on the availability and reliability of market indicators or based
on independent pricing sources and market indicators. It is
again stated that the secondary trading market will increasingly
be relied upon to the extent it develops to a reliable degree.
While the Fund continued to increasingly make valuation
determinations based on market indications, genuine factual
disputes exist as to whether the valuations not based on the
means of bids and asks relied on market indicators as described
in the November 2000 prospectus.

Neither side is entitled to summary judgment on claims
based on defendants misrepresenting the valuation methods being
used.

The last claim to consider is whether defendants
misrepresented the investment objective of the Fund. Plaintiffs
contend that defendants misrepresented that preservation of
capital was an investment goal. Plaintiffs contend it is evident
that this was not an actual goal because defendants had to
artificially inflate the NAV to maintain a purportedly stable
NAV. Even ignoring that having a goal does not necessarily mean
that it will be achieved, plaintiffs' argument is based on a
deficient premise. Plaintiffs’ contention that defendants
artificially inflated NAV is not limited to NAV being inflated as
the actual NAV dropped during a later time period. Under
plaintiffs' theory, because defendants failed to adequately
consider available market quotations and indicators and tended to

value at par, the NAV was already inflated at the beginning of

- 19 -


daily basis and, for the other half, on a weekly basis. By
November 1999, daily pricing was provided for 97% of the Fund's
loans.

Defendants were also able to obtain some pricing
information simply by requesting a price from a particular broker
or dealer,

By no later than November 1999, as to most of the Fund's
loans, the LSTA/LPC service apparently satisfied the frequency
and timeliness requirements for a readily available market
quotation. During the class period prior to November 1999, DLJ
and SocGen provided frequent and timely quotations for a
substantial percentage of the Fund's loans. However, on the
evidence before the court, a genuine factual dispute exists as to
whether, during the class period, the indications provided by the
various services were sufficiently reliable to satisfy the
reliability component of being a readily available market
quotation. Thus, for the entire class period, a genuine factual
dispute exists as to whether readily available market quotations
existed.

In September 1999, the Fund began subscribing to the
LSTA/LEC service. In January 2000, the Fund adopted a policy
known as a "3 x 3 x 100 screen." Subject to an override by the
Fund's pricing committee, the LSTA/LPC service would be used to
value loans as long as there were at least three bids, at least
three asks, and the difference between each average was no more

than 100 basis points. The value used would be the mean of the



Abrams v. Van Kampen Funds, Inc., 2002 WL 1160171 *5 (N.D. Ill.

May 30, 2002) ("Abrams I"); Asher v. Baxter International, Inc.,
2003 WL 21825498 *5 (N.D. Ill. July 24, 2003). There is no
scienter or reliance requirement; instead responsible persons are
liable for the material and misleading statements contained in a
prospectus unless they can affirmatively make certain showings as
to their knowledge and diligence. See Herman, 459 U.S. at 382;
Abrams I, 2002 WL 1160171 at *5; Asher, 2003 WL 21825498 at *5.

A misstatement is material if there is a substantial likelihood
that it would be viewed by a reasonable investor as significantly
altering the total mix of available information and thus
important to the investor's decision to invest, ISC Industries
Ing, v. Northway, Inc.. 426 U.S. 438, 449 (1976); Abrams I, 2002
WL 1160171 at *5,

Here, a central issue for plaintiffs' claims is the
method of valuing the senior loans held by the Fund. The parties
do not dispute that the applicable general principle is that the
loans were to be valued on a daily basis at the amount that could
have been obtained from a current sale. See SEC Accounting
Release Series No. 118, 1970 WL 5621 *4 (Dec. 30, 1970) ("ASR

118"); In re Allied Capital Corp, Secyrities Litigation, 2003 WL

1964184 *1 (S.D.N.Y. April 25, 2003); In_re Eaton Vance Corp.

Securities Litigation, 206 F. Supp. 2d 142, 151-52 (D. Mass.

2002). See also 15 U.S.C. § 80a-2(a) (41) (B)? 17 C.F.R.



the class period as well as previously, Plaintiffs point to no
evidence that the true (in plaintiffs' view) NAV declined during
the class period. Thus, the foundation for plaintiffs' argument
is lacking. Moreover, plaintiffs point to no evidence that,
contrary to a goal of preserving capital, defendants invested in
riskier loans than had been represented. Any claims based on
misrepresenting a goal of preservation of capital will be
dismissed,

Since plaintiffs are not being granted summary judgment
as to liability, there is no need to address questions of
damages, It is noted, however, that the arguments as to damages
failed to adequately articulate the parties’ contentions as to
damages. Any pretrial order that is filed should contain a clear
articulation and calculation of the parties’ positions as to
damages.

Within 10 days after the date of this opinion, the
parties shall meet to discuss the possibility of settlement. At
the next status hearing the parties shall report on the
possibility of settlement. If it does not appear likely that
settlement will occur, a date will be set for presentation of the

final pretrial order.?

[If the case does not appear likely to settle, the
parties will also be required to separately address the question
of whether plaintiffs' voluntarily dismissal of the § 12 and
fiduciary duty claims requires notice, hearing, and/or court
approval, Otherwise, dismissal of those claims would not need to
be separately considered and would only be considered in the
context of the overall settlement.

- 20 -



prices or quotations provided by banks, dealers

or pricing services with respect to secondary

Market transactions in Senior Loans, To the

extent that an active secondary market in Senior

Loan interests develops to a reliable degree, the

Adviser may rely to an increasing extent on such

market prices and quotations in valuing the

Senior Loan interests in the Fund's portfolio.

While it is represented that market quotations and
indications will be considered in determining value, such
statements are qualified based on such indications being
reliable. As previously discussed, a genuine factual dispute
exists as to the reliability of the then-available indications.
Additionally, including during the time period of these
prospectuses, genuine factual disputes exist as to the extent to
which defendants relied on indications in valuing loans. Each
side points to evidence supporting its contentions, but none of
the evidence is conclusive. There is also evidence on both sides
of the issue as to defendants valuing loans based on the expected
recovery upon maturity or a workout for a troubled company.
Genuine factual disputes preclude resolving these claims on
summary judgment.

Regarding how NAV was determined, the February 28, 2000
Fund prospectus, stated in part: "Subject to criteria
established by the Fund's Board of Trustees about the
availability and reliability of market indicators obtained from

independent pricing sources, certain Senior Loans will be valued

at the mean of bid and ask market indicators supplied by

independent sources approved by the Fund's Board of Trustees."



experts' testimony. However, plaintiffs do not argue that the
two experts do not have adequate qualifications or that they
relied on unacceptable methodologies. Instead, plaintiffs argue
that the experts' testimony about general economic and market
principles are not adequately connected to or supported by the
facts of this case. There is no need to separately consider
whether the experts’ testimony should be excluded. To the extent
the experts' opinions do not support any material fact, their
testimony will not defeat summary judgment. Also, any question
of whether the opinion of a second expert is unnecessarily
cumulative would be an evidentiary issue for a trial before a
jury, not an issue to be considered when a judge is ruling on a
summary judgment motion. The motion to exclude will be denied
without prejudice to filing any motion in limine with the final
pretrial order.

The facts taken as true for purposes of summary judgment
are as follows. Where there are genuine factual disputes, the
differing facts that will be taken as true for each side's motion
will be noted. The Fund was organized in 1989 as a senior loan
fund. Senior loans are loans made by banks and other financial
institutions to corporations, partnerships, and other businesses
and which have priority over most other debts of the borrower.
Because of the priority, they achieve a high rate of recovery.
Also, because they have a floating or variable interest rate,

their value is only minimally affected by changes in market

interest rates. There is no organized market for senior loans;



acceptable if consistently applied. Normally,
the use of asked prices alone is not acceptable.

Ordinarily, quotations for a security should
be obtained from more than one broker-dealer,
particularly if quotations are available only
from broker-dealers not known to be established
market-markers for that security, and quotations
for several days should be reviewed. If the
validity of the quotations appears to be
questionable, or if the number of quotations is
such as to indicate that there is a thin market
in the security, further consideration should be
given to whether 'market quotations are readily
available.' If it is decided that they are not
readily available, the security should be
considered one required to be valued at 'fair
value as determined in good faith by the board of
directors.'

ASR 118, 1970 WL 5621 at *4.

To qualify as readily available market quotations
that must be used to value securities, the pricing services must
provide quotes that are sufficiently timely, sufficiently
frequent, and sufficiently accurate. Eaton Vance, 206
F. Supp. 2d at 148-49.

On a motion for summary judgment, the entire record is
considered with all reasonable inferences drawn in favor of the

nonmovant and all factual disputes resolved in favor of the

nonmovant. Turner v, J.V.D.B A iate Inc., 330 F.3d 991,

994-95 (7th Cir. 2003); Palmer vy. Marion County, 327 F.3d 588,
592 (7th Cir. 2003); Abrams v. Walker, 307 F.3d 650, 653-54 (7th
Cir. 2002). The burden of establishing a lack of any genuine

issue of material fact rests on the movant, Qutlaw v. Newkirk

259 F.3d 833, 837 (7th Cir. 2001); Wollin v. Gondert, 192 F.3d



§ 270,2a-4(a). The parties also agree that current value is to
pe determined by "market quotations" where "readily available,"
or by "fair value" methods if market quotations are not readily
available. See 15 U.S.C. § 80a-2(a) (41) (B); 17 C.F.R.
§ 270.2a-4(a) (1); ASR 118, 1970 WL 5621 at *3; Eaton Vance,
206 F. Supp. 2d at 147. Regarding the class period, the parties
disagree as to whether the pricing services that were then
available qualified as readily available market quotations.
To the extent it was appropriate to use fair value methods, the
parties also disagree as to whether defendants adequately
determined current value.

Regarding securities traded over the counter, ASR 118
provides:

Over-the-counter securities. Quotations
are available from various sources for most
unlisted securities traded regularly in the
over-the-counter market. These sources include
tabulations in the financial press, publications
of the National Quotation Bureau and the 'Blue
List’ of municipal bond offerings, several
financial reporting services, and individual
broker-dealers. These quotations generally are
in the form of inter-dealer bid and asked prices.
Because of the availability of multiple sources,
a company frequently has a greater number of
options open to it in valuing securities traded
in the over-the-counter market than it does in
valuing listed securities. A company may adopt a
policy of using a mean of the bid prices, or of
the bid and asked prices, or of the prices of a
representative selection of broker-dealers
quoting on a particular security; or it may use a
valuation within the range of bid and asked
prices considered best to represent value in the
circumstances. Any of these policies is



The description for how other loans were to be valued was similar
to the description contained in the previously quoted
prospectuses, It was also added that "The fair value of Senior
Loans are reviewed and approved by the Fund's Valuation Committee
and by the Fund's Trustees." Regarding the secondary market, it
was stated: "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 Trustees will continue to monitor
developments in the Senior Loan market and will make
modifications to the current valuation methodology as deemed
appropriate."

While the description contained in the February 2000
prospectus may accurately incorporate the Fund's adoption of the
3 x 3 x 100 screen, there is still a genuine factual dispute as
to the Fund actually taking into consideration available
indicators for valuing loans that did not fall within the
3 x 3 x 100 screen.

The November 20, 2000 prospectus stated that: “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." Other loans are described as being valued depending



more, however, than demonstrate some factual
disagreement between the parties; the issue

must’ be 'material.'" Logan, 96 F.3d at 978.
"Irrelevant or unnecessary facts do not preclude
summary judgment even when they are in dispute.”
Id. (citation omitted). In determining whether
the nonmovant has identified a "material" issue
of fact for trial, we are guided by the
applicable substantive law; "[o]nly disputes that
could affect the outcome of the suit under
governing law will properly preclude the entry of
summary judgment." McGinn v. Burlington Northern
R.R. Co., 102 F.3d 295, 298 (7th Cir. 1996)
(citation omitted). Furthermore, a factual
dispute is "genuine" for summary judgment
purposes only when there is "sufficient evidence
favoring the nonmoving party for a jury to return
a verdict for that party." Anderson v. Liberty
Lobb Inc., 477 U.S, 242, 249, 106 S. Ct. 2505,
91 L. Ed. 2d 202 (1986). Hence, a "metaphysical
doubt" regarding the existence of a genuine fact
issue is not enough to stave off summary
judgment, and "the nonmovant fails to demonstrate
a genuine issue for trial 'where the record taken
as a whole could not lead a rational trier of
fact to find for the non-moving party . . un"
Logan, 96 F.3d at 978 (quoting Matsushita Elec,
Indus. Co., Ltd, v. Zenith Radio Corp., 475 U.S.
574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538
(1986) ).

Outlaw, 259 F.3d at 837.

Plaintiffs have moved to strike the testimony of
defendants’ liability expert Michael McAdams and to exclude the
testimony of defendants' damages experts Daniel Fischel and David
Ross. Since defendants do not presently rely on McAdams's expert
report or testimony, the motion to strike his testimony need not
be considered. That motion will be denied without prejudice to
filing any motion in limine with the final pretrial order.

Regarding the damages experts, plaintiffs characterize

one of their arguments as going to the reliability of the damages



Minute Urder Poem (08/97)

United States District Court, Northern District of Illinois

Ni if od Judy Sitting Jud,
ne Mogisrateiuage | __ WLLLIAM T. HART than Assigned Suge
CASE NUMBER 01 C7538 DATE JUNE 24, 2004
CASE IRENE ABRAMS, etc. v. VAN KAMPEN FUNDS, INC., et al.
TITLE

[In the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

th :
MOTION: of the motion being presented.]

DOCKET ENTRY:

qd) im} Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) Oo Anawer brief to motion due____- Reply to answer briefdue__.

(4) QO Ruling/Hearingon___—,_setfor_— at

(5) o Status hearing[held/continued to] [set for/re-set forlon__—sset for at_

(6) a Pretrial conference[held/continucd to] [set for/re-sct for]on Set for at.
(7) im] ‘Trial[set for/re-set for]on at

(8) Oo [Bench/Jury trial] [Hearing] held/continned to at

(9) o ‘This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) ClLocal Rule 41,1 CIFRCP41(a\(1) [) FRCP41(a)(2).

ao) +x—f [Other docket entry] Plaintiffs’ motions to strike [105-1, 107-1] are denied without prejudice.
Plaintiffs’ motion for summary judgment [102-1] is denied. Defendants' motion for summary judgment
[98-1] is granted in part and denied in part. Plaintiffs' claims are dismissed to the extent they are based
on defendants’ alleged misrepresentations of the Fund's investment goals. A status hearing to report on
the possibility of settlement will be held on July 21, 2004 at 11:00 a.m.

(11)! [For further detail see attached Memorandum Opinion and Order,]

No notices required, advised in open court.
‘

No notices required. umber af notice

JUN 9 5 2004

sate docketed,

W. | Notices maited by judge's staff.

Notified counsel by telephone,

Docketing to mail notices.

Mail AO 450 form,

‘eh
dockeng defuy initials

Copy to judge/magistrate judge. wna LUNES snl
sAGI WO?
courtroom n
deputy’s not Hd nz EA? NOE
Cw initials nam
5 frie received in
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something will take place. It's an opinion." Pierce Dep. 148.
DLJ and SocGen did sometimes complete transactions for the prices
indicated. Van Kampen received similar indications from a number
of banks and broker-dealers, including Citibank, Merrill Lynch,
Salomon Smith Barney, Goldman Sachs, and Morgan Stanley Dean
Witter.

Plaintiffs provide 2000 correspondence from the SEC
concerning the SEC's findings following a November 1999 on-site
inspection of Van Kampen senior loan operations, including the
Fund. See Pl. Exh. 28, 56, 58. The findings of the SEC may be
admissible evidence. See Fed. R. Evid. 803(8)(C); United
States v. Peitz, 2002 WL 31101681 *5 (N,D, Ill. Sept. 20, 2002).
The SEC findings support that readily available market quotations
existed for at least some loans held by the Fund and the Fund
nevertheless used other valuation methods.

In 1985, the Loan Pricing Corporation ("LPC") began
gathering data on senior loans. On a weekly basis, LPC issued
Gold Sheets that contained pricing information for selected
loans. In Fall 1999, Van Kampen contracted with LPC to provide
secondary market pricing. By late 1999, most of LPC's pricing
information was available on a daily basis, During at least a
portion of the class period, Van Kampen received the Gold Sheet
from LPC. As of that time, the Gold Sheet included a regular
column listing bids for "distressed loans." The pricing
information provided by LPC was based on information obtained

from various participants in the senior loan market. Some or

-ill-



they are generally purchased through privately negotiated
transactions. Most of the Fund's assets are purchased in the
primary market, that is by acquiring a piece of the original loan
from the issuing financial institution and becoming a member of
the lending syndicate. Some of the Fund's assets are acquired in
the secondary market, that is by purchasing a piece of a loan
after the lending syndicate was completed. During the class
period, approximately $1 trillion of senior loans originated
annually in the senior market. During the same time period, the
value of senior loans sold in the secondary market was
approximately $100 billion annually.

Plaintiffs present evidence that they contend
conclusively establishes that market quotations were readily
available. Beginning in the early 1990's and continuing until at
least the end of 1993, Van Kampen provided lists of the Fund's
senior loan assets to both Donaldson Lufkin Jenrette ("DLJ") and
Societe Generale ("SocGen"). For a fee, DLJ and SocGen provided
daily lists of “pricing indications" for the loans that were
held. In the early 1990's, they provided indications for
approximately 10 to 15 percent of the loans, By the end of 1999,
they provided indications for approximately 75 percent of the
loans. The indications were reported as bids and offers, but did
not necessarily represent bids or offers made by parties actually
willing to complete a transaction. One Van Kampen employee
characterizes the bids and offers as "an indication that this is

somewhere near the price range where [DLJ and SocGen] think maybe

- 10 -



616, 621-22 (7th Cir. 1999). The nonmovant, however, must make a
showing sufficient to establish any essential element for which
he, she, or it will bear the burden of proof at trial. Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986); Binz v, Brandt
Construction Co., 301 F.3d 529, 532 (7th Cir. 2002); Traylor v.
Brown, 295 F.3d 783, 790 (7th Cir. 2002), The movant need not
provide affidavits or deposition testimony showing the
nonexistence of such essential elements. Celotex, 477 U.S.

at 324, Also, it is not sufficient to show evidence of
purportedly disputed facts if those facts are not plausible in
light of the entire record. See NLFC, Inc. v. Deycom
Mid-America, Inc., 45 F.3d 231, 236 (7th Cir.), cert. denied, 515
U.S. 1104 (1995); Covalt v. Carey Canada ne., 950 F.2d 481, 485
(7th Cir. 1991); Collins vy. Associated Pathologists, Ltd., 844
F.2d 473, 476-77 (7th Cir.), cer enied, 488 U.S. 852 (1988).
As the Seventh Circuit has summarized:

The party moving for summary judgment
carries the initial burden of production to
identify "those portions of the pleadings,
depositions, answers to interrogatories, and
admissions on file, together with the affidavits,
if any, which it believes demonstrate the absence
of a genuine issue of material fact." Logan v.
Commercial Union Ins. Co., 96 F.3d 971, 978 (7th
Cir. 1996) (citing Celotex Corp. v. Catrett,

477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed, 2d
265 (1986) (citation and internal quotation
omitted)). The moving party may discharge this
burden by “'showing'--that is, pointing out to
the district court--that there is an absence of
evidence to support the nonmoving party's case."
Gelotex, 477 U.S. at 325, 106 S. Ct. 2548. Once
the moving party satisfies this burden, the
nonmovant must “set forth specific facts showing
that there is a genuine issue for trial." Fed.
R. Civ. PB. 56(e), “The nonmovant must do



IT IS THEREFORE ORDERED that plaintiffs' motions to
strike [105-1, 107-1] are denied without prejudice. Plaintiffs'
motion for summary judgment [102-1] is denied. Defendants'
motion for summary judgment [98-1] is granted in part and denied
in part. Plaintiffs' claims are dismissed to the extent they are
based on defendants' alleged misrepresentations of the Fund's
investment goals. A status hearing to report on the possibility

of settlement will be held on July 21, 2004 at 11:00 a.m.
ENTER:

iteiucTt bn L

UNITED STATES DISTRICT JUDGE

DATED: JUNE AY , 2004

-~ 21-


are the parties' cross motions for summary judgment. Plaintiffs
have also filed two motions to strike or exclude the testimony of
three of defendants' experts.

Plaintiffs presently contend that defendants violated
§ 11 by making the following misrepresentations in various
prospectuses that were issued during the class period. First,
plaintiffs contend that defendants misrepresented the value of
shares of the Fund in that they overvalued the loans held by the
Pund. Plaintiffs contend that using available market quotations
and properly determining fair value based on what the loans would
have currently sold for would have resulted in lower daily net
asset values ("NAV") for the Fund. Second, plaintiffs contend
the prospectuses contained misrepresentations that the Fund used
market quotations where available when this was not done. Third,
plaintiffs contend that the prospectuses contained
misrepresentations that the Fund's investment goal was
preservation of capital even though the Fund was not managed with
such a goal.

To succeed on their § 11 claims, plaintiffs must show
that defendants were responsible for untrue statements of
material fact or omitted material facts in a prospectus. See

Herman & MacLean v. Huddleston, 459 U.S. 375, 381-82 (1983);

appropriate procedures to follow. At the present time, no ruling
is made as to the dismissal of these claims.



ask average and bid average. As of January 2000, this valuation
method applied to 40% of the Fund's loans. In November 2000, the
Fund began applying a "2 x 2 x 200 screen," By January 2001

this valuation method applied to 80% of the Fund's loans.

Since a genuine factual dispute exists as to whether
there were readily available market quotations, plaintiffs cannot
be entitled to summary judgment on any claim that requires that
there be readily available market quotations. Therefore, they
cannot be entitled to summary judgment on their claim that
defendants misrepresented that they used readily available market
quotations when available. They also cannot be entitled to
summary judgment on their claim of overvaluation of loans to the
extent that the claim is based on accepting the indications as
necessarily representative of value because the indications
constituted readily available market quotations.* On the other
side, defendants cannot be entitled to summary judgment on these
claims based on defendants’ contention that readily available
market quotations did not exist. Defendants other contentions
still must be considered, as well as plaintiffs' claims that are
not necessarily dependent on there being readily available market

quotations.

2Plaintiffs also contend that, even if the indications
did not constitute readily available market quotations,
defendants misrepresented that they were applying the fair value
method because, according to plaintiffs, defendants were not
valuing the leans based on what the loans could be sold at
currently and were not relying on market indications as they
represented in the prospectuses.



valued at the then-current price for which they could be expected
to be sold and that defendants thus represented that the daily
NAV's were determined on that basis, Plaintiffs contend that,
instead, loans were often valued at par based on an expectation
that, at maturity, the loans would be paid off in full.
Plaintiffs also contend that defendants represented that, in
determining fair value, they would take into consideration market
indicators, but that, in determining fair value, defendants often
ignored market indicators supporting a lower value than that used
by defendants.

The March 9, 1998, December 9, 1998, and June 21, 1999
Fund prospectuses included the following representation regarding
the determination of NAV.

The value of the Fund's portfolio will be
determined by the Adviser, following guidelines
established and periodically reviewed by the
Trustees. Interests in Senior Loans will be
valued by the Adviser on behalf of the Fund on
the basis of market quotations and transactions
in instruments which the Adviser believes may be
comparable to Senior Loan interests with respect
to the following characteristics: credit
quality, interest rate, interest rate
redetermination period and maturity. . . . In
determining the relationship between such
instruments and the Senior Loan interests in the
Fund's portfolio, the Adviser will consider on an
ongoing basis, among other factors, (i) the
credit worthiness of the Borrower and (ii) the
current interest rate, the period until next
interest rate redetermination and maturity of
such Senior Loan interests. It is expected that
the Fund's net asset value will fluctuate as a
function of interest rate and credit factors.

[B]ecause a secondary trading market in
Senior Loans has not yet fully developed, in
valuing Senior Loans, the Adviser may not rely
solely on but may consider, to the extent the
Adviser believes such information to be reliable,

-16-



2002). Named as defendants are the Fund; Van Kampen Funds, Inc.
("Van Kampen"), the Fund's administrator; Van Kampen Investment
Advisory Corp, (the "Adviser"), the Fund's investment adviser;
Richard Powers, Fund Chairman of the Board, President, and
Trustee during the relevant time period; Dennis McDonnell, former
Fund Chairman of the Board, President, and Trustee and Fund
Portfolio Manager from July 1999 until December 1999; Stephen
Boyd, Fund Executive Vice President and Chief Investment Officer
and Adviser Officer during the relevant time period; Howard
Tiffen, Fund Portfolio Manager since December 1999 and Adviser
Officer; and Jeffrey Maillet, Fund Portfolio Manager and Adviser
Officer until July 1999. Count I of the Consolidated Amended
Complaint alleges violations of § 11 of the Securities Act, 15
U.S.C. § 77K, against Van Kampen, the Fund, Powers, McDonnell,
and Boyd. Against Van Kampen and the Adviser, Count ITI alleges
control person liability under § 15 of the Securities Act,

15 U.S.C. § 770, based on the alleged § 11 violations.* Pending

‘Defendants argue the Count IV state law breach of
fiduciary duty claims are preempted. Plaintiffs do not concede
these claims are preempted, but do not oppose Count IV's
dismissal for the stated reason that adequate relief can be
obtained on the § 11 claims, Defendants represent that
plaintiffs have indicated they intend to voluntarily dismiss with
prejudice the Count II claims based on alleged violations of § 12
of the Securities Act, 15 U.S.C. § 771. Plaintiffs do not so
state in any of their briefs, but give no indication to the
contrary. ‘The parties may be required to address the question of
whether the procedures contained in Fed. R. Civ. P. 23(e) would
apply to the dismissal of Counts II and IV (including the
dismissal of defendants Tiffen and Maillet) and, if so, the



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

IRENE ABRAMS, on behalf of
herself and all others
similarly situated,

oh

ra

te.

Plaintiffs,

Vv. No. 01 C 7538
VAN KAMPEN FUNDS, INC.,

VAN KAMPEN INVESTMENT ADVISORY
CORPORATION, VAN KAMPEN PRIME
RATE INCOME TRUST, HOWARD TIFFEN,
RICHARD F, POWERS, III, STEPHEN L,
BOYD, DENNIS J. McDONNELL,

and JEFFREY W. MAILLET,

Defendants.

MEMORANDUM OPINION AND ORDER

This is a consolidated class action alleging federal
securities violations involving defendant Van Kampen Prime Rate
Income Trust's (the "Fund") valuation of senior loans and is
subject to the Private Securities Litigation Reform Act of 1995
("PSLRA"), 15 U.S.C. § 772-1. A class has been certified
consisting of all persons who purchased shares in the Fund

between September 30, 1998 and March 26, 2001, inclusive, with

defendants and certain related parties excluded. ee Abrams v.

ey

Van Kampen Funds, Ing., 2002 WL 1989401 (N.D. Ill. Aug. 27,



much of the information consisted of indications from brokers or
dealers that did not necessarily reflect prices they would
actually pay for the loans. Plaintiffs, however, provide
evidence that would support that, during the class period, LPC's
pricing information was reliable. Defendants' evidence as to
LPC's sources, however, could support that the pricing
information was not reliable. On the evidence before the court,
a genuine factual dispute exists as to the reliability of LPC's
pricing information during the class period.

In 1995, the Loan Syndication and Trading Association
("LSTA") was formed by prominent senior loan traders. It sought
to develop a third-party, non-biased pricing service. Initially
its service was available to only "sell side" loan traders and
dealers. By mid or late 1998, however, the service was also made
available to those on the "buy side." Originally, a monthly Mark
to Market List was provided. By October 1998, the Mark to Market
List was provided weekly. In 1997, LSTA began a relationship
with LPC. In September 1999, a joint LSTA/LPC service was made
available to both buyers and sellers. This service lists the
number of available indications (bids or offers) and their
average. It does not identify the source of the indications, the
price of individual bids or offers, nor the high and low. Again,
the bids and offers used for this pricing service do not
necessarily indicate a price that the bidding or offering entity
is committed to paying or receiving. As of October 1999, pricing

for approximately half of the Fund's loans were provided on a

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Defendants contend that, even assuming the indications
qualified as readily available market quotations, it was within
their business judgment to conclude otherwise. The burden,
however, is on defendants to show that they acted with due
diligence in believing any misstatements in the prospectuses were
actually true. See 15 U.S.C. § 77k(b) (3); In_re Global Crossing,

Ltd, Securities Litigation, 313 F. Supp. 2d 189, 211 (S,D.N.Y,

2003); In re Enron Corp. Securities, Derivative & ERISA

Litigation, 258 F. Supp. 2d 576, 639 (S.D. Tex. 2003).

Defendants do not present evidence conclusively establishing this
affirmative defense. Therefore, they cannot be entitled to
summary judgment based on exercising their business judgment.

For the foregoing reasons, the claim that defendants
misrepresented that they would rely on market quotations where
readily available {including the closely related claim of the
resulting overvaluation from not using market quotations) cannot
be resolved on either party's summary judgment motion, A genuine
factual dispute exists as to these claims.

Still to be considered is whether a genuine factual
dispute exists regarding whether defendants misrepresented their
use of the fair value method. The misrepresentation issue is not
whether defendants simply miscalculated or failed to accurately
estimate the value of loans, see Abrams _I, 2002 WL 1160171
at *11, but whether defendants made inaccurate statements as to
the valuation method that they were using. The parties agree

that statutes and regulations required that the senior loans be

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