selection or ratification of auditors. - Approval of financial statements, director and auditor reports. - Election of Directors. - Limiting Directors' liability and broadening indemnification of Directors. - Requirement that a certain percentage (up to 66 2/3%) of its Board's members be comprised of independent and unaffiliated Directors. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. - Recommendations to set retirement ages or require specific levels of stock ownership by Directors. - General updating/corrective amendments to the charter. - Elimination of cumulative voting. - Elimination of preemptive rights. - Provisions for confidential voting and independent tabulation of voting results. - Proposals related to the conduct of the annual meeting except those proposals that relate to the "transaction of such other business which may come before the meeting." 2. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on a shareholder, are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. CAPITALIZATION CHANGES - Capitalization changes that eliminate other classes of stock and 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. C-2 - Proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital. - Proposals for 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 will generally be approved if the resulting increase in authorized shares coincides with the proxy guidelines set forth above for common stock increases. COMPENSATION - Director fees, provided the amounts are not excessive relative to other companies in the country or industry. - 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. - Establishment of Employee Stock Option Plans and other employee ownership plans. ANTI-TAKEOVER MATTERS - Modify or rescind existing supermajority vote requirements to amend the charters or bylaws. - Adoption of anti-greenmail provisions provided that the proposal: (i) defines greenmail; (ii) prohibits buyback offers to large block holders 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. 3. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on the shareholder, are generally voted against (notwithstanding management support), subject to the review and approval of the Proxy Review Committee, as appropriate. - Capitalization changes that add classes of stock that which substantially dilute the voting interests of existing shareholders. - Proposals to increase the authorized number of shares of existing classes of stock that carry preemptive rights or supervoting rights. - Creation of "blank check" preferred stock. - Changes in capitalization by 100% or more. - Compensation proposals that allow for discounted stock options that have not been offered to employees in general. - Amendments to bylaws that would require a supermajority shareholder vote to pass or repeal certain provisions. - Proposals to indemnify auditors. 4. The following types of non-routine proposals, which potentially may have a potential financial or best interest impact on an issuer, are voted as determined by the Proxy Review Committee. C-3 CORPORATE TRANSACTIONS - Mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) will be examined on a case-by-case basis. In all cases, ISS and IRRC research and analysis will be used along with MSIM Affiliates' research and analysis, based on, among other things, MSIM internal company-specific knowledge. - Change-in-control provisions in non-salary compensation plans, employment contracts, and severance agreements that benefit management and would be costly to shareholders if triggered. - Shareholders rights plans that allow appropriate offers to shareholders to be blocked by the board or trigger provisions that prevent legitimate offers from proceeding. - Executive/Director stock option plans. Generally, stock option plans should meet the following criteria: (i) Whether the stock option plan is incentive based; (ii) For mature companies, should be no more than 5% of the issued capital at the time of approval; (iii) For growth companies, should be no more than 10% of the issued capital at the time of approval. ANTI-TAKEOVER PROVISIONS - Proposals requiring shareholder ratification of poison pills. - Anti-takeover and related provisions that serve to prevent the majority of shareholders from exercising their rights or effectively deter the appropriate tender offers and other offers. B. SHAREHOLDER PROPOSALS 1. The following shareholder proposals are generally supported, subject to the review and approval of the Proxy Review Committee, as appropriate: - Requiring auditors to attend the annual meeting of shareholders. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. - Requirement that a certain percentage of its Board's members be comprised of independent and unaffiliated Directors. - Confidential voting. - Reduction or elimination of supermajority vote requirements. 2. The following shareholder proposals will be voted as determined by the Proxy Review Committee. - Proposals that limit tenure of directors. - Proposals to limit golden parachutes. - Proposals requiring directors to own large amounts of stock to be eligible for election. - Restoring cumulative voting in the election of directors. - Proposals that request or require disclosure of executive compensation in addition to the disclosure required by the Securities and Exchange Commission ("SEC") regulations. - Proposals that limit retirement benefits or executive compensation. - Requiring shareholder approval for bylaw or charter amendments. C-4 - Requiring shareholder approval for shareholder rights plan or poison pill. - Requiring shareholder approval of golden parachutes. - Elimination of certain anti-takeover related provisions. - Prohibit payment of greenmail. 3. The following shareholder proposals are generally not supported, subject to the review and approval of the Committee, as appropriate. - Requirements that the issuer prepare reports that are costly to provide or that would require duplicative efforts or expenditures that are of a non-business nature or would provide no pertinent information from the perspective of institutional shareholders. - Restrictions related to social, political or special interest issues that impact the ability of the company to do business or be competitive and that have a significant financial or best interest impact to the shareholders. - Proposals that require inappropriate endorsements or corporate actions. IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES A. PROXY REVIEW COMMITTEE 1. The MSIM Proxy Review Committee ("Committee") is responsible for creating and implementing MSIM's Proxy Voting Policy and Procedures and, in this regard, has expressly adopted them. Following are some of the functions and responsibilities of the Committee. (a) The Committee, which will consist of members designated by MSIM's Chief Investment Officer, is responsible for establishing MSIM's proxy voting policies and guidelines and determining how MSIM will vote proxies on an ongoing basis. (b) The Committee will periodically review and have the authority to amend as necessary MSIM's proxy voting policies and guidelines (as expressed in these Proxy Voting Policy and Procedures) and establish and direct voting positions consistent with the Client Proxy Standard. (c) The Committee will meet at least monthly to (among other matters): (1) address any outstanding issues relating to MSIM's Proxy Voting Policy and Procedures; and (2) generally review proposals at upcoming shareholder meetings of MSIM portfolio companies in accordance with this Policy and Procedures including, as appropriate, the voting results of prior shareholder meetings of the same issuer where a similar proposal was presented to shareholders. The Committee, or its designee, will timely communicate to ISS MSIM's Proxy Voting Policy and Procedures (and any amendments to them and/or any additional guidelines or procedures it may adopt). (d) 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 Procedures); (2) review and approve upcoming votes, as appropriate, for matters for which specific direction has been provided in Sections I, II, and III above; and (3) determine how to vote matters for which specific direction has not been provided in Sections I, II and III above. Split votes will generally not be approved within a single Global Investor Group team. The Committee may take into account ISS recommendations and the research provided by IRRC as well as any other relevant information they may request or receive. (e) In addition to the procedures discussed above, if the Committee determines that an issue raises a potential material conflict of interest, or gives rise to the appearance of a potential material conflict of interest, the Committee will designate a special committee to review, and C-5 recommend a course of action with respect to, the conflict(s) in question ("Special Committee"). The Special Committee may request the assistance of the Law and Compliance Departments and will have sole discretion to cast a vote. In addition to the research provided by ISS and IRRC, the Special Committee may request analysis from MSIM Affiliate investment professionals and outside sources to the extent it deems appropriate. (f) 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 U.S. registered investment company, the Committee and Special Committee, or their designee(s), will report their decisions to each applicable Board of Trustees/Directors of those investment companies 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. (g) The Committee and Special Committee, or their designee(s), will timely communicate to applicable PMs, the Compliance Departments and, as necessary to ISS, decisions of the Committee and Special Committee so that, among other things, ISS will vote proxies consistent with their decisions. C-6 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees of Van Kampen Senior Income Trust We have audited the accompanying statement of assets and liabilities of Van Kampen Senior Income Trust (the "Trust"), including the portfolio of investments, as of July 31, 2003, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for the two years then ended, and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The Trust's financial highlights for the periods ended prior to July 31, 2000 were audited by other auditors whose report, dated September 14, 1999, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the Trust's custodian, brokers, and selling or agent banks; where replies were not received, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Van Kampen Senior Income Trust as of July 31, 2003, the results of its operations, cash flows, the changes in its net assets and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Chicago, Illinois September 4, 2003 F-1 BY THE NUMBERS PORTFOLIO OF INVESTMENTS July 31, 2003 THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF THE REPORTING PERIOD.(1)

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE VARIABLE RATE** SENIOR LOAN INTERESTS 122.3% AEROSPACE/DEFENSE 2.3% $ 1,882 DeCrane Aircraft Holdings, Inc., Term Loan............ B2 B 12/17/06 $ 1,684,811 10,047 DRS Technologies, Inc., Term Loan.................. Ba3 BB- 09/30/08 10,134,488 2,901 ILC Industries, Inc., Term Loan....................... NR NR 04/11/10 2,879,186 1,716 Integrated Defense Technologies, Inc., Term Loan....................... Ba3 BB- 03/04/08 1,713,699 1,500 Transdigm, Inc., Term Loan....................... B1 B+ 07/22/10 1,516,407 10,032 United Defense Industries, Inc., Term Loan............ Ba3 BB 08/13/07 to 08/13/09 10,049,190 5,865 Vought Aircraft Industries, Inc., Term Loan............ Ba3 B+ 12/31/06 to 06/30/08 5,866,178 -------------- 33,843,959 -------------- AUTOMOTIVE 4.7% 3,396 AMCAN Consolidate Technologies, Inc., Term Loan....................... NR NR 03/28/07 3,242,922 5,534 Citation Corp., Term Loan....................... NR B 12/01/07 4,496,434 19,801 Federal-Mogul Corp., Term Loan (c)................... NR NR 10/01/03 to 02/24/04 19,746,039 9,040 Federal-Mogul Corp., Revolving Credit Agreement (c)........................ NR NR 02/24/04 8,994,506 5,500 Goodyear Tire & Rubber Co., Term Loan.................. Ba2 BB- 03/31/06 5,472,500 6,945 MetoKote Corp., Term Loan.. B1 B+ 11/02/05 to 11/14/05 6,809,712 12,687 Safelite Glass Corp., Term Loan....................... NR NR 09/30/07 12,497,066 863 Stoneridge, Inc., Term Loan....................... Ba3 BB- 04/30/08 862,500

See Notes to Financial Statements F-2 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE AUTOMOTIVE (CONTINUED) $ 4,000 TRW Automotive, Inc., Term Loan....................... Ba2 BB 02/28/11 $ 4,020,416 2,500 United Components, Inc., Term Loan.................. B1 BB- 06/30/10 2,522,395 -------------- 68,664,490 -------------- BEVERAGE, FOOD & TOBACCO 10.2% 24,827 Aurora Foods, Inc., Term Loan....................... B3 CC 09/30/06 24,586,988 5,633 B & G Foods, Inc., Term Loan....................... B1 B+ 03/31/06 5,635,005 12,902 Birds Eye Foods, Inc., Term Loan....................... NR B+ 06/30/08 12,945,504 4,988 Burns Philp, Inc., Term Loan....................... B1 B+ 02/26/09 5,018,672 7,544 Commonwealth Brands, Inc., Term Loan.................. NR NR 08/28/07 7,553,929 5,000 Constellation Brands, Inc., Term Loan.................. Ba1 BB 11/30/08 5,051,250 245 Cott Beverages, Inc., Term Loan....................... NR BB+ 12/31/06 245,919 9,498 Dean Foods Co., Term Loan.. Ba1 BB+ 07/15/08 9,548,102 4,388 Del Monte Corp., Term Loan....................... Ba3 BB- 12/20/10 4,425,165 6,511 Doane Pet Care Co., Term Loan....................... B1 B 03/31/05 to 12/29/06 6,524,179 9,766 Dole Food Co., Inc., Term Loan....................... Ba3 BB+ 03/28/08 to 09/28/08 9,847,018 6,532 Hartz Mountain Corp., Term Loan....................... B1 B 12/31/07 6,536,566 9,750 Land O' Lakes, Inc., Term Loan....................... B1 BB 10/10/06 to 10/10/08 9,555,455 2,391 Mafco Worldwide Corp., Term Loan....................... NR NR 03/31/06 2,367,431 418 Meow Mix Co., Term Loan.... Ba3 BB- 01/31/08 418,544 2,500 Merisant Co., Term Loan.... Ba3 BB- 01/11/10 2,518,750 2,000 NBTY, Inc., Term Loan...... Ba2 BB+ 07/25/09 2,022,500 5,000 Nellson Nutraceutical, Inc., Term Loan............ NR NR 10/04/09 5,043,750 5,762 New World Pasta Co., Term Loan....................... B3 NR 01/28/06 4,897,363

See Notes to Financial Statements F-3 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE BEVERAGE, FOOD & TOBACCO (CONTINUED) $ 954 New World Pasta Co., Revolving Credit Agreement.................. B3 NR 01/28/05 $ 829,980 4,825 Otis Spunkmeyer, Inc., Term Loan....................... B1 B+ 02/20/09 4,832,448 10,659 Pinnacle Foods, Inc., Term Loan....................... Ba3 BB- 05/22/08 10,672,119 4,352 Southern Wine & Spirits of America, Inc., Term Loan... NR NR 07/02/08 4,375,152 3,941 Swift & Co., Term Loan..... Ba2 BB 09/19/08 3,950,661 -------------- 149,402,450 -------------- BROADCASTING--CABLE 6.3% 6,895 CC VIII Operating, LLC, Term Loan.................. B2 B- 02/02/08 6,496,076 33,498 Charter Communications Operating, LLC, Term Loan.. B2 B 09/18/07 to 09/18/08 31,549,033 16,712 Falcon Cable Communications, LP, Term Loan....................... B2 NR 12/31/07 15,260,602 4,896 Frontiervision Operating Partners, LP, Term Loan (c)........................ NR NR 03/31/06 4,659,600 4,364 Frontiervision Operating Partners, LP, Revolving Credit Agreement (c)....... NR NR 10/31/05 4,152,729 13,500 Insight Midwest Holdings LLC, Term Loan............. Ba3 BB+ 06/30/09 to 12/31/09 13,517,808 4,250 MCC Iowa, LLC, Term Loan... NR NR 09/30/10 4,285,122 1,489 Mediacom Illinois, LLC, Term Loan.................. NR BB+ 12/31/08 1,486,889 2,719 Mediacom Southeast, LLC, Term Loan.................. Ba3 BB+ 09/30/08 2,725,519 9,240 Olympus Cable Holdings, LLC, Term Loan (c)......... NR NR 09/30/10 8,203,965 -------------- 92,337,343 --------------

See Notes to Financial Statements F-4 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE BROADCASTING--DIVERSIFIED 0.9% $ 1,995 Cumulus Media, Inc., Term Loan....................... Ba3 B+ 03/28/10 $ 2,008,404 9,000 DirecTV Holdings, LLC, Term Loan....................... Ba2 BB- 03/06/08 to 03/06/10 8,994,567 1,800 Nexstar Broadcasting, Inc., Term Loan.................. NR NR 12/31/10 1,807,743 -------------- 12,810,714 -------------- BROADCASTING--RADIO 0.3% 4,807 Citadel Broadcasting Co., Term Loan.................. NR NR 06/26/09 4,825,739 -------------- BROADCASTING--TELEVISION 0.9% 7,040 Gray Communications Systems, Inc., Term Loan... Ba3 B+ 12/31/10 7,101,600 5,950 Quorum Broadcasting, Inc., Term Loan.................. NR NR 12/31/04 5,741,633 -------------- 12,843,233 -------------- BUILDINGS & REAL ESTATE 3.8% 8,000 AIMCO Properties, L.P., Term Loan.................. NR NR 05/30/08 8,035,000 5,950 CB Richard Ellis Services, Inc., Term Loan............ B1 B+ 07/18/08 5,994,625 7,839 Central Parking Corp., Term Loan....................... Ba2 BB+ 03/31/10 7,830,520 3,500 Century Maintenance & Supply, Inc., Term Loan.... NR NR 05/12/10 3,552,500 9,083 Corrections Corp. of America, Term Loan......... Ba3 BB- 03/31/08 9,138,191 4,750 The Macerich Co., Term Loan....................... NR NR 07/26/05 4,768,073 6,930 Ventas, Inc., Term Loan.... NR NR 04/17/07 6,912,675 1,567 Ventas, Inc., Revolving Credit Agreement........... NR NR 04/17/05 1,496,386 2,500 Wackenhut Corrections Corp., Term Loan........... Ba3 BB- 07/09/09 2,512,500 5,000 WFP Tower Co., L.P., Term Loan....................... NR NR 03/31/06 4,996,875 -------------- 55,237,345 -------------- CHEMICALS, PLASTICS & RUBBER 4.9% 7,985 CP Kelco ApS, Term Loan.... B3 B+ 09/30/06 to 09/30/08 7,981,782 11,225 GenTek, Inc., Term Loan (c)........................ NR NR 04/30/05 to 10/31/07 7,397,793

See Notes to Financial Statements F-5 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE CHEMICALS, PLASTICS & RUBBER (CONTINUED) $ 3,792 GenTek, Inc., Revolving Credit Agreement (c)....... NR NR 04/30/05 $ 2,533,284 4,550 GEO Specialty Chemicals, Inc., Term Loan............ B3 CCC+ 12/31/07 4,178,415 27,951 Huntsman Corp., Term Loan.. B1 BB 03/31/07 25,827,757 12,434 Huntsman ICI Chemicals, LLC, Term Loan............. B2 B+ 06/30/05 to 06/30/08 12,483,257 987 ISP Technologies, Inc., Term Loan.................. NR B- 06/27/08 991,828 3,423 Messer Griesheim, Term Loan....................... Ba2 BB 04/27/09 to 04/27/10 3,452,184 2,290 Nutrasweet Acquisition Corp., Term Loan........... Ba3 NR 06/30/06 to 12/31/07 2,220,356 4,000 Rockwood Specialties Group, Inc., Term Loan............ B1 B+ 07/23/10 4,050,000 411 West American Rubber Co., LLC, Term Loan............. NR NR 11/09/03 411,162 -------------- 71,527,818 -------------- CONSTRUCTION MATERIAL 0.9% 5,000 Interline Brands, Inc., Term Loan.................. B2 B+ 11/30/09 5,018,750 2,091 National Waterworks, Inc., Term Loan.................. B1 BB- 11/22/09 2,112,880 1,719 Therma-Tru Corp., Term Loan....................... Ba3 BB- 02/21/10 1,727,435 3,750 Werner Holding Co., Inc., Term Loan.................. Ba3 B+ 06/11/09 3,799,999 -------------- 12,659,064 -------------- CONTAINERS, PACKAGING & GLASS 3.5% 9,125 Crown Cork & Seal Co., Inc., Term Loan............ Ba3 NR 09/15/08 9,167,778 9,860 Dr. Pepper/Seven Up Bottling Group, Inc., Term Loan....................... NR NR 10/07/06 to 10/07/07 9,829,160 981 Impress Metal Packaging Holding B.V., Term Loan.... NR NR 12/31/06 978,196 374 Jefferson Smurfit Corp., Revolving Credit Agreement.................. NR NR 03/31/05 363,859 11,000 Owens-Illinois, Inc., Term Loan....................... NR NR 04/01/08 11,041,250

See Notes to Financial Statements F-6 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE CONTAINERS, PACKAGING & GLASS (CONTINUED) $ 4,731 Packaging Dynamics, Term Loan....................... NR NR 11/20/05 $ 4,719,673 2,300 Pliant Corp., Term Loan.... B2 BB- 05/31/08 2,284,404 1,656 Riverwood International Corp., Term Loan........... B1 B 12/31/06 to 03/31/07 1,655,366 4,352 Smurfit-Stone Container Corp., Term Loan........... NR NR 06/30/09 4,368,777 4,850 Tekni-Plex, Inc., Term Loan....................... B1 B+ 06/21/08 4,781,799 1,610 U.S. Can Corp., Term Loan.. B2 NR 01/04/06 1,592,423 -------------- 50,782,685 -------------- DIVERSIFIED MANUFACTURING 2.0% 2,438 EnerSys, Term Loan......... NR NR 11/09/08 2,443,672 14,608 Mueller Group, Inc., Term Loan....................... B1 B+ 05/31/08 14,618,214 7,593 Neenah Foundry Co., Term Loan (c)................... Caa3 D 09/30/05 7,545,554 5,404 SPX Corp., Term Loan....... Ba2 BBB- 09/30/09 to 03/31/10 5,427,719 -------------- 30,035,159 -------------- ECOLOGICAL 2.9% 32,533 Allied Waste North America, Inc., Term Loan (i)........ Ba3 BB 01/15/10 32,845,810 4,950 Casella Waste Systems, Inc., Term Loan............ B1 BB- 05/11/07 4,976,606 4,844 Duratek, Inc., Term Loan... NR NR 12/08/06 4,722,827 -------------- 42,545,243 -------------- EDUCATION & CHILD CARE 0.1% 863 TEC Worldwide, Inc., Term Loan....................... NR NR 02/28/05 846,770 -------------- ELECTRONICS 4.8% 599 AMI Semiconductor, Inc., Term Loan.................. Ba3 BB 12/26/06 596,990 3,713 Audio Visual Services Corp., Term Loan........... NR NR 03/04/04 to 03/04/06 3,558,922 4,178 Automata, Inc., Term Loan (a) (j).................... NR NR 02/28/03 to 02/28/04 0 5,409 Kinetics Group, Inc., Term Loan....................... B1 NR 02/28/06 4,746,294 6,432 Knowles Electronics, Inc., Term Loan.................. B3 CCC+ 06/29/07 6,355,562

See Notes to Financial Statements F-7 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE ELECTRONICS (CONTINUED) $11,125 Rayovac Corp., Term Loan... Ba3 BB- 09/30/09 $ 11,148,173 11,880 Seagate Technologies, Inc., Term Loan.................. Ba1 BB+ 05/13/07 11,939,400 16,377 Semiconductor Components Industries, LLC, Term Loan....................... B3 B 08/04/06 to 08/04/07 16,270,814 4,669 Stratus Technologies, Inc., Term Loan.................. NR NR 02/26/05 4,108,923 4,089 Veridian Corp., Term Loan....................... Ba3 BB- 06/30/08 4,116,642 8,028 Viasystems, Inc., Term Loan....................... NR NR 03/31/06 6,964,155 -------------- 69,805,875 -------------- ENTERTAINMENT & LEISURE 8.4% 4,520 Bell Sports, Inc., Term Loan....................... NR NR 12/31/05 3,412,695 6,963 Carmike Cinemas, Inc., Term Loan....................... NR NR 01/31/07 7,005,221 2,934 Cinemark USA, Inc., Term Loan....................... Ba3 BB- 03/31/08 2,956,745 5,818 Festival Fun Parks, LLC, Term Loan.................. NR NR 06/30/07 to 12/31/07 5,794,295 8,657 Fitness Holdings Worldwide, Inc., Term Loan............ NR B 11/02/06 to 11/02/07 8,597,973 3,716 GT Brands, LLC, Term Loan.. NR NR 09/30/07 3,604,432 5,970 Kerasotes Theatres, Inc., Term Loan.................. NR NR 12/31/08 6,014,775 10,527 Loews Cineplex Entertainment Corp., Term Loan....................... NR NR 02/29/08 10,500,260 19,425 Metro-Goldwyn-Mayer, Inc., Term Loan.................. NR NR 06/30/08 19,455,361 7,500 Mets II, LLC, Term Loan.... NR NR 08/23/05 7,490,625 1,981 Panavision, Inc., Term Loan....................... B3 CCC 03/31/05 1,948,471 4,850 Playcore Wisconsin, Inc., Term Loan.................. NR NR 07/01/07 4,654,471 5,000 Pure Fishing, Term Loan.... NR NR 12/31/09 4,993,750 3,000 Regal Cinemas, Inc., Term Loan....................... Ba2 BB- 06/30/09 3,033,750

See Notes to Financial Statements F-8 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE ENTERTAINMENT & LEISURE (CONTINUED) $ 2,500 Riddell Sports Group, Inc., Term Loan.................. NR NR 06/30/08 $ 2,506,250 6,500 Six Flags Theme Parks, Inc., Term Loan............ Ba2 BB- 06/30/09 6,496,614 11,500 Vivendi Universal Entertainment, Term Loan... Ba2 BB+ 06/30/08 11,573,669 5,000 Washington Group International, Inc., Term Loan....................... NR NR 10/16/07 5,028,125 3,750 Worldspan, LP, Term Loan... B1 BB- 06/30/07 3,775,781 4,465 Worldwide Sports & Recreation, Inc., Term Loan....................... NR NR 12/31/06 4,278,452 -------------- 123,121,715 -------------- FARMING & AGRICULTURE 0.4% 2,250 Central Garden & Pet Co., Term Loan.................. Ba2 BB+ 05/14/09 2,264,767 3,704 The Scotts Co., Term Loan.. Ba1 BB 12/31/07 3,728,749 -------------- 5,993,516 -------------- FINANCE 1.3% 4,818 Outsourcing Solutions, Term Loan (a) (c)............... Caa1 NR 06/10/06 2,228,094 8,500 Rent-A-Center, Inc., Term Loan....................... Ba2 BB 05/28/09 8,567,294 8,242 Risk Management Assurance Co., Term Loan............. NR NR 12/21/06 8,235,996 -------------- 19,031,384 -------------- GROCERY 0.4% 4,314 Fleming Cos., Inc., Term Loan (c)................... NR NR 06/18/08 4,076,350 1,569 Fleming Cos., Inc., Revolving Credit Agreement (c)........................ NR NR 06/18/07 1,492,892 -------------- 5,569,242 -------------- HEALTHCARE 6.5% 31,949 Community Health Systems, Inc., Term Loan............ NR NR 07/16/10 to 01/16/11 32,068,704 8,005 FHC Health Systems, Inc., Term Loan.................. B1 NR 04/30/05 to 04/30/06 7,925,238 2,795 Genesis Health Ventures, Inc., Term Loan............ Ba3 B+ 03/31/07 2,791,564

See Notes to Financial Statements F-9 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE HEALTHCARE (CONTINUED) $ 7,888 InteliStaf Group, Inc., Term Loan.................. NR NR 10/31/05 to 10/31/07 $ 7,828,935 16,378 Kindred Healthcare, Inc., Term Loan.................. NR NR 04/13/08 16,214,221 10,727 Magellan Health Services, Inc., Term Loan (c)........ NR D 02/12/05 to 02/12/06 10,547,996 9,034 Medical Staffing Network Holdings, Inc., Term Loan....................... NR NR 10/26/06 8,994,072 3,758 Team Health, Inc., Term Loan....................... Ba3 B+ 10/31/08 3,717,368 4,523 Triad Hospitals, Inc., Term Loan....................... Ba3 BB 09/30/08 4,557,437 -------------- 94,645,535 -------------- HEALTHCARE & BEAUTY 1.0% 3,750 Jafra Cosmetics, Term Loan....................... NR B+ 05/20/08 3,656,250 1,717 Mary Kay, Inc., Term Loan....................... Ba3 BB 10/03/07 1,725,582 2,895 Prestige Brands Holdings, Inc., Term Loan............ NR NR 12/30/08 2,909,475 5,915 Revlon Consumer Products Corp., Term Loan........... B3 B- 05/30/05 5,767,269 -------------- 14,058,576 -------------- HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS 1.4% 1,958 Formica Corp., Term Loan (c)........................ NR NR 04/30/06 1,899,586 7,083 General Binding Corp., Term Loan....................... B2 B+ 01/15/08 7,061,198 3,122 Holmes Products Corp., Term Loan....................... B2 B 02/05/07 3,049,084 1,422 Imperial Home Decor Group, Inc., Term Loan (a) (d).... NR NR 04/04/06 35,557 3,289 National Bedding Co., Term Loan....................... B1 B+ 08/31/08 3,302,348 3,567 Sealy Mattress Co., Term Loan....................... B1 B+ 12/15/04 to 12/15/06 3,553,806 1,410 Targus Group International, Inc., Term Loan............ NR NR 08/31/06 1,247,818 -------------- 20,149,397 --------------

See Notes to Financial Statements F-10 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE HOTELS, MOTELS, INNS & GAMING 8.1% $37,993 Aladdin Gaming, LLC, Term Loan (a) (c)............... NR NR 02/25/05 to 02/26/08 $ 31,901,385 3,461 Alliance Gaming Corp., Term Loan....................... B1 BB- 12/31/06 3,472,029 2,906 Ameristar Casinos, Inc., Term Loan.................. Ba3 BB- 12/20/06 2,923,384 3,980 Extended Stay America, Inc., Term Loan............ Ba3 BB- 01/15/08 4,006,325 4,682 Greektown Casino, LLC, Term Loan....................... NR NR 09/30/04 4,694,728 2,962 Isle of Capri Casinos, Inc., Term Loan............ Ba2 BB- 04/26/08 2,975,923 13,500 Mandalay Resort Group, Term Loan....................... NR NR 08/21/06 to 06/30/08 13,484,687 1,760 Mandalay Resort Group, Revolving Credit Agreement.................. NR NR 08/21/06 1,689,600 2,190 Park Place Entertainment Corp., Revolving Credit Agreement.................. NR BBB- 12/31/03 2,157,567 5,689 Penn National Gaming, Term Loan....................... B1 B+ 09/01/07 5,712,171 10,448 Scientific Games Corp., Term Loan.................. Ba3 BB- 12/31/08 10,486,678 9,000 Thunder Valley Casino, Term Loan....................... NR NR 12/01/08 9,022,500 30,312 Wyndham International, Inc., Term Loan............ NR NR 06/30/04 to 06/30/06 25,965,061 -------------- 118,492,038 -------------- INSURANCE 1.0% 10,000 Alea Group Holdings, Term Loan....................... NR BBB- 03/31/07 9,975,000 3,053 Hilb, Rogal & Hamilton Co., Term Loan.................. Ba3 BB- 06/30/07 3,083,025 1,800 Infinity Property & Casualty Corp., Term Loan....................... Baa3 BBB 06/30/10 1,814,625 -------------- 14,872,650 -------------- MACHINERY 1.1% 4,482 Alliance Laundry Holdings, LLC, Term Loan............. B1 B 08/02/07 4,462,257 139 Alliance Laundry Holdings, LLC, Revolving Credit Agreement.................. B1 B 06/02/05 135,417

See Notes to Financial Statements F-11 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE MACHINERY (CONTINUED) $10,051 Ashtead Group, PLC, Term Loan....................... NR NR 06/01/07 $ 7,714,223 1,606 Flowserve Corp., Term Loan....................... Ba3 BB- 06/30/09 1,614,514 2,116 Weigh-Tronix, LLC, Term Loan....................... NR NR 09/30/05 1,639,729 -------------- 15,566,140 -------------- MEDICAL PRODUCTS & SERVICES 9.0% 4,556 Alaris Medical Systems, Inc., Term Loan............ B1 BB 06/30/09 4,604,531 10,005 Alliance Imaging, Inc., Term Loan.................. B1 B+ 06/10/08 9,774,809 2,993 Ameripath, Inc., Term Loan....................... B1 B+ 03/27/10 3,011,203 11,452 CONMED Corp., Term Loan.... Ba3 BB- 12/15/09 11,574,183 13,782 Dade Behring, Inc., Term Loan....................... B1 B+ 10/03/08 13,971,377 32,043 DaVita, Inc., Term Loan.... Ba3 BB- 03/31/07 to 03/31/09 32,182,383 5,027 Fisher Scientific International, Inc., Term Loan....................... Ba3 BB+ 03/31/10 5,057,564 22,111 Fresenius Medical Care Holding, Inc., Term Loan... Ba1 BB+ 02/21/10 22,290,904 6,349 InSight Health, Term Loan....................... NR B+ 10/17/08 6,376,785 9,449 Kinetic Concepts, Inc., Term Loan.................. Ba3 BB- 12/31/04 to 03/31/06 9,444,756 4,379 National Nephrology Associates, Inc., Term Loan....................... B1 B+ 12/31/05 4,351,567 1,975 Rotech Healthcare, Inc., Term Loan.................. Ba2 BB 03/31/08 1,976,919 6,000 Symmetry Medical, Inc., Term Loan.................. NR NR 06/30/08 to 06/30/09 6,003,138 -------------- 130,620,119 -------------- MINING, STEEL, IRON & NON-PRECIOUS METALS 2.3% 500 Arch Coal, Inc., Revolving Credit Agreement........... Ba2 BB 04/18/07 477,500 3,388 CII Carbon, LLC, Term Loan....................... NR NR 06/25/08 3,015,724 3,064 Fairmount Minerals, Ltd., Term Loan.................. NR NR 03/13/09 3,071,763

See Notes to Financial Statements F-12 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE MINING, STEEL, IRON & NON-PRECIOUS METALS (CONTINUED) $31,554 Ispat Inland, Term Loan.... Caa1 B- 07/16/05 to 07/16/06 $ 21,851,164 4,788 Peabody Energy Corp., Term Loan....................... Ba1 BB+ 03/21/10 4,835,880 -------------- 33,252,031 -------------- NATURAL RESOURCES 3.2% 1,250 CITGO Petroleum Corp., Term Loan....................... NR BB+ 02/27/06 1,290,625 7,500 El Paso Oil & Gas, Term Loan....................... B3 B+ 12/31/06 7,485,938 1,250 El Paso Oil & Gas, Revolving Credit Agreement.................. B3 B+ 06/30/05 1,237,305 10,500 Lyondell-Citgo Refining, LP, Term Loan.............. Ba3 BB- 06/10/04 9,975,000 15,000 Ocean Rig ASA--(Norway), Term Loan.................. NR NR 06/01/08 12,600,000 4,500 Pacific Energy Group, LLC, Term Loan.................. Ba2 BBB- 07/26/09 4,533,750 7,655 Tesoro Petroleum Corp., Term Loan.................. Ba3 BB 04/17/07 7,722,454 1,400 U.S. Synthetic Corp., Term Loan....................... NR NR 05/31/05 1,344,000 -------------- 46,189,072 -------------- NON-DURABLE CONSUMER PRODUCTS 1.1% 2,379 Aero Products International, Inc., Term Loan....................... NR NR 12/19/08 2,349,652 1,267 American Safety Razor Co., Term Loan.................. NR NR 01/31/05 to 04/30/07 1,236,368 2,985 Amscan Holdings, Inc., Term Loan....................... B1 BB- 06/15/07 2,999,925 1,376 Church & Dwight Co., Inc., Term Loan.................. Ba2 BB 09/30/07 1,385,590 2,640 JohnsonDiversey, Inc., Term Loan....................... Ba3 BB- 11/03/09 2,652,727 6,777 The Boyds Collection, Ltd., Term Loan.................. Ba3 B+ 04/21/05 6,641,292 -------------- 17,265,554 -------------- PAPER & FOREST PRODUCTS 0.3% 2,465 Bear Island Paper Co., LLC, Term Loan.................. B3 B- 12/31/05 2,453,142 2,611 Port Townsend Paper Corp., Term Loan.................. NR NR 03/16/05 to 03/16/07 2,402,045 -------------- 4,855,187 --------------

See Notes to Financial Statements F-13 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE PERSONAL & MISCELLANEOUS SERVICES 2.4% $ 7,840 Coinmach Laundry Corp., Term Loan.................. B1 BB- 07/25/09 $ 7,875,280 3,868 Encompass Service Corp., Term Loan (a) (c).......... NR NR 05/10/07 512,548 2,000 Global Imaging Systems, Inc., Term Loan............ Ba3 BB- 06/25/09 2,025,000 1,925 Info-USA, Inc., Term Loan....................... Ba3 NR 04/30/07 1,922,594 1,595 Iron Mountain, Inc., Term Loan....................... Ba3 BB 02/15/08 1,605,456 4,950 Katun Corp., Term Loan..... NR B+ 06/30/09 4,934,531 2,710 Stewart Enterprises, Inc., Term Loan.................. Ba3 BB 01/31/06 2,724,260 9,509 The Relizon Co., Term Loan....................... NR NR 09/30/06 to 12/31/07 9,342,946 3,840 Weight Watchers International, Inc., Term Loan....................... Ba1 BB 12/31/07 3,873,353 -------------- 34,815,968 -------------- PHARMACEUTICALS 1.5% 848 Alpharma, Inc., Term Loan (i)........................ B2 BB- 10/05/07 842,577 9,712 Caremark Rx, Inc., Term Loan....................... Ba2 BBB- 03/31/06 9,733,693 11,913 MedPointe, Inc., Term Loan....................... B1 B 09/30/07 to 09/30/08 11,221,886 -------------- 21,798,156 -------------- PRINTING & PUBLISHING 9.2% 4,962 21st Century Newspapers, Term Loan.................. NR NR 08/27/08 4,961,538 1,144 Adams Outdoor Advertising LP, Term Loan.............. B1 B+ 02/08/08 1,149,535 6,100 Advanstar Communications, Inc., Term Loan (i)........ NR B 04/11/07 to 10/11/07 6,028,468 7,622 American Media Operations, Inc., Term Loan............ Ba3 B+ 04/01/07 7,661,077 11,127 American Reprographics Co., Term Loan.................. NR NR 04/10/08 10,893,648 1,900 Check Printers, Inc., Term Loan....................... NR NR 06/30/05 1,897,578 17,268 CommerceConnect Media, Inc., Term Loan............ NR NR 12/31/07 16,577,328 2,010 Daily News, LP, Term Loan.. NR NR 03/19/08 1,927,427

See Notes to Financial Statements F-14 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE PRINTING & PUBLISHING (CONTINUED) $ 9,994 F&W Publications, Inc., Term Loan.................. NR NR 12/31/09 $ 9,993,832 3,884 Haights Cross Communications, LLC, Term Loan....................... B2 B+ 12/10/06 3,764,824 7,200 Lamar Media Corp., Term Loan....................... Ba2 BB- 06/30/10 7,230,002 3,570 Liberty Group Operating, Inc., Term Loan............ B1 B 03/31/07 3,565,519 5,167 Merrill Communications, LLC, Term Loan............. B3 B 11/23/07 5,064,027 2,500 Moore Corp., Term Loan..... Ba2 BB+ 03/15/10 2,508,203 15,000 Morris Communications Corp., Term Loan........... NR BB 09/30/09 15,046,875 3,435 Network Communications, Inc., Term Loan............ NR NR 06/27/08 3,443,380 8,341 PRIMEDIA, Inc., Term Loan.. NR B 06/30/09 8,084,904 6,520 R.H. Donnelley, Inc., Term Loan....................... Ba3 NR 12/31/08 to 06/30/10 6,633,836 4,764 The Reader's Digest Association, Inc., Term Loan....................... Ba1 BB+ 05/21/07 4,710,320 1,895 Vutek, Inc., Term Loan..... B1 NR 07/31/07 1,837,727 9,500 Xerox Corp., Term Loan..... NR BB- 09/30/08 9,428,750 1,598 Ziff-Davis Media, Inc., Term Loan.................. NR CCC 03/31/07 1,430,027 -------------- 133,838,825 -------------- RESTAURANTS & FOOD SERVICE 0.6% 1,632 Carvel Corp., Term Loan.... NR NR 12/31/06 1,615,841 3,871 Domino's, Inc., Term Loan....................... B1 B+ 06/25/10 3,912,326 2,672 Papa Ginos, Inc., Term Loan....................... NR NR 08/31/07 2,665,237 -------------- 8,193,404 -------------- RETAIL--OIL & GAS 0.8% 5,000 Barjan Products, LLC, Term Loan....................... NR NR 05/31/06 2,500,000 9,421 The Pantry, Inc., Term Loan....................... B1 B+ 03/31/07 9,502,856 -------------- 12,002,856 --------------

See Notes to Financial Statements F-15 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE RETAIL--SPECIALTY 0.3% $ 3,209 DRL Acquisition, Inc., Term Loan....................... NR NR 04/30/09 $ 3,197,340 1,592 Home Interiors & Gifts, Inc., Term Loan............ B2 B+ 12/31/06 1,577,914 -------------- 4,775,254 -------------- RETAIL--STORES 3.1% 4,198 Advance Stores Co., Inc., Term Loan.................. Ba3 BB- 11/30/07 4,221,509 5,350 CSK Auto, Inc., Term Loan.. Ba3 BB- 02/15/06 5,403,500 35,000 Rite Aid Corp., Term Loan....................... B1 BB 04/30/08 35,288,750 -------------- 44,913,759 -------------- TECHNOLOGY 0.9% 12,854 The Titan Corp., Term Loan....................... Ba3 BB- 06/30/09 12,889,240 -------------- TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 1.0% 2,684 Cincinnati Bell, Inc., Term Loan....................... B1 B+ 11/09/04 to 06/28/07 2,709,293 3,000 FairPoint Communications, Inc., Term Loan............ B1 BB- 03/31/07 3,011,250 1,926 Orius Corp., Term Loan..... NR NR 01/23/09 to 01/23/10 499,278 1,127 Orius Corp., Revolving Credit Agreement........... NR NR 01/23/05 647,798 5,381 Qwest Corp., Term Loan..... Ba3 B- 06/30/07 5,425,345 1,675 Superior Telecom, Inc., Revolving Credit Agreement.................. NR NR 12/04/03 1,659,297 7,500 WCI Capital Corp., Term Loan (a) (c)............... NR NR 09/30/07 9,375 2,158 WCI Capital Corp., Revolving Credit Agreement (a) (c) (g)................ NR NR 12/31/02 1,035,884 -------------- 14,997,520 -------------- TELECOMMUNICATIONS--LONG DISTANCE 0.1% 20,965 Pacific Crossing, Ltd., Term Loan (a) (c).......... NR NR 07/28/06 1,467,578 --------------

See Notes to Financial Statements F-16 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE TELECOMMUNICATIONS-WIRELESS 3.8% $ 7,477 American Cellular Corp., Term Loan.................. B3 CC 03/31/08 to 03/31/09 $ 7,410,815 269 American Cellular Corp., Revolving Credit Agreement.................. B3 CC 03/31/07 268,218 14,467 BCP SP Ltd., Term Loan (g) (k)........................ NR NR 03/31/02 to 03/31/05 4,945,703 2,900 Centennial Cellular Corp., Term Loan.................. B3 B 11/30/06 2,809,640 3,150 Centennial Puerto Rico Operations Corp., Term Loan....................... NR B 05/31/07 to 11/30/07 3,062,863 8,000 Cricket Communications, Inc., Term Loan (a) (c).... NR NR 06/30/07 3,100,000 23,451 Nextel Finance Co., Term Loan....................... Ba2 BB 12/31/07 to 12/31/08 23,344,049 2,038 Spectrasite Communications, Inc., Term Loan............ B1 B+ 12/31/07 2,058,830 3,534 Sygnet Wireless, Inc., Term Loan....................... NR NR 12/23/06 to 12/23/07 3,477,667 1,043 TSI Telecommunication Services, Inc., Term Loan....................... Ba3 B+ 12/31/06 1,044,640 3,443 Western Wireless Corp., Term Loan.................. B3 B- 09/30/08 3,391,272 -------------- 54,913,697 -------------- TEXTILES & LEATHER 0.1% 5,402 Malden Mills Industries, Inc., Term Loan (a) (c).... NR NR 10/28/06 1,308,902 -------------- TRANSPORTATION--CARGO 1.9% 9,764 American Commercial Lines, LLC, Term Loan (c)......... NR NR 06/30/06 to 06/30/07 7,937,909 4,380 Atlas Freighter Leasing, Inc., Term Loan............ NR NR 04/25/05 to 04/25/06 2,655,673 4,872 Comcar Industries, Inc., Term Loan.................. NR NR 09/30/04 4,092,781 2,652 Ingram Industries, Inc., Term Loan.................. NR NR 07/02/08 2,625,859 7,118 Pacer International, Inc., Term Loan.................. B1 BB- 06/10/10 7,179,927

See Notes to Financial Statements F-17 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE TRANSPORTATION--CARGO (CONTINUED) $ 598 Roadway Corp., Term Loan... Baa3 BBB 11/30/06 $ 595,712 3,046 United States Shipping, LLC, Term Loan............. Ba2 BB 09/12/08 3,054,557 -------------- 28,142,418 -------------- TRANSPORTATION--PERSONAL 1.3% 5,996 IAP Newsub, Inc., Term Loan (a)........................ NR NR 05/29/05 929,438 900 IAP Newsub, Inc., Revolving Credit Agreement (a)....... NR NR 05/29/05 139,476 9,900 Laidlaw Investments, Ltd., Term Loan.................. Ba3 BB+ 06/19/09 9,974,250 4,673 Motor Coach Industries, Inc., Term Loan............ B2 B 06/16/05 3,936,785 3,810 Transcore Holdings, Inc., Term Loan.................. NR NR 10/01/06 3,824,223 -------------- 18,804,172 -------------- TRANSPORTATION-RAIL MANUFACTURING 0.2% 3,231 Helm, Inc., Term Loan...... NR NR 10/18/06 3,012,942 1,666 RailWorks Corp., Term Loan....................... NR NR 11/13/04 624,857 -------------- 3,637,799 -------------- UTILITIES 1.1% 750 Allegheny Energy, Inc., Term Loan.................. B1 B 9/30/04 750,375 853 Aquila, Inc., Term Loan.... B2 B+ 05/15/06 859,573 27 CMS Energy Corp., Term Loan....................... B2 BB 09/30/04 27,044 1,050 Consumers Energy Co., Term Loan....................... Baa3 NR 07/11/04 1,057,219 1,647 Pike Electric, Inc., Term Loan....................... NR NR 04/18/10 1,658,898 3,125 Southern California Edison Co., Term Loan............. Ba2 NR 03/01/05 3,137,697 441 TNP Enterprises, Inc., Term Loan....................... Ba2 BB+ 03/30/06 435,117

See Notes to Financial Statements F-18 PORTFOLIO OF INVESTMENTS July 31, 2003

BANK LOAN PRINCIPAL RATINGS+ AMOUNT -------------- STATED (000) BORROWER MOODY'S S&P MATURITY* VALUE UTILITIES (CONTINUED) $ 7,695 Westar Energy, Inc., Term Loan....................... NR NR 06/06/05 $ 7,733,402 10 Westar Energy, Inc., Revolving Credit Agreement.................. NR NR 06/05/05 9,375 -------------- 15,668,700 -------------- TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 122.3%.......................... 1,784,018,291 --------------

NOTES 3.0% Alderwoods Group, Inc. ($3,283,700 par, 11.00% to 12.25% coupon, maturing 01/02/07 to 01/02/09)...................................................... 3,446,141 American Home Patient, Inc. ($5,562,289 par, 6.785% to 8.57% coupon, maturing 07/01/09).................................................................. 3,782,357 Commonwealth Brands, Inc. ($1,500,000 par, 8.736% coupon, maturing 04/15/08) (h)........................................................................ 1,537,500 Dade Behring, Inc. ($5,523,042 par, 11.91% coupon, maturing 10/03/10)........ 5,799,194 Genesis Health Ventures, Inc. ($9,217,299 par, 6.114% coupon, maturing 04/02/07) (h).............................................................. 9,217,299 PCI Chemicals Canada, Inc. ($3,353,666 par, 10.00% coupon, maturing 12/31/08).................................................................. 2,900,921 Pioneer Cos., Inc. ($1,624,077 par, 4.60% coupon, maturing 12/31/06) (h)..... 1,388,586 Premcor Refining Group, Inc. ($7,500,000 par, 4.34% coupon, maturing 02/11/06) (h).............................................................. 7,565,625 Satelites Mexicanos ($8,770,000 par, 5.614% coupon, maturing 06/30/04), 144A Private Placement (b) (h).................................................. 7,761,450 -------------- TOTAL NOTES.................................................................. 43,399,073 -------------- EQUITIES 4.4% Alderwoods Group, Inc. (152,880 common shares) (e)........................... 1,037,902 American Home Patient, Inc. (Warrants for 68,497 common shares) (c) (e)...... 0 Audio Visual Services Corp. (70,205 common shares) (e) (f)................... 737,153 Comdisco Holdings Co. (350 common shares) (e)................................ 33,250 Dade Behring Holdings, Inc. (512,559 common shares) (e)...................... 12,639,705 Genesis Health Ventures, Inc. (11,631 preferred shares) (e) (f) (k).......... 1,206,716 Genesis Health Ventures, Inc. (932,290 common shares) (e).................... 19,811,163 Holmes Group, Inc. (Warrants for 22,312 common shares) (e)................... 0 Imperial Home Decor Group, Inc. (512,023 common shares) (d) (e) (f).......... 0 Imperial Home Decor Realty, Inc. (512,023 common shares) (d) (e) (f)......... 0 Kindred Healthcare, Inc. (499,875 common shares) (e)......................... 11,977,005 Orius Corp. (315,080 common shares) (d) (e) (f).............................. 0 Pioneer Cos., Inc. (269,846 common shares) (e)............................... 863,507 See Notes to Financial Statements F-19 PORTFOLIO OF INVESTMENTS July 31, 2003

DESCRIPTION VALUE EQUITIES (CONTINUED) Railworks Corp. (186 preferred shares) (e) (f)............................... $ 0 Railworks Corp. (Warrants for 3,282 common shares) (e) (f)................... 0 Rotech Healthcare, Inc. (478,573 common shares) (e).......................... 11,366,109 Rotech Medical Corp. (48,485 common shares) (e) (f).......................... 0 Safelite Glass Corp. (421,447 common shares) (e) (f)......................... 4,808,710 Safelite Realty (28,448 common shares) (e) (f)............................... 0 Tembec, Inc. (78,468 common shares) (e)...................................... 406,464 West American Rubber Co., LLC (5.04% Ownership Interest) (e) (f)............. 0 -------------- TOTAL EQUITIES 4.4%.......................................................... 64,887,684 -------------- TOTAL LONG-TERM INVESTMENTS 129.7% (Cost $1,980,267,426)...................................................... 1,892,305,048 -------------- SHORT-TERM INVESTMENTS 1.8% REPURCHASE AGREEMENT 1.7% State Street Bank & Trust Corp. ($24,200,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 07/31/03, 0.95% coupon, to be sold on 08/01/03 at $24,200,639) (i)......................... 24,200,000 -------------- TIME DEPOSIT 0.1% State Street Bank & Trust Corp. ($2,211,082 par, 0.116% coupon, dated 07/31/03, to be sold on 08/01/03 at $2,211,089) (i)........................ 2,211,082 -------------- TOTAL SHORT-TERM INVESTMENTS (Cost $26,411,082)......................................................... 26,411,082 -------------- TOTAL INVESTMENTS 131.5% (Cost $2,006,678,508)...................................................... 1,918,716,130 BORROWINGS (27.5)%.......................................................... (401,000,000) LIABILITIES IN EXCESS OF OTHER ASSETS (4.0)%................................ (59,129,807) -------------- NET ASSETS 100.0%........................................................... $1,458,586,323 ==============

NR--Not rated + Bank Loans rated below Baa by Moody's Investor Service, Inc. or BBB by Standard & Poor's Group are considered to be below investment grade. (Bank loan ratings are unaudited.) (1) Industry percentages are calculated as a percentage of net assets. See Notes to Financial Statements F-20 PORTFOLIO OF INVESTMENTS July 31, 2003 (a) This Senior Loan interest is non-income producing. (b) 144A Securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally transactions with qualified institutional buyers. (c) This borrower has filed for protection in federal bankruptcy court. (d) Affiliated company. See Notes to Financial Statements. (e) Non-income producing security as this stock currently does not declare dividends. (f) Restricted Security. (g) The borrower is in the process of restructuring or amending the terms of this loan. (h) Variable rate security. Interest rate shown is that in effect at July 31, 2003. (i) A portion of this security is designated in connection with unfunded commitments. (j) This borrower is currently in liquidation. (k) Payment-in-kind security. * Senior Loans in the Trust's portfolio generally are subject to mandatory and/or optional prepayment. Because of these mandatory prepayment conditions and because there may be significant economic incentives for a Borrower to prepay, prepayments of Senior Loans in the Trust's portfolio may occur. As a result, the actual remaining maturity of Senior Loans held in the Trust's portfolio may be substantially less than the stated maturities shown. Although the Trust is unable to accurately estimate the actual remaining maturity of individual Senior Loans, the Trust estimates that the actual average maturity of the Senior Loans held in its portfolio will be approximately 18-24 months. ** Senior Loans in which the Trust invests generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as the London Inter-Bank Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more major United States banks and (iii) the certificate of deposit rate. Senior Loans are generally considered to be restricted in that the Trust ordinarily is contractually obligated to receive approval from the Agent Bank and/or Borrower prior to the disposition of a Senior Loan. See Notes to Financial Statements F-21 FINANCIAL STATEMENTS Statement of Assets and Liabilities July 31, 2003 ASSETS: Total Investments (Cost $2,006,678,508)..................... $1,918,716,130 Receivables: Investments Sold.......................................... 23,413,773 Interest and Fees......................................... 7,229,248 Other....................................................... 179,048 -------------- Total Assets............................................ 1,949,538,199 -------------- LIABILITIES: Payables: Borrowings................................................ 401,000,000 Investments Purchased..................................... 86,933,072 Investment Advisory Fee................................... 1,343,379 Administrative Fee........................................ 316,089 Distributor and Affiliates................................ 74,396 Custodian Bank............................................ 68,362 Accrued Expenses............................................ 544,396 Accrued Interest Expense.................................... 356,762 Trustees' Deferred Compensation and Retirement Plans........ 315,420 -------------- Total Liabilities....................................... 490,951,876 -------------- NET ASSETS.................................................. $1,458,586,323 ============== NET ASSET VALUE PER COMMON SHARE ($1,458,586,323 divided by 180,010,000 shares outstanding)........................... $ 8.10 ============== NET ASSETS CONSIST OF: Common Shares ($.01 par value with an unlimited number of shares authorized, 180,010,000 shares issued and outstanding).............................................. $ 1,800,100 Paid in Surplus............................................. 1,795,669,290 Accumulated Undistributed Net Investment Income............. 1,189,293 Net Unrealized Depreciation................................. (87,962,378) Accumulated Net Realized Loss............................... (252,109,982) -------------- NET ASSETS.................................................. $1,458,586,323 ============== See Notes to Financial Statements F-22 Statement of Operations For the Year Ended July 31, 2003 INVESTMENT INCOME: Interest.................................................... $ 108,915,548 Dividends................................................... 112,275 Other....................................................... 5,575,696 ------------- Total Income............................................ 114,603,519 ------------- EXPENSES: Investment Advisory Fee..................................... 15,923,642 Administrative Fee.......................................... 3,746,739 Legal....................................................... 1,142,132 Custody..................................................... 511,487 Trustees' Fees and Related Expenses......................... 118,547 Other....................................................... 793,663 ------------- Total Operating Expenses................................ 22,236,210 Interest Expense........................................ 8,673,475 ------------- NET INVESTMENT INCOME....................................... $ 83,693,834 ============= REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Loss........................................... $ (33,874,642) ------------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... (146,657,331) End of the Period......................................... (87,962,378) ------------- Net Unrealized Appreciation During the Period............... 58,694,953 ------------- NET REALIZED AND UNREALIZED GAIN............................ $ 24,820,311 ============= NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 108,514,145 ============= See Notes to Financial Statements F-23 Statements of Changes in Net Assets

YEAR ENDED YEAR ENDED JULY 31, 2003 JULY 31, 2002 ------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income..................................... $ 83,693,834 $ 89,866,208 Net Realized Loss......................................... (33,874,642) (87,927,766) Net Unrealized Appreciation/Depreciation During the Period.................................................. 58,694,953 (11,950,146) -------------- -------------- Change in Net Assets from Operations...................... 108,514,145 (10,011,704) Distributions from Net Investment Income.................. (79,888,289) (92,687,003) -------------- -------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....... 28,625,856 (102,698,707) NET ASSETS: Beginning of the Period................................... 1,429,960,467 1,532,659,174 -------------- -------------- End of the Period (Including accumulated undistributed net investment income of $1,189,293 and $5,331,061, respectively)........................................... $1,458,586,323 $1,429,960,467 ============== ==============

See Notes to Financial Statements F-24 Statement of Cash Flows For the Year Ended July 31, 2003 CHANGE IN NET ASSETS FROM OPERATIONS........................ $108,514,145 ------------ Adjustments to Reconcile the Change in Net Assets from Operations to Net Cash Used for Operating Activities: Increase in Investments at Value.......................... (64,207,423) Decrease in Interest and Fees Receivables................. 568,861 Increase in Receivable for Investments Sold............... (14,465,380) Increase in Other Assets.................................. (93,970) Increase in Investment Advisory Fee Payable............... 64,026 Increase in Administrative Fee Payable.................... 15,065 Decrease in Distributor and Affiliates Payable............ (211,060) Increase in Payable for Investments Purchased............. 18,807,082 Increase in Accrued Expenses.............................. 16,650 Increase in Trustees' Deferred Compensation and Retirement Plans................................................... 102,318 ------------ Total Adjustments....................................... (59,403,831) ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES................... 49,110,314 ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Change in Bank Borrowings................................... 30,841,000 Change in Intra-day Credit Line with Custodian Bank......... 68,362 Change in Accrued Interest Expense.......................... (158,587) Cash Dividends Paid......................................... (79,888,289) ------------ Net Cash Used for Financing Activities.................. (49,137,514) ------------ Net Decrease in Cash........................................ (27,200) Cash at Beginning of the Period............................. 27,200 ------------ CASH AT THE END OF THE PERIOD............................... $ -0- ============ See Notes to Financial Statements F-25 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

JUNE 24, 1998 (COMMENCEMENT OF YEAR ENDED JULY 31, INVESTMENT ---------------------------------------------------- OPERATIONS) TO 2003 2002 (e) 2001 2000 1999 JULY 31, 1998 ----------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD (a)............................ $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07 $ 9.99 -------- -------- -------- -------- -------- -------- Net Investment Income................. .46 .49 .79 .81 .77 .07 Net Realized and Unrealized Gain/Loss........................... .14 (.55) (1.10) (.42) -0- .01 -------- -------- -------- -------- -------- -------- Total from Investment Operations....... .60 (.06) (.31) .39 .77 .08 -------- -------- -------- -------- -------- -------- Less: Distributions from Net Investment Income.............................. .44 .51 .83 .81 .76 -0- Distributions from Net Realized Gain................................ -0- -0- -0- .01 -0- -0- -------- -------- -------- -------- -------- -------- Total Distributions.................... .44 .51 .83 .82 .76 -0- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD..... $ 8.10 $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07 ======== ======== ======== ======== ======== ======== Common Share Market Price at End of the Period................................ $ 7.84 $ 6.67 $ 7.79 $ 8.75 $ 9.5625 $10.0625 Total Return (b)....................... 25.06% -8.05% -1.42% .61% 2.98% .63%** Net Assets at End of the Period (In millions)............................. $1,458.6 $1,430.0 $1,532.7 $1,736.5 $1,815.1 $1,812.1 Ratio of Operating Expenses to Average Net Assets excluding Borrowings*...... 1.59% 1.48% 1.63% 1.75% 1.66% 1.18% Ratio of Interest Expense to Average Net Assets excluding Borrowings....... .62% .53% 2.15% 2.49% 2.37% .28% Ratio of Gross Expense to Average Net Assets excluding Borrowings*.......... 2.21% 2.01% 3.78% 4.24% 4.03% 1.46% Ratio of Net Investment Income to Average Net Assets excluding Borrowings*........................... 5.98% 6.02% 8.90% 8.19% 7.72% 6.94% Portfolio Turnover (c)................. 78% 65% 55% 57% 28% 3%** SUPPLEMENTAL RATIOS: Ratio of Operating Expenses to Average Net Assets including Borrowings*...... 1.19% 1.22% 1.20% 1.24% 1.18% N/A Ratio of Interest Expense to Average Net Assets including Borrowings....... .46% .44% 1.58% 1.77% 1.67% N/A Ratio of Gross Expense to Average Net Assets including Borrowings*.......... 1.65% 1.66% 2.78% 3.01% 2.85% N/A Ratio of Net Investment Income to Average Net Assets including Borrowings*........................... 4.47% 4.95% 6.55% 5.83% 5.46% N/A SENIOR INDEBTEDNESS: Total Borrowing Outstanding (In thousands)............................ $401,000 $370,159 $375,000 $700,000 $800,000 $400,000 Asset Coverage Per $1,000 Unit of Senior Indebtedness (d)............... 4,637 4,863 5,087 3,481 3,269 5,530

* If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the Ratio of Operating Expenses to Average Net Assets and the Ratio of Net Investment Income to Average Net Assets would have been 1.21% and 6.90% for the period ended July 31, 1998. ** Non-Annualized (a) Net asset value on June 24, 1998 of $10.00 is adjusted for common share offering costs of $.013. (b) Total return based on common share market price assumes an investment at the common share market price at the beginning of the period indicated, reinvestment of all distributions for the period in accordance with the Trust's dividend reinvestment plan, and sale of all shares at the closing common share market price at the end of the period indicated. (c) Calculation includes the proceeds from principal repayments and sales of variable rate senior loan interest. (d) Calculated by subtracting the Trust's total liabilities (not including the Borrowings) from the Trust's total assets and dividing by the total number of senior indebtedness units, where one unit equals $1,000 of senior indebtedness. (e) As required, effective August 1, 2001, the Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities. The effect of this change for the year ended July 31, 2002 was to decrease the ratio of net investment income to average net asset applicable to common shares by .01%. Net investment income per share and net realized and unrealized gains and losses per share were unaffected by the adjustments. Per share, ratios and supplemental data for the periods prior to July 31, 2002 have not been restated to reflect this change in presentation. NA--Not Applicable See Notes to Financial Statements F-26 NOTES TO FINANCIAL STATEMENTS July 31, 2003 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Senior Income Trust (the "Trust") is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended. The Trust's investment objective is to provide a high level of current income, consistent with preservation of capital. The Trust seeks to achieve its objective by investing primarily in a portfolio of interests in floating or variable rate senior loans to corporations, partnerships and other entities which operate in a variety of industries and geographical regions. The Trust borrows money for investment purposes which will create the opportunity for enhanced return, but also should be considered a speculative technique and may increase the Trust's volatility. The Trust commenced investment operations on June 24, 1998. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION The Trust's Senior Loans are valued by the Trust following valuation guidelines established and periodically reviewed by the Trust's Board of Trustees. Under the valuation guidelines, Senior Loans for which reliable market quotes are readily available are valued at the mean of such bid and ask quotes. Where reliable market quotes are not readily available, Senior Loans are valued, where possible, using independent market indicators provided by independent pricing sources approved by the Board of Trustees. Other Senior Loans are valued by independent pricing sources approved by the Board of Trustees based upon pricing models developed, maintained and operated by those pricing sources or valued by Van Kampen Investment Advisory Corp. (the "Adviser") by considering a number of factors including consideration of market indicators, transactions in instruments which the Adviser believes may be comparable (including comparable credit quality, interest rate, interest rate redetermination period and maturity), the credit worthiness of the Borrower, the current interest rate, the period until next interest rate redetermination and the maturity of such Senior Loan. Consideration of comparable instruments may include commercial paper, negotiable certificates of deposit and short-term variable rate securities which have adjustment periods comparable to the Senior Loans in the Trust's portfolio. The fair value of Senior Loans are reviewed and approved by the Trust's Valuation Committee and the Board of Trustees. Equity securities are valued on the basis of prices furnished by pricing services or as determined in good faith by the Adviser under the direction of the Board of Trustees. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. Short-term loan participations are valued at cost in the absence of any indication of impairment. The Trust may invest in repurchase agreements, which are short-term investments in which the Trust acquires ownership of a debt security and the seller agrees to repurchase the F-27 NOTES TO FINANCIAL STATEMENTS July 31, 2003 security at a future time and specified price. Repurchase agreements are fully collateralized by the underlying debt security. The Trust will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the custodian bank. The seller is required to maintain the value of the underlying security at not less than the repurchase proceeds due the Trust. B. SECURITY TRANSACTIONS Investment transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Facility fees received are treated as market discounts. Market premiums are amortized and discounts are accreted over the stated life of each applicable senior loan, note, or other fixed income security. Other income is comprised primarily of amendment fees which are recorded when received. Amendment fees are earned as compensation for agreeing to changes in loan agreements. D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Trust intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. At July 31, 2003, the Trust had an accumulated capital loss carryforward for tax purposes of $179,582,840, which will expire between July 31, 2009 and 2011. At July 31, 2003, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $2,037,050,569 ============== Gross tax unrealized appreciation........................... $ 13,246,616 Gross tax unrealized depreciation........................... (131,581,055) -------------- Net tax unrealized depreciation on investments.............. $ (118,334,439) ============== E. DISTRIBUTION OF INCOME AND GAINS The Trust intends to declare and pay monthly dividends from net investment income to common shareholders. Net realized gains, if any, are to be distributed at least annually to common shareholders. Distributions from net realized gains for book purposes may include short term capital gains, which are included as ordinary income for tax purposes. F-28 NOTES TO FINANCIAL STATEMENTS July 31, 2003 The tax character of distributions paid for the years ended July 31, 2003 and 2002 was as follows:

2003 2002 Distributions paid from: Ordinary income........................................... $79,888,289 $92,687,003 Long-term capital gain.................................... -0- -0- ----------- ----------- $79,888,289 $92,687,003 =========== ===========

Due to inherent differences in the recognition of income, expenses and realized gains/ losses under accounting principles generally accepted in the United States of America and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. A permanent difference related to book to tax amortization differences totaling $7,947,313 has been reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of July 31, 2003, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $2,873,430 Net realized gains and losses may differ for financial and tax reporting purposes primarily as a result of the deferral of losses resulting from wash sale transactions, other losses that were recognized for book purposes but not tax purposes at the end of the fiscal year and post October losses which are not realized for tax purposes until the first day of the following year. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Trust for an annual fee of .85% of the average daily managed assets. Managed assets are defined as the gross asset value of the Trust minus the sum of accrued liabilities, other than the aggregate amount of borrowings undertaken by the Trust. In addition, the Trust will pay a monthly administrative fee to Van Kampen Investments Inc., the Trust's Administrator, at an annual rate of .20% of the average daily managed assets of the Trust. The administrative services provided by the Administrator include monitoring the provisions of the loan agreements and any agreements with respect to participations and assignments, record keeping responsibilities with respect to interests in Variable Rate Senior Loans in the Trust's portfolio and providing certain services to the holders of the Trust's securities. For the year ended July 31, 2003, the Trust recognized expenses of approximately $366,600 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust is an affiliated person. F-29 NOTES TO FINANCIAL STATEMENTS July 31, 2003 Under a Legal Services agreement, the Adviser provides legal services to the Trust. The Adviser allocates the cost of such services to each Trust. For the year ended July 31, 2003, the Trust recognized expenses of approximately $44,400 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing legal services to the Trust, which are reported as "Legal" expenses in the Statement of Operations. Certain officers and trustees of the Trust are also officers and directors of Van Kampen. The Trust does not compensate its officers or trustees who are officers of Van Kampen. The Trust provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable upon retirement for a ten-year period and are based upon each trustee's years of service to the Trust. The maximum annual benefit per trustee under the plan is $2,500. During the period, the Trust owned shares of the following affiliated companies. Affiliated companies are defined by the Investment Company Act of 1940, as amended, as those companies in which a fund holds 5% or more of the outstanding voting securities.

INTEREST/ PAR/ REALIZED DIVIDEND MARKET VALUE NAME SHARES* GAIN/(LOSS) INCOME 7/31/03 COST Imperial Home Decor Group, Inc., Term Loan............. 1,422,288 0 42,945 $35,557 $1,367,833 Imperial Home Decor Group, Inc., Common Stock.......... 512,023 0 0 0 522,263 Imperial Home Decor Realty, Inc., Common Stock.......... 512,023 0 0 0 0

* Shares were acquired through the restructuring of Senior loan interests. At July 31, 2003, Van Kampen owned 10,000 common shares of the Trust. 3. INVESTMENT TRANSACTIONS During the period, the costs of purchases and proceeds from investments sold and repaid, excluding short-term investments, were $1,454,534,579 and $1,439,851,690, respectively. 4. COMMITMENTS Pursuant to the terms of certain of the Variable Rate Senior Loan agreements, the Trust had unfunded loan commitments of approximately $32,633,732 as of July 31, 2003. The Trust intends to reserve against such contingent obligations by designating cash, liquid securities and liquid Senior Loans as a reserve. 5. SENIOR LOAN PARTICIPATION COMMITMENTS The Trust invests primarily in participations, assignments, or acts as a party to the primary lending syndicate of a Senior Loan interest to corporations, partnerships, and other entities. F-30 NOTES TO FINANCIAL STATEMENTS July 31, 2003 When the Trust purchases a participation of a Senior Loan interest, the Trust typically enters into a contractual agreement with the lender or other third party selling the participation, but not with the borrower directly. As such, the Trust assumes the credit risk of the borrower, selling participant or other persons interpositioned between the Fund and the borrower. At July 31, 2003, the following sets forth the selling participants with respect to interests in Senior Loans purchased by the Trust on a participation basis.

PRINCIPAL AMOUNT VALUE SELLING PARTICIPANT (000) (000) Goldman Sachs Credit Partners, L.P. ........................ $ 9,509 $9,343 Credit Suisse First Boston.................................. 598 596 ------- ------ Total....................................................... $10,107 $9,939 ======= ======

6. BORROWINGS In accordance with its investment policies, the Trust may borrow money for investment purposes in an amount up to approximately 33 1/3% of the Trust's total assets. The Trust had entered into an $500 million revolving credit agreement with VVR Funding LLC, a Delaware limited liability company whose sole purpose was the issuance of commercial paper, which was terminated on September 25, 2002. As of September 25, 2002, the Trust has entered into a $700 million revolving credit and security agreement, which will terminate on September 23, 2003. Annual commitment fees of .13% are charged on the unused portion of the credit line. This revolving credit agreement is secured by the assets of the Trust. For the year ended July 31, 2003, the average daily balance of borrowings under the revolving credit agreement was $472,686,578 with a weighted average interest rate of 1.35%. F-31 PART C--OTHER INFORMATION ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS (1) FINANCIAL STATEMENTS: Included in Part A: Report of Independent Accountants* Included in Part B: Statement of Assets and Liabilities* (2) EXHIBITS (a) (i) Declaration of Trust, dated April 7, 1998(1) (ii) Amendment to Declaration of Trust, dated August 6, 1998* (iii) Form of Certificate of Vote, dated February 18, 2004 attached as Appendix B to the Statement of Additional Information* (b) By-laws(1) (d(1)) Form of Specimen Certificate of Common Shares of Beneficial Interest of Registrant(1) (d(2)) Form of Specimen Certificate of Auction Preferred Shares of Registrant* (e) Dividend Reinvestment Plan(3) (g) Investment Advisory Agreement(3) (h(1)) Form of Underwriting Agreement* (h(2)) Form of Master Agreement Among Underwriters* (h(3)) Form of Master Dealer Agreement* (j(1)) Custodian Agreement(4) (j(2)) Registrar, Transfer Agency and Service Agreement(4) (j(3)) Form of Auction Agency Agreement* (k(1)) Administration Agreement(3) (k(2)) Amended and Restated Legal Services Agreement(4) (k(3)) Form of Broker-Dealer Agreement* (k(4)(i)) Revolving Credit and Security Agreement, dated September 25, 2002 (the "Credit Agreement")* (k(4)(ii)) Amendment No. 1 to the Credit Agreement, dated September 19, 2003* (k(4)(iii)) Amendment No. 2 to the Credit Agreement, dated December 9, 2003* (l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP* (n) Consent of Deloitte & Touche LLP* (r)(i) Code of Ethics of the Fund* (r)(ii) Code of Ethics of the Investment Adviser (s) Power of Attorney(5) - ---------- * Filed herewith (1) Incorporated by reference to the initial filing of this Registration Statement, filed on December 8, 2003. (2) Incorporated by reference to the Fund's Registration Statement on Form N-2 relating to its common shares of beneficial interest, filed April 4, 1998 (File No. 333-49829). C-1 (3) Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's Registration Statement on Form N-2 relating to its common shares of beneficial interest, filed May 12, 1998 (File No. 333-49829). (4) Incorporated by reference to Pre-Effective Amendment No. 2 to the Fund's Registration Statement on Form N-2 relating to its common shares of beneficial interest, filed June 22, 1998 (File No. 333-49829). (5) Incorporated by reference to the Fund's Registration Statement on Form N-2 relating to its preferred shares of beneficial interest, filed December 8, 2003 (File No. 333-111002). ITEM 25: MARKETING ARRANGEMENTS See Exhibit h(1) to this Registration Statement. ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission fees $ 88,690 National Association of Securities Dealers, Inc. fees $ 0 Rating agency fees $ 165,000 Printing and engraving expenses $ 75,000 Legal fees $ 150,000 Auction Agent Fees $ 26,500 Accounting expenses $ 30,000 Blue Sky filing fees and expenses $ 0 Miscellaneous expenses $ 14,810 ========= Total $ 550,000 ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT Not applicable ITEM 28: NUMBER OF HOLDERS OF SECURITIES At , 2004

TITLE OF CLASS NUMBER OF RECORD HOLDERS -------------- ------------------------ Common Shares of Beneficial Interest, par value $.01 per share to be filed by amendment Preferred Shares of Beneficial Interest, par value $.01 per share to be filed by amendment

C-2 ITEM 29: INDEMNIFICATION Please see Article 5.3 of the Registrant's Declaration of Trust (Exhibit (a)(i)) for indemnification of officers and trustees. Registrant's trustees and officers are also covered by a Joint Directors and Officers/Errors and Omissions Insurance Policy. Section 5 of the proposed Investment Advisory Agreement between the Fund and the Adviser provides that in the absence of willful misfeasance, bad faith or gross negligence in connection with the obligations or duties under the Investment Advisory Agreement or on the part of the Adviser, the Adviser shall not be liable to the Fund or to any shareholder of the Fund for any act or omission in the course of or connected in any way with rendering services or for any losses that may be sustained in the purchase, holding or sale of any security. The Underwriting Agreement provides that the Registrant shall indemnify the Underwriters (as defined therein) and certain persons related thereto for any loss or liability arising from any alleged misstatement of a material fact (or alleged omission to state a material fact) contained in, among other things, the Registration Statement or Prospectus except to the extent the misstated fact or omission was made in reliance upon information provided by or on behalf of the Underwriters. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant and the Adviser and any underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer, or controlling person or the Registrant and the underwriters in connection with the successful defense of any action, suit or proceeding) is asserted against the Registrant by such trustee, officer, controlling person or underwriter in connection with the Preferred Shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in such Act and will be governed by the final adjudication of such issue. ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and directors of the Adviser, reference is made to the Adviser's current Form ADV (File No. 801-18161) filed under the Investment Advisers Act of 1940, as amended, incorporated herein by reference. C-3 ITEM 31: LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by Registrant will be maintained at its offices, located at 1221 Avenue of the Americas New York, New York 10020, at State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts or at Boston Equiserve L.P., Blue Hills Office Park, 150 Royall Street, Canton, Massachusetts 02021; and (ii) by the Adviser, will be maintained at its offices, located at 1221 Avenue of the Americas New York, New York 10020. ITEM 32: MANAGEMENT SERVICES Not applicable ITEM 33: UNDERTAKINGS 1. Registrant undertakes to suspend offering of its shares until it amends its prospectus if (a) subsequent to the effective date of its Registration Statement, the net asset value declines more than 10 percent from its net asset value as of the effective date of the Registration Statement, or (b) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus. 2. Not applicable 3. Not applicable 4. Not applicable 5. If applicable: (a) For the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 497(h) under the Securities Act of 1933, shall be deemed to be part of this Registration Statement as of the time it was declared effective. (b) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 6. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, its Statement of Additional Information. C-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and the State of New York, on the 11th day of February, 2004. VAN KAMPEN SENIOR INCOME TRUST By: /s/ A. THOMAS SMITH III ----------------------------------------- A. Thomas Smith III, Secretary Pursuant to the requirements of the 1933 Act, this Registration Statement has been signed on February 11, 2004 by the following persons in the capacities indicated:

SIGNATURES TITLE Principal Executive Officer: /s/ RONALD E. ROBISON* Executive Vice President and Principal Executive Officer - ----------------------------------------------------- RONALD E. ROBISON Principal Financial Officer: /s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and Treasurer - ----------------------------------------------------- John L. Sullivan Trustees: /s/ DAVID C. ARCH* Trustee - ----------------------------------------------------- David C. Arch

C-5 /s/ ROD DAMMEYER* Trustee - ----------------------------------------------------- Rod Dammeyer /s/ HOWARD J KERR* Trustee - ----------------------------------------------------- Howard J Kerr /s/ RICHARD F. POWERS, III* Trustee - ----------------------------------------------------- Richard F. Powers, III /s/ HUGO F. SONNENSCHEIN Trustee - ----------------------------------------------------- Hugo F. Sonnenschein C-6 /s/ WAYNE W. WHALEN* Trustee - ----------------------------------------------------- Wayne W. Whalen - ---------- * Signed by A. Thomas Smith III pursuant to a power of attorney, filed previously. /s/ A. THOMAS SMITH III February 11, 2004 - ----------------------------------------------------- A. Thomas Smith III Attorney-in-Fact C-7 INDEX TO EXHIBITS (a) (ii) Amendment to Declaration of Trust, dated August 6, 1998 (d(2)) Form of Specimen Certificate of Auction Preferred Shares of Registrant (h(1)) Form of Underwriting Agreement (h(2)) Form of Master Agreement Among Underwriters (h(3)) Form of Master Dealer Agreement (j(3)) Form of Auction Agency Agreement (k(3)) Form of Broker-Dealer Agreement (k(4)(i)) Revolving Credit and Security Agreement, dated September 25, 2002 (the "Credit Agreement") (k(4)(ii)) Amendment No. 1 to the Credit Agreement, dated September 19, 2003 (k(4)(iii)) Amendment No. 2 to the Credit Agreement, dated December 9, 2003 (l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP (n) Consent of Deloitte & Touche LLP (r)(i) Code of Ethics of the Fund (r)(ii) Code of Ethics of the Investment Adviser

EX-99.(A)(II)

                                                                   EXHIBIT A(ii)

                            CERTIFICATE OF AMENDMENT
                                     TO THE
                              DECLARATION OF TRUST
                                       OF

                 Van Kampen American Capital Senior Income Trust

           Pursuant to 950 CMR 109.04 of the Massachusetts General Law



                  1. The name of the trust is Van Kampen American Capital Senior
Income Trust (the "Trust") and its Declaration of Trust was originally filed
with the Commonwealth of Massachusetts on April 8, 1998.

                  2. Pursuant to this Certificate of Amendment, the name of the
Trust will be changes to "Van Kampen Senior Income Trust". To effect this
change, Article 1. of the Declaration of Trust is hereby amended to read as
follows:

                      1.   The name of the Trust is: Van Kampen Senior Income
                           Trust ("Trust").

                  3. Such name change shall become effective as of the close of
business on Friday, August 28, 1998.



                  IN WITNESS WHEREOF, this Certificate of Amendment has been
duly executed this 6th day of August, 1998




                            ------------------------------
                            Name:  Wayne W. Whalen
                            As Trustee and not individually

EX-99.(D)(2)

                                                                  EXHIBIT (d)(2)

                                    SPECIMEN

Certificate                                                          Number of
Number                                                               Shares


                         Van Kampen Senior Income Trust
                   Organized as a Massachusetts Business Trust
                      Auction Preferred Shares, Series [ ]
                         $25,000 Liquidation Preference

                                    Cusip No.

                  This certifies that Cede & Co. is the owner of
fully paid and non-assessable preferred shares of beneficial interest, par value
$.01 per shares, liquidation preference $50,000 per share, designated Auction
Preferred Shares, Series [ ], of Van Kampen Senior Income Trust (the "Fund")
transferable only on the books of the Fund by the holder hereof in person by
Attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the registrar and transfer agent.

                  In witness whereof the said Fund has caused this Certificate
to be signed by its duly authorized officer and its corporate seal to be
hereunto affixed this     day of , 200 .

The Bank of New York                 Van Kampen Senior Income Trust
  As Registrar and
   Transfer Agent


____________________         ____________________           ____________________
Authorized Signature         President                      Assistant Secretary

         TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
THE RESTRICTIONS SPECIFIED IN THE CERTIFICATE OF VOTE OF THE FUND, COPIES OF
WHICH ARE FILED WITH THE SECRETARY OF THE FUND.

         THE FUND WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF SHARES OR SERIES THEREOF WHICH
IT IS AUTHORIZED TO ISSUE AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST SHOULD BE ADDRESSED TO THE
SECRETARY OF THE FUND.





         NOTICE IS HEREBY GIVEN THAT THIS CERTIFICATE REPRESENTING THE AUCTION
PREFERRED SHARES, AND THE OBLIGATIONS ARISING OUT OF THE ISSUANCE AND SALE OF
THE AUCTION PREFERRED SHARES, ARE NOT BINDING UPON ANY OF THE TRUSTEES, OFFICERS
OR SHAREHOLDERS INDIVIDUALLY BUT ARE BINDING ONLY UPON THE ASSETS AND PROPERTY
OF THE FUND.

         For value received, ______________ does hereby sell, assign and
transfer unto __________________ shares of the Auction Preferred Shares,
represented by the within Certificate, and does hereby irrevocably constitute
and appoint _______________ Attorney to transfer the said shares of beneficial
interest on the books of the within named Fund with full power of substitution
in the premises.

Dated: ___________, 200___

In presence of

__________________________



























                                       2

EX-99.(H)(1)

                                                                  EXHIBIT (h)(1)

                    AUCTION RATE CUMULATIVE PREFERRED SHARES


                         VAN KAMPEN SENIOR INCOME TRUST

                             5,600 Shares, Series M
                             5,600 Shares, Series T
                             5,600 Shares, Series W
                             5,600 Shares, Series TH
                             5,600 Shares, Series F

                    LIQUIDATION PREFERENCE $25,000 PER SHARE

                             UNDERWRITING AGREEMENT


                                                              New York, New York
                                                               February __, 2003

Citigroup Global Markets Inc.
As Representative of the several Underwriters

c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013

Ladies and Gentlemen:

                  The undersigned, Van Kampen Senior Income Trust, a
Massachusetts business trust (the "Fund") and Van Kampen Asset Management Inc.,
a Delaware corporation (the "Adviser"), propose to sell to the several
underwriters named in Schedule I hereto (the "Underwriters"), for whom Citigroup
Global Markets Inc. (the "Representative") is acting as representative, an
aggregate of 5,600 shares of its Series M, 5,600 shares of its Series T, 5,600
shares of its Series W, 5,600 shares of its Series TH, and 5,600 shares of its
Series F Auction Rate Cumulative Preferred Shares, par value $.0.01 per share,
with a liquidation preference of $25,000 per share (the shares to be sold hereby
are referred to herein, collectively, as the "Shares"). The Shares will be
authorized by, and subject to the terms and conditions of, the Certificate of
Vote (the "Certificate") in substantially the form filed as an exhibit to the
registration statement referred to in Section 1 of this Underwriting Agreement
(the "Agreement").

                  Unless otherwise stated, the term "you" as used herein means
Citigroup Global Markets Inc. individually on its own behalf and on behalf of
the other Underwriters. Certain terms used herein are defined in Section 18
hereof.



                                                                               2


                  The Fund and the Adviser wish to confirm as follows their
agreements with you and the other several Underwriters on whose behalf you are
acting in connection with the several purchases of the Shares by the
Underwriters.

                  The Fund has entered into an Investment Advisory Agreement
with the Adviser dated April 22, 1998, an Administration Agreement with the
Adviser dated April 22, 1998, a Custodian Contract with State Street Bank and
Trust Company dated August 1, 1997, a Registrar Transfer Agency and Service
Agreement with State Street Bank and Trust Company dated June 24, 1998, and an
Auction Agency Agreement with The Bank of New York dated February [__], 2004 and
such agreements are herein referred to as the "Investment Advisory Agreement",
the "Administration Agreement", the "Custodian Agreement", the "Transfer Agency
Agreement" and the "Auction Agency Agreement", respectively. Collectively, the
Investment Advisory Agreement, the Administration Agreement, the Custodian
Agreement, the Transfer Agency Agreement and Auction Agency Agreement are herein
referred to as the "Fund Agreements"

                  1. Representations and Warranties of the Fund and the Adviser.
The Fund and the Adviser, jointly and severally, represent and warrant to, and
agree with, each Underwriter as set forth below in this Section 1.

                  (a) The Fund has prepared and filed with the Commission a
         registration statement (file numbers 333-111002 and 811-08743) on Form
         N-2, including a related preliminary prospectus (including the
         statement of additional information incorporated by reference therein),
         for registration under the Act and the 1940 Act of the offering and
         sale of the Shares. The Fund may have filed one or more amendments
         thereto, including a related preliminary prospectus (including the
         statement of additional information incorporated by reference therein),
         each of which has previously been furnished to you. The Fund will next
         file with the Commission one of the following: either (1) prior to the
         Effective Date of such registration statement, a further amendment to
         such registration statement (including the form of final prospectus
         (including the statement of additional information incorporated by
         reference therein)) or (2) after the Effective Date of such
         registration statement, a final prospectus (including the statement of
         additional information incorporated by reference therein) in accordance
         with Rules 430A and 497. In the case of clause (2), the Fund has
         included in such registration statement, as amended at the Effective
         Date, all information (other than Rule 430A Information) required by
         the Act and the 1940 Act and the Rules and Regulations to be included
         in such registration statement and the Prospectus. As filed, such
         amendment and form of final prospectus (including the statement of
         additional information incorporated by reference therein), or such
         final prospectus (including the statement of additional information
         incorporated by reference therein), shall contain all Rule 430A
         Information, together with all other such required information, and,
         except to the extent the Representative shall agree in writing to a
         modification, shall be in all substantive respects in the form
         furnished to you prior to the Execution Time or, to the extent not
         completed at the Execution Time, shall contain only such specific
         additional information and other changes (beyond that contained in the
         latest Preliminary Prospectus) as the Fund has advised you, prior to
         the Execution Time, will be included or made therein.



                                                                               3


                  (b) Each Preliminary Prospectus and Prospectus complied when
         filed with the Commission in all material respects with the provisions
         of the Act, the 1940 Act and the Rules and Regulations, except that
         this representation and warranty does not apply to statements in or
         omissions from the registration statement, the Preliminary Prospectus
         or the Prospectus made in reliance upon and in conformity with
         information relating to any Underwriter furnished to the Fund in
         writing by or on behalf of any Underwriter through you expressly for
         use therein. The Commission has not issued any order preventing or
         suspending the use of any Preliminary Prospectus or the Prospectus.

                  (c) On the Effective Date, the Registration Statement did or
         will, and when the Prospectus is first filed (if required) in
         accordance with Rule 497 and on the Closing Date (as defined herein),
         if such date is not the Closing Date (a "settlement date"), the
         Prospectus (and any supplements thereto) will, and the 1940 Act
         Notification when originally filed with the Commission and any
         amendment or supplement thereto when filed with the Commission did or
         will, comply in all material respects with the applicable requirements
         of the Act, the 1940 Act and the Rules and Regulations and the
         Registration Statement did not or will not contain any untrue statement
         of a material fact or omit to state any material fact required to be
         stated therein or necessary in order to make the statements therein not
         misleading; and, on the Effective Date, the Prospectus, if not filed
         pursuant to Rule 497, will not, and on the date of any filing pursuant
         to Rule 497 and on the Closing Date and any settlement date, the
         Prospectus (together with any supplement thereto) will not, include any
         untrue statement of a material fact or omit to state a material fact
         necessary in order to make the statements therein, in the light of the
         circumstances under which they were made, not misleading; provided,
         however, that the Fund makes no representations or warranties as to the
         information contained in or omitted from the Registration Statement, or
         the Prospectus (or any supplement thereto) in reliance upon and in
         conformity with information furnished in writing to the Fund by or on
         behalf of any Underwriter through the Representative specifically for
         inclusion in the Registration Statement or the Prospectus (or any
         supplement thereto).

                  (d) The Fund has been duly formed and is validly existing as a
         business trust in good standing under the laws of the Commonwealth of
         Massachusetts, with full power and authority to own, lease and operate
         its properties and to conduct its business as described in the
         Prospectus, and is duly qualified to do business as a foreign
         corporation and is in good standing under the laws of each jurisdiction
         which requires such qualification. The Fund has no subsidiaries.

                  (e) The Fund's authorized equity capitalization is as set
         forth in the Prospectus; the capital shares of the Fund conform in all
         material respects to the description thereof contained in the
         Prospectus; all the Fund's outstanding common shares of beneficial
         interest (the "Common Shares") have been duly and validly authorized
         and issued and are fully paid and nonassessable; the Shares have been
         duly and validly authorized, and, when issued and delivered to and paid
         for by the Underwriters pursuant to this Agreement, will be fully paid
         and nonassessable (except as described in the Prospectus); the Common
         Shares are duly listed, and admitted and authorized for trading on the
         New York Stock Exchange (the "NYSE"); the certificates for the Shares,
         if any, are in valid and sufficient form, the holders of outstanding
         Common Shares are not entitled to



                                                                               4


         preemptive or other rights to subscribe for the Shares; and, except as
         set forth in the Prospectus, no options, warrants or other rights to
         purchase, agreements or other obligations to issue, or rights to
         convert any obligations into or exchange any securities for, shares of
         capital stock of or ownership interests in the Fund are outstanding.

                  (f) The Fund's registration statement on Form 8-A under the
         Exchange Act has become effective.

                  (g) The Fund, subject to the Registration Statement having
         been declared effective and the filing of the Prospectus under Rule
         497, has taken all action required by it under the Act, the 1940 Act
         and the Rules and Regulations to make the public offering and
         consummate the sale of the Shares as contemplated by this Agreement.

                  (h) There are no agreements, contracts, indentures, leases or
         other instruments that are required to be described in the Registration
         Statement or the Prospectus or to be filed as an exhibit thereto, which
         are not described or filed as required by the Act, the 1940 Act or the
         Rules and Regulations; and the statements in the Prospectus under the
         heading "Federal Taxation", "Description of Preferred Shares" and
         "Description of Capital Structure" fairly summarize the matters therein
         described.

                  (i) The execution and delivery of and the performance by the
         Fund of its obligations under this Agreement and the Fund Agreements
         have been duly and validly authorized by the Fund and this Agreement
         and the Fund Agreements have been duly executed and delivered by the
         Fund and constitute the valid and legally binding agreements of the
         Fund, enforceable against the Fund in accordance with their terms,
         except as rights to indemnity and contribution hereunder may be limited
         by federal or state securities laws and subject to the qualification
         that the enforceability of the Fund's obligations hereunder and
         thereunder may be limited by bankruptcy, insolvency, reorganization,
         moratorium and other laws relating to or affecting creditors' rights
         generally and by general equitable principles.

                  (j) The Fund is duly registered under the 1940 Act as a
         closed-end, non-diversified management investment company and the 1940
         Act Notification has been duly filed with the Commission and, at the
         time of filing thereof and any amendment or supplement thereto,
         conformed in all material respects with all applicable provisions of
         the 1940 Act and the Rules and Regulations. The Fund is, and at all
         times through the Closing Date, will be, in compliance in all material
         respects with the terms and conditions of the Act and the 1940 Act. The
         Fund has not received any notice from the Commission pursuant to
         Section 8(e) of the 1940 Act with respect to the 1940 Act Notification
         or the Registration Statement. No person is serving or acting as an
         officer, director or investment adviser of the Fund except in
         accordance with the provisions of the 1940 Act and the 1940 Act Rules
         and Regulations and the Advisers Act and the Advisers Act Rules and
         Regulations.

                  (k) No consent, approval, authorization, filing with or order
         of any court or governmental agency or body is required in connection
         with the transactions contemplated herein or in the Fund Agreements,
         except such as have been made or



                                                                               5


         obtained under the Act and the 1940 Act and such as may be required
         under the blue sky laws of any jurisdiction in connection with the
         purchase and distribution of the Shares by the Underwriters in the
         manner contemplated herein and in the Prospectus.

                  (l) Neither the issuance and sale of the Shares, the
         execution, delivery or performance of this Agreement or any of the Fund
         Agreements by the Fund, nor the consummation by the Fund of the
         transactions contemplated hereby or thereby (i) conflicts or will
         conflict with or constitutes or will constitute a breach of the
         declaration of trust or by-laws of the Fund, (ii) conflicts or will
         conflict with or constitutes or will constitute a breach of or a
         default under, any material agreement, indenture, lease or other
         instrument to which the Fund is a party or by which it or any of its
         properties may be bound or (iii) violates or will violate any material
         statute, law, regulation or filing or judgment, injunction, order or
         decree applicable to the Fund or any of its properties or will result
         in the creation or imposition of any material lien, charge or
         encumbrance upon any property or assets of the Fund pursuant to the
         terms of any agreement or instrument to which it is a party or by which
         it may be bound or to which any of the property or assets of the Fund
         is subject, except in any case under clause (ii) or (iii) as should not
         reasonably be expected to have a material adverse effect on the ability
         of the Fund to perform its obligations under the Agreement, the Fund
         Agreements or the offering of the Shares.

                  (m) No holder of any security of the Fund has any right to
         require registration of the Preferred Shares or any security of the
         Fund because of the filing of the Registration Statement or
         consummation of the transactions contemplated by this Agreement.

                  (n) The financial statements, together with related schedules
         and notes, included or incorporated by reference in the Prospectus and
         the Registration Statement present fairly in all material respects the
         financial condition, results of operations and cash flows of the Fund
         as of the dates and for the periods indicated, comply as to form with
         the applicable accounting requirements of the Act and the 1940 Act and
         have been prepared in conformity with generally accepted accounting
         principles applied on a consistent basis throughout the periods
         involved (except as otherwise noted therein); and the other financial
         and statistical information and data included in the Registration
         Statement or the Prospectus are accurately derived from such financial
         statements and the books and records of the Fund.

                  (o) No action, suit or proceeding by or before any court or
         governmental agency, authority or body or any arbitrator involving the
         Fund or its property is pending or, to the best knowledge of the Fund,
         threatened that (i) would reasonably be expected to have a material
         adverse effect on the performance of this Agreement or the consummation
         of any of the transactions contemplated hereby or (ii) would reasonably
         be expected to have a material adverse effect on the condition
         (financial or otherwise), business prospects, earnings, business
         affairs or properties of the Fund, whether or not arising from
         transactions in the ordinary course of business, except as set forth in
         or contemplated in the Prospectus (exclusive of any supplement
         thereto).



                                                                               6


                  (p) The Fund owns or leases all such properties as are
         necessary to the conduct of its operations as presently conducted.

                  (q) The Fund is not (i) in violation of its declaration of
         trust or by-laws, (ii) in material breach or default in the performance
         of the terms of any indenture, contract, lease, mortgage, deed of
         trust, note agreement, loan agreement or other agreement, obligation,
         condition, covenant or instrument to which it is a party or bound or to
         which its property is subject or (iii) in material violation of any
         law, ordinance, administrative or governmental rule or regulation
         applicable to the Fund or of any decree of the Commission, the NASD,
         any state securities commission, any national securities exchange, any
         arbitrator, any court or any other governmental, regulatory,
         self-regulatory or administrative agency or any official having
         jurisdiction over the Fund.

                  (r) Since the date as of which information is given in the
         Registration Statement and the Prospectus, except as otherwise stated,
         (i) there has been no material, adverse change in the condition
         (financial or other), business affairs, properties, net assets or
         results of operations of the Fund or business prospects (other than as
         a result of a change in the financial markets generally) of the Fund,
         whether or not arising in the ordinary course of business, (ii) there
         have been no transactions entered into by the Fund which are material
         to the Fund other than those in the ordinary course of its business.

                  (s) Except as disclosed in or contemplated by the Registration
         Statement and the Prospectus, subsequent to the respective dates as of
         which such information is given in the Registration Statement and the
         Prospectus, the Fund has not incurred any material liability or
         material obligation, direct or contingent, or entered into any
         transaction, not in the ordinary course of business, that is material
         to the Fund, and there has not been any change in its capitalization,
         or material increase in the short-term debt or long-term debt, of the
         Fund, or any material adverse change, or any development involving or
         which may reasonably be expected to involve, a prospective material
         adverse change, in the condition (financial or other), assets or
         results of operations of the Fund, whether or not arising in the
         ordinary course of business (other than as a result of changes in
         market conditions generally or the market for securities generally).

                  (t) Deloitte & Touche LLP, who have audited the financial
         statements included or incorporated by reference in the Registration
         Statement and the Prospectus, are independent public accountants with
         respect to the Fund within the meaning of the Act and the Act Rules and
         Regulations.

                  (u) The Fund has not distributed and, prior to the later to
         occur of (i) the Closing Date and (ii) completion of the distribution
         of the Shares, will not distribute any offering material in connection
         with the offering and sale of the Shares other than the Registration
         Statement, the Preliminary Prospectus, the Prospectus or other
         materials permitted by the Act, the 1940 Act or the Rules and
         Regulations.

                  (v) There are no transfer taxes or other similar fees or
         charges under Federal law or the laws of any state, or any political
         subdivision thereof, required to be paid in



                                                                               7


         connection with the execution and delivery of this Agreement or the
         issuance by the Fund or sale by the Fund of the Shares.

                  (w) The Fund has filed all foreign, federal, state and local
         tax returns that are required to be filed or has requested extensions
         thereof (except in any case in which the failure so to file would not
         have a material adverse effect on the condition (financial or
         otherwise), business prospects, earnings, business affairs or
         properties of the Fund, whether or not arising from transactions in the
         ordinary course of business, except as set forth in or contemplated in
         the Prospectus (exclusive of any supplement thereto)) and has paid all
         taxes required to be paid by it and any other assessment, fine or
         penalty levied against it, to the extent that any of the foregoing is
         due and payable, except for any such assessment, fine or penalty that
         is currently being contested in good faith or as would not have a
         material adverse effect on the condition (financial or otherwise),
         business prospects, earnings, business affairs or properties of the
         Fund, whether or not arising from transactions in the ordinary course
         of business, except as set forth in or contemplated in the Prospectus
         (exclusive of any supplement thereto).

                  (x) Any advertising, sales literature or other promotional
         material (including "prospectus wrappers", "broker kits", "road show
         slides" and "road show scripts"), whether in printed or electronic
         form, authorized in writing by or prepared by the Fund or the Adviser
         for use in connection with the offering and sale of the Shares
         (collectively, "sales material") complied and comply in all material
         respects with the applicable requirements of the Act, the 1940 Act, the
         Rules and Regulations and the rules and interpretations of the NASD and
         if required to be filed with the NASD under the NASD's conduct rules,
         were provided to Simpson Thacher & Bartlett LLP, counsel for the
         Underwriters, for filing. No such sales material, if any, contained or
         contains an untrue statement of a material fact or omitted or omits to
         state a material fact necessary in order to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading.

                  (y) The Fund's directors and officers/errors and omissions
         insurance policy and its fidelity bond required by Rule 17g-1 of the
         1940 Act Rules and Regulations are in full force and effect; the Fund
         is in compliance with the terms of such policy and fidelity bond in all
         material respects; and there are no claims by the Fund under any such
         policy or fidelity bond as to which any insurance company is denying
         liability or defending under a reservation of rights clause; the Fund
         has not been refused any insurance coverage sought or applied for; and
         the Fund has no reason to believe that it will not be able to renew its
         existing insurance coverage as and when such coverage expires or to
         obtain similar coverage from similar insurers as may be necessary to
         continue its business at a cost that would not have a material adverse
         effect on the condition (financial or otherwise), prospects, earnings,
         business or properties of the Fund, whether or not arising from
         transactions in the ordinary course of business, except as set forth in
         or contemplated in the Prospectus (exclusive of any supplement
         thereto).

                  (z) The Fund has such licenses, permits, and authorizations of
         governmental or regulatory authorities ("permits") as are necessary to
         own its property and to conduct its business in the manner described in
         the Prospectus; the Fund has fulfilled and performed



                                                                               8


         all its material obligations with respect to such permits and no event
         has occurred which allows or, after notice or lapse of time, would
         allow, revocation or termination thereof or results in any other
         material impairment of the rights of the Fund under any such permit,
         subject in each case to such qualification as may be set forth in the
         Prospectus; and, except as described in the Prospectus, none of such
         permits contains any restriction that is materially burdensome to the
         Fund.

                  (aa) The Fund maintains and will maintain a system of internal
         accounting controls sufficient to provide reasonable assurances that
         (i) transactions are executed in accordance with management's general
         or specific authorization and with the investment objectives, policies
         and restrictions of the Fund and the applicable requirements of the
         1940 Act, the 1940 Act Rules and Regulations and the Internal Revenue
         Code of 1986, as amended (the "Code"); (ii) transactions are recorded
         as necessary to permit preparation of financial statements in
         conformity with generally accepted accounting principles, to calculate
         net asset value, to maintain accountability for assets and to maintain
         material compliance with the books and records requirements under the
         1940 Act and the 1940 Act Rules and Regulations; (iii) access to assets
         is permitted only in accordance with management's general or specific
         authorization; and (iv) the recorded accountability for assets is
         compared with existing assets at reasonable intervals and appropriate
         action is taken with respect to any differences.

                  (bb) The Fund has not taken, directly or indirectly, any
         action designed to or that would constitute or that would reasonably be
         expected to cause or result in, under the Exchange Act or otherwise,
         stabilization or manipulation of the price of any security of the Fund
         to facilitate the sale or resale of the Shares, and the Fund is not
         aware of any such action taken or to be taken by any affiliates of the
         Fund.

                  (cc) Neither the Fund nor, to the knowledge of the Fund, any
         trustee, officer, agent, employee or affiliate of the Fund is aware of
         or has taken any action, directly or indirectly, that would result in a
         material violation by such persons of the FCPA, including, without
         limitation, making use of the mails or any means or instrumentality of
         interstate commerce corruptly in furtherance of an offer, payment,
         promise to pay or authorization of the payment of any money, or other
         property, gift, promise to give, or authorization of the giving of
         anything of value to any "foreign official" (as such term is defined in
         the FCPA) or any foreign political party or official thereof or any
         candidate for foreign political office, in contravention of the FCPA
         and the Fund, and, to the knowledge of the Fund, its affiliates have
         conducted their businesses in compliance with the FCPA and have
         instituted and maintain policies and procedures designed to ensure, and
         which are reasonably expected to continue to ensure, continued
         compliance therewith.

                  "FCPA" means Foreign Corrupt Practices Act of 1977, as
         amended, and the rules and regulations thereunder.

                  (dd) This Agreement and each of the Fund Agreements complies
         in all material respects with all applicable provisions of the 1940
         Act, the 1940 Act Rules and Regulations, the Advisers Act and the
         Advisers Act Rules and Regulations.



                                                                               9


                  (ee) Except as disclosed in the Prospectus, no trustee of the
         Fund is an "interested person" (as defined in the 1940 Act) of the Fund
         or an "affiliated person" (as defined in the 1940 Act) of any
         Underwriter listed in Schedule I hereto.

                  (ff) The Fund intends to direct the investment of the proceeds
         of the offering of the Shares in such a manner as to comply with the
         requirements of Subchapter M of the Code.

                  (gg) The conduct by the Fund of its business (as described in
         the Prospectus) does not require it to be the owner, possessor or
         licensee of any patents, patent licenses, trademarks, service marks or
         trade names which it does not own, possess or license.

                  (hh) Except as disclosed in the Registration Statement and the
         Prospectus, the Fund (i) does not have any material lending or other
         relationship with any bank or lending affiliate of Citigroup Global
         Markets Holdings Inc. and (ii) does not intend to use any of the
         proceeds from the sale of the Shares hereunder to pay any outstanding
         debt owed to any affiliate of Citigroup Global Markets Holdings Inc.

                  (ii) There is and has been no material failure on the part of
         the Fund and any of the Fund's trustees or officers, in their
         capacities as such, to comply with any provision of the Sarbanes-Oxley
         Act of 2002 and the rules and regulations promulgated in connection
         therewith (the "Sarbanes-Oxley Act"), including Sections 302 and 906
         related to certifications.

                  (jj) To the best knowledge of the Fund, the operations of the
         Fund are and have been conducted at all times in compliance with
         applicable financial recordkeeping and reporting requirements of The
         Bank Secrecy Act of 1970, as amended (including amendments pursuant to
         the International Money Laundering Abatement and Anti-Terrorist
         Financing Act of 2001), the money laundering statutes of all
         jurisdictions, the rules and regulations thereunder and any related or
         similar rules, regulations or guidelines, issued, administered or
         enforced by any governmental agency (collectively, the "Money
         Laundering Laws") and no action, suit or proceeding by or before any
         court or governmental agency, authority or body or any arbitrator
         involving the Fund with respect to the Money Laundering Laws is pending
         or, to the best knowledge of the Fund, threatened.

                  (kk) Neither the Fund nor, to the knowledge of the Fund, any
         trustee, officer, agent, employee or affiliate of the Fund is currently
         subject to any U.S. sanctions administered by the Office of Foreign
         Assets Control of the U.S. Treasury Department ("OFAC"); and the Fund
         will not directly or indirectly use the proceeds of the offering, or
         lend, contribute or otherwise make available such proceeds to any other
         person or entity, for the purpose of financing the activities of any
         person currently subject to any U.S. sanctions administered by OFAC.

                  Any certificate signed by any officer of the Fund and
delivered to the Representative or counsel for the Underwriters in connection
with the offering of the Shares shall



                                                                              10


be deemed a representation and warranty by the Fund, as to matters covered
thereby, to each Underwriter.

                  2. Representations and Warranties of the Adviser. The Adviser
represents and warrants to each Underwriter as follows:

                  (a) The Adviser has been duly incorporated and is validly
         existing as a corporation in good standing under the laws of the State
         of Delaware, with full corporate power and authority to own, lease and
         operate its properties and to conduct its business as described in the
         Registration Statement and the Prospectus, and is duly qualified to do
         business as a foreign corporation and is in good standing under the
         laws of each jurisdiction which requires such qualification.

                  (b) The Adviser is duly registered as an investment adviser
         under the Advisers Act and is not prohibited by the Advisers Act, the
         1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules
         and Regulations from acting under the Fund Agreements to which it is a
         party for the Fund as contemplated by the Prospectus.

                  (c) The Adviser has full power and authority to enter into
         this Agreement, the Fund Agreements to which it is a party, the
         execution and delivery of, and the performance by the Adviser of its
         obligations under, this Agreement, the Fund Agreements to which it is a
         party, have been duly and validly authorized by the Adviser; and this
         Agreement, the Fund Agreements to which it is a party, have been duly
         executed and delivered by the Adviser and constitute the valid and
         legally binding agreements of the Adviser, enforceable against the
         Adviser in accordance with their terms, except as rights to indemnity
         and contribution hereunder may be limited by federal or state
         securities laws and subject to the qualification that the
         enforceability of the Adviser's obligations hereunder and thereunder
         may be limited by bankruptcy, insolvency, reorganization, moratorium
         and other laws relating to or affecting creditors' rights generally and
         by general equitable principles.

                  (d) The Adviser has the financial resources available to it
         necessary for the performance of its services and obligations as
         contemplated in the Prospectus and under this Agreement, the Fund
         Agreements to which it is a party.

                  (e) The description of the Adviser and its business, and the
         statements attributable to the Adviser, in the Registration Statement
         and the Prospectus complied and comply in all material respects with
         the provisions of the Act, the 1940 Act, the Advisers Act, the Rules
         and Regulations and the Advisers Act Rules and Regulations and did not
         and will not contain an untrue statement of a material fact or omit to
         state a material fact necessary in order to make the statements
         therein, in light of the circumstances under which they were made, not
         misleading.

                  (f) No action, suit or proceeding by or before any court or
         governmental agency, authority or body or any arbitrator involving the
         Adviser or its property is pending or, to the best knowledge of the
         Adviser, threatened that (i) would reasonably be expected to have a
         material adverse effect on the ability of the Adviser to fulfill its
         obligations



                                                                              11


         hereunder or under the Fund Agreements to which it is a party or (ii)
         would reasonably be expected to have a material adverse effect on the
         condition (financial or otherwise), business prospects, earnings,
         business affairs or properties of the Adviser, whether or not arising
         from transactions in the ordinary course of business, except as set
         forth in or contemplated in the Prospectus (exclusive of any supplement
         thereto); and there are no agreements, contracts, indentures, leases or
         other instruments that are required to be described in the Registration
         Statement or the Prospectus or to be filed as an exhibit to the
         Registration Statement that are not described or filed as required by
         the Act, the 1940 Act or the Rules and Regulations.

                  (g) Since the date as of which information is given in the
         Prospectus, except as otherwise stated therein, (i) there has been no
         material, adverse change in the condition (financial or other),
         business, properties, net assets or results of operations or business
         prospects of the Adviser, whether or not arising from the ordinary
         course of business and (ii) there have been no transactions entered
         into by the Adviser which are material to the Adviser other than those
         in the ordinary course of its business as described in the Prospectus.

                  (h) The Adviser has such licenses, permits and authorizations
         of governmental or regulatory authorities ("permits") as are necessary
         to own its property and to conduct its business in the manner described
         in the Prospectus; the Adviser has fulfilled and performed all its
         material obligations with respect to such permits and no event has
         occurred which allows, or after notice or lapse of time would allow,
         revocation or termination thereof or results in any other material
         impairment of the rights of the Adviser under any such permit.

                  (i) This Agreement, the Fund Agreements to which the Adviser
         is a party comply in all material respects with all applicable
         provisions of the 1940 Act, the 1940 Act Rules and Regulations, the
         Advisers Act and the Advisers Act Rules and Regulations.

                  (j) No consent, approval, authorization, filing with or order
         of any court or governmental agency or body is required in connection
         with the transactions contemplated herein, in the Fund Agreements, by
         the Adviser which is a party thereto, except such as have been made or
         obtained under the Act and the 1940 Act and such as may be required
         under the blue sky laws of any jurisdiction in connection with the
         purchase and distribution of the Shares by the Underwriters in the
         manner contemplated herein and in the Prospectus.

                  (k) Neither the execution, delivery or performance of this
         Agreement or any of the Fund Agreements to which the Adviser is a
         party, nor the consummation by the Fund or the Adviser of the
         transactions contemplated hereby or thereby (i) conflicts or will
         conflict with or constitutes or will constitute a breach of the
         declaration of trust or by-laws of the Adviser, (ii) conflicts or will
         conflict with or constitutes or will constitute a breach of or a
         default under, any material agreement, indenture, lease or other
         instrument to which the Adviser is a party or by which it or any of its
         properties may be bound or (iii) violates or will violate any material
         statute, law, regulation or filing or judgment, injunction, order or
         decree applicable to the Adviser or any of its properties or will
         result



                                                                              12


         in the creation or imposition of any material lien, charge or
         encumbrance upon any property or assets of the Adviser pursuant to the
         terms of any agreement or instrument to which the Adviser is a party or
         by which the Adviser may be bound or to which any of the property or
         assets of the Adviser is subject, except in any case under clause (ii)
         or (iii) as should not reasonably be expected to have a material
         adverse effect on the ability of the Adviser to perform its obligations
         under the Agreement, the Fund Agreements or on the offering of the
         Shares.

                  (l) Except as stated in this Agreement and in the Prospectus,
         the Adviser has not taken and nor will it take, directly or indirectly,
         any action designed to or which should reasonably be expected to cause
         or result in or which will constitute, stabilization or manipulation of
         the price of any security of the Fund in violation of federal
         securities laws and the Adviser is not aware of any such action taken
         or to be taken by any of its affiliates.

                  (m) In the event that the Fund or the Adviser makes available
         any promotional materials intended for use only by qualified
         broker-dealers and registered representative thereof by means of an
         Internet web site or similar electronic means, the Adviser will install
         and maintain pre-qualification and password-protection or similar
         procedures which are reasonably designed to effectively prohibit access
         to such promotional materials by persons other than qualified
         broker-dealers and registered representatives thereof.

                  3. Purchase and Sale. (a) Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Fund agrees to sell to each Underwriter, and each Underwriter agrees, severally
and not jointly, to purchase from the Fund, at a purchase price of $24,775 per
Share, the number of Series M Shares, Series T Shares, Series W Shares, Series T
Shares and Series F Shares set forth opposite such Underwriter's name in
Schedule I hereto.

                  4. Delivery and Payment. Delivery to the Underwriters and
payment to the Fund for the Shares shall be made at the office of Simpson
Thacher & Bartlett LLP, 425 Lexington Avenue, New York, NY 10017, or through the
facilities of The Depository Trust Company ("DTC") or another mutually agreeable
facility at 10:00 AM, New York City time, on February [__], 2004, or at such
time on such later date not more than three Business Days after the foregoing
date as the Representatives shall designate, which date and time may be
postponed by agreement between the Representatives and the Fund or as provided
in Section 10 hereof (such date and time of delivery and payment for the Shares
being herein called the "Closing Date"). Delivery of a certificate evidencing
the Shares shall be delivered to and registered at DTC against payment by the
several Underwriters through the Representative of the purchase price thereof to
or upon the order of the Fund by wire transfer payable in same-day funds to an
account specified by the Fund.

                  5. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Shares for sale to the public as set forth in
the Prospectus.



                                                                              13


                  6. Agreements of the Fund and the Adviser. The Fund and the
Adviser, jointly and severally, agree with the several Underwriters as follows:

                  (a) The Fund will use its best efforts to cause the
         Registration Statement, if not effective at the Execution Time, and any
         amendment thereof, to become effective. Prior to the termination of the
         offering of the Shares, the Fund will not file any amendment of the
         Registration Statement or supplement to the Prospectus or any Rule
         462(b) Registration Statement unless the Fund has furnished you a copy
         for your review prior to filing and will not file any such proposed
         amendment or supplement to which you reasonably object. Subject to the
         foregoing sentence, if the Registration Statement has become or becomes
         effective pursuant to Rule 430A, or filing of the Prospectus is
         otherwise required under Rule 497, the Fund will cause the Prospectus,
         properly completed, and any supplement thereto to be filed in a form
         approved by the Representative with the Commission pursuant to Rule 497
         within the time period prescribed and will provide evidence
         satisfactory to the Representative of such timely filing. The Fund will
         promptly advise the Representative (1) when the Registration Statement,
         if not effective at the Execution Time, shall have become effective,
         (2) when the Prospectus, and any supplement thereto, shall have been
         filed (if required) with the Commission pursuant to Rule 497 or when
         any Rule 462(b) Registration Statement shall have been filed with the
         Commission, (3) when, prior to termination of the offering of the
         Shares, any amendment to the Registration Statement shall have been
         filed or become effective, (4) of any request by the Commission or its
         staff for any amendment of the Registration Statement, or any Rule
         462(b) Registration Statement, or for any supplement to the Prospectus
         or for any additional information, (5) of the issuance by the
         Commission of any stop order suspending the effectiveness of the
         Registration Statement or the institution or threatening of any
         proceeding for that purpose and (6) of the receipt by the Fund of any
         notification with respect to the suspension of the qualification of the
         Shares for sale in any jurisdiction or the institution or threatening
         of any proceeding for such purpose. The Fund will use its best efforts
         to prevent the issuance of any such stop order or the suspension of any
         such qualification and, if issued, to obtain as soon as possible the
         withdrawal thereof.

                  (b) If, at any time when a prospectus relating to the Shares
         is required to be delivered under the Act, any event occurs as a result
         of which, in the judgment of the Fund or in the reasonable opinion of
         counsel for the Underwriters, the Prospectus as then supplemented would
         include any untrue statement of a material fact or omit to state any
         material fact necessary to make the statements therein in light of the
         circumstances under which they were made not misleading, or if it shall
         be necessary to amend the Registration Statement or supplement the
         Prospectus to comply with the Act, the 1940 Act and the Rules and
         Regulations, the Fund promptly will (1) notify the Representative of
         any such event; (2) prepare and file with the Commission, subject to
         the second sentence of paragraph (a) of this Section 6, an amendment or
         supplement which will correct such statement or omission or effect such
         compliance; and (3) supply any supplemented Prospectus to you in such
         quantities as you may reasonably request provided that if the amendment
         or supplement is required as a result of a misstatement or omission in
         the information provided to the Fund in writing by the Underwriters




                                                                              14



         expressly for use in the Prospectus, the Underwriters shall reimburse
         the Fund for the action cost of such amendment or supplement.

                  (c) As soon as practicable, the Fund will make generally
         available to its security holders and to the Representative an earnings
         statement or statements of the Fund which will satisfy the provisions
         of Section 11(a) of the Act and Rule 158 under the Act.

                  (d) The Fund will furnish to the Representative and counsel
         for the Underwriters signed copies of the Registration Statement
         (including exhibits thereto) and to each other Underwriter a copy of
         the Registration Statement (without exhibits thereto) and, so long as
         delivery of a prospectus by an Underwriter or dealer may be required by
         the Act, as many copies of each Preliminary Prospectus and the
         Prospectus and any supplement thereto as the Representative may
         reasonably request.

                  (e) The Fund will arrange, if necessary, for the qualification
         of the Shares for sale by the Underwriters and by dealers under the
         securities and Blue Sky laws of such jurisdictions as the
         Representative may designate and will maintain such qualifications in
         effect so long as required for the distribution of the Shares; provided
         that in no event shall the Fund be obligated to qualify to do business
         in any jurisdiction where it is not now so qualified or to take any
         action that would subject it to service of process in suits, other than
         those arising out of the offering or sale of the Shares, in any
         jurisdiction where it is not now so subject.

                  (f) The Fund will not, without the prior written consent of
         Citigroup Global Markets Inc., offer, sell, contract to sell, pledge,
         or otherwise dispose of (or enter into any transaction which is
         designed to, or might reasonably be expected to, result in the
         disposition (whether by actual disposition or effective economic
         disposition due to cash settlement or otherwise) by the Fund or any
         affiliate of the Fund or any person in privity with the Fund), directly
         or indirectly, including the filing (or participation in the filing) of
         a registration statement with the Commission in respect of, or
         establish or increase a put equivalent position or liquidate or
         decrease a call equivalent position within the meaning of Section 16 of
         the Exchange Act, any senior securities (as defined in the 1940 Act) or
         any securities convertible into, or exercisable, or exchangeable for
         senior securities other than the Preferred Shares or publicly announce
         an intention to effect any such transaction for a period of 180 days
         following the Execution Time.

                  (g) The Fund will comply in all material respects with all
         applicable securities and other applicable laws, rules and regulations,
         including, without limitation, the Sarbanes-Oxley Act, and to use its
         best efforts to cause the Fund's trustees and officers, in their
         capacities as such, to comply with such laws, rules and regulations,
         including, without limitation, the provisions of the Sarbanes-Oxley
         Act.

                  (h) The Fund and the Adviser will not take, directly or
         indirectly, any action designed to or that would constitute or that
         would reasonably be expected to cause or result in, under the Exchange
         Act or otherwise, stabilization or manipulation of the price of any
         security of the Fund to facilitate the sale or resale of the Shares.



                                                                              15


                  (i) The Fund agrees to pay the costs and expenses relating to
         the following matters: (i) the preparation, printing or reproduction
         and filing with the Commission of the Registration Statement (including
         financial statements and exhibits thereto), each Preliminary
         Prospectus, the Prospectus and the 1940 Act Notification and each
         amendment or supplement to any of them; (ii) the printing (or
         reproduction) and delivery (including postage, air freight charges and
         charges for counting and packaging) of such copies of the Registration
         Statement, each Preliminary Prospectus, the Prospectus, any sales
         material and all amendments or supplements to any of them, as may, in
         each case, be reasonably requested for use in connection with the
         offering and sale of the Shares; (iii) the preparation, printing,
         authentication, issuance and delivery of certificates of the Shares, if
         any, including any stamp or transfer taxes in connection with the
         original issuance and sale of the Shares; (iv) the printing (or
         reproduction) and delivery of this Agreement, any blue sky memorandum,
         dealer agreements and all other agreements or documents printed (or
         reproduced) and delivered in connection with the offering of the
         Shares; (v) any registration or qualification of the Shares for offer
         and sale under the securities or blue sky laws of the several states
         (including filing fees and the reasonable fees and expenses of counsel
         for the Underwriters relating to such registration and qualification);
         (vi) any filings required to be made with the National Association of
         Securities Dealers, Inc. (including filing fees and the reasonable fees
         and expenses of counsel for the Underwriters relating to such filings);
         (vii) the transportation and other expenses incurred by the Fund
         representatives in connection with presentations to prospective
         purchasers of the Shares; (viii) the fees and expenses of the Fund's
         accountants and the fees and expenses of counsel (including local and
         special counsel) for the Fund; (ix) fees paid to Rating Agencies; and
         (x) all other costs and expenses incident to the performance by the
         Fund of its obligations hereunder.

                  (j) The Fund will direct the investment of the net proceeds of
         the offering of the Shares in such a manner as to comply with the
         investment objectives, policies and restrictions of the Fund as
         described in the Prospectus.

                  (k) The Fund will comply with the requirements of Subchapter M
         of the Code to qualify as a regulated investment company under the
         Code.

                  (l) The Fund and the Adviser will use their reasonable best
         efforts to perform all of the agreements required of them by this
         Agreement and discharge all conditions of theirs to closing as set
         forth in this Agreement.

                  7. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase any Shares hereunder are subject to
the accuracy of and compliance with the representations, warranties and
agreements on the part of the Fund and the Adviser contained herein as of the
Execution Time, the Closing Date and any settlement date pursuant to Section 4
hereof; to the accuracy and completeness of all statements of the Fund, the
Adviser or any of its officers made in any certificates pursuant to the
provisions hereof, to the performance by the Fund or the Adviser of its
obligations hereunder and to the following additional conditions:


                                                                              16

                  (a) If the Registration Statement has not become effective
         prior to the Execution Time, unless the Representative agree in writing
         to a later time, the Registration Statement will become effective not
         later than (i) 6:00 PM New York City time on the date of determination
         of the public offering price, if such determination occurred at or
         prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the
         Business Day following the day on which the public offering price was
         determined, if such determination occurred after 3:00 PM New York City
         time on such date; if filing of the Prospectus, or any supplement
         thereto, is required pursuant to Rule 497, the Prospectus, and any such
         supplement, will be filed in the manner and within the time period
         required by Rule 497; and no stop order suspending the effectiveness of
         the Registration Statement or order pursuant to Section 8(e) of the
         1940 Act shall have been issued and no proceedings for that purpose
         shall have been instituted or threatened, and any request of the
         Commission for additional information (to be included in the
         Registration Statement or Prospectus or otherwise) shall have been
         complied with in all material respects.

                  (b) No later than two business days after the Closing Date,
         the Fund shall have furnished to the Representative a report showing
         compliance with the asset coverage requirements of the 1940 Act and a
         Basic Maintenance Report (as defined in the Certificate), in form and
         substance reasonably satisfactory to the Representative.

                  (c) The Fund shall have requested and caused Skadden, Arps,
         Slate Meagher & Flom LLP, counsel for the Fund, to have furnished to
         the Representative their opinion, dated the Closing Date and addressed
         to the Representative, to the effect that:

                           (i) The Fund has been duly formed and is validly
                  existing as a business trust in good standing under the laws
                  of The Commonwealth of Massachusetts, with full statutory
                  trust power and authority to own, lease and operate its
                  properties and to conduct its business as described in the
                  Prospectus, and is duly qualified to do business as a foreign
                  entity and is in good standing under the laws of each
                  jurisdiction which requires such qualification;

                           (ii) The Fund has the necessary business trust power
                  and authority to execute, deliver and perform all of its
                  obligations under this Agreement and the Fund Agreements. The
                  execution and delivery by the Fund of this Agreement and the
                  Fund Agreements and the consummation by the Fund of the
                  transactions contemplated thereby have been duly authorized by
                  all requisite action on the part of the Fund. Each of this
                  Agreement and the Fund Agreements has been duly executed and
                  delivered by the Trust under the applicable laws of The
                  Commonwealth of Massachusetts.

                           (iii) The Investment Advisory Agreement constitutes
                  the valid and binding obligation of the Fund enforceable
                  against the Fund in accordance with its terms under the
                  applicable laws of the State of Delaware. Each of the Transfer
                  Agency Agreement and the Custodian Agreement constitutes the
                  valid and binding obligation of the Fund enforceable against
                  the Fund in accordance with its terms under the applicable
                  laws of The Commonwealth of Massachusetts. The Auction Agency
                  Agreement constitutes the valid and binding obligation of the



                                                                              17


                  Fund enforceable against the Fund in accordance with its terms
                  under the applicable laws of the State of New York.

                           (iv) The execution and delivery by the Fund of this
                  Agreement and each of the Fund Agreements and the performance
                  by the Fund of its obligations under this Agreement and each
                  of the Fund Agreements, each in accordance with its terms, do
                  not (i) conflict with the Declaration of Trust or By-Laws of
                  the Fund, (ii) constitute a violation of, or a default under,
                  any material contract of the Fund or (iii) cause the creation
                  of any security interest or lien upon any of the property of
                  the Fund pursuant to any material contract of the Fund.

                           (v) Neither the execution, delivery or performance by
                  the Fund of its obligations under this Agreement or the Fund
                  Agreements nor the compliance by the Fund with the terms and
                  provisions thereof will contravene any provision of applicable
                  law or the 1940 Act or the 1940 Act Rules and Regulations in
                  any material respect.

                           (vi) No governmental approval, which has not been
                  obtained or taken and is not in full force and effect, is
                  required to authorize, or is required in connection with, the
                  execution, delivery or performance of this Agreement or any of
                  the Fund Agreements.

                           (vii) To such counsel's knowledge, neither the
                  execution, delivery or performance by the Fund of its
                  obligations under this Agreement or the Fund Agreements nor
                  compliance by the Fund with the terms and provisions thereof
                  will contravene any judgments, orders or decrees of
                  governmental authorities.

                           (viii) The Fund is registered with the Commission
                  pursuant to Section 8 of the 1940 Act as a non-diversified,
                  closed-end management investment company; and the Declaration
                  of Trust and By-Laws comply in all material respects with the
                  1940 Act and the 1940 Act Rules and Regulations.

                           (ix) The Fund has an authorized capitalization as set
                  forth in the Prospectus; all of the outstanding Common Shares
                  have been duly authorized and validly issued, and are fully
                  paid and non-assessable (except as described in the
                  Prospectus); the Shares have been duly authorized by all
                  necessary action of the Fund and, when issued to and paid for
                  by the Underwriters pursuant to this Agreement, will be
                  validly issued, fully paid and non-assessable (except as
                  described in the Prospectus); the form of certificate that may
                  be used to evidence the Shares complies in all material
                  respects with the applicable requirements of the Declaration
                  of Trust, the By-Laws and Massachusetts law, in each case as
                  in effect on the date hereof.

                           (x) No holders of outstanding Common Shares are
                  entitled as such to any preemptive or other rights to
                  subscribe for any Shares under any applicable contract, under
                  the Declaration of Trust or By-Laws or under Massachusetts
                  law.



                                                                              18

                           (xi) The statements set forth under the headings
                  "Federal Taxation," "Description of the Shares" and
                  "Description of the Capital Structure" in the Prospectus,
                  insofar as such statements summarize legal matters, agreements
                  or documents, are fair and accurate summaries of such legal
                  matters, agreements or documents in all material respects.

                           (xii) To our knowledge, no legal or governmental
                  proceedings are pending to which the Fund is a party that are
                  required to be described in the Registration Statement or the
                  Prospectus and are not so described therein, and, to our
                  knowledge, no contract or other document of the Fund is
                  required to be described in the Registration Statement or
                  Prospectus or to be filed as an exhibit to the Registration
                  Statement that is not described therein or filed as required.

                           (xiii) The Registration Statement and the Prospectus
                  (in each case, other than the financial statements and other
                  financial and statistical information contained therein or
                  incorporated therein by reference and other than any exhibits,
                  schedules or appendices included or incorporated by reference
                  therein, as to which such counsel need express no opinion)
                  comply as to form in all material respects with the applicable
                  requirements of the Act, the 1940 Act and the Rules and
                  Regulations.

         Such counsel shall also state that such counsel has participated in
         conferences with officers and other representatives of the Fund,
         representatives of the independent public accountants of the Fund and
         representatives of the Underwriters at which the contents of the
         Registration Statement and Prospectus were discussed and, although such
         counsel has not independently verified and is not passing upon and does
         not assume responsibility for the accuracy, completeness or fairness of
         the statements contained in the Registration Statement or Prospectus
         (except as to the extent stated in such opinion), on the basis of the
         foregoing, that no fact has come to the attention of such counsel which
         leads them to believe that that on the Effective Date or the date the
         Registration Statement was last deemed amended the Registration
         Statement contained any untrue statement of a material fact or omitted
         to state any material fact required to be stated therein or necessary
         to make the statements therein not misleading or that the Prospectus as
         of its date and on the Closing Date included or includes any untrue
         statement of a material fact or omitted or omits to state a material
         fact necessary to make the statements therein, in the light of the
         circumstances under which they were made, not misleading (in each case,
         other than the financial statements and other financial and statistical
         information contained therein, as to which such counsel need express no
         opinion).

         In rendering such opinion and statement, such counsel may rely (A) as
         to matters involving the application of laws of any jurisdiction other
         than The Commonwealth of Massachusetts or the Federal laws of the
         United States, to the extent they deem proper and specified in such
         opinion, upon the opinion of other counsel of good standing whom they
         believe to be reliable and who are satisfactory to counsel for the
         Underwriters and (B) as to matters of fact, to the extent they deem
         proper, on certificates of responsible officers of the Fund and public
         officials. References to the Prospectus in this paragraph (c) shall
         also include any supplements thereto at the Closing Date.



                                                                              19

                  (d) You shall have received on the Closing Date an opinion of
         A Thomas Smith III, counsel for the Adviser, dated the Closing Date and
         addressed to you, as Representative of the several Underwriters, to the
         effect that:

                           (i) The Adviser has been duly incorporated and is
                  validly existing in good standing as a corporation under the
                  laws of the State of Delaware, with full corporate power and
                  authority to own, lease and operate its properties and to
                  conduct its business as described in the Prospectus, and is
                  duly qualified to do business as a foreign corporation and is
                  in good standing under the laws of each jurisdiction which
                  requires such qualification;

                           (ii) The Adviser is duly registered as an investment
                  adviser under the Advisers Act and is not prohibited by the
                  Advisers Act, the 1940 Act, the Advisers Act Rules and
                  Regulations or the 1940 Act Rules and Regulations from acting
                  under the Fund Agreements to which it is a party for the Fund,
                  as contemplated by the Prospectus;

                           (iii) The Adviser has full corporate power and
                  authority to enter into this Agreement and the Fund Agreements
                  to which it is a party; and this Agreement and the Fund
                  Agreements to which it is a party have been duly authorized,
                  executed and delivered by the Adviser and this Agreement and
                  the Fund Agreements to which the Adviser is a party, are each
                  a valid and legally binding agreement of the Adviser,
                  enforceable against the Adviser in accordance with its terms
                  except as rights to indemnity and contribution hereunder and
                  thereunder may be limited by Federal or state securities laws
                  or principles of public policy and subject to the
                  qualification that the enforceability of the Adviser's
                  obligations thereunder may be limited by bankruptcy,
                  fraudulent conveyance, insolvency, reorganization, moratorium,
                  and other laws relating to or affecting creditors' rights
                  generally and by general equitable principles whether
                  enforcement is considered in a proceeding in equity or at law;

                           (iv) This Agreement and the Fund Agreements to which
                  the Adviser is a party comply in all material respects with
                  all applicable provisions of the 1940 Act, the 1940 Act Rules
                  and Regulations, the Advisers Act and the Advisers Act Rules
                  and Regulations;

                           (v) Neither the execution, delivery or performance of
                  this Agreement or the Fund Agreements to which the Adviser is
                  a party nor the consummation by the Adviser of the
                  transactions contemplated hereby and thereby (A) conflicts or
                  will conflict with, or constitutes or will constitute a breach
                  of or default under, the articles of incorporation or bylaws,
                  or other organizational documents, of the Adviser or (B)
                  conflicts or will conflict with, or constitutes or will
                  constitute a material breach of or material default under any
                  material agreement, indenture, lease or other instrument to
                  which the Adviser is a party, or will result in the creation
                  or imposition of any material lien, charge or encumbrance upon
                  any material property or material assets of the Adviser, nor
                  will any such action result



                                                                              20

                  in any material violation of any laws of the State of New
                  York, the Delaware General Corporation Law, the 1940 Act, the
                  Advisers Act or any regulation or judgment, injunction, order
                  or decree applicable to the Adviser or any of its properties;

                           (vi) The description of the Adviser and its business
                  in the Prospectus complies in all material respects with all
                  requirements of the Act, the 1940 Act and the Rules and
                  Regulations;

                           (vii) To the best knowledge of such counsel after
                  reasonable inquiry, other than as described or contemplated in
                  the Prospectus, there are no actions, suits or other legal or
                  governmental proceedings pending or threatened against the
                  Adviser or to which the Adviser or any of its property is
                  subject which are required to be described in the Prospectus;

                           (viii) The Adviser owns, possesses or has obtained
                  and currently maintains all governmental licenses, permits,
                  consents, orders, approvals and other authorizations as are
                  necessary for it to carry on its business as contemplated in
                  the Prospectus;

                           (ix) No material consent, approval, authorization or
                  order of or registration or filing with any court, regulatory
                  body, administrative or other governmental body, agency or
                  official is required on the part of the Adviser for the
                  performance of this Agreement and the Fund Agreements by the
                  Adviser or for the consummation by the Adviser of the
                  transactions contemplated hereby or thereby; and

                           (x) Such counsel shall also state that it has no
                  reason to believe that on the Effective Date or the date the
                  Registration Statement was last deemed amended the description
                  of the Adviser, its businesses and the statements directly
                  attributable to the Adviser as set forth in the Registration
                  Statement contained any untrue statement of a material fact or
                  omitted to state any material fact required to be stated
                  therein or necessary to make the statements therein not
                  misleading or that the Prospectus as of its date and on the
                  Closing Date included or includes any untrue statement of a
                  material fact or omitted or omits to state a material fact
                  necessary to make the statements therein, in the light of the
                  circumstances under which they were made, not misleading (in
                  each case, other than the financial statements and other
                  financial and statistical information contained therein, as to
                  which such counsel need express no opinion).

         In rendering such opinion, such counsel may rely (A) as to matters
         involving the application of laws of any jurisdiction other than the
         state of Delaware or the Federal laws of the United States, to the
         extent they deem proper and specified in such opinion, upon the opinion
         of other counsel of good standing whom they believe to be reliable and
         who are satisfactory to counsel for the Underwriters and (B) as to
         matters of fact, to the extent they deem proper, on certificates of
         responsible officers of the Fund and public




                                                                              21

         officials. References to the Prospectus in this paragraph (d) shall
         also include any supplements thereto at the Closing Date.

                  (e) The Representative shall have received from Simpson
         Thacher & Bartlett LLP, counsel for the Underwriters, such opinion or
         opinions, dated the Closing Date and addressed to the Representative,
         with respect to the issuance and sale of the Shares, the Registration
         Statement, the Prospectus (together with any supplement thereto) and
         other related matters as the Representative may reasonably require, and
         the Fund and the Adviser shall have furnished to such counsel such
         documents as they request for the purpose of enabling them to pass upon
         such matters.

                  (f) Each of the Fund and the Adviser shall have furnished to
         the Representative a certificate, signed by the by President or chief
         executive officer and the principal financial officer or Treasurer of
         each of the Fund and the Adviser (or such other officers as are
         acceptable to you), as the case may be, dated the Closing Date, to the
         effect that the signers of such certificate have carefully examined the
         Registration Statement, the Prospectus, any supplements to the
         Prospectus and this Agreement and that:

                           (i) The representations and warranties of the Fund
                  and the Adviser in this Agreement are true and correct on and
                  as of the Closing Date with the same effect as if made on the
                  Closing Date and the Fund and the Adviser have complied with
                  all the agreements and satisfied all the conditions on its
                  part to be performed or satisfied at or prior to the Closing
                  Date;

                           (ii) No stop order suspending the effectiveness of
                  the Registration Statement has been issued and no proceedings
                  for that purpose have been instituted or, to the Fund's or the
                  Adviser's knowledge, threatened; and

                           (iii) Since the date of the most recent financial
                  statements included in the Prospectus (exclusive of any
                  supplement thereto), there has been no material adverse effect
                  on the condition (financial or otherwise), prospects,
                  earnings, business or properties of the Fund or the Adviser,
                  whether or not arising from transactions in the ordinary
                  course of business, except as set forth in or contemplated in
                  the Prospectus (exclusive of any supplement thereto).

                  (g) The Fund shall have requested and caused Deloitte & Touche
         LLP to have furnished to the Representative, at the Execution Time and
         at the Closing Date, letters, dated respectively as of the Execution
         Time and as of the Closing Date, in form and substance heretofore
         approved by the Representative.

                  (h) Subsequent to the Execution Time or, if earlier, the dates
         as of which information is given in the Registration Statement
         (exclusive of any amendment thereof) and the Prospectus (exclusive of
         any supplement thereto), there shall not have been (i) any change or
         decrease specified in the letter or letters referred to in paragraph
         (g) of this Section 7 or (ii) any change, or any development involving
         a prospective change, in or affecting the condition (financial or
         otherwise), earnings, business affairs or properties of the Fund and
         the Adviser, whether or not arising from transactions in the ordinary




                                                                              22

         course of business, except as set forth in or contemplated in the
         Prospectus (exclusive of any supplement thereto) the effect of which,
         in any case referred to in clause (i) or (ii) above, is, in the sole
         judgment of the Representative, so material and adverse as to make it
         impractical or inadvisable to proceed with the offering or delivery of
         the Shares as contemplated by the Registration Statement (exclusive of
         any amendment thereof) and the Prospectus (exclusive of any supplement
         thereto).

                  (i) The Fund shall have furnished to the Representative, dated
         the Closing Date, of the president, any managing director, the
         controller, treasurer or assistant treasurer of the Fund certifying
         that the asset coverage requirements of the 1940 Act and the Preferred
         Shares Basic Maintenance Amount (as defined in the Prospectus), have
         been met as of such date. The certificate shall assume the receipt of
         the net proceeds from the sale of the Preferred Shares.

                  (j) The Fund shall have delivered to the Representative
         evidence satisfactory to the Representative that the shares are rated
         Aaa by Moody's and AAA by Fitch as of the Closing Date, and there shall
         not have been given any notice of any intended or potential downgrading
         or of any review for potential downgrading, in the rating accorded to
         the Shares by Moody's and Fitch.

                  (k) Prior to the Closing Date, the Fund and the Adviser shall
         have furnished to the Representative such further information,
         certificates and documents as the Representative may reasonably
         request.

                  If any of the conditions specified in this Section 7 shall not
have been fulfilled when and as provided in this Agreement, or if any of the
opinions and certificates mentioned above or elsewhere in this Agreement shall
not be reasonably satisfactory in form and substance to the Representative and
counsel for the Underwriters, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date by the Representative. Notice of such cancellation shall be given to the
Fund in writing or by telephone or facsimile confirmed in writing.

                  The documents required to be delivered by this Section 7 shall
be delivered at the office of Simpson Thacher & Bartlett LLP, counsel for the
Underwriters, at 425 Lexington Avenue, New York, New York, 10017, on the Closing
Date.

                  8. Reimbursement of Underwriters' Expenses. If the sale of the
Shares provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 hereof is not satisfied,
because of any termination pursuant to Section 11 hereof or because of any
refusal, inability or failure on the part of the Fund or the Adviser to perform
any agreement herein or comply with any provision hereof other than by reason of
a default by any of the Underwriters, the Fund will reimburse the Underwriters
severally through Citigroup Global Markets Inc. on demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Shares.



                                                                              23

                  9. Indemnification and Contribution. (a) The Fund and the
Adviser, jointly and severally, agree to indemnify and hold harmless each of you
and each other Underwriter, the directors, officers, employees and agents of
each Underwriter and each person who controls any Underwriter within the meaning
of either the Act or the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several (including reasonable costs of
investigation), to which they or any of them may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, any Preliminary Prospectus, any sales
material (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Fund will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Fund by or on behalf of any
Underwriter through the Representative specifically for inclusion therein. This
indemnity agreement will be in addition to any liability which the Fund may
otherwise have.

                  (b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Fund and the Adviser, each of its trustees, each
of its officers who signs the Registration Statement, and each person who
controls the Fund or the Adviser within the meaning of either the Act or the
Exchange Act, to the same extent as the foregoing indemnity from the Fund and
the Adviser to each Underwriter, but only with reference to written information
relating to such Underwriter furnished to the Fund by or on behalf of such
Underwriter through the Representative specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any Underwriter may otherwise have. The
Fund and the Adviser acknowledge that the statements set forth in the last
paragraph of the cover page regarding delivery of the Shares and, under the
heading "Underwriting," (i) the list of Underwriters and their respective
participation in the sale of the Shares, (ii) the sentences related to
concessions and reallowances and (iii) the addresses of the Underwriters in any
Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus.

                  (c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the



                                                                              24

indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.

                  (d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Fund, the Adviser and the Underwriters
severally agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the Fund,
the Adviser and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Fund and the Adviser on the one hand (treated jointly for this purpose as one
person) and by the Underwriters on the other from the offering of the Shares;
provided, however, that in no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering of the
Shares) be responsible for any amount in excess of the underwriting discount or
commission applicable to the Shares purchased by such Underwriter hereunder. If
the allocation provided by the immediately preceding sentence is unavailable for
any reason, the Fund, the Adviser and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Fund and the Adviser on the
one hand (treated jointly for this purpose as one person) and of the
Underwriters on the other in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Fund and the Adviser (treated jointly for this purpose
as one person) shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses) received by it, and benefits received by
the Underwriters shall be deemed to be equal to the total underwriting discounts
and commissions, in each case as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
any untrue or any alleged untrue statement of a material fact or the omission or





                                                                              25

alleged omission to state a material fact relates to information provided by the
Fund and the Adviser on the one hand (treated jointly for this purpose as one
person) or the Underwriters on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Fund, the Adviser and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Fund or the Adviser within the meaning of either the Act or the Exchange
Act, each officer of the Fund and the Adviser who shall have signed the
Registration Statement and each director of the Fund and the Adviser shall have
the same rights to contribution as the Fund and the Adviser, subject in each
case to the applicable terms and conditions of this paragraph (d). The
Underwriters' obligations to contribute pursuant to this Section 9 are several
in proportion to the respective number of Shares set forth opposite their names
in Schedule I (or such numbers of Shares increased as set forth in Section 10
hereof) and not joint.

                  (e) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability from claimants on claims that are
the subject matter of such action, suit or proceeding.

                  (f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, the Adviser or their shareholders,
trustees, directors, managers, members or officers or any person controlling the
Fund or the Adviser (control to be determined within the meaning of the Act or
the Exchange Act), (ii) acceptance of any Shares and payment therefor hereunder
and (iii) any termination of this Agreement. A successor to any Underwriter or
to the Fund, the Adviser or their shareholders, trustees, directors, managers,
members or officers or any person controlling any Underwriter, the Fund or the
Adviser shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 9.

                  10. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Shares agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated




                                                                              26


severally to take up and pay for (in the respective proportions which the amount
of Shares set forth opposite their names in Schedule I hereto bears to the
aggregate amount of Shares set forth opposite the names of all the remaining
Underwriters or in such other proportion as you may specify in accordance with
the Citigroup Global Markets Inc. Master Agreement Among Underwriters) the
Shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Shares set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Shares, and
if such nondefaulting Underwriters do not purchase all the Shares, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Fund. In the event of a default by any Underwriter as set forth in this
Section 10, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representative shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Fund and any nondefaulting Underwriter for damages occasioned by its default
hereunder. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I hereto who, with
your approval and the approval of the Fund, purchases Firm Shares which a
defaulting Underwriter agreed, but failed or refused, to purchase.

                  11. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representative, without liability
on the part of the Underwriters to the Fund or the Adviser, by notice given to
the Fund or the Adviser prior to delivery of and payment for the Shares, if at
any time prior to such time (i) trading in the Fund's Common Shares shall have
been suspended by the Commission or the NYSE or trading in securities generally
on the NYSE shall have been suspended or limited or minimum prices shall have
been established on either of the exchanges, (ii) a banking moratorium shall
have been declared either by Federal or New York State authorities or (iii)
there shall have occurred any outbreak or escalation of hostilities, declaration
by the United States of a national emergency or war, or other calamity or crisis
the effect of which on financial markets is such as to make it, in the sole
judgment of the Representative, impractical or inadvisable to proceed with the
offering or delivery of the Shares as contemplated by the Prospectus (exclusive
of any supplement thereto).

                  12. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Fund and the Adviser or its officers and of the Underwriters set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or the Fund or the
Adviser or any of the officers, trustees, directors, employees, agents or
controlling persons referred to in Section 9 hereof, and will survive delivery
of and payment for the Shares. The provisions of Sections 8 and 9 hereof shall
survive the termination or cancellation of this Agreement.

                  13. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representative, will be
mailed, delivered or telefaxed to the Citigroup Global Markets Inc. General
Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel,
Citigroup Global Markets Inc., at 388 Greenwich Street, New York, New

                                                                              27

York, 10013, Attention: General Counsel; or, if sent to the Fund or the Adviser,
will be mailed, delivered or telefaxed to Van Kampen Asset Management Inc.and
confirmed to it at 1221 Avenue of the Americas, New York, New York, attention of
the Legal Department.

                  14. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers, trustees, directors, employees, agents and controlling persons
referred to in Section 9 hereof, and no other person will have any right or
obligation hereunder.

                  15. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.

                  16. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.

                  17. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.

                  18. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.

                  "1940 Act" shall mean the Investment Company Act of 1940, as
         amended.

                  "1940 Act Rules and Regulations" shall mean the rules and
         regulations of the Commission under the 1940 Act.

                  "1940 Act Notification" shall mean a notification of
         registration of the Fund as an investment company under the 1940 Act on
         Form N-8A, as the 1940 Act Notification may be amended from time to
         time.

                  "Act" shall mean the Securities Act of 1933, as amended, and
         the rules and regulations of the Commission promulgated thereunder.

                  "Act Rules and Regulations" shall mean the rules and
         regulations of the Commission under the Act.

                  "Advisers Act" shall mean the Investment Advisers Act of 1940,
         as amended

                  "Advisers Act Rules and Regulations" shall mean the rules and
         regulations adopted by the Commission under the Advisers Act

                  "Business Day" shall mean any day other than a Saturday, a
         Sunday or a legal holiday or a day on which banking institutions or
         trust companies are authorized or obligated by law to close in New York
         City.

                  "Commission" shall mean the Securities and Exchange
         Commission.



                                                                              28

                  "Effective Date" shall mean each date and time that the
         Registration Statement, any post-effective amendment or amendments
         thereto and any Rule 462(b) Registration Statement became or become
         effective.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
         as amended, and the rules and regulations of the Commission promulgated
         thereunder.

                  "Execution Time" shall mean the date and time that this
         Agreement is executed and delivered by the parties hereto.

                  "Preliminary Prospectus" shall mean any preliminary prospectus
         (including the statement of additional information incorporated by
         reference therein) referred to in paragraph 1(a) above and any
         preliminary prospectus (including the statement of additional
         information incorporated by reference therein) included in the
         Registration Statement at the Effective Date that omits Rule 430A
         Information.

                  "Prospectus" shall mean the prospectus and any amendment or
         supplement thereto (including the statement of additional information
         incorporated by reference therein) relating to the Shares that is first
         filed pursuant to Rule 497 after the Execution Time or, if no filing
         pursuant to Rule 497 is required, shall mean the form of final
         prospectus (including the statement of additional information
         incorporated by reference therein) relating to the Shares included in
         the Registration Statement at the Effective Date.

                  "Registration Statement" shall mean the registration statement
         referred to in paragraph 1(a) above, including exhibits and financial
         statements, as amended at the Execution Time (or, if not effective at
         the Execution Time, in the form in which it shall become effective)
         and, in the event any post-effective amendment thereto or any Rule
         462(b) Registration Statement becomes effective prior to the Closing
         Date, shall also mean such registration statement as so amended or such
         Rule 462(b) Registration Statement, as the case may be. Such term shall
         include any Rule 430A Information deemed to be included therein at the
         Effective Date as provided by Rule 430A.

                  "Rule 430A" and "Rule 462" refer to such rules under the Act.

                  "Rule 430A Information" shall mean information with respect to
         the Shares and the offering thereof permitted to be omitted from the
         Registration Statement when it becomes effective pursuant to Rule 430A.

                  "Rule 462(b) Registration Statement" shall mean a registration
         statement and any amendments thereto filed pursuant to Rule 462(b)
         relating to the offering covered by the registration statement referred
         to in Section 1(a) hereof.

                  "Rule 497" refers to Rule 497(c) or 497(h) under the Act, as
         applicable.

                  "Rules and Regulations" shall mean, collectively, the Act
         Rules and Regulations and the 1940 Act Rules and Regulations.




                  If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Fund, the Adviser and the several Underwriters.



                                            Very truly yours,

                                            VAN KAMPEN SENIOR INCOME TRUST


                                            By:
                                               ------------------------------
                                                 Name:
                                                 Title:


                                            VAN KAMPEN ASSET MANAGEMENT


                                            By:
                                               ------------------------------
                                                 Name:
                                                 Title:






The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.

Citigroup Global Markets Inc.

     By:
         ---------------------------------------------
         Name:
         Title:


For itself and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.








                                   SCHEDULE I




UNDERWRITERS                                                                 NUMBER OF SHARES TO BE PURCHASED
- ------------                                            ----------------------------------------------------------------------------
                                                           SERIES M        SERIES T       SERIES W       SERIES TH      SERIES F
                                                        --------------  -------------- --------------  -------------- --------------
                                                                                                       
Citigroup Global Markets Inc..............

Merrill, Lynch, Pierce, Fenner & Smith
Incorporated..............................

A.G. Edwards & Sons Inc...................

Credit Suisse First Boston LLC............

Lehman Brothers Inc.......................

UBS Securities LLC........................

Wachovia Capital Markets LLC..............

                  Total...................

EX-99.(H)(2)

                                                                  EXHIBIT (h)(2)


                       MASTER AGREEMENT AMONG UNDERWRITERS

                            REGISTERED SEC OFFERINGS
                    (INCLUDING MULTIPLE SYNDICATE OFFERINGS),
                   STANDBY UNDERWRITINGS AND EXEMPT OFFERINGS
                 (OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)

                                                                    July 1, 1999


Ladies and Gentlemen:

                  From time to time SALOMON SMITH BARNEY INC. ("SALOMON SMITH
BARNEY") may invite you (and others) to participate on the terms set forth
herein as an underwriter or an initial purchaser, or in a similar capacity, in
connection with certain offerings of securities that are managed solely by us or
with one or more other co-managers. If we invite you to participate in a
specific offering and sale (an "OFFERING") to which this Master Agreement Among
Underwriters (the "SALOMON SMITH BARNEY MASTER AAU") shall apply, we will send
the information set forth below in Section 1.1 to you by one or more wires,
telexes, facsimile or electronic data transmissions or other written
communications (each a "WIRE" and collectively, an "AAU"). Each Wire will
indicate that it is a Wire pursuant to the SALOMON SMITH BARNEY MASTER AAU. The
Wire inviting you to participate in an Offering is referred to herein as the
"INVITATION WIRE". You and we hereby agree that by the terms hereof the
provisions of this SALOMON SMITH BARNEY MASTER AAU automatically shall be
incorporated by reference in each AAU, EXCEPT THAT ANY SUCH AAU MAY ALSO EXCLUDE
OR REVISE ANY PROVISION OF THIS SALOMON SMITH BARNEY MASTER AAU OR MAY CONTAIN
SUCH ADDITIONAL PROVISIONS AS MAY BE SPECIFIED IN SUCH AAU.


                                   I. GENERAL

                  1.1. TERMS OF AAU; CERTAIN DEFINITIONS; CONSTRUCTION. Each AAU
shall relate to an Offering and shall identify (i) the securities to be offered
in the Offering (the "SECURITIES"), their principal terms, the issuer or issuers
(each an "ISSUER") and any guarantor (each a "GUARANTOR") thereof and, if
different from the Issuer, the seller or sellers (each a "SELLER") of the
Securities, (ii) the underwriting agreement, purchase agreement, standby
underwriting agreement, distribution agreement or similar agreement (as
identified in such AAU and as amended or supplemented, including a terms
agreement or pricing agreement pursuant to any of the foregoing, collectively,
the "UNDERWRITING AGREEMENT") providing for the purchase, on a several and not
joint basis, of the Securities by the several underwriters, initial purchasers
or others acting in







a similar capacity on whose behalf the Manager (as defined below) executes the
Underwriting Agreement (including the Manager and the Co-Managers (as defined
below), the "UNDERWRITERS"), (iii) if applicable, that the Underwriting
Agreement includes an option (an "OVER-ALLOTMENT OPTION") to purchase Additional
Securities (as defined below) to cover over-allotments, if any, (iv) if
applicable, that the Offering is part of an offering that includes concurrent
offerings by two or more syndicates (an "INTERNATIONAL OFFERING"), each of which
will offer and sell Securities subject to such restrictions as shall be
specified in any Intersyndicate Agreement (as defined below) referred to in such
AAU, (v) the price at which the Securities are to be purchased by the several
Underwriters from any Issuer or Seller thereof (the "PURCHASE PRICE"), (vi) the
offering terms, including, if applicable, the price or prices at which the
Securities initially will be offered by the Underwriters (the "OFFERING PRICE"),
any selling concession to dealers (the "SELLING CONCESSION"), reallowance (the
"REALLOWANCE"), management fee, global coordinators' fee, praecipium or other
similar fees, discounts or commissions (collectively, the "FEES AND
COMMISSIONS") with respect to the Securities, (vii) the proposed pricing date
("PRICING DATE") and settlement date (the "SETTLEMENT DATE"), (viii) any
contractual restrictions on the offer and sale of the Securities pursuant to the
Underwriting Agreement, Intersyndicate Agreement or otherwise, (ix) any
co-managers for such Offering (the "CO-MANAGERS"), (x) your proposed
participation in the Offering, (xi) if applicable, the trustee, fiscal agent or
similar agent (the "TRUSTEE") for the indenture, trust agreement, fiscal agency
agreement or similar agreement (the "INDENTURE") under which such Securities
will be issued and (xii) any other principal terms of the Offering.

                  The term "MANAGER" means SALOMON SMITH BARNEY. The term
"UNDERWRITERS" includes the Manager and the Co-Managers. The term "FIRM
SECURITIES" means the number or amount of Securities that the several
Underwriters are initially committed to purchase under the Underwriting
Agreement (which may be expressed as a percentage of an aggregate number or
amount of Securities to be purchased by the Underwriters as in the case of a
standby Underwriting Agreement). The term "ADDITIONAL SECURITIES" means the
Securities, if any, that the several Underwriters have an option to purchase
under the Underwriting Agreement to cover over-allotments, if any. The number,
amount or percentage of Firm Securities set forth opposite each Underwriter's
name in the Underwriting Agreement plus any additional Firm Securities that such
Underwriter has become obligated to purchase under the Underwriting Agreement or
Article XI hereof is hereinafter referred to as the "ORIGINAL PURCHASE
OBLIGATION" of such Underwriter and the ratio which such Original Purchase
Obligation bears to the total of all Firm Securities set forth in the
Underwriting Agreement (or, in the case of a standby Underwriting Agreement, to
100%) is hereinafter referred to as the "UNDERWRITING PERCENTAGE" of such
Underwriter.

                  References herein to statutory sections, rules, regulations,
forms and interpretive materials shall be deemed to include any successor
provisions.

                  1.2. ACCEPTANCE OF AAU. You shall have accepted an AAU for an
Offering if we receive your acceptance, prior to the time specified in the
Invitation Wire


                                        2







for such Offering, by wire, telex, facsimile or electronic data transmission or
other written communication (any such manner of communication being deemed "IN
WRITING") (or orally, if promptly confirmed In Writing) in the manner specified
in the Invitation Wire, of our invitation to participate in the Offering. If we
receive your timely acceptance of the invitation to participate, such AAU shall
constitute a valid and binding contract between us. Your acceptance of the
Invitation Wire shall also constitute acceptance by you of the terms of
subsequent Wires to you relating to the Offering unless we receive In Writing,
within the time and in the manner specified in such subsequent Wire, a notice
from you to the effect that you do not accept the terms of such subsequent Wire,
in which case you shall be deemed to have elected not to participate in the
Offering.

                  1.3. UNDERWRITERS' QUESTIONNAIRE. Your acceptance of the
Invitation Wire shall confirm that you have no exceptions to the Underwriters'
Questionnaire attached as Exhibit A hereto (or to any other questions addressed
to you in any Wires relating to the Offering previously sent to you), other than
exceptions noted by you In Writing in connection with the Offering and received
from you by us before the time specified in the Invitation Wire or any
subsequent Wire.


                             II. OFFERING MATERIALS

                  2.1. REGISTERED OFFERINGS. In the case of an Offering that
will be registered in whole or in part (a "REGISTERED OFFERING") under the
United States Securities Act of 1933, as amended (the "1933 ACT"), you
understand that the Issuer has filed with the Securities and Exchange Commission
(the "COMMISSION") a registration statement including a prospectus relating to
the Securities. The term "REGISTRATION STATEMENT" means such registration
statement as amended or deemed to be amended to the effective date of the
Underwriting Agreement and, in the event that the Issuer files an abbreviated
registration statement to register additional Securities pursuant to Rule 462(b)
under the 1933 Act, such abbreviated registration statement. The term
"PROSPECTUS" means the prospectus, together with the final prospectus
supplement, if any, relating to the Offering first used to confirm sales of
Securities and, in the case of a Registered Offering that is an International
Offering, the term "PROSPECTUS" shall mean, collectively, each prospectus or
offering circular, together with each final prospectus supplement or final
offering circular supplement, if any, relating to the Offering, in the
respective forms first used or made available for use to confirm sales of
Securities. The term "PRELIMINARY PROSPECTUS" means any preliminary prospectus
relating to the Offering or any preliminary prospectus supplement together with
a prospectus relating to the Offering and, in the case of a Registered Offering
that is an International Offering, the term "PRELIMINARY PROSPECTUS" shall mean,
collectively, each preliminary prospectus or preliminary offering circular
relating to the Offering or each preliminary prospectus supplement or
preliminary offering circular supplement, together with a prospectus or offering
circular, respectively, relating to the Offering. As used herein the terms
"REGISTRATION STATEMENT", "PROSPECTUS" and "PRELIMINARY PROSPECTUS" shall
include in each case the material, if any, incorporated by reference therein.
The Manager will furnish to you, or make arrangements for you to obtain, copies
of each Prospectus and Preliminary Prospectus (but excluding for this


                                        3






purpose, unless otherwise required pursuant to regulations under the 1933 Act,
documents incorporated therein by reference) as soon as practicable after
sufficient quantities thereof have been made available by the Issuer.

                  2.2. UNREGISTERED OFFERINGS. In the case of an Offering other
than a Registered Offering, you understand that no registration statement has
been filed with the Commission. The term "OFFERING CIRCULAR" means an offering
circular or memorandum, if any, or any other written materials authorized by the
Issuer to be used in connection with an Offering that is not a Registered
Offering. The term "PRELIMINARY OFFERING CIRCULAR" means any preliminary
offering circular or memorandum, if any, or any other written preliminary
materials authorized by the Issuer to be used in connection with such an
Offering. As used herein, the terms "OFFERING CIRCULAR" and "PRELIMINARY
OFFERING CIRCULAR" shall include the material, if any, incorporated by reference
therein. We will either, as soon as practicable after the later of the date of
the Invitation Wire or the date made available to us by the Issuer, furnish to
you (or make available for your review in our office) a copy of any Preliminary
Offering Circular or any proof or draft of the Offering Circular. In any event,
in any Offering involving an Offering Circular, the Manager will furnish to you,
or make arrangements for you to obtain, as soon as practicable after sufficient
quantities thereof are made available by the Issuer, copies of the final
Offering Circular, as amended or supplemented, if applicable (but excluding for
this purpose documents incorporated therein by reference).


                            III. MANAGER'S AUTHORITY

                  3.1. AUTHORITY OF MANAGER TO DETERMINE FORM OF DOCUMENTS,
TERMS OF OFFERING, ETC. You authorize the Manager to act as lead manager of the
Offering of the Securities by the Underwriters (the "UNDERWRITERS' SECURITIES")
or by the Issuer or Seller pursuant to delayed delivery contracts (the "CONTRACT
SECURITIES"), if any, contemplated by the Underwriting Agreement. You authorize
the Manager, on your behalf, (a) to determine the form of the Underwriting
Agreement, (b) to execute and deliver the Underwriting Agreement to the Issuer,
Guarantor or Seller, (c) to determine the form of any agreement or agreements
between or among the syndicates participating in the International Offering of
which the Offering is a part (each an "INTERSYNDICATE AGREEMENT"), and (d) to
execute and deliver any such Intersyndicate Agreement. You authorize the Manager
(i) to exercise any Over-allotment Option for the purchase any of or all the
Additional Securities for the accounts of the several Underwriters pursuant to
the Underwriting Agreement, (ii) to agree, on your behalf and on behalf of the
Co-Managers, to any addition to, change in or waiver of any provision of, or the
termination of, the Underwriting Agreement or any Intersyndicate Agreement
(other than an increase in the Purchase Price or in your Original Purchase
Obligation to purchase Securities, in either case from that contemplated by the
applicable AAU), (iii) to add or remove prospective Underwriters to or from the
syndicate, (iv) to exercise, in the Manager's discretion, all the authority
vested in the Manager in the Underwriting Agreement and (v) except as described
below in this Section 3.1, to take any other action as may seem advisable to the
Manager in respect of the Offering (including, without limitation, actions and
communications with the Commission, the National


                                        4






Association of Securities Dealers, Inc. (the "NASD"), state blue sky or
securities commissions, stock exchanges and other regulatory bodies or
organizations). If, in accordance with the terms of the applicable AAU, the
Offering of the Securities is at varying prices based on prevailing market
prices or prices related to prevailing market prices or at negotiated prices,
you authorize the Manager to determine, on your behalf in the Manager's
discretion, any Offering Price and the Fees and Commissions applicable to the
Offering from time to time. You authorize the Manager on your behalf to arrange
for any currency transactions (including forward and hedging currency
transactions) as the Manager deems necessary to facilitate settlement of the
purchase of the Securities, but you do not authorize the Manager on your behalf
to engage in any other forward or hedging transactions in connection with the
Offering unless such transactions are specified in an applicable AAU or are
otherwise consented to by you. You further authorize the Manager, subject to the
provisions of Section 1.2 hereof, (i) to vary the offering terms of the
Securities in effect at any time, including, if applicable, the Offering Price
and Fees and Commissions set forth in the applicable AAU, (ii) to determine, on
your behalf, the Purchase Price and (iii) to increase or decrease the number,
amount or percentage of Securities being offered. Notwithstanding the foregoing
provisions of this Section 3.1, the Manager shall notify the Underwriters, prior
to the signing of the Underwriting Agreement, of any provision in the
Underwriting Agreement that could result in an increase in the amount or
percentage of Firm Securities set forth opposite each Underwriter's name in the
Underwriting Agreement by more than 25% (or such other percentage as shall have
been specified in the applicable Invitation Wire or otherwise consented to by
you) as a result of the failure or refusal of another Underwriter or
Underwriters to perform its or their obligations thereunder.

                  3.2. OFFERING DATE. The Offering is to be made as soon after
the Underwriting Agreement is entered into by the Issuer, Guarantor or Seller
and the Manager as in the Manager's judgment is advisable, on the terms and
conditions set forth in the Prospectus or the Offering Circular, as the case may
be, and the applicable AAU. You agree not to sell any Securities prior to the
time the Manager releases such Securities for sale to purchasers. The date on
which such Securities are released for sale is referred to herein as the
"OFFERING DATE".

                  3.3. ADVERTISING; SUPPLEMENTAL OFFERING MATERIAL. Any public
advertisement of the Offering shall be made by the Manager on behalf of the
Underwriters on such date as the Manager shall determine. You agree not to
advertise the Offering prior to the date of the Manager's advertisement thereof
without the Manager's consent. If the offering is made in whole or in part in
reliance on Rule 144A (or upon another exemption from registration), you agree
not to engage in any general solicitation and to abide by any other restrictions
in the AAU or the Underwriting Agreement in connection therewith relating to any
advertising or publicity. Any advertisement you may make of the Offering after
such date will be your own responsibility and at your own expense and risk. In
addition to your agreement to comply with restrictions on the Offering pursuant
to Sections 10.10 and 10.11 hereof, you also agree that you will not, in
connection with the offer and sale of the Securities in the Offering, without
the consent of the Manager, give to any prospective purchaser of



                                        5







the Securities or other person not in your employ any written information
concerning the Offering, the Issuer, the Guarantor or the Seller, other than
information contained in any Preliminary Prospectus, Prospectus, Preliminary
Offering Circular or Offering Circular or in any computational materials
("COMPUTATIONAL MATERIALS") or other offering materials prepared by or with the
consent of the Manager for use by the Underwriters in connection with the
Offering and, in the case of a Registered Offering, filed with the Commission or
the NASD, as applicable (the "SUPPLEMENTAL OFFERING MATERIALS"). You further
agree to cease distribution of any COMPUTATIONAL MATERIALS on the Offering Date.

                  3.4. INSTITUTIONAL AND RETAIL SALES. You authorize the Manager
to sell to institutions or retail purchasers such Securities purchased by you
pursuant to the Underwriting Agreement as the Manager shall determine. The
Selling Concession on any such sales shall be credited to the accounts of the
Underwriters as the Manager shall determine.

                  3.5. SALES TO DEALERS. You authorize the Manager to sell to
Dealers (as defined below) such Securities purchased by you pursuant to the
Underwriting Agreement as the Manager shall determine. A "DEALER" shall be a
person who is (a) a broker or dealer (as defined in the By-Laws of the NASD)
actually engaged in the investment banking or securities business and (i) a
member in good standing of the NASD or (ii) a foreign bank, broker, dealer or
other institution not eligible for membership in the NASD that, in the case of
either clause (a)(i) or (a)(ii), makes the representations and agreements
applicable to such institutions contained in Section 10.6 hereof or (b) in the
case of Offerings of Securities that are exempt securities under Section
3(a)(12) of the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
and such other Securities as from time to time may be sold by a "bank" (as
defined in Section 3(a)(6) of the 1934 Act (a "BANK")), a Bank that is not a
member of the NASD and that makes the representations and agreements applicable
to such institutions contained in Section 10.6 hereof. If the price for any such
sales by the Manager to Dealers exceeds an amount equal to the Offering Price
less the Selling Concession set forth in the applicable AAU, the amount of such
excess, if any, shall be credited to the accounts of the Underwriters as the
Manager shall determine.

                  3.6. DIRECT SALES. The Manager will advise you promptly, on
the date of the Offering, as to the Securities purchased by you pursuant to the
Underwriting Agreement that you shall retain for direct sale. At any time prior
to the termination of the applicable AAU, any such Securities that are held by
the Manager for sale but not sold, may, on your request and at the Manager's
discretion, be released to you for direct sale, and Securities so released to
you shall no longer be deemed held for sale by the Manager. You may allow, and
Dealers may reallow, a discount on sales to Dealers in an amount not in excess
of the Reallowance set forth in the applicable AAU. You may not purchase
Securities from, or sell Securities to, any other Underwriter or Dealer at any
discount or concession other than the Reallowance, except with the consent of
the Manager.

                  3.7. RELEASE OF UNSOLD SECURITIES. From time to time prior to
the


                                        6







termination of the applicable AAU, on the request of the Manager, you shall
advise the Manager of the amount of Securities remaining unsold which were
retained by or released to you for direct sale and of the amount of Securities
and Other Securities (as defined below) purchased for your account remaining
unsold which were delivered to you pursuant to Article V hereof or pursuant to
any Intersyndicate Agreement, and, on the request of the Manager, you shall
release to the Manager any such Securities and Other Securities remaining unsold
(i) for sale by the Manager to institutions, Dealers or retail purchasers, (ii)
for sale by the Issuer or Seller pursuant to delayed delivery contracts or (iii)
if, in the Manager's opinion, such Securities or Other Securities are needed to
make delivery against sales made pursuant to Article V hereof or any
Intersyndicate Agreement.

                  3.8. INTERNATIONAL OFFERINGS. In the case of an International
Offering, you authorize the Manager (i) to make representations on your behalf
as set forth in any Intersyndicate Agreement or Underwriting Agreement and (ii)
to purchase or sell for your account pursuant to the Intersyndicate Agreement
(a) Securities, (b) any other securities of the same class and series, or any
securities into which the Securities may be converted or for which the
Securities may be exchanged or exercised and (c) any other securities designated
in the applicable AAU or applicable Intersyndicate Agreement (the securities
referred to in clauses (b) and (c) above being referred to collectively as the
"OTHER SECURITIES").

                         IV. DELAYED DELIVERY CONTRACTS

                  4.1. ARRANGEMENTS FOR SALES. You agree that arrangements for
sales of Contract Securities will be made only through the Manager acting either
directly or through Dealers (including Underwriters acting as Dealers), and you
authorize the Manager to act on your behalf in making such arrangements. The
aggregate amount of Securities to be purchased by the several Underwriters shall
be reduced by the respective amounts of Contract Securities attributed to such
Underwriters as hereinafter provided. Subject to the provisions of Section 4.2,
the aggregate amount of Contract Securities shall be attributed to the
Underwriters as nearly as practicable in their respective Underwriting
Percentages, except that, as determined by the Manager in its discretion, (i)
Contract Securities directed and allocated by a purchaser to specific
Underwriters shall be attributed to such Underwriters and (ii) Contract
Securities for which arrangements have been made for sale through Dealers shall
be attributed to each Underwriter approximately in the proportion that
Securities of such Underwriter held by the Manager for sales to Dealers bear to
all Securities so held. The fee with respect to Contract Securities payable to
the Manager for the accounts of the Underwriters pursuant to the Underwriting
Agreement shall be credited to the accounts of the respective Underwriters in
proportion to the Contract Securities attributed to such Underwriters pursuant
to the provisions of this Section 4.1, less, in the case of each Underwriter,
the concession to Dealers on Contract Securities sold through Dealers and
attributed to such Underwriter.

                  4.2. EXCESS SALES. If the amount of Contract Securities
attributable to an Underwriter pursuant to Section 4.1 would exceed such
Underwriter's Original


                                        7








Purchase Obligation reduced by the amount of Underwriters' Securities sold by or
on behalf of such Underwriter, such excess shall not be attributed to such
Underwriter, and such Underwriter shall be regarded as having acted only as a
Dealer with respect to, and shall receive only the concession to Dealers on,
such excess.


        V. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION

                  5.1. PURCHASE AND SALE OF SECURITIES; FACILITATION OF
DISTRIBUTION. In order to facilitate the distribution and sale of the
Securities, you authorize the Manager to buy and sell Securities and any Other
Securities, in addition to Securities sold pursuant to Article III hereof, in
the open market or otherwise (including, without limitation, pursuant to any
Intersyndicate Agreement), for long or short account, on such terms as it shall
deem advisable, and to over-allot in arranging sales. Such purchases and sales
and over-allotments shall be made for the accounts of the several Underwriters
as nearly as practicable in their respective Underwriting Percentages or, in the
case of an International Offering, such purchases and sales shall be for such
accounts as set forth in the applicable Intersyndicate Agreement. Any securities
which may have been purchased by the Manager for stabilizing purposes in
connection with the Offering prior to the execution of the applicable AAU shall
be treated as having been purchased pursuant to this Section 5.1 for the
accounts of the several Underwriters or, in the case of an International
Offering, for such accounts as are set forth in the applicable Intersyndicate
Agreement. Your net commitment pursuant to the foregoing authorization shall not
exceed at the close of business on any day an amount equal to 20% of your
Underwriting Percentage of the aggregate initial Offering Price of the Firm
Securities, it being understood that, in calculating such net commitment, the
initial Offering Price shall be used with respect to the Securities so purchased
or sold and, in the case of all Other Securities, shall be the purchase price
thereof. Your net commitment for short account (i.e., "naked short") shall be
calculated by assuming that all Securities that may be purchased upon exercise
of any over-allotment option then exercisable are acquired (whether or not
actually acquired) and, in the case of an International Offering, after giving
effect to the purchase of any Securities or Other Securities that the Manager
has agreed to purchase for your account pursuant to any applicable
Intersyndicate Agreement. On demand you shall take up and pay for any Securities
or Other Securities so purchased for your account and any Securities released to
you pursuant to Section 3.7 hereof and you shall deliver to the Manager against
payment any Securities or Other Securities so sold or over-allotted for your
account or released to you. The Manager agrees to notify you if it engages in
any stabilization transaction requiring reports to be filed pursuant to Rule
17a-2 under the 1934 Act and to notify you of the date of termination of
stabilization. You agree not to stabilize or engage in any syndicate covering
transaction (as defined in Rule 100 of Regulation M under the 1934 Act
("Regulation M")) in connection with the Offering without the prior consent of
the Manager. You further agree to provide to Salomon Smith Barney any reports
required of you pursuant to Rule 17a-2 not later than the date specified therein
and you authorize Salomon Smith Barney to file on your behalf with the
Commission any reports required by such Rule.



                                        8







         If the limitations of Rule 101 of Regulation M ("Rule 101") do not
apply to you with respect to the Securities, Other Securities or other reference
securities (as defined in Rule 100 of Regulation M) because they satisfy the
exception for actively-traded securities in subsection (c)(1) of Rule 101 or the
exception for Rule 144A securities in subsection (b)(10) of Rule 101, you agree
that promptly upon notice from the Manager (or, if later, at the time stated in
the notice) you will comply with Rule 101 as though such exception were not
available but the other provisions of Rule 101 (as interpreted by the Commission
and after giving effect to any applicable exemptions) did apply. If the
securities in question are NASDAQ securities (as defined in Rule 100 of
Regulation M) you may engage in passive market making in accordance with Rule
103 of Regulation M (except that the daily net purchase volume limitation will
not apply and the maximum displayed bid size shall be 5,000 shares excluding
transactions effected in the SOES system) unless the notice from the Manager
also states that passive market making is not permitted.

                  5.2. PENALTY WITH RESPECT TO SECURITIES REPURCHASED BY THE
MANAGER. If pursuant to the provisions of Section 5.1 and prior to the
termination of the Manager's authority to cover any short position incurred
under the applicable AAU or such other date as the Manager shall specify in a
Wire, either (A) the Manager purchases or contracts to purchase for the account
of any Underwriter in the open market or otherwise any Securities which were
retained by, or released to, you for direct sale or any Securities sold pursuant
to Section 3.4 for which you received a portion of the Selling Concession set
forth in the applicable AAU, or any Securities which may have been issued on
transfer or in exchange for such Securities, and which Securities were therefore
not effectively placed for investment or (B) if the Manager has advised you by
Wire that trading in the Securities will be reported to the Manager pursuant to
the "Initial Public Offering Tracking System" of The Depository Trust Company
("DTC") and the Manager determines, based on notices from DTC, that your
customers sold an amount of Securities during any day that exceeds the amount
previously notified to you by Wire, then you authorize the Manager either to
charge your account with an amount equal to such portion of the Selling
Concession set forth in the applicable AAU received by you with respect to such
Securities or, in the case of clause (B), such Securities as exceed the amount
specified in such Wire or to require you to repurchase such Securities or, in
the case of clause (B), such Securities as exceed the amount specified in such
Wire, at a price equal to the total cost of such purchase, including transfer
taxes, accrued interest, dividends and commissions, if any.

                  5.3. COMPLIANCE WITH REGULATION M. You represent that, at all
times since you were invited to participate in the Offering, you have complied
with the provisions of Regulation M applicable to such Offering, in each case as
interpreted by the Commission and after giving effect to any applicable
exemptions. If you have been notified in a Wire that the Underwriters may
conduct passive market making in compliance with Rule 103 of Regulation M in
connection with the Offering, you represent that, at all times since your
receipt of such Wire, you have complied with the provisions of such Rule
applicable to such Offering, as interpreted by the Commission and after giving
effect to any applicable exemptions.


                                       9






                  5.4. STANDBY UNDERWRITINGS. You authorize the Manager in its
discretion, at any time on, or from time to time prior to, the expiration of the
conversion right of convertible securities identified in the applicable AAU in
the case of securities called for redemption, or the expiration of rights to
acquire securities in the case of rights offerings, for which, in either case,
standby underwriting arrangements have been made: (i) to purchase convertible
securities or rights to acquire Securities for your account, in the open market
or otherwise, on such terms as the Manager determines and to convert convertible
securities or exercise rights so purchased; and (ii) to offer and sell the
underlying common stock or depositary shares for your account, in the open
market or otherwise, for long or short account (for purposes of such commitment,
such common stock or depositary shares being considered the equivalent of
convertible securities or rights), on such terms consistent with the terms of
the Offering set forth in the Prospectus or Offering Circular as the Manager
determines. On demand you shall take up and pay for any securities so purchased
for your account or you shall deliver to the Manager against payment any
securities so sold, as the case may be. During such period you may offer and
sell the underlying common stock or depositary shares, but only at prices set by
the Manager from time to time, and any such sales shall be subject to the
Manager's right to sell to you the underlying common stock or depositary shares
as above provided and to the Manager's right to reserve your Securities
purchased, received or to be received upon conversion. You agree not to bid for,
purchase, attempt to induce others to purchase, or sell, directly or indirectly,
any convertible securities or rights or underlying common stock or depositary
shares, provided, however, that no Underwriter shall be prohibited from (a)
selling underlying common stock owned beneficially by such Underwriter on the
day the convertible securities were first called for redemption, (b) converting
convertible securities owned beneficially by such Underwriter on such date or
selling underlying common stock issued upon conversion of convertible securities
so owned, (c) exercising rights owned beneficially by such Underwriter on the
record date for a rights offering or selling the underlying common stock or
depositary shares issued upon exercise of rights so owned or (d) purchasing or
selling convertible securities or rights or underlying common stock or
depositary shares as a broker pursuant to unsolicited orders.


                           VI. PAYMENT AND SETTLEMENT

                  6.1. PAYMENT AND SETTLEMENT. You shall deliver to the Manager
on the date and at the place and time specified in the applicable AAU (or on
such later date and at such place and time as may be specified by the Manager in
a subsequent Wire) the funds specified in the applicable AAU, payable to the
order of Salomon Smith Barney Inc., for (i) an amount equal to the Offering
Price plus (if not included in the Offering Price) accrued interest,
amortization of original issue discount or dividends, if any, specified in the
Prospectus or Offering Circular, less the applicable Selling Concession in
respect of the Firm Securities to be purchased by you, (ii) an amount equal to
the Offering Price plus (if not included in the Offering Price) accrued
interest, amortization of original issue discount or dividends, if any,
specified in the Prospectus or Offering Circular, less the applicable Selling
Concession in respect of such of the Firm


                                       10






Securities to be purchased by you as shall have been retained by or released to
you for direct sale as contemplated by Section 3.6 hereof or (iii) the amount
set forth or indicated in the applicable AAU, as the Manager shall advise. You
shall make similar payment as the Manager may direct for Additional Securities,
if any, to be purchased by you on the date specified by the Manager for such
payment. The Manager will make payment to the Issuer or Seller against delivery
to the Manager for your account of the Securities to be purchased by you, and
the Manager will deliver to you the Securities paid for by you which shall have
been retained by or released to you for direct sale. If the Manager determines
that transactions in the Securities are to be settled through the facilities of
DTC or other clearinghouse facility, payment for and delivery of Securities
purchased by you shall be made through such facilities, if you are a member, or,
if you are not a member, settlement shall be made through your ordinary
correspondent who is a member.


                                  VII. EXPENSES

                  7.1. MANAGEMENT FEE. You authorize the Manager to charge your
account as compensation for the Manager's and Co-Managers' services in
connection with the Offering, including the purchase from the Issuer or Seller
of the Securities, as the case may be, and the management of the Offering, the
amount, if any, set forth as the management fee, global coordinators fee,
praecipium or other similar fee in the applicable AAU. Such amount shall be
divided among the Manager and any Co-Managers named in the applicable AAU as
they may determine.

                  7.2. GENERAL EXPENSES. You authorize the Manager to charge
your account with your Underwriting Percentage of all expenses of a general
nature incurred by the Manager and Co-Managers under the applicable AAU in
connection with the Offering, including the negotiation and preparation thereof,
or in connection with the purchase, carrying, marketing and sale of any
securities under the applicable AAU and any Intersyndicate Agreement, including,
without limitation, legal fees and expenses, transfer taxes, costs associated
with approval of the Offering by the NASD and the costs of currency transactions
(including forward and hedging currency transactions) entered into to facilitate
settlement of the purchase of Securities permitted under Section 3.1 hereof.


                    VIII. MANAGEMENT OF SECURITIES AND FUNDS

                  8.1. ADVANCES; LOANS; PLEDGES. You authorize the Manager to
advance the Manager's own funds for your account, charging current interest
rates, or to arrange loans for your account for the purpose of carrying out the
provisions of the applicable AAU and any Intersyndicate Agreement and in
connection therewith, to hold or pledge as security therefor all or any
securities which the Manager may be holding for your account under the
applicable AAU and any Intersyndicate Agreement, to execute and deliver any
notes or other instruments evidencing such advances or loans and to give all
instructions to the lenders with respect to any such loans and the proceeds


                                       11






thereof. The obligations of the Underwriters under loans arranged on their
behalf shall be several in proportion to their respective Original Purchase
Obligations and not joint. Any lender is authorized to accept the Manager's
instructions as to the disposition of the proceeds of any such loans. In the
event of any such advance or loan, repayment thereof shall, in the discretion of
the Manager, be effected prior to making any remittance or delivery pursuant to
Section 8.2, 8.3 or 9.2 hereof.

                  8.2. RETURN OF AMOUNT PAID FOR SECURITIES. Out of payment
received by the Manager for Securities sold for your account which have been
paid for by you, the Manager will remit to you promptly an amount equal to the
price paid by you for such Securities.

                  8.3. DELIVERY AND REDELIVERY OF SECURITIES FOR CARRYING
PURPOSES. The Manager may deliver to you from time to time prior to the
termination of the applicable AAU pursuant to Section 9.1 hereof against
payment, for carrying purposes only, any Securities or Other Securities
purchased by you under the applicable AAU or any Intersyndicate Agreement which
the Manager is holding for sale for your account but which are not sold and paid
for. You shall redeliver to the Manager against payment any Securities or Other
Securities delivered to you for carrying purposes at such times as the Manager
may demand.


                        IX. TERMINATION; INDEMNIFICATION

                  9.1. TERMINATION. Each AAU shall terminate at the close of
business on the later of the date on which the Underwriters pay the Issuer or
Seller for the Securities and 45 full days after the applicable Offering Date,
unless sooner terminated by the Manager. The Manager may in its discretion by
notice to you prior to the termination of such AAU alter any of the terms or
conditions of the Offering to the extent permitted by Articles III or IV hereof,
or terminate or suspend the effectiveness of Article V hereof, or any part
thereof. No termination or suspension pursuant to this paragraph shall affect
the Manager's authority under Section 3.1 hereof to take actions in respect of
the Offering or under Article V hereof to cover any short position incurred
under such AAU or in connection with covering any such short position to require
you to repurchase Securities as specified in Section 5.2 hereof.

                  9.2. DELIVERY OR SALE OF SECURITIES; SETTLEMENT OF ACCOUNTS.
Upon termination of each AAU or prior thereto at the Manager's discretion, the
Manager shall deliver to you any Securities paid for by you pursuant to Section
6.1 hereof and held by the Manager for sale pursuant to Section 3.4 or 3.5
hereof but not sold and paid for and any Securities or Other Securities that are
held by the Manager for your account pursuant to the provisions of Article V
hereof or any Intersyndicate Agreement. Notwithstanding the foregoing, at the
termination of such AAU, if the aggregate initial Offering Price of any such
Securities and the aggregate purchase price of any Other Securities so held and
not sold and paid for does not exceed an amount equal to 20% of the aggregate
initial Offering Price of the Securities, the Manager may, in its discretion,
sell such Securities and Other Securities for the accounts of the several
Underwriters, at


                                       12



such prices, on such terms, at such times and in such manner as it may
determine. Within the period specified by applicable NASD Rules or, if no period
is so specified, as soon as practicable after termination of such AAU, your
account shall be settled and paid. The Manager may reserve from distribution
such amount as the Manager deems advisable to cover possible additional
expenses. The determination by the Manager of the amount so to be paid to or by
you shall be final and conclusive. Any of your funds in the Manager's hands may
be held with the Manager's general funds without accountability for interest.

                  Notwithstanding any provision of this Master AAU other than
Section 10.12, upon termination of each AAU or prior thereto at the Manager's
discretion, the Manager (i) may allocate to the accounts of the Underwriters the
expenses described in Section 7.2 hereof and any losses incurred upon the sale
of Securities or Other Securities pursuant to the applicable AAU or any
Intersyndicate Agreement (including any losses incurred upon the sale of
securities referred to in Section 5.4(ii) hereof), (ii) may deliver to the
Underwriters any unsold Securities or Other Securities purchased pursuant to
Section 5.1 hereof or any Intersyndicate Agreement and (iii) may deliver to the
Underwriters any unsold Securities purchased pursuant to the applicable
Underwriting Agreement, in each case in the Manager's discretion. The Manager
shall have full discretion to allocate expenses and Securities to the accounts
of any Underwriter as the Manager decides, except that (a) no Underwriter (other
than the Manager or a Co-Manager) shall bear more than its share of such
expenses, losses or Securities (such share shall not exceed such Underwriter's
Underwriting Percentage and shall be determined pro rata among all such
Underwriters based on their Underwriting Percentages), (b) no such Underwriter
shall receive Securities that, together with any Securities purchased by such
Underwriter pursuant to Section 6.1 (but excluding any Securities that such
Underwriter is required to repurchase pursuant to Section 5.2) exceed such
Underwriter's Original Purchase Obligation and (c) no Co-Manager shall bear more
than its share, as among the Manager and the other Co-Managers, of such
expenses, losses or Securities (such share to be determined pro rata among the
Manager and all Co-Managers based on (1) their relative Underwriting Percentages
as a percentage of the total combined Underwriting Percentages of the Manager
and all Co-Managers, or (2) if the Manager so determines, their relative
Offering Economics (as hereinafter defined) as a percentage of the combined
Offering Economics of the Manager and all Co-Managers together. The Manager's or
a Co-Manager's "OFFERING ECONOMICS" equals the sum of its Management Fee Share,
its Underwriting Fee Share and its Selling Concession Share (each as hereinafter
defined). The Manager's or a Co-Manager's "MANAGEMENT FEE SHARE" is the dollar
amount of its share, as agreed among the Manager and any Co-Managers, of the
amount payable by all Underwriters to some or all of the Manager and any
Co-Manager as a global coordinators' fee, praecipium, management fee or other
fee. The Manager's or a Co-Manager's "UNDERWRITING FEE SHARE" is the dollar
amount of its Underwriting Percentage of the aggregate initial Offering Price of
the Firm Securities less the Purchase Price thereof, less the Selling Concession
thereon. The Manager's or a Co-Manager's "SELLING CONCESSION SHARE" is the
dollar amount of any Selling Concession credited to it on sales from the
institutional pot or on sales made for the account of any other Underwriter. If
any Securities or Other Securities returned to you pursuant to clause (ii)



                                       13







or (iii) above were not paid for by you pursuant to Section 6.1 hereof, you
shall pay to the Manager an amount per security equal to the amount set forth in
Section 6.1(i), in the case of Securities returned to you pursuant to clause
(iii) above, or the purchase price of such securities, in the case of Securities
or Other Securities returned to you pursuant to clause (ii) above.

                  9.3. POST-SETTLEMENT EXPENSES. Notwithstanding any settlement
on the termination of the applicable AAU, you agree to pay any transfer taxes
which may be assessed and paid after such settlement on account of any sales or
transfers under such AAU or any Intersyndicate Agreement for your account and
your Underwriting Percentage of (i) all expenses incurred by the Manager in
investigating, preparing to defend or defending against any action, claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) relating to (a) the Registration Statement, any
Preliminary Prospectus or Prospectus (or any amendment or supplement thereto),
any Preliminary Offering Circular or Offering Circular (or any amendment or
supplement thereto) or Supplemental Offering Materials, (b) the violation of any
applicable restrictions on the offer, sale, resale or purchase of Securities or
Other Securities imposed by United States Federal or state laws or foreign laws
and the rules and regulations of any regulatory body promulgated thereunder or
pursuant to the terms of such AAU, the Underwriting Agreement or any
Intersyndicate Agreement or (c) any claim that the Underwriters constitute a
partnership, an association or an unincorporated business or other separate
entity and (ii) any liability, including attorneys' fees, incurred by the
Manager in respect of any such action, claim or proceeding, whether such
liability shall be the result of a judgment or arbitrator's determination or as
a result of any settlement agreed to by the Manager, other than any such expense
or liability as to which the Manager actually receives indemnity pursuant to
Section 9.4, contribution pursuant to Section 9.5, indemnity or contribution
pursuant to the Underwriting Agreement or damages from an Underwriter for breach
of its representations, warranties, agreements, or covenants contained in the
applicable AAU. None of the foregoing provisions of this Section 9.3 shall
relieve any defaulting or breaching Underwriter from liability for its defaults
or breach.

                  9.4. INDEMNIFICATION. You agree to indemnify and hold harmless
each other Underwriter and each person, if any, who controls any such
Underwriter within the meaning of either Section 15 of the 1933 Act or Section
20 of the 1934 Act, to the extent and upon the terms which you agree to
indemnify and hold harmless any of the Issuer, the Guarantor, the Seller, any
person controlling the Issuer, the Guarantor, the Seller, its directors and, in
the case of a Registered Offering, its officers who signed the Registration
Statement and, in the case of an Offering other than a Registered Offering, its
officers, in each case as set forth in the Underwriting Agreement. You further
agree to indemnify and hold harmless any investment banking firm identified in a
Wire as the qualified independent underwriter as defined in Rule 2720 of the
NASD's Conduct Rules ("QIU") for an Offering and each person, if any, who
controls such QIU within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, from and against any and all losses, claims, damages
and liabilities related to, arising out of or in connection with such investment
banking firm's activities as QIU for the Offering. You agree with the other
Underwriters to reimburse such QIU for all expenses, including fees


                                       14







and expenses of counsel as they are incurred, in connection with investigating,
preparing for, or defending any action, claim or proceeding related to, arising
out of, or in connection with such QIU's activities as a QIU for the Offering.
Each Underwriter shall be responsible for its Underwriting Percentage of any
amount due to such QIU on account of the foregoing indemnity. You agree that
such QIU shall have no additional liability to any Underwriter or otherwise as a
result of its serving as QIU in connection with the Offering. You further agree
that to the extent the indemnification provided to a QIU under this Section 9.4
is unavailable to such QIU or insufficient in respect of any losses, claims,
damages or liabilities (and expenses relating thereto), whether as a matter of
law or public policy or as a result of the default of any Underwriter in
performing its obligations under this Section 9.4, you and each other
Underwriter shall contribute to the amount paid or payable by such QIU as a
result of such losses, claims, damages or liabilities (and expenses relating
thereto) in proportion to your Underwriting Percentage.

                  9.5. CONTRIBUTION. Notwithstanding any settlement on the
termination of the applicable AAU, you agree to pay upon request of the Manager,
as contribution, your Underwriting Percentage of any losses, claims, damages or
liabilities, joint or several, paid or incurred by any Underwriter to any person
other than an Underwriter, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus or Prospectus (or any amendment or
supplement thereto), any Preliminary Offering Circular or Offering Circular (or
any amendment or supplement thereto) or Supplemental Offering Materials or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (other
than an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information furnished to
the Company in writing by the Underwriter on whose behalf the request for
contribution is being made expressly for use therein) and your Underwriting
Percentage of any legal or other expenses reasonably incurred by the Underwriter
(with the approval of the Manager) on whose behalf the request for contribution
is being made in connection with investigating or defending any such loss,
claim, damage or liability or any action in respect thereof; provided that no
request shall be made on behalf of any Underwriter guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) from any
Underwriter who was not guilty of such fraudulent misrepresentation. None of the
foregoing provisions of this Section 9.5 shall relieve any defaulting or
breaching Underwriter from liability for its defaults or breach.

                  9.6. SEPARATE COUNSEL. If any claim is asserted or action or
proceeding commenced pursuant to which the indemnity provided in Section 9.4 may
apply, the Manager may take such action in connection therewith as it deems
necessary or desirable, including retention of counsel for the Underwriters, and
in its discretion separate counsel for any particular Underwriter or group of
Underwriters, and the fees and disbursements of any counsel so retained shall be
allocated among the several Underwriters as determined by the Manager. Any
Underwriter may elect to retain at its own expense its own counsel and, on
advice of such counsel but only with the consent of the Manager, may settle or
consent to the settlement of any such claim, action or



                                       15

proceeding. The Manager may settle or consent to the settlement of any such
claim, action or proceeding. Whenever the Manager receives notice of the
assertion of any claim, action or proceeding to which the provisions of Section
9.4 would apply, it will give prompt notice thereof to each Underwriter, and
whenever you receive notice of the assertion of any claim or commencement of any
action or proceeding to which the provisions of Section 9.4 would apply, you
will give prompt notice thereof to the Manager. The Manager also will furnish
each Underwriter with periodic reports, at such times as it deems appropriate,
as to the status of such claim, action or proceeding, and the action taken by it
in connection therewith.

                  9.7. SURVIVAL OF AGREEMENTS. Regardless of any termination of
an AAU, your agreements contained in Article V and Sections 3.1, 9.3, 9.4, 9.5,
9.6 and 11.2 shall remain operative and in full force and effect regardless of
(i) any termination of the Underwriting Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Issuer, the Guarantor, the Seller, its directors or
officers or any person controlling the Issuer, the Guarantor or the Seller and
(iii) acceptance of any payment for any Securities.


                X. REPRESENTATIONS AND COVENANTS OF UNDERWRITERS

                  10.1. KNOWLEDGE OF OFFERING. You understand that it is your
responsibility to examine the Registration Statement, the Prospectus or the
Offering Circular, as the case may be, relating to the Offering, any amendment
or supplement thereto, any Preliminary Prospectus or Preliminary Offering
Circular and the material, if any, incorporated by reference therein and any
Supplemental Offering Materials and you will familiarize yourself with the terms
of the Securities, any applicable Indenture and the other terms of the Offering
thereof which are to be reflected in the Prospectus or the Offering Circular, as
the case may be, and the applicable AAU and Underwriting Agreement. The Manager
is authorized, with the advice of counsel for the Underwriters, to approve on
your behalf any amendments or supplements to the Registration Statement and the
Prospectus or the Offering Circular, as the case may be.

                  10.2. DISTRIBUTION OF MATERIALS. You will keep an accurate
record of the names and addresses of all persons to whom you give copies of the
Registration Statement, the Prospectus, any Preliminary Prospectus (or any
amendment or supplement thereto) or any Offering Circular or any Preliminary
Offering Circular and, when furnished with any subsequent amendment to the
Registration Statement, any subsequent Prospectus, any subsequent Offering
Circular or any memorandum outlining changes in the Registration Statement or
any Prospectus or Offering Circular, you will, upon request of the Manager,
promptly forward copies thereof to such persons.

                  10.3. ACCURACY OF UNDERWRITERS' INFORMATION. You confirm that
the information that you have given or are deemed to have given in response to
the Underwriters' Questionnaire attached as Exhibit A hereto (and to any other
questions addressed to you in the Invitation Wire or other Wires), which
information has been furnished to the Issuer for use in the Registration
Statement and the Prospectus or the



                                       16



Offering Circular, as the case may be, or has otherwise been relied upon in
connection with the Offering, is complete and accurate. You shall notify the
Manager immediately of any development before the termination of the applicable
AAU which makes untrue or incomplete any information that you have given or are
deemed to have given in response to the Underwriters' Questionnaire (or such
other questions).

                  10.4. NAME; ADDRESS. Unless you have promptly notified the
Manager in writing otherwise, your name as it should appear in the Prospectus or
the Offering Circular and any advertisement, if different, and your address are
as set forth on the signature pages hereof.

                  10.5. CAPITAL REQUIREMENTS. You represent that your commitment
to purchase the Securities will not result in a violation of the financial
responsibility requirements of Rule 15c3-1 under the 1934 Act or of any similar
provision of any applicable rules of any securities exchange to which you are
subject or, if you are a financial institution subject to regulation by the
Board of Governors of the United States Federal Reserve System, the United
States Comptroller of the Currency or the United States Federal Deposit
Insurance Corporation, will not place you in violation of any applicable capital
requirements or restrictions of such regulator or any other regulator to which
you are subject.

                  10.6. COMPLIANCE WITH NASD REQUIREMENTS. You represent that
you are a member in good standing of the NASD, a Bank that is not a member of
the NASD or a foreign bank or dealer not eligible for membership in the NASD. In
making sales of Securities, if you are such a member, you agree to comply with
all applicable interpretive material ("IM") and rules of the NASD, including,
without limitation, IM-2110-1 (the NASD's interpretation with respect to
free-riding and withholding) and Rule 2740 of the NASD's Conduct Rules, or, if
you are such a foreign bank or dealer, you agree to comply, as applicable, with
IM-2110-1 and Rules 2730, 2740 and 2750 of the NASD's Conduct Rules as though
you were such a member and Rule 2420 of the NASD's Conduct Rules as it applies
to a nonmember broker or dealer in a foreign country. If you are a Bank, you
agree, to the extent required by applicable law or the Conduct Rules of the
NASD, that you will not, in connection with the public offering of any
Securities that do not constitute "exempted securities" within the meaning of
Section 3(a)(12) of the 1934 Act or such other Securities as from time to time
may be sold by a Bank, purchase any Securities at a discount from the Offering
Price from any Underwriter or dealer or otherwise accept any Fees and
Commissions from any Underwriter or Dealer, and you agree to comply, as
applicable, with Rule 2420 of the NASD's Conduct Rules as though you were a
member.

                  10.7. FURTHER STATE NOTICE. The Manager will file a Further
State Notice with the Department of State of New York, if required.

                  10.8. COMPLIANCE WITH RULE 15C2-8. In the case of a Registered
Offering and any other Offering to which the provisions of Rule 15c2-8 under the
1934 Act are made applicable pursuant to the AAU or otherwise, you agree to
comply with such Rule in connection with the Offering. In the case of an
Offering other than a


                                       17







Registered Offering, you agree to comply with applicable Federal and state laws
and the applicable rules and regulations of any regulatory body promulgated
thereunder governing the use and distribution of offering circulars by
underwriters.

                  10.9. DISCRETIONARY ACCOUNTS. In the case of a Registered
Offering of Securities issued by an Issuer that was not, immediately prior to
the filing of the Registration Statement, subject to the requirements of Section
13(d) or 15(d) of the 1934 Act, you agree that you will not make sales to any
account over which you exercise discretionary authority in connection with such
sale except as otherwise permitted by the applicable AAU for such Offering.

                  10.10. OFFERING RESTRICTIONS. If you are a foreign bank or
dealer and you are not registered as a broker-dealer under Section 15 of the
1934 Act, you agree that while you are acting as an Underwriter in respect of
the Securities and in any event during the term of the applicable AAU, you will
not directly or indirectly effect in, or with persons who are nationals or
residents of, the United States, its territories or possessions any transactions
(except for the purchases provided for in the Underwriting Agreement and
transactions contemplated by Articles III and V hereof) in Securities or any
Other Securities.

                  It is understood that, except as specified in the applicable
AAU, no action has been taken by the Manager, the Issuer, the Guarantor or the
Seller to permit you to offer Securities in any jurisdiction other than the
United States, in the case of a Registered Offering, where action would be
required for such purpose.

                  10.11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. You agree
to make to each other Underwriter participating in an Offering the same
representations, warranties and agreements, if any, made by the Underwriters to
the Issuer, the Guarantor or the Seller in the applicable Underwriting Agreement
or any Intersyndicate Agreement and you authorize the Manager to make such
representations, warranties and agreements to the Issuer, the Guarantor or the
Seller on your behalf.

                  10.12. LIMITATION ON THE AUTHORITY OF THE MANAGER TO PURCHASE
AND SELL SECURITIES FOR THE ACCOUNT OF CERTAIN UNDERWRITERS. Notwithstanding any
provision of this AAU authorizing the Manager to purchase or sell any Securities
or Other Securities (including arranging for the sale of Contract Securities) or
over-allot in arranging sales of Securities for the accounts of the several
Underwriters, the Manager may not, in connection with the Offering of any
Securities, make any such purchases, sales and/or over-allotments for the
account of any Underwriter that, not later than its acceptance of the Invitation
Wire relating to such Offering, has advised the Manager that, due to its status
as, or relationship to, a bank or bank holding company such purchases, sales
and/or over-allotments are prohibited by applicable law. If any Underwriter so
advises the Manager, the Manager may allocate any such purchases, sales and
over-allotments (and the related expenses) which otherwise would have been
allocated to your account based on your respective Underwriting Percentage to
your account based on the ratio of your Original Purchase Obligation to the
Original Purchase Obligations of all Underwriters other than the advising
Underwriter or



                                       18








Underwriters or in such other manner as the Manager shall determine.


                           XI. DEFAULTING UNDERWRITERS

                  11.1. EFFECT OF TERMINATION. If the Underwriting Agreement is
terminated as permitted by the terms thereof, your obligations hereunder with
respect to the Offering of the Securities shall immediately terminate except (i)
as set forth in Section 9.7, (ii) that you shall remain liable for your
Underwriting Percentage (or such other percentage as may be specified pursuant
to Section 9.2) of all expenses and for any purchases or sales which may have
been made for your account pursuant to the provisions of Article V hereof or any
Intersyndicate Agreement and (iii) that such termination shall not affect any
obligations of any defaulting or breaching Underwriter.

                  11.2. SHARING OF LIABILITY. If any Underwriter shall default
in its obligations (i) pursuant to Section 5.1, 5.2 or 5.4, (ii) to pay amounts
charged to its account pursuant to Section 7.1, 7.2 or 8.1 or (iii) pursuant to
Section 9.2, 9.3, 9.4, 9.5, 9.6 or 11.1, you will assume your proportionate
share (determined on the basis of the respective Underwriting Percentages of the
non-defaulting Underwriters) of such obligations, but no such assumption shall
relieve any defaulting Underwriter from liability to the non-defaulting
Underwriters, the Issuer, the Guarantor or the Seller for its default.

                  11.3. ARRANGEMENTS FOR PURCHASES. The Manager is authorized to
arrange for the purchase by others (including the Manager or any other
Underwriter) of any Securities not purchased by any defaulting Underwriter in
accordance with the terms of the applicable Underwriting Agreement or, if the
applicable Underwriting Agreement does not provide arrangements for defaulting
Underwriters, in the discretion of the Manager. If such arrangements are made,
the respective amounts of Securities to be purchased by the remaining
Underwriters and such other person or persons, if any, shall be taken as the
basis for all rights and obligations hereunder, but this shall not relieve any
defaulting Underwriter from liability for its default.


                               XII. MISCELLANEOUS

                  12.1. OBLIGATIONS SEVERAL. Nothing contained in this Salomon
Smith Barney Master AAU or any AAU constitutes you partners with the Manager or
with the other Underwriters and the obligations of you and each of the other
Underwriters are several and not joint. Each Underwriter elects to be excluded
from the application of Subchapter K, Chapter 1, Subtitle A, of the United
States Internal Revenue Code of 1986, as amended. Each Underwriter authorizes
the Manager, on behalf of such Underwriter, to execute such evidence of such
election as may be required by the United States Internal Revenue Service.

                  12.2. LIABILITY OF MANAGER. The Manager shall be under no
liability to


                                       19






you for any act or omission except for obligations expressly assumed by the
Manager in the applicable AAU.

                  12.3. TERMINATION OF MASTER AGREEMENT AMONG UNDERWRITERS. This
SALOMON SMITH BARNEY Master AAU may be terminated by either party hereto upon
five business days' written notice to the other party; provided that with
respect to any Offering for which an AAU was sent prior to such notice, this
Salomon Smith Barney Master AAU as it applies to such Offering shall remain in
full force and effect and shall terminate with respect to such Offering in
accordance with Section 9.1 hereof.

                  12.4. GOVERNING LAW. THIS SALOMON SMITH BARNEY MASTER AAU AND
EACH AAU SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE
OF NEW YORK.

                  12.5. AMENDMENTS. This Salomon Smith Barney Master AAU may be
amended from time to time by consent of the parties hereto. Your consent shall
be deemed to have been given to an amendment to this Salomon Smith Barney Master
AAU, and such amendment shall be effective, five business days following written
notice to you of such amendment if you do not notify Salomon Smith Barney in
writing prior to the close of business on such fifth business day that you do
not consent to such amendment. Upon effectiveness, the provisions of this
Salomon Smith Barney Master AAU as so amended shall apply to each AAU thereafter
entered into except as otherwise specifically provided in any such AAU.

                  12.6. NOTICES. Any notice to any Underwriter shall be deemed
to have been duly given if mailed, sent by wire, telex, facsimile or electronic
transmission or other written communication or delivered in person to such
Underwriter at the address which shall have been provided to Salomon Smith
Barney as provided in Section 10.4 hereof. Any such notice shall take effect
upon receipt thereof.

                  Please confirm your acceptance of this Salomon Smith Barney
Master AAU by signing and returning to us the enclosed duplicate copy hereof.


                                        Very truly yours,

                                        SALOMON SMITH BARNEY INC.

                                        By:
                                           ---------------------------------
                                           Name:
                                           Title:





                                       20








CONFIRMED:....................................1999

...................................................
              (Name of Underwriter)


By:...............................................
Name:
Title:
       (If person signing is not an officer or a partner,
          please attach instrument of authorization)

Address:
        -------------------------------------------------

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

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


Telephone:
          -----------------------------------------------
Fax:
          -----------------------------------------------












                                       21






                                                                       EXHIBIT A
                                                                    JUNE 1, 1999



                            SALOMON SMITH BARNEY INC.
                           UNDERWRITERS' QUESTIONNAIRE


                  In connection with each Offering covered by the Salomon Smith
Barney Inc. Master Agreement Among Underwriters dated June 1, 1999, we confirm
that except as set forth in a timely reply by us to the Invitation Wire:


                  (1) Neither we nor any of our directors, officers or partners
         have a material relationship (as "material" is defined in Regulation C
         under the 1933 Act) with the Issuer, the Guarantor or any Seller.


                  (2) (If the offer and sale of the Securities are to be
         registered under the 1933 Act pursuant to a Registration Statement on
         Form S-1 of Form F-1:) Neither we nor any "group" (as that term is used
         in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act")) of which we are a member is the beneficial owner
         (determined in accordance with Rule 13d-3 under the Exchange Act) of
         more than 5% of any class of voting securities of the Issuer or the
         Guarantor, nor do we have any knowledge that more than 5% of any class
         of voting securities of the Issuer or the Guarantor is held or to be
         held subject to any voting trust or other similar agreement.

                  (3) Other than as may be stated in the Salomon Smith Barney
         Master Agreement Among Underwriters dated June 1, 1999, the applicable
         AAU, the Intersyndicate Agreement or dealer agreement, if any, the
         Prospectus, the Registration Statement or the Offering Circular, we do
         not know and have no reason to believe that there is an intention to
         over-allot or that the price of any security may be stabilized to
         facilitate the offering of the Securities.

                  (4) Except as described in the Prospectus or Offering
         Circular, as the case may, be and the Invitation Wire, we do not know
         of any discounts or commissions to be allowed or paid to dealers,
         including all cash, securities, contracts or other consideration to be
         received by any dealer in connection with the sale of the securities.










                                       22








                  (5) We have not prepared any report or memorandum for external
         use in connection with the Offering. (If there are any exceptions, (i)
         furnish four (4) copies of each report and memorandum to Salomon Smith
         Barney Inc., 388 Greenwich Street, New York, N.Y. 10013, Attention:
         Investment Banking Department/Transaction Structuring Group, (ii)
         identify each class of person who received such material and the number
         of copies distributed to each such class, and (iii) indicate when such
         distribution commenced and ceased.)

                  (6) (If the offer and sale of the Securities are to be
         registered under the 1933 Act pursuant to a Registration Statement on
         Form S-1 or Form F-1:) We have not within the past twelve months
         prepared or had prepared for us any engineering, management or similar
         report or memorandum relating to broad aspects of the business,
         operations or products of the Issuer or the Guarantor. (The immediately
         preceding sentence does not apply to reports solely comprised of
         recommendations to buy, sell or hold the Issuer's or the Guarantor's
         securities, unless such recommendations have changed within the past
         six months or to information already contained in documents filed with
         the Commission. If there are any exceptions, (i) furnish four (4)
         copies of each report and memorandum to Salomon Smith Barney Inc. 388
         Greenwich Street, New York, N.Y. 10013, Attention: Investment Banking
         Department/Transaction Structuring Group, (ii) identify each class of
         persons who received such material and the number of copies distributed
         to each such class, and (iii) indicate when such distribution commenced
         and ceased.)

                  (7) We are not an "affiliate" of the Issuer or the Guarantor
         for purposes of Rule 2720 of the National Association of Securities
         Dealers, Inc.'s ("NASD") Conduct Rules. We understand that under Rule
         2720 (except as provided in Rule 2720(b)(1)(C) thereof) two entities
         are "affiliates" of each other if one entity controls, is controlled
         by, or is under common control with, the second entity and that
         "control" is presumed to exist if one entity (or, in the case of an
         NASD member, the entity and all "persons associated with" it (as
         defined in the NASD By-Laws)) beneficially owns 10% or more of the
         second entity's outstanding voting securities or, if the second entity
         is a partnership, if the first entity has a partnership interest in 10%
         or more of the second entity's distributable profits or losses.

                  (8) (If the Securities are not investment grade debt
         securities or preferred stock, or equity securities for which there
         exists a "bona fide independent market" (as defined in Rule 2720(b)(3)
         of the NASD's Conduct Rules) or otherwise exempted under Rule 2720(b)
         (7)(D) of the NASD's Conduct Rules:) We do not have a "conflict of
         interest" with the Issuer or the Guarantor under Rule 2720 of the
         NASD's Conduct Rules. In that regard, we specifically confirm that we,
         our "parent" (as defined in Rule 2720), affiliates and "persons
         associated with" us (as defined in the NASD By-Laws), in the aggregate
         do not (i) beneficially own 10% or more of the Issuer's or the
         Guarantor's "common equity", "preferred equity", or "subordinated debt"
         (as each such term is defined in Rule 2720), or (ii) in the case of an
         Issuer or Guarantor which is a partnership,


                                       23







         beneficially own a general, limited or special partnership interest in
         10% or more of the Issuer's or Guarantor's distributable profits or
         losses.

                  (9) (If filing with the NASD is required:) Neither we nor any
         of our directors, officers, partners or "persons associated with" us
         (as defined in the NASD By-Laws) nor, to our knowledge, any "related
         person" (defined by the NASD to include counsel, financial consultants
         and advisors, finders, members of the selling or distribution group,
         any NASD member participating in the offering and any other persons
         associated with or related to and members of the immediate family of
         any of the foregoing) or any other broker-dealer, (a) within the last
         12 months have purchased in private transactions, or intend before, at
         or within six months after the commencement of the public offering of
         the Securities to purchase in private transactions, any securities of
         the Issuer, the Guarantor or any Issuer Related Party (as hereinafter
         defined), (b) within the last 12 months had any dealings with the
         Issuer, the Guarantor, any Seller or any subsidiary or controlling
         person thereof (other than relating to the proposed Underwriting
         Agreement) as to which documents or information are required to be
         filed with the NASD pursuant to its Corporate Financing Rule, or (c)
         during the 12 months immediately preceding the filing of the
         Registration Statement (or, if there is none, the Offering Circular),
         have entered into any arrangement which provided or provides for the
         receipt of any item of value (including, but not limited to, cash
         payments and expense reimbursements) and/or the transfer of any
         warrants, options or other securities from the Issuer, the Guarantor or
         any Issuer Related Party to us or any related person.

                  (10) (If filing with the NASD is required:) There is no
         association or affiliation between us and (i) any officer or director
         of the Issuer, the Guarantor or any Issuer Related Party, or (ii) any
         securityholder of five percent or more (or, in the case of an initial
         public offering of equity securities, any securityholder) of any class
         of securities of the Issuer, the Guarantor or an Issuer Related Party;
         it being understood that for purposes of paragraph (9) above and this
         paragraph (10), the term "Issuer Related Party" includes any Seller,
         any affiliate of the Issuer the Guarantor or a Seller and the officers
         or general partners, directors, employees and securityholders thereof.
         (If there are any exceptions, state the identity of the person with
         whom the association or affiliation exists and, if relevant, the number
         of equity securities or the face value of debt securities owned by such
         person, the date such securities were acquired and the price paid for
         such securities).

                  (11) (If the Securities are not issued by a real estate
         investment trust:) No portion of the net offering proceeds from the
         sale of the Securities will be paid to us or any of our affiliates or
         "persons associated with" us (as defined in the NASD By-Laws) or
         members of the immediate family of any such person.

                  (12) (If the Securities are debt securities and their offer
         and sale is be registered under the 1933 Act:) We are not an affiliate
         (as defined in Rule 0-2 under the Trust Indenture Act of 1939) of the
         Trustee for the Securities or of its


                                       24







         parent, if any. Neither the Trustee nor its parent, if any, nor any of
         of their directors or executive officers is a "director, officer,
         partner, employee, appointee or representative" of ours (as those terms
         are defined in the Trust Indenture Act of 1939 or in the relevant
         instructions to Form T-1). We and our directors, partners, and
         executive officers, taken as a group, did not on the date specified in
         the Invitation Wire, and do not, own beneficially 1% or more of the
         shares of any class of voting securities of the Trustee or of its
         parent, if any. If we are a corporation, we do not have outstanding and
         have not assumed or guaranteed any securities issued otherwise than in
         our present corporate name.

                  (13) (If the Issuer is a public utility:) We are not a
         "holding company" or a "subsidiary company" or an "affiliate" of a
         "holding company" or of a "public-utility company", each as defined in
         the Public Utility Holding Company Act of 1935.

                  (14) If we are, or we are affiliated with, a U.S. or non-U.S.
         bank, we hereby represent that our participation in the offering of the
         Securities on the terms contemplated in the applicable AAU and the
         proposed Underwriting Agreement does not contravene any U.S. or state
         banking law restricting the exercise of securities powers in the United
         States.

                  Capitalized terms used but not defined herein shall have the
respective meanings given to them in the applicable AAU.


















                                       25

EX-99.(H)(3)

                                                                  EXHIBIT (h)(3)


                        MASTER SELECTED DEALER AGREEMENT

                                                                    July 1, 1999


Ladies and Gentlemen:

        In connection with registered public offerings of securities for which
we are acting as manager or co-manager of an underwriting syndicate or
unregistered offerings of securities for which we are acting as manager or
co-manager of the initial purchasers, you may be offered the right as a selected
dealer to purchase as principal a portion of such securities. This will confirm
our mutual agreement as to the general terms and conditions applicable to your
participation in any such selected dealer group.

        1. APPLICABILITY OF THIS AGREEMENT. The terms and conditions of this
Agreement shall be applicable to any offering of securities ("Securities"),
whether pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act"), or exempt from registration thereunder,
in respect of which Salomon Smith Barney Inc. (acting for its own account or for
the account of any underwriting or similar group or syndicate) is responsible
for managing or otherwise implementing the sale of the Securities to selected
dealers ("Selected Dealers") and has expressly informed you that such terms and
conditions shall be applicable. Any such offering of Securities to you as a
Selected Dealer is hereinafter called an "Offering". In the case of any Offering
where we are acting for the account of any underwriting or similar group or
syndicate ("Underwriters"), the terms and conditions of this Agreement shall be
for the benefit of, and binding upon, such Underwriters, including, in the case
of any Offering where we are acting with others as representatives of
Underwriters, such other representatives.

        2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASES. Any Offering will
be subject to delivery of the Securities and their acceptance by us and any
other Underwriters, may be subject to the approval of all legal matters by
counsel and the satisfaction of other conditions, and may be made on the basis
of reservation of Securities or an allotment against subscription. We will
advise you by telecopy, telex or other form of written communication ("Written
Communication", which term, in the case of any Offering described in Section
3(a) or 3(b) hereof, may include a prospectus or offering circular) of the
particular method and supplementary terms and conditions (including, without
limitation, the information as to prices and the offering date referred to in
Section 3(c) hereof) of any Offering in which you are invited to participate. To
the extent such supplementary terms and conditions are inconsistent with any
provision herein, such terms and conditions shall supersede any such provision.
Unless otherwise indicated in any such Written Communication, acceptances and
other communications





by you with respect to an Offering should be sent to the appropriate Syndicate
Department of Salomon Smith Barney Inc. We may close the subscription books at
any time in our sole discretion without notice, and we reserve the right to
reject any acceptance in whole or in part.

        Unless notified otherwise by us, Securities purchased by you shall be
paid for on such date as we shall determine, on one day's prior notice to you,
by wire transfer payable in immediately available funds to the order of Salomon
Smith Barney Inc., in an amount equal to the Public Offering Price (as
hereinafter defined) or, if we shall so advise you, at such Public Offering
Price less the Concession (as hereinafter defined). If Securities are purchased
and paid for at such Public Offering Price, such Concession will be paid after
the termination of the provisions of Section 3(c) hereof with respect to such
Securities. Unless notified otherwise by us, payment for and delivery of
Securities purchased by you shall be made through the facilities of The
Depository Trust Company, if you are a member, unless you have otherwise
notified us prior to the date specified in a Written Communication to you from
us or, if you are not a member, settlement may be made through a correspondent
who is a member pursuant to instructions which you will send to us prior to such
specified date.

        3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

        (A) REGISTERED OFFERINGS. In the case of any Offering of Securities
which are registered under the Securities Act ("Registered Offering"), we will
make available to you as soon as practicable after sufficient copies are made
available to us by the issuer of the Securities such number of copies of each
preliminary prospectus and of the final prospectus relating thereto as you may
reasonably request for the purposes contemplated by the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
applicable rules and regulations of the Securities and Exchange Commission
thereunder.

        You represent and warrant that you are familiar with Rule 15c2-8 under
the Exchange Act relating to the distribution of preliminary and final
prospectuses and agree that you will comply therewith. You agree to make a
record of your distribution of each preliminary prospectus and when furnished
with copies of any revised preliminary prospectus, you will promptly forward
copies thereof to each person to whom you have theretofore distributed a
preliminary prospectus.

        You agree that in purchasing Securities in a Registered Offering you
will rely upon no statement whatsoever, written or oral, other than the
statements in the final prospectus delivered to you by us. You will not be
authorized by the issuer or other seller of Securities offered pursuant to a
prospectus or by any Underwriters to give any information or to make any
representation not contained in the prospectus in connection with the sale of
such Securities.

        (B) OFFERINGS PURSUANT TO OFFERING CIRCULAR. In the case of any Offering
of Securities, other than a Registered Offering, which is made pursuant to an
offering circular or other document comparable to a prospectus in a Registered
Offering, we will make available to you as soon as practicable after sufficient
copies are made available to us by the issuer of the Securities such number of
copies of each preliminary offering circular and of the final offering circular
relating thereto as you may reasonably request. You agree that you will comply
with applicable Federal, state and other laws, and the


                                        2




applicable rules and regulations of any regulatory body promulgated thereunder,
governing the use and distribution of offering circulars by brokers or dealers.

        You agree that in purchasing Securities pursuant to an offering circular
you will rely upon no statements whatsoever, written or oral, other than the
statements in the final offering circular delivered to you by us. You will not
be authorized by the issuer or other seller of Securities offered pursuant to an
offering circular or by any Underwriters to give any information or to make any
representation not contained in the offering circular in connection with the
sale of such Securities.

        (C) OFFER AND SALE TO THE PUBLIC. The Offering of Securities is made
subject to the conditions referred to the prospectus or offering circular
relating to the Offering and to the terms and conditions set forth in this
Agreement. With respect to any Offering of Securities, we will inform you by a
Written Communication of the public offering price, the selling concession, the
reallowance (if any) to dealers and the time when you may commence selling
Securities to the public. After such public offering has commenced, we may
change the public offering price, the selling concession and the reallowance to
dealers. The offering price, selling concession and reallowance (if any) to
dealers at any time in effect with respect to an Offering are hereinafter
referred to, respectively, as the "Public Offering Price", the "Concession" and
the "Reallowance". With respect to each Offering of Securities, until the
provisions of this Section 3(c) shall be terminated pursuant to Section 4
hereof, you agree to offer Securities to the public only at the Public Offering
Price, except that if a Reallowance is in effect, a Reallowance from the Public
Offering Price not in excess of such Reallowance may be allowed as consideration
for services rendered in distribution to dealers who are actually engaged in the
investment banking or securities business who are either members in good
standing of the NASD who agree to abide by the applicable rules of the NASD (see
Section 3(e) below) or foreign banks, dealers or institutions not eligible for
membership in the NASD who represent to you that they will promptly reoffer such
Securities at the Public Offering Price and will abide by the conditions with
respect to foreign banks, dealers and institutions set forth in Section 3(e)
hereof.

        (D) OVER-ALLOTMENT; STABILIZATION; UNSOLD ALLOTMENTS. We may, with
respect to any Offering, be authorized to over-allot in arranging sales to
Selected Dealers, to purchase and sell Securities for long or short account and
to stabilize or maintain the market price of the Securities. You agree that upon
our request at any time and from time to time prior to the termination of the
provisions of Section 3(c) hereof with respect to any Offering, you will report
to us the amount of Securities purchased by you pursuant to such Offering which
then remain unsold by you and will, upon our request at any such time, sell to
us for our account or the account of one or more Underwriters such amount of
such unsold Securities as we may designate at the Public Offering Price less an
amount to be determined by us not in excess of the Concession. If, prior to the
later of (a) the termination of the provisions of Section 3(c) hereof with
respect to any Offering, or (b) the covering by us of any short position created
by us in connection with such Offering for our account or the account of one or
more Underwriters, we purchase or contract to purchase for our account or the
account of one or more Underwriters in the open market or otherwise any
Securities purchased by you under this Agreement as part of such Offering, you
agree to pay us on demand for the account of the Underwriters an amount equal to
the Concession with respect to such Securities (unless you shall have purchased
such Securities pursuant to Section 2 hereof at the Public Offering Price and
you have not received or been credited with any Concession, in which case we
shall not

                                        3




be obligated to pay such Concession to you pursuant to Section 2) plus transfer
taxes and broker's commissions or dealer's mark-up, if any, paid in connection
with such purchase or contract to purchase.

        (E) NASD. You represent and warrant that you are actually engaged in the
investment banking or securities business and either are a member in good
standing of the NASD or, if you are not such a member, you are a foreign bank,
dealer or institution not eligible for membership in the NASD which agrees to
make no sales within the United States, its territories or its possessions or to
persons who are citizens thereof or residents therein, and in making other sales
to comply with the NASD's interpretation with respect to free-riding and
withholding. You further represent, by your participation in an Offering, that
you have provided to us all documents and other information required to be filed
with respect to you, any related person or any person associated with you or any
such related person pursuant to the supplementary requirements of the NASD's
interpretation with respect to review of corporate financing as such
requirements relate to such Offering.

        You agree that, in connection with any purchase or sale of the
Securities wherein a selling concession, discount or other allowance is received
or granted, you will (a) if you are a member of the NASD, comply with all
applicable interpretive material ("IM") and Conduct Rules of the NASD,
including, without limitation, IM 2110-1 (relating to Free-Riding and
Withholding) and Conduct Rule 2740 (relating to Selling Concessions, Discounts
and Other Allowances) or (b) if you are a foreign bank or dealer or institution
not eligible for such membership, comply with IM 2110-1 and with Conduct Rules
2730 (relating to Securities Taken in Trade), 2740 (relating to Selling
Concessions) and 2750 (relating to Transactions With Related Persons) as though
you were such a member and Conduct Rule 2420 (relating to Dealing with
Non-Members) as it applies to a non-member broker or dealer in a foreign
country.

        You further agree that, in connection with any purchase of securities
from us that is not otherwise covered by the terms of this Agreement (whether we
are acting as manager, as member of an underwriting syndicate or a selling group
or otherwise), if a selling concession, discount or other allowance is granted
to you, clauses (a) and (b) of the preceding paragraph will be applicable.

        (F) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. We may buy
Securities from or sell Securities to any Underwriter or Selected Dealer and,
with our consent, the Underwriters (if any) and the Selected Dealers may
purchase Securities from and sell Securities to each other at the Public
Offering Price less all or any part of the Concession. We shall have full
authority to take such action as we deem advisable in all matters pertaining to
any Offering under this Agreement. You are not authorized to act as agent for
us, any Underwriter or the issuer or other seller of any Securities in offering
Securities to the public or otherwise. Neither we nor any Underwriter shall be
under any obligation to you except for obligations assumed hereby or in any
Written Communication from us in connection with any Offering. Nothing contained
herein or in any Written Communication from us shall constitute the Selected
Dealers an association or partners with us or any Underwriter or with one
another. If the Selected Dealers, among themselves or with the Underwriters,
should be deemed to constitute a partnership for Federal income tax purposes,
then you elect to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986 and agree not to take any
position inconsistent with that election. You authorize us, in

                                        4





our discretion, to execute and file on your behalf such evidence of that
election as may be required by the Internal Revenue Service. In connection with
any Offering you shall be liable for your proportionate amount of any tax,
claim, demand or liability that may be asserted against you alone or against one
or more Selected Dealers participating in such Offering, or against us or the
Underwriters, based upon the claim that the Selected Dealers, or any of them
constitute an association, an unincorporated business or other entity,
including, in each case, your proportionate amount of any expense incurred in
defending against any such tax, claim, demand or liability.

        (G) BLUE SKY LAWS. Upon application to us, we shall inform you as to any
advice we have received from counsel concerning the jurisdictions in which
Securities have been qualified for sale or are exempt under the securities or
blue sky laws of such jurisdictions, but we do not assume any obligation or
responsibility as to your right to sell Securities in any such jurisdiction.

        (H) COMPLIANCE WITH LAW. You agree that in selling Securities pursuant
to any Offering (which agreement shall also be for the benefit of the issuer or
other seller of such Securities), you will comply with all applicable laws,
rules and regulations, including the applicable provisions of the Securities Act
and the Exchange Act, the applicable rules and regulations of the Securities and
Exchange Commission thereunder, the applicable rules and regulations of the
NASD, the applicable rules and regulations of any securities exchange or other
regulatory authority having jurisdiction over the Offering and the applicable
laws, rules and regulations specified in Section 3(b) hereof. Without limiting
the foregoing, (a) you agree that, at all times since you were invited to
participate in an Offering of Securities, you have complied with the provisions
of Regulation M applicable to such Offering, in each case after giving effect to
any applicable exemptions and (b) you represent that your incurrence of
obligations hereunder in connection with any Offering of Securities will not
result in the violation by you of Rule 15c3-1 under the Exchange Act, if such
requirements are applicable to you.

        4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This Agreement shall
continue in full force and effect until terminated by a written instrument
executed by each of the parties hereto. This Agreement may be supplemented or
amended by us by written notice thereof to you, and any such supplement or
amendment to this Agreement shall be effective with respect to any Offering to
which this Agreement applies after the date of such supplement or amendment.
Each reference to "this Agreement" herein shall, as appropriate, be to this
Agreement as so amended and supplemented. The terms and conditions set forth in
Section 3(c) hereof with regard to any Offering will terminate at the close of
business on the 30th day after the commencement of the public offering of the
Securities to which such Offering relates, but in our discretion may be extended
by us for a further period not exceeding 30 days and in our discretion, whether
or not extended, may be terminated at any earlier time.

        5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure
to the benefit of, the parties hereto and other persons specified in Section 1
hereof, and the respective successors and assigns of each of them.

        6. GOVERNING LAW. This Agreement and the terms and conditions set forth
herein with respect to any Offering together with such supplementary terms and
conditions with respect to such Offering as may be contained in any Written
Communication from us to you in connection therewith shall be governed by, and
construed in accordance with, the


                                       5





laws of the State of New York applicable to contracts made and to be performed
within the State of New York.

        Please confirm by signing and returning to us the enclosed copy of this
Agreement that your subscription to or your acceptance of any reservation of any
Securities pursuant to an Offering shall constitute (i) acceptance of and
agreement to the terms and conditions of this Agreement (as supplemented and
amended pursuant to Section 4 hereof; together with and subject to any
supplementary terms and conditions contained in any Written Communication from
us in connection with such Offering, all of which shall constitute a binding
agreement between you and us, individually or as representative of any
Underwriters, (ii) confirmation that your representations and warranties set
forth in Section 3 hereof are true and correct at that time, (iii) confirmation
that your agreements set forth in Sections 2 and 3 hereof have been and will be
fully performed by you to the extent and at the times required thereby and (iv)
in the case of any Offering described in Section 3(a) or 3(b) hereof,
acknowledgment that you have requested and received from us sufficient copies of
the final prospectus or offering circular, as the case may be, with respect to
such Offering in order to comply with your undertakings in Section 3(a) or 3(b)
hereof.

                                       Very truly yours,


                                       SALOMON SMITH BARNEY INC.



                                       By:
                                          ------------------------------
                                          Name:
                                          Title:



CONFIRMED:.....................................1999

....................................................
                  (Name of Dealer)


by:................................................
   Name:
   Title:


Address:
          -----------------------------------------
          -----------------------------------------
          -----------------------------------------



Telephone:
Fax:
          -----------------------------------------



                                       6

EX-99.(J)(3)

                                                                  EXHIBIT (j)(3)




                         VAN KAMPEN SENIOR INCOME TRUST


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


                            AUCTION AGENCY AGREEMENT

                         dated as of [          ], 2004

             Relating to Auction Preferred Shares (Preferred Shares)

              Series M, Series T, Series W, Series TH and Series F

                                       of

                         VAN KAMPEN SENIOR INCOME TRUST

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



                              THE BANK OF NEW YORK
                                as Auction Agent


         This Auction Agency Agreement (this "Agreement"), dated as of [ ], is
between VAN KAMPEN SENIOR INCOME TRUST (the "Fund") and The Bank of New York, a
New York banking corporation.

         The Fund proposes to issue five series of auction preferred shares, par
value $0.01 per share, designated Series M Preferred Shares, Series T Preferred
Shares, Series W Preferred Shares, Series TH Preferred Shares and Series F
Preferred Shares, liquidation preference $25,000 per share, ("Preferred
Shares"), pursuant to the Fund's Certificate of Vote (as defined below).

         The Fund desires that The Bank of New York perform certain duties as
agent in connection with each Auction (as defined below) of Preferred Shares (in
such capacity, the "Auction Agent"), and as the transfer agent, registrar,
dividend paying agent and redemption agent with respect to the Preferred Shares
(in such capacity, the "Paying Agent"), upon the terms and conditions set forth
in this Agreement, and the Fund hereby appoints The Bank of New York as said
Auction Agent and Paying Agent in accordance with those terms and conditions
(hereinafter generally referred to as the "Auction Agent," except in Sections 3
and 4 below).

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Fund and the Auction Agent agree as follows:

I.       DEFINITIONS AND RULES OF CONSTRUCTION.

         1.1      Terms Defined by Reference to the Certificate of Vote.

         Capitalized terms not defined herein shall have the respective meanings
specified in the Certificate of Vote.

         1.2      Certain Defined Terms.

         As used herein, the following terms shall have the following meanings,
unless the context otherwise requires:

                  (a) "Agent Member" of any Person shall mean such Person's
agent member of a participant in the Securities Depository that will act on
behalf of a Bidder.

                  (b) "Auction" shall have the meaning specified in Section 2.1
hereof.

                  (c) "Auction Procedures" shall mean the Auction Procedures
that are set forth in Part II of the Certificate of Vote.

                  (d) "Authorized Officer" shall mean each Vice President,
Assistant Vice President and Assistant Treasurer of the Auction Agent assigned
to the Dealing and Trading Group of its Corporate Trust Department, and every
other officer or employee of the Auction Agent designated as an "Authorized
Officer" for purposes hereof in a written communication from the Auction Agent
to the Fund.

                  (e) "Broker-Dealer Agreement" shall mean each agreement
between the Auction Agent and a broker-dealer substantially in the form attached
hereto as Exhibit A.

                  (f) "Certificate of Vote" shall mean the Certificate of Vote
of the Fund, dated as of [ ], 2004, specifying the rights and preferences of the
Preferred Shares, attached hereto as Exhibit B.

                  (g) "Closing" with respect to the Preferred Shares, shall mean
the date the Fund consummates the transactions for the initial issuance and sale
of the Preferred Shares.

                  (h) "Fund Officer" shall mean the Chairman, the President,
each Vice President (whether or not designated by a number or word or words
added before or after the title "Vice President"), the Secretary, the Treasurer,
each Assistant Secretary and each Assistant Treasurer of the Fund and every
other officer or employee of the Fund designated as a "Fund Officer" for
purposes hereof in a written notice from the Fund to the Auction Agent.

                  (i) "Holder" shall be a holder of record of one or more
Preferred Shares, listed as such in the stock register maintained by the Paying
Agent pursuant to Section 4.6 hereof.

                  (j) "Interest Equivalent" means a yield on a 360-day basis of
a discount basis security which is equal to the yield on an equivalent
interest-bearing security.

         1.3      Rules of Construction.

         Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:

                  (a) Words importing the singular number shall include the
plural number and vice versa.

                  (b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this Agreement nor
shall they affect its meaning, construction or effect.

                  (c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.

                  (d) All references herein to a particular time of day shall be
to New York City time.

                  (e) Regardless of the capacity in which The Bank of New York
is acting under this Agreement, the provisions of this Agreement that are of
general applicability (e.g. Sections I, V, VI and VII) shall apply to The Bank
of New York, in spite of referring to The Bank of New York as "Auction Agent."

II.      THE AUCTION.

         2.1      Purpose; Incorporation by Reference of Auction Procedures.

                  (a) The Certificate of Vote provides that the Applicable Rate
on Preferred Shares for each Dividend Period therefor after the initial Dividend
Period shall be the rate per annum that a commercial bank, trust company or
other financial institution appointed by the Fund advises results from the
implementation of the Auction Procedures. The Board of Trustees of the Fund has
adopted a resolution appointing The Bank of New York as Auction Agent for
purposes of the Auction Procedures. The Auction Agent hereby accepts such
appointment and agrees that, on each Auction Date, it shall follow the
procedures set forth in this Section 2 and the Auction Procedures for the
purpose of determining the Applicable Rate for the Preferred Shares for the next
Dividend Period. Each periodic operation of such procedures is hereinafter
referred to as an "Auction."

                  (b) All of the provisions contained in the Auction Procedures
are incorporated herein by reference in their entirety and shall be deemed to be
a part hereof to the same extent as if such


                                       2

provisions were set forth fully herein. In the case of any conflict between the
terms of any document incorporated herein by reference and the terms hereof, the
Auction Agent shall not be liable for its actions or inaction in accordance with
the terms of this Agreement.

         2.2 Preparation for Each Auction; Maintenance of Registry of Existing
Holders.

                  (a) As of the date hereof, the Fund shall provide the Auction
Agent with a list of the Broker-Dealers and shall cause to be delivered to the
Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement
signed by each such Broker-Dealer. The Auction Agent shall keep such list
current and accurate based upon information provided to it by Broker-Dealers and
shall indicate thereon, or on a separate list, the identity of each Existing
Holder, if any, whose most recent Order was submitted by a Broker-Dealer on such
list and resulted in such Existing Holder continuing to hold or purchase
Preferred Shares. Not later than five Business Days prior to any Auction Date
for which any change in such list of Broker-Dealers is to be effective, the Fund
shall notify the Auction Agent in writing of such change and, if any such change
is the addition of a Broker-Dealer to such list, the Fund shall cause to be
delivered to the Auction Agent for execution by the Auction Agent a
Broker-Dealer Agreement signed by such Broker-Dealer. The Auction Agent shall
have entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the
participation of any such Broker-Dealer in any Auction.

                  (b) The provisions contained in the Certificate of Vote
concerning Special Rate Periods and the notification of a Special Rate Period
will be followed by the Fund and, to the extent applicable, the Auction Agent,
and the provisions contained therein are incorporated herein by reference in
their entirety and shall be deemed to be a part of this Agreement to the same
extent as if such provisions were set forth fully herein. In the case of any
conflict between the terms of any document incorporated herein by reference and
the terms hereof, the Auction Agent shall not be liable for its actions or
inaction in accordance with the terms of this Agreement.

                  (c) The current Applicable Percentage is 150%. In the event
that the credit rating of the Preferred Shares changes in a way that results in
a change in the Applicable Percentage, the Fund shall send prompt notice of such
change to the Auction Agent. In the absence of its actual receipt of any such
notice, the Auction Agent is authorized to apply, and shall be fully protected
in applying, the Applicable Percentage last communicated to it by the Fund in a
notice or set forth above in this paragraph.

                  (d) (i) On each Auction Date, the Auction Agent shall
determine the dividend rate and the Maximum Rate. If any "AA" Financial
Composite Commercial Paper Rate, Treasury Index Rate, Treasury Note Rate or
Reference Rate, as the case may be, is not quoted on an interest equivalent, as
the case may be, basis, the Auction Agent shall convert the quoted rate to the
interest equivalent thereof as set forth in the definition of such rate in the
Certificate of Vote if the rate obtained by the Auction Agent is quoted on a
discount basis, or if such rate is quoted on a basis other than an interest
equivalent or discount basis the Auction Agent shall convert the quoted rate to
an interest equivalent rate after consultation with the Fund as to the method of
such conversion.

                      (ii) If any "AA" Financial Composite Commercial Paper
Rate is to be based on rates supplied by Commercial Paper Dealers and one or
more of the Commercial Paper Dealers shall not provide a quotation for the
determination of such "AA" Financial Composite Commercial Paper Rate, the
Auction Agent shall promptly notify the Fund so that the Fund can determine
whether to select a substitute Commercial Paper Dealer or substitute Commercial
Paper Dealers to provide the quotation or quotations not being supplied by any
Commercial Paper Dealer or Commercial Paper Dealers. The Fund shall promptly
advise the Auction Agent of any such selection.




                                       3

                        (iii) If any Treasury Index Rate or Treasury Note Rate
is to be based on rates supplied by U.S. Government Securities Dealers and one
or more of the U.S. Government Securities Dealers shall not provide a quotation
for the determination of such Treasury Rate, the Auction Agent shall promptly
notify the Fund so that the Fund can determine whether to select a substitute
U.S. Government Securities Dealer or substitute U.S. Government Securities
Dealers to provide the quotation or quotations not being supplied by any U.S.
Government Securities Dealer or U.S. Government Securities Dealers. The Fund
shall promptly advise the Auction Agent of any such selection.

                  (e) (i) The Auction Agent shall maintain a current registry of
the Existing Holders of the Preferred Shares based upon information provided to
it by Broker-Dealers for purposes of each individual Auction. The Fund shall use
commercially reasonable efforts to provide or cause to be provided to the
Auction Agent within ten Business Days following the date of the Closing a list
of the initial Existing Holders of Preferred Shares, and the Broker-Dealer of
each such Existing Holder through which such Existing Holder purchased such
shares. The Auction Agent may conclusively rely upon, as evidence of the
identities of the Existing Holders, such list, the results of each Auction and
written notices from any Existing Holder, the Agent Member of any Existing
Holder or the Broker-Dealer of any Existing Holder with respect to such Existing
Holder's transfer of any Preferred Shares to another Person.

                        (ii) In the event of any partial redemption of any
series of Preferred Shares, upon notice in writing by the Fund to the Auction
Agent of such partial redemption, the Auction Agent promptly shall request the
Securities Depository to notify the Auction Agent in writing of the identities
of the Agent Members (and the respective numbers of shares) from the accounts of
which shares have been called for redemption and the person or department at
such Agent Member to contact regarding such redemption. At least two Business
Days prior to the Auction preceding the date of redemption, the Auction Agent
shall request each Agent Member so identified to disclose to the Auction Agent
(upon selection by such Agent Member of the Existing Holders whose shares are to
be redeemed) the number of Preferred Shares of each such Existing Holder, if
any, to be redeemed by the Fund, provided that the Auction Agent has been
furnished with the name and telephone number of a person or department at such
Agent Member from which it is to request such information. In the absence of
receiving any such information with respect to an Existing Holder, from such
Existing Holder's Agent Member or otherwise, the Auction Agent may continue to
treat such Existing Holder as having ownership of the number of Preferred Shares
shown in the Auction Agent's registry of Existing Holders.

                        (iii) The Auction Agent shall register a transfer of the
ownership of Preferred Shares of any series from an Existing Holder to another
Existing Holder, or to another Person if permitted by the Fund, only if (A) such
transfer is made pursuant to an Auction or (B) if such transfer is made other
than pursuant to an Auction, the Auction Agent has been notified of such
transfer in writing, in a notice substantially in the form of Exhibit C to the
Broker-Dealer Agreement, by such Existing Holder or by the Agent Member of such
Existing Holder. The Auction Agent is not required to accept any notice of
transfer delivered for an Auction unless it is received by the Auction Agent by
3:00 p.m. on the Business Day next preceding the Auction Date. The Auction Agent
shall rescind a transfer made on the registry of the Existing Holders of any
Preferred Shares if the Auction Agent has been notified in writing, in a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreement, by the
Agent Member or the Broker-Dealer of any Person that (i) purchased any Preferred
Shares and the seller failed to deliver such shares or (ii) sold any Preferred
Shares and the purchaser failed to make payment to such Person upon delivery to
the purchaser of such shares.

                  (f) The Auction Agent may, but shall not be obligated to,
request that the Broker Dealers, as set forth in Section 3.2(b) of the
Broker-Dealer Agreements, provide the Auction Agent with a list of their
respective customers that such Broker-Dealers believe are Beneficial Owners of
Preferred Shares. The Auction Agent shall keep confidential any such information
and shall not disclose any such

                                       4


information so provided to any Person other than the relevant Broker-Dealer and
the Fund; provided, however, that the Auction Agent reserves the right and is
authorized to disclose any such information if (a) it is ordered to do so by a
court of competent jurisdiction or a regulatory body, judicial or quasi-judicial
agency or authority having the authority to compel such disclosure, (b) it is
advised by its counsel that its failure to do so would be unlawful or (c)
failure to do so would expose the Auction Agent to loss, liability, claim,
damage or expense for which it has not received indemnity or security
satisfactory to it.

         2.3      Auction Schedule.

         The Auction Agent shall normally conduct Auctions for each series of
Preferred Shares every seven days after the first Auction, in accordance with
the schedule set forth below. Such schedule may be changed by the Auction Agent
with the consent of the Fund, which consent shall not be withheld unreasonably.
The Auction Agent shall give notice of any such change to each Broker-Dealer.
Such notice shall be received prior to the first Auction Date on which any such
change shall be effective.

Time                                      Event
- ----                                      -----
By 9:30 am.                               Auction Agent shall advise the Fund
                                          and the Broker-Dealers of the Maximum
                                          Rate as set forth in Section 2.2(d)(i)
                                          hereof.

9:30 a.m. - 1:00 p.m.                     Auction Agent shall assemble
                                          information communicated to it by
                                          Broker-Dealers as provided in Section
                                          3(a) of Part II of the Certificate of
                                          Vote. Submission deadline is 1:00 p.m.

Not earlier than 1:00p.m.                 Auction Agent shall make
                                          determinations pursuant to Section
                                          3(a) of Part II of the Certificate of
                                          Vote.

By approximately 3:30 p.m. and            Auction Agent shall advise the Fund of
not later than the close of business)     the results of the Auction as provided
                                          in Section 4(a) of Part II of the
                                          Certificate Vote.

                                          Submitted Bid Orders and Submitted
                                          Sell Orders will be accepted and
                                          rejected in whole or in part and
                                          Preferred Shares will be allocated as
                                          provided in Section 5 of Part II of
                                          the Certificate of Vote. Auction Agent
                                          shall give notice of the Auction
                                          results as set forth in Section 2.4
                                          hereof.


         2.4 Notice of Auction Results.

         On each Auction Date for any series of Preferred Shares, the Auction
Agent shall notify Broker-Dealers of the results of the Auction (i.e., the
resulting rate and those bids accepted and rejected) by telephone or other
electronic means acceptable to the parties.

         2.5 Broker-Dealers.

                  (a) Not later than 12:00 noon on each Auction Date for any
series of Preferred Shares, the Fund shall pay to the Auction Agent in Federal
Funds or similar same-day funds an amount in cash equal to (i) in the case of
any Auction Date immediately preceding a seven-day Dividend Period, the product
of (A) a fraction the numerator of which is the number of days in such Dividend
Period (calculated by counting the first day of such Dividend Period but
excluding the last day thereof) and the denominator of which is 360, times (B)
1/4 of 1%, times (C) $25,000 times (D) the sum of the aggregate number of
outstanding Preferred Shares for which the Auction is conducted and (ii) in the
case of any Special Rate Period, the amount determined by mutual consent of the
Fund and the Broker-Dealers


                                       5

pursuant to Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall
apply such moneys as set forth in Section 3.5 of the Broker-Dealer Agreements
and shall thereafter remit to the Fund any remaining funds paid to the Auction
Agent pursuant to this Section 2.5(a).

                  (b) The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed in writing by the Fund.

                  (c) The Auction Agent from time to time shall enter into such
Broker-Dealer Agreements as the Fund shall request in writing.

         2.6 Ownership of Preferred Shares and Submission of Bids by the Fund
and Its Affiliates.

         Neither the Fund nor any Affiliate of the Fund may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Fund that is a Broker-Dealer may submit a Sell Order or Bid on behalf of
a Beneficial Owner or a Potential Beneficial Owner. The Fund shall notify the
Auction Agent in writing if the Fund or, to the best of the Fund's knowledge,
any Affiliate of the Fund becomes a Beneficial Owner of any Preferred Shares.
Any Preferred Shares redeemed, purchased or otherwise acquired (i) by the Fund
shall not be reissued, except in accordance with the requirements of the
Securities Act of 1933, as amended ("Securities Act") or (ii) by its Affiliates
shall not be transferred (other than to the Fund). The Auction Agent shall have
no duty or liability with respect to enforcement of this Section 2.6.

         2.7 Access to and Maintenance of Auction Records.

         The Auction Agent shall afford to the Fund, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Fund's sole cost
and expense) of all books, records, documents and other information concerning
the conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Fund requesting
that the Auction Agent afford such person access at least one Business Day prior
to the date of such access. The Auction Agent shall maintain records relating to
any Auction for a period of at least two years after such Auction (unless
requested in writing by the Fund to maintain such records for such longer period
not in excess of six years, then for such longer period), and such records, in
reasonable detail, shall accurately and fairly reflect the actions taken by the
Auction Agent hereunder. The Fund agrees to keep confidential any information
regarding the customers of any Broker-Dealer received from the Auction Agent in
connection with this Agreement or any Auction, and shall not disclose such
information or permit the disclosure of such information without the prior
written consent of the applicable Broker-Dealer to anyone except such agent,
accountant or counsel engaged to audit or review the results of Auctions as
permitted by this Section 2.7. The Fund reserves the right to disclose any such
information if it is ordered to do so by a court of competent jurisdiction or a
regulatory body, judicial or quasi-judicial agency or authority having authority
to compel such disclosure, or if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to the Fund. Any
such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer, provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is ordered
to do so by a court of competent jurisdiction or a regulatory body, judicial or
quasi judicial agency or authority having authority to compel such disclosure,
or if it is advised by its counsel that its failure to do so would (i) be
unlawful or (ii) expose it to liability, unless the Broker-Dealer shall have
offered indemnification satisfactory to such agent, accountant or counsel. The
Auction Agent shall have no responsibility for, and shall have no liability in
connection with, the Fund's performance of its duties under this Section 2.7.




                                       6

III.     THE AUCTION AGENT AS PAYING AGENT.

         3.1 The Paying Agent.

         The Board of Trustees of the Fund has adopted a resolution appointing
The Bank of New York as Auction Agent and Paying Agent. The Paying Agent hereby
accepts such appointment and agrees to act in accordance with its standard
procedures and the provisions of the Certificate of Vote which are specified
herein with respect to the Preferred Shares and as set forth in this Section 3.
If there is any conflict between its standard procedures and this Agreement, the
terms of this Agreement will govern.

         3.2 The Fund's Notices to the Paying Agent.

         Whenever any Preferred Shares are to be redeemed, the Fund promptly
shall deliver to the Paying Agent a Notice of Redemption, which will be mailed
by the Paying Agent to each Holder at least five Business Days prior to the date
such Notice of Redemption is required to be mailed pursuant to the Certificate
of Vote. Subject to the standards of Section 6.1 of this Agreement, the Paying
Agent shall have no responsibility to confirm or verify the accuracy of any such
Notice.

         3.3 The Fund to Provide Funds for Dividends and Redemptions.

                  (a) Not later than 12:00 noon on each Dividend Payment Date,
the Fund shall deposit with the Paying Agent an aggregate amount of Federal
Funds or similar same-day funds equal to the declared dividends to be paid to
Holders on such Dividend Payment Date, and shall give the Paying Agent
irrevocable written instructions to apply such funds to the payment of such
dividends on such Dividend Payment Date.

                  (b) If the Fund shall give a Notice of Redemption, then by
noon of the date fixed for redemption, the Fund shall deposit in trust with the
Paying Agent an aggregate amount of Federal Funds or similar same-day funds
sufficient to redeem such Preferred Shares called for redemption and shall give
the Paying Agent irrevocable written instructions and authority to pay the
redemption price to the Holders of Preferred Shares called for redemption upon
surrender of the certificate or certificates therefor.

         3.4 Disbursing Dividends and Redemption Price.

         After receipt of the Federal Funds or similar same-day funds and
instructions from the Fund described in Section 3.3 above, the Paying Agent
shall pay to the Holders (or former Holders) entitled thereto (i) on each
corresponding Dividend Payment Date, dividends on the Preferred Shares, and (ii)
on any date fixed for redemption, the redemption price of any shares of
Preferred Shares called for redemption. The amount of dividends for any Dividend
Period to be paid by the Paying Agent to Holders will be determined by the Fund
as set forth in Section 2 of Part I of the Certificate of Vote. The redemption
price to be paid by the Paying Agent to the Holders of any shares of Preferred
Shares called for redemption will be determined by the Fund as set forth in the
Certificate of Vote. The Paying Agent shall have no duty to determine the
redemption price and may rely on the amount thereof set forth in the Notice of
Redemption.

IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.

         4.1 Original Issue of Share Certificates.

         On the Date of Original Issue for any Preferred Shares, one certificate
for each series of the Preferred Shares shall be issued by the Fund and
registered in the name of Cede & Co., as nominee of the Securities Depository,
and countersigned by the Paying Agent.




                                       7

         4.2 Registration of Transfer or Exchange of Shares.

         Except as provided in this Section 4.2, the Preferred Shares shall be
registered solely in the name of the Securities Depository or its nominee. If
the Securities Depository shall give notice of its intention to resign as such,
and if the Fund shall not have selected a substitute Securities Depository
acceptable to the Paying Agent prior to such resignation, then, upon such
resignation of the Securities Depository, the Preferred Shares, at the Fund's
request, may be registered for transfer or exchange, and new certificates
thereupon shall be issued in the name of the designated transferee or
transferees, upon surrender of the old certificate in form deemed by the Paying
Agent to be properly endorsed for transfer with (a) all necessary endorsers'
signatures guaranteed in such manner and form and by such guarantor as the
Paying Agent may reasonably require, (b) such assurances as the Paying Agent
shall deem necessary or appropriate to evidence the genuineness and
effectiveness of each necessary endorsement and (c) satisfactory evidence of
compliance with all applicable laws relating to the collection of taxes in
connection with any registration of transfer or exchange or funds necessary for
the payment of such taxes. During any period when the certificate or
certificates for Preferred Shares are not held by a Securities Depository or its
nominee in book-entry form, no Auctions shall be held and this Agreement may be
terminated at the instance of either party as soon as practicable.

         4.3 Removal of Legend.

         Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing Preferred Shares shall be accompanied by
an opinion of counsel stating that such legend may be removed and such shares
may be transferred free of the restriction described in such legend, said
opinion to be delivered under cover of a letter from a Fund Officer authorizing
the Paying Agent to remove the legend on the basis of said opinion.

         4.4 Lost, Stolen or Destroyed Shares Certificates.

         The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Fund. The
Paying Agent may issue new certificates in exchange for and upon the
cancellation of mutilated certificates. Any request by the Fund to the Paying
Agent to issue a replacement or new certificate pursuant to this Section 4.4
shall be deemed to be a representation and warranty by the Fund to the Paying
Agent that such issuance will comply with provisions of applicable law and the
Certificate of Vote and resolutions of the Fund.

         4.5 Disposition of Canceled Certificates: Record Retention.

         The Paying Agent shall retain stock certificates which have been
canceled in transfer or in exchange and accompanying documentation in accordance
with applicable rules and regulations of the Securities and Exchange Commission
(the "Commission") for at least two calendar years from the date of such
cancellation. The Paying Agent, upon written request by the Fund, shall afford
to the Fund, its agents and counsel access at reasonable times during normal
business hours to review and make extracts or copies (at the Fund's sole cost
and expense) of such certificates and accompanying documentation. Upon written
request by the Fund at any time within the six month period commencing
immediately after the expiration of this two-year period, the Paying Agent shall
deliver to the Fund the canceled certificates and accompanying documentation.
The Fund, at its expense, shall retain such records for a minimum additional
period of at least four calendar years from the date of delivery of the records
to the Fund and shall make such records available during this period at any
time, or from time to time, for reasonable periodic, special, or other
examinations by representatives of the Commission. The Fund also shall undertake
to furnish to the Commission, upon demand, either at its principal office or at
any regional office, complete, correct and current hard copies of any and all
such records. Thereafter, such records


                                       8

shall not be destroyed by the Fund without the approval of the Paying Agent,
which approval shall not be withheld unreasonably, but will be safely stored for
possible future reference.

         4.6 Stock Register.

         The Paying Agent shall maintain the stock register, which shall contain
a list of the Holders, the number of shares held by each Holder and the address
of each Holder. The Paying Agent shall record in the stock register any change
of address of a Holder upon written notice by such Holder. In case of any
written request or demand for the inspection of the stock register or any other
books of the Fund in the possession of the Paying Agent, the Paying Agent will
notify the Fund and secure instructions as to permitting or refusing such
inspection. The Paying Agent reserves the right, however, to exhibit the stock
register or other records to any person in case (a) it is ordered to do so by a
court of competent jurisdiction or a regulatory body, judicial or quasi-judicial
agency or authority having the authority to compel such disclosure, (b) it is
advised by its counsel that its failure to do so would be unlawful or (c)
failure to do so would expose the Auction Agent to loss, liability, claim,
damage or expense for which it has not received indemnity or security
satisfactory to it.

         4.7 Return of Funds.

         Any funds deposited with the Paying Agent by the Fund for any reason
(other than for the payment of amounts due to the Paying Agent) under this
Agreement, including for the payment of dividends or the redemption of Preferred
Shares, that remain with the Paying Agent after 12 months shall be repaid to the
Fund upon written request by the Fund.

V.       REPRESENTATIONS AND WARRANTIES.

         5.1 Representations and Warranties of the Fund.


         The Fund represents and warrants to the Auction Agent that:

                           (i) the Fund is duly organized and is validly
existing as a business trust under the laws of the Commonwealth of
Massachusetts, and has full power to execute and deliver this Agreement and to
authorize, create and issue the Preferred Shares;

                           (ii) the Fund is registered with the Commission under
the 1940 Act as a closed-end, non-diversified, management investment company;

                           (iii) this Agreement has been duly and validly
authorized, executed and delivered by the Fund and constitutes the legal, valid
and binding obligation of the Fund, enforceable against the Fund in accordance
with its terms, subject to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and to
general equitable principles;

                           (iv) the form of the certificates evidencing the
Preferred Shares comply with all applicable laws of the Commonwealth of
Massachusetts;

                           (v) the Preferred Shares have been duly and validly
authorized by the Fund and, upon completion of the initial sale of the Preferred
Shares and receipt of payment therefor, will be validly issued by the Fund and
fully paid;

                           (vi) at the time of the offering of the Preferred
Shares, the shares offered will be registered under the Securities Act and no
further action by or before any governmental body or authority of the United
States or of any state thereof is required in connection with the execution and


                                       9

delivery of this Agreement or will be required in connection with the issuance
of shares of the Preferred Shares, except such action as required by applicable
state securities laws;

                           (vii) the execution and delivery of this Agreement
and the issuance and delivery of the Preferred Shares do not and will not
conflict with, violate, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation, any
order or decree of any court or public authority having jurisdiction over the
Fund, or any mortgage, indenture, contract, agreement or undertaking to which
the Fund is a party or by which it is bound; and

                           (viii) no taxes are payable upon or in respect of the
execution of this Agreement or will be payable upon or in respect of the
issuance of the Preferred Shares.

         5.2 Representations and Warranties of the Auction Agent.

         The Auction Agent represents and warrants to the Fund that:

                           (i) the Auction Agent is duly organized and is
validly existing as a banking corporation in good standing under the laws of the
State of New York and has the corporate power to enter into and perform its
obligations under this Agreement; and

                           (ii) this Agreement has been duly and validly
authorized, executed and delivered by the Auction Agent and constitutes the
legal, valid and binding obligation of the Auction Agent, enforceable against
the Auction Agent in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equitable principles.

VI. THE AUCTION AGENT.

         6.1 Duties and Responsibilities.

                  (a) The Auction Agent is acting solely as agent for the Fund
hereunder, owes no fiduciary duties to any Person by reason of this Agreement,
and owes no duties, fiduciary or otherwise, to any other Person by reason of
this Agreement.

                  (b) The Auction Agent undertakes to perform such duties and
only such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.

                  (c) In the absence of willful misconduct or gross negligence
on its part, the Auction Agent shall not be liable for any action taken,
suffered or omitted by it or for any error of judgment made by it in the
performance of its duties under this Agreement.

                  (d) In no event shall the Auction Agent be liable for special,
punitive, indirect or consequential loss or damage of any kind whatsoever
(including, but not limited to, lost profits), even if the Auction Agent has
been advised of the likelihood of such loss or damage and regardless of the form
of action.

         6.2 Rights of the Auction Agent.

                  (a) The Auction Agent may conclusively rely upon, and shall be
fully protected in acting or refraining from acting upon, any communication
authorized hereby and any written instruction, notice, request, direction,
consent, report, certificate, share certificate or other instrument, paper or


                                       10

document reasonably believed by it to be genuine. The Auction Agent shall not be
liable for acting or refraining from acting upon any telephone communication
authorized hereby which the Auction Agent reasonably believes in good faith to
have been given by the Fund or by a Broker-Dealer. The Auction Agent may record
telephone communications with the Fund or with the Broker-Dealers or with both.

                  (b) The Auction Agent may consult with counsel of its choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reasonable reliance thereon.

                  (c) The Auction Agent shall not be required to advance, expend
or risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder. The Auction Agent shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Fund.

                  (d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys (other
than its officers and employees) and shall not be responsible for the negligence
or misconduct of any such agent or attorney selected and appointed by it with
due care.

                  (e) The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been grossly
negligent in ascertaining the pertinent facts necessary to make such judgment.

                  (f) The Auction Agent shall not be required to and shall make
no representations and have no responsibilities as to the validity, accuracy,
value or genuineness of any signatures or endorsements, other than its own and
those of its Authorized Officers, employees, agents, and attorneys. The Auction
Agent makes no representations as to and shall have no liability with respect to
the correctness of the recitals in, or the validity, accuracy or adequacy of
this Agreement, any Broker-Dealer Agreement, any offering material used in
connection with the offer and sale of the Preferred Shares or any other
agreement or instrument executed in connection with the transactions
contemplated herein or in any thereof. The Auction Agent shall have no
obligation or liability in respect of the registration or exemption therefrom of
the Preferred Shares under federal or state securities laws in respect of the
sufficiency or the conformity of any transfer of the Preferred Shares pursuant
to the terms of the Auction Agency Agreement, any Broker-Dealer Agreement, or
any other document contemplated thereby or related thereto.

                  (g) Whenever in the administration of the provisions of this
Agreement the Auction Agent shall deem it necessary or desirable that a matter
be proved or established prior to taking or suffering any action to be taken
hereunder, such matter may, in the absence of gross negligence or willful
misconduct on the part of the Auction Agent, be deemed to be conclusively proved
and established by a certificate signed by the Fund or the Broker-Dealer, and
delivered to the Auction Agent and such certificate, in the absence of gross
negligence or willful misconduct on the part of the Auction Agent, shall be full
warrant to the Auction Agent for any action taken or omitted by it under the
provisions of this Agreement upon the faith thereof. Upon receipt of any such
certificate signed by the Fund or a Broker-Dealer, the Auction Agent shall
promptly provide a copy of said certificate to the Broker-Dealer or the Fund,
respectively.

                  (h) The Auction Agent shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, entitlement
order, approval or other paper or document furnished by Fund or the
Broker-Dealer, except to the extent that such failure to investigate would be
deemed grossly negligent.




                                       11

                  (i) Any corporation into which the Auction Agent may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Auction Agent shall be
a party, or any corporation succeeding to the Dealing and Trading business of
the Auction Agent shall be the successor of the Auction Agent hereunder, with
the consent of the Fund but without the execution or filing of any paper with
any party hereto or any further act on the part of any of the parties hereto,
except where any instrument of transfer or assignment may be required by law to
effect such succession, anything herein to the contrary notwithstanding.

         6.3      Compensation, Expenses and Indemnification.

                  (a) The Fund shall pay to the Auction Agent from time to time
such reasonable compensation for all services rendered by it under this
Agreement and under the Broker-Dealer Agreements as shall be set forth in a
separate writing signed by the Fund and the Auction Agent, subject to
adjustments if the Preferred Shares no longer are held of record by the
Securities Depository or its nominee or if there shall be such other change as
shall increase or decrease materially the Auction Agent's obligations hereunder
or under the Broker-Dealer Agreements.

                  (b) The Fund shall reimburse the Auction Agent upon its
request for all reasonable expenses, disbursements and advances incurred or made
by the Auction Agent in accordance with any provision of this Agreement and of
the Broker-Dealer Agreements (including the reasonable compensation, expenses
and disbursements of its agents and counsel), except any expense, disbursement
or advance attributable to its gross negligence or willful misconduct, or that
of its officers, directors or employees.

                  (c) The Fund shall indemnify the Auction Agent and its
officers, directors, employees and agents for, and hold it harmless against, any
loss, liability or expense incurred without gross negligence or willful
misconduct on the part of the Auction Agent arising out of or in connection with
its agency under this Agreement and under the Broker-Dealer Agreements,
including the costs and expenses of defending itself against any claim of
liability in connection with its exercise or performance of any of its duties
hereunder and thereunder, except such as may result from its gross negligence or
willful misconduct, or that its officers, directors or employees.

         6.4      Force Majeure

                  The Auction Agent shall not be responsible for or liable for
any failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including, without limitation, acts of God; earthquakes;
fires; floods; wars; civil or military disturbances; sabotage; acts of
terrorism; epidemics; riots; interruptions, loss or malfunctions of utilities;
computer (hardware or software) or communications services (provided that
Auction Agent has not been grossly negligent with respect to selection,
operation or maintenance of such utilities, computer (hardware or software) or
communications service); accidents; labor disputes; acts of civil or military
authority or governmental actions; it being understood that the Auction Agent
shall use reasonable efforts which are consistent with accepted practices in the
banking industry to resume performance as soon as practicable under the
circumstances.

VII. MISCELLANEOUS.

         7.1      Term of Agreement.

                  (a) The term of this Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Fund may terminate this
Agreement at any time by so notifying the Auction


                                       12

Agent in writing, provided that, if any Preferred Shares remain outstanding, the
Fund shall have entered into an agreement with a successor auction agent. The
Auction Agent may terminate this Agreement upon prior notice to the Fund on the
date specified in such notice, which date shall be no earlier than 60 days after
delivery of such notice. The Auction Agent may resign after 30 days following
the delivery of notice to the Fund that the Auction Agent has not been paid
amounts due to it. If the Auction Agent terminates this Agreement while any
Preferred Shares remains outstanding, the Fund shall use its best efforts to
enter into an agreement with a successor auction agent containing substantially
the same terms and conditions as this Agreement.

                  (b) Except as otherwise provided in this Section 7.1(b), the
respective rights and duties of the Fund and the Auction Agent under this
Agreement shall cease upon termination of this Agreement. The Fund's
representations, warranties, covenants and obligations to the Auction Agent
under Sections 5.1 and 6.3 hereof, and the Auction Agent's representations and
warranties under Section 5.2 hereof shall survive the termination hereof. Upon
termination of this Agreement, the Auction Agent shall (i) resign as Auction
Agent under the Broker-Dealer Agreements, (ii) at the Fund's written request,
deliver promptly to the Fund copies of all books and records maintained by it in
connection with its duties hereunder, and (iii) at the written request of the
Fund, transfer promptly to the Fund's custodian or to any successor auction
agent any funds deposited by the Fund with the Auction Agent (whether in its
capacity as Auction Agent or as Paying Agent) pursuant to this Agreement which
have not been distributed previously by the Auction Agent in accordance with
this Agreement.

         7.2 Communications.

         Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party at its address or telecopier number set forth below:



If to the Fund,                     Van Kampen Investments Inc.
addressed to:                       Attn: Howard Tiffen
                                    1221 Avenue of the Americas
                                    New York, New York 10020


If to the Auction Agent,            The Bank of New York
addressed to:                       Corporate Trust Administration
                                    100 Church Street, 8th Floor
                                    New York, New York  10286
                                    Attention: Corporate Trust Dealing and
                                               Trading Group --   Auction Desk
                                    Telephone No.: (212) 437-6166
                                    Facsimile No.: (212) 437-6123



or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the


                                       13

address specified herein. Communications shall be given on behalf of the Fund by
a Fund Officer and on behalf of the Auction Agent by an Authorized Officer.

         7.3      Entire Agreement.

         This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
between the parties relating to the subject matter hereof, except for written
agreements relating to the compensation of the Auction Agent.

         7.4      Benefits.

         Nothing herein, express or implied, shall give to any Person, other
than the Fund, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.

         7.5      Amendment; Waiver.

                  (a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged. The Fund shall notify the Auction Agent in writing of any change in
the Certificate of Vote prior to the effective date of any such change. If any
such change in the Certificate of Vote materially increases the Auction Agent's
obligations hereunder, the Fund shall obtain the written consent of the Auction
Agent prior to the effective date of such change.

                  (b) Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.

         7.6      Successors and Assigns.

         This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Fund and the Auction Agent. This Agreement may not be assigned by either party
hereto absent the prior written consent of the other party, which consent shall
not be withheld unreasonably.

         7.7      Severability.

         If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.

         7.8      Execution in Counterparts.

         This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.

         7.9      Governing Law.

         This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed wholly in said state.

         7.10      Jurisdiction.




                                       14

         The parties agree that all actions and proceedings arising out of this
Auction Agency Agreement or any of the transactions contemplated hereby shall be
brought in the County of New York, and, in connection with any such action or
proceeding, submit to the jurisdiction of, and venue in, such County. Each of
the parties hereto also irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim arising out of this Agreement or the
transactions contemplated hereby.





                            [Signature pages follow]




                                       15

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                  VAN KAMPEN SENIOR INCOME TRUST



                                  By:
                                     ------------------------------------
                                     Name:
                                     Title:


                                  THE BANK OF NEW YORK, As Auction Agent



                                  By:
                                     ------------------------------------
                                     Name:
                                     Title:








                                       16

                                                                       EXHIBIT A




                         VAN KAMPEN SENIOR INCOME TRUST



                              THE BANK OF NEW YORK,
                                as Auction Agent



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


                             BROKER-DEALER AGREEMENT

                           dated as of _________, 2004

                                   Relating to

                   Auction Preferred Shares (Preferred Shares)

              Series M, Series T, Series W, Series TH and Series F

                                       of

                         VAN KAMPEN SENIOR INCOME TRUST

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



                                 [BROKER DEALER]



                                   A-1

                                                                       EXHIBIT B




                         VAN KAMPEN SENIOR INCOME TRUST
                    FORM OF CERTIFICATE OF VOTE ESTABLISHING
                 A CLASS OF PREFERRED SHARES (THE "CERTIFICATE")

         Van Kampen Senior Income Trust, a Massachusetts business trust (the
"Trust"), certifies that:

         FIRST: Article VI of the Trust's Declaration of Trust (which, as
hereafter restated or amended from time to time, is together with this
Certificate herein called the "Declaration") empowers the Board of Trustees of
the Trust (the "Board") to authorize the issuance of one or more series of a
class of preferred shares, provided that to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), no such series
shall have priority over any other series within its class upon the distribution
of assets or in respect of the payment of dividends.

         SECOND: Pursuant to the authority so vested in the Board of Trustees of
the Trust, the Board has, by resolution, authorized the creation of 28,000
Auction Rate Cumulative Preferred Shares, $0.01 par value, liquidation
preference $25,000 per share, classified as Series M, T, W, TH and F
(collectively, the "Series") Auction Rate Cumulative Preferred Shares
(collectively, the "Preferred Shares").

         THIRD: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the shares of each series of Preferred Shares are as follows:

                                   DESIGNATION

         SERIES M: A series of 5,600 Preferred Shares, liquidation preference
$25,000 per share, is hereby designated "Series M Auction Rate Cumulative
Preferred Shares" ("Series M"). Each share of Series M may be issued on a date
to be determined by the Board or pursuant to their delegated authority; have an
initial Applicable Rate and an initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board or pursuant to their
delegated authority; and have such other preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption, in addition to those required by applicable law or set
forth in the Declaration applicable to preferred shares of the Trust, as are set
forth in Part I and Part II of this Certificate. The Series M shall constitute a
separate series of Preferred Shares of the Trust.

         SERIES T: A series of 5,600 Preferred Shares, liquidation preference
$25,000 per share, is hereby designated "Series T Auction Rate Cumulative
Preferred Shares" ("Series T"). Each share of Series T may be issued on a date
to be determined by the Board or pursuant to their delegated authority; have an
initial Applicable Rate and an initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board or pursuant to their
delegated authority; and have such other preferences, rights, voting powers,
restrictions,

                                      B-1

                                    EXHIBIT C

                  (Note: To be used only for transfers made
                  other than pursuant to an Auction)

                                  TRANSFER FORM

         Re:      VAN KAMPEN SENIOR INCOME TRUST
                  Auction Preferred Shares ("Preferred Shares")


We are (check one):

         [ ]      the Existing Holder named below;

         [ ]      the Broker-Dealer for such Existing Holder; or

         [ ]      the Agent Member for such Existing Holder.


         We hereby notify you that such Beneficial Owner has transferred
___________ Series __ Preferred Shares to ________________________________.


                                                ________________________________
                                                (Name of Existing Holder)


                                                ________________________________
                                                (Name of Broker-Dealer)



                                                ________________________________
                                                (Name of Agent Member)

By:___________________
    Printed Name:
    Title:


                                      C-1

                                    EXHIBIT D

          (Note: To be used only for failures to deliver or to pay for
                  Preferred Shares sold pursuant to an Auction)

                         NOTICE OF A FAILURE TO DELIVER


         We are a Broker-Dealer for ___________________ (the "Purchaser"), which
purchased ________ Series __ Preferred Shares of VAN KAMPEN SENIOR INCOME TRUST
in the Auction held on _____________________ from the seller of such shares.

         We hereby notify you that (check one):

         _____ the Seller failed to deliver such shares to the Purchaser.

         _____ the Purchaser failed to make payment to the Seller upon delivery
               of such shares.


                                         Name:   __________________________
                                                 (Name of Broker-Dealer)


                                         By:     __________________________
                                                 Printed Name:
                                                 Title:

                                      D-1

EX-99.(K)(3)

                                                                  EXHIBIT (k)(3)

                         VAN KAMPEN SENIOR INCOME TRUST



                              THE BANK OF NEW YORK,
                                as Auction Agent
                             -----------------------

                             BROKER-DEALER AGREEMENT

                              dated as of    , 2004

                                   Relating to

                  Auction Preferred Shares ("Preferred Shares")

              Series M, Series T, Series W, Series TH and Series F

                                       of

                         VAN KAMPEN SENIOR INCOME TRUST

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

                                 [Broker-Dealer]




                             BROKER-DEALER AGREEMENT

         This Broker-Dealer Agreement dated as of    , 2004, is between The Bank
of New York, a New York banking corporation (the "Auction Agent") (not in its
individual capacity, but solely as agent of VAN KAMPEN SENIOR INCOME TRUST (the
"Fund"), pursuant to authority granted to it in the Auction Agency Agreement
dated as of    , 2004, between the Fund and the Auction Agent (the "Auction
Agency Agreement") and (together with its successors and assigns, "BD").

         The Fund proposes to issue five series of auction preferred shares, par
value $0.01 per share, designated Series M Preferred Shares, Series T Preferred
Shares, Series W Preferred Shares, Series TH and Series F Preferred Shares,
liquidation preference $25,000 per share ("Preferred Shares"), pursuant to the
Fund's Certificate of Vote (as defined below).

         The Fund's Certificate of Vote provides that for each subsequent
Dividend Period of Preferred Shares then outstanding, the Applicable Rate for
Preferred Shares for each subsequent Dividend Period shall be equal to the rate
per annum that results from an Auction for Outstanding Preferred Shares on the
respective Auction Date therefor next preceding the period from and after the
Date of Original Issue to and including the last day of the initial Dividend
Period. The Board of Trustees of the Fund has adopted a resolution appointing
The Bank of New York as Auction Agent for purposes of the Auction Procedures,
and pursuant to Section 2.5 of the Auction Agency Agreement, the Fund has
requested and directed the Auction Agent to execute and deliver this Agreement.

         The Auction Procedures require the participation of one or more
Broker-Dealers.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Auction Agent and BD agree as follows:

I.       DEFINITIONS AND RULES OF CONSTRUCTION.

         1.1 Terms Defined by Reference to the Certificate of Vote.

         Capitalized terms not defined herein shall have the respective meanings
specified in the Certificate of Vote.

         1.2 Terms Defined Herein.

                  (a) As used herein, the following terms shall have the
following meanings, unless the context otherwise requires:

                  (b) "Auction" shall have the meaning specified in Section 2.1
of the Auction Agency Agreement.

                  (c) "Auction Procedures" shall mean the Auction Procedures
that are set forth in the Certificate of Vote.

                  (d) "Authorized Officer" of the Auction Agent shall mean each
Vice President, Assistant Vice President and Assistant Treasurer of the Dealing
and Trading Group of the Corporate Trust Department of the Auction Agent and
every other officer or employee of the Auction Agent designated as an
"Authorized Officer" for purposes of this Agreement in a written communication
to BD.

                  (e) "BD Officer" shall mean each officer or employee of BD
designated as a "BD Officer" for purposes of this Agreement in a written
communication to the Auction Agent.



                                       2

                  (f) "Broker-Dealer Agreement" shall mean this Agreement and
any substantially similar agreement between the Auction Agent and a
Broker-Dealer.

                  (g) "Certificate of Vote" shall mean the Certificate of Vote
of the Fund, dated      , 2004, specifying the rights and preferences of the
Preferred Shares.

         1.3 Rules of Construction.

         Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:

                  (a) Words importing the singular number shall include the
plural number and vice versa.

                  (b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect.

                  (c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.

                  (d) All references herein to a particular time of day shall be
to New York City time.

II.      NOTIFICATION OF DIVIDEND.

         The provisions contained in the Certificate of Vote concerning the
notification of a Special Rate Period will be followed by the Auction Agent and
BD, and the provisions contained therein are incorporated herein by reference in
their entirety and shall be deemed to be a part of this Agreement to the same
extent as if such provisions were set forth fully herein. In the case of any
conflict between the terms of any document incorporated herein by reference and
the terms hereof, the Auction Agent shall not be liable for its actions or
inaction in accordance with the terms of this Agreement, provided it shall have
complied with the standards of conduct in the Auction Agency Agreement.

III.     THE AUCTION.

         3.1 Purpose; Incorporation by Reference of Auction Procedures.

                  (a) On each Auction Date, the provisions of the Auction
Procedures will be followed by the Auction Agent for the purpose of determining
the Applicable Rate for each series of the Preferred Shares, for each Dividend
Period. Each periodic operation of such procedures is hereinafter referred to as
an "Auction."

                  (b) All of the provisions contained in the Auction Procedures
are incorporated herein by reference in their entirety and shall be deemed to be
a part of this Agreement to the same extent as if such provisions were set forth
fully herein. In the case of any conflict between the terms of any document
incorporated herein by reference and the terms hereof, the Auction Agent shall
not be liable for its actions or inaction in accordance with the terms of this
Agreement, provided it shall have complied with the standards of conduct in the
Auction Agency Agreement.

                  (c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this Agreement.
BD understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in "Definitions" in the Certificate of
Vote may execute a Broker-Dealer Agreement and participate as Broker-Dealers in
Auctions.



                                       3

                  (d) BD and other Broker-Dealers may participate in Auctions
for their own accounts. However, the Fund, by notice to BD and all other Broker
Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions for
their own accounts, provided that Broker-Dealers may continue to submit Hold
Orders and Sell Orders. At the request of the Fund, the Auction Agent will seek
written certification from the Broker-Dealer that none of its orders are for its
own account, other than Hold Orders or Sell Orders and will provide to the Fund
such written certifications as it receives. The Auction Agent shall have no
other responsibility for and shall have no liability with respect to the
enforcement of this Section 3.1(d).

         3.2 Preparation for Each Auction.

                  (a) Not later than 9:30 A.M. on each Auction Date for the
Preferred Shares, the Auction Agent shall advise BD by telephone or other
electronic means of communication acceptable to the parties of the Maximum Rate
in effect on such Auction Date.

                  (b) The Auction Agent from time to time may, but shall not be
obligated to, request BD to provide it with a list of the respective customers
BD believes are Beneficial Owners of Preferred Shares. BD shall comply with any
such request, and the Auction Agent shall keep confidential any such
information, including information received as to the identity of Bidders in any
Auction, and shall not disclose any such information so provided to any Person
other than the Fund; and such information shall not be used by the Auction Agent
or its officers, employees, agents or representatives for any purpose other than
such purposes as are described herein or in the Auction Agency Agreement;
provided, however, that the Auction Agent reserves the right and is authorized
to disclose any such information if (a) it is ordered to do so by a court of
competent jurisdiction or a regulatory body, judicial or quasi-judicial agency
or authority having the authority to compel such disclosure, (b) it is advised
by its counsel that its failure to do so would be unlawful or (c) failure to do
so would expose the Auction Agent to loss, liability, claim, damage or expense
for which it has not received indemnity or security satisfactory to it. In the
event that the Auction Agent is required to disclose information in accordance
with the foregoing sentence, it shall provide written notice of such requirement
to BD as promptly as practicable. The Auction Agent shall, subject to the terms
of the Auction Agency Agreement, transmit any list of customers BD believes are
Beneficial Owners of Preferred Shares and information related thereto only to
its officers, employees, agents or representatives who need to know such
information for the purposes of acting in accordance with this Agreement, and
the Auction Agent shall use commercially reasonable efforts to prevent the
transmission of such information to others and shall cause its officers,
employees, agents and representatives to abide by the foregoing confidentiality
restrictions; provided, however, that the Auction Agent shall have no
responsibility or liability for the actions of any of its officers, employees,
agents or representatives after they have left the employ of the Auction Agent.

         3.3 Auction Schedule; Method of Submission of Orders.

                  (a) The Fund and the Auction Agent shall conduct Auctions for
each series of the Preferred Shares in accordance with the schedule set forth
below. Such schedule may be changed at any time by the Auction Agent with the
consent of the Fund, which consent shall not be withheld unreasonably. The
Auction Agent shall give notice of any such change to BD. Such notice shall be
received prior to the first Auction Date on which any such change shall be
effective.

Time                                       Event
- ----                                       -----
By 9:30 A.M.                               Auction Agent shall advise the Fund
                                           and the Broker-Dealers of the Maximum
                                           Rate as set forth in Section 3.2(a)
                                           hereof.



                                       4


Time                                       Event
- ----                                       -----
9:30 A.M. - 1:00 P.M.                      Auction Agent shall assemble
                                           information communicated to it by
                                           Broker-Dealers as provided in Section
                                           3(a) of Part II of the Certificate of
                                           Vote. Submission Deadline is 1:00
                                           P.M.


Not earlier than 1:00 P.M.                 Auction Agent shall make
                                           determinations pursuant to Section
                                           3(a) of Part II of the Certificate of
                                           Vote.

By approximately 3:30 P.M. (and            Auction Agent shall advise the Fund
not later than the close of business)      of the results of the Auction as
                                           provided in Section 4(a) of Part II
                                           of the Certificate of Vote.

                                           Submitted Bid Orders and Submitted
                                           Sell Orders will be accepted and
                                           rejected in whole or in part and
                                           Preferred Shares will be allocated as
                                           provided in Section 5 of Part II of
                                           the Certificate of Vote.

                                           Auction Agent shall give notice of
                                           the Auction results as set forth in
                                           Section 3.4(a) hereof.


                  (b) BD agrees to maintain a list of Potential Beneficial
Owners and to contact the Potential Beneficial Owners on such list on or prior
to each Auction Date for the purposes set forth in Section 2 of Part II of the
Certificate of Vote.

                  (c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit A. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.

                  (d) BD shall deliver to the Auction Agent (i) a written
notice, substantially in the form attached hereto as Exhibit B, of transfers of
Preferred Shares, made through BD by an Existing Holder to another Person other
than pursuant to an Auction, and (ii) a written notice, substantially in the
form attached hereto as Exhibit C, of the failure of Preferred Shares to be
transferred to or by any Person that purchased or sold Preferred Shares through
BD pursuant to an Auction. The Auction Agent is not required to accept any
notice delivered pursuant to the terms of the foregoing sentence with respect to
an Auction unless it is received by the Auction Agent by 3:00 P.M. on the
Business Day next preceding the applicable Auction Date.

         3.4 Notice of Auction Results.

                  (a) On each Auction Date, the Auction Agent shall notify BD by
telephone or other electronic means acceptable to the parties of the Auction
results. On the Business Day next succeeding such Auction Date, the Auction
Agent shall notify BD in writing of the disposition of all Orders submitted by
BD in the Auction held on such Auction Date.

                  (b) BD shall notify each Beneficial Owner, Potential
Beneficial Owner, Existing Holder or Potential Holder on whose behalf BD has
submitted an Order, of the Auction results and take such other action as is
required of BD.

                                       5

         If any Beneficial Owner or Existing Holder selling Preferred Shares in
an Auction fails to deliver such shares, the Broker-Dealer of any Person that
was to have purchased Preferred Shares in such Auction may deliver to such
Person a number of whole shares of Preferred Shares that is less than the number
of shares that otherwise was to be purchased by such Person. In such event, the
number of Preferred Shares to be so delivered shall be determined by such
Broker-Dealer. Delivery of such lesser number of shares shall constitute good
delivery. Upon the occurrence of any such failure to deliver shares, such
Broker-Dealer shall deliver to the Auction Agent the notice required by Section
3.3(d)(ii) hereof. Notwithstanding the foregoing terms of this Section 3.4(b),
any delivery or non-delivery of Preferred Shares which represents any departure
from the results of an Auction, as determined by the Auction Agent, shall be of
no effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the terms of Section 3.3(d) hereof.
The Auction Agent shall have no duty or liability with respect to enforcement of
this Section 3.4(b). Any delivery or non-delivery of Preferred Shares which
represents any departure from the results of an Auction shall not affect the
results of the Auction.

         3.5 Service Charge to be Paid to BD.

         On the Business Day next succeeding each Auction Date, the Auction
Agent shall pay to BD from moneys received from the Fund an amount equal to: (a)
in the case of any Auction Date immediately preceding a Dividend Period of less
than one year, the product of (i) a fraction the numerator of which is the
number of days in such Dividend Period (calculated by counting the first day of
such Dividend Period but excluding the last day thereof) and the denominator of
which is 360, times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of
(A) the aggregate number of Preferred Shares placed by BD in the applicable
Auction that were (x) the subject of a Submitted Bid of a Beneficial Owner
submitted by BD and continued to be held as a result of such submission and (y)
the subject of a Submitted Bid of a Potential Beneficial Owner submitted by BD
and were purchased as a result of such submission plus (B) the aggregate number
of Preferred Shares subject to valid Hold Orders (determined in accordance with
Section 2 of Part II of the Certificate of Vote) submitted to the Auction Agent
by BD plus (C) the number of Preferred Shares deemed to be subject to Hold
Orders by Beneficial Owners pursuant to Section 3 of Part II of the Certificate
of Vote that were acquired by BD for its own account or were acquired by such
Beneficial Owners through BD; and (b) in the case of any Auction Date
immediately preceding a Special Rate Period of one year or longer, that amount
as mutually agreed upon by the Fund and BD, based on the selling concession that
would be applicable to an underwriting of fixed or variable rate preferred
shares with a similar final maturity or variable rate dividend period, at the
commencement of such Special Rate Period.

         For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired Preferred Shares through BD transfers those shares
to another Person other than pursuant to an Auction, then the Broker-Dealer for
the shares so transferred shall continue to be BD, provided, however, that if
the transfer was effected by, or if the transferee is, a Broker-Dealer other
than BD, then such Broker-Dealer shall be the Broker-Dealer for such shares.

IV.      MISCELLANEOUS.

         4.1 Termination.

         Any party may terminate this Agreement at any time upon five days'
prior written notice to the other party; provided, however, that if the
Broker-Dealer is Citigroup Global Markets Inc. it may not terminate this
Agreement without first obtaining the prior written consent of the Fund to such
termination, which consent shall not be withheld unreasonably. The Auction Agent
is without discretion to terminate this Agreement and will move to terminate it
only pursuant to written direction from the Fund. This




                                       6


Agreement shall automatically terminate upon the redemption of all outstanding
Preferred Shares or upon termination of the Auction Agent Agreement.

         4.2 Force Majeure.

         Neither party to this Agreement shall be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including, without limitation, acts of God; earthquakes;
fires; floods; wars; civil or military disturbances; sabotage; acts of
terrorism; epidemics; riots; interruptions, loss or malfunctions or utilities;
computer (hardware or software) or communications services (provided that
Auction Agent has not been grossly negligent with respect to selection,
operation or maintenance of such utilities, computer (hardware or software) or
communications service); accidents; labor disputes; acts of civil or military
authority or governmental actions; it being understood that the parties shall
use reasonable efforts which are consistent with accepted practices in the
banking industry to resume performance as soon as practicable under the
circumstances.

         4.3 Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.

                  (a) BD is, and shall remain for the term of this Agreement, a
member of, or a participant in, the Securities Depository (or an affiliate of
such a member or participant).

                  (b) BD represents that it (or if BD does not act as Agent
Member, one of its affiliates) shall make all dividend payments on the Preferred
Shares available in same-day funds on each Dividend Payment Date to customers
that use BD (or its affiliate) as Agent Member.

         4.4 Agent Member.

         At the date hereof, BD is a participant of the Securities Depository.

         4.5 Communications.

         Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with the Auctions (other than those expressly required to be in
writing), all notices, requests and other communications to any party hereunder
shall be in writing (including telecopy or similar writing) and shall be given
to such party at its address or telecopier number set forth below:



If to the Auction Agent,
addressed to:                    The Bank of New York
                                 Corporate Trust Administration
                                 100 Church Street, 8th Floor
                                 New York, New York  10286
                                 Attention: Corporate Trust Dealing and Trading
                                 Group - Auction Desk
                                 Telephone No.: (212) 437-6166
                                 Facsimile No.: (212) 437-6123
If to the BD,
addressed to:




                                       7



                                 Attn: [ ]
                                 Telephone No.: [ ]

         or such other address or telecopier number as such party hereafter may
         specify for such purpose by notice to the other party. Each such
         notice, request or communication shall be effective when delivered at
         the address specified herein. Communications shall be given on behalf
         of BD by a BD Officer and on behalf of the Auction Agent by an
         Authorized Officer. BD may record telephone communications with the
         Auction Agent.

         4.6 Entire Agreement.

         This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
between the parties relating to the subject matter hereof.

         4.7 Benefits.

         Nothing in this Agreement, express or implied, shall give to any
person, other than the Fund, the Auction Agent and BD and their respective
successors and permitted assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.

         4.8 Amendment; Waiver.

                  (a) This Agreement shall not be deemed or construed to be
         modified, amended, rescinded, canceled or waived, in whole or in part,
         except by a written instrument signed by a duly authorized
         representative of the party to be charged.

                  (b) Failure of either party to this Agreement to exercise any
         right or remedy hereunder in the event of a breach of this Agreement by
         the other party shall not constitute a waiver of any such right or
         remedy with respect to any subsequent breach.

         4.9 Successors and Assigns.

         This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of BD
and the Auction Agent. This Agreement may not be assigned by either party hereto
absent the prior written consent of the other party and the Fund.

         4.10 Severability.

         If any clause, provision or section of this Agreement shall be ruled
invalid or unenforceable by any court of competent jurisdiction, the invalidity
or unenforceability of such clause, provision or section shall not affect any
remaining clause, provision or section hereof.

         4.11 Execution in Counterparts.

         This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.

         4.12 Governing Law.

         This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed wholly in said state.

                                       8


         4.13 Jurisdiction.

         The parties agree that all actions and proceedings arising out of this
Broker-Dealer Agreement or any of the transactions contemplated hereby shall be
brought in the County of New York, and, in connection with any such action or
proceeding, submit to the jurisdiction of, and venue in, such County. Each of
the parties hereto also irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim arising out of this Agreement or the
transactions contemplated hereby.

                            [Signature pages follow]


                                       9

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                  THE BANK OF NEW YORK, As Auction Agent


                                  By:
                                       --------------------------------------
                                       Name:
                                       Title:

                                  [Broker-Dealer], as Broker-Dealer


                                  By:
                                       --------------------------------------
                                       Name:
                                       Title:




                                       10

                                    EXHIBIT A

                              THE BANK OF NEW YORK
                                AUCTION BID FORM


Submit To:                                 Issue:
- ---------                                  -----
The Bank of New York                       VAN KAMPEN SENIOR INCOME TRUST
Corporate Trust Administration             Auction Market Preferred Shares,
100 Church Street, 8th Floor               Series __ ("Preferred Shares")
New York, New York  10286
Attention: Corporate Trust Dealing and
Trading Group - Auction Desk
Telephone No.: (212) 437-6166
Facsimile No.: (212) 437-6123

The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:

Name of Bidder:
               --------------------------------------

                                BENEFICIAL OWNER

Preferred Shares now held___________     HOLD______________
                                         BID at rate of________________
                                         SELL______________


                           POTENTIAL BENEFICIAL OWNER

                                         # of Series __ Preferred Shares ______
                                         BID at rate of___________ Notes:

         (1)      If submitting more than one Bid for one Bidder, use additional
                  Auction Bid Forms.

         (2)      If one or more Bids covering in the aggregate more than the
                  number of outstanding shares held by any Beneficial Owner are
                  submitted, such bid shall be considered valid in the order of
                  priority set forth in the Auction Procedures on the above
                  issue.

         (3)      A Hold or Sell Order may be placed only by a Beneficial Owner
                  covering a number of shares not greater than the number of
                  shares currently held.

         (4)      Potential Beneficial Owners may make only Bids, each of which
                  must specify a rate. If more than one Bid is submitted on
                  behalf of any Potential Beneficial Owner, each Bid submitted
                  shall be a separate Bid with the rate specified.

         (5)      Bids may contain no more than three figures to the right of
                  the decimal point (.001 of 1%). Fractions will not be
                  accepted.

         (6)      An Order must be submitted in whole shares of Preferred Shares
                  with an aggregate liquidation preference of $25,000.


         [Broker-Dealer]

         __________________________________________

                                       A-1


         Authorized Signature__________________________________________

















                                      A-2

                                    EXHIBIT B

         (Note: To be used only for transfers made other than pursuant to an
         Auction)

                                  TRANSFER FORM

         Re:      VAN KAMPEN SENIOR INCOME TRUST.
                  Auction Preferred Shares ("Preferred Shares")

We are (check one):

         [  ]     the Existing Holder named below;

         [  ]     the Broker-Dealer for such Existing Holder; or

         [  ]     the Agent Member for such Existing Holder.

         We hereby notify you that such Beneficial Owner has transferred
_________ Series __ Preferred Shares to __________________________________





                                          ______________________________________
                                          (Name of Existing Holder)



                                          ______________________________________
                                          (Name of Broker-Dealer)


                                          ______________________________________
                                          (Name of Agent Member)



By:  __________________________________
     Printed Name:
     Title:


                                      B-1

                                    EXHIBIT C

          (Note: To be used only for failures to deliver or to pay for
                  Preferred Shares sold pursuant to an Auction)

                         NOTICE OF A FAILURE TO DELIVER


         We are a Broker-Dealer for _____________________ (the "Purchaser"),
which purchased _______ Series __ Preferred Shares of VAN KAMPEN SENIOR INCOME
TRUST in the Auction held on ____________________ from the seller of such
shares.

         We hereby notify you that (check one):

______ the Seller failed to deliver such shares to the Purchaser.

______ the Purchaser failed to make payment to the Seller upon delivery of such
       shares.


                                     Name:
                                              ----------------------------
                                              [Broker-Dealer]


                                     By:
                                              ----------------------------
                                              Printed Name:
                                              Title:





                                      C-1

EX-99.(K)(4)(I)

                                                                 EXHIBIT K(4)(i)

================================================================================

                     REVOLVING CREDIT AND SECURITY AGREEMENT


                                      among


                         VAN KAMPEN SENIOR INCOME TRUST,
                                   as Borrower


                       THE CONDUIT LENDERS PARTIES HERETO,



                      THE SECONDARY LENDERS PARTIES HERETO



                          CITICORP NORTH AMERICA, INC.
                                       and
                       BANK ONE, NA (MAIN OFFICE CHICAGO),
                               as Managing Agents


                                       and


                          CITICORP NORTH AMERICA, INC.,
                                as Program Agent



                         Dated as of September 25, 2002


================================================================================






                                TABLE OF CONTENTS



                                                                                                               Page
                                                                                                               ----

                                      REVOLVING CREDIT AND SECURITY AGREEMENT

                                                                                                            
ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION...................................................................1
   SECTION 1.01. Definitions......................................................................................1
   SECTION 1.02. Rules of Construction...........................................................................23
   SECTION 1.03. Computation of Time Periods.....................................................................23

ARTICLE II ADVANCES TO THE BORROWER..............................................................................24
   SECTION 2.01. Advance Facility................................................................................24
   SECTION 2.02. Making of Advances..............................................................................24
   SECTION 2.03. Noteless Agreement; Evidence of Indebtedness....................................................25
   SECTION 2.04. Maturity of the Advances........................................................................26
   SECTION 2.05. Prepayment of the Advances......................................................................26
   SECTION 2.06. Yield...........................................................................................27
   SECTION 2.07. Increased Costs.................................................................................28
   SECTION 2.08. Compensation....................................................................................29
   SECTION 2.09. Additional Yield on Eurodollar Rate Advances....................................................29
   SECTION 2.10. Termination or Reduction of the Total Commitment................................................30
   SECTION 2.11. Rescission or Return of Payment.................................................................30
   SECTION 2.12. Fees Payable by Borrower........................................................................30
   SECTION 2.13. Post Default Interest...........................................................................30
   SECTION 2.14. Payments........................................................................................30
   SECTION 2.15. Ratable Payments................................................................................31
   SECTION 2.16. Borrower's Obligations Absolute.................................................................32

ARTICLE III CONDITIONS PRECEDENT.................................................................................32
   SECTION 3.01. Conditions Precedent to the Effectiveness of this Agreement.....................................32
   SECTION 3.02. Conditions Precedent to All Advances............................................................33

ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................33
   SECTION 4.01. Representations and Warranties of the Borrower..................................................33

ARTICLE V COVENANTS..............................................................................................37
   SECTION 5.01. Affirmative Covenants of the Borrower...........................................................37
   SECTION 5.02. Negative Covenants of the Borrower..............................................................42

ARTICLE VI EVENTS OF DEFAULT.....................................................................................44
   SECTION 6.01. Events of Default...............................................................................44

ARTICLE VII PLEDGE OF PLEDGED COLLATERAL; RIGHTS OF THE
                  PROGRAM AGENT..................................................................................47
   SECTION 7.01. Security Interests..............................................................................47
   SECTION 7.02. Substitution of Collateral and Release of Security Interest.....................................48
   SECTION 7.03. Application of Proceeds.........................................................................48


                                       i

                                                                                                              
   SECTION 7.04. Rights and Remedies upon Event of Default.......................................................49
   SECTION 7.05. Remedies Cumulative.............................................................................50
   SECTION 7.06. Enforcement of Remedies under the Custodial Agreement and
                 Loan Documents..................................................................................50

ARTICLE VIII THE PROGRAM AGENT...................................................................................51
   SECTION 8.01. Authorization and Action........................................................................51
   SECTION 8.02. Delegation of Duties............................................................................51
   SECTION 8.03. Program Agent's Reliance. Etc...................................................................51
   SECTION 8.04. Indemnification.................................................................................52
   SECTION 8.05. Successor Program Agent.........................................................................53

ARTICLE IX THE MANAGING AGENTS...................................................................................53
   SECTION 9.01. Authorization and Action........................................................................53
   SECTION 9.02. Managing Agent's Reliance. Etc..................................................................54
   SECTION 9.03. Indemnification.................................................................................54

ARTICLE X MISCELLANEOUS..........................................................................................55
   SECTION 10.01. No Waiver; Modifications in Writing............................................................55
   SECTION 10.02. Notices, Etc...................................................................................55
   SECTION 10.03. Taxes..........................................................................................57
   SECTION 10.04. Costs and Expenses; Indemnification............................................................58
   SECTION 10.05. Execution in Counterparts......................................................................59
   SECTION 10.06. Assignability..................................................................................59
   SECTION 10.07. Governing Law..................................................................................61
   SECTION 10.08. Severability of Provisions.....................................................................61
   SECTION 10.09. Confidentiality................................................................................61
   SECTION 10.10. Merger.........................................................................................63
   SECTION 10.11. No Proceedings.................................................................................63
   SECTION 10.12. Survival of Representations and Warranties.....................................................63
   SECTION 10.13. Loan Documents.................................................................................63
   SECTION 10.14. Submission to Jurisdiction: Waivers............................................................64
   SECTION 10.15. E-Mail Reports.................................................................................64
   SECTION 10.16. Waiver of Jury Trial...........................................................................65
   SECTION 10.17. Several Obligations............................................................................65
   SECTION 10.18. Limitation of Liability........................................................................65




                                    SCHEDULES

Schedule I                 Form of Investor Report
Schedule II                Form of Weekly Portfolio Report
Schedule III               Payment Accounts

                                       ii




                                    EXHIBITS

EXHIBIT A                  Form of Advance Note
EXHIBIT B                  Form of Notice of Borrowing
EXHIBIT C                  Form of Assignment and Acceptance



                                       iii



                     REVOLVING CREDIT AND SECURITY AGREEMENT

                  REVOLVING CREDIT AND SECURITY AGREEMENT, dated as of September
25, 2002 among CORPORATE RECEIVABLES CORPORATION, PREFERRED RECEIVABLES FUNDING
CORPORATION, CITIBANK, N.A., BANK ONE, NA (MAIN OFFICE CHICAGO) and the other
Secondary Lenders (as hereinafter defined) from time to time parties hereto,
CITICORP NORTH AMERICA, INC., as program agent for the Secured Parties (as
hereinafter defined) (in such capacity, together with its successors and
assigns, the "Program Agent"), CITICORP NORTH AMERICA, INC., as Managing Agent
(as hereinafter defined) for the CRC Related Parties (as hereinafter defined),
BANK ONE, NA (Main Office Chicago), as Managing Agent for the PRFC Related
Parties (as hereinafter defined) and VAN KAMPEN SENIOR INCOME TRUST (together
with its permitted successors and assigns, the "Borrower").

                              W I T N E S S E T H:

                  WHEREAS, the Borrower desires that the Conduit Lenders (as
hereinafter defined) and the Secondary Lenders from time to time make advances
to the Borrower on the terms and subject to the conditions set forth in this
Agreement; and

                  WHEREAS, the Conduit Lenders and the Secondary Lenders are
willing to make such advances to the Borrower on the terms and subject to the
conditions set forth in this Agreement;

                  NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto agree as follows:

                                   ARTICLE I
                      DEFINITIONS AND RULES OF CONSTRUCTION

                  SECTION 1.01. Definitions.

                  As used in this Agreement, the following terms shall have the
meanings indicated:

                  "Adjusted Asset Value" means in respect of any Borrowing Base
Eligible Asset an amount equal to the product of (i) the Asset Value of such
Borrowing Base Eligible Asset, and (ii) the applicable Advance Rate for such
Borrowing Base Eligible Asset.

                  "Advance" means each advance by a Conduit Lender or a-
Secondary Lender to the Borrower on a Borrowing Date pursuant to Article II;
provided, that if any Conduit Lender assigns a portion of any Advance made by it
to a Lender pursuant to an Asset Purchase Agreement or otherwise, the portion of
such Advance retained by such Conduit Lender and the portion of such Advance
acquired by such Lender shall each be deemed to constitute a separate Advance
for purposes of this Agreement.

                  "Advance Note" means each promissory note issued by the
Borrower to a Conduit Lender or a Secondary Lender in accordance with the
provisions of Section 2.03, substantially in the form of Exhibit A hereto, as
the same may from time to time be amended, supplemented, waived or modified.



                                       1



                  "Advance Rate" means (i) in respect of Cash, 100%, (ii) in
respect of Eligible Commercial Paper Notes and Eligible Government Securities,
95%, (iii) in respect of Class A Loan Assets, 80%, (iv) in respect of Class B
Loan Assets, 70%, (v) in respect of Class C Loan Assets, 60%, and (vi) in
respect of Class D Loan Assets, 50%.

                  "Adverse Claim" means any Lien or other right, claim,
encumbrance or any other type of preferential arrangement in, of or on any
Person's assets or properties in favor of any other Person, other than Permitted
Liens.

                  "Adviser" means Van Kampen Investment Advisory Corp., together
with its permitted successors and assigns.

                  "Adviser Material Adverse Effect" means (i) a material adverse
effect on the ability of the Adviser to perform its obligations under the Letter
Agreement, (ii) a material adverse effect on the validity or enforceability of
the Letter Agreement, or (iii) a material adverse effect on the business,
financial condition, operations, Assets or properties of the Adviser.

                  "Advisory Agreement" means the Investment Advisory Agreement
dated as of April 22, 1998 between the Adviser and the Borrower, as the same may
be amended, supplemented, waived or modified as permitted under this Agreement.

                  "Affected Person" means each CRC Related Party and each PRFC
Related Party, and any of their respective Affiliates, including any assignee or
participant of any CRC Related Party or PRFC Related Party.

                  "Affiliate" means, in respect of a referenced Person, another
Person controlling, controlled by or under common control with such referenced
Person (which in the case of any Conduit Lender and the related Managing Agent
shall also include any entity which is a special purpose entity that issues
commercial paper notes and has a relationship to such Managing Agent comparable
to that of such Conduit Lender). The terms "control," "controlling,"
"controlled" and the like mean the direct or indirect possession of the power to
direct or cause the direction of the management or policies of a Person or the
disposition of its assets or properties, whether through ownership, by contract,
arrangement or understanding, or otherwise.

                  "Aggregate Custodian's Advance Amount" means the sum of (i)
the aggregate unpaid Dollar amount of all outstanding Custodian's Overdraft
Advances of cash, (ii) the aggregate Value of all Custodian's Overdraft Advances
of assets (other than cash) to the extent not reimbursed by the Borrower, and
(iii) the accrued and unpaid interest, if any, on the amounts set forth above.

                  "Agreement" means this Agreement, as the same may from time to
time be amended, supplemented, waived or modified.

                  "Alternate Base Rate" means in respect of any Advance for any
Settlement Period, a fluctuating interest rate per annum as shall be in effect
from time to time, which rate shall be at all times equal to the sum of the
Applicable Margin plus the applicable Base Rate for such Advance.



                                       2


                  "Applicable Law" means any Law of any Authority, including,
without limitation, all Federal and state banking or securities laws, to which
the Person in question is subject, or by which it or any of its property is
bound.

                  "Applicable Margin" means, with respect to the Eurodollar Rate
and the Alternate Base Rate, 1.00% per annum.

                  "Asset Coverage Test" means, as of any Determination Date, the
Borrower's "senior securities representing indebtedness" (as defined in Section
18(g) of the Investment Company Act) have "asset coverage" (as defined in
Section 18(h) of the Investment Company Act) of at least 300% (computed on such
Determination Date regardless of whether or not dividends or distributions are
being made on such Determination Date, or whether Debt is being incurred on such
Determination Date).

                  "Asset Purchase Agreement" means the Asset Purchase Agreement
entered into by a Secondary Lender (other than Citibank) concurrently with the
Assignment and Acceptance pursuant to which it became party to this Agreement.

                  "Assets" means a collective reference to all items which would
be classified as an "asset" on the balance sheet of the Borrower in accordance
with GAAP.

                  "Asset Value" means, as of any day of determination (a) in
respect of Cash, the amount of such Cash, and (b) in respect of any other Asset,
the Value of such Asset computed in the manner as such Value is required to be
computed by the Borrower in accordance with the rules, regulations and
interpretations of the SEC under the Investment Company Act; provided, that the
Asset Value of any Asset shall be net of the Borrower's liabilities relating
thereto, including without limitation all of the Borrower's obligations to pay
any unpaid portion of the purchase price therefore; provided, further, that for
any Asset for which independent reliable market quotations (which may consist of
only an independent dealer quotation) are not available (or which is not
otherwise valued for the Borrower by an independent recognized pricing source),
the Asset Value of such Asset shall be deemed zero for purposes of this
definition.

                  "Assignee Rate" means in respect of any Advance by a Secondary
Lender or acquired by a Lender (other than a Conduit Lender) for any Settlement
Period an interest rate per annum equal to the sum of the Applicable Margin plus
the Eurodollar Rate for such Settlement Period; provided, however, that in case
of:

                           (i) any Settlement Period on or prior to the first
         day of which the applicable Lender (other than a Conduit Lender) or the
         applicable Secondary Lender shall have notified the Program Agent and
         its related Managing Agent that the introduction of or any change in or
         in the interpretation of any law or regulation makes it unlawful, or
         any central bank or other governmental authority asserts that it is
         unlawful, for such Lender or such Secondary Lender to fund such Advance
         at the Assignee Rate set forth above (and such Lender or such Secondary
         Lender shall not have subsequently notified the Program Agent and its
         related Managing Agent that such circumstances no longer exist),

                           (ii) any Settlement Period of one to (and including)
         27 days,


                                       3



                           (iii) any Settlement Period as to which the Program
         Agent and the applicable Managing Agent do not receive notice, by no
         later than 12:00 noon (New York City time) on the third Business Day
         preceding the first day of such Settlement Period, that such Advance
         will not be funded by issuance of commercial paper, or

                           (iv) any Settlement Period for which the aggregate
         principal amount of all outstanding Advances is less than $1,000,000,

solely with respect to the affected Lender's or Secondary Lender's pro rata
share of such Advances in the case of clause (i) above, but with respect to the
aggregate principal amount of such Advance in the case of clauses (ii) through
(iv) above, the "Assignee Rate" for such Settlement Period shall be an interest
rate per annum equal to the applicable Alternate Base Rate in effect on the
first day of such Settlement Period.

                  "Assignment and Acceptance" means the Assignment and
Acceptance, in substantially the form of Exhibit C hereto, entered into by a
Secondary Lender, an Eligible Assignee, the Program Agent, the applicable
Managing Agent and, if required by the terms of Section 10.06(b), the Borrower,
pursuant to which such Eligible Assignee may become a party to this Agreement.

                  "Authority" means any governmental or quasi-governmental
authority (including the National Association of Securities Dealers, the stock
exchanges and the SEC), whether executive, legislative, judicial, administrative
or other, or any combination thereof, including, without limitation, any
Federal, state, territorial, county, municipal or other government or
governmental or quasi-governmental agency, arbitrator, board, body, branch,
bureau, commission, corporation, court, department, instrumentality, master,
mediator, panel, referee, system or other political unit or subdivision or other
entity of any of the foregoing, whether domestic or foreign, having the force of
law.

                  "Bank One" means Bank One, NA (Main Office Chicago) and its
successors.

                  "Base Rate" means (i) in respect of an Advance funded by a CRC
Related Party or any Borrower Obligation owed to CRC or a CRC Related Party, the
rate of interest from time to time announced publicly by Citibank at its
Principal Office as its base rate, and (ii) in respect of any Advance funded by
a PRFC Related Party or any Borrower Obligation owed to PRFC or a PRFC Related
Party, the rate of interest from time to time announced publicly by Bank One in
Chicago, Illinois as Bank One's base rate. The Base Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged to any
customer of Citibank or Bank One, as the case may be.

                  "Benefit Arrangement" means an employee benefit plan within
the meaning of Section 3(3) of ERISA which is subject to the provisions of Title
I of ERISA and is not a Plan or a Multiemployer Plan and which is maintained or
otherwise contributed to by any member of the ERISA Group.

                  "Borrower" shall have the meaning assigned to such term in the
introduction to this Agreement.

                                       4



                  "Borrower Obligations" means all indebtedness, whether
absolute, fixed or contingent, at any time or from time to time owing by the
Borrower to any Secured Party under or in connection with this Agreement, the
Advance Notes, the Control Agreement or any other Program Document, including
without limitation, all amounts payable by the Borrower in respect of the
Advances, with interest thereon, and the amounts payable under Sections 2.05,
2.06, 2.07, 2.08, 2.09, 2.11, 2.12, 2.13, 7.04(b), 10.03 and 10.04 of this
Agreement.

                  "Borrower's Account" means the account of the Borrower
designated on Schedule III hereto, or such other account as the Borrower shall
from time to time designate in writing to other parties hereto.

                  "Borrowing Base" means, on the date any determination thereof
is made, an amount equal to (i) the aggregate Adjusted Asset Value of all
Eligible Collateral as of such date of determination minus (ii) the Borrowing
Base Excess Amount as of such date of determination.

                  "Borrowing Base Eligible Asset" means Cash, any Eligible Loan
Asset, any Eligible Commercial Paper Note and any Eligible Government Security
which the Borrower is permitted to purchase in accordance with the Investment
Policies and Restrictions which are free and clear of all Adverse Claims;
provided, that such Asset does not constitute (i) a Derivative Transaction,
Margin Stock, an Equity Security, a Non-OECD Loan Asset or a Foreign Currency
Asset, (ii) an Asset which is the subject of a reverse repurchase agreement,
dollar roll, securities lending transaction or other Derivatives Transaction
(other than Derivatives Transactions entered into solely to protect against
interest rate risk which have not been entered into for speculative purposes),
including, without limitation, any cash or other Asset maintained in a
segregated account with the Custodian relating to any outstanding reverse
repurchase agreement entered into by the Borrower; or (iii) an Asset held by a
sub-custodian of the Custodian which is not located in the United States.

                  "Borrowing Base Excess Amount" means as of any date any
determination thereof is made, an amount equal to the sum (without duplication)
of

                           (i) the amount by which the aggregate Adjusted Asset
         Value of all Eligible Collateral (other than Cash and Eligible
         Government Securities) issued or Guaranteed by any Person (together
         with all Affiliates of such Person), exceeds five percent (5%) of the
         aggregate Adjusted Asset Value of all Eligible Collateral;

                           (ii) the amount by which the aggregate Adjusted Asset
         Value of all Eligible Collateral issued or Guaranteed by Persons in a
         single Industry Class, exceeds twenty percent (20%) of the aggregate
         Adjusted Asset Value of all Eligible Collateral;

                           (iii) the amount by which the aggregate Adjusted
         Asset Value of all Eligible Collateral which constitute Foreign Loan
         Assets exceeds twenty-five percent (25%) of the aggregate Adjusted
         Asset Value of all Eligible Collateral;

                           (iv) the amount by which the aggregate Adjusted Asset
         Value of all Eligible Collateral which constitute Foreign Loan Assets
         relating to Obligors in any single OECD Country (other than the United
         States) exceeds ten percent (10%) of the aggregate Adjusted Asset Value
         of all Eligible Collateral;


                                       5



                           (v) the amount by which the aggregate Adjusted Asset
         Value of all Eligible Collateral which constitutes Distressed Loan
         Assets exceeds ten percent (10%) of the aggregate Adjusted Asset Value
         of all Eligible Collateral;

                           (vi) the amount by which the aggregate Adjusted Asset
         Value of all Loan Assets which constitute Eligible Collateral which
         have a scheduled final maturity date later than the tenth (10th)
         anniversary of the Origination Date of such Loan Assets, exceeds ten
         percent (10%) of the aggregate Adjusted Asset Value of all Eligible
         Collateral;

                           (vii) the amount by which the aggregate Adjusted
         Asset Value of all Loan Assets which constitute Eligible Collateral
         which constitute participation interests purchased or otherwise
         acquired from any Selling Institution (together with all Affiliates of
         such Selling Institution), exceeds ten percent (10%) of the aggregate
         Adjusted Asset Value of all Eligible Collateral;

                           (viii) the amount by which the aggregate Adjusted
         Asset Value of all Eligible Collateral which constitutes Unsecured Loan
         Assets exceeds twenty percent (20%) of the aggregate Adjusted Asset
         Value of all Eligible Collateral;

                           (ix) the amount by which the aggregate Adjusted Asset
         Value of all Eligible Collateral which constitutes Loan Assets in
         respect of which the interest payable on the principal amount thereof
         is not calculated by reference to a Floating Rate, exceeds ten percent
         (10%) of the aggregate Adjusted Asset Value of all Eligible Collateral;
         and

                           (x) the aggregate maximum commitments of the Borrower
         to fund future advances or extensions of credit under the Loan
         Documents relating to the Pledged Collateral.

                  "Borrowing Base Test" means as of any Determination Date, that
the Borrowing Base shall be equal to or greater than Credits Outstanding.

                  "Borrowing Date" shall have the meaning assigned to such term
in Section 2.02(a).

                  "Business Day" means any day on which (i) banks are not
authorized or required to close in New York, New York or Chicago, Illinois and
the New York Stock Exchange is not authorized or required to close, and (ii) if
this definition of "Business Day" is utilized in connection with a Eurodollar
Rate Advance, dealings are carried out in the London interbank market.

                  "Cash" means a demand deposit of United States Dollars
immediately available on the day in question in an account maintained by the
Custodian.

                  "Citibank" means Citibank, N.A. and its successors.

                                       6



                  "Class A Loan Asset" means as of any date of determination, a
Borrowing Base Eligible Asset which (i) is a Loan Asset, (ii) is not a
Distressed Loan Asset, and (iii) has an Asset Value which is at least ninety
percent (90%) of its par value as of such date of determination.

                  "Class B Loan Asset" means as of any date of determination, a
Borrowing Base Eligible Asset which (i) is a Loan Asset, (ii) is not a
Distressed Loan Asset, and (iii) has an Asset Value which is less than ninety
percent (90%) of its par value as of such date of determination.

                  "Class C Loan Asset" means as of any date of determination, a
Borrowing Base Eligible Asset which (i) is a Distressed Loan Asset, and (ii) has
an Asset Value which is at least ninety percent (90%) of its par value as of
such date of determination.

                  "Class D Loan Asset" means as of any date of determination, a
Borrowing Base Eligible Asset which (i) is a Distressed Loan Asset, and (ii) has
an Asset Value which is less than ninety percent (90%) of its par value as of
such date of determination.

                  "Closing Date" means the first date on which the conditions
precedent specified in Section 3.01 shall have been fully satisfied.

                  "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.

                  "Collateral Account" means account number 011-00-0028, ABA
Number 6978042-7 established at State Street Bank and Trust Company entitled
"Citicorp as Secured Party-Van Kampen".

                  "Committed Advance" shall have the meaning assigned to such
term in Section 2.02(b).

                  "Compliance Certification Date" shall have the meaning
assigned to such term in Section 2.05(b).

                  "Conduit Lender" means each of CRC and PRFC.

                  "Control Agreement" means the Control and Collateral Agency
Agreement, dated as of the date hereof among the Borrower, the Program Agent and
the Custodian, as the same may from time to time be amended, supplemented,
waived or modified.

                  "CP Rate" for each day during a Settlement Period for any
Advance means:

                           (i) to the extent CRC funds such Advance on such day,
         the per annum rate equivalent to the weighted average of the per annum
         rates paid or payable by CRC from time to time as interest on or
         otherwise (by means of interest rate hedges or otherwise) in respect of
         those commercial paper notes issued by CRC that are allocated, in whole
         or in part, by the Managing Agent of CRC (on behalf of CRC ) to fund
         the making or maintenance of such Advance on such day during such
         Settlement Period as determined by the Managing Agent of CRC (on behalf
         of CRC) and reported to the Borrower, which rates shall reflect and
         give effect to the commissions of placement

                                       7



         agents and dealers in respect of such commercial paper notes, to the
         extent such commissions are allocated, in whole or in part, to such
         commercial paper notes by the Managing Agent of CRC on behalf of CRC;
         provided, however, that if any component of such rate is a discount
         rate, in calculating the "CP Rate" for such day the Managing Agent of
         CRC shall for such component use the rate resulting from converting
         such discount rate to an interest bearing equivalent rate per annum;
         and

                           (ii) to the extent PRFC funds such Advance on such
         day, the per annum rate notified by PRFC to its Managing Agent for such
         Advance, which rate shall (a) reflect the actual cost of funds to PRFC
         of making and maintaining such Advance on such day, including fees
         payable by or on behalf of PRFC to any dealer or placement agent in
         respect of commercial paper notes issued by PRFC to fund such Advance,
         and (b) be calculated in the manner in which PRFC typically calculates
         its costs of funds in similar transactions; provided, however, that if
         any component of such rate is a discount rate, in calculating the "CP
         Rate" for such day, the Managing Agent of PRFC shall for such component
         use the rate resulting from converting such discount rate to an
         interest bearing equivalent rate per annum.

                  "CRC" means Corporate Receivables Corporation, together with
its successors and assigns that constitute special purpose entities managed by
Citicorp North America, Inc. that issue commercial paper notes.

                  "CRC Related Commitment" means the aggregate outstanding
principal amount of Advances which can be funded by CRC, which is $350,000,000,
as such amount may be reduced pursuant to Section 2.10. References to the unused
portion of the CRC Related Commitment shall mean at any time the CRC Related
Commitment then in effect, minus the aggregate outstanding principal amount of
the Advances funded by CRC or any CRC Related Party.

                  "CRC Related Party" means Citibank, each Related Secondary
Lender of CRC and each Lender which is committed to purchase any interest in any
Advance made by CRC pursuant to an Asset Purchase Agreement or otherwise.

                  "Credits Outstanding" means at any time a determination
thereof is made, an amount equal to the sum of (i) the outstanding principal
amount of all Advances, plus (ii) the Yield that would accrue on the aggregate
outstanding principal amount of the Advances through the sixty (60) day period
following such date of determination, computed by reference to the Assignee Rate
based upon the applicable Eurodollar Rates for a thirty (30) day period in
effect as of the time of determination, plus (iii) the Aggregate Custodian's
Advance Amount.

                  "Custodial Agreement" means the Custodian Contract dated as of
August 1, 1997 between the Borrower and the Custodian, as the same may from time
to time be amended, supplemented, waiver or modified as permitted under the
Program Documents.

                  "Custodian" means State Street Bank and Trust Company, as
custodian, securities intermediary and collateral agent under the Custodial
Agreement and the Control Agreement, and its permitted successors and assigns.


                                       8



                  "Custodian's Overdraft Advances" means any advance of cash,
assets or securities by the Custodian pursuant to or in connection with the
Custodial Agreement.

                  "Debt" means with respect to any Person, at any date, without
duplication, (i) all "senior securities representing indebtedness" (as defined
in Section 18(g) of the Investment Company Act), (ii) all obligations of such
Person for borrowed money, including without limitation, all obligations of such
Person which are evidenced by letters of credit or letter of credit
reimbursement, (iii) all obligations of such Person evidenced by bonds,
debentures, notes, acceptances or other similar instruments, (iv) all
obligations of such Person to pay the deferred purchase price of property or
services, (v) all obligations of such Person as lessee which are capitalized in
accordance with GAAP, (vi) all Debt of others secured by a Lien on any asset of
such Person, whether or not such Debt is assumed by such Person, (vii) payment
obligations, fixed or contingent, under investment, financial derivative or
similar contracts (other than covered short sales), (viii) all Debt of others
Guaranteed by such Person, and (ix) to the extent not otherwise included, all
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of such Person's balance sheet.

                  "Default" means any event which, with the passage of time, the
giving of notice, or both, would constitute an Event of Default.

                  "Derivatives Transaction" means any financial futures
contract, option, forward contract, warrant, swap, swaption, collar, floor, cap
and other agreement, instrument and derivative and other transactions of a
similar nature (whether currency linked, index linked, insurance risk linked,
credit risk linked or otherwise).

                  "Determination Date" means (i) each Borrowing Date, (ii) each
Weekly Determination Date, (iii) each date any Restricted Payment is made or any
Senior Security is issued, and (iv) during the continuance of an Event of
Default, each Business Day which the Program Agent may, or upon the direction of
the Majority Lenders, shall, designate as a "Determination Date" (which may be
daily).

                  "Distressed Loan Asset" means a Loan Asset (i) the Obligor of
which is the subject of a bankruptcy, insolvency, liquidation or other similar
proceedings, (ii) which is in default (unless cured or waived) beyond the
applicable grace periods, if any, as to payment of principal or interest or
other amount owing under the applicable Loan Documents, or (iii) which is
otherwise classified by the Adviser or the Borrower as "non-performing", (iv) in
respect of which the related Obligor is rated "Caa" or lower by Moody's or "CCC"
or lower by S&P or which, if unrated, are in the reasonable judgment of the
Adviser, of equivalent credit quality, (v) which is not part of a senior credit
facility, or (vii) which is otherwise not classified as a "Senior Loan" by the
Adviser.

                  "Dollars" and "$" mean lawful money of the United States of
America.

                  "Eligible Assignee" means Citicorp North America, Inc.,
Citibank, Bank One, any of their respective Affiliates, any Person managed by
Bank One, Citibank, Citicorp North America, Inc. or any of their respective
Affiliates, or any financial or other institution acceptable to the applicable
Managing Agent.

                                       9




                  "Eligible Collateral" means at any time the Pledged Collateral
which constitutes Borrowing Base Eligible Assets.

                  "Eligible Commercial Paper Note" means a promissory note
issued in the commercial paper market by an obligor having its principal office
in the United States, having a maturity of not more than 270 days and which (i)
if rated by both S&P and Moody's is rated at least "A-1" by S&P and at least
"P-1" by Moody's, and (ii) if rated by S&P or Moody's (but not both), is rated
at least "A-1" by S&P or at least "P-1" by Moody's.

                  "Eligible Government Securities" means all "Government
Securities" (as defined in the Investment Company Act and which for the purposes
hereof shall include any securities issued or guaranteed as to principal and
interest by an agency of the government of the United States) held in an account
maintained by the Custodian.

                  "Eligible Loan Asset" at any time means a Loan Asset:

                           (i) with respect to which the interest payable on the
         principal amount thereof by the related Obligor is payable in cash;

                           (ii) in respect of which the Borrower's interest is
         not a subparticipation;

                           (iii) which has a scheduled final maturity date no
         later than the twelfth (12th) anniversary after the related Origination
         Date;

                           (iv) which is part of a senior credit facility, with
         respect to which such Loan Asset is not by its terms subordinated
         (pursuant to contractual provisions or otherwise) to the prior payment
         of any other liabilities or any equity interests of the related
         Obligor;

                           (v) which is part of a syndicated credit facility
         where the sum of the aggregate revolving loan commitment amount plus
         the aggregate outstanding principal amount of all loans under such
         facility on the Origination Date of such Loan Asset is at least equal
         to $100,000,000;

                           (vi) which relates to Loan Documents in which the
         Borrower's interest (direct or participating) in the aggregate
         outstanding principal amount of all loans thereunder is no greater than
         thirty-three and one-third percent (33.33%);

                           (vii) in respect of which the related Loan Documents
         are not subject to any confidentiality arrangement which would preclude
         any Managing Agent from reviewing such Loan Documents;

                           (viii) in which the Borrower's interest in all
         collateral security therefore and principal and interest payments
         thereunder is no less than pro rata and pari passu with all other
         lenders thereunder or participants therein, as the case may be;

                           (ix) in respect of which the credit rating of the
         related Transaction Agent or its controlling Affiliate is no less than
         "A-" from S&P or "A3" from Moody's;

                                       10



                           (x) in respect of which, if the Borrower's interest
         therein is that of a participant, the credit rating of the related
         Selling Institution is no less than "A-" from S&P and "A3" from
         Moody's; and

                           (xi) the pledge of which under Article VII of this
         Agreement, would not conflict with or constitute a default under or be
         prohibited by any anti-assignment or other provisions contained in the
         related Loan Documents, except for anti-assignment provisions rendered
         ineffective by applicable law.

                  "E-Mail Report" shall have the meaning assigned to such term
in Section 10.15.

                  "Equity Securities" means common and preferred stock,
warrants, membership interests or partnership interests and securities that are
convertible into common or preferred stock, membership interests or partnership
interests, including without limitation common stock purchase warrants and
rights, equity interests in trusts, partnerships, limited liability companies,
joint ventures or similar enterprises.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.

                  "ERISA Group" means the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower, are
treated as a single employer under Section 414(b), (c), (m) or (n) of the Code.

                  "Eurocurrency Liabilities" shall have the meaning assigned to
such term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.

                  "Eurodollar Additional Yield" means additional Yield on the
outstanding principal of each Advance during the Settlement Period in respect of
such Advance in respect of which Yield is computed by reference to the
Eurodollar Rate, for such Settlement Period, at a rate per annum equal at all
times during such Settlement Period to the remainder obtained by subtracting (i)
the Eurodollar Rate for such Settlement Period from (ii) the rate obtained by
dividing such Eurodollar Rate referred to in clause (i) above by that percentage
equal to one hundred percent (100%) minus the Eurodollar Rate Reserve Percentage
of the applicable Lender (other than a Conduit Lender) or Secondary Lender for
such Settlement Period.

                  "Eurodollar Rate" means, (i) in respect of any Advance for any
Settlement Period funded by a CRC Related Party, an interest rate per annum
equal to the rate per annum at which deposits in Dollars are offered by the
principal office of Citibank in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two (2) Business Days before the
first day of such Settlement Period in an amount substantially equal to the
outstanding principal amount of such Advance on such first day and for a period
equal to such Settlement Period, and (ii) in respect of any Advance for any
Settlement Period funded by a PRFC Related Party, an interest rate per annum
equal to the rate per annum at which deposits in Dollars are offered by the
principal office of Bank One in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two (2) Business, Days before the
first day of


                                       11



such Settlement Period in an amount substantially equal to the outstanding
principal amount of such Advance on such first day and for a period equal to
such Settlement Period.

                  "Eurodollar Rate Advance" means an Advance the Yield on which
is computed with reference to the Eurodollar Rate.

                  "Eurodollar Rate Reserve Percentage" for any Settlement Period
for any Eurodollar Rate Advance means the reserve percentage applicable during
such Settlement Period under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) (or if more than
one such percentage shall be applicable, the daily average of such percentages
for those days in such Settlement Period during which any such percentage shall
be so applicable) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for any applicable Lender (other than a Conduit Lender) or
Secondary Lender with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or any other category of liabilities that
includes deposits by reference to which the interest rate on Eurocurrency
Liabilities is determined) having a term comparable to such Settlement Period.

                  "Event of Default" means any of the events, acts or
occurrences set forth in Section 6.01.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder, all as from time
to time in effect, or any successor law, rules or regulations, and any reference
to any statutory or regulatory provision shall be deemed to be a reference to
any successor statutory or regulatory provision.

                  "Facility" shall have the meaning assigned to such term in
Section 10.09.

                  "Fee Letters" means collectively those certain letter
agreements each dated the date hereof between the Borrower and each Managing
Agent, as the same may from time to time be amended, supplemented, waived or
modified.

                  "Floating Rate" means an interest rate calculated by reference
to the prime rate, the London interbank offered rate, the certificate of deposit
rate, the federal funds rate or any other per annum rate commonly referred to in
the United States banking industry as a "floating rate".

                  "Foreign Currency Asset" means any Asset which is denominated
or payable in a currency other than Dollars.

                  "Foreign Loan Asset" means any Loan Asset the Obligor of which
is organized under the laws of any OECD Country (other than the United States of
America).

                  "GAAP" means generally accepted accounting principles in the
United States, in effect from time to time.

                  "Governmental Authorizations" means all franchises, permits,
licenses, approvals, consents and other authorizations of all Authorities.



                                       12


                  "Governmental Filings" means all filings, including franchise
and similar tax filings, and the payment of all fees, assessments, interests and
penalties associated with such filing with all Authorities.

                  "Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.

                  "Industry Class" shall mean, for purposes of computing the
Borrowing Base, each industry class as determined by applying, in separate
tests, the classification categories provided by Moody's, or, in the event that
Moody's does not classify a particular Person, as classified by the Adviser
based upon the Moody's industry classifications.

                  "Investment Company Act" means the Investment Company Act of
1940, as amended, and the rules and regulations of the SEC thereunder, as
modified or interpreted by orders of the SEC, or other interpretative releases
or letters issued by the SEC or its staff, all as from time to time in effect,
or any successor law, rules or regulations, and any reference to any statutory
or regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.

                  "Investment Policies and Restrictions" means the provisions
dealing with investment policies, distributions, investment restrictions, tender
offers, repurchases, leverage and diversification status as set forth in the
Prospectus, as modified in accordance with Section 5.02(i).

                  "Investor Report" means the Investor Report of the Borrower
substantially in the form of Schedule I hereto.

                  "Law" means any action, code, consent decree, constitution,
decree, directive, enactment, finding, guideline, law, injunction,
interpretation, judgment, order, ordinance, policy statement, proclamation,
promulgation, regulation, requirement, rule, rule of law, rule of public policy,
settlement agreement, statute, or writ, of any Authority, or any particular
section, part or provision thereof.

                  "Lenders" means the Conduit Lenders, together with all Persons
which acquire or are obligated to acquire any interest in any Advance from any
Conduit Lender under an Asset Purchase Agreement or in the case of Citibank,
under any similar arrangement.


                                       13



                  "Lender Termination Date" means (i) the date which is the
earlier to occur of (i) one (1) Business Day prior to the Secondary Lender
Stated Expiration Date, and (ii) the date on which the Total Commitment shall
terminate pursuant to Section 2.10 or Section 6.01.

                  "Letter Agreement" means the Letter Agreement dated as of the
date hereof from the Adviser to the Program Agent on behalf of the Secured
Parties, as the same may from time to time be amended, supplemented, waived or
modified.

                  "Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien or security interest (statutory or
other), or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any financing lease
having substantially the same economic effect as any of the foregoing.

                  "Liquidation Fee" means, in respect of any Advance for any
Settlement Period which is funded by a Conduit Lender during which the principal
on such Advance is repaid by the Borrower in whole or in part prior to the end
of said Settlement Period, the amount, if any, by which (i) the additional Yield
(calculated without taking into account any Liquidation Fee or any shortened
duration of such Settlement Period) which would have accrued during such
Settlement Period on the reduction of the outstanding principal amount of such
Advance relating to such Settlement Period had such reductions remained as
outstanding principal, exceeds (ii) that income, if any, received by the
applicable Conduit Lender's investing the proceeds of such reductions of
principal.

                  "Loan Asset" means a direct or participation or
subparticipation interest in or assignment or notation of a loan or other
extension of credit.

                  "Loan Documents" means with respect to any Loan Asset, each
loan agreement, promissory note, collateral security agreement, participation
certificate, guarantee and any other agreement or document evidencing, securing,
governing or executed in connection with such Loan Asset, including without
limitation the agreements and instruments in respect of which the Borrower
acquired such Loan Asset.

                  "Majority Lenders" means as of any determination date, (i) if
the principal amount of any Advances are outstanding on such determination date,
those Lenders and Secondary Lenders with Advances the outstanding principal
amount of which exceeds fifty percent (50%) of the outstanding principal amount
of all Advances, and (ii) if on such determination date no principal amount of
any Advance is outstanding, (a) each Conduit Lender, and (b) the Secondary
Lenders with Secondary Lender Commitments which exceeds fifty percent (50%) of
the Total Commitment.

                  "Managing Agent" means (i) Citicorp North America, Inc. in its
capacity as managing agent for CRC and each CRC Related Party, and (ii) Bank One
in its capacity as managing agent for PRFC and each PRFC Related Party, together
with any successors and permitted assigns of such Managing Agents.


                                       14



                  "Managing Agent's Account" means in respect of any Managing
Agent, the account specified on Schedule III hereto, or such other account of
such Managing Agent as it shall from time to time designate in writing to the
other parties hereto.

                  "Margin Stock" shall have the meaning assigned to such term in
Regulation U.

                  "Material Adverse Effect" means a (i) material adverse effect
on the ability of the Borrower to perform its obligations under this Agreement
or the Control Agreement or to perform any material obligation under any other
Program Document to which it is a party or any Loan Document, (ii) a material
adverse effect on any Secured Party's right, title and interest in the Pledged
Collateral or on the rights and remedies of any Secured Party under any Program
Document, (iii) a material adverse effect on the validity or enforceability of
this Agreement or any other Program Document to which the Borrower is a party or
any Loan Document, (iv) a material adverse effect on the business, financial
condition, operations, Assets or properties of the Borrower, (v) a material
Adverse Claim on any of the Assets of the Borrower, or (vi) a Default or Event
of Default.

                  "Maturity Date" means (i) with respect to any Advance funded
by a Lender, the Lender Termination Date (or if such day is not a Business Day,
the Business Day immediately preceding such date), and (ii) with respect to any
Advance made by a Secondary Lender, including any Committed Advance, the date
which is two (2) years after the original Borrowing Date of such Advance (or if
such day is not a Business Day, the Business Day immediately preceding such
date) or such earlier date as the Total Commitment shall terminate pursuant to
Section 2.10 or Section 6.01.

                  "Moody's" means Moody's Investors Service, Inc., together with
its successors.


                  "Multiemployer Plan" means an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA.

                  "Non-Funding Notice" shall have the meaning assigned to such
term in Section 2.02(a).

                  "Non-OECD Loan Asset" means any Loan Asset the Obligor of
which is organized outside of any OECD Country.

                  "Notice of Borrowing" shall have the meaning assigned to such
term in Section 2.02(a).

                  "Notice of Exclusive Control" shall have the meaning assigned
to such term in the Control Agreement.

                  "Obligor" means in respect of any Loan Asset, the Person
primarily obligated under the related Loan Documents to repay the loan or
extension of credit which is the subject of such Loan Asset.


                                       15



                  "OECD Country" means any country which is a member of the
Organization for Economic Cooperation and Development and which has a sovereign
credit rating for "foreign currency" of at least "AA" and "Aa3" from S&P and
Moody's, respectively.

                  "Origination Date" means in respect of any Loan Asset the
initial date on which the proceeds of the loan or other extension of credit
which is the subject of such Loan Asset was advanced to the Obligor under the
related Loan Documents.

                  "Parent" means Morgan Stanley & Co., together with its
successors.

                  "Permitted Debt" means in respect of any Asset of the Borrower
(i) Debt arising under this Agreement or the other Program Documents to the
Secured Parties, (ii) Debt in favor of the Custodian relating to Custodian's
Overdraft Advances incurred in the ordinary course of the Borrower's business,
which are not overdue and which do not exceed the amount permitted by Section
5.02(o), (iii) fee and expense obligations to the Custodian and other similar
agents which are providing services in respect of the Borrower's Assets arising
in the ordinary course of the Borrower's business which are not overdue for a
period in excess of thirty (30) days, (iv) Debt (other than Debt for borrowed
money) arising in connection with transactions in the ordinary course of the
Borrower's business in connection with its purchasing of securities, Derivatives
Transactions or dollar rolls to the extent such transactions are permitted under
the Investment Company Act and the Investment Policies and Restrictions, (v)
obligations of the Borrower to fund future extensions of credit under the Loan
Documents relating to its Loan Assets which do not exceed twenty percent (20%)
of the aggregate Asset Value of the Borrower's Assets and which meet the
Borrower's diversification requirements set forth in the Prospectus, which are
not overdue, (vi) Debt representing accrued expenses and current trade account
payables incurred in the ordinary course of the Borrower's business which are
not overdue for a period beyond the customary practices in the industry or which
are being diligently contested in good faith, (vii) Debt in respect of judgments
or awards that have been in force for less than the applicable period for taking
an appeal so long as such judgments or awards do not constitute an Event of
Default and so long as execution is not levied thereunder or in respect of which
the Borrower (A) shall at the time in good faith be diligently prosecuting an
appeal or proceeding for review and in respect of which a stay of execution
shall have been obtained pending such appeal or review, or (B) shall have
obtained an unsecured performance bond in respect of such judgment or award, and
(viii) Debt arising in connection with reverse repurchase agreements which are
permitted under the Investment Company Act and the Investment Policies and
Restrictions and which have been entered into in the ordinary course of the
Borrower's business.

                  "Permitted Liens" means (a) in respect of any Asset of the
Borrower, (i) Liens of any Secured Party created by or pursuant to this
Agreement or the Control Agreement, (ii) Liens of the Custodian securing the
Custodian's Overdraft Advances to the extent such Custodian's Overdraft Advances
do not exceed the amount permitted by Section 5.02(o), (iii) Liens of the
Custodian which are by the terms of the Control Agreement expressly subordinated
to the payment of the Borrower Obligations, and (iv) Liens (other than
non-possessory Liens which pursuant to applicable law are, or may be, entitled
to take priority (in whole or in part) over prior, perfected liens and security
interests) with respect to taxes, assessments and other governmental charges or
levies for amounts not yet due or which are being contested in good faith by

                                       16


appropriate proceedings diligently conducted and with respect to which adequate
reserves have been set aside in accordance with GAAP, provided that enforcement
of such Liens is stayed pending such contest, and (b) in respect of any Asset of
the Borrower other than any Pledged Collateral (i) Liens incidental to the
conduct of the Borrower's business securing the performance of fee and expense
obligations to the Custodian and other similar agents which are providing
services in respect of the Borrower's Assets arising in the ordinary course of
the Borrower's business which are not overdue for a period in excess of thirty
(30) days, and (ii) Liens in respect of Debt permitted under clauses (iv) and
(viii) of the definition of Permitted Debt.

                  "Permitted Senior Securities" means "senior securities" within
the meaning of the Investment Company Act which constitute Advances under this
Agreement, Derivatives Transactions, repurchase transactions, reverse repurchase
transactions, preferred shares or commitments of the Borrower to fund future
advances or other extensions of credit under any Loan Document, to the extent
the issuance of any such senior security by the Borrower is not in contravention
of the Investment Company Act or the Investment Policies and Restrictions.

                  "Person" means an individual or a corporation (including a
business trust), partnership, trust, incorporated or unincorporated association,
joint stock company, limited liability company, government (or an agency or
political subdivision thereof) or other entity of any kind.

                  "Plan" means an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code.

                  "Pledged Collateral" shall have the meaning assigned to such
term in Section 7.01.

                  "Post-Default Rate" means in respect of all amounts payable to
any Secured Party under any Program Document not paid when due (whether at
stated maturity, by acceleration or otherwise), including, without limitation,
the principal and Yield on any Advance not paid when due, a rate per annum
during the period commencing on the due date until such amount is paid in full
equal to the applicable Base Rate as in effect from time to time plus two (2)
percent (2%).

                  "PRFC" means Preferred Receivables Funding Corporation,
together with its successors and assigns that constitute special purpose
entities managed by Bank One that issue commercial paper notes.

                  "PRFC Related Commitment" means the aggregate outstanding
principal amount of Advances which can be funded by PRFC, which is $350,000,000,
as such amount may be reduced pursuant to Section 2.10. References to the unused
portion of the PRFC Related Commitment shall mean at any time the PRFC Related
Commitment then in effect, minus the aggregate outstanding principal amount of
the Advances funded by PRFC or any PRFC Related Party.

                  "PRFC Related Party" means Bank One, each Related Secondary
Lender of PRFC and each Lender which is committed to purchase any interest in
any Advance made by PRFC pursuant to an Asset Purchase Agreement.



                                       17



                  "Principal Office" means the principal office of Citibank
presently located at 399 Park Avenue, New York, New York or at such other
location as Citibank shall designate in writing to the Borrower.

                  "Private Authorizations" means all franchises, permits,
licenses, approvals, consents and other authorizations of all Persons (other
than Authorities) including, without limitation, those with respect to
trademarks, service marks, trade names, copyrights, computer software programs,
technical and other know-how.

                  "Proceeds" shall have, with reference to any asset or
property, the meaning assigned to it under the UCC and, in any event, shall
include, but not be limited to, any and all amounts from time to time paid or
payable under or in connection with such asset or property.

                  "Product Information" shall have the meaning assigned to such
term in Section 10.09(a).

                  "Program Agent" shall have the meaning assigned to such term
in the introduction to this Agreement.

                  "Program Agent's Account" means such account of the Program
Agent which the Program Agent has designated in writing to the other parties
hereto.

                  "Program Documents" means this Agreement, the Advance Notes,
the Letter Agreement, the Asset Purchase Agreements, the Control Agreement,
Advisory Agreement, the Custodial Agreement, the Fee Letters, the Loan Documents
and the other agreements, documents and instruments entered into or delivered in
connection herewith or therewith.

                  "Program Termination Date" means the later to occur of (i) the
Secondary Lender Termination Date, and (ii) the date that all Borrower
Obligations have been finally paid in full; provided, however, that if any
payment in respect of any Borrower Obligation made to any Secured Party must be
rescinded or returned for any reason whatsoever (including the insolvency or
bankruptcy of the Borrower) such Borrower Obligation shall be deemed to be
reinstated as though such payment had not been made and the Program Termination
Date shall be deemed to have not occurred.

                  "Pro Rata Share" means as of any Borrowing Date (i) in respect
of CRC, a fraction, expressed as a percentage, the numerator of which is the CRC
Related Commitment as of such Borrowing Date and the denominator of which is the
Total Commitment as of such Borrowing Date, and (ii) in respect of PRFC, a
fraction expressed as a percentage, the numerator of which is the PRFC Related
Commitment as of such Borrowing Date and the denominator of which is the Total
Commitment as of such Borrowing Date.

                  "Prospectus" means with respect to the Borrower the prospectus
dated June 23, 1998 filed with the SEC as a part of the Borrower's registration
statement on Form N-2, as amended (or any successor SEC form), and shall
include, without limitation, the related statement of additional information, if
any, included in such registration statement, and all supplements, amendments
and modifications thereto as of the Closing Date, and as further

                                       18


supplemented, amended or modified in accordance with Applicable Law, including,
without limitation, the Securities Act and the Investment Company Act.

                  "Regulation T" means Regulation T of the Board of Governors of
the Federal Reserve System, as in effect from time to time.

                  "Regulation U" means Regulation 'U of the Board of Governors
of the Federal Reserve System, as in effect from time to time.

                  "Regulation X" means Regulation X of the Board of Governors of
the Federal Reserve System, as in effect from time to time.

                  "Related Secondary Lender" means (i) in respect of CRC,
Citibank together with any Secondary Lender which became a party to this
Agreement by entering into an Assignment and Acceptance pursuant to which it was
assigned a portion of the Secondary Lender Commitment relating to the CRC
Related Commitment, and (ii) in respect of PRFC, Bank One, together with any
Secondary Lender which became a party to this Agreement by entering into an
Assignment and Acceptance pursuant to which it was assigned a portion of the
Secondary Lender Commitment relating to the PRFC Related Commitment.

                  "Requested Amount" shall have the meaning assigned to such
term in Section 2.02(a).

                  "Responsible Officer" means in respect of any Person, the
president, any vice president, the chief financial officer, controller,
treasurer or any assistant treasurer; provided, that the Program Agent and the
Managing Agents shall have received a manually signed certificate of the
Secretary or Assistant Secretary of such Person as to the incumbency of, and
bearing a manual specimen signature of, such duly authorized officer.

                  "Restricted Payments" means (a) the declaration of any
distribution for dividends (other than distributions payable solely in shares of
beneficial interest in the Borrower) on, or the payment on account of, or the
setting apart of assets for the purchase, redemption, retirement or other
acquisition of, any shares of beneficial interests in the Borrower, including,
without limitation, all common and preferred shares, whether now or hereafter
outstanding, either directly or indirectly, whether in cash, property or in
obligations of the Borrower, and (b) the payment of fees and expenses to the
Adviser or any Affiliate of the Adviser as compensation for the provision of
managerial, administrative services or otherwise.

                  "S&P" means Standard & Poor's Ratings Group, together with its
successors.

                  "SEC" means the Securities and Exchange Commission or any
other governmental authority of the United States of America at the time
administrating the Securities Act, the Investment Company Act or the Exchange
Act.

                  "Secondary Lender Commitment" means in respect of the CRC
Related Commitment or the PRFC Related Commitment, as the case may be, (a) with
respect to each Secondary Lender party to this Agreement as of the Closing Date,
the amount set forth on the signature page to this Agreement, as such amount
shall be adjusted by any Assignment and

                                       19



Acceptance entered into between such Secondary Lender and an Eligible Assignee
in accordance with and subject to Section 10.06(b), or (b) with respect to a
Secondary Lender that has entered into an Assignment and Acceptance, the amount
set forth therein as such Secondary Lender's "Secondary Lender Commitment", in
each case as such amount may be reduced by an Assignment and Acceptance entered
into between such Secondary Lender and an Eligible Assignee in accordance with
and subject to Section 10.06(b), and a may be further reduced (or terminated)
pursuant to the next sentence. Any reduction (or termination) of the Total
Commitment pursuant to the terms of this Agreement shall reduce ratably (or
terminate) each Secondary Lender's Secondary Lender Commitment.

                  "Secondary Lender Percentage" (i) of any Secondary Lender
which is a Related Secondary Lender of CRC, means, (a) with respect to Citibank,
the percentage set forth on the signature page to this Agreement, as such
percentage shall be reduced by any Assignment and Acceptance entered into by
Citibank with an Eligible Assignee in accordance with and subject to Section
10.06(b), or (b) with respect to a Secondary Lender which is a Related Secondary
Lender of CRC that has entered into an Assignment and Acceptance in respect of
the CRC Related Commitment, the percentage set forth therein as such Secondary
Lender's Secondary Lender Percentage of the CRC Related Commitment, as such
percentage shall be reduced by an Assignment and Acceptance entered into between
such Secondary Lender and an Eligible Assignee in accordance with and subject to
Section 10.06(b), and (ii) of any Secondary Lender which is a Related Secondary
Lender of PRFC, means, (a) with respect to Bank One, the percentage set forth on
the signature page to this Agreement, as such percentage shall be reduced by any
Assignment and Acceptance entered into by Bank One with an Eligible Assignee in
accordance with and subject to Section 10.06(b), or (b) with respect to a
Secondary Lender which is a Related Secondary Lender of PRFC, that has entered
into an Assignment and Acceptance, the percentage set forth therein as such
Secondary Lender's Secondary Lender Percentage of the PRFC Related Commitment,
as such percentage shall be reduced by an Assignment and Acceptance entered into
between such Secondary Lender and an Eligible Assignee in accordance with and
subject to Section 10.06(b).

                  "Secondary Lender Stated Expiration Date" means September 23,
2003, unless, prior to such date (or the date so extended pursuant to this
clause), upon the Borrower's request, made not more than sixty (60) days nor
less than thirty (30) days prior to the then current Secondary Lender Stated
Expiration Date, one or more Secondary Lenders having 100% of the Total
Commitment shall in their sole discretion consent, which consent shall be given
not less than twenty (20) days prior to the then current Secondary Lender Stated
Expiration Date (the date any such consent is given, the "Extension Date"), to
the extension of the Secondary Lender Stated Expiration Date to the date
occurring 364 days after such Extension Date; provided, however, that any
failure of any Secondary Lender to respond to the Borrower's request for such
extension shall be deemed a denial of such request by such Secondary Lender.

                  "Secondary Lender Termination Date" means the earlier of (i)
the Secondary Lender Stated Expiration Date, and (ii) the date the Total
Commitment shall terminate pursuant to Section 2.10 or Section 6.01.



                                       20




                  "Secondary Lenders" means Citibank, Bank One and each Eligible
Assignee that becomes a party to this Agreement pursuant to and in accordance
with the requirements of Section 10.06(b).

                  "Secured Parties" means the Program Agent, the Managing
Agents, the Lenders, the Secondary Lenders and their respective successors and
assigns.

                  "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as from time to time in
effect, or any successor law, rules or regulations, and any reference to any
statutory or regulatory provisions shall be deemed to be a reference to any
successor statutory or regulatory provision.

                  "Selling Institution" means in respect of any Loan Asset which
constitutes a participation interest, the Person which has granted or sold to
the Borrower a participation interest in the loan or other extension of credit
which is the subject of such Loan Asset.

                  "Settlement Date" means the date which is five (5) Business
Days after the end of each Settlement Period; provided, that, for purposes of
the payment of Yield, with respect to any Settlement Period for which Yield is
computed by reference to the Eurodollar Rate, the Settlement Date shall be the
last day of the Settlement Period.

                  "Settlement Period" means in respect of any Advance:

                  (a) in the case of any Settlement Period in respect of which
Yield in respect of such Advance is computed by reference to the CP Rate, the
period beginning on the date such Advance was made and ending on the last day of
the calendar month in which such Advance was made and thereafter each successive
period commencing on the first day of each calendar month during the term of
this Agreement and ending on the last day of such calendar month during the term
of this Agreement; provided, however, that in the case of any Settlement Period
for any Advance which commences before the Maturity Date for such Advance and
would otherwise end on a date occurring after such Maturity Date, such
Settlement Period shall end on such Maturity Date and the duration of each
Settlement Period which commences on or after the Maturity Date for such Advance
may be any period (including, without limitation; a period of one day) as shall
be selected from time to time by the applicable Managing Agent;

                  (b) in the case of any Settlement Period in respect of which
Yield in respect of such Advance is computed by reference to the Assignee Rate,
the period beginning on the date such Advance was made and ending on the last
day of the calendar month in which such Advance was made and thereafter each
successive period commencing on the first day of each calendar month during the
term of this Agreement and ending on the last day of such calendar month during
the term of this Agreement; provided, however, that any Settlement Period which
is other than the monthly Settlement Period shall be of such duration as shall
be selected by the applicable Managing Agent; and

                  (c) in the case of any Settlement Period in respect of which
Yield is computed by reference to the Alternate Base Rate, such Settlement
Period shall be of such duration as shall be selected by the applicable Managing
Agent.


                                       21


                  "Specified Loan Documents" shall have the meaning assigned to
such term in the Control Agreement.

                  "Taxes" shall have the meaning assigned to such term in
Section 10.03(a).

                  "Total Commitment" means an amount equal to the sum of the CRC
Related Commitment and the PRFC Related Commitment, as such amount, may be
reduced pursuant to Section 2.10. References to the unused portion of the Total
Commitment shall mean, at any time, the Total Commitment then in effect, minus
the outstanding principal amount of the Advances.

                  "Transaction Agent" means a commercial bank, insurance
company, finance company or other financial institution that is acting as agent
or trustee under the Loan Documents relating to any Loan Asset.

                  "UCC" means the Uniform Commercial Code, as from time to time
in effect in the applicable jurisdictions.

                  "Unsecured Loan Assets" means Loan Assets which are not fully
secured under the related Loan Documents by a first priority perfected Lien on
assets or properties of the related Obligor with value as reasonably determined
by the Adviser at the time of the Borrower's purchase of such Loan Asset in
reliance upon appraisals, financial statements or market valuation techniques,
in an amount no less than the outstanding debt of such Obligor under the related
Loan Documents.

                  "Value" shall have the meaning assigned to such term in
Section 2(a)(41) of the Investment Company Act.

                  "Weekly Determination Date" means the last Business Day of
each calendar week.

                  "Weekly Portfolio Report" shall have the meaning assigned to
such term in Section 5.01(e)(ix).

                  "Withdrawal Notice" shall have the meaning assigned to such
term in Section 2.02(a).

                  "Yield" means for each Advance for each Settlement Period:

                           (i) for each day during such Settlement Period to the
         extent such Advance will be funded or maintained on such day by a
         Conduit Lender,

                                  CPR x P + LF
                                  --------
                                       360

                           (ii) for each day during such Settlement Period to
         the extent such Advance will be funded or maintained on such day by a
         Secondary Lender or a Lender (other than a Conduit Lender),


                                       22


                                   AR x P + LF
                                   -------
                                       360

         where:

                  AR       =        the applicable Assignee Rate for such
                                    Advance for such Settlement Period

                  P        =        the outstanding principal amount of such
                                    Advance on such day

                  CPR      =        the applicable CP Rate for such Advance on
                                    such day

                  LF       =        the Liquidation Fee, if any, for such
                                    Advance for such Settlement Period
                                    (expressed as a daily amount);

provided, further, that Yield for any Advance shall not be considered paid by
any distribution to the extent that at any time all or a portion of such
distribution is rescinded or must otherwise be returned for any reason.

                  SECTION 1.02. Rules of Construction.

                  For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires (i) singular words
shall connote the plural as well as the singular, and vice versa (except as
indicated), as may be appropriate, (ii) the words "herein," "hereof" and
"hereunder" and other words of similar import used in this Agreement refer to
this Agreement as a whole and not to any particular appendix, article, schedule,
section, paragraph, clause, exhibit or other subdivision, (iii) the headings,
subheadings and table of contents set forth in this Agreement are solely for
convenience of reference and shall not constitute a part of this Agreement nor
shall they affect the meaning, construction or effect of any provision hereof,
(iv) references in this Agreement to "including" shall mean including without
limiting the generality of any description preceding such term, and for purposes
hereof the rule of ejusdem generis shall not be applicable to limit a general
statement, followed by or referable to an enumeration of specific matters, to
matters similar to those specifically mentioned, and (v) each of the parties to
this Agreement and its counsel have reviewed and revised, or requested revisions
to, this Agreement, and the usual rule of construction that any ambiguities are
to be resolved against the drafting party shall be inapplicable in the
construction and interpretation of this Agreement.

                  SECTION 1.03. Computation of Time Periods.

                  Unless otherwise stated in this Agreement, in the computation
of a period of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" both mean "to
but excluding".


                                       23



                                   ARTICLE II
                            ADVANCES TO THE BORROWER

                  SECTION 2.01. Advance Facility.

                  On the terms and conditions hereinafter set forth, including
without limitation, Sections 3.01 and 3.02, each Conduit Lender may, in its sole
discretion, make an Advance to the Borrower on any Borrowing Date from the date
hereof to the Lender Termination Date in an amount equal to its Pro Rata Share
of the Requested Amount. On the terms and conditions hereinafter set forth,
including without limitation, Sections 3.01 and 3.02 and during the period from
the date hereof to the Secondary Lender Termination Date if a Conduit Lender has
declined to make an Advance, the Related Secondary Lenders of such Conduit
Lender shall make Advances to the Borrower, ratably in accordance with their
respective Secondary Lender Percentages as provided in Section 2.02. Under no
circumstances shall any Conduit Lender or any Secondary Lender make any such
Advance, to the extent that after giving effect to the making of such Advance
(i) the aggregate principal amount of all outstanding Advances would exceed the
Total Commitment, or (ii) the aggregate principal amount of all outstanding,
Advances funded by the CRC Related Parties or CRC would exceed the CRC Related
Commitment or the aggregate principal amount of all outstanding Advances funded
by the PRFC Related Parties or PRFC would exceed the PRFC Related Commitment.

                  SECTION 2.02. Making of Advances.

                  (a) The Borrower shall give each Managing Agent written notice
(which notice shall be irrevocable (unless the Borrower shall have delivered a
Withdrawal Notice to both Managing Agents in accordance with the provisions of
this Section 2.02) and effective only upon receipt by such Managing Agent) of
each request for Advances (each such request a "Notice of Borrowing") not later
than 12:00 noon (New York City time) on the day which is two Business Days prior
to the proposed borrowing date, which notice shall specify (i) the proposed
borrowing date therefor (each such date, a "Borrowing Date"), and (ii) the
aggregate principal amount of the proposed borrowing (the "Requested Amount").
Any such Notice of Borrowing shall be substantially in the form of Exhibit B
hereto, dated the date such request is being made, signed by a Responsible
Officer of the Borrower and otherwise appropriately completed. The Requested
Amount specified in any Notice or Borrowing shall be at least $2,000,000 and in
integral multiples of $1,000,000 in excess thereof. The Borrower shall not
request more than two (2) borrowings in any calendar week. During the period
prior to the Lender Termination Date, each Conduit Lender shall promptly notify
its related Managing Agent whether it has determined to make an Advance in the
amount of its Pro Rata Share of the Requested Amount and such Managing Agent
shall promptly thereafter notify the Borrower whether its related Conduit Lender
has determined to make such Advance. If prior to the Lender Termination Date a
Conduit Lender has declined to make such proposed Advance, the related Managing
Agent shall promptly send notice thereof (each such notice a "Non-Funding
Notice") to the Borrower no later than 5:00 p.m. (New York City time) on the
Business Day immediately preceding the proposed Borrowing Date. Upon receipt of
a Non-Funding Notice from any Managing Agent, the Borrower may withdraw its
Notice of Borrowing to both Managing Agents without incurring any cost, penalty,
expense or other liability (including under this Section 2.02 or Section 2.08 or
as a Liquidation Fee) provided that the Borrower shall have delivered to both
Managing Agents

                                       24




written notice withdrawing such Notice of Borrowings (which notice shall be
irrevocable and effective only upon receipt by the applicable Agent, and each
such withdrawal notice being a "Withdrawal Notice") not later than 12:00 noon
(New York City time) on such proposed Borrowing Date. If a Conduit Lender has
declined to make a proposed Advance and the Borrower shall not have issued a
Withdrawal Notice to both Managing Agents in accordance with the provisions of
the preceding sentence, the related Managing Agent shall promptly send notice of
the proposed borrowing to each of the Related Secondary Lenders of such Conduit
Lender concurrently by telecopy, telex or cable specifying the Borrowing Date
for such borrowing, each Secondary Lender's Secondary Lender Percentage
multiplied by the related Conduit Lender's Pro Rata Share of the Requested
Amount and whether the Yield for such Advance is calculated based on the
Eurodollar Rate or the Alternate Base Rate. On each Borrowing Date each Conduit
Lender or its Related Secondary Lenders shall, subject to the terms and
conditions of this Agreement, make available to the Borrower at the Borrower's
Account Advances in an amount equal to such Conduit Lender's Pro Rata Share of
the Requested Amount in immediately available funds. To the extent not covered
by Section 2.08, the Borrower shall indemnify each Conduit Lender, each
Secondary Lender and each Managing Agent against any loss or expense incurred by
them as a result of any failure by the Borrower to accept any Advance requested
in a Notice of Borrowing or as a result of the failure of the Borrower to
receive any Advance requested in a Notice of Borrowing as a result of the
failure of any condition precedent to the making of such Advance to be
satisfied, including, without limitation, any loss or expense incurred by reason
of the liquidation or reemployment of funds acquired or requested to fund such
Advance.

                  (b) If the Borrower has delivered a written request for
Committed Advances to the Program Agent and each Managing Agent no earlier than
ten (10) Business Days and no later than two (2) Business Days prior to the
Lender Termination Date, each Secondary Lender agrees that so long as no Default
or Event of Default shall have occurred and be continuing on such date, and
subject to the other terms and conditions of this Agreement it shall make an
Advance (each a "Committed Advance") on the Lender Termination Date in a
principal amount equal to its Secondary Lender Percentage of the outstanding
principal amount of the Advances made by its related Conduit Lender.
Notwithstanding anything in this Agreement to the contrary, the principal amount
of such Committed Advances shall be made by each Related Secondary Lender to the
related Managing Agent's Account and shall constitute a payment in full by the
Borrower in respect of the outstanding principal amount of the Advances of the
related Conduit Lender and its related Lenders maturing on the Lender
Termination Date and shall be applied by the related Managing Agent on the
Lender Termination Date to the outstanding principal amount of the Advances made
by such related Conduit Lender.

                  SECTION 2.03. Noteless Agreement; Evidence of Indebtedness.


                  (a) Each Lender and each Secondary Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender or such Secondary Lender, as
applicable, resulting from each Advance made by the applicable Conduit Lender or
such Secondary Lender, as applicable, from time to time, including the amounts
of principal and Yield thereon and paid to such Lender or Secondary Lender, as
applicable, from time to time hereunder.


                                       25


                  (b) Each Managing Agent shall maintain accounts in which it
will record (i) the amount of each Advance made hereunder by its related Conduit
Lenders and Secondary Lenders and the Settlement Period with respect thereto,
(ii) the amount of any principal and Yield due and payable or to become due and
payable from the Borrower to each of its related Lenders and Secondary Lenders
hereunder, and (iii) the amount of Any sum received by such Managing Agent
hereunder from the Borrower and each of its related Lender's and Secondary
Lender's share thereof.

                  (c) The entries maintained in the accounts maintained pursuant
to clauses (a) and (b) of this Section 2.03 shall be rebuttable presumptive
evidence of the existence and amounts of the Borrower Obligations therein
recorded (absent manifest error); provided, however, that the failure of any
Managing Agent, any Lender or any Secondary Lender to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Borrower Obligations in accordance with their terms.

                  (d) Any Conduit Lender and any Secondary Lender may request
that its Advances be evidenced by an Advance Note. In such event, the Borrower
shall (as soon as reasonably practicable) prepare, execute and deliver to such
Conduit Lender or Secondary Lender, as applicable, an Advance Note payable to
the order of such Conduit Lender or Secondary Lender, as applicable. Thereafter,
the Advances evidenced by such Advance Note and interest thereon shall at all
times (including after any assignment pursuant to Section 10.06) be represented
by one or more Advance Notes payable to the order of the payee named therein or
any assignee pursuant to Section 10.06, except to the extent that any such
Conduit Lender, Secondary Lender or assignee subsequently returns to the
Borrower any such Advance Note for cancellation and requests that such Advances
once again be evidenced as described in clauses (a) and (b) of this Section
2.03. In connection with any assignment pursuant to Section 10.06, if such
assigning Secondary Lender shall have an Advance Note issued to it, such
assigning Secondary Lender shall promptly return its Advance Note to the
Borrower marked "cancelled".

                  SECTION 2.04. Maturity of the Advances.


                  The principal amount of, and the accrued and unpaid Yield on
each outstanding Advance shall be due and payable by the Borrower on the
Maturity Date for such Advance.

                  SECTION 2.05. Prepayment of the Advances.

                  (a) The Borrower shall have the right at any time and from
time to time, upon not less than two (2) Business Days' prior written or
telephonic notice (in the case of telephonic notice, promptly confirmed in
writing) to the Program Agent and each Managing Agent specifying the date and
amount of such prepayment, to prepay (without any premium or penalty, except for
any Liquidation Fee or amount payable under Section 2.08) all or a portion of
the outstanding Advances, together with unpaid Yield thereon, on a Business Day;
provided, that any such prepayment, if a partial prepayment, shall be at least
$2,000,000 and in integral multiples of $100,000 in excess thereof.

                  (b) If on any Determination Date the Borrower is not in full
compliance with the Borrowing Base Test, the Borrower shall on such
Determination Date (I) notify the Program



                                       26



Agent and each Managing Agent of such failure to comply, and (II) on the
Business Day next succeeding such Determination Date (each such date, a
"Compliance Certification. Date") prepay Advances (together with Yield thereon)
in an amount necessary to cause the Borrower to be in full compliance with the
Borrowing Base Test on such Compliance Certification Date; provided, however,
that to the extent the Borrower does not have sufficient available funds to
fully cure such compliance shortfall on such Compliance Certification Date, then
the Borrower shall (i) on such Compliance Certification Date prepay outstanding
Advances in the amount of its available funds; (ii) no later than the close of
business on the tenth (10th) Business Day following such Determination Date
either (A) acquire and pledge to the Program Agent under this Agreement and the
Control Agreement additional Borrowing Base Eligible Assets having an Adjusted
Asset Value at least sufficient to cause the Borrowing Base to be at least equal
to the product of (x) 1.05, and (y) Credits Outstanding, as determined on such
Compliance Certification Date, or (B) prepay Advances in a principal amount (and
pay the Yield thereon) at least sufficient to cause the Borrowing Base. to be at
least equal to the product of (x) 1.05 and (y) Credits Outstanding, as
determined on such Compliance Certification Date; and (iii) no later than the
close of business on such Compliance Certification Date, deliver to the Program
Agent and each Managing Agent a certificate, signed by an Responsible Officer of
the Borrower, that (1) certifies the amount of the compliance shortfall, (2)
specifies whether the Borrower shall either (x) prepay the Advances in
accordance with clause (B) above, or (y) acquire additional Borrowing Base
Eligible Assets in accordance with clause (A) above and specifies the identity
and Adjusted Asset Value of the Borrowing Base Eligible Assets for which the
Borrower has entered into corrective trades in order to satisfy the requirements
of clause (A) of this Section 2.05(b), and (3) certifies that the requirements
of this Section 2.05(b) shall be satisfied on or prior to the tenth (10th)
Business Day following such Determination Date.

                  (c) The amount of each prepayment under this Section 2.05
shall be applied ratably to the Advances of each Lender and each Secondary
Lender in the order in which such Advances were made by such Lender or Secondary
Lender.

                  SECTION 2.06. Yield.

                  The Borrower hereby agrees to pay the Yield computed with
reference to the principal amount of each Advance outstanding from time to time.
Yield accruing in respect of any Advance for any Settlement Period shall be due
and payable on the Settlement Date immediately succeeding such Settlement Period
and as required by Section 2.05. It is the intention of the parties hereto that
the Yield on the Advances shall not exceed the maximum rate permissible under
applicable law. Accordingly, anything herein or in any Advance Note to the
contrary notwithstanding, in the event any Yield is charged to, collected from
or received from or on behalf of the Borrower by the Lenders or the Secondary
Lenders pursuant hereto or thereto in excess of such maximum lawful rate, then
the excess of such payment over that maximum shall be applied first to the
payment of amounts then due and owing by the Borrower to the Secured Parties
under the Program Documents (other than in respect of principal and Yield on
Advances), then to the reduction of the outstanding principal balance of the
Advances then due and then any excess amount to be returned to the Borrower.


                                       27



                  SECTION 2.07. Increased Costs.

                  (a) If, due to either (i) the introduction of or any change
(other than any change by way of imposition or increase of reserve requirements
reflected in the Eurodollar Rate Reserve Percentage) in or in the interpretation
of any Applicable Law or (ii) the compliance with any guideline or request from
any central bank or other Authority (whether or not having the force of law),
there shall be any increase in the cost to any Affected Person of agreeing to
make or making, funding or maintaining Eurodollar Rate Advances to the Borrower,
then the Borrower from time to time shall, as promptly as practicable upon
written demand by such Affected Person pay to the related Managing Agent for the
account of such Affected Person additional amounts sufficient to compensate such
Affected Person for such increased cost; provided, however, that no additional
amounts shall be required under this Section 2.07 with respect to (i) income or
profits taxes (or franchise taxes imposed in lieu thereof), (ii) Taxes or Other
Taxes in effect on the date that such Affected Person became a party to this
Agreement or otherwise became committed to purchase or acquire any interest in
any Advances (whether by assignment, participation or otherwise), except to the
extent that such Affected Person's assignor or predecessor was entitled to such
additional amounts, and (iii) Taxes to the extent avoidable had such Person
complied with the provisions of Section 10.03(f). In determining such amount,
such Affected Person may in good faith use any reasonable averaging and
attribution methods, consistent with the averaging and attribution methods
generally used by such Affected Person in determining amounts of this type with
respect to other borrowers. Each such Affected Person shall, together with its
written demand therefor, deliver to the Borrower and the applicable Managing
Agent a certificate setting forth in reasonable detail the amount of such
increased cost and the basis for the calculation of such amount, which
certificate shall be conclusive and binding for all purposes, absent manifest
error.

                  (b) If an Affected Person determines that compliance with any
Applicable Law enacted after the Closing Date or request from any central bank
or other Authority charged with the interpretation or administration thereof
(whether or not having the force of law) affects the amount of capital required
or expected to be maintained by such Affected Person and that the amount of such
capital is increased by or based upon the existence of such Affected Person's
commitment under the Program Documents or upon such Affected Person's making,
funding or maintaining Advances, then, as promptly as practicable upon written
demand of such Affected Person (with a copy of such demand to the Program Agent
and the related Managing Agent), the Borrower shall pay to the related Managing
Agent for the account of such Affected Person, from time to time as specified by
such Affected Person, additional amounts sufficient to compensate such Affected
Person in light of the circumstances. Each such Affected Person shall, together
with its written demand therefore, deliver to the Borrower and the applicable
Managing Agent a certificate setting forth in reasonable detail such amounts and
the basis for the calculation of such amounts, which certificate shall be
conclusive and binding for all purposes, absent manifest error.

                  (c) Upon the occurrence of any event giving rise to the
Borrower's obligation to pay additional amounts to any Affected Person pursuant
to Sections 2.07(a), 2:07(b) or 10.03, such Affected Person will, if requested
by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Affected Person) to designate a different lending office;
provided, however, that such designation is made on such terms that such
Affected Person and its lending office suffer no significant economic, legal or
regulatory disadvantage, with the

                                       28



object of avoiding future consequence of the event giving rise to the operation
of any such Section. If such additional amounts are not eliminated by any such
designation and such Affected Person does not waive payment of such additional
amounts, the applicable Managing Agent, may at its sole discretion within sixty
(60) days, recommend a replacement Affected Person not so affected. If after the
sixty (60) day period described in the preceding sentence a replacement for such
Affected Person has not been procured, the Borrower may propose a replacement
for such Affected Person and, upon approval of the applicable Managing Agent
(which approval shall not be unreasonably withheld or delayed), such Affected
Person shall assign its interests under the applicable Program Documents to such
replacement entity. The parties hereby agree that unless and until the Affected
Person to be replaced (i) is paid in full for all amounts due and owing
hereunder and under any other Program Document, and (ii) enters into assignment
documents with the replacement entity which are reasonably satisfactory to such
Affected Person, it shall have no obligation to assign any of its rights and
interests hereunder. Each such Affected Person agrees to take all actions
necessary to permit a replacement to succeed to its rights and obligations
hereunder and under the other Program Documents. The Borrower agrees to pay all
reasonable expenses incurred by any Affected Person in utilizing another lending
office of such Affected Person or in assigning its interest pursuant to this
Section 2.07(c). Nothing in this Section 2.07(c) shall affect or postpone any of
the obligations of the Borrower or the rights of any Secured Party.

                  SECTION 2.08. Compensation.


                  Without duplication of any amount due by the Borrower in
respect of any Liquidation Fee, the Borrower shall compensate each Affected
Person, upon its written request (which request shall set forth in reasonable
detail the basis for requesting such amounts and the details showing the basis
of the calculation of such amounts), for all reasonable losses, expenses and
liabilities (including, without limitation, any interest paid by such Affected
Person to lenders of funds borrowed by it to make or carry its Eurodollar Rate
Advances and any loss sustained by such Affected Person in connection with the
re-employment of such funds), which such Affected Person may sustain: (i) if for
any reason (other than a default by such Affected Person) a borrowing of any
Eurodollar Rate Advance by the Borrower does not occur on a date specified
therefor in the Notice of Borrowing (unless a Withdrawal Notice has been
delivered in respect of such Notice of Borrowing in accordance with the
requirements set forth in Section 2.02(a)), (ii) if any prepayment of any of the
Borrower's Eurodollar Rate Advances occurs on a date which is not the last day
of a Settlement Period applicable thereto, (iii) if any prepayment of any of the
Borrower's Eurodollar Rate Advances is not made on any date specified in a
notice of prepayment given by the Borrower, or (iv) as a consequence of any
other default by the Borrower to repay its Eurodollar Rate Advances when
required by the terms of this Agreement.

                  SECTION 2.09. Additional Yield on Eurodollar Rate Advances.

                  So long as any Affected Person shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, the Borrower shall pay as promptly as practicable
following written demand therefor to such Affected Person Eurodollar Additional
Yield on the principal amount of each outstanding Advance on each date on which
Yield is payable on such Advance. Such Eurodollar Additional Yield shall be
determined on a reasonable

                                       29


basis by such Affected Person and notified to the Borrower through its Managing
Agent within thirty (30) days after any payment is made with respect to which
such additional Yield is requested. Each such Affected Person shall, together
with the written demand therefor, deliver to the Borrower and the applicable
Managing Agent a certificate setting forth in reasonable detail the amount of
such Eurodollar Additional Yield and the basis for the calculation of such
amount, which certificate shall be conclusive and binding for all purposes,
absent manifest error.

                  SECTION 2.10. Termination or Reduction of the Total
Commitment.

                  The Borrower may at any time, upon thirty (30) days prior
written notice to the Program Agent, terminate in whole or reduce in part the
unused portion of the Total Commitment; provided, that each such partial
reduction of the Total Commitment shall be in an amount equal to at least
$5;000,000 or an integral multiple thereof. Any reduction of the Total
Commitment shall reduce ratably (or terminate) the CRC Related Commitment and
the PRFC Related Commitment.

                  SECTION 2.11. Rescission or Return of Payment.

                  The Borrower further agrees that, if at any time all or any
part of any payment theretofore made by it to any Secured Party or their
designees is or must be rescinded or returned for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
the Borrower or any of its Affiliates), the obligation of the Borrower to make
such payment to such Secured Party shall, for the purposes of this Agreement, to
the extent that such payment is or must be rescinded or returned, be deemed to
have continued in existence and this Agreement shall continue to be effective or
be reinstated, as the case may be, as to such obligations, all as though such
payment had not been made.

                  SECTION 2.12. Fees Payable by Borrower.

                  The Borrower agrees to pay the Managing Agents and the
Secondary Lenders such fees as are set forth in the Fee Letters.

                  SECTION 2.13. Post Default Interest.

                  The Borrower hereby promises to pay interest on the unpaid
principal amount of each Advance and any other amount payable by the Borrower
hereunder, in each case, which shall not be paid in full when due, for the
period commencing on the due date thereof until but not including the date the
same is paid in full at the Post-Default Rate. Interest payable at the
Post-Default Rate shall be payable on the Program Agent's or the related
Managing Agent's demand.

                  SECTION 2.14. Payments.

                  (a) All amounts owing and payable under this Agreement,
including, without limitation, the principal amount of outstanding Advances,
Yield, fees, indemnities, expenses or other amounts payable under the Program
Documents, shall be paid in Dollars, in immediately available funds on or prior
to 12:00 noon (New York City time) on the date due without counterclaim, setoff,
deduction, defense, abatement, suspension or deferment. Subject to Section

                                       30




2.14(d) and Section 7.03(a), (i) all payments in respect of the Borrower
Obligations, payable by or on behalf of the Borrower to the Lenders and
Secondary Lenders shall be paid to the Managing Agent's Account of the Managing
Agent relating to such Lenders and Secondary Lenders, (ii) all payments in
respect of Borrower Obligations; payable by or on behalf of the Borrower to a
Managing Agent shall be paid to the Managing Agent's Account of such Managing
Agent, and (iii) all payments in respect of the Borrower Obligations payable to
the Program Agent shall be payable to the Managing Agent's Account relating to
CRC or such other account which the Program Agent shall designate in writing to
the Borrower. Any payment paid after 12:00 noon (New York City time) on any day
shall be deemed to have been made on the next Business Day for all purposes of
this Agreement.

                  (b) All computations of interest at the Post-Default Rate and
all computations of Yield, fees and other amounts hereunder shall be made on the
basis of a year of 360 days for the actual number of days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
such payment or deposit.

                  (c) Upon a Managing Agent's receipt of funds deposited into
its Managing Agent's Account, such Managing Agent shall distribute such funds,
first to the Lenders and the Secondary Lenders for which it acts as Managing
Agent on a pro rata basis in accordance with such amounts owed to each Lender
and Secondary Lender in payment of all accrued and unpaid Yield owing to such
Lenders and Secondary Lenders, second to such Lenders, such Secondary Lenders,
itself as Managing Agent and in the case of the Managing Agent for CRC, the
Program Agent, on a pro rata basis in accordance with such amounts owed to each
such Person in payment of any other fees or other amounts owed by the Borrower
to the Lenders, the Secondary Lenders and the Program Agent under this Agreement
and the other Program Documents (other than in respect of the principal amount
of the Advances), and third to the payment of the principal amount of the
Advances owing to such Lenders and Secondary Lenders on a pro rata basis in
accordance with such amounts owed to each such Lender and Secondary Lender.

                  (d) During the continuance of an Event of Default all payments
in respect of the Borrower Obligations, payable by or on behalf of the Borrower,
including all Proceeds resulting from the sale or disposition of the Pledged
Collateral shall be remitted to the Program Agent's Account and applied in
accordance with Section 7.03(x).

                  SECTION 2.15. Ratable Payments.

                  If any Secondary Lender or Lender (other than a Conduit
Lender), whether by setoff, bankers' lien, counterclaim or otherwise, has
payment made to it with respect to any Borrower Obligations owing to it in a
greater proportion than that received by any other Lender or Secondary Lender
entitled to receive a ratable share of such payments, such Lender or Secondary
Lender agrees, promptly upon demand, to purchase for cash without recourse or
warranty a portion of the unpaid Borrower Obligations held by the other Lenders
and Secondary Lenders so that after such purchase each Lender and Secondary
Lender will hold its ratable proportion of such unpaid Borrower Obligations;
provided that if all or any portion of such excess amount is thereafter
recovered from such Secondary Lender or Lender, as the case may be,

                                       31



such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.

                  SECTION 2.16. Borrower's Obligations Absolute.


                  The Borrower's obligations under this Agreement and under the
other Program Documents to which it is a party shall be absolute, unconditional
and irrevocable, and shall be paid strictly in accordance with the terms hereof
and thereof, under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment which the Borrower, the Adviser or any other
Person may have or have had against any Secured Party or any other Person.

                                  ARTICLE III
                              CONDITIONS PRECEDENT

                  SECTION 3.01. Conditions Precedent to the Effectiveness of
This Agreement.


                  The effectiveness of this Agreement and any Conduit Lender's
and any Secondary Lender's obligations hereunder shall be subject to the
conditions precedent that the Program Agent and each Managing Agent shall have
received (or waived receipt thereof) on or before the initial Borrowing Date the
following, each (unless otherwise indicated) in form and substance reasonably
satisfactory to each Managing Agent in sufficient copies for the Conduit Lenders
and the Secondary Lenders:

                  (a) each of the Program Documents duly executed and delivered
by the parties thereto, which shall each be in full force and effect;

                  (b) the Prospectus;

                  (c) the signed opinions of counsel to the Borrower and the
Adviser addressed to the Program Agent, each Managing Agent, each Conduit Lender
and each Secondary Lender as to such matters as the Managing Agents shall have
reasonably requested;

                  (d) if requested by any Conduit Lender or any Secondary Lender
pursuant to Section 2.03 on or prior to the Closing Date, an Advance Note duly
executed and completed by the Borrower to such Conduit Lender or such Secondary
Lender, as applicable;

                  (e) copies of all Governmental Authorizations, material
Private Authorizations and Governmental Filings, if any, which may be required
to be made or obtained by the Borrower in connection with the transactions
contemplated by this Agreement;

                  (f) a certificate of the Secretary or Assistant Secretary of
each of the Borrower and the Adviser certifying (i) as to its certificate of
incorporation or declaration of trust, as applicable and by-laws, (ii) as to the
resolutions of its Board of Directors or Board, of Trustees, as applicable,
approving this Agreement and the other Program Documents to which it is a party
and the transactions contemplated hereby and thereby, (iii) that its
representations and warranties set forth in the Program Documents to which it is
a party are true and correct in all material respects, and (iv) the incumbency
and specimen signature of each of its officers authorized to execute the Program
Documents to which it is a party;


                                       32



                  (g) copies of proper financing statements naming the Borrower
as debtor and the Program Agent as secured party to, be filed under the UCC in
all jurisdictions that the Managing Agents may deem necessary or desirable in
order to perfect the Program Agent's interests in the Pledged Collateral
contemplated by this Agreement;

                  (h) copies of proper termination financing statements, if any,
necessary to release all Adverse Claims of any Person in the Assets of the
Borrower previously granted by the Borrower;

                  (i) completed requests for information, dated on or before the
date of the initial Borrowing Date, listing all effective financing statements
filed in the jurisdictions referred to in subsection (g) above that name the
Borrower (under its present name and any previous name) as debtor, together with
copies of such other financing statements; and

                  (j) a pro forma Investor Report, which shall evidence
compliance with the Borrowing Base Test, the Asset Coverage Test and certain
other terms of the Program Documents after giving effect to the initial
borrowing of Advances under this Agreement.

                  SECTION 3.02. Conditions Precedent to All Advances.

                  The obligation of the Conduit Lenders and the Secondary
Lenders to make any Advance (including the initial Advances) on any Borrowing
Date shall be subject to the fulfillment of the following conditions:

                  (a) each of the representations and warranties of the Borrower
contained in this Agreement and the Control Agreement and each of the
representations and warranties of the Advisor contained in the Letter Agreement
shall be true and correct as of such date and shall continue to be true
immediately after giving effect to such Advance;

                  (b) no Default or Event of Default shall have occurred and be
continuing or shall result from the making of such Advance;

                  (c) immediately after giving effect to such Advance the
Borrower shall be in full compliance with each of the Borrowing Base Test and
the Asset Coverage Test;

                  (d) immediately after the making of any such Advance, the
aggregate outstanding principal amount of all Advances shall not exceed the
Total Commitment; and

                  (e) each Managing Agent shall have received an Investor
Report.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

                  SECTION 4.01. Representations and Warranties of the Borrower.

                  The Borrower represents and warrants to each of the Secured
Parties on and as of the Closing Date, each Borrowing Date and each Weekly
Determination Date (except solely in respect of clause (1) below, each date such
information is provided), as follows:


                                       33



                  (a) Due Organization. The Borrower is a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, with full power and authority to own and operate
its Assets, conduct the business in which it is now engaged and to execute and
deliver and perform its obligations under this Agreement and the other Program
Documents to which it is a party, except where the failure to hold such power
and authority could not reasonably be expected to result in a Material Adverse
Effect.

                  (b) Due Qualification and Good Standing. The Borrower is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business, assets and properties, including, without
limitation, the performance of its obligations under this Agreement and the
other Program Documents to which it is a party, requires such qualification,
except where the failure to be so qualified or to be in good standing could not
reasonably be expected to have a Material Adverse Effect:

                  (c) Due Authorization; Execution and Delivery; Legal, Valid
and Binding; Enforceability. The execution and delivery by the Borrower of, and
the performance by the Borrower of its obligations under the Program Documents
to which it is a party are within its powers and have been duly authorized by
all requisite action by the Borrower and have been duly executed and delivered
by the Borrower and constitute the legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

                  (d) Noncontravention. Neither the execution and delivery by
the Borrower of this Agreement, the other Program Documents to which it is a
party nor the consummation of the transactions herein or therein contemplated,
nor compliance with the terms, conditions and provisions hereof or thereof by
it, will (i) conflict with, or result in a breach or violation of, or constitute
a default under its declaration of trust or other organizational documents, (ii)
conflict with or contravene (A) any Applicable Law the contravention of which
could reasonably be expected to have a Material Adverse Effect, (B) any
contractual restriction binding on or affecting the Borrower or any of its
Assets the contravention of which could reasonably be expected to have a
Material Adverse Effect or which could reasonably be expected to result in any
material liability to a Secured Party, or (C) any order, writ, judgment, award,
injunction or decree binding on or affecting the Borrower or any of its Assets,
except to the extent noncompliance therewith could not reasonably be expected to
have a Material Adverse Effect, or (iii) result in any Adverse Claim upon any
Asset of the Borrower.

                  (e) Governmental Authorizations; Private Authorizations;
Governmental Filings. The Borrower has obtained all necessary Governmental
Authorizations and Private Authorizations, and made all Governmental Filings
necessary for the execution and delivery by the Borrower of, and the performance
by the Borrower of its obligations under this Agreement, the other Program
Documents to which it is a party and the agreements, certificates and
instruments contemplated hereby or thereby, except in the case of Private
Authorizations, where the failure to obtain such Private Authorizations could
not reasonably be expected to have a Material Adverse Effect.



                                       34


                  (f) Security Interest. This Agreement and the Control
Agreement and the actions required to be taken pursuant to the terms hereof are,
and at all times shall be, effective to create and perfect in the Program Agent
for the benefit of the Secured Parties a first priority perfected security
interest in the Pledged Collateral (subject to the Lien of the Custodian
securing the Custodian's Overdraft Advances to the extent permitted by Section
5.02(o) and other Permitted Liens) free and clear of all Adverse Claims.

                  (g) Borrowing Base Eligible Assets; Adverse Claims; Etc. The
Borrower owns each Borrowing Base Eligible Asset free and clear of Adverse
Claims and as of the initial Borrowing Date and at all times thereafter, the
Program Agent has a first priority perfected security interest in the Pledged
Collateral (subject to the Lien of the Custodian securing the Custodian's
Overdraft Advances to the extent permitted by Section 5.02(o) and other
Permitted Liens) free and clear of all Adverse Claims.

                  (h) No Financing Statement. No effective financing statements
or other instruments similar in effect covering any Asset of the Borrower are on
file in any recording office, except those filed in favor of the Program Agent
pursuant to this Agreement.

                  (i) Principal Office; Organization. The Borrower's principal
place of business and chief executive office is at the addresses referred to in
Section 5.01(d), the Borrower's jurisdiction of organization is the Commonwealth
of Massachusetts, and the Borrower has not transacted any business under any
name other than "Van Kampen Senior Income Trust" and "Van Kampen American
Capital Senior Income Trust".

                  (j) Pending Litigation or Other Proceeding. There are no
pending or, to the best of the Borrower's knowledge, threatened investigations,
litigation, suits or proceedings involving the Borrower which could reasonably
be expected to have a Material Adverse Effect.

                  (k) Investment Company Act, Etc. The Borrower is and will
continue to be registered as a closed-end management investment company as such
term is used in the Investment Company Act and is in compliance in all material
respect with the Investment Company Act and the Investment Policies and
Restrictions.

                  (l) Information and Reports. The Prospectus, each Investor
Report, each Weekly Portfolio Report, each Notice of Borrowing and all other
written information, written reports, certificates and written statements
provided by or on behalf of the Borrower to any Secured Party for purposes of or
in connection with this Agreement, the other Program Documents to which the
Borrower is a party or the transactions contemplated hereby or thereby to be
performed by the Borrower is, and all such information hereafter provided by or
on behalf of the Borrower to any Secured Party is and will be (except for
projections and forward-looking statements (other than any pro forma Investor
Report)) true and accurate in all material respects on the date such information
is stated or certified, and no such information contains, or will contain, any
material misrepresentation or any omission to state therein matters necessary to
make the statements made therein not misleading in any material respect under
the circumstances in which they were made when considered in their entirety.

                                       35



                  (m) Applicable Law. The Borrower is in full compliance with
all Applicable Law, including, without limitation, the Securities Act and the
Investment Company Act, including the rules and regulations promulgated
thereunder, except where the failure to so comply could not give rise to a
reasonable possibility of a Material Adverse Effect.

                  (n) ERISA. The Borrower is not nor has during the past five
(5) years been a member of an ERISA Group and does not have nor during the past
five (5) years had any liability or obligation with respect to any Plan,
Multiemployer Plan or Benefit Arrangement; provided, however, that the Borrower
may incur liabilities or obligations under a plan or arrangement in the form of
(i) the Form of Retirement Plan For Each Closed End Fund or (ii) the Form of
Amended and Restated Deferred Compensation Agreement.

                  (o) No Default or Event of Default. No Default or Event of
Default has occurred and is continuing and on each Borrowing Date each of the
conditions precedent to the making of Advances set forth in Section 3.02 have
been fully satisfied.

                  (p) Borrowing Base Test; Asset Coverage Test, Etc. The
Borrowing Base Test and the Asset Coverage Test are fully satisfied and will be
fully satisfied and immediately after the making of each Advance; provided, that
if on any date this representation is made (other than a Borrowing Date) the
Borrower is in full compliance with the requirements set forth in Section
2.05(b), the Borrower shall be deemed to be in compliance with this clause (p)
to the extent it relates to the Borrowing Base Test as of such date.

                  (q) Internal Revenue Code. The Borrower is qualified, and
intends to continue to qualify, as a "regulated investment company" within the
meaning of the Code.

                  (r) Taxes. The Borrower has filed all United States Federal
income tax returns and all other material tax returns which are required to be
filed by it, if any, and has paid all material taxes due pursuant to such
returns, if any, or pursuant to any assessment received by the Borrower, except
for any taxes or assessments which are being contested in good faith by
appropriate proceedings and with respect thereto adequate reserves have been
established in accordance with GAAP.

                  (s) Financial Condition. The statement of assets and
liabilities of the Borrower as at July 31, 2001, certified by Deloitte & Touche
LLP, certified public accountants, fairly present in conformity with GAAP the
financial position of the Borrower at such date and since such date there has
been no material adverse change in the business, financial condition or results
of operations of the Borrower.

                  (t) Regulations T, U and X. Neither the making of any Advance
nor the use of proceeds thereof will violate the provisions of Regulation U or
Regulation X. The Borrower's use of the proceeds of the Advances will not
violate Regulation T.


                                       36


                                   ARTICLE V
                                   COVENANTS

                  SECTION 5.01. Affirmative Covenants of the Borrower.

                  The Borrower covenants and agrees that it shall from the date
hereof until the Program Termination Date:

                  (a) Compliance with Agreements, Laws, Etc. (i) Duly observe,
comply with and conform to all requirements of Applicable Law relative to the
conduct of its business or to its Assets, including without limitation the
Investment Company Act, (ii) preserve and keep in full force and effect the
legal existence of the Borrower and the rights, privileges, qualifications and
franchises of the Borrower, (iii) comply in all material respects with the terms
and conditions of each Program Document to which it is a party, and (iv) obtain,
maintain and keep in full force and effect all Governmental Authorizations,
Private Authorizations and Governmental Filings which are necessary or
appropriate to properly carry out its business and the transactions contemplated
to be performed by the Borrower under this Agreement and the other Program
Documents to which it is a party, except with respect to clauses (i) through
(iv) above where the failure to so observe; comply, preserve, keep, obtain,
maintain and conform could not reasonably be expected to have a Material Adverse
Effect.

                  (b) Taxes. Cause to be computed, paid and discharged when due
all material taxes, assessments and other governmental charges or levies imposed
upon it, or upon any income or Assets of the Borrower, prior to the day on which
penalties are attached thereto, unless and to the extent that the same shall be
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been established on the books of the Borrower in
accordance with GAAP.

                  (c) Further Assurances. Promptly, at its expense, execute and
deliver such further instruments and take such further action as is necessary in
order to (i) establish and protect the rights, interests and remedies created,
or intended to be created, in favor of the Secured Parties including, without
limitation, all such actions which are necessary or reasonably advisable to
maintain and protect the Secured Parties' first priority perfected (subject to
the Lien of the Custodian securing the Custodian's Overdraft Advances to the
extent permitted by Section 5.02(o) and other Permitted Liens) security interest
in the Pledged Collateral free and clear of Adverse Claims, and (ii) enable the
Secured Parties to enforce their rights and remedies under the Program Documents
to which the Borrower is a party, including, without limitation, to do all
things necessary at the reasonable request of the Program Agent during the
continuance of an Event of Default to have each Loan Asset which constitutes
Pledged Collateral and the related Loan Documents assigned to the Program Agent
or its designee.

                  (d) Continued Existence. Keep the Commonwealth of
Massachusetts as its jurisdiction of organization and keep its principal place
of business, and chief executive office at the address of the Borrower set forth
in Section 10.02 or, upon thirty (30) days' prior written notice to the Program
Agent and each Managing Agent, in any other jurisdiction of organization or at
any other locations in jurisdictions where all actions to protect and perfect
the Program Agent's first priority perfected (subject to the Lien of the
Custodian securing the Custodian's

                                       37



Overdraft Advances to the extent permitted by Section 5.02(o) and other
Permitted Liens) security interest in the Pledged Collateral have been taken and
completed.

                  (e) Financial Statement, Accountants' Reports; Other
Information. Provide to the Program Agent and each Managing Agent (with enough
additional copies for each Conduit Lender and each Secondary Lender):

                           (i) as soon as available, and in any event within
         ninety (90) days after the end of each fiscal year of the Borrower, a
         statement of assets and liabilities of the Borrower as at the end of
         such fiscal year, and statements of operations and of changes in net
         assets of the Borrower for such fiscal year, and the Borrower's
         portfolio of investments as of the end of such fiscal year, with an
         audit report thereon issued by Deloitte & Touche LLP or other
         independent certified public accountants of nationally recognized
         standing, together with the comparable report for the prior fiscal
         year;

                           (ii) as soon as available and in any event within
         seventy-five (75) days after the end of each first semi-annual fiscal
         period of the Borrower, a statement of assets and liabilities of the
         Borrower as at the end of such period, a statement of operations and of
         changes in net assets of the Borrower for such period, and the
         portfolio of investments as of the end of such period, all in
         reasonable detail and stating in comparative form the respective
         figures for the comparable period in the preceding year, prepared in
         accordance with GAAP, consistently applied and all certified (subject
         to normal year-end adjustment) as to fairness of presentation in all
         material respects by a Responsible Officer of the Borrower;

                           (iii) as soon as available, and in any event within
         sixty (60) days after the end of the first and third fiscal quarters of
         the Borrower's fiscal years, a list setting forth each of the senior
         loan assets held by the Borrower and the Value thereof, in each case,
         as of the last day of such quarter;

                           (iv) simultaneously with the delivery of each set of
         financial statements referred to in clauses (i) and (ii) above, a
         statement of a Responsible Officer to the effect that nothing has come
         to the attention of such Responsible Officer to cause him/her to
         believe that any Default or Event of Default existed on the date of
         such statements;

                           (v) as soon as possible, and in any event within
         three (3) Business Days of the Borrower's actual knowledge of the
         occurrence of any Default or Event of Default, a certificate of a
         Responsible Officer of the Borrower setting forth the details thereof
         and the action which the Borrower is taking or proposes to take with
         respect thereto;

                           (vi) as soon as possible, and in any event within two
         (2) Business Days, after the Borrower has actual knowledge of any
         failure by the Custodian to perform or observe any term, covenant or
         agreement on its part to be performed under the Custodial Agreement
         which failure gives rise to a reasonable possibility of a Material
         Adverse Effect, written notice thereof executed by a Responsible
         Officer of the Borrower;


                                       38


                           (vii) promptly upon the mailing thereof to the
         shareholders of the Borrower generally, copies of all financial
         statements, reports and proxy statements so mailed;

                           (viii) promptly upon the filing thereof, copies of
         all registration statements (other than the exhibits thereto and any
         registration statements on Form S-8 or its equivalent) and unless
         duplicative of any deliveries to be made under clauses (i) or (ii)
         above, annual and semi-annual reports which the Borrower shall have
         filed with the SEC;

                           (ix) on or before the first Business Day of each
         week, weekly portfolio reports and weekly covenant compliance
         certificates in substantially the form of Schedule II attached hereto
         (each a "Weekly Portfolio Report") with respect to the immediately
         preceding calendar week, signed by a Responsible Officer of the
         Borrower;

                           (x) on or before the tenth (10th) Business Day of
         each calendar month (or during the continuance of a Default or Event of
         Default more frequently as the Program Agent shall reasonably request
         (which may be daily)), an Investor Report substantially in the form of
         Schedule I hereto, for the immediately preceding calendar month (or
         other relevant period if delivered on a daily or weekly basis),
         together with a certificate of a Responsible Officer of the Borrower in
         substantially the form of Annex A to the Investor Report;

                           (xi) promptly upon its receipt of and
         contemporaneously with its giving of any notice relating to the
         termination of the Custodial Agreement or the Control Agreement, copies
         of any such notice;

                           (xii) prior to the issuance by the Borrower of any
         preferred shares, notice of such issuance which notice shall include
         the offering materials to be used in connection with the issuance of
         such preferred shares;

                           (xiii) prompt notice of any amendment or modification
         to the Investment Policies and Restrictions which notice shall include,
         in reasonable detail, a description of any such change; and

                           (xiv) from time to time such additional information
         regarding the financial condition or business of the Borrower as any
         Managing Agent may reasonably request.

                  (f) Maintenance of Insurance. Maintain in force with
financially sound and reputable insurers, policies with respect to its assets
and property, and business against such risks and in such amounts as are usually
insured against in the same general area in the case of entities engaged in
similar lines of business and as may be required by the Investment Company Act;

                  (g) Maintenance of Business. Remain at all times a closed-end
investment company for the purposes of the Investment Company Act and continue
to engage in business of the same general type as now conducted by the Borrower,
and will preserve, renew and keep in full force and effect its existence and
rights, privileges and franchises necessary or reasonably

                                       39



desirable in the normal conduct of business and will at all times remain
registered under the Investment Company Act.


                  (h) Audits. Annually (or more frequently as the Program Agent,
for itself and as agent for the Secured Parties may require after the occurrence
of and during the continuance of a Default or an Event of Default) and at the
sole cost and expense of the, Borrower (i) cause an independent nationally
recognized accounting firm reasonably satisfactory to the Managing Agents, to
enter the premises of the Borrower and any Person to whom the Borrower delegates
all or any portion of its duties under any Program Document to which it is a
party (including, without limitation, the Adviser) and examine and audit the
books, records and accounts of the Borrower and such other Person relating to
its business, financial condition, operations and the Borrower's and such other
Person's performance under the Program Documents to which it is a party, (ii)
permit such accounting firm to discuss the Borrower's and such other Person's
affairs and finances with the officers, partners, employees and accountants of
any of them, (iii) cause such accounting firm to provide to each Managing Agent,
with a certified report in respect of the foregoing, which shall be in form and
scope reasonably satisfactory to each Managing Agent, and (iv) authorize such
accounting firm to discuss such affairs, finances and performance with
representatives of the Managing Agents and their designees; provided,that, such
examination and audit of information provided to the Borrower in connection with
any Loan Document (which, for the avoidance of doubt, does not include the Loan
Documents relating to any Eligible Loan Asset) shall be subject to any
prohibition set forth in written confidentiality agreements entered into by the
Borrower with respect thereto.

                  (i) Access to Records. Annually (or more frequently as the
Program Agent, for itself and as agent for the Secured Parties may require after
the occurrence of and during the continuance of a Default or an Event of
Default) permit each Managing Agent or any Person designated by any Managing
Agent to, upon reasonable advance notice and during normal hours, visit and
inspect at reasonable intervals its and any Person to which it delegates any of
its duties under the Program Documents to which it is a party (including,
without limitation, the Adviser) books, records and accounts relating to its
business, financial condition, operations, Assets and its performance under the
Program Documents to which it is a party and to discuss the foregoing with its
and such Person's officers, partners, employees and accountants, all as often as
such Managing Agent may reasonably request; provided, that, the Managing Agents
shall use reasonable efforts to coordinate their inspections; provided, however,
that if under the terns of any agreement with any Person which is not an
Affiliate of the Adviser or the Borrower to whom the Adviser or the Borrower has
delegated any of its duties under any Program Document, only the Borrower or the
Adviser, as the case may be, is permitted to visit and inspect such Person's
books, records and accounts, it shall at the request of any Managing Agent,
exercise or cause the applicable Adviser or the Borrower, as the case may be, to
exercise the rights specified in this Section 5.01(i) on behalf of such
requesting parties, as frequently as the terms of any such agreement permit, but
in no event less frequently than annually; provided, further, that the Managing
Agents' and their respective designees' right to review information provided to
the Borrower in connection with any Loan Document (which, for the avoidance of
doubt, does not include the Loan Documents relating to any Eligible Loan Asset)
shall be subject to the prohibitions of any written confidentiality agreements
entered into by the Borrower with respect thereto, provided, that the Borrower
had used reasonable efforts to permit the Managing Agents or their designees to
review such information by complying with any terms of such


                                       40



confidentiality agreement which would permit disclosure of confidential
information to the third parties.

                  (j) Investment Policies and Restrictions. At all times be in
compliance in all material respects with Investment Policies and Restrictions
and maintain necessary liquidity to meet its obligations to fund future advances
or other extensions of credit under the Loan Documents relating to its Loan
Assets.

                  (k) Defense of Secured Parties' Interest. Warrant and defend
each of the Secured Parties' right and interest in, to and under the Pledged
Collateral against all Adverse Claims of all Persons whomsoever.

                  (l) Custody and Control. At all times cause all Borrowing Base
Eligible Assets of the Borrower (including all investments, if any, evidencing
the same and all Specified Loan Documents) to constitute Pledged Collateral and
to be (i) custodied with the Custodian or a sub-custodian of the Custodian
pursuant to the Custodial Agreement, and (ii) subject to the Custodian's control
and custody in accordance with the Control Agreement; provided, that if such
Borrowing Base Eligible Asset or Pledged Collateral is a Loan Asset and
concurrently with any request to register such Loan Asset in the name of the
Borrower, the Borrower shall deliver instructions to all Selling Institutions,
Transaction Agents and Obligors related to such Loan Asset requiring that any
instrument evidencing such Loan Asset be delivered to the Custodian. At all
times cause all Loan Documents (other than the Specified Loan Documents) to be
held at the address of the Borrower set forth in Section 10.02 or, such other
location in Illinois as the Borrower shall designate upon twenty (20) day's
prior written notice to each Managing Agent.

                  (m) Notice of Litigation or Other Proceedings. Promptly give
notice in writing to the Program Agent and each Managing Agent of all
litigation, arbitration proceedings and regulatory proceedings affecting the
Borrower or the Assets of the Borrower, except such litigation, arbitration
proceedings and regulatory proceedings which could not reasonably be expected to
have a Material Adverse Effect.

                  (n) Maintenance of Books of Record and Account. Keep proper
books of record and account in which full, true and correct entries shall be
made of all dealings and transactions in relation to its business and activities
in accordance with the requirements of the SEC or under the Investment Company
Act.

                  (o) Proceeds of Pledged Collateral. Cause all Proceeds of the
Pledged Collateral to be remitted to the Collateral Account if a Default or
Event of Default shall be continuing or would occur as a result of the failure
to so remit such Proceeds.

                  (p) Use of Proceeds. Use the net proceeds of any Advance made
hereunder solely for the purpose of (i) purchasing Assets, (ii) paying principal
and Yield in respect of outstanding Advances, or (iii) for general corporate
purposes.

                  (q) Investment Adviser. Except as consented to, by the
Managing Agents (which consent shall not be unreasonably withheld), at all times
maintain the Adviser as the Borrower's investment adviser.


                                       41


                  SECTION 5.02. Negative Covenants of the Borrower.

                  The Borrower covenants and agrees that from the date hereof
until the Program Termination Date the Borrower shall not:

                  (a) Impairment of Rights. Enter into any agreement containing
any provision which would be violated or breached by the performance of its
obligations under any Program Document to which the Borrower is a party the
continuation of which could reasonably be expected to have a Material Adverse
Effect or which could reasonably be expected to result in any material liability
to a Secured Party.

                  (b) Prospectus and Investment Policies and Restrictions.
Purchase any Assets or engage in any line of business not contemplated by the
Prospectus or the Investment Policies and Restrictions.

                  (c) Creation of Debt. Create, assume or suffer to exist any
Debt, except for Permitted Debt.

                  (d) Mergers; Sale of Assets. Adopt or carry out any plan of
liquidation, partial liquidation, reorganization, incorporation,
recapitalization, merger or consolidation nor sell, transfer or otherwise
dispose of all or substantially all of its Assets (whether in one transaction or
a series of transactions), without the prior written consent of the Program
Agent and each Managing Agent (which consent shall not be unreasonably withheld
or delayed).

                  (e) Advances and Extensions of Credit. Make any advance or
other extension of credit to any Person except in the ordinary course of the
Borrower's business and as expressly contemplated by the Investment Policies and
Restrictions.

                  (f) Custodial Agreement. Without the prior written consent
(which consent shall not be unreasonably withheld or delayed) of the Program
Agent and each Managing Agent, permit or consent to any material amendment,
modification or waiver of the Custodial Agreement, unless the Borrower has
delivered to the Program Agent and each Managing Agent a certificate of a
Responsible Officer of the Borrower certifying that such amendment, modification
or waiver could not reasonably be expected to have a Material Adverse Effect.

                  (g) Amendments to Organizational Documents. Except in
connection with the issuance of preferred stock, amend, terminate, supplement or
otherwise modify in any material respect its declaration of trust, by-laws or
other organizational documents, unless the Borrower has delivered to the Program
Agent and each Managing Agent a certificate of a Responsible Officer of the
Borrower certifying that to the actual knowledge of such Responsible Officer
such amendment, modification or waiver could not reasonably be expected to have
a Material Adverse Effect.

                  (h) ERISA. Become a member of an ERISA Group or incur any
liability or obligation with respect to any Plan, Multiemployer Plan or any
Benefit Arrangement; provided, however, that the Borrower may incur liabilities
or obligations under a plan or arrangement in the form of (i) the Form of
Retirement Plan For Each Closed End Fund or (ii) the Form of Amended and
Restated Deferred Compensation Agreement; provided, further, that the Borrower


                                       42

give the Program Agent at least ten (10) days prior written notice of any such
amendment to the forms of the plan or agreement that materially increases the
Borrower's liabilities under the plan or agreement.

                  (i) Investment Policies and Restrictions. Without the prior
written consent (which consent shall not be unreasonably withheld or delayed) of
the Program Agent and each Managing Agent (i) unless required by a change in
Applicable Law (including, without limitation, the Investment Company Act and
the Securities Act) make or permit any material change in the Investment
Policies and Restrictions, or (ii) make or permit any change in any Industry
Class used to compute the Borrowing Base.

                  (j) Liens. Create, assume or suffer to exist any Adverse Claim
on any Asset now owned or hereafter acquired by it (including without limitation
the Pledged Collateral).

                  (k) Senior Securities. Issue any "senior securities", as such
term is defined and used in the Investment Company Act other than Permitted
Senior Securities.

                  (l) Margin Requirements. Extend credit to others for the
purpose of buying or carrying any "margin stock" in such a manner as to violate
Regulation T, Regulation U or Regulation X or use the proceeds of any Advance to
purchase or carry Margin Stock or, without limiting the foregoing, have more
than twenty percent (20%) of its total Assets constitute Margin Stock.

                  (m) Restricted Payments. Make any Restricted Payment (i) if
any Default or Event of Default shall be continuing or shall result therefrom,
(ii) if immediately after giving effect to such payment the Borrower will not be
in full compliance with the Borrowing Base Test and the Asset Coverage Test,
(iii) at any time after the Program Agent shall have delivered a Notice of
Exclusive Control to the Custodian (unless such Notice of Exclusive Control has
been revoked in writing by the Program Agent), or (iv) at any time after the
Maturity Date of the Advances shall have occurred.

                  (n) Name Change. Change its name (i) without giving the
Program Agent and each Managing Agent at least ten (10) days prior written
notice, and (ii) unless all actions necessary and reasonably appropriate to
protect and perfect the Secured Parties' first priority perfected security
interest (subject to any Permitted Liens) in the Pledged Collateral have been
taken and completed.

                  (o) Custodian's Overdraft Advances. Permit the Aggregate
Custodian's Advance Amount to at any time exceed $50,000,000.

                  (p) Notice of Exclusive Control; Pledged Collateral. After the
Borrower has received written notice of delivery by the Program Agent to the
Custodian of a Notice of Exclusive Control, unless such Notice of Exclusive
Control is revoked in writing by the Program Agent, give any instruction to the
Custodian in respect of the Pledged Collateral without the prior written consent
of the Program Agent.


                                       43




                                   ARTICLE VI
                                EVENTS OF DEFAULT

                  SECTION 6.01. Events of Default.

                  If any of the following events shall occur and be continuing
(each an "Event of Default"):

                  (a) the Borrower shall fail to make or cause to be made in the
manner and when due (i) except as expressly provided in Section 2.05(b), any
payment of principal to be made or to be caused to be made by it under this
Agreement and such failure shall continue for one (1) Business Day, or (ii) any
payment of interest, fees or other deposit to be made or caused to be made by it
under this Agreement or any of the other Program Documents to which it is a
party and such failure shall continue for three (3) Business Days; or

                  (b) the Borrower shall (i) fail to be in compliance with the
Asset Coverage Test, provided that if a Responsible Officer of the Borrower has
certified that the Borrower is taking all steps necessary to cause the Borrower
to be in full compliance with the Asset Coverage Test within ten (10) Business
Days after the first date of the Borrower's knowledge of such noncompliance,
such event shall not constitute an Event of Default unless such failure shall
continue for ten (10) Business Days after such first date, or (ii) fail to
comply with Section 2.05(b), Section 5.01 (g) or clauses (c), (d), (e), (f),
(g), (h), (i), (k), (l) or (m) of Section 5.02; or

                  (c) (i) the Borrower shall fail to perform or observe any
other term, covenant or agreement on its part to be performed or observed under
this Agreement or any other Program Document to which it is a party, or (ii) the
Adviser shall fail to perform any of its obligations under the Letter Agreement,
which could reasonably be expected to have an Adviser Material Adverse Effect,
or (iii) the Custodian shall fail to perform or observe any term, covenant or
agreement on its part to be performed or observed under the Control Agreement,
which could reasonably be expected to have a Material Adverse Effect, or (iv)
the Custodian shall fail to perform or observe any term, covenant or agreement
on its part to be performed under the Custodial Agreement, which in the case of
this clause (iv), could reasonably be expected to have a Material Adverse Effect
and such failure described in the cases of clauses (i) through (iv) shall
continue unremedied for thirty (30) days after such person has knowledge of such
failure; or

                  (d) any representation or warranty made or deemed made by the
Borrower, the Adviser or the Custodian under or in connection with this
Agreement, the Control Agreement, the Letter Agreement or any certificate or
report delivered by or on behalf of the Borrower, the Adviser or the Custodian
in connection therewith shall have been false or incorrect in any material
respect on or as of the date made or deemed made or any material representation
or warranty made or deemed made by the Borrower, the Advisor or the Custodian in
any other Program Document to which it is a party or any certificate or report
delivered by or on behalf of the Borrower, the Advisor or the Custodian in
connection therewith shall be false or incorrect in any material respect when
made or deemed made or delivered; provided, however, that, with respect to the
representation set forth in Section 4.01(1), such event (except to the extent
relating to any Investor Report or any Weekly Report) shall not constitute an
Event of Default under this clause (d) if (i) such breach has not resulted in a
Material Adverse Effect, and (ii) the incorrect or


                                       44



incomplete information or report giving rise to such breach was promptly
corrected by the Borrower; or

                  (e) the Program Agent shall for any reason cease to have a
valid and perfected first priority security interest in the Pledged Collateral
(subject to the Lien of the Custodian securing the Custodian's Overdraft
Advances to the extent permitted by Section 5.02(o) and other Permitted Liens)
free and clear of all Adverse Claims or the Custodian, as collateral agent
and/or securities intermediary under the Control Agreement, shall not have
custody and control, as contemplated by the Control Agreement, of the Pledged
Collateral; or

                  (f) the Borrower or the Custodian shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
the Custodian seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of
sixty (60) days, or any of the actions sought in such proceeding (including an
order for relief against, or the appointment of a receiver, trustee, custodian
or other similar official for, it or for any substantial part of its property)
shall occur; or the Borrower or the Custodian shall take any corporate action to
authorize any of the actions set forth above in this subsection; or

                  (g) any provision of any Program Document shall cease to be a
legal, valid and binding obligation of any of the parties purported to be bound
thereby, enforceable in accordance with its respective terms or the Borrower,
the Adviser or the Custodian shall so assert in writing; or

                  (h) any judgment or order, or any series of judgments or
orders, shall have been entered against the Borrower, provided that (i) such
judgments or orders that have not been vacated, discharged, settled, paid or
satisfied shall aggregate to $5,000,000 or more at any one time outstanding
(excluding any judgments or orders related to any payment to or application by
the Borrower that is rescinded or must otherwise be returned or paid over as a
result of any bankruptcy, insolvency or similar proceeding involving any other
Person), and (ii) enforcement actions have been commenced with respect thereto
and have not been dismissed or stayed or bonded pending appeal within sixty (60)
days of such entry; or

                  (i) (i) either (1) State Street Bank and Trust Company shall
at any time cease to serve as Custodian under the Custodial Agreement or the
Control Agreement, unless a successor thereto reasonably satisfactory to the
Program Agent and each Managing Agent shall have assumed the duties of Custodian
thereunder and in accordance with the terms of the Program Documents, or (2) the
Custodian or the Borrower shall have given notice of the termination of the
Custodial Agreement or the Control Agreement; provided, however, that events
specified in clause (2) above shall not constitute an Event of Default if prior
to the tenth (10th) Business Day immediately preceding the effective date of
such termination a successor


                                       45


custodian reasonably satisfactory to the Program Agent shall have been appointed
as custodian under the Custodial Agreement and shall have assumed the
obligations of the Custodian under the Custodial Agreement and the Control
Agreement and the Program Agent and the Managing Agents shall have received such
certificates and opinions as they shall have reasonably requested; or

                  (j) any event or condition shall occur which results in the
acceleration of the maturity of any Debt of the Borrower which Debt in the
aggregate is at least $3,000,000 or enables (or, with the giving of notice or
lapse of time or both would enable) the holder of such Debt or any Person acting
on such holder's behalf to accelerate the maturity thereof; or

                  (k) any change in Applicable Law (including, without
limitation, the Investment Company Act and the Securities Act) shall be enacted
or promulgated which (i) would limit in any material respect the ability of the
Program Agent, or any Secured Party to foreclose upon its interest in, or in the
event of such foreclosure to dispose of, the Pledged Collateral or to be granted
the security interest in Pledged Collateral as contemplated by this Agreement
and the Control Agreement, or (ii) unless such changes have been consented to in
writing by the Managing Agents (which consent shall not be unreasonably withheld
or delayed), would require any material change to the Investment Policies and
Restrictions; or

                  (l) the Adviser shall cease to be a wholly owned direct or
indirect subsidiary of the Parent; or

                  (m) unless consented to in writing by the Program Agent and
each Managing Agent, the Advisory Agreement in effect on the Closing Date or any
replacement advisory agreement approved of in writing by the Program Agent and
each Managing Agent shall be (i) amended, waived or otherwise modified in any
material respect, or (ii) shall be terminated unless a replacement investment
advisory agreement has been entered into with a successor investment adviser
which is substantially similar in all material respects to the Advisory
Agreement in effect prior to any such termination; or

                  (n) Van Kampen Investment Advisory Corp. or another
wholly-owned direct or indirect subsidiary of the Parent (or another entity
consented to in writing by the Program Agent and each Managing Agent which has
executed a letter agreement in favor of the Program Agent on behalf of the
Secured Parties substantially identical in all material respects to the Letter
Agreement), is not the current investment adviser for the Borrower;

then, and in any such event, in addition to all rights and remedies specified in
this Agreement, including without limitation, Article VII, and the rights and
remedies of a secured party under Applicable Law including, without limitation
the UCC, the Program Agent may, or upon the discretion of the Majority Lenders
shall, by notice to the Borrower, declare the Lender Termination Date and the
Secondary Lender Termination Date to have occurred and declare the outstanding
Advances to be due and payable (in which case the Lender Termination Date, the
Secondary Lender Termination Date and the Maturity Date shall be deemed to have
occurred); provided, that, upon the occurrence of any event (without any
requirement for the passage of time or the giving of notice, or both) described
in subsection (f) of this Section 6.01, the Lender



                                       46

Termination Date, the Secondary Lender Termination Date and the Maturity Date
shall be deemed to have automatically occurred.

                                  ARTICLE VII
            PLEDGE OF PLEDGED COLLATERAL; RIGHTS OF THE PROGRAM AGENT

                  SECTION 7.01. Security Interests.

                  In consideration of the Lenders and the Secondary Lenders
making and maintaining the Advances, and as collateral security for the prompt,
complete and unconditional payment and performance of all of the Borrower
Obligations, the Borrower hereby pledges (and in the case of all Pledged
Collateral other than the Loan Assets), hypothecates, assigns, transfers, sets
over and delivers to the Program Agent for the benefit of the Secured Parties
and grants to the Program Agent for the benefit of the Secured Parties a
continuing Lien upon and security interest in, all of the Borrower's right,
title and interest in, to and under the following assets and properties, whether
now owned or existing or hereafter arising or acquired and wheresoever located
(the items specified in clauses (i) through (viii) below, collectively, the
"Pledged Collateral"):

                           (i) all of the Assets, investments and property from
         time to time credited to the Collateral Account, and all security
         entitlements with respect to the Collateral Account and all Loan Assets
         of the Borrower evidenced by, secured by, or governed by any Loan
         Document;

                           (ii) the Collateral Account (together with all other
         accounts in which the distributions referred to in clause (iii) below
         are remitted);

                           (iii) all interest, dividends, stock dividends, stock
         splits, distributions and other money or property of any kind
         distributed in respect of the assets, investments, property and
         security entitlements described in clause (i) above, including without
         limitation the principal payments in respect of such Loan Assets;

                           (iv) all rights and remedies of the Borrower under
         the Loan Documents and the Custodial Agreement in respect of the
         assets, investments, property and security entitlements described in
         clause (i) above;

                           (v) all security interests, liens, collateral,
         property, guaranties, supporting obligations, insurance and other
         agreements or arrangements of whatever character from time to time
         supporting or securing payment of the assets, investments, property and
         security entitlements described in clause (i) above;

                           (vi) all accounts, contract rights, documents,
         instruments, securities, investment property, chattel paper, general
         intangibles (including payment intangibles), inventory, goods,
         equipment and all other property of every kind and nature, now owned or
         hereafter acquired in respect of the assets, investments, property and
         security entitlements described in clause (i) above);

                                       47



                    (vii) all books, records and other information (including,
          without limitation, computer programs, tapes, discs, punch cards, data
          processing software and related property and rights) relating to the
          assets, investments, property and security entitlements described in
          clause (i) above; and

                    (viii) all Proceeds of any and all of the foregoing.

                  Notwithstanding the foregoing provisions of this Section 7.01,
the Pledged Collateral shall not include Margin Stock.

         SECTION 7.02. Substitution of Collateral and Release of Security
Interest.

         (a) Subject to Section 5.02(p), so long as no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence of
such sale, disposition or substitution and the Borrowing Base Test will be
satisfied immediately following such sale, disposition or substitution, the
Borrower may originate entitlement orders with respect to the Collateral Account
and may sell or dispose of or substitute Pledged Collateral in accordance with
the terms of this Agreement and the Control Agreement.

         (b) On the Program Termination Date the Lien granted under this
Agreement shall be automatically terminated and released and the Program Agent
at the written request of the Borrower shall execute, deliver and file such
instruments as the Borrower shall reasonably request in order to reassign,
release or terminate its security interest in the Pledged Collateral. Any and
all actions under this Section 7.02 shall be without any recourse to, or
representation or warranty by, the Program Agent or any Secured Party and shall
be at the sole cost and expense of the Borrower.

         SECTION 7.03. Application of Proceeds.

         (a) After the occurrence and during the continuance of an Event of
Default, all amounts remitted to the Program Agent's Account in respect of the
Borrower Obligations, including without limitation all Proceeds resulting from
the sale or other disposition of the Pledged Collateral shall be applied by the
Program Agent in the following order and priority:

         First, to the payment of all amounts advanced or expended by the
Program Agent and all costs and expenses incurred by the Program Agent in
connection with the enforcement of the Secured Parties' rights and remedies
under the Program Documents;

         Second, to the extent funds are remaining after the above application,
to the Lenders and the Secondary Lenders to the payment of all accrued and
unpaid Yield on all outstanding Advances on a pro-rata basis according to the
amount of accrued Yield owing to each Lender and each Secondary Lender;

         Third, to the extent funds are remaining after the above applications,
to the Secured Parties to the payment of all fees payable under the Fee Letters
on a pro rata basis according to the amount of such fees owing to each such
Secured Party;


                                       48


         Fourth, to the extent funds are remaining after the above applications,
to the Lenders and the Secondary Lenders to the payment of the principal amount
of each outstanding Advance on a pro-rata basis according to the amount of
principal owing to each Lender and each Secondary Lender;

         Fifth, to the extent funds are remaining after the above applications,
to the Secured Parties to the payment of all other amounts payable to the
Secured Parties pursuant to this Agreement and the other Program Documents on a
pro rata basis according to the amounts owed to each such Secured Party.

         The Program Agent shall, upon its receipt of confirmation from the
Managing Agents confirming that the Program Termination Date has occurred, remit
the remaining excess Proceeds which it had received from the sale or disposition
of the Pledged Collateral to the Borrower's Account.

         (b) For purposes of determining the application to be made of such
monies and other cash proceeds by the Program Agent to other Secured Parties
pursuant to this Section 7.03, the Program Agent may rely exclusively upon a
certificate or other statement of such Secured Party, or the Managing Agent for
such Secured Party setting forth in reasonable detail the amount then owing to
such Secured Party. The Program Agent shall not be liable for any application of
funds in accordance with any certificate or direction delivered pursuant to this
Section 7.03; provided, however, that no application of funds in accordance with
any certificate delivered pursuant to this Section 7.03 shall be deemed to
restrict or limit the right of any party to contest with the purported obligee
its respective. liability in respect of the amount set forth in such
certificate.

         SECTION 7.04. Rights and Remedies upon Event of Default.

         (a) The Program Agent (for itself and on behalf of the other Secured
Parties) shall have all of the rights and remedies of a secured party under the
UCC and other Applicable Law. Upon the occurrence and during the continuance of
an Event of Default, the Program Agent or its designees may (i) deliver a Notice
of Exclusive Control to the Custodian; (ii) instruct the Custodian to deliver
any or all of the Pledged Collateral and any Loan Documents relating to the
Pledged Collateral to the Program Agent or its designees and otherwise give all
instructions and entitlement orders to the Custodian regarding the Pledged
Collateral; (iii) sell or otherwise dispose of the Pledged Collateral, all
without judicial process or proceedings; (iv) take control of the Proceeds of
any such Pledged Collateral; (v) subject to the provisions of the applicable
Loan Documents, exercise any consensual or voting rights in respect of the
Pledged Collateral; (vi) release, make extensions, discharges, exchanges or
substitutions for, or surrender all or any part of the Pledged Collateral; (vii)
enforce the Borrower's rights and remedies under the Custodial Agreement with
respect to the Pledged Collateral; (viii) institute and prosecute legal and
equitable proceedings to enforce collection of, or realize upon, any of the
Pledged Collateral; (ix) require that the Borrower and the Custodian promptly
take action to liquidate the Pledged Collateral to pay amounts due and payable
in respect of the Borrower Obligations; (x) remove from the Borrower's, the
Adviser's and their respective agents' place of business all books, records and
documents relating to the Pledged Collateral unless copies thereof shall have
been provided to the Program Agent which copies of such books and records shall
thereafter be



                                       49


deemed to be originals thereof; and/or (xi) notify all Selling Institutions,
Transaction Agents and Obligors related to the Loan Assets which constitute
Pledged Collateral to make payments in respect thereof directly to the Program
Agent's Account; (xii) at the request of the Program Agent execute all documents
and agreements which are necessary or appropriate to have the Pledged Collateral
which constitutes Loan Assets to be assigned to the Program Agent or its
designee; and (xiii) endorse the name of the Borrower upon any items of payment
relating to the Pledged Collateral or upon any proof of claim in bankruptcy
against an account debtor. For purposes of taking the actions described in
Subsections (i) through (xiii) of this Section 7.04(a) the Borrower hereby
irrevocably appoints the Program Agent as its attorney-in-fact (which
appointment being coupled with an interest is irrevocable while any of the
Borrower Obligations remain unpaid), with power of substitution, in the name of
the Program Agent or in the name of the Borrower or otherwise, for the use and
benefit of the Program Agent, but at the cost and expense of the Borrower and
with notice to the Borrower.

         (b) All sums paid or advanced by the Program Agent in connection with
the foregoing and all reasonable out-of-pocket costs and expenses (including,
without limitation, reasonable outside attorneys' fees and expenses) incurred in
connection therewith, together with interest thereon at the Post-Default Rate
from the date of payment until repaid in full, shall be paid by the Borrower to
the Program Agent on demand and shall. constitute and become a part of the
Borrower Obligations secured hereby.

         SECTION 7.05. Remedies Cumulative.

         Each right, power, and remedy of the Program Agent and the other
Secured Parties, or any of them, as provided for in this Agreement, or in the
other Program Documents or now or hereafter existing at law or in equity or by
statute or otherwise shall be cumulative and concurrent and shall be in addition
to every other right, power, or remedy provided for in this Agreement or in the
other Program Documents or now or hereafter existing at law or in equity or by
statute or otherwise, and the exercise or beginning of the exercise by the
Program Agent or any other Secured Party of any one or more of such rights,
powers, or remedies shall not preclude the simultaneous or later exercise by
such Persons of any or all such other rights, powers, or remedies.

         SECTION 7.06. Enforcement of Remedies under the Custodial Agreement and
Loan Documents.

         (a) The Borrower agrees that it shall, (i) during the continuance of a
Default or an Event of Default, upon the request of the Program Agent (and at
the Borrower's own expense) diligently enforce the rights and remedies under the
Custodial Agreement and at law or equity against the Custodian for any material
breach by the Custodian of any term, covenant or agreement thereunder relating
to or affecting any Pledged Collateral, and (ii) diligently enforce its rights
and remedies under the Loan Documents relating to the Pledged Collateral. The
Borrower, shall at all times enforce its rights and remedies under the Custodial
Agreement and the Loan Documents with the same degree of care and diligence that
it would exercise if this Agreement had not been entered into; provided, that,
during the continuance of a Default or an Event of Default, the Borrower shall
not, in enforcing such rights and remedies, settle any claim



                                       50


against the Custodian without the prior written consent of the Program Agent
(which consent shall not be unreasonably withheld or delayed).

         (b) The Borrower agrees that to the extent not expressly prohibited by
the terms of the related Loan Documents, after the occurrence and during the
continuance of an Event of Default, it shall (i) upon the written request of the
Program Agent promptly forward to the Program Agent and each Managing Agent all
information and notices which it receives under or in connection with the Loan
Documents relating to the Pledged Collateral, and (ii) act and refrain from
acting, in respect of any request, act, decision or vote under the Loan
Documents relating to the Pledged Collateral only in accordance with the
direction of the Program Agent.

                                  ARTICLE VIII
                                THE PROGRAM AGENT

         SECTION 8.01. Authorization and Action.

         Each of the Secure Parties hereby irrevocably appoints and authorizes
the Program Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Program Documents as are
delegated to the Program Agent by the terms hereof and thereof, together with
such powers as are reasonably incidental thereto. The Program Agent shall not
have any duties or responsibilities, except those expressly set forth herein or
in the other Program Documents, or any fiduciary relationship with any Secured
Party, and no implied covenants, functions, responsibilities, duties or
obligations or liabilities on the part of the Program Agent shall be read into
this Agreement or any other Program Document or otherwise exist for the Program
Agent. As to any matters not expressly provided for by this Agreement or the
other Program Documents, the Program Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Lenders; provided, however, that the
Program Agent shall not be required to take any action which exposes the Program
Agent to personal liability or which is contrary to this Agreement, the other
Program Documents or Applicable Law. Each Secured Party agrees that in any
instance in which the Program Documents provide that the Program Agent's consent
may not be unreasonably withheld, provide for the exercise of the Program
Agent's reasonable discretion, or provide to a similar effect, it shall not in
its instructions to the Program Agent withhold its consent or exercise its
discretion in an unreasonable manner.

         SECTION 8.02. Delegation of Duties.

         The Program Agent may execute any of its duties under this Agreement
and each other Program Document by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Program Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.

         SECTION 8.03. Program Agent's Reliance, Etc.

         Neither the Program Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them under or in connection



                                       51


with this Agreement or any of the other Program Documents, except for its or
their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, the Program Agent: (i) may consult with legal
counsel (including counsel for the Borrower or the Adviser) and independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (ii) makes no warranty or
representation to any Lender, any Secondary Lender, any Managing Agent or any
other Person and shall not be responsible to any Lender, any Secondary Lender,
any Managing Agent or any Person for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement or the other Program Documents; (iii) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement, the other Program Documents or any
Loan Documents on the part of the Borrower, the Adviser, the Custodian or any
other Person or to inspect the property (including the books and records) of the
Borrower or the Adviser; (iv) shall not be responsible to any Lender, any
Secondary Lender, any Managing Agent or any other Person for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, the other Program Documents, any Loan Document or any other
instrument or document furnished pursuant hereto or thereto; and (v) shall incur
no liability under or in respect of this Agreement or any other Program Document
by acting upon any notice, consent, certificate or other instrument or writing
(which may be delivered by telecopier, telegram, cable or telex) believed by it
to be genuine and signed or sent by the proper party or parties.

         SECTION 8.04. Indemnification.

         Each of the Secondary Lenders agrees to indemnify and hold the Program
Agent harmless (to the extent not reimbursed by or on behalf of the Borrower)
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Program Agent in any way relating to or arising out of this
Agreement or any other Program Document or any action taken or omitted by the
Program Agent under this Agreement or any other Program Document; provided, that
no Secondary Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Program Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each of the Secondary
Lenders agrees to reimburse the Program Agent promptly upon demand for any
out-of-pocket expenses (including reasonable counsel fees) incurred by the
Program Agent in connection with the administration or enforcement (whether
through negotiations, legal proceedings or otherwise) or legal advice in respect
of rights or responsibilities under this Agreement or the other Program
Documents, to the extent that the Program Agent is not reimbursed for such
expenses by or on behalf of the Borrower. Each Secondary Lender shall be
obligated to pay its Proportionate Share of all amounts payable to the Program
Agent under this Section 8.04. As used in this Section 8.04, the term
"Proportionate Share" in respect of any Secondary Lender means the fraction,
expressed as a percentage, the numerator of which is the Secondary Lender
Commitment of such Secondary Lender and the denominator of which is the Total
Commitment.



                                       52


         SECTION 8.05. Successor Program Agent.

         The Program Agent may, upon thirty (30) days' notice to the Borrower,
the Conduit Lenders and the Secondary Lenders, resigns as Program Agent. If the
Program Agent shall resign, then the Majority Lenders during such thirty (30)
day period shall appoint from among the Secondary Lenders a successor program
agent. If for any reason a successor program agent is not so appointed and does
not accept such appointment during such thirty (30) day period, the Program
Agent may appoint a successor program agent. Any resignation of the Program
Agent shall be effective upon the appointment of a successor program agent
pursuant to this Section 8.05 and the acceptance of such appointment by such
successor. After the effectiveness of any retiring Program Agent's resignation
hereunder as Program Agent, the retiring Program Agent shall be discharged from
its duties and obligations hereunder and under the other Program Documents and
the provisions of this Article VIII and Section 10.04 shall continue in effect
for its benefit with respect to any actions taken or omitted to be taken by it
while it was Program Agent under this Agreement and under the other Program
Documents.

                                   ARTICLE IX
                               THE MANAGING AGENTS

         SECTION 9.01. Authorization and Action.

         Each of CRC and the CRC Related Parties hereby irrevocably appoints and
authorizes Citicorp North America, Inc. as its Managing Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
and the other Program Documents as are delegated to the Managing Agent for CRC
and the CRC Related Parties by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. Each of PRFC and the PRFC Related
Parties hereby irrevocably appoints and authorizes Bank One as its Managing
Agent to take such actions as agent on its behalf and to exercise such powers
under this Agreement and the other Program Documents as are delegated to the
Managing Agent for PRFC and the PRFC Related Parties by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto. No
Managing Agent shall have any duties or responsibilities, except those expressly
set forth herein or in the other Program Documents, or any fiduciary
relationship with any Lender or Secondary Lender, and no implied covenants,
functions, responsibilities, duties or obligations or liabilities on the part of
any Managing Agent shall be read into this Agreement or any other Program
Document or otherwise exist for any Managing Agent. As to any matters not
expressly provided for by this Agreement or the other Program Documents, no
Managing Agent shall be required to exercise any discretion or take any action,
but shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
related Lenders or Secondary Lenders; provided, however, that no Managing Agent
shall be required to take any action which exposes such Managing Agent to
personal liability or which is contrary to this Agreement, the other Program
Documents or Applicable Law. Each Lender and each Secondary Lender agrees that
in any instance in which the Program Documents provide that the related Managing
Agent's consent may not be unreasonably withheld, provide for the exercise of
the related Managing Agent's reasonable discretion, or provide to a similar
effect, it shall not in its instructions to its related Managing Agent withhold
its consent or exercise its discretion in an unreasonable manner.



                                       53


         SECTION 9.02. Managing Agent's Reliance, Etc.

         Neither any Managing Agent nor any of its directors, officers, agents
or employees shall be liable for any action taken or omitted to be taken by it
or them under or in connection with this Agreement or any of the other Program
Documents, except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, each Managing Agent: (i) may
consult with legal counsel (including counsel for the Borrower or the Adviser)
and independent public accountants and other experts selected by it and shall
not be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (ii) makes
no warranty or representation to any Lender, any Secondary Lender or any other
Person and shall not be responsible to any Lender, any Secondary Lender or any
Person for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement or the other Program
Documents; (iii) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement, the other Program Documents or any Loan Documents on the part of the
Borrower, the Adviser, the Custodian or any other Person or to inspect the
property (including the books and records) of the Borrower or the Adviser; (iv)
shall not be responsible to any Lender, any Secondary Lender or any other Person
for the due execution, legality, validity, enforceability; genuineness,
sufficiency or value of this Agreement, the other Program Documents, any Loan
Document or any other instrument or document furnished pursuant hereto or
thereto; and (v) shall incur no liability under or in respect of this Agreement
or any other Program Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be delivered by telecopier, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.

         SECTION 9.03. Indemnification.

         Each Related Secondary Lender agrees to indemnify and hold its Managing
Agent harmless (to the extent not reimbursed by or on behalf of the Borrower)
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against its Managing Agent in any way relating to or arising out of this
Agreement or any other Program Document or any action taken or omitted by its
Managing Agent under this Agreement or any other Program Document; provided,
that no Related Secondary Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from its Managing Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Related Secondary Lender agrees to reimburse its Managing Agent promptly upon
demand for any out-of-pocket expenses (including reasonable counsel fees)
incurred by its Managing Agent in connection with the administration or
enforcement (whether through negotiations, legal proceedings or otherwise) or
legal advice in respect of rights or responsibilities under this Agreement or
the other Program Documents, to the extent that its Managing Agent is not
reimbursed for such expenses by or on behalf of the Borrower. Each Related
Secondary Lender shall be obligated to pay its Proportionate Share of all
amounts payable to its Managing Agent under this Section 9.03. As used in this
Section 9.03, the term "Proportionate Share" in respect of any Related Secondary
Lender means the fraction, expressed as a percentage, the numerator of which is
the Secondary Lender Commitment of such Related Secondary Lender and the


                                       54


denominator of which is the aggregate Secondary Lender Commitments of all
Related Secondary Lenders relating to such Managing Agent.

                                   ARTICLE X
                                  MISCELLANEOUS

         SECTION 10.01. No Waiver; Modifications in Writing.

         No failure or delay on the part of any Secured Party exercising any
right, power or remedy hereunder or with respect to the Advances shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to any
Secured Party, at law or in equity. No amendment, modification, supplement,
termination or waiver of this Agreement shall be effective unless the same shall
be in writing and signed by each of the Borrower, the Conduit Lenders, the
Managing Agents and the Program Agent. Any waiver of any provision of this
Agreement, and any consent to any departure by the Borrower from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which given. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.

         SECTION 10.02. Notices, Etc.

         Except where telephonic instructions are authorized herein to be given,
all notices, demands, instructions and other communications required or
permitted to be given to or made upon any party hereto shall be in writing and
shall be personally delivered or sent by registered, certified or express mail,
postage prepaid, or by prepaid telegram (with messenger delivery specified in
the case of a telegram), or by facsimile transmission, or by prepaid courier
service, and shall be deemed to be given for purposes of this Agreement on the
day that such writing is received by the intended recipient thereof. Unless
otherwise specified in a notice sent or delivered in accordance with the
foregoing provisions of this Section 10.02, notices, demands, instructions and
other communications in writing shall be given to or made upon the respective
parties hereto at their respective addresses (or to their respective facsimile
numbers) indicated below, and, in the case of telephonic instructions or
notices, by calling the telephone number or numbers indicated for such party
below:

If to CRC:                 Corporate Receivables Corporation
                             c/o Citicorp North America, Inc.
                             450 Mamaroneck Avenue
                             Harrison, New York 10528
                             Attention: U.S. Securitization
                             Telephone No. (914) 899-7122
                             Facsimile No. (914) 899-7890


                                       55


If to PRFC:                Preferred Receivables Funding Corporation
                             c/o Bank One, NA (Main Office Chicago)
                             Suite IL1-0079, 1-19
                             1 Bank One Plaza
                             Chicago, Illinois 60670-0079
                             Attention: Portfolio Management
                             Telephone No. (312) 732-1281
                             Facsimile No. (312) 732-3600

If to the Program Agent or
Citicorp North America,
Inc., as Managing Agent:   Citicorp North America, Inc.
                             U.S. Securitization
                             450 Mamaroneck Avenue
                             Harrison, New York 10528
                             Attention: U.S. Securitization
                             Telephone No. (914) 899-7122
                             Facsimile No. (914) 899-7890

If to Citibank:            Citibank, N.A.
                             388 Greenwich Street, 19th Floor
                             New York, New York 10013
                             Attention: Portfolio Management
                             Telephone No.: (212) 816-0777
                             Facsimile No.: (212) 816-0270

If to Bank One, as
Managing Agent or
Secondary Lender:          Bank One, NA (Main Office Chicago)
                             Suite IL1-0079, 1-19
                             1 Bank One Plaza
                             Chicago, Illinois 60670-0079
                             Attention: Portfolio Management
                             Telephone No. (312) 732-1281
                             Facsimile No. (312) 732-3600

If to the Borrower:        Van Kampen Senior Income Trust
                             1 Parkview Plaza
                             P.O. Box 5555
                             Oakbrook Terrace, Illinois 60181-5555
                             Attention: Senior Loan Group
                             Telephone No.: (630) 684-6931
                             Facsimile No.: (630) 684-6740


                                       56



         SECTION 10.03. Taxes.

         (a) Any and all payments by the Borrower under this Agreement or any
other Program Document to which it is a party shall be made, in accordance with
this Agreement, free and clear of and without deduction for any and all present
or future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Secured Parties,
(i) United States federal withholding taxes and (ii) income, profits and
franchise taxes imposed on it by any taxing Authority in any jurisdiction which
asserts jurisdiction to impose such taxes on the basis of contacts which the
Secured Party in question maintains with such jurisdiction other than contacts
arising solely out of the execution, delivery or performance of the Program
Documents or the transactions contemplated thereby (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
other Program Document to which it is a party to any Secured Party, (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 10.03) such Secured Party receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
Applicable Law.

         (b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made by the Borrower hereunder or under any
other Program Document to which it is a party or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or under any other
Program Document to which it is a party (hereinafter referred to as "Other
Taxes").

         (c) The Borrower will indemnify each of the Secured Parties for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
10.03) paid by any Secured Party in respect of the Borrower and any liability
(including penalties, interest and expenses) (other than such as are the result
of such Person's action or failure to take action) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty (30) days
from the date the Secured Party makes written demand therefor to the Borrower.

         (d) Within thirty (30) days after the date of receiving a receipt for
any payment of Taxes or Other Taxes, the Borrower will furnish to each Managing
Agent the original or a copy of a receipt evidencing payment thereof.

         (e) With respect to an assignment or appointment of a successor program
agent, the assignee or successor program agent (including such that is already a
party to this Agreement) shall not be entitled to increased amounts or Other
Taxes pursuant to this Section 10.03 in excess of the amount to which its
transferor or predecessor, as the case may be, was entitled.


                                       57


         (f) To the extent legally entitled to do so, each Secured Party and
participant shall provide to the Borrower and Program Agent (as applicable) such
forms or other certifications at such time(s) and in such manner(s) as will
permit payments to be made under this Agreement without deduction for, or at a
reduced rate of, withholding taxes.

         (g) If any Secured Party determines, in its sole discretion, that it
has actually received or realized any refund or tax, any reduction of, or credit
against, its tax liabilities or otherwise recovered any amount that would not
have been received, realized or recovered but for any deduction or withholding,
or payment of any additional amount, by the Borrower pursuant to this Section
10.03 or Section 2.07, then so long as no Default or Event of Default shall have
occurred and be continuing, such Secured Party shall reimburse the Borrower an
amount that the Secured Party shall, in its sole discretion, determine is equal
to the net benefit after tax, and net of all expenses incurred by the Secured
Party in connection with its receipt or realization of such refund, reduction,
credit or recovery; provided, that nothing in this paragraph (g) shall require
any Secured Party to make available its tax returns (or any other information
relating to its taxes which it deems to be confidential). The Borrower shall
return such amount to the applicable Secured Party in the event that the Secured
Party is subsequently required to repay such refund of tax or is not entitled to
such reduction of, or credit against, its tax liabilities.

         (h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreement and obligations of the Borrower contained in
this Section 10.03 shall survive the termination of this Agreement and the
payment in full of principal and Yield hereunder until the expiration of all
applicable statutes of limitation.

         SECTION 10.04. Costs and Expenses; Indemnification.

         (a) The Borrower agrees to promptly pay on written demand all
reasonable costs and expenses (excluding any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, in each case, now or hereafter imposed, levied, collected,
withheld or assessed) of each of the Secured Parties, in connection with the
preparation, review, negotiation, reproduction, execution, delivery,
modification, amendment and enforcement of this Agreement and the other Program
Documents to which the Borrower is a party, including, without limitation, the
reasonable fees and disbursements of counsel for the Secured Parties with
respect thereto and with respect to advising the Secured Parties, as to its
rights, remedies and responsibilities under this Agreement and the other Program
Documents to which the Borrower is a party, UCC filing fees, periodic auditing
expenses incurred in connection with clauses (h) and (i) of Section 5.01 and all
other related fees and expenses.

         (b) The Borrower agrees to indemnify and hold harmless each Secured
Party and each of their Affiliates and the respective officers, directors,
employees, agents, managers of, and any Person controlling any of, the foregoing
(each, an "Indemnified Party") from and against any and all claims, damages,
losses, liabilities, obligations, expenses, penalties, actions, suits, judgments
and disbursements of any kind or nature whatsoever, (including, without
limitation, the reasonable fees and disbursements of counsel), but excluding in
all cases any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, in each case,
now or hereafter imposed levied, collected, withheld or assessed



                                       58


(collectively the "Liabilities") that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in connection with
or by reason of the execution, delivery, enforcement, performance,
administration of or otherwise arising out of or incurred in connection with
this Agreement, any Loan Document or any other Program Document to which the
Borrower is a party or any transaction contemplated hereby or thereby (and
regardless of whether or not any such transactions are consummated), including,
without limitation any such Liability that is incurred or arises out of or in
connection with, or by reason of any one or more of the following: (i)
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with this Agreement or any other
Program Document to which the Borrower is a party or any of the transactions
contemplated hereby or thereby; (ii) any breach or alleged breach of any
covenant by the Borrower contained in any Program Document to which the Borrower
is a party; (iii) any representation or warranty made or deemed made by the
Borrower contained in any Program Document to which the Borrower is a party or
in any certificate, statement or report delivered in connection therewith is, or
is alleged to be, false or misleading; (iv) any failure by the Borrower to
comply with any Applicable Law or contractual obligation binding upon it; (v)
any failure to vest, or delay in vesting, in the Secured Parties a first
priority perfected (subject to the Lien of the Custodian securing the
Custodian's Overdraft Advances to the extent permitted by Section 5.02(o) and
other Permitted Liens) security interest in all of the Pledged Collateral; (vi)
any action or omission, not expressly authorized by the Program Documents to
which the Borrower is a party, by the Borrower which has the effect of reducing
or impairing the Pledged Collateral or the rights of the Program Agent or the
Secured Parties with respect thereto; (vii) any Default or Event of Default
relating to the Borrower; (viii) any claim that any Secured Party has assumed
any obligation or liability of the Borrower under any Loan Document or
otherwise; and (ix) any transactions related to the funding, carrying or
repayment of the outstanding principal amount of the Advances in connection with
the Program Documents to which the Borrower is a party; except to the extent any
such Liability is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence, bad faith or willful misconduct.

         (c) For the avoidance of doubt, neither the payment of any Liability by
the Borrower under Section 10.04(b) nor the terms of Section 10.04(b) shall be
deemed to limit any right or cause of action the Borrower may have against any
Indemnified Party or any Other Person. Without prejudice to the survival of any
other agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 10.04 shall survive the termination of this
Agreement and the payment in full of principal and Yield on the Advances.

         SECTION 10.05. Execution in Counterparts.

         This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
agreement.

         SECTION 10.06. Assignability.

         (a) This Agreement and each Conduit Lender's rights and obligations
herein (including the outstanding Advances) shall be assignable by such Conduit
Lender to an Eligible



                                       59


Assignee; provided, that without the prior written consent of the Borrower
(which consent shall not be unreasonably withheld or delayed and which consent
shall, in any event not be required if an Event of Default shall have occurred
and be continuing) such Conduit Lender shall not assign its obligations under
this Agreement to any Person other than to a U.S. Affiliate of its Managing
Agent which is a special purpose entity that issues commercial paper. Each such
assignor shall notify the Program Agent, each Managing Agent and the Borrower of
any such assignment. Each such assignor may, in connection with the assignment
or participation, disclose to the assignee or participant any information
relating to the Borrower, including the Pledged Collateral, furnished to such
assignor by or on behalf of the Borrower or by the Program Agent; provided,
that, prior to any such disclosure, the assignee or participant agrees to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from any of the foregoing entities. Notwithstanding the
foregoing, without the consent of the Borrower, the Conduit Lenders may,
pursuant to the Asset Purchase Agreement or otherwise, sell, assign, transfer
and convey all or any portion of the Advances maintained by the Conduit Lenders,
together with all rights hereunder and under the Program Documents in respect
thereof, to any bank or financial institution which is also a Related Secondary
Lender of such Conduit Lender.

         (b) Each Secondary Lender may, with the consent of the Borrower (which
consent shall not be unreasonably withheld or delayed and which consent shall,
in any event, not be required if an Event of Default shall have occurred and be
continuing), assign to any Eligible Assignee or to any other Secondary Lender
all or a portion of its rights and obligations under this Agreement (including;
without limitation, all or a portion of its Secondary Lender Commitment and the
outstanding Advances or interests therein owned by it); provided, that the
Borrower's consent to any such assignment shall not be required if the assignee
is an existing Secondary Lender or a U.S. Affiliate of an existing Secondary
Lender. The parties to each such assignment shall execute and deliver to the
Program Agent an Assignment and Acceptance. Notwithstanding the foregoing, each
Secondary Lender may assign any of its rights (including, without limitation,
rights to payment of principal and Yield on the Advances) under this Agreement
to any Federal Reserve Bank without notice to or consent of the Borrower.

         (c) Each Managing Agent and the Program Agent may, with the consent of
the Borrower (which consent shall not be unreasonably withheld or delayed and
which consent shall not be required if an Event of Default has occurred and is
continuing), assign this Agreement and its rights and obligations hereunder;
provided, that the Borrower's consent to any such assignment shall not be
required if the assignee is a U.S. Affiliate of such Managing Agent or the
Program Agent.

         (d) The Borrower may not assign its rights or obligations hereunder or
any interest herein without the prior written consent of the Program Agent and
each Managing Agent.

         (e) The Borrower acknowledges and agrees that each Lender's (other than
a Conduit Lender) and each Secondary Lender's source of funds may derive in part
from its participants. Accordingly, references in Sections 2.06, 2.07, 2.08,
10.03 and 10.04 and the other terms and provisions of this Agreement and the
other Program Documents to rates, determinations, reserve and capital adequacy
requirements, expenses, increased costs, reduced receipts and the like as they
pertain to the Lender and the Secondary Lenders shall be deemed also to include
those of each of its participants; provided, that no participant shall be
entitled to



                                       60


any amount under any such Sections or provisions, which is greater than the
amount the related Lender or Secondary Lender, as the case may be, would have
been entitled to under any such Sections or provisions if the applicable
participation had not occurred.

         (f) Each Managing Agent shall maintain at its address specified in
Section 10.02 or such other address as such Managing Agent shall designate in
writing to its related Lenders and Secondary Lenders, a copy of this Agreement
and each signature page hereto and each Assignment and Acceptance delivered to
and accepted by it and a register (the "Register") for the recordation of the
names and addresses of such Secondary Lenders, their Secondary Lender
Commitments, effective dates and Secondary Lender Stated Expiration Dates, and
the aggregate outstanding principal amount of the outstanding Advances made by
each such Secondary Lender under this Agreement. The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Program Agent and the Secondary Lenders may treat each Person
whose name is recorded in the Register as a Secondary Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Secondary Lender at any reasonable time and from time to
time upon reasonable prior notice.

         SECTION 10.07. Governing Law.

         THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF SAID STATE.

         SECTION 10.08. Severability of Provisions.

         Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

         SECTION 10.09. Confidentiality.

         (a) The Borrower agrees that it shall (i) keep this Agreement, the
Control Agreement, the Fee Letters, the Letter Agreement, the proposal relating
to the structure of the facility contemplated by this Agreement (the
"Facility"), any analyses, computer models, information or document prepared by
the Program Agent, any Managing Agent or any of their respective Affiliates in
connection with the Facility, the Program Agent's, any Managing Agent's or any
of their Affiliate's written reports to the Borrower, the Adviser or any of
their respective Affiliates and any related written information (collectively,
the "Product Information") confidential and to disclose Product Information only
to those of its officers, employees, agents, accountants, legal counsel and
other representatives (collectively, the "Borrower Representatives") who may
have a need to know or review such Product Information for the purpose of
assisting in the negotiation, evaluation, completion and administration of the
Facility; (ii) use the Product Information only in connection with the Facility
and not for any other purpose; and (iii) cause the Borrower Representatives to
comply with the provisions of this



                                       61


Section 10.09 and to be responsible for any failure of any Borrower
Representative to so comply. The Borrower shall not disclose Product Information
to any third party for the purpose of enabling such third party to provide
senior debt to the Borrower.

         The provisions of this Section 10.09(a) shall not apply to any Product
Information that is a matter of general public knowledge or that has heretofore
been made available to the public by any Person other than the Borrower, the
Adviser, any of their respective Affiliates or any Borrower Representative or
that is required to be disclosed by applicable law or regulation or is requested
by any Authority with jurisdiction over the Borrower, the Adviser, any Borrower
Representative or any of their respective Affiliates, it being understood that
any such disclosure or filing shall not relieve the Borrower, the Adviser, any
of their respective Affiliates or any Borrower Representative of any of its
obligations under this Section 10.09(a). Each of the Borrower and the Adviser
agree that if any Product Information is required by applicable law or
regulation to be included by it in any filing with the SEC or any other
Authority it shall, in consultation with the Managing Agents, use its reasonable
best efforts to "black-out" all information which is not necessary under
applicable law or regulation to be included in such filing which the Agent deems
is of a sensitive nature and in no event shall the Fee letter or the Investor
Report be disclosed in any such filing.

         (b) Each of the Secured Parties agrees (i) to keep all non-public
information with respect to the Borrower and the Adviser and their respective
Affiliates which such Secured Party receives pursuant to the Program Documents
(collectively, the "Borrower Information") confidential and to disclose Borrower
Information only to those of its officers, employees, agents, accountants, legal
counsel and other representatives of the Secured Parties (collectively, the
"Secured Party Representatives"), to providers of program-wide credit
enhancement for any Conduit Lender, and to S&P, Moody's or any other rating
agency that rates the promissory notes of any Conduit Lender which, in each
case, may have a need to know or review such Borrower Information for the
purpose of assisting in the negotiation, completion, administration and
evaluation of the Facility; (ii) to use the Borrower Information only in
connection with the Facility and not for any other purpose; and (iii) to cause
its related Secured Party Representatives to comply with the provisions of this
Section 10.09(b).

         The provisions of this Section 10.09(b) shall not apply to any Borrower
Information that is a matter of general public knowledge or that has heretofore
been made available to the public by any Person other than any Secured Party or
any Secured Party Representative or that is required to be disclosed by
applicable law or regulation or is requested by any Authority with jurisdiction
over any Secured Party or Secured Party Representative or any of its Affiliates.

         Notwithstanding the foregoing, the Borrower Information may be
disclosed by any Secured Party Representative to permitted assignees and
participants and potential assignees and participants in the Facility to the
extent such disclosure is made pursuant to a written agreement of
confidentiality substantially similar to this Section 10.09(b).


                                       62


         SECTION 10.10. Merger.

         The Program Documents taken as a whole incorporate the entire agreement
between the parties thereto concerning the subject matter thereof. The Program
Documents supersede any prior agreements among the parties relating to the
subject matter thereof.

         SECTION 10.11. No Proceedings.

         Each of the parties to this Agreement and each assignee of any Advance
or any interest therein and each entity which enters into a commitment to make
Advances to the Borrower hereunder hereby agrees that it will not institute
against any Conduit Lender any proceeding of the type referred to in Section
6.01(f) so long as any commercial paper or other senior indebtedness issued by
such Conduit Lender shall be outstanding or there shall not have elapsed one
year plus one day since the last day on which any such commercial paper or other
senior indebtedness shall have been outstanding.

         SECTION 10.12. Survival of Representations and Warranties.

         All representation and warranties made hereunder, in the other Program
Documents and in any document, certificate or statement delivered pursuant
hereto or thereto or in connection herewith or therewith shall survive the
execution and delivery of this Agreement and the making of the Advances
hereunder.

         SECTION 10.13. Loan Documents.

         No obligation or liability of the Borrower is intended to be assumed by
the Program Agent, any Managing Agent or any other Secured Party under or as a
result of this Agreement or the other Program Documents, and the transactions
contemplated hereby and thereby, including, without limitation, under any Loan
Document and, to the maximum extent permitted under provisions of law, the
Program Agent and the other Secured Parties expressly disclaim any such
assumption.

         If an Event of Default under Section 6.01(f) in respect of the Borrower
shall have occurred and is continuing or the Program Agent shall have delivered
a Notice of Exclusive Control to the Custodian, and such notice has not been
revoked by the Program Agent, the Borrower will use its best efforts to obtain
and give all necessary consents under all Loan Documents relating to any Pledged
Collateral and execute and deliver all agreements and documents which are
necessary or appropriate in order to enable the Secured Parties to enforce their
rights and remedies hereunder and under the other Program Documents, including
without limitation, to permit the Pledged Collateral which constitutes Loan
Assets to be assigned to the Program Agent or its designees. In addition, the
Borrower shall pay all assignment fees which are required to be paid pursuant to
the Loan Documents relating to the Pledged Collateral in connection with the
foregoing. The Program Agent and the Secured Parties acknowledge that in order
to enforce certain of their remedies in respect of the Pledged Collateral which
constitutes Loan Assets after the occurrence and during the continuance of an
Event of Default, certain provisions of the related Loan Documents may need to
be complied with, including provisions requiring the consent of the related
Transaction Agent and/or Obligor.




                                       63


         Each of the Managing Agents agree that if it would be prevented from
reviewing any Loan Document relating to an Eligible Loan Asset in connection
with the exercise of its rights under Section 5.01(i) or Section 7.04, as a
result of any confidentiality agreement entered into by the Borrower in respect
thereof, and if its review of such Loan Documents would be permitted if it
agrees to maintain the confidentiality of such Loan Documents in accordance with
the terms of such confidentiality agreement (each such confidentiality agreement
a "Subject Confidentiality Agreement"), each of the Managing Agents hereby
agrees to abide by the terms of such Subject Confidentiality Agreement in
respect of such Loan Documents.

         SECTION 10.14. Submission to Jurisdiction; Waivers.

         The Borrower hereby irrevocably and unconditionally:

         (a) submits for itself and its property in any legal action or
proceeding relating to this Agreement or the other Program Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and the appellate courts of any of them;

         (b) consents that any such action or proceeding may be brought in any
of such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

         (c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in Section 10.02 or at such other address as may be permitted
thereunder;

         (d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law, or shall limit the right to sue
in any other jurisdiction or court; and

         (e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.

         SECTION 10.15. E-Mail Reports.

         Subject to the following terms and conditions the Borrower may, unless
otherwise notified to the contrary by the Program Agent or the applicable
Managing Agent (the "Recipients"), transmit Investor Reports and Weekly
Portfolio Reports to the Program Agent and each Managing Agent by electronic
mail (each an "E-Mail Report"). Each E-Mail Report shall be formatted as the
Recipient may reasonably designate from time to time. Each E-Mail Report shall
be sent to the Recipient at an electronic mail address designated by the
Recipient, and the executed "summary sheet" for each E-Mail Report shall be
transmitted via facsimile transmission to the Recipient at the facsimile numbers
specified for the Recipient in Section 10.02.



                                       64


         SECTION 10.16. Waiver of Jury Trial.

         EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER PROGRAM DOCUMENT TO WHICH THE BORROWER IS A PARTY OR FOR
ANY COUNTERCLAIM THEREIN OR RELATING THERETO.

         SECTION 10.17. Several Obligations.

         Except for the commitment of the Secondary Lenders to make Advances if
their related Conduit Lender has declined to make an Advance to the extent
expressly required by Section 2.02, no Lender or Secondary Lender shall be
responsible for the failure of any other Lender or Secondary Lender to make any
Advance or to perform any obligation on this Agreement or any other Program
Document. No Managing Agent shall have any liability to the Borrower, any Lender
or any Secondary Lender or any other Managing Agent for the Borrower's, any
Lender's, any Secondary Lender's or any other Managing Agent's, as the case may
be, performance of, or failure to perform, any of their respective obligations
and duties under this Agreement or any other Program Document. The Program Agent
shall not have any liability to the Borrower, any Lender or any Secondary Lender
or any Managing Agent for the Borrower's, any Lender's, any Secondary Lender's
or any Managing Agent's, as the case may be, performance of, or failure to
perform, any of their respective obligations and duties under this Agreement or
any other Program Document.

         SECTION 10.18. Limitation of Liability.

         No claim may be made by the Borrower or any other Person against the
Program Agent, any Managing Agent, any Lender or any Secondary Lender or their
respective Affiliates, directors, officers, employees, attorneys or agents for
any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory or liability arising out of or
related to the transactions contemplated by this Agreement or any other Program
Document, or any act, omission or event occurring in connection therewith; and
the Borrower hereby waives, releases, and agrees not to sue upon any claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor.

         As provided for in Section 5.5 of the Declaration of Trust, made as of
April 7, 1998 and subsequently amended, of the Borrower (under which the
Borrower is organized as a voluntary association with transferable shares under
the laws of the Commonwealth of Massachusetts), the shareholders, trustees,
officers, employees and other agents of the Borrower shall not personally be
bound by or liable for the matters set forth herein or in any other Program
Document, nor shall resort be had to their private property for the satisfaction
of any obligation or claim hereunder or under any other Program Document.

                     [REMAINDER OF PAGE INTENTIONALLY BLANK]




                                       65


                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.

                                      VAN KAMPEN SENIOR INCOME TRUST,
                                      as Borrower


                                      By:____________________________
                                           Name:
                                           Title:

                                      CORPORATE RECEIVABLES CORPORATION,
                                      as Conduit Lender

                                      By: Citicorp North America, Inc.,
                                           its Managing Agent

                                      By:___________________________
                                           Name:
                                           Title:


                                      PREFERRED RECEIVABLES FUNDING CORPORATION,
                                      as Conduit Lender

                                      By:___________________________
                                           Name:
                                           Title:


                                      CITICORP NORTH AMERICA, INC.,
                                      as Program Agent and Managing Agent

                                      By:___________________________
                                           Name:
                                           Title:



                                       66



                                      CITIBANK, N.A.,
                                      as Secondary Lender


                                      By:___________________________
                                           Name:
                                           Title:
                                           Secondary Lender Percentage of the
                                           CRC
                                           Related Commitment:  100%
                                           Secondary Lender Commitment relating
                                           to the CRC Related Commitment:
                                           $350,000,000

                                      BANK ONE, NA (MAIN OFFICE CHICAGO),
                                      as Secondary Lender and Managing Agent


                                      By:__________________________
                                           Name:
                                           Title:
                                           Secondary Lender Percentage of the
                                           PRFC
                                           Related Commitment:  100%
                                           Secondary Lender Commitment relating
                                           to the PRFC Related Commitment:
                                           $350,000,000





                                       67

EX-99.(K)(4)(II)

                                                                EXHIBIT K(4)(ii)

                             AGREEMENT OF AMENDMENT

                                                  Dated as of September 19, 2003

         Reference is made to that certain Revolving Credit and Security
Agreement dated as of September 25, 2002 (as from time to time amended, the
"Credit Agreement") among Van Kampen Senior Income Trust (the "Borrower"), CRC
Funding, LLC (formerly Corporate Receivables Corporation) and Preferred
Receivables Funding Corporation (the "Lenders"), Citibank, N.A. and Bank One, NA
(Main Office Chicago) (the "Secondary Lenders"), Citicorp North America, Inc.
and Bank One, NA (Main Office Chicago) (the "Managing Agents") and Citicorp
North America, Inc., as program agent (the "Program Agent"). Capitalized terms
used and not defined herein shall have the meanings assigned to them in the
Credit Agreement.

         The parties hereto agree that, effective as of the date hereof, the
definition of the term "Secondary Lender Stated Expiration Date" set forth in
Section 1.01 of the Credit Agreement is hereby amended by replacing the date
"September 23, 2003" set forth therein with the date "September 17, 2004".

         The parties hereto agree that, effective as of the date hereof, Section
10.09 of the Credit Agreement shall be amended to add the following clause (c)
at the end thereof:

                  "(c) Notwithstanding anything in this Section 10.09 to the
                  contrary, the parties hereto (and each of their respective
                  employees, representatives or other agents) may disclose to
                  any and all Persons, without limitation of any kind, the "tax
                  treatment" and "tax structure" (in each case within the
                  meaning of Treasury Regulation Section 1.6011-4) of the
                  Facility and all materials of any kind (including opinions or
                  other tax analyses) that are provided to it, relating to such
                  tax treatment and tax structure of the Facility, other than
                  any information for which non-disclosure is reasonably
                  necessary in order to comply with applicable securities laws."

         The parties hereto agree that, effective as of the date hereof, Section
10.11 of the Credit Agreement shall be amended to add the following language at
the end thereof:

                  "The obligations of each Conduit Lender under and in
                  connection with this Agreement and the other Program Documents
                  are solely the obligations of such Conduit Lender. It is
                  expressly agreed that no recourse shall be had for the payment
                  of any amount owing in respect of this Agreement or any other
                  Program Document or for any other obligation or claim arising
                  out of or based upon this Agreement or any other Program
                  Document, against any member, stockholder, employee, officer,
                  manager, director, organizer or incorporator of any Conduit
                  Lender or against any member, stockholder, employee, officer,
                  manager, director, organizer or incorporator of any such
                  member, stockholder or manager."



         The Borrower represents and warrants to the Program Agent, the Managing
Agents, the Lenders and the Secondary Lenders that immediately after giving
effect to this Agreement of Amendment, the representations and warranties of the
Borrower set forth in the Credit Agreement are true and correct in all material
respects and no Default or Event of Default shall have occurred and be
continuing.

         This Agreement of Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.

         THIS AGREEMENT OF AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

         All references in any Program Document to the Credit Agreement on and
after the date hereof shall be deemed to refer to the Credit Agreement as
amended hereby, and the parties hereto agree that on and after the date hereof,
the Credit Agreement, as amended hereby, is in full force and effect.




                                       2

         IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

CITICORP NORTH AMERICA, INC.,               CITIBANK, N.A.
as Program Agent and Managing Agent         as Secondary Lender



By:                                         By:
   -------------------------------             -------------------------------
   Name:                                       Name:
   Title:                                      Title:



CRC FUNDING, LLC,                           BANK ONE, NA
as Conduit Lender                           (MAIN OFFICE CHICAGO),
                                            as Secondary Lender and
                                            Managing Agent

By: Citicorp North America, Inc.,
         as Attorney-in-Fact



By:                                         By:
   -------------------------------             -------------------------------
   Name:                                       Name:
   Title:                                      Title:


PREFERRED RECEIVABLES FUNDING               VAN KAMPEN SENIOR
CORPORATION,                                INCOME TRUST,
as Conduit Lender                           as Borrower


By:                                         By:
   -------------------------------             -------------------------------
   Name:                                       Name:
   Title:                                      Title:



                                       3

EX-99.(K)(4)(III)

                                                               EXHIBIT K(4)(iii)


                             AGREEMENT OF AMENDMENT

                                                    Dated as of December 9, 2003

         Reference is made to (i) that certain Revolving Credit and Security
Agreement dated as of September 25, 2002 (as from time to time amended, the
"Credit Agreement") among Van Kampen Senior Income Trust (the "Borrower"), CRC
Funding, LLC (formerly Corporate Receivables Corporation) and Preferred
Receivables Funding Corporation (the "Lenders"), Citibank, N.A., Bank One, NA
(Main Office Chicago) and The Bank of New York (the "Secondary Lenders"),
Citicorp North America, Inc. and Bank One, NA (Main Office Chicago) (the
"Managing Agents") and Citicorp North America, Inc., as program agent (the
"Program Agent"), and (ii) that certain Control and Collateral Agency Agreement
dated as of September 25, 2002 (as from time to time amended, the "Control
Agreement") among the Borrower, the Program Agent and State Street Bank and
Trust Company. Capitalized terms used and not defined herein shall have the
meanings assigned to them in the Credit Agreement.

         The parties hereto agree that, effective as of September 25, 2002, the
definition of the term "Collateral Account" set forth in Section 1.01 of the
Credit Agreement is hereby amended by replacing it in its entirety with the
following language:

                  ""Collateral Account" means account number B0051022, ABA
                  Number 0 11-000-028 and account number JL42, ABA Number
                  011-000-028 each established at State Street Bank and Trust
                  Company entitled "Citicorp as Secured Party-Van Kampen"."

         The parties hereto agree that, effective as of September 25, 2002, the
name "Falcon Asset Securitization Corporation" set forth in the second recital
of the Control Agreement is hereby replaced with the name "Preferred Receivables
Funding Corporation".

         The parties hereto agree that, effective as of September 25, 2002,
Section 3(a) of the Control Agreement is hereby amended by replacing the first
sentence thereof in its entirety with the following language:

                  "The Securities Intermediary has established and will maintain
                  segregated accounts, each entitled "Citicorp as Secured
                  PartyVan Kampen", Account Number B0051022, ABA Number
                  011-000-028 and Account Number JL42, ABA Number 011000-028
                  (collectively, the "Collateral Account")."

         The parties hereto agree that, effective as of the date hereof, clause
(g) of Section 3 of the Control Agreement is hereby replaced in its entirety
with the following:








                  "(g) Confirmation of Pledged Collateral The Borrower shall
                  deliver to the Program Agent on or before the tenth (10d')
                  Business Day of each calendar month (or during the continuance
                  of a "Default" or "Event of Default" (under and as defined in
                  the Credit Agreement) more frequently as the Program Agent
                  shall reasonably request), a report in reasonable detail on
                  the Pledged Collateral held in the Collateral Account,
                  including without limitation, in respect of the Pledged
                  Collateral maintained in securities accounts with foreign
                  sub-custodians, the identity, location and the specific
                  Pledged Collateral maintained by each such foreign
                  subcustodian and all Loan Collateral (as defined below) held
                  by State Street as Collateral Agent pursuant to Section 4. The
                  Securities Intermediary shall provide the Borrower (and at the
                  Program Agent's request, the Program Agent) with all
                  information and data as shall be necessary for the Borrower's
                  preparation of such report as and when required by this
                  Section 3(g)."

         The Borrower hereby agrees that it will as promptly as practicable, and
in any event, within fifteen (15) days after the date hereof file any necessary
amendments to financing statements naming the Borrower as debtor and the Program
Agent as secured party filed in connection with the Credit Agreement.

         Van Kampen Asset Management hereby (i) acknowledges that it is the
successor of the merger between it and Van Kampen Investment Advisory Corp. and
(ii) confirms and agrees that it has assumed by operation of law all of the
obligations of Van Kampen Investment Advisory Corp. under the Letter Agreement
and the Advisory Agreement, as if it were the original signatory thereto.

         Each of the Borrower and the Adviser represents and warrants, as to
itself, to the Program Agent, the Managing Agents, the Lenders and the Secondary
Lenders that immediately after giving effect to this Agreement of Amendment, its
representations and warranties set forth in the Amendment Documents (as defined
below) to which it is a party are true and correct in all material respects and
the Borrower further represents and warrants to such Persons that immediately
after giving effect to this Agreement of Amendment no Default or Event of
Default shall have occurred and be continuing. As used herein, the term
"Amendment Documents" means the Credit Agreement, the Control Agreement and the
Letter Agreement.

         This Agreement of Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.

                                       2






         THIS AGREEMENT OF AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

         All references in any Program Document to the Credit Agreement and the
Control Agreement on and after the date hereof shall be deemed to refer to the
Credit Agreement and the Control Agreement, each as amended hereby, and the
parties hereto agree that on and after the date hereof, the Credit Agreement and
the Control Agreement, each as amended hereby, are in full force and effect.


                                       3


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Amendment to be executed and delivered by their duly authorized officers as of
the date first above written.


CITICORP NORTH AMERICA, INC., as            CITIBANK, N.A.
Program Agent and Managing Agent            as Secondary Lender



By:  _______________________________        By:  _______________________________
         Name:                                       Name:
         Title:                                      Title:

CRC FUNDING, LLC,                           BANK ONE, NA (MAIN OFFICE CHICAGO),
as  Conduit Lender                          as Secondary Lender and Managing
                                            Agent

By:  Citicorp North America, Inc.,
         as Attorney-in-Fact


By:  _______________________________        By:  _______________________________
         Name:                                       Name:
         Title:                                      Title:

PREFERRED RECEIVABLES FUNDING               VAN KAMPEN SENOR INCOME TRUST,
CORPORATION, as Conduit Lender              as Borrower


By:  _______________________________        By:  _______________________________
         Name:                                       Name:
         Title:                                      Title:

STATE STREET BANK AND TRUST COMPANY,        VAN KAMPEN ASSET MANAGEMENT, as
as Securities Intermediary and as           Advisor
Collateral Agent


By:  _______________________________        By:  _______________________________
         Name:                                       Name:
         Title:                                      Title:



                                       4




Acknowledged and Agreed to by:

THE BANK OF NEW YORK,
as Secondary Lender


By:  _______________________
         Name:
         Title:
































                                       5

EX-99.(L)

                                                                     EXHIBIT (l)




                    Skadden, Arps, Slate, Meagher & Flom LLP
                              333 West Wacker Drive
                             Chicago, Illinois 60606


                                                                January 30, 2004


Van Kampen Senior Income Trust
1 Parkview Plaza
Oakbrook Terrace, Illinois  60181_5555

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

Ladies and Gentlemen:

                  We have acted as special counsel to Van Kampen Senior Income
Trust, a voluntary association with transferable shares organized and existing
under and by virtue of the laws of The Commonwealth of Massachusetts (commonly
referred to as a "Massachusetts business trust") (the "Fund"), in connection
with the proposed offering of 5,600 preferred shares of beneficial interest, par
value $0.01 per share, liquidation preference $25,000 per share, designated
Series M Auction Preferred Shares, 5,600 preferred shares of beneficial
interest, par value $0.01 per share, liquidation preference $25,000 per share,
designated Series T Auction Preferred Shares, 5,600 preferred shares of
beneficial interest, par value $0.01 per share, liquidation preference $25,000
per share, designated Series W Auction Preferred Shares, 5,600 preferred shares
of beneficial interest, par value $0.01 per share, liquidation preference
$25,000 per share, designated Series TH Auction Preferred Shares, and 5,600
preferred shares of beneficial interest, par value $0.01 per share, liquidation
preference $25,000 per share, designated Series F Auction Preferred Shares (the
"Preferred Shares").

                  This opinion is furnished in connection with the filing of the
Fund's Registration Statement on Form N_2 under the Securities Act of 1933, as
amended (File No. 333_111002) (the "Registration Statement").

                  In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement, as filed with the Securities and Exchange Commission
(the "Commission") on December 8, 2003 under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) a specimen








certificate representing the Preferred Shares; (iii) the Declaration of Trust of
the Fund, as presently in effect (the "Declaration of Trust"); (iv) the By_Laws
of the Fund, as presently in effect; (v) the Certificate of Vote setting forth
the rights, powers, terms and preferences of the Preferred Shares; (vi) the form
of the Underwriting Agreement (the Underwriting Agreement") proposed to be
entered into among the Fund, as issuer, Van Kampen Asset Management Inc., as
investment adviser to the Fund, and Citigroup Global Markets Inc., as
representative of the several underwriters named therein (the "Underwriters")
and (vii) certain resolutions of the Board of Trustees of the Fund relating to
the proposed offering of the Preferred Shares. We have also examined originals
or copies, certified or otherwise identified to our satisfaction, of such
records of the Fund and such agreements, certificates of public officials,
certificates of officers or other representatives of the Fund and others, and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.

                  In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such copies. In making our examination of
documents, we have assumed that the parties thereto, other than the Fund, had or
will have the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof on such parties.
We have also assumed that the Underwriting Agreement will be executed and
delivered in substantially the form reviewed by us and that the share
certificates representing each series of Preferred Shares will conform to the
specimen examined by us. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of the
Fund and others.

                  Pursuant to certain decisions of the Supreme Judicial Court of
The Commonwealth of Massachusetts, shareholders of a Massachusetts business
trust may, in certain circumstances, be assessed or held personally liable as
partners for the obligations of a Massachusetts business trust. Even if the Fund
were held to be a partnership, however, the possibility of the holders of
Preferred Shares incurring personal liability for financial losses of the Fund
appears remote because (A) Article V, Section 5.1 of the Declaration of Trust
contains an express disclaimer of liability for holders of shares of beneficial
interest of the Fund, including the Preferred Shares, for the obligations of the
Fund and provides that the Fund shall hold each holder of such

                                        2






shares harmless from, and shall indemnify such holder against, all loss and
expense arising solely from being or having been a holder of such shares and (B)
Article V, Section 5.5 of the Declaration of Trust requires that a recitation of
such disclaimer be included in every written obligation, contract, instrument,
certificate, share, other security of the Fund or undertaking made or issued by
the trustees of the Fund.

                  WE DO NOT EXPRESS ANY OPINION AS TO ANY LAWS OTHER THAN THOSE
LAWS, RULES AND REGULATIONS OF THE COMMONWEALTH OF MASSACHUSETTS THAT, IN OUR
EXPERIENCE, ARE NORMALLY APPLICABLE TO TRANSACTIONS OF THE TYPE CONTEMPLATED BY
THE UNDERWRITING AGREEMENT.

                  Based upon and subject to the foregoing, we are of the opinion
that when the Preferred Shares have been delivered to and paid for by the
Underwriters as contemplated by the Underwriting Agreement, the issuance and
sale of the Preferred Shares will have been duly authorized, and the Preferred
Shares will be validly issued, fully paid and, subject to the statement set
forth above regarding the liability of a shareholder of a Massachusetts business
trust, nonassessable.

                  We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm in the Registration Statement. In giving this consent, we
do not thereby admit that we are included in the category of persons whose
consent is required under Section 7 of the 1933 Act or the rules and regulations
of the Commission.

                                Very truly yours,

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













                                        3

EX-99.(N)

                                                                   EXHIBIT(n)


                           INDEPENDENT AUDITORS' CONSENT


We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-111002 of Van Kampen Senior Income Trust on Form N-2 under the
Securities Act of 1933, of our report dated September 4, 2003, appearing in the
Statement of Additional Information, which is part of such Registration
Statement, and to the references to us under the headings "Financial Highlights"
and "Experts" in the Prospectus which is part of such Pre-Effective Amendment to
the Registration Statement.



/S/ Deloitte & Touche LLP

Chicago, Illinois
February 9, 2004

EX-99.(R)(I)

                                                                  EXHIBIT (r)(i)





              CODE OF ETHICS

              I.   INTRODUCTION

                      Each of the Van Kampen Open-End Funds currently offering
              shares to the public, each Van Kampen Unit Investment Trust
              ("UIT") currently offering units to the public, and each Van
              Kampen Closed-End Fund (each a "Fund" and collectively the
              "Funds"), Van Kampen Asset Management Inc. ("Asset Management"),
              Van Kampen Investment Advisory Corp. ("Advisory Corp."), Van
              Kampen Advisors Inc. ("Advisors Inc."), and Van Kampen Management
              Inc. ("Management Inc.") (each of Asset Management, Advisory
              Corp., Advisors Inc. and Management Inc. are sometimes referred
              herein as the "Adviser" or collectively as the "Advisers") and Van
              Kampen Funds Inc. (the "Distributor") (the Advisers and the
              Distributor are collectively referred to as "Van Kampen") has
              adopted this Code of Ethics. The Advisers are fiduciaries that
              provide investment advisory services to the Funds and private
              investment management accounts, and the Distributor acts as the
              principal underwriter for the Funds and the sponsor of Funds that
              are UITs, as the case may be.

              I.   GENERAL PRINCIPLES

                   A.   Shareholder and Client Interests Come First

                        Every trustee/director, officer and employee of a Fund
                        and every director, officer and employee of Van Kampen
                        owes a fiduciary duty to the investment account and the
                        respective investors of such Fund or private investment
                        management account (collectively, the "Clients"). This
                        means that in every decision relating to investments,
                        such persons must recognize the needs and interests of
                        the Client and be certain that at all times the Clients'
                        interests are placed ahead of any personal interest of
                        such person.

                   B.   Avoid Actual and Potential Conflicts of Interest

                        The restrictions and requirements of this Code are
                        designed to prevent behavior that conflicts, potentially
                        conflicts or raises the appearance of an actual or
                        potential conflict with the interests of Clients. It is
                        of the utmost importance that the personal securities
                        transactions of trustee/directors, officers and
                        employees of a Fund and directors, officers and
                        employees of Van Kampen be conducted in a manner
                        consistent with both the letter and spirit of the Code,
                        including these principles, to avoid any actual or





                                       1


         September 1, 2000





                   potential conflict of interest or any abuse of such person's
                   position of trust and responsibility.


              C.   Avoiding Personal Benefit

                   1.   Trustee/directors, officers and employees of the Funds
                        and directors, officers and employees of Van Kampen
                        should ensure that they do not acquire personal benefit
                        or advantage as a result of the performance of their
                        normal duties as they relate to Clients. Consistent
                        with the principle that the interests of Clients must
                        always come first is the fundamental standard that
                        personal advantage deriving from management of Clients'
                        money is to be avoided.

         II.  OBJECTIVE

                   Section 17(j) of the Investment Company Act of 1940, as
         amended (the "Investment Company Act"), makes it unlawful for certain
         persons associated with investment companies to engage in conduct which
         is deceitful, fraudulent or manipulative, or which involves false or
         misleading statements, in connection with the purchase or sale of a
         security held or proposed to be acquired by an investment company. In
         addition, Section 204A of the Investment Advisers Act of 1940, as
         amended (the "Investment Advisers Act"), requires investment advisers
         to establish, maintain and enforce written policies and procedures
         designed to prevent misuse of material non- public information. The
         objective of this Code is to require trustee/directors, officers and
         employees of the Funds and directors, officers and employees of Van
         Kampen to conduct themselves in accordance with the general principles
         set forth above, as well as to prevent trustee/directors, officers and
         employees of the Funds or the Distributor from engaging in conduct
         prohibited by the Investment Company Act and directors, officers and
         employees of the Advisers from engaging in conduct prohibited by the
         Investment Company Act and the Investment Advisers Act.

         III. DEFINITIONS

              A.   "Access Person," means (i) with respect to the Van
                   Kampen Open-End and Closed-End Funds, (a) any
                   trustee/director or officer of a Fund, (b) any director
                   or officer of a Fund's Adviser, (c) any employee of a
                   Fund or the Fund's Adviser (or any company in a control
                   relationship to the Fund or Adviser) who, in connection
                   with such person's regular functions or duties, makes,
                   participates in, or obtains information regarding the
                   purchase or sale of a


                                       2


September 1, 2000







                   Covered Security by a Client, or whose functions relate to
                   the making of any recommendations with respect to such
                   purchases or sales; (d) any natural person in a control
                   relationship to the Fund or the Fund's Adviser who obtains
                   information concerning recommendations made to a Client with
                   regard to the purchase or sale of a Covered Security by such
                   Client, and (e) any director or officer of the Distributor,
                   who, in the ordinary course of business, makes, participates
                   in or obtains information regarding, the purchase or sale of
                   a Covered Security by a Client for which it acts as principal
                   underwriter, or whose functions relate to the making of any
                   recommendations with respect to such purchases or sales and
                   (ii) with respect to UITs, (a) any officer, director or
                   employee of the Distributor, when the Distributor is acting
                   as the sponsor of a Fund that is a UIT, who, in connection
                   with such person's regular functions or duties, makes,
                   participates in, or obtains information regarding the
                   purchase or sale of a Covered Security by a Client or whose
                   functions relate to the making of any recommendations with
                   respect to the composition of the Fund; and (b) and natural
                   person in a control relationship to the Distributor who
                   obtains information concerning recommendations made to a
                   Client with regard to the purchase or sale of a Covered
                   Security by such Client or the composition of the Fund.

              B.   "Beneficial Ownership" is interpreted in the same
                   manner as it is under Rule 16a-1(a)(2) of the
                   Securities Exchange Act of 1934, as amended (the
                   "Exchange Act"), in determining whether a person is the
                   beneficial owner of a security for purposes of Section
                   16 of the 1934 Act and the rules and regulations
                   thereunder, which includes "any person who, directly or
                   indirectly, through any contract, arrangement,
                   understanding, relationship or otherwise, has or shares
                   a direct or indirect pecuniary interest in" a security.
                   The term "pecuniary interest" is further defined to
                   mean "the opportunity, directly or indirectly, to
                   profit or share in any profit derived from a
                   transaction in the subject securities." "Beneficial
                   ownership" includes (i) securities held by members of a
                   person's immediate family sharing the same household
                   and includes any child, stepchild, grandchild, parent,
                   stepparent, grandparent, spouse, sibling,
                   mother-in-law, father-in-law, son-in-law,
                   daughter-in-law, brother-in-law, or sister-in-law" and
                   includes adoptive relationships and (ii) a right to
                   acquire securities through the exercise or conversion
                   of any derivative security, whether or not presently
                   exercisable.






                                       3



         September 1, 2000




                        Any report required to be made by this Code may contain
                        a statement that the report shall not be construed as an
                        admission by the person making such report that he has
                        any direct or indirect Beneficial Ownership in the
                        security to which the report relates.

                   C.   "Board of Directors/Trustees" means the
                        directors/trustees of each Fund, or with respect to a
                        Fund that is a UIT, the Fund's principal underwriter or
                        sponsor.

                   D.   "Chief Compliance Officer" is the individual set forth
                        in Exhibit A.

                   E.   "Client" means each Fund and each private management
                        account or investment account over which Van Kampen
                        exercises investment discretion.

                   F.   "Code of Ethics Review Committee" consists of the
                        individuals set forth in Exhibit A.

                   G.   "Control" has the same meaning as in Section 2(a)(9) of
                        the Investment Company Act.

                   H.   "Covered Security" refers not only to the instruments
                        set forth in Section 2(a)(36) of the Investment Company
                        Act but to any instrument into which such instrument may
                        be converted or exchanged, any warrant of any issuer
                        that has issued the instrument and any option written
                        relating to such instrument, provided, however, that it
                        does not include: (a) any direct obligation of the
                        United States Government, (b) banker's acceptances, bank
                        certificates of deposit, commercial paper and high
                        quality short-term debt instruments, including
                        repurchase agreements, and (c) shares issued by any
                        open-end investment companies registered under the
                        Investment Company Act.

                   I.   "Disinterested Trustee/Director" means a trustee or
                        director of a Fund who is not an "interested person" of
                        such Fund within the meaning of Section 2(a)(19) of the
                        Investment Company Act.

                   J.   "Employee Account" means any brokerage account or unit
                        investment trust account in which the Van Kampen
                        Employee has any direct or indirect beneficial
                        ownership.

                   K.   "General Counsel" is the individual set forth in Exhibit
                        A.




                                       4


         September 1, 2000






              L.   "Initial Public Offering" means an offering of
                   securities registered under the Securities Act of 1933,
                   as amended (the "Securities Act"), the issuer of which,
                   immediately before the registration, was not subject to
                   the reporting requirements of sections 13 or 15(d) of
                   the Securities Exchange Act of 1934, as amended (the
                   "Exchange Act").

              M.   "Limited Offering" is an offering that is exempt from
                   registration under the Securities Act pursuant to
                   Section 4(2) or Section 4(6) of the Securities Act or
                   pursuant to Rule 504, Rule 505 or Rule 506 under the
                   Securities Act.

              N.   "Portfolio Manager" means any person who exercises
                   investment discretion on behalf of an Adviser for a
                   Client, including those persons who are involved in
                   determining, or have knowledge concerning, the
                   composition of the portfolios of Funds that are UITs
                   prior to deposit.

              O.   "Van Kampen Employee" includes any director, officer or
                   employee of Van Kampen.

         IV.  STANDARDS OF CONDUCT FOR PERSONAL SECURITIES TRANSACTIONS

              A.   Van Kampen Employee Brokerage Accounts

                   1.   All brokerage accounts of Van Kampen Employees must be
                        maintained through Morgan Stanley Dean Witter ("MSDW")
                        and/or Morgan Stanley Dean Witter Online ("MSDWO"). No
                        other brokerage accounts are permitted unless
                        permission is granted by the Chief Compliance Officer
                        or General Counsel.

                        If any Van Kampen Employee maintains accounts outside
                        MSDW or MSDWO, such person must transfer such accounts
                        to a MSDW branch or MSDWO within 120 days from their
                        date of hire.

                        a)      Each Van Kampen Employee must identify and
                                disclose on his or her date of hire to the
                                appropriate person in the compliance department
                                as set forth in Exhibit A, in writing, of their
                                MSDW and MSDWO brokerage accounts, or, if
                                applicable, their outside brokerage accounts.
                                The Van Kampen compliance



                                       5



         September 1, 2000




                             department shall direct, and the employee shall
                             consent in writing to such direction, the brokerage
                             firm to provide duplicate confirmations and account
                             statements to the Van Kampen compliance department.

                             (1)  Van Kampen Employees shall obtain written
                                  consent from the appropriate person in the Van
                                  Kampen compliance department as set forth in
                                  Exhibit A before opening a brokerage account.

              B.   Pre-Clearance

                   1.  Except as set forth below, all Van Kampen Employees must
                       pre- clear purchases or sales of Covered Securities in
                       their Employee Accounts with the appropriate person in
                       the Van Kampen compliance department as set forth in
                       Exhibit A.

                   2.  Exceptions from the Pre- Clearance Requirement

                       a)    Persons otherwise subject to pre-clearance are not
                             required to pre- clear the acquisition of the
                             following Covered Securities:

                             (1)  Covered Securities acquired through automatic
                                  reinvestment plans.

                             (2)  Covered Securities acquired through employee
                                  purchase plans.

                             (3)  Covered Securities acquired through the
                                  exercise of rights issued by an issuer pro-
                                  rata to all holders of a class of its
                                  securities, to the extent such rights were
                                  acquired from such issuer, and sales of such
                                  rights so acquired.

                             (4)  A purchase or sale of Covered Securities which
                                  is non-volitional on the part of the Employee
                                  (for example, a purchase or sale effected by
                                  an investment manager for a pension or
                                  retirement plan, other than an individual
                                  retirement account, in which an Employee is a
                                  beneficiary).(3)





                                       6



         September 1, 2000






                             (5)  Morgan Stanley Dean Witter & Co. common stock
                                  (including exercise of stock option grants),

                                  (a)  The restrictions imposed by Morgan
                                       Stanley Dean Witter & Co. on senior
                                       management and other persons in
                                       connection with transactions in such
                                       stock are not affected by this exemption.
                                  (b)  Transactions by Access Persons in Morgan
                                       Stanley Dean Witter & Co. common stock
                                       remain subject to the initial, quarterly
                                       and annual reporting requirements of Part
                                       V(D) of the Code.

                             (6)  Units in unit investment trusts. Transactions
                                  by Access Persons in units of unit investment
                                  trusts remain subject to the initial,
                                  quarterly and annual reporting requirements of
                                  Part V(D) of the Code.



                   3.   Pre- cleared securities transactions must be effected on
                        a timely basis.

                        a)     All approved Covered Securities transactions must
                               take place between the hours of 9:30 a.m. and
                               4:00 p.m. (New York time). Trading after hours is
                               prohibited. If the transaction is not completed
                               between 9:30 a.m. and 4:00 p.m. on the date of
                               pre-clearance, a new pre-clearance must be
                               obtained.

                        b)     Purchases through an issuer direct purchase plan
                               must be pre- cleared on the date the purchaser
                               writes the check to the issuer's agent.

                               (1)    Authorization for purchases through an
                                      issuer direct purchase plan are effective
                                      until the issuer's agent purchases the
                                      Covered Securities.

                   4.   Pre- Clearance Procedure






                                       7


         September 1, 2000





                        a)     Van Kampen Employees shall pre- clear their
                               transactions by submitting a Trade Authorization
                               Form (a copy of which is attached as Exhibit B)
                               to the appropriate persons in the compliance
                               department as set forth in Exhibit A.

                                (1)    The compliance department shall pre-
                                       clear the purchase or sale of a Covered
                                       Security if the transaction does not
                                       violate the Code.

                                       (a)  The compliance department shall
                                            verify that the transaction is in
                                            compliance with the Code.

                                       (b)  The compliance department shall sign
                                            the Trade Authorization Form.

                                       (c)  The compliance department shall
                                            communicate authorization of the
                                            trade to the Van Kampen Employee.

                                       (d)  The time at which the trade
                                            authorization is communicated to the
                                            Van Kampen Employee shall be
                                            documented on the Trade
                                            Authorization Form by the Legal and
                                            Compliance Department.

                                       (e)  The compliance department shall
                                            maintain the originally executed
                                            Trade Authorization Form. A copy of
                                            the executed Trade Authorization
                                            Form will be forwarded to the Van
                                            Kampen Employee.

                                       (f)  The compliance department shall
                                            review all Van Kampen Employee
                                            duplicate confirmations and
                                            statements to verify that all
                                            personal transactions in Covered
                                            Securities have been properly
                                            pre-cleared.

              C.   Other Restrictions






                                       8

         September 1, 2000








                   1.   Van Kampen Employees shall not purchase or sell a
                        Covered Security on a day during which a Client, with
                        the exception of a UIT, has a pending purchase or sale
                        order in that same Covered Security, or with respect to
                        a UIT Client, on the initial date of deposit when the
                        UIT Client has a pending order in that same Covered
                        Security.

                   2.   Van Kampen Employee trades for which pre- clearance has
                        been obtained, including short sales and permissible
                        option trades, are subject to a 30- day holding period
                        from the trade date.

                   3.   Van Kampen Employees are prohibited from trading in
                        futures, options on futures, and forward contracts. Van
                        Kampen Employees may trade listed equity and index
                        options and equity warrants, however, there is a 30- day
                        holding period from the trade date. In addition, Van
                        Kampen Employees are also prohibited from trading in
                        warrants or options (with the exception of listed
                        warrants or options) on physical commodities and
                        currencies.

                   4.   Van Kampen Employees shall not enter into limit orders
                        that extend beyond one day.

                   5.   Van Kampen Employees shall not participate in an
                        investment club.

                   6.   Van Kampen Employees shall not purchase shares of an
                        investment company that is managed by Van Kampen if such
                        investment company is not generally available to the
                        public.

                   7.   Van Kampen Employees shall not purchase shares of an
                        open end investment company that is managed by Van
                        Kampen if as a result of such purchase the Van Kampen
                        Employee shall own 1% or more of the assets of such
                        investment company.

                   8.   Van Kampen Employees are prohibited from the following
                        activities unless they have obtained prior written
                        approval from the Code of Ethics Review Committee:

                        a)   Van Kampen Employees may not purchase a Covered
                             Security in a private placement or any other
                             Limited Offering.




                                       9



         September 1, 2000






                        b)        Van Kampen Employees may not serve on the
                                  boards of directors of a public or private
                                  company. Requests to serve on the board of a
                                  religious, charitable or educational
                                  organization as set forth in Section 503(c) of
                                  the IRS Code will generally be approved.

                   9.   Van Kampen Employees shall not purchase Covered
                        Securities during an initial or secondary public
                        offering.

                   10.  Annual Reporting:

                        a)        Van Kampen Employees shall furnish a report to
                                  the Chief Compliance Officer showing (i) the
                                  date of the report, (ii) the title, number of
                                  shares and principal amount of each Covered
                                  Security in which the Van Kampen Employee has
                                  direct or indirect Beneficial Ownership as of
                                  a date no more than 30 days prior to the date
                                  of the report, and (iii) the name of any
                                  broker, dealer or bank with an account holding
                                  any securities for the direct or indirect
                                  benefit of the Van Kampen Employee as of a
                                  date no more than 30 days prior to the date of
                                  the report.

                        b)        With respect to any transactions in Covered
                                  Securities that the Van Kampen Employee has
                                  made in the previous year in which the Van
                                  Kampen Employee had direct or indirect
                                  Beneficial Ownership, a report showing (i) the
                                  date of the report; (ii) the date of the
                                  transaction, the title, the interest rate and
                                  maturity date (if applicable), the number of
                                  shares, and the principal amount of each
                                  Covered Security involved; (iii) the nature of
                                  the transaction (i.e., purchase, sale or any
                                  other type of acquisition or disposition);
                                  (iv) the price at which the transaction was
                                  effected; and (v) the name of the broker,
                                  dealer or bank with or through which the
                                  transaction was effected; and

                        c)        With respect to any account established by the
                                  Van Kampen Employee in which any securities
                                  were held during the year for direct or
                                  indirect benefit of the Van Kampen Employee, a
                                  report showing (i) the





                                       10

         September 1, 2000





                                 date of the report; (ii) the name of the
                                 broker, dealer or bank with which established
                                 the account; and (iii) the date the account was
                                 established.

                         d)      Exclusion: A Van Kampen Employee need not make
                                 an annual transaction report if the report
                                 would duplicate information contained in broker
                                 trade confirmations or account statements
                                 received by the Fund, the Adviser and the
                                 Distributor with respect to the Van Kampen
                                 Employee in the time period required above if
                                 all of the information required by that
                                 paragraph is contained in the broker trade
                                 confirmations or account statements, or in the
                                 records of the Fund, the Adviser and the
                                 Distributor.


                   D.   Responsibilities of Access Persons

                        The following prohibitions and reporting obligations are
                        applicable to Access Persons.


                        1.   Access Persons, with the exception of a
                             Disinterested Trustee/Director, shall not sell a
                             Covered Security purchased within the previous 60
                             calendar days from the trade date, except that a
                             Covered Security held for at least 30 days from the
                             trade date may be sold at a loss or no gain. Any
                             profits realized on trades executed within the
                             60-day holding period shall be disgorged to the
                             Client or a charitable organization as determined
                             by the Chief Compliance Officer.

                        2.   Initial/Annual Reporting: Within ten days after
                             becoming an Access Person and thereafter, annually
                             at the end of the calendar year, each Access Person
                             must furnish a report to the Chief Compliance
                             Officer showing (i) the date of the report, (ii)
                             the title, number of shares and principal amount of
                             each Covered Security in which the Access Person
                             has direct or indirect Beneficial Ownership on the
                             date such person become an Access Person (for
                             initial reports) or as of a date no more than 30
                             days prior to the date of the report (for annual
                             reports) and (iii) the name of any broker, dealer
                             or bank with an account holding any securities for
                             the direct or indirect benefit of the Access Person
                             as of the date such





                                       11



         September 1, 2000




                             person became an Access Person (for initial
                             reports) or as of a date no more than 30 days prior
                             to the date of the report (for annual reports).

                             a)   Exclusion: A Disinterested Trustee/Director
                                  who would be required to make this report
                                  solely by reason of being a Fund
                                  trustee/director is excluded from the initial
                                  and annual reporting requirement for Access
                                  Persons.

                        3.   Quarterly Reporting: On a calendar quarterly basis,
                             each Access Person must furnish a report to the
                             Chief Compliance Officer within ten days after the
                             end of each calendar quarter, on forms sent to the
                             Access Person each quarter:

                             a)   With respect to any transactions in Covered
                                  Securities that the Employee has made in the
                                  previous calendar quarter in which the Access
                                  Person had direct or indirect Beneficial
                                  Ownership, a report showing (i) the date of
                                  the report; (ii) the date of the transaction,
                                  the title, the interest rate and maturity date
                                  (if applicable), the number of shares, and the
                                  principal amount of each Covered Security
                                  involved; (iii) the nature of the transaction
                                  (i.e., purchase, sale or any other type of
                                  acquisition or disposition); (iv) the price at
                                  which the transaction was effected; and (v)
                                  the name of the broker, dealer or bank with or
                                  through which the transaction was effected;
                                  and

                             b)   With respect to any account established by the
                                  Access Person in which any securities were
                                  held during the quarter for direct or indirect
                                  benefit of the Access Person, a report showing
                                  (i) the date of the report; (ii) the name of
                                  the broker, dealer or bank with which
                                  established the account; and (iii) the date
                                  the account was established.

                             c)   Exclusion: A Disinterested Trustee/Director
                                  who would be required to make this report
                                  solely by reason of being a Fund
                                  trustee/director is excluded from the
                                  quarterly reporting requirement for Access
                                  Persons unless the trustee/director knew or,
                                  in the ordinary course of fulfilling his or
                                  her official duties as a Fund





                                       12

         September 1, 2000





                                  trustee/director, should have known that
                                  during the 15- day period immediately before
                                  or after the trustee/director's transaction in
                                  a Covered Security, the Fund purchased or sold
                                  the Covered Security, or the Fund or its
                                  investment adviser considered purchasing or
                                  selling the Covered Security.

                             d)   Exclusion: An Access Person need not make a
                                  quarterly transaction report if the report
                                  would duplicate information contained in
                                  broker trade confirmations or account
                                  statements received by the Fund, the Adviser
                                  and the Distributor with respect to the Access
                                  Person in the time period required above if
                                  all of the information required by that
                                  paragraph is contained in the broker trade
                                  confirmations or account statements, or in the
                                  records of the Fund, the Adviser and the
                                  Distributor.

                   A.   Additional Responsibilities of Portfolio Managers

                        In addition to the requirements set forth above for Van
                        Kampen Employees and Access Persons, the following
                        additional requirements are applicable to Portfolio
                        Managers.

                        1.   A Portfolio Manager, including individuals involved
                             in determining the composition of the portfolios of
                             Funds that are UITs or who have knowledge of a
                             composition of a UIT portfolio before deposit (a
                             "UIT Portfolio Manager"), may not buy or sell a
                             Covered Security within 7 calendar days before or
                             after any Client, over which such Portfolio Manager
                             exercises investment discretion, trades in such
                             Covered Security.

                        2.   A Portfolio Manager may not purchase shares of a
                             closed-end investment company over which such
                             Portfolio Manager exercises investment discretion.



                   A.   Insiders

                        1.   Each Van Kampen Employee shall comply with all laws
                             and regulations, and prohibitions against insider
                             trading. Trading






                                       13


         September 1, 2000





                             on or communicating material non- public
                             information, or "inside information," of any sort,
                             whether obtained in the course of research
                             activities, through a Client relationship or
                             otherwise, is strictly prohibited.

                        2.   Van Kampen Employees shall not disclose any non-
                             public information relating to a Client's account
                             portfolio or transactions or to the investment
                             recommendations of Van Kampen, nor shall any Van
                             Kampen Employee disclose any non- public
                             information relating to the business or operations
                             of the members of Van Kampen, unless properly
                             authorized to do so by the Chief Compliance Officer
                             or General Counsel.

                        3.   No Van Kampen Employee who is required to file a
                             statement of ownership pursuant to Section 16 of
                             the Exchange Act may purchase or sell or sell and
                             purchase a company- sponsored closed-end investment
                             company within a six month period and realize a
                             profit on such transaction.

                   B.   Exceptions

                        1.   Notwithstanding the foregoing, the Chief Compliance
                             Officer or his or her designee, in keeping with the
                             general principles and objectives of this Code, may
                             refuse to grant clearance of a personal transaction
                             in their sole discretion without being required to
                             specify any reason for the refusal.

                        2.   Upon proper request by a Van Kampen Employee, a
                             Code of Ethics Review Committee (the "Committee")
                             will consider for relief or exemption from any
                             restriction, limitation or procedure contained
                             herein, which restriction, limitation or procedure
                             is claimed to cause a hardship for such Van Kampen
                             Employee. The Chief Compliance Officer will in his
                             sole discretion determine whether the request is
                             appropriate for consideration by the Committee. The
                             Committee shall meet on an ad hoc basis, as deemed
                             necessary upon the Van Kampen Employee's written
                             request outlining the basis for his or her request
                             for relief. The decision regarding such relief or
                             exemption is within the sole discretion of the
                             Committee.

              I.   ADMINISTRATION OF THE CODE





                                       14



         September 1, 2000







                   A.   The administration of this Code shall be the
                        responsibility of the Chief Compliance Officer or his or
                        her designee whose duties shall include:

                        1.   Continuously maintaining a list of all current
                             Access Persons who are under a duty to make reports
                             or pre-clear transactions under this Code.

                        2.   Providing each such person with a copy of this Code
                             and informing them of their duties and obligations
                             hereunder.

                        3.   Reviewing all quarterly securities transactions and
                             holdings reports required to be filed pursuant to
                             this Code, and maintaining a record of such review,
                             including the name of the compliance personnel
                             performing the review.

                        4.   Reviewing all initial and annual securities
                             position reports required to be filed pursuant to
                             this Code, and maintaining a record of such review,
                             including the name of the compliance personnel
                             performing the review.

                        5.   Preparing listings of all transactions effected by
                             persons subject to reporting requirements under the
                             Code and comparing all reported personal securities
                             transactions with completed portfolio transactions
                             of the Client to determine whether a violation of
                             this Code may have occurred.

                        6.   Conducting such inspections or investigations as
                             shall reasonably be required to detect and report
                             any apparent violations of this Code to any person
                             or persons appointed by Van Kampen to deal with
                             such information and to the Fund's Board of
                             Directors/Trustees.

                        7.   Submitting a written report, no less frequently
                             than annually, to the Board of Directors/Trustees
                             of each Fund and sponsor of Funds that are UITs
                             containing a description of issues arising under
                             the Code or procedures since the last report,
                             including, but not limited to, material violations
                             of the Code or procedures and sanctions imposed in
                             response to material violations.

                        8.   Submitting a certification, no less frequently than
                             annually, to the Board of Directors/Trustees of
                             each Fund from the Fund,






                                       15


         September 1, 2000





                             the respective Adviser and the Distributor that it
                             has adopted procedures reasonably necessary to
                             prevent Access Persons from violating the Code.

              II.  RECORDS

                   The Fund, the Advisers and the Distributor shall, at its
              principal places of business, maintain records of the following:

                   A.   A copy of any code of ethics adopted by such entity that
                        is and has been in effect during the past five years
                        must be maintained in an easily accessible place;

                   B.   A copy of any record or report of any violation of the
                        code of ethics of such entity and any action taken
                        thereon maintained in an easily accessible place for at
                        least five years after the end of the fiscal year in
                        which the violation occurs;

                   C.   A copy of each report made by an Access Person as
                        required by this Code, including any information
                        provided in lieu of the reports and all Trade
                        Authorization Forms, must be maintained for at least
                        five years after the end of the fiscal year in which the
                        report is made or the information is provided, the first
                        two years in an easily accessible place;

                   D.   A record of all persons, currently or within the past
                        five years, who are or were required to make reports
                        under this Code, or who are or were responsible for
                        reviewing these reports, must be maintained in an easily
                        accessible place; and

                   E.   A copy of each written report required to be provided to
                        the Board of Directors/Trustees of each Fund containing
                        a description of issues arising under the Code or
                        procedures since the last report, including, but not
                        limited to, material violations of the Code or
                        procedures and sanctions imposed in response to material
                        violations must be maintained for at least five years
                        after the end of the fiscal year in which it is made,
                        the first two years in an easily accessible place.

                   F.   A Fund or investment adviser must maintain a record of
                        any decision, and the reasons supporting the decision,
                        to approve the acquisition by an Access Person of
                        securities in an Initial Public Offering or in a Limited
                        Offering.




                                       16


         September 1, 2000







                   G.   A copy of any decision and reasons supporting such
                        decision to approve a pre-clearance transaction pursuant
                        to this Code, made within the past five years after the
                        end of the fiscal year in which such approval is
                        granted.

              I.   SANCTIONS

                   Upon discovering a violation of this Code, Van Kampen may
              impose such sanctions as it deems appropriate, including, but not
              limited to, a reprimand (orally or in writing), fine, demotion,
              and suspension or termination of employment. The General Counsel
              of Van Kampen, in his sole discretion, is authorized to determine
              the choice of sanctions to be imposed in specific cases, including
              termination of employment of any Employee.

              II.  APPROVAL OF CODE OF ETHICS

                   A.   Van Kampen shall provide to the Board of
                        Directors/Trustees of each Fund and sponsor of Funds
                        that are UITs the following:

                        1.   A copy of the Fund's Code, the Adviser's Code and
                             the Distributor's Code for such Board's review and
                             approval.

                        2.   Promptly, a copy of any amendments to such Codes.

                        3.   Upon request, copies of any reports made pursuant
                             to the Code by any person as to an investment
                             company client.

                        4.   Immediately, without request by an investment
                             company client, all material information regarding
                             any violation of the Code by any person as to such
                             investment company client.

                        5.   Certification, no less frequently than annually, to
                             the Board of Directors/Trustees of each Fund from
                             the Fund, the respective Adviser and the
                             Distributor that it has adopted procedures
                             reasonably necessary to prevent Access Persons from
                             violating the Code.

                   B.   Prior to adopting this Code, the Board of
                        Trustees/Directors of each Fund, including a majority of
                        Disinterested Trustee/Directors, if applicable, reviewed
                        and approved this Code with respect to the Fund, each
                        adviser of the Fund and the Distributor of the Fund,
                        including all procedures or provisions related to the
                        enforcement of





                                       17


         September 1, 2000




                        this Code. The Board based its approval of this Code on,
                        among other things, (i) certifications from the Fund,
                        the respective Adviser and the Distributor that it has
                        adopted procedures reasonably necessary to prevent
                        violations of the Code and (ii) a determination that
                        such Code is adequate and contains provisions reasonably
                        necessary to prevent Access Persons from engaging in any
                        conduct prohibited by Rule 17j-1(b).

              III. EFFECTIVE DATE

                        All Van Kampen Employees are required to sign a copy of
              this Code indicating their agreement to abide by the terms of the
              Code.

                        In addition, Van Kampen Employees will be required to
              certify annually that (i) they have read and understand the terms
              of this Code and recognize the responsibilities and obligations
              incurred by their being subject to this Code, and (ii) they are in
              compliance with the requirements of the Code.


              Effective this 1st day of September, 2000.









                                       18


         September 1, 2000




                                                                     EXHIBIT "A"


              I.     "Chief Compliance Officer" is Don Andrews.

              II.    "Code of Ethics Review Committee" shall consist of the
                     Chief Compliance Officer and General Counsel.

              III.   "General Counsel" is A. Thomas Smith III.

              IV.    Brokerage Accounts - The persons in the Compliance
                     Department to notify of brokerage accounts are:
                                                     
                     Houston and Kansas City: Pam Robertson     Phone:    (713) 438-4210
                                                                Fax:      (713) 438-3115

                     All other locations:  Virginia Rodrigues   Phone:    (630) 684-6260
                                                                Fax:      (630) 684-6830

              
              V.     Pre-Clearance - The persons in the Compliance Department to
                     pre- clear securities in an Employee Account are:

                                                          
                     Houston and Kansas City:  Pam Robertson    Phone:    (713) 438-4210
                                               Waverly Banks              (713) 438-4449
                                                                Fax:      (713) 438-3115

                     All other Locations:      Amy Tucek        Phone:    (630) 684-6035
                                               Sue Pittner                (630) 684-6393
                                                                Fax:      (630) 684-6830

              VI.    Questions                 Theresa Renn     Phone:    (630) 684-6849

              












                                     19



         September 1, 2000

EX-99.(R)(II)

[MORGAN STANLEY LOGO]


                                                                 EXHIBIT (r)(ii)


                      MORGAN STANLEY INVESTMENT MANAGEMENT
                                 CODE OF ETHICS



EFFECTIVE AUGUST 16, 2002


- --------------------------------
(Print Name)


         The investment advisors, advisors, distribution companies and related
service companies listed on the attached Schedule A that operate within Morgan
Stanley Investment Management (each; a "Covered Company" and collectively,
"Investment Management") have adopted this Code of Ethics (the "Code"). The
principal objectives of the Code are (i) to provide policies and procedures
consistent with applicable law and regulation, including Rule 17j-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), and Section 204 A
of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
(ii) to ensure that the personal trading and other business activities of
Employees of Investment Management (defined in Section III. below) are conducted
in a manner consistent with applicable law and regulation and the general
principles set forth in the Code.

         Employees of Investment Management are also subject to the "Morgan
Stanley Code of Conduct -- Securities and Asset Management Businesses" (the
"Code of Conduct"). The Code of Conduct can be found on the Morgan Stanley Today
intranet site at http://law.corp.msdw.com:8080/portal/cr
/code_of_conduct_securities_assetmgmt_12_7_00.pdf
Employees are reminded that they are also subject to other Morgan Stanley
Investment Management policies, including policies on insider trading, the
receipt of gifts, the handling of all internally distributed proprietary and
confidential information, Morgan Stanley Investment Management Senior Loan
Firewall Procedures, and service as a director of a publicly traded company. All
internally distributed information is proprietary and confidential information
and should not be discussed with people outside of Morgan Stanley Investment
Management or shared with anybody outside of the Investment Department.

I.       Summary of Policy/Procedures

The Code is designed to ensure that all acts, practices and courses of business
engaged in by Employees are conducted in accordance with the highest possible
standards and to prevent abuses or even the appearance of abuses by Employees
relating to their personal trading and other business activity. The Code
accomplishes this by requiring, among other things, that Employees:



                                       1


[MORGAN STANLEY LOGO]



         --    Pre-clear all personal securities transactions, including
               transactions in Morgan Stanley securities;

         --    Pre-clear the opening of brokerage accounts and maintain such
               accounts at Morgan Stanley (exceptions may be granted in unusual
               circumstances by the Local Compliance Group);

         --    Report all securities transactions on a quarterly basis;

         --    Not enter into a personal transaction in a Covered Security
               (defined in Section V. below) if there is an open order to
               purchase or sell that Covered Security for a Fund or a Managed
               Account (defined in Section II. below);

         --    Not acquire any security in an initial public offering (IPO) or
               any other public underwriting;

         --    Not acquire any private placements unless special permission is
               obtained from the Code of Ethics Review Committee (defined in
               Section VI. below);

         --    Not serve on the board of any company without prior approval from
               the Code of Ethics Review Committee;

         --    Not sell Covered Securities at a profit unless the Covered
               Securities have been held for at least 60 days;

         --    Not sell Covered Securities under any circumstances unless the
               Covered Securities have been held for at least 30 days;

         --    Not purchase any Covered Security sold by the Employee within the
               previous 30 days;

         --    Not purchase any Covered Security sold by the Employee within the
               previous sixty days if the purchase price is lower than any sale
               price within the 60-day period;

         --    Report all holdings on an annual basis and certify annually that
               they have read and understand the provisions of the Code;

         --    Who are portfolio managers or analysts, or who report to a
               portfolio manager or analyst, not trade in a security if accounts
               they manage trade in the same security within the 7 days prior to
               or 7 days following the Employee's transaction.

         While the provisions of the Code, including exceptions to its general
provisions, are more specifically described below, each Employee should note
that with respect to their personal securities transactions, compliance with the
Code is a matter of understanding the basic requirements set forth above and
making sure that the steps the Employee takes with respect to each personal
securities transaction, and their personal investment activity in general, are
in accordance with these requirements. Employees with interpretative questions
or any other questions are strongly urged to consult with their Local Compliance
Group prior to taking the action in question.



                                       2

[MORGAN STANLEY LOGO]



II.      General Principles

         A.    Shareholder and Client Interests Come First

               Every Employee owes a fiduciary duty to the shareholders of
               registered investment companies (each; a "Fund" and collectively,
               the "Funds") and to the Managed Account Clients (defined as
               clients other than registered investment companies including
               unregistered investment companies, institutional clients and
               individuals). This means that in every decision relating to
               investments, every Employee must recognize the needs and
               interests of the Fund shareholders and the Managed Account
               Clients, and be certain that at all times the interests of the
               Fund shareholders and other Managed Account Clients are placed
               ahead of any personal interest.

         B.    Avoid Actual and Potential Conflicts of Interest

               The restrictions and requirements of the Code are designed to
               prevent behavior, which actually or potentially conflicts, or
               raises the appearance of actual or potential conflict, with the
               interests of the Fund shareholders or the Managed Account
               Clients. It is of the utmost importance that the Personal
               Securities Transactions of Employees (defined in Section IV
               below) be conducted in a manner consistent with both the letter
               and spirit of the Code, including these principles, to ensure the
               avoidance of any such conflict of interest, or abuse of an
               individual's position of trust and responsibility.

III.     Access Persons

         "Access Persons" shall include all directors, officers, and employees
         of Investment Management as well as certain other persons falling
         within such definition under Rule 17j-1 under the 1940 Act and such
         other persons that may be so deemed by each Local Compliance Group from
         time to time, except those persons who are not officers and directors
         of an investment adviser under Morgan Stanley Investment Management and
         who meet the following criteria: (i) directors and officers of Morgan
         Stanley Distributors, Morgan Stanley Distribution, Morgan Stanley &
         Co., and Van Kampen Funds Inc. (each a "Distributor" and collectively,
         the "Distributors") that do not devote substantially all of their
         working time to the activities (including distribution activities) of
         an investment adviser under Morgan Stanley Investment Management; (ii)
         directors and officers of the Distributors that do not, in connection
         with their regular functions and duties, participate in, obtain
         information with respect to, or make recommendations as to, or purchase
         and sell securities on behalf of a Fund or a Managed Account Client;
         and (iii) directors and officers of the Distributors that do not have
         access to information regarding the day-to-day investment activities of
         Investment Management shall not be deemed Access Persons. Such persons
         are, however, subject to the Code of Conduct. The Local



                                       3


[MORGAN STANLEY LOGO]


         Compliance Group for each Covered Company will identify all Access
         Persons of Investment Management and notify them of their pre-clearance
         and reporting obligations at the time they become an Access Person.
         Access Persons will be referred to as "Employees" throughout the Code.
         Employees with questions concerning their status as Access Persons are
         urged to consult with their Local Compliance Group.

IV.      Grounds for Disqualification from Employment

         Pursuant to the terms of Section 9 of the 1940 Act, no director,
         officer or employee of a Covered Company may become, or continue to
         remain, an officer, director or employee without an exemptive order
         issued by the U.S. Securities and Exchange Commission if such director,
         officer or employee:

         A.    within the past ten years has been convicted of any felony or
               misdemeanor (i) involving the purchase or sale of any security;
               or (ii) arising out of their conduct as an underwriter, broker,
               dealer, investment adviser, municipal securities dealer,
               government securities broker, government securities dealer,
               transfer agent, or entity or person required to be registered
               under the U.S. Commodity Exchange Act, or as an affiliated
               person, salesman or employee of any investment company, bank,
               insurance company or entity or person required to be registered
               under the Commodity Exchange Act; or

         B.    is or becomes permanently or temporarily enjoined by any court
               from: (i) acting as an underwriter, broker, dealer, investment
               adviser, municipal securities dealer, government securities
               broker, government securities dealer, transfer agent, or entity
               or person required to be registered under the U.S. Commodity
               Exchange Act, or as an affiliated person, salesman or employee of
               any investment company, bank, insurance company or entity or
               person required to be registered under the U.S. Commodity
               Exchange Act; or (ii) engaging in or continuing any conduct or
               practice in connection with any such activity or in connection
               with the purchase or sale of any security.

         It is your obligation to immediately report any conviction or
         injunction falling within the foregoing provisions to the Chief Legal
         or Compliance Officer of Investment Management.

V.       Personal Securities Transactions

         A.    Prohibited Conduct

               No Employee shall buy or sell any "Covered Security" (defined as
               all securities, including any option to purchase or sell, and any
               security convertible into or exchangeable for such securities,
               with the exception of those described in sub-


                                       4


[MORGAN STANLEY LOGO]



               section C.3. below) for his/her own account or for an account in
               which the individual has, or as a result of the transaction
               acquires, any direct or indirect "beneficial ownership" (referred
               to herein as a "Personal Securities Transaction") unless:

               1.   pre-clearance of the transaction has been obtained; and

               2.   the transaction is reported in writing to the Local
                    Compliance Group in accordance with the requirements below.

         B.    Restrictions and Limitations on Personal Securities Transactions

               Except where otherwise indicated, the following restrictions and
               limitations govern investments and personal securities
               transactions by Employees:

               1.   Covered Securities (defined in sub-section A. above)
                    purchased may not be sold until at least 30 calendar days
                    from the purchase trade date and may not be sold at a profit
                    until at least 60 calendar days from the purchase trade
                    date. Covered Securities sold may not be repurchased until
                    at least 30 calendar days from the sale trade date. In
                    addition, Covered Securities sold may not be purchased at a
                    lower price until at least 60 calendar days from the sale
                    trade date. Any violation may result in disgorgement of all
                    profits from the transactions as well as other possible
                    sanctions.

               2.   No short sales are permitted.

               3.   No transactions in options or futures are permitted,
                    except that listed options may be purchased, and covered
                    calls written. No option may be purchased or written if the
                    expiration date is less than 60 calendar days from the date
                    of purchase. No option position may be closed at a profit
                    less than 60 calendar days from the date it is established.

               4.   No Employee may acquire any security in an initial public
                    offering (IPO) or any other public underwriting. No Employee
                    shall purchase shares of a registered investment company
                    that is managed by a Covered Company if such investment
                    company is not generally available to the public, unless the
                    vehicle is designed for Morgan Stanley employees and there
                    is no intention of it becoming public in the future.

               5a.  Private placements of any kind may only be acquired with
                    special permission from the Code of Ethics Review Committee
                    and, if approved, will be subject to continuous monitoring
                    by the Local Compliance Group for possible future conflict.
                    Any Employee wishing to request approval for


                                       5


[MORGAN STANLEY LOGO]



                    private placements must complete a Private Placement
                    Approval Request Form and submit the form to the Local
                    Compliance Group. A copy of the Private Placement Approval
                    Request Form, which may be revised from time to time, is
                    attached as EXHIBIT A. Where the Code of Ethics Review
                    Committee approves any acquisition of a private placement,
                    its decision and reasons for supporting the decision will be
                    documented in a written report, which is to be kept for five
                    years by the Local Compliance Group after the end of the
                    fiscal year in which the approval was granted.

               5b.  Any Employee who has a personal position in an issuer
                    through a private placement must affirmatively disclose that
                    interest if such person is involved in consideration of any
                    subsequent investment decision by a Fund or Managed Account
                    regarding any security of that issuer or its affiliate. In
                    such event, the President or Chief Investment Officer of
                    Investment Management shall independently determine the
                    final investment decision. Written records of any such
                    circumstance shall be sent to the Local Compliance Group and
                    maintained for a period of five years after the end of the
                    fiscal year in which the approval was granted.

          Restrictions 6.a. and 6.b. apply only to portfolio managers and
          research analysts (and all persons reporting to portfolio managers and
          research analysts) of Investment Management. Restriction 6.c. applies
          only to personnel in the trading department of each Covered Company.

               6a.  No purchase or sale transaction may be made in any
                    Covered Security by any portfolio manager or research
                    analyst (or person reporting to a portfolio manager or
                    research analyst) for a period of 7 calendar days before or
                    after that Covered Security is bought or sold by any Fund
                    (other than Morgan Stanley Value-Added Market Series, Morgan
                    Stanley Select Dimensions Investment Series -- Value-Added
                    Market Portfolio, and Morgan Stanley index funds, or
                    Portfolios) or any Managed Account (other than index-based
                    Managed Accounts) for which such portfolio manager or
                    research analyst (or person reporting to a portfolio manager
                    or research analyst) serves in that capacity.

               6b.  The definition of portfolio manager shall also extend to
                    any person involved in determining the composition of the
                    portfolios of Funds that are UITs or who have knowledge of a
                    composition of a UIT portfolio prior to deposit. These
                    individuals shall not buy or sell a Covered Security within
                    7 calendar days before or after such Covered Security is
                    included in the initial deposit of a UIT portfolio.




                                       6


[MORGAN STANLEY LOGO]



               6c.  No purchase or sale transaction may be made in any
                    Covered Security traded through the appropriate Covered
                    Company's trading desk(s) (as determined by the Local
                    Compliance Group) by any person on that trading desk at the
                    same time that any Fund (other than Morgan Stanley
                    Value-Added Market Series, Morgan Stanley Select Dimensions
                    Investment Series--Value-Added Market Portfolio, and Morgan
                    Stanley index funds, or Portfolios) or any Managed Account
                    (other than index-based Managed Accounts) has a pending
                    purchase or sale order in that same Covered Security.

               6d.  Any transaction by persons described in sub-sections
                    6.a., 6.b., and 6.c. above within such enumerated period may
                    be required to be reversed, if applicable, and any profits
                    or, at the discretion of the Code of Ethics Review
                    Committee, any differential between the sale price of the
                    Personal Security Transaction and the subsequent purchase or
                    sale price by a relevant Fund or Managed Account during the
                    enumerated period, will be subject to disgorgement; other
                    sanctions may also be applied.

               7.   No Employee shall purchase or sell any Covered Security
                    which to their knowledge at the time of such purchase or
                    sale: (i) is being considered for purchase or sale by a Fund
                    or a Managed Account; or (ii) is being purchased or sold by
                    a Fund or a Managed Account. With respect to portfolio
                    managers and research analysts (and all persons reporting to
                    portfolio managers and research analysts) of a Covered
                    Company, no such persons may purchase shares of a closed-end
                    investment company over which such person exercises
                    investment discretion.

               8.   If a transaction is not executed on the day pre-clearance
                    is granted, it is required that pre-clearance be sought
                    again on a subsequent day (i.e., open orders, such as limit
                    orders, good until cancelled orders and stop-loss orders,
                    must be cleared each day until the transaction is effected).

               9.   Employees shall not participate in investment clubs.

               IMPORTANT: Regardless of the limited applicability of
               Restrictions 6.a., 6.b., and 6.c. each Local Compliance Group
               monitors all transactions by Employees in all locations in order
               to ascertain any pattern of conduct that may evidence actual or
               potential conflicts with the principles and objectives of the
               Code, including a pattern of front-running. The Compliance Group
               of each Covered Company: (i) on a quarterly basis, will provide
               the Boards of Directors/Trustees of the Funds it manages with a
               written report that describes any issues that arose during the
               previous quarter under the Code and, if applicable, any Funds'
               Sub-Adviser's Code of Ethics, including but not limited to,
               information about material violations


                                       7


[MORGAN STANLEY LOGO]



               and sanctions imposed in response to the material violations; and
               (ii) on an annual basis, will certify that each Covered Company
               has adopted procedures reasonably necessary to prevent its
               Employees from violating the Code. Also, as stated elsewhere in
               this Code, any violation of the foregoing restrictions may result
               in disgorgement of all profits from the transactions as well as
               other possible sanctions.

         C.    Pre-Clearance Requirement

               1.   Procedures

                    (a)      From Whom Obtained

                             All Employees are required to obtain pre-clearance
                             of a Personal Securities Transaction by: (i)
                             confirming that no open orders exist in the same or
                             related security with the appropriate trading
                             desk(s) (as determined by the Local Compliance
                             Group); and (ii) having the transaction approved by
                             the Local Compliance Group.

                             Portfolio managers and research analysts (or
                             persons reporting to portfolio managers or research
                             analysts) of Investment Management seeking approval
                             for a Personal Securities Transaction must obtain
                             an additional approval signature from a designated
                             Senior Portfolio Manager (prior to pre-clearance
                             from the Local Compliance Group). Trading desk
                             personnel at any Covered Company seeking approval
                             for a Personal Securities Transaction must obtain
                             an additional approval signature from their
                             immediate supervisor prior to pre-clearance from
                             the Local Compliance Group.

                             A copy of the Personal Securities Transaction
                             Approval Form, which may be revised from time to
                             time, is attached as EXHIBIT B.

                             Each Local Compliance Group has implemented
                             procedures reasonably designed to monitor purchases
                             and sales effected pursuant to these pre-clearance
                             procedures.

                    (b)      Permitted Brokerage Accounts

                             All securities transactions must be made through a
                             Morgan Stanley brokerage account(1). No other
                             brokerage accounts are permitted unless special
                             permission is obtained from the Local Compliance




- ----------
(1) Morgan Stanley brokerage account shall mean an account with an affiliated
Morgan Stanley broker in the Employee's local jurisdiction.



                                       8

[MORGAN STANLEY LOGO]



                             Group. If an Employee maintains an account(s)
                             outside of Morgan Stanley, that Employee must
                             transfer his/her account(s) to a Morgan Stanley
                             brokerage account as soon as practical (generally
                             thirty days or less). Failure to do so will be
                             considered a significant violation of the Code. In
                             the event permission to maintain an outside
                             brokerage account is granted by the Local
                             Compliance Group, it is the responsibility of the
                             Employee to arrange for duplicate confirmations of
                             all securities transactions and monthly brokerage
                             statements to be sent to the Local Compliance
                             Group.

                             Prior to opening a Morgan Stanley brokerage
                             account, Employees must obtain approval from their
                             Local Compliance Group. No Employee may open a
                             brokerage account unless a completed and signed
                             copy of a Morgan Stanley Employee Account Request
                             Form is submitted to the Local Compliance Group for
                             approval. A copy of the Morgan Stanley Employee
                             Account Request Form, which may be revised from
                             time to time, is attached as EXHIBIT C. After
                             account has been opened, Employees are responsible
                             for reporting their Morgan Stanley account number
                             to the Local Compliance Group.

                    (c)      Personal Securities Transaction Approval Form

                             Pre-clearance must be obtained by completing and
                             signing the Personal Securities Transaction
                             Approval Form, provided for that purpose, and
                             obtaining the proper pre-clearance signatures. The
                             Approval Form must also indicate, as applicable,
                             the name of the individual's financial advisor, the
                             branch office numbers, as well as other required
                             information.

                             If an Employee has more than one account under
                             his/her control, the Employee must indicate for
                             which account the trade is intended on the Personal
                             Securities Transaction Approval Form. Employees are
                             required to have duplicate copies of their trade
                             confirms and account statements (which can be
                             electronically transmitted) sent to the Local
                             Compliance Group for each account the Employee has,
                             or as a result of the transaction acquires, any
                             direct or indirect beneficial ownership (as defined
                             in sub-section C.4. below).

                    (d)      Filing

                             After all required signatures are obtained, the
                             Personal Securities Transaction Approval Form must
                             be filed with the Local Compliance




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                             Group by noon of the day following execution of the
                             trade for filing in the respective individual's
                             Code of Ethics file. The Employee should retain a
                             copy for his/her records. (The Local Compliance
                             Group will also retain a copy of the form if a
                             pre-clearance request is denied.)

               2.   Factors Considered in Pre-Clearance of Personal Securities
                    Transactions

                    In reviewing any trade for approval, the following factors,
                    among others, will generally be considered in determining
                    whether or not to clear a proposed transaction:

                    (a)      Whether the amount or the nature of the
                             transaction, or the person making it, is likely to
                             affect the price or market of security that is held
                             by a Fund or a Managed Account Client.

                    (b)      Whether the purchase or sale transaction of the
                             Covered Security by the Employee: (i) is being
                             considered for purchase or sale by a Fund or a
                             Managed Account; or (ii) is being purchased or sold
                             by a Fund or a Managed Account Client.

                    (c)      Whether the individual making the proposed purchase
                             or sale is likely to benefit from purchases or
                             sales being made or considered on behalf of any
                             Fund or a Managed Account Client.

                    (d)      Whether the transaction is non-volitional on the
                             part of the individual.

                    (e)      Whether the transaction is conducted in a manner
                             that is consistent with the Code to avoid any
                             potential for appearance of impropriety.

                    In addition to the requirements set forth in the Code, the
                    Local Compliance Group and/or, if applicable, designated
                    Senior Portfolio Manager/immediate trading room supervisor
                    (as appropriate), in keeping with the general principles and
                    objectives of the Code, may refuse to grant pre-clearance of
                    a Personal Securities Transaction in their sole discretion
                    without being required to specify any reason for the
                    refusal.

               3.   Exempt Securities

                    (a)      The securities listed below are exempt from: (i)
                             the restrictions of Section V., sub-sections B.1. ,
                             B.6. and B.7.; (ii) the pre-clearance requirements;
                             and (iii) the initial, quarterly and annual
                             reporting requirements. Accordingly, it is not
                             necessary to obtain pre-



                                       10


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                             clearance for Personal Securities Transactions in
                             any of the following securities, nor is it
                             necessary to report such securities in the
                             quarterly transaction reports or the initial and
                             annual securities holdings list:

                             (i)    Direct obligations of the United States
                                    Government(2);
                             (ii)   Bank Certificates of Deposit;
                             (iii)  Bankers' Acceptances;
                             (iv)   Commercial Paper;
                             (v)    High Quality Short-Term Debt Instruments
                                    (which for these purposes are repurchase
                                    agreements and any instrument that has a
                                    maturity at issuance of less than 366 days
                                    that is rated in one of the two highest
                                    categories by a Nationally Recognized
                                    Statistical Rating Organization); and
                             (vi)   Shares of open-end investment companies
                                    (mutual funds). (Exchange Traded Funds
                                    ("ETFs") and Closed-end funds must be
                                    pre-cleared and are subject to all other
                                    reporting requirements.)

                    (b)      Transactions in redeemable Unit Investment Trusts
                             are exempt from the restrictions contained in
                             Section V., sub-sections B.1., B.6. and B.7 and
                             the pre-clearance requirement of Section V.,
                             sub-section C., but are subject to the initial,
                             quarterly and annual reporting requirements of
                             Section V., sub-section D.

                    (c)      All Employees wishing to participate in an issuer's
                             direct stock purchase plan or automatic dividend
                             reinvestment plans must submit a memorandum to the
                             Local Compliance Group stating the name and the
                             amount to be invested in the plan. Any sale
                             transactions from an automatic dividend
                             reinvestment plan must be pre-approved. Purchases
                             under an issuer's direct stock purchase plan or
                             automatic dividend reinvestment plan are exempt
                             from the restrictions contained in sub-sections
                             B.1., B.6. and B.7. and the pre-clearance
                             requirement but are subject to the initial,
                             quarterly and annual reporting requirements.

                    (d)      Holdings and transactions in MWD stock3 are subject
                             to the initial, quarterly and annual reporting
                             requirements as well as the 30-day holding period
                             restriction and the 60-day short swing profit
                             restriction and the pre-clearance requirements
                             described above. The



- --------
(2) Includes securities that carry full faith and credit of the U.S. government
for the timely payment of principal and interest, such as Ginnie Maes, U.S.
Savings Bonds, and U.S. Treasuries. 3 In connection with the sale of MWD stock,
periodic purchases through employer sponsored equity purchase plans shall not be
looked to in calculating the 30-day holding period restriction or the 60-day
short swing profit restriction.,



                                       11

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                             restrictions imposed by Morgan Stanley on Senior
                             Management and other persons in connection with
                             transactions in MWD stock are in addition to this
                             Code, and must be observed to the extent
                             applicable. Employees are required to read the Code
                             of Conduct for a listing of specific restrictions
                             and limitations relating to the purchase or sale of
                             MWD stock.

                    (e)      Employees may maintain fully discretionary accounts
                             managed by either an internal or external
                             registered investment adviser provided that each of
                             the following conditions are met: (i) the
                             investment program is offered by Morgan Stanley;
                             (ii) the portfolio manager's strategy/investment
                             discipline/investment program offered/utilized is
                             the same for both Employee and non-Employee client
                             accounts; (iii) written permission is obtained from
                             the Director of Compliance and the Chief Investment
                             Officer (or their designees) prior to opening a
                             fully discretionary account; (iv) written
                             certification is obtained stating that there will
                             be no communication between the portfolio manager
                             and the Employee with regard to investment
                             decisions prior to execution; and (v) Employee
                             accounts will be treated no differently from
                             non-Employee accounts. The Employee must designate
                             duplicate copies of trade confirmations and monthly
                             statements to be sent to the Compliance Department.
                             To the extent that an Employee directs trades for
                             tax purposes, that Employee shall obtain
                             pre-clearance for each transaction from his/her
                             Local Compliance Group.

               4.   Accounts Covered

                    An Employee must obtain pre-clearance for any Personal
                    Securities Transaction if such Employee has, or as a result
                    of the transaction acquires, any direct or indirect
                    beneficial ownership in the security.

                    The term "beneficial ownership" shall be interpreted with
                    reference to the definition contained in the provisions of
                    Section 16 of the Securities Exchange Act of 1934.
                    Generally, a person is regarded as having beneficial
                    ownership of securities held in the name of:

                    (a)      the individual; or

                    (b)      a husband, wife or a minor child; or

                    (c)      a relative sharing the same house; or




                                       12

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                    (d)      other person if the Employee:

                             (i)    obtains benefits substantially equivalent to
                                    ownership of the securities;

                             (ii)   can obtain ownership of the securities
                                    immediately or at some future time; or

                             (iii)  can have investment discretion or otherwise
                                    can exercise control.

                    The following circumstances constitute Beneficial Ownership
                    by an Employee of securities held by a trust:

                    (a)  Ownership of securities as a trustee where either the
                         Employee or members of the Employee's immediate family
                         have a vested interest in the principal or income of
                         the trust.

                    (b)  Estate or trust accounts in which the Employee has the
                         power to effect investment decisions, unless a specific
                         exemption is granted.

                    (c)  Any Employee who is a settlor of a trust is required to
                         comply with all the provisions of the Code, unless
                         special exemption in advance is granted by the Local
                         Compliance Group and: (i) the Employee does not have
                         any direct or indirect beneficial interest in the
                         trust; (ii) the Employee does not have the direct or
                         indirect power to effect investment decisions for the
                         trust, and (iii) the consent of all the beneficiaries
                         is required in order for the Employee to revoke the
                         trust.

                    It is the responsibility of the Employee to arrange for
                    duplicate confirmations of all securities transactions and
                    monthly statements to be sent to the Local Compliance Group.
                    The final determination of beneficial ownership is a
                    question to be determined in light of the facts of each
                    particular case. If there are any questions as to beneficial
                    ownership, please contact your Local Compliance Group.

               5.   Exemption from Pre-clearance Requirement

                    Pre-clearance is not required for any account where the
                    Employee does not have direct or indirect beneficial
                    ownership. In case of doubt as to whether an account is
                    covered by the Code, Employees must consult with their Local
                    Compliance Group.



                                       13

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         D.    Report of Transactions

               1.   Transactions and Accounts Covered

                    (a)      All Personal Securities Transactions in Covered
                             Securities must be reported in the next quarterly
                             transaction report after the transaction is
                             effected. The quarterly report shall contain the
                             following information:

                             (i)    The date of the transaction, the title,
                                    interest rate and maturity date (if
                                    applicable), number of shares and principal
                                    amount of each security involved;

                             (ii)   The nature of the transaction (i.e.,
                                    purchase, sale, or any other type of
                                    acquisition or disposition);

                             (iii)  The price at which the purchase or sale was
                                    effected;

                             (iv)   The name of the broker, dealer, or bank
                                    with, or through which, the purchase or sale
                                    was effected; and

                             (v)    The date the report was submitted to the
                                    Local Compliance Group by such person.

                             In addition, any new brokerage account(s) opened
                             during the quarter without approval from the Local
                             Compliance Group as well as the date(s) the
                             account(s) was (were) opened must be reported. The
                             report must contain the following information:

                             (i)    The name of the broker, dealer, or bank with
                                    whom the account was established;

                             (ii)   The date the account was established; and

                             (iii)  The date the report was submitted to the
                                    Local Compliance Group.

                    (b)      An Employee need not make a quarterly transaction
                             report if he/she: (i) maintains only a Morgan
                             Stanley brokerage account and the report would
                             duplicate information contained in the broker trade
                             confirms, system generated reports or account
                             statements received by the Local Compliance Group;
                             and (ii) has not opened any new




                                       14

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                             brokerage accounts or mutual fund accounts with
                             brokerage facilities without obtaining approval
                             from their Local Compliance Group during the
                             quarter.

               2.   Time of Reporting

                    (a)      Initial Listing of Securities Holdings and
                             Brokerage Accounts Report

                             Each Employee must provide an Initial Listing of
                             Securities Holdings and Brokerage Accounts Report
                             to their Local Compliance Group disclosing: (i) all
                             Covered Securities, including private placement
                             securities, beneficially owned by the Employee
                             listing the title of the security, number of shares
                             held, and principal amount of the security; (ii)
                             the name of the broker dealer or financial
                             institution where the Employee maintains a personal
                             account; and (iii) the date the report is submitted
                             by the Employee. New Access Persons will be
                             required to provide a listing as of the date such
                             person becomes an Access Person of all holdings in
                             Covered Securities and all outside brokerage
                             accounts and mutual fund accounts with brokerage
                             facilities. This report must be provided no later
                             than 10 calendar days after a person becomes an
                             Access Person.

                    (b)      Quarterly Securities Transactions and New Brokerage
                             Account(s) Reports

                             Quarterly Securities Transactions and New Brokerage
                             Account(s) Reports must be submitted by Employees
                             within 10 calendar days after the end of each
                             calendar quarter. Any new brokerage account(s)
                             opened during the quarter without their Local
                             Compliance Group's prior approval, as well as the
                             date(s) the account(s) was (were) opened, must be
                             reported within 10 calendar days after the end of
                             each calendar quarter.

                    (c)      Annual Listing of Securities Holdings Reports and
                             Certification of Compliance


                             The Annual Listing of Securities Holdings Report
                             and Certification of Compliance requires all
                             Employees to provide an annual listing of holdings
                             of: (i) all Covered Securities beneficially owned,
                             listing the title of the security, number of shares
                             held, and principal amount of the security as of
                             December 31 of the preceding year, (ii) the name of
                             any broker dealer or financial institution where
                             the account(s) in which Covered Securities were
                             maintained, as of



                                       15

[MORGAN STANLEY LOGO]



                             December 31 of the preceding year; and (iii) the
                             date the report is submitted. This report must be
                             provided no later than 30 calendar days after
                             December 31 each year. In the case of Employees
                             maintaining Morgan Stanley brokerage accounts for
                             which broker trade confirms, system generated
                             reports or account statements are already received
                             on a quarterly basis by the Local Compliance Group,
                             an annual certification (Certification of
                             Compliance) that the holdings information already
                             provided to the Local Compliance Group accurately
                             reflects all such holdings will satisfy the
                             aforementioned requirement.

               3.   Form of Reporting

                    The Initial Listing of Securities Holdings and Brokerage
                    Accounts Report, Quarterly Securities Transactions and New
                    Brokerage Account(s) Reports, and the Annual Listing of
                    Securities Holdings Report and Certification of Compliance
                    must be completed on the appropriate forms, attached as
                    EXHIBITS D, E, AND F respectively, which would be provided
                    by each Local Compliance Group. By not submitting a
                    quarterly transaction report form, an Employee will be
                    deemed to have represented that such person has: (i)
                    executed reportable transactions only in accounts listed
                    with the Local Compliance Group; or (ii) only traded
                    securities exempt from the reporting requirements. Copies of
                    the Initial Listing of Securities Holdings Report and
                    Brokerage Accounts Report, Quarterly Securities Transactions
                    and New Brokerage Account(s) Reports, and the Annual Listing
                    of Securities Holdings Report and Certification of
                    Compliance, which may be revised from time to time, are
                    attached as EXHIBITS D, E, AND F, respectively.

               4.   Responsibility to Report

                    The responsibility for reporting is imposed on each
                    individual required to make a report. Any effort by a
                    Covered Company to facilitate the reporting process does not
                    change or alter that individual's responsibility.

               5.   Leave of Absence

                    Employees on leave of absence may not be subject to the
                    pre-clearance and reporting provisions of the Code, provided
                    that, during their leave period, they: (i) do not
                    participate in, obtain information with respect to, make
                    recommendations as to, or make the purchase and sale of
                    securities on behalf of a Fund or a Managed Account Client;
                    and (ii) do not have access to information regarding the
                    day-to-day investment activities of Investment Management.




                                       16

[MORGAN STANLEY LOGO]




               6.   Where to File Report

                    All reports must be filed by Employees with their Local
                    Compliance Group.

               7.   Responsibility to Review

                    Each Local Compliance Group will review all Initial Listing
                    of Securities Holdings and Brokerage Accounts Reports,
                    Quarterly Securities Transactions and New Brokerage
                    Account(s) Reports, and Annual Listing of Securities
                    Holdings Reports and Certification of Compliance, filed by
                    Employees, as well as broker confirmations, system generated
                    reports, and account statements.

VI.      Review Committee

         A Code of Ethics Review Committee, consisting of the President/Chief
         Operating Officer, Chief Investment Officer, Chief Legal Officer, and
         the Chief Administrative Officer - Investments of Morgan Stanley
         Investment Management or their designees will review and consider any
         proper request of an Employee for relief or exemption from any
         restriction, limitation or procedure contained herein consistent with
         the principles and objectives outlined in this Code. The Committee
         shall meet on an ad hoc basis, as it deems necessary, upon written
         request by an Employee stating the basis for the requested relief. The
         Committee's decision is within its sole discretion.

VII.     Service as a Director

         No Employee may serve on the board of any company without prior
         approval of the Code of Ethics Review Committee. If such approval is
         granted, it will be subject to the implementation of information
         barrier procedures to isolate any such person from making investment
         decisions for Funds or Managed Accounts concerning the company in
         question.

VIII.    Gifts

         No Employee shall accept directly or indirectly anything of value,
         including gifts and gratuities, in excess of $100 per year from any
         person or entity that does business with any Fund or Managed Account,
         not including occasional meals or tickets to theater or sporting events
         or other similar entertainment.(4)





- ----------
(4) For MSAITM-Tokyo, the receipt of gifts shall not be in excess of (Y)20,000
per year. For MSIM-Mumbai, the receipt of gifts shall not be in excess of INR
4,500. For MSIM-Singapore, the receipt of gifts shall not be in excess of SGD
170. For MSIM-Ltd, the receipt of gifts shall not be in excess of Europe
(pound)50 or equivalent.


                                       17


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IX.      Sanctions

         Upon discovering a violation of this Code, Investment Management may
         impose such sanctions as they deem appropriate, including a reprimand
         (orally or in writing), demotion, suspension or termination of
         employment and/or other possible sanctions. The President/Chief
         Operating Officer of Investment Management and the Chief Legal Officer
         or Compliance Officer together, are authorized to determine the choice
         of sanctions to be imposed in specific cases, including termination of
         employment.

X.       Employee Certification

         Employees are required to sign a copy of this Code indicating their
         understanding of, and their agreement to abide by the terms of this
         Code.

         In addition, Employees will be required to certify annually that: (i)
         they have read and understand the terms of this Code and recognize the
         responsibilities and obligations incurred by their being subject to
         this Code; and (ii) they are in compliance with the requirements of
         this Code, including but not limited to the reporting of all brokerage
         accounts, and the pre-clearance of all non-exempt Personal Securities
         Transactions in accordance with this Code.


I have read and understand the terms of the above Code. I recognize the
responsibilities and obligations, including but not limited to my quarterly
transaction, annual listing of holdings, and initial holdings reporting
obligations (as applicable), incurred by me as a result of my being subject to
this Code. I hereby agree to abide by the above Code.



- -----------------------------            --------------------------------
(Signature)                              (Date)


- -----------------------------
(Print name)


MORGAN STANLEY INVESTMENT MANAGEMENT CODE OF ETHICS

DATED: AUGUST 16, 2002



                                       18

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                                                                      SCHEDULE A


MORGAN STANLEY INVESTMENT ADVISORS INC. ("ADVISORS")
MORGAN STANLEY INVESTMENT MANAGEMENT INC. ("MSIM")
MORGAN STANLEY INVESTMENT GROUP INC. ("MSIG")
MORGAN STANLEY INVESTMENT MANAGEMENT LIMITED ("MSIM-LTD.")
MORGAN STANLEY INVESTMENT MANAGEMENT COMPANY ("MSIM-SINGAPORE")
MORGAN STANLEY ASSET & INVESTMENT TRUST
         MANAGEMENT CO., LIMITED ("MSAITM-TOKYO")
MORGAN STANLEY INVESTMENT MANAGEMENT
         PRIVATE LIMITED ("MSIM MUMBAI")
MORGAN STANLEY INVESTMENTS LP ("MSI-LP")
MORGAN STANLEY ALTERNATIVE INVESTMENT PARTNERS LP ("AIP-LP")
MORGAN STANLEY AIP GP LP  ("AIP GP-LP")
MORGAN STANLEY SERVICES COMPANY INC. ("SERVICES")
MORGAN STANLEY DISTRIBUTORS INC. ("MORGAN STANLEY DISTRIBUTORS")
MORGAN STANLEY DISTRIBUTION, INC. ("MORGAN STANLEY DISTRIBUTION")
MORGAN STANLEY & CO. INCORPORATED  ("MORGAN STANLEY & CO.")
VAN KAMPEN INVESTMENT ADVISORY CORP. ("VKIAC")
VAN KAMPEN ASSET MANAGEMENT INC. ("VKAM")
VAN KAMPEN ADVISORS INC. ("VK ADVISORS")
VAN KAMPEN INVESTMENTS, INC. ("VK INVESTMENTS")
VAN KAMPEN FUNDS INC. ("VK FUNDS")


















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