<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MARCH 19, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. )
VAN KAMPEN PRIME RATE INCOME TRUST
(NAME OF ISSUER)
VAN KAMPEN PRIME RATE INCOME TRUST
(NAME OF PERSON(S) FILING STATEMENT)
Common Shares of Beneficial Interest, Par Value $0.01 per Share
(Title of Class of Securities)
920914-108
(CUSIP Number of Class of Securities)
A. Thomas Smith, III
Executive Vice President, General Counsel and Secretary
Van Kampen Investments Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
(630) 684-6000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
Copies to:
Wayne W. Whalen, Esq.
Thomas A. Hale, Esq.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 W. Wacker Drive
Chicago, Illinois 60606
(312) 407-0700
March 19, 1999
(Date Tender Offer First Published,
Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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Transaction Valuation $563,456,486(a) Amount of Filing Fees: $112,691(b)
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(a) Calculated as the aggregate maximum purchase price to be paid for
56,800,049 shares in the offer.
(b) Calculated as 1/50 of 1% of the Transaction Valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
Amount Previously Paid:
Form or Registration No.:
Filing Party:
Date Filed:
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ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Van Kampen Prime Rate Income Trust, a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust (the "Trust"). The principal executive offices of
the Trust are located at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL
60181-5555.
(b) The title of the securities being sought is common shares of beneficial
interest, par value $0.01 per share (the "Common Shares"). As of March 12, 1999
there were approximately 811,429,275 Common Shares issued and outstanding.
The Trust is seeking tenders for 56,800,049 Common Shares, at the net asset
value per Common Share, calculated on the day the tender offer expires, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 19, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"). An "Early Withdrawal Charge" will be
imposed on most Common Shares accepted for payment that have been held for less
than five years. A copy of each of the Offer to Purchase and the form of Letter
of Transmittal is attached hereto as Exhibit (a)(1)(ii) and Exhibit (a)(2),
respectively. Reference is hereby made to the Cover Page and Section 1 "Price;
Number of Common Shares" of the Offer to Purchase, which are incorporated herein
by reference. The Trust has been informed that no Trustees, officers or
affiliates of the Trust intend to tender Common Shares pursuant to the Offer.
(c) The Common Shares are not currently traded on an established trading
market.
(d) Not Applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) Reference is hereby made to Section 12 "Source and Amount of Funds"
of the Offer to Purchase, which is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
Reference is hereby made to Section 7 "Purpose of the Offer," Section 8
"Plans or Proposals of the Trust," Section 10 "Interest of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Common Shares,"
Section 11 "Certain Effects of the Offer" and Section 12 "Source and Amount of
Funds" of the Offer to Purchase, which are incorporated herein by reference. In
addition, the Trust regularly purchases and sells assets in its ordinary course
of business. Except as set forth above, the Trust has no plans or proposals
which relate to or would result in (a) the acquisition by any person of
additional securities of the Trust or the disposition of securities of the
Trust; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Trust; (c) a sale or transfer of a
material amount of assets of the Trust; (d) any change in the present Board of
Trustees or management of the Trust, including, but not limited to, any plans or
proposals to change the number or the term of Trustees, or to fill any existing
vacancy on the Board of Trustees or to change any material term of the
employment contract of any executive officer of the Trust; (e) any material
change in the present dividend rate or policy, or indebtedness or capitalization
of the Trust; (f) any other material change in the Trust's structure or
business, including any plans or proposals to make any changes in its investment
policy for which a vote would be required by Section 13 of the Investment
Company Act of 1940; (g) changes in the Trust's declaration of trust, bylaws or
instruments corresponding thereto or other actions which may impede the
acquisition of control of the Trust by any person; (h) a class of equity
securities of the Trust to be delisted from a national securities exchange or to
cease to be authorized to be quoted on an inter-dealer quotation system of a
registered national securities association; (i) a class of equity security of
the Trust becoming eligible for termination of registration under the Investment
Company Act of 1940; or (j) the suspension of the Trust's obligation to file
reports pursuant to Section 15(d) of the Securities Exchange Act of 1934.
2
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ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Reference is hereby made to Section 10 "Interest of Trustees and Executive
Officers; Transactions and Arrangements Concerning the Common Shares" of the
Offer to Purchase and the financial statements included as part of Exhibit
(a)(1)(ii) attached hereto, which are incorporated herein by reference. Except
as set forth therein, there have not been any transactions involving the Common
Shares of the Trust that were effected during the past 40 business days by the
Trust, any executive officer or Trustee of the Trust, any person controlling the
Trust, any executive officer or director of any corporation ultimately in
control of the Trust or by any associate or subsidiary of any of the foregoing,
including any executive officer or director of any such subsidiary.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES.
Reference is hereby made to Section 10 "Interest of Trustees and Executive
Officers; Transactions and Arrangements Concerning the Common Shares" and
Section 12 "Source and Amount of Funds" of the Offer to Purchase which is
incorporated herein by reference. Except as set forth therein, the Trust does
not know of any contract, arrangement, understanding or relationship relating,
directly or indirectly, to the Offer (whether or not legally enforceable)
between the Trust, any of the Trust's executive officers or Trustees, any person
controlling the Trust or any officer or director of any corporation ultimately
in control of the Trust and any person with respect to any securities of the
Trust (including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any such securities,
joint ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss, or the giving or withholding of proxies, consents or
authorizations).
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No persons have been employed, retained or are to be compensated by or on
behalf of the Trust to make solicitations or recommendations in connection with
the Offer.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) Reference is hereby made to the financial statements included as
part of Exhibit (a)(1)(ii) attached hereto, which are incorporated herein by
reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Reference is hereby made to Section 10 "Interests of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Common Shares"
of the Offer to Purchase which is incorporated herein by reference.
(b)-(d) Not applicable.
(e) The Offer to Purchase, attached hereto as Exhibit (a)(1)(ii), is
incorporated herein by reference in its entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
(a)(1)(i) Advertisement printed in The Wall Street Journal.
(ii) Offer to Purchase (including Financial Statements).
(a)(2) Form of Letter of Transmittal (including Guidelines for
Certification of Taxpayer Identification Number).
(a)(3)(i) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(ii) Form of Letter to Clients of Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
</TABLE>
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<TABLE>
<C> <S>
(iii) Form of Letter to Selling Group Members.
(iv) Form of Operations Notice
(a)(4) Form of Letter to Shareholders who have requested Offer to
Purchase.
(a)(5) Text of Press Release dated March 19, 1999.
(b) First Amended and Restated Credit Agreement between Van
Kampen Prime Rate Income Trust, Various Financial
Institutions and Bank of America National Trust and Savings
Association, as agent, dated as of April 16, 1998.
(c)(1) Investment Advisory Agreement between Van Kampen Prime Rate
Income Trust and Van Kampen Investment Advisory Corp., dated
as of May 31, 1997.
(c)(2) Administration Agreement between Van Kampen Prime Rate
Income Trust and Van Kampen Funds Inc., dated as of May 31,
1997.
(c)(3) Offering Agreement between Van Kampen Prime Rate Income
Trust and Van Kampen Funds Inc., dated as of May 31, 1997.
(d)-(f) Not applicable.
</TABLE>
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
VAN KAMPEN PRIME RATE INCOME TRUST
<TABLE>
<S> <C>
Dated: March 19, 1999 /s/ DENNIS J. McDONNELL
--------------------------------------------------------
Dennis J. McDonnell,
Chairman, President and Trustee
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
(a)(1)(i) Advertisement printed in The Wall Street Journal
(a)(1)(ii) Offer to Purchase (including Financial Statements)
(a)(2) Form of Letter of Transmittal (including Guidelines for
Certification of Tax Identification Number)
(a)(3)(i) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
(a)(3)(ii) Form of Letter to Clients of Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees
(a)(3)(iii) Form of Letter to Selling Group Members
(a)(3)(iv) Form of Operations Notice
(a)(4) Form of Letter to Shareholders who have requested Offer to
Purchase
(a)(5) Text of Press Release dated March 19, 1999
(b) First Amended and Restated Credit Agreement between Van
Kampen Prime Rate Income Trust, Various Financial
Institutions and Bank of America National Trust and Savings
Association, as agent, dated as of April 16, 1998
(c)(1) Investment Advisory Agreement between Van Kampen Prime Rate
Income Trust and Van Kampen Investment Advisory Corp., dated
as of May 31, 1997
(c)(2) Administration Agreement between Van Kampen Prime Rate
Income Trust and Van Kampen Funds Inc., dated as of May 31,
1997
(c)(3) Offering Agreement between Van Kampen Prime Rate Income
Trust and Van Kampen Funds Inc., dated as of May 31, 1997
</TABLE>
<PAGE> 1
EXHIBIT (a)(1)(i)
This announcement is not an offer to purchase or a solicitation of an offer
to sell Common Shares. The Offer is made only by the Offer to Purchase
dated March 19, 1999 and the related Letter of Transmittal.
The Offer is not being made to, nor will tenders be accepted from or on behalf
of,
holders of Common Shares in any jurisdiction in which making or
accepting the Offer would violate that jurisdiction's laws.
VAN KAMPEN PRIME RATE INCOME TRUST
NOTICE OF OFFER TO PURCHASE
56,800,049 OF ITS ISSUED AND OUTSTANDING COMMON SHARES
AT NET ASSET VALUE PER COMMON SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT EASTERN STANDARD
TIME ON FRIDAY, APRIL 16, 1999, UNLESS THE OFFER IS EXTENDED.
Van Kampen Prime Rate Income Trust (the "Trust") is offering to purchase
56,800,049 of its issued and outstanding common shares of beneficial interest,
par value of $0.01 per share ("Common Shares"), at a price equal to their net
asset value ("NAV") determined as of 5:00 pm Eastern Standard Time on April 16,
1999, the Expiration Date, unless extended, upon the terms and conditions set
forth in the Offer to Purchase dated March 19, 1999 and the related Letter of
Transmittal (which together constitute the "Offer"). An "Early Withdrawal
Charge" will be imposed on most Common Shares accepted for payment that have
been held for less than five years. The NAV on March 12, 1999 was $9.92 per
Common Share. The purpose of the Offer is to provide liquidity to shareholders
since the Trust is unaware of any secondary market which exists for the Common
Shares. The Offer is not conditioned upon the tender of any minimum number of
Common Shares, but is subject to certain conditions as set forth in the Offer.
If more than 56,800,049 Common Shares are duly tendered prior to the
expiration of the Offer, the Trust presently intends to, assuming no changes in
the factors originally considered by the Board of Trustees when it determined to
make the Offer and the other conditions set forth in the Offer, but is under no
obligation to, extend the Offer period, if necessary, and increase the number of
Common Shares that the Trust is offering to purchase to an amount which it
believes will be sufficient to accommodate the excess Common Shares tendered as
well as any Common Shares tendered during the extended Offer period, or purchase
56,800,049 Common Shares (or such greater number of Common Shares sought) on a
pro rata basis.
Common Shares tendered pursuant to the Offer may be withdrawn at any time
prior to 12:00 Midnight Eastern Standard Time on April 16, 1999, and, if not yet
accepted for payment by the Trust, Common Shares may also be withdrawn after May
13, 1999.
The information required to be disclosed by paragraph (d)(1) of Rule 13e-4
under the Securities Exchange Act of 1934, as amended, is contained in the Offer
to Purchase and is incorporated herein by reference.
The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is made
with respect to the Offer.
Questions and requests for assistance, for current NAV quotations or for
copies of the Offer to Purchase, Letter of Transmittal and any other tender
offer document, may be directed to Van Kampen Funds Inc. at the address and
telephone number below. Copies will be furnished promptly at no expense to you.
Shareholders who do not own Common Shares directly may tender their Common
Shares through their broker, dealer or nominee.
VAN KAMPEN FUNDS INC.
1 PARKVIEW PLAZA, P.O. BOX 5555 - OAKBROOK TERRACE, IL 60181-5555
800-421-5666
(Between the hours of 7:00 am to 7:00 pm Central Standard Time)
March 19, 1999
<PAGE> 1
EXHIBIT (a)(1)(ii)
VAN KAMPEN
PRIME RATE INCOME TRUST
OFFER TO PURCHASE 56,800,049
OF ITS ISSUED AND OUTSTANDING COMMON SHARES
AT NET ASSET VALUE PER COMMON SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT EASTERN STANDARD
TIME ON APRIL 16, 1999, UNLESS THE OFFER IS EXTENDED. TO ENSURE PROCESSING OF
YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF IT
(TOGETHER WITH ANY CERTIFICATES FOR COMMON SHARES AND ALL OTHER REQUIRED
DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY (AS DEFINED BELOW) ON OR BEFORE
APRIL 16, 1999.
To the Holders of Common Shares of
VAN KAMPEN PRIME RATE INCOME TRUST:
Van Kampen Prime Rate Income Trust, a non-diversified, closed-end
management investment company organized as a Massachusetts business trust (the
"Trust"), is offering to purchase up to 56,800,049 of its common shares of
beneficial interest, with par value of $0.01 per share ("Common Shares"), at a
price (the "Purchase Price") equal to their net asset value ("NAV") determined
as of 5:00 P.M. Eastern Standard time on the Expiration Date (as defined
herein), upon the terms and conditions set forth in this Offer to Purchase and
the related Letter of Transmittal (which together constitute the "Offer"). The
Offer is scheduled to terminate as of 12:00 Midnight Eastern Standard time on
April 16, 1999, unless extended. An Early Withdrawal Charge (as defined in
Section 3) will be imposed on most Common Shares accepted for payment that have
been held for less than five years. The Common Shares are not currently traded
on an established trading market. The NAV on March 12, 1999 was $9.92 per Common
Share. You can obtain current NAV quotations from Van Kampen Funds Inc. ("VK")
by calling (800) 341-2911 between the hours of 7:00 A.M. and 7:00 P.M. Central
Standard time, Monday through Friday, except holidays. See Section 9.
If more than 56,800,049 Common Shares are duly tendered prior to the
expiration of the Offer, the Trust presently intends to, subject to the
condition that there have been no changes in the factors originally considered
by the Board of Trustees when it determined to make the Offer and the other
conditions set forth in Section 6, but is under no obligation to, extend the
Offer period, if necessary, and increase the number of Common Shares that the
Trust is offering to purchase to an amount which it believes will be sufficient
to accommodate the excess Common Shares tendered as well as any Common Shares
tendered during the extended Offer period or purchase 56,800,049 Common Shares
(or such greater number of Common Shares sought) on a pro rata basis.
THIS OFFER IS BEING MADE TO ALL SHAREHOLDERS OF THE TRUST
AND IS NOT CONDITIONED UPON ANY MINIMUM NUMBER
OF COMMON SHARES BEING TENDERED.
THIS OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE SECTION 6.
38 PRT006-03/99
<PAGE> 2
IMPORTANT
If you desire to tender all or any portion of your Common Shares, you
should either (1) complete and sign the Letter of Transmittal and mail or
deliver it along with any Common Share certificate(s) and any other required
documents to Van Kampen Investor Services Inc. (the "Depositary") or (2) request
your broker, dealer, commercial bank, trust company or other nominee to effect
the transaction for you. If your Common Shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, you must
contact such broker, dealer, commercial bank, trust company or other nominee if
you desire to tender your Common Shares.
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISERS AND MAKE
THEIR OWN DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF SO, HOW MANY COMMON
SHARES TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
TRUST AS TO WHETHER SHAREHOLDERS SHOULD TENDER COMMON SHARES PURSUANT TO THE
OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST.
Questions and requests for assistance may be directed to VK at the address
and telephone number set forth below. Requests for additional copies of this
Offer to Purchase and the Letter of Transmittal should be directed to VK.
March 19, 1999 VAN KAMPEN PRIME RATE INCOME TRUST
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
(800) 341-2911
Depositary: Van Kampen Investor
Services Inc.
By Mail, Hand Delivery or Courier:
7501 Tiffany Springs Parkway
Kansas City, MO 64153
Attn: Van Kampen
Prime Rate Income Trust
2
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<C> <S> <C>
1. Price; Number of Common Shares.............................. 4
2. Procedure for Tendering Common Shares....................... 4
3. Early Withdrawal Charge..................................... 6
4. Withdrawal Rights........................................... 7
5. Payment for Shares.......................................... 8
6. Certain Conditions of the Offer............................. 8
7. Purpose of the Offer........................................ 9
8. Plans or Proposals of the Trust............................. 9
9. Price Range of Common Shares; Dividends..................... 10
10. Interest of Trustees and Executive Officers; Transactions
and Arrangements Concerning the Common Shares............... 10
11. Certain Effects of the Offer................................ 11
12. Source and Amount of Funds.................................. 11
13. Certain Information about the Trust......................... 13
14. Additional Information...................................... 14
15. Certain Federal Income Tax Consequences..................... 14
16. Extension of Tender Period; Termination; Amendments......... 15
17. Miscellaneous............................................... 15
EXHIBIT A: Financial Statements
Financial Statements for the year ended July 31, 1998....... A-1
</TABLE>
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1. PRICE; NUMBER OF COMMON SHARES. The Trust will, upon the terms and
subject to the conditions of the Offer, accept for payment (and thereby
purchase) 56,800,049 or such lesser number of its issued and outstanding Common
Shares which are properly tendered (and not withdrawn in accordance with Section
4) prior to 12:00 Midnight Eastern Standard time on April 16, 1999 (such time
and date being hereinafter called the "Initial Expiration Date"). The Trust
reserves the right to extend the Offer. See Section 16. The later of the Initial
Expiration Date or the latest time and date to which the Offer is extended is
hereinafter called the "Expiration Date." The Purchase Price of the Common
Shares will be their NAV determined as of 5:00 P.M. Eastern Standard time on the
Expiration Date. The NAV on March 12, 1999 was $9.92 per Common Share. You can
obtain current NAV quotations from VK by calling (800) 341-2911 between the
hours of 7:00 A.M. and 7:00 P.M. Central Standard time, Monday through Friday,
except holidays. Shareholders tendering Common Shares remain entitled to receive
dividends declared on such shares up to the settlement date of the Offer. See
Section 9. The Trust will not pay interest on the Purchase Price under any
circumstances. An Early Withdrawal Charge will be imposed on most Common Shares
accepted for payment that have been held for less than five years. See Section
3.
The Offer is being made to all shareholders of the Trust and is not
conditioned upon any minimum number of Common Shares being tendered. If the
number of Common Shares properly tendered prior to the Expiration Date and not
withdrawn is less than or equal to 56,800,049 Common Shares (or such greater
number of Common Shares as the Trust may elect to purchase pursuant to the
Offer), the Trust will, upon the terms and subject to the conditions of the
Offer, purchase at NAV all Common Shares so tendered. If more than 56,800,049
Common Shares are duly tendered prior to the expiration of the Offer and not
withdrawn, the Trust presently intends to, subject to the condition that there
have been no changes in the factors originally considered by the Board of
Trustees when it determined to make the Offer and the other conditions set forth
in Section 6, but is not obligated to, extend the Offer period, if necessary,
and increase the number of Common Shares that the Trust is offering to purchase
to an amount which it believes will be sufficient to accommodate the excess
Common Shares tendered as well as any Common Shares tendered during the extended
Offer period or purchase 56,800,049 Common Shares (or such greater number of
Common Shares sought) on a pro rata basis.
On March 12, 1999, there were approximately 811,429,275 Common Shares
issued and outstanding and there were approximately 257,694 holders of record of
Common Shares. The Trust has been advised that no trustees, officers or
affiliates of the Trust intend to tender any Common Shares pursuant to the
Offer.
The Trust reserves the right, in its sole discretion, at any time or from
time to time, to extend the period of time during which the Offer is open by
giving oral or written notice of such extension to the Depositary and making a
public announcement thereof. See Section 16. There can be no assurance, however,
that the Trust will exercise its right to extend the Offer. If the Trust
decides, in its sole discretion, to increase (except for any increase not in
excess of 2% of the outstanding Common Shares) or decrease the number of Common
Shares being sought and, at the time that notice of such increase or decrease is
first published, sent or given to holders of Common Shares in the manner
specified below, the Offer is scheduled to expire at any time earlier than the
tenth business day from the date that such notice is first so published, sent or
given, the Offer will be extended at least until the end of such ten business
day period.
2. PROCEDURE FOR TENDERING COMMON SHARES.
Proper Tender of Common Shares. Except as otherwise set forth under the
heading "Procedures for Selling Group Members" below, for Common Shares to be
properly tendered pursuant to the Offer, a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) with any required
signature guarantees, any certificates for such Common Shares, and any other
documents required by the Letter of Transmittal, must be received on or before
the Expiration Date by the Depositary at its address set forth on page 2 of this
Offer to Purchase.
It is a violation of Section 14(e) of the Securities and Exchange Act of
1934 (the "Exchange Act"), and Rule 14e-4 promulgated thereunder, for a person
to tender Common Shares in a partial tender offer for such person's own account
unless at the time of tender and until such time as the securities are accepted
for payment the person so tendering has a net long position equal to or greater
than the amount tendered in (i) the Common Shares and will deliver or cause to
be delivered such shares for purposes of tender to the
4
<PAGE> 5
Trust prior to or on the Expiration Date, or (ii) an equivalent security and,
upon the acceptance of his or her tender will acquire the Common Shares by
conversion, exchange, or exercise of such equivalent security to the extent
required by the terms of the Offer, and will deliver or cause to be delivered
the Common Shares so acquired for the purpose of tender to the Trust prior to or
on the Expiration Date.
Section 14(e) and Rule 14e-4 provide a similar restriction applicable to
the tender or guarantee of a tender on behalf of another person.
The acceptance of Common Shares by the Trust for payment will constitute a
binding agreement between the tendering shareholder and the Trust upon the terms
and subject to the conditions of the Offer, including the tendering
shareholder's representation that (i) such shareholder has a net long position
in the Common Shares being tendered within the meaning of Rule 14e-4 promulgated
under the Exchange Act and (ii) the tender of such Common Shares complies with
Rule 14e-4.
Signature Guarantees and Method of Delivery. Signatures on the Letter of
Transmittal are not required to be guaranteed unless (1) the proceeds for the
tendered Common Shares will amount to more than $50,000, (2) the Letter of
Transmittal is signed by someone other than the registered holder of the Common
Shares tendered therewith, or (3) payment for tendered Common Shares is to be
sent to a payee other than the registered owner of such Common Shares and/or to
an address other than the registered address of the registered owner of the
Common Shares. In those instances, all signatures on the Letter of Transmittal
must be guaranteed by a bank or trust company; a broker-dealer; a credit union;
a national securities exchange, registered securities association or clearing
agency; a savings and loan association; or a federal savings bank (an "Eligible
Institution"). If Common Shares are registered in the name of a person or
persons other than the signer of the Letter of Transmittal or (a) if payment is
to be made to, (b) unpurchased Common Shares are to be registered in the name of
or (c) any certificates for unpurchased Common Shares are to be returned to any
person other than the registered owner, then the Letter of Transmittal and, if
applicable, the tendered Common Share certificates must be endorsed or
accompanied by appropriate authorizations, in either case signed exactly as such
name or names appear on the registration of the Common Shares with the
signatures on the certificates or authorizations guaranteed by an Eligible
Institution. If signature is by attorney-in-fact, executor, administrator,
Trustee, guardian, officer of a corporation or another acting in a fiduciary or
representative capacity, other legal documents will be required. See
Instructions 1 and 4 of the Letter of Transmittal.
Payment for Common Shares tendered and accepted for payment pursuant to the
Offer will be made only after receipt by the Depositary on or before the
Expiration Date of a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) and any other documents required by the
Letter of Transmittal. If your Common Shares are evidenced by certificates,
those certificates must be received by the Depositary on or prior to the
Expiration Date.
THE METHOD OF DELIVERY OF ANY DOCUMENTS, INCLUDING CERTIFICATES FOR COMMON
SHARES, IS AT THE ELECTION AND RISK OF THE PARTY TENDERING COMMON SHARES. IF
DOCUMENTS ARE SENT BY MAIL, IT IS RECOMMENDED THAT THEY BE SENT BY REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED.
Procedures for Selling Group Members. If you are a selling group member, in
order for you to tender any Common Shares pursuant to the Offer, you may place a
confirmed wire order with VK. All confirmed wire orders used to tender Common
Shares pursuant to this Offer must be placed on the Expiration Date only (wire
orders placed on any other date will not be accepted by the Trust). Common
Shares tendered by a wire order are deemed to be tendered when VK receives the
order but subject to the condition subsequent that the settlement instructions,
including (with respect to tendered Common Shares for which the selling group
member is not the registered owner) a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), any other
documents required by the Letter of Transmittal and any Common Share
certificates, are received by the Depository within three New York Stock
Exchange trading days after receipt by VK of such order.
Determinations of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Trust, in its sole discretion, whose determination shall be
final and binding. The Trust reserves the absolute right to reject any or all
tenders determined by it not to be in appropriate form or the acceptance of or
payment for which may, in the opinion of the Trust's counsel, be
5
<PAGE> 6
unlawful. The Trust also reserves the absolute right to waive any of the
conditions of the Offer or any defect in any tender with respect to any
particular Common Share(s) or any particular shareholder, and the Trust's
interpretations of the terms and conditions of the Offer will be final and
binding. Unless waived, any defects or irregularities in connection with tenders
must be cured within such times as the Trust shall determine. Tendered Common
Shares will not be accepted for payment unless the defects or irregularities
have been cured within such time or waived. Neither the Trust, VK, the
Depositary nor any other person shall be obligated to give notice of any defects
or irregularities in tenders, nor shall any of them incur any liability for
failure to give such notice.
Federal Income Tax Withholding. To prevent backup federal income tax
withholding equal to 31% of the gross payments made pursuant to the Offer, each
shareholder who has not previously submitted a Form W-9 to the Trust or does not
otherwise establish an exemption from such withholding must notify the
Depositary of such shareholder's correct taxpayer identification number (or
certify that such taxpayer is awaiting a taxpayer identification number) and
provide certain other information by completing the Form W-9 enclosed with the
Letter of Transmittal. Foreign shareholders who are resident aliens and who have
not previously submitted a Form W-9, or other foreign shareholders who have not
previously submitted a Form W-8, to the Trust must do so in order to avoid
backup withholding.
The Depositary will withhold 30% of the gross payments payable to a foreign
shareholder unless the Depositary determines that a reduced rate of withholding
or an exemption from withholding is applicable. (Exemption from backup
withholding does not exempt a foreign shareholder from the 30% withholding). For
this purpose, a foreign shareholder, in general, is a shareholder that is not
(i) a citizen or resident of the United States, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of the source of
such income or (iv) a trust the administration of which is subject to the
primary jurisdiction of a United States court and which has one or more United
States fiduciaries who have the authority to control all substantial decisions
of the trust. The Depositary will determine a shareholder's status as a foreign
shareholder and eligibility for a reduced rate of, or an exemption from,
withholding by reference to the shareholder's address and to any outstanding
certificates or statements concerning eligibility for a reduced rate of, or
exemption from, withholding unless facts and circumstances indicate that
reliance is not warranted. A foreign shareholder who has not previously
submitted the appropriate certificates or statements with respect to a reduced
rate of, or exemption from, withholding for which such shareholder may be
eligible should consider doing so in order to avoid over-withholding. A foreign
shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss treatment
described in Section 15 or is otherwise able to establish that no tax or a
reduced amount of tax was due.
For a discussion of certain other federal income tax consequences to
tendering shareholders, see Section 15.
3. EARLY WITHDRAWAL CHARGE. The Depositary will impose an early withdrawal
charge (the "Early Withdrawal Charge") on most Common Shares accepted for
payment which have been held less than five years. The Early Withdrawal Charge
will be imposed on a number of Common Shares accepted for payment from a record
holder of Common Shares the value of which exceeds the aggregate value at the
time the tendered Common Shares are accepted for payment of (a) all Common
Shares owned by such holder that were purchased more than five years prior to
such acceptance, (b) all Common Shares owned by such holder that were acquired
through reinvestment of distributions, and (c) the increase, if any, of value of
all other Common Shares owned by such holder (namely, those purchased within the
five years preceding acceptance for payment) over the purchase price of such
Common Shares. The Early Withdrawal Charge will be paid to VK on behalf of the
holder of the Common Shares. In determining whether an Early Withdrawal Charge
is payable, Common Shares accepted for payment pursuant to the Offer shall be
deemed to be those Common
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<PAGE> 7
Shares purchased earliest by the Shareholder. Any Early Withdrawal Charge which
is required to be imposed will be made in accordance with the following
schedule.
<TABLE>
<CAPTION>
EARLY
YEAR OF REPURCHASE WITHDRAWAL
AFTER PURCHASE CHARGE
------------------ ----------
<S> <C>
First....................................................... 3.0%
Second...................................................... 2.5%
Third....................................................... 2.0%
Fourth...................................................... 1.5%
Fifth....................................................... 1.0%
Sixth and following......................................... 0.0%
</TABLE>
The following example will illustrate the operation of the Early Withdrawal
Charge. Assume that an investor purchases $10,000 worth of the Trust's Common
Shares for cash and that 21 months later the value of the account has grown
through the reinvestment of dividends and capital appreciation to $12,000. The
investor then may submit for repurchase pursuant to a tender offer up to $2,000
worth of Common Shares without incurring an Early Withdrawal Charge. If the
investor should submit for repurchase pursuant to a tender offer $5,000 worth of
Common Shares, an Early Withdrawal Charge would be imposed on $3,000 worth of
the Common Shares submitted. The charge would be imposed at the rate of 2.5%
because it is in the second year after the purchase was made and the charge
would be $75.
Exchanges. Tendering shareholders may elect to have the Depositary invest
the cash proceeds from the tender of Common Shares of the Trust in contingent
deferred sales charge shares ("Class B Shares") of certain open-end investment
companies advised by either Van Kampen Investment Advisory Corp. or Van Kampen
Asset Management Inc. and distributed by VK ("VK Funds"). The Early Withdrawal
Charge will be waived for Common Shares tendered pursuant to this election,
however, such Class B Shares immediately become subject to a contingent deferred
sales charge schedule equivalent to the Early Withdrawal Charge schedule of the
Trust. Thus, shares of such VK Funds may be subject to a contingent deferred
sales charge upon a subsequent redemption from the VK Funds. The purchase of
shares of such VK Fund will be deemed to have occurred at the time of the
purchase of the Common Shares of the Trust for calculating the applicable
contingent deferred sales charge.
The prospectus for each VK Fund describes its investment objectives and
policies. Shareholders can obtain a prospectus without charge by calling
1-800-341-2911 and should consider these objectives and policies carefully
before making the election described above. Each election to purchase Class B
Shares must involve proceeds from Common Shares which have a net asset value of
at least $500. A tender of Common Shares is a taxable event and may result in a
taxable gain or loss for the shareholders.
A shareholder may make the election described above by completing the
appropriate section on the Letter of Transmittal or by giving proper
instructions to the shareholder's broker or dealer. Although this election to
purchase Class B Shares has been made available as a convenience to the Trust's
shareholders, neither the Trust nor its Board of Trustees makes any
recommendation as to whether shareholders should invest in shares of another VK
Fund.
4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4,
tenders of Common Shares made pursuant to the Offer will be irrevocable. You may
withdraw Common Shares tendered at any time prior to the Expiration Date and, if
the Common Shares have not yet been accepted for payment by the Trust, at any
time after 12:00 Midnight Eastern Standard time on May 13, 1999.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Depositary at the address
set forth on page 2 of this Offer to Purchase. Any notice of withdrawal must
specify the name of the person having tendered the Common Shares to be
withdrawn, the number of Common Shares to be withdrawn, and, if certificates
representing such Common Shares have been delivered or otherwise identified to
the Depositary, the name of the registered holder(s) of such Common Shares as
set forth in such certificates if different from the name of the person
tendering the Common Shares. If certificates have been delivered to the
Depositary, then, prior to the release of such certificates, you must
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<PAGE> 8
also submit the certificate numbers shown on the particular certificates
evidencing such Common Shares and the signature on the notice of withdrawal must
be guaranteed by an Eligible Institution.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Trust in its sole discretion,
whose determination shall be final and binding. None of the Trust, VK, the
Depositary or any other person is or will be obligated to give any notice of any
defects or irregularities in any notice of withdrawal, and none of them will
incur any liability for failure to give any such notice. Common Shares properly
withdrawn shall not thereafter be deemed to be tendered for purposes of the
Offer. However, withdrawn Common Shares may be retendered by following the
procedures described in Section 2 prior to the Expiration Date.
5. PAYMENT FOR SHARES. For purposes of the Offer, the Trust will be deemed
to have accepted for payment (and thereby purchased) Common Shares which are
tendered and not withdrawn when, as and if it gives oral or written notice to
the Depositary of its acceptance of such Common Shares for payment pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, the Trust
will accept for payment (and thereby purchase) Common Shares properly tendered
promptly after the Expiration Date.
Payment for Common Shares purchased pursuant to the Offer will be made by
depositing the aggregate purchase price therefor with the Depositary, which will
act as agent for tendering shareholders for the purpose of receiving payment
from the Trust and either transmitting payment directly to the tendering
shareholders or, in the case of tendering shareholders electing to invest such
proceeds in another VK Fund, transmitting payment directly to the transfer agent
for purchase of Class B Shares of the designated VK Fund for the account of such
shareholders. In all cases, payment for Common Shares accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary,
as required pursuant to the Offer, of a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), any certificates
representing such Common Shares, if issued, and any other required documents.
Certificates for Common Shares not purchased (see Sections 1 and 6), or for
Common Shares not tendered included in certificates forwarded to the Depositary,
will be returned promptly following the termination, expiration or withdrawal of
the Offer, without expense to the tendering shareholder.
The Trust will pay all transfer taxes, if any, payable on the transfer to
it of Common Shares purchased pursuant to the Offer. If, however, payment of the
purchase price is to be made to, or (in the circumstances permitted by the
Offer) if unpurchased Common Shares are to be registered in the name of any
person other than the registered holder, or if tendered certificates, if any,
are registered or the Common Shares tendered are held in the name of any person
other than the person signing the Letter of Transmittal, the amount of any
transfer taxes (whether imposed on the registered holder or such other person)
payable on account of the transfer to such person will be deducted from the
Purchase Price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted. Shareholders tendering Common Shares remain
entitled to receive dividends declared on such shares up to the settlement date
of the Offer. The Trust will not pay any interest on the Purchase Price under
any circumstances. An Early Withdrawal Charge will be imposed on most Common
Shares accepted for payment that have been held for less than five years. See
Section 3. In addition, if certain events occur, the Trust may not be obligated
to purchase Common Shares pursuant to the Offer. See Section 6.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO HAS NOT PREVIOUSLY SUBMITTED A
COMPLETED AND SIGNED SUBSTITUTE FORM W-9 AND WHO FAILS TO COMPLETE FULLY AND
SIGN THE SUBSTITUTE FORM W-9 ENCLOSED WITH THE LETTER OF TRANSMITTAL MAY BE
SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS
PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 2.
6. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of
the Offer, the Trust shall not be required to accept for payment, purchase or
pay for any Common Shares tendered, and may terminate or amend the Offer or may
postpone the acceptance for payment of, the purchase of and payment for Common
Shares tendered, if at any time at or before the time of purchase of any such
Common Shares, any of the following events shall have occurred (or shall have
been determined by the Trust to have occurred) which, in the Trust's sole
judgment in any such case and regardless of the circumstances (including any
action or omission to act by the Trust), makes it inadvisable to proceed with
the Offer or with such purchase or
8
<PAGE> 9
payment: (1) in the reasonable judgment of the Trustees, there is not sufficient
liquidity of the assets of the Trust; (2) such transactions, if consummated,
would (a) impair the Trust's status as a regulated investment company under the
Internal Revenue Code (which would make the Trust a taxable entity, causing the
Trust's taxable income to be taxed at the Trust level) 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 Trust, (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, (d) limitation affecting the Trust 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 Trust or the holders of its Common Shares if the tendered
Common Shares are purchased.
The foregoing conditions are for the Trust's sole benefit and may be
asserted by the Trust regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Trust), and any such
condition may be waived by the Trust in whole or in part, at any time and from
time to time in its sole discretion. The Trust's failure at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and circumstances
shall not be deemed a waiver with respect to any other facts or circumstances;
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time. Any determination by the Trust concerning the
events described in this Section 6 shall be final and shall be binding on all
parties.
If the Trust determines to terminate or amend the Offer or to postpone the
acceptance for payment of or payment for Common Shares tendered, it will, to the
extent necessary, extend the period of time during which the Offer is open as
provided in Section 16. Moreover, in the event any of the foregoing conditions
are modified or waived in whole or in part at any time, the Trust will promptly
make a public announcement of such waiver and may, depending on the materiality
of the modification or waiver, extend the Offer period as provided in Section
16.
7. PURPOSE OF THE OFFER. The Trust currently does not believe that an
active secondary market for its Common Shares exists or is likely to develop. In
recognition of the possibility that a secondary market may not develop for the
Common Shares of the Trust, or, if such a market were to develop, the Common
Shares might trade at a discount, the Trustees have determined that it would be
in the best interest of its shareholders for the Trust to take action to attempt
to provide liquidity to shareholders or to reduce or eliminate any future market
value discount from NAV that might otherwise exist, respectively. To that end,
the Trustees presently intend each quarter to consider making a tender offer to
purchase Common Shares at their NAV. The purpose of this Offer is to attempt to
provide liquidity to the holders of Common Shares. There can be no assurance
that this Offer will provide sufficient liquidity to all holders of Common
Shares that desire to sell their Common Shares or that the Trust will make any
such tender offer in the future.
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES AND HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY SUCH
RECOMMENDATION. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL INFORMATION IN
THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISORS AND MAKE THEIR OWN
DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF SO, HOW MANY COMMON SHARES TO
TENDER.
8. PLANS OR PROPOSALS OF THE TRUST. Except as set forth in this Section 8,
the Trust has no present plans or proposals which relate to or would result in
any extraordinary transaction such as a merger, reorganization or liquidation
involving the Trust; a sale or transfer of a material amount of assets of the
Trust other than in its ordinary course of business; any material changes in the
Trust's present capitalization (except as resulting from the Offer or otherwise
set forth herein); or any other material changes in the Trust's structure or
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<PAGE> 10
business. The Trust's fundamental investment policies and restrictions give the
Trust the flexibility to pursue its investment objective through a fund
structure commonly known as a "master-feeder" structure. If the Trust converts
to a master-feeder structure, the existing shareholders of the Trust would
continue to hold their shares of the Trust and the Trust 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
Trust would be a part, thus allowing operating expenses to be spread over a
larger asset base, potentially achieving economies of scale. The Trust's Board
of Trustees presently does not intend to affect any conversion to a
master-feeder structure.
9. PRICE RANGE OF COMMON SHARES; DIVIDENDS. The Trust's NAV per Common
Share from March 12, 1997 through March 12, 1999 ranged from a high of $9.99 to
a low of $9.91. On March 12, 1999, the NAV was $9.92 per Common Share. You can
obtain current NAV quotations from VK by calling (800) 341-2911 between the
hours of 7:00 A.M. and 7:00 P.M. Central Standard time, Monday through Friday,
except holidays. NAV quotes also may be obtained through the ICI Pricing Service
which is released each Friday evening and published by the Dow Jones Capital
Markets Wire Service on each Friday; published in the New York Times on each
Saturday; published in the Chicago Tribune on each Sunday; and published weekly
in Barron's magazine. The Trust offers and sells its Common Shares to the public
on a continuous basis through VK as principal underwriter. The Trust is not
aware of any secondary market trading for the Common Shares. Dividends on the
Common Shares are declared daily and paid monthly.
Over the twelve month period preceding the commencement of the Offer, the
Trust paid the following dividends per Common Share held for the entire
respective dividend period:
<TABLE>
<CAPTION>
DIVIDEND PAYMENT AMOUNT OF DIVIDEND
DATE PER COMMON SHARE
---------------- ------------------
<S> <C>
February 25, 1999.......................................... $0.0513
January 25, 1999........................................... $0.0401
December 31, 1998.......................................... $0.0162
December 24, 1998.......................................... $0.0513
November 25, 1998.......................................... $0.0513
October 23, 1998........................................... $0.0537
September 25, 1998......................................... $0.0564
August 25, 1998............................................ $0.0564
July 24, 1998.............................................. $0.0564
June 25, 1998.............................................. $0.0564
May 22, 1998............................................... $0.0564
April 24, 1998............................................. $0.0564
March 25, 1998............................................. $0.0564
</TABLE>
Shareholders tendering Common Shares remain entitled to receive dividends
declared on such shares up to the settlement date of the Offer.
10. INTEREST OF TRUSTEES AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE COMMON SHARES. Except as set forth in this Section
10, as of March 12, 1999, the trustees and executive officers of the Trust as a
group beneficially owned no Common Shares. As of March 12, 1999, Dennis J.
McDonnell, Chairman, President and a Trustee of the Trust, owned 875.381 Common
Shares; Wayne W. Whalen, a trustee of the Trust, owned 1,718.638 Common Shares;
and David C. Arch, a trustee of the Trust, owned 1,050.825 Common Shares. The
Trust has been informed that no trustee or executive officer of the Trust
intends to tender any Common Shares pursuant to the Offer.
Except as set forth in this Section 10, based upon the Trust's records and
upon information provided to the Trust by its trustees, executive officers and
affiliates (as such term is used in the Securities Exchange Act of 1934),
neither the Trust nor, to the best of the Trust's knowledge, any of the trustees
or executive officers of the Trust, nor any associates of any of the foregoing,
has effected any transactions in the Common Shares during the forty business day
period prior to the date hereof. Dennis J. McDonnell acquired 8.002 Common
10
<PAGE> 11
Shares and Wayne W. Whalen acquired 15.722 Common Shares between January 21,
1999 and March 12, 1999 through the reinvestment of dividends as described in
the Trust's prospectus.
Except as set forth in this Offer to Purchase, neither the Trust nor, to
the best of the Trust's knowledge, any of its affiliates, trustees or executive
officers, is a party to any contract, arrangement, understanding or relationship
with any other person relating, directly or indirectly, to the Offer with
respect to any securities of the Trust (including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies, consents or authorizations).
The Trust currently is a party to an Investment Advisory Agreement with Van
Kampen Investment Advisory Corp. (the "Adviser") under which the Trust accrues
daily and pays monthly to the Adviser an investment management fee based on the
per annum rate of: 0.95% of the first $4.0 billion of average daily net assets
of the Trust, 0.90% on the next $3.5 billion, 0.875% on the next $2.5 billion
and 0.85% on average daily net assets over $10.0 billion. The Trust also is a
party to an Administration Agreement and an Offering Agreement with VK. Under
the Administration Agreement, the Trust pays VK a monthly fee based on the per
annum rate of 0.25% of the Trust's average daily net assets. Under the Offering
Agreement, the Trust offers and sells its Common Shares to the public on a
continuous basis through VK as principal underwriter. The Adviser and VK are
indirect wholly owned subsidiaries of Morgan Stanley Dean Witter & Co.
11. CERTAIN EFFECTS OF THE OFFER. The purchase of Common Shares pursuant to
the Offer will have the effect of increasing the proportionate interest in the
Trust of shareholders who do not tender their Common Shares. If you retain your
Common Shares you will be subject to any increased risks that may result from
the reduction in the Trust's aggregate assets resulting from payment for the
tendered Common Shares (e.g., greater volatility due to decreased
diversification and higher expenses). However, the Trust believes that since the
Trust is engaged in a continuous offering of the Common Shares, those risks
would be reduced to the extent new Common Shares of the Trust are sold. All
Common Shares purchased by the Trust pursuant to the Offer will be held in
treasury pending disposition.
12. SOURCE AND AMOUNT OF FUNDS. The total cost to the Trust of purchasing
the full 56,800,049 Common Shares pursuant to the Offer would be approximately
$563,456,486 (assuming a NAV of $9.92 per Common Share on the Expiration Date).
The Trust anticipates that the Purchase Price for any Common Shares acquired
pursuant to the Offer will first be derived from cash on hand, such as proceeds
from sales of new Common Shares of the Trust and specified pay-downs from the
participation interests in senior corporate loans which it has acquired, and
then from the proceeds from the sale of cash equivalents held by the Trust. The
Trust may from time to time enter into one or more credit agreements to provide
the Trust with additional liquidity to meet its obligations to purchase Common
Shares pursuant to any tender offer it may make. The Trust has been a party to
such credit arrangements in the past and currently is a party to a credit
agreement which will terminate by its terms on April 15, 1999 (described in more
detail below). The Trust has never borrowed any amounts available under such
credit arrangements in the past, and although authorized to borrow money to
finance the repurchase of Common Shares, the Trust believes that it has
sufficient liquidity to purchase the Common Shares tendered pursuant to this
Offer without utilizing such borrowing. The Trust is currently evaluating
alternative credit arrangements to provide additional liquidity for tender
offers. The Trust expects that any such arrangements would have customary
covenants and default limitations. There can be no assurance that the Trust will
have any credit arrangements in place at the expiration of this Offer or future
tender offers, or that the Trust will be able to borrow on terms acceptable to
the Trust. If, in the judgment of the Trustees, there is not sufficient
liquidity of the assets of the Trust to pay for tendered Common Shares, the
Trust may terminate the Offer. See Section 6.
The Trust is a party to a First Amended and Restated Credit Agreement dated
as of April 16, 1998 with a termination date of April 15, 1999 (the "Credit
Agreement") among the Trust, as borrower, the banks party thereto (the
"Financial Institutions"), and Bank of America National Trust and Savings
Association ("BofA"), as agent, pursuant to which the Financial Institutions
have committed to provide a credit facility of up to $500,000,000 to the Trust,
which is not secured by the assets of the Trust or other collateral. The Trust
has not drawn down any of the funds available under the Credit Agreement. The
proceeds of any amounts
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<PAGE> 12
borrowed under the Credit Agreement may be used to provide the Trust with
additional liquidity to meet its obligations to purchase Common Shares pursuant
to any tender offer that it may make. The Credit Agreement has terms and
conditions substantially similar to the following:
a. The Trust is entitled to borrow loans ("Loans") from the Financial
Institutions amounts which in the aggregate do not exceed the lesser of
(i) the $500 million credit facility each or (ii) twelve and one half
percent (12.5%) of the net asset value of the Trust (defined as total
assets minus total liabilities minus assets subject to liens).
b. Loans made under the Credit Agreement, if any, will bear interest daily,
at the Trust's option, (i) at a rate per annum equal to the federal
funds rate from time to time plus 0.375%, provided, however, that during
any period the aggregate outstanding loans exceed $250 million, the rate
shall be the federal funds rate plus 0.50%, or (ii) at a rate per annum
equal to a reserve-adjusted interbank offered rate offered by BofA's
Grand Cayman Branch ("IBOR") plus 0.375% per annum, provided, however,
that during any period the aggregate outstanding loans exceed $250
million, the rate shall be IBOR plus 0.50%. Such interest will be due on
the outstanding principal amount (i) as to any federal funds rate loan
on the last business day of each calendar quarter and (ii) as any
offshore rate loan, from one (1) day to sixty (60) days from the date of
the loan, as selected by the Trust in advance. Overdue payments of
principal and interest will bear interest, payable upon demand, at a
penalty rate. No Loan shall be outstanding for a period of more than
sixty (60) days, and there shall be no more than three Interest Periods
in effect.
c. The Trust paid approximately $90,000 of fees and expenses to BofA or its
affiliates on the date the Credit Agreement was executed. In addition,
during the term of the Credit Agreement, the Trust is obligated to pay a
commitment fee computed at the rate of 0.07% per annum on the average
daily unused amount of the facility.
d. The principal amount of loans made under the Credit Agreement, if any,
are required to be paid sixty (60) days from the date of the loan. The
Trust is entitled to prepay a loan in multiples of $1,000,000, provided
that the Trust gives sufficient notices of prepayment. On the Commitment
Termination Date (as defined below), all outstanding principal and
accrued interest under the Credit Agreement will be due and payable in
full.
e. The drawdown of the initial Loan, if any, under the Credit Agreement is
subject to certain conditions, including, among other things, the Trust
executing and delivering a promissory note made payable to the order of
each Financial Institution, in the form attached to the Credit Agreement
(the "Promissory Notes").
The drawdown of each Loan, if any, is further conditioned upon the
satisfaction of additional conditions, including, without limitation,
(i) the providing of notice with respect to the Loan, (ii) the Trust's
asset coverage ratio must be at least 8 to 1; (iii) there being no
default or event of default in existence and (iii) the representations
and warranties made in the Credit Agreement continuing to be true.
f. The Credit Agreement contains various affirmative and negative
covenants of the Trust, including, without limitation, obligations: (i)
to provide periodic financial information; (ii) with limited
exceptions, to not consolidate with or merge into any other entity or
have any other entity merge into it and to not sell all or any
substantial part of its assets; (iii) to continue to engage in its
current type of business and to maintain its existence as a business
trust; (iv) to comply with applicable laws, rules and regulations and
perform its obligations under the Credit Agreement; (v) to maintain
insurance on its property and business; (vi) to limit the amount of its
debt based upon 12.5% of the net asset value of the Trust; and (vii) to
not create any lien on any of its assets, with certain exceptions.
g. The Credit Agreement also contains various events of default (with
certain specified grace periods), including, without limitation: (i)
failure to pay when due any amounts required to be paid to Financial
Institutions under the Credit Agreement or the Promissory Notes; (ii)
any material misrepresentations in the Credit Agreement or documents
delivered to Financial Institutions; (iii) failure to observe
12
<PAGE> 13
or perform certain terms, covenants and agreements contained in the
Credit Agreement, the Promissory Notes or other documents delivered to
the Financial Institutions; (iv) failure to comply with the Trust's
fundamental investment policies or investment restrictions; (v) failure
to comply with all material provisions of the Investment Company Act of
1940; (vi) the voluntary or involuntary bankruptcy of the Trust; (vii)
the entry of judgments for the payment of money in excess of $5,000,000
in the aggregate which remains unsatisfied or unstayed for a period of
30 days; and (viii) a change in control of the Trust's investment
adviser.
h. The credit facility provided pursuant to the Credit Agreement will
terminate on April 15, 1999 (the "Commitment Termination Date"), unless
extended pursuant to the terms thereof, and all accrued interest and
principal will be due thereon.
The Trust intends to repay any loans under the Credit Agreement from
proceeds from the specified pay-downs from the interests in Senior Loans (as
defined below) which will be acquired and from proceeds from the sale of Common
Shares.
The foregoing descriptions of the Credit Agreement do not purport to be
complete or final, and are qualified in their entirety by reference to the
Credit Agreement included as Exhibit (b) to the Issuer Tender Offer Statement on
Schedule 13E-4 of the Trust. See Section 14.
13. CERTAIN INFORMATION ABOUT THE TRUST. The Trust was organized as a
Massachusetts business trust on July 14, 1989 and is a non-diversified,
closed-end management investment company under the Investment Company Act of
1940. The Trust seeks as high a level of current income as is consistent with
the preservation of capital by investing in a professionally managed portfolio
of interests in floating or variable rate senior loans ("Senior Loans") to
corporations, partnerships and other entities ("Borrowers") which operate in a
variety of industries and geographical regions. Although the Trust's NAV will
vary, the Trust's policy of acquiring interests in floating or variable rate
Senior Loans is expected to minimize fluctuations in the Trust's NAV as a result
of changes in interest rates. Senior Loans in which the Trust will invest
generally pay interest at rates which are periodically redetermined by reference
to a base lending rate plus a premium. These base lending rates 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 rate or
other base lending rates used by commercial lenders. The Senior Loans in the
Trust's portfolio at all times have a dollar-weighted average time until next
interest rate redetermination of 90 days or less. As a result, as short-term
interest rates increase, the interest payable to the Trust from its investments
in Senior Loans should increase, and as short-term interest rates decrease, the
interest payable to the Trust on its investments in Senior Loans should
decrease. The amount of time required to pass before the Trust realizes the
effects of changing short-term market interest rates on its portfolio varies
with the dollar-weighted average time until next interest rate redetermination
on securities in the Trust's portfolio.
The Trust has registered as a "non-diversified" investment company so that,
subject to its investment restrictions, it is 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 in Senior Loans purchased from a
single lender. To the extent the Trust invests a relatively high percentage of
its assets in obligations of a limited number of issuers, the Trust will be more
susceptible than a more widely diversified investment company to any single
corporate, economic, political or regulatory occurrence.
VK compensates broker-dealers participating in the continuous offering of
the Trust's Common Shares at a rate of 3.0% of the dollar value of Common Shares
purchased from the Trust by such broker-dealers. VK also compensates
broker-dealers who have entered into sales agreements with VK at an annual rate,
paid quarterly, equal to an amount up to 0.35% of the value of Common Shares
sold by each respective broker-dealer and remaining outstanding after one year
from the date of their original purchase. VK also may provide, from time to
time, additional cash incentives to broker-dealers which employ representatives
who sell a minimum dollar amount of the Common Shares. All such compensation is
or will be paid by VK out of its own assets, and not out of the assets of the
Trust. The compensation paid to such broker-dealers and to VK, including the
compensation paid at the time of purchase, the quarterly payments, any
additional incentives paid from time to time and the Early Withdrawal Charge, if
any, will not exceed applicable limitations.
13
<PAGE> 14
The principal executive offices of the Trust are located at 1 Parkview
Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181-5555.
Reference is hereby made to Section 9 of this Offer to Purchase and the
financial statements attached hereto as Exhibit A which are incorporated herein
by reference.
14. ADDITIONAL INFORMATION. The Trust has filed an Issuer Tender Offer
Statement on Schedule 13E-4 with the Securities and Exchange Commission (the
"Commission") which includes certain additional information relating to the
Offer. Such material may be inspected and copied at prescribed rates at the
Commission's public reference facilities at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; Jacob K. Javits Federal Building, 26 Federal
Plaza, New York, New York 10278; and, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained by mail at prescribed rates from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Issuer Tender Offer Statement on Schedule 13E-4 is
available along with other related materials at the Commission's internet
website (http://www.sec.gov).
15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a
general summary of the federal income tax consequences of a sale of Common
Shares pursuant to the Offer. Shareholders should consult their own tax advisers
regarding the tax consequences of a sale of Common Shares pursuant to the Offer,
as well as the effects of state, local and foreign tax laws.
The sale of Common Shares pursuant to the Offer will be a taxable
transaction for federal income tax purposes, either as a "sale or exchange," or
under certain circumstances, as a "dividend." Under Section 302(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), a sale of Common Shares
pursuant to the Offer generally will be treated as a "sale or exchange" if the
receipt of cash by the shareholder or by the Depositary on behalf of the
shareholder, in the case of a tendering shareholder electing to invest cash
proceeds from the tender of Common Shares in Class B Shares of a designated VK
Fund: (a) results in a "complete termination" of the shareholder's interest in
the Trust, (b) is "substantially disproportionate" with respect to the
shareholder, or (c) is "not essentially equivalent to a dividend" with respect
to the shareholder. In determining whether any of these tests has been met,
Common Shares actually owned, as well as Common Shares considered to be owned by
the shareholder by reason of certain constructive ownership rules set forth in
Section 318 of the Code, generally must be taken into account. If any of these
three tests for "sale or exchange" treatment is met, a shareholder will
recognize gain or loss equal to the difference between the amount of cash
received by the shareholder or by the Depositary on behalf of the shareholder,
in the case of a tendering shareholder electing to invest cash proceeds from the
tender of Common Shares in Class B Shares of a designated VK Fund, pursuant to
the Offer and the tax basis of the Common Shares sold. If such Common Shares are
held as a capital asset, the gain or loss will be a capital gain or loss. The
maximum tax rate applicable to net capital gains recognized by individuals and
other non-corporate taxpayers is (i) the same as the applicable ordinary income
rate for capital assets held for one year or less or (ii) 20% for capital assets
held for more than one year. The maximum long-term capital gains rate for
corporations is 35%.
If none of the tests set forth in Section 302(b) of the Code is met,
amounts received by a shareholder or by the Depositary on behalf of a
shareholder, as the case may be, who sells Common Shares pursuant to the Offer
will be taxable to the shareholder as a "dividend" to the extent of such
shareholder's allocable share of the Trust's current or accumulated earnings and
profits, and the excess of such amounts received over the portion that is
taxable as a dividend would constitute a non-taxable return of capital (to the
extent of the shareholder's tax basis in the Common Shares sold pursuant to the
Offer) and any amounts in excess of the shareholder's tax basis would constitute
taxable gain. Thus, a shareholder's tax basis in the Common Shares sold will not
reduce the amount of the "dividend." Any remaining tax basis in the Common
Shares tendered to the Trust will be transferred to any remaining Common Shares
held by such shareholder. In addition, if a tender of Common Shares is treated
as a "dividend" to a tendering shareholder, a constructive dividend under
Section 305(c) of the Code may result to a non-tendering shareholder whose
proportionate interest in the earnings and assets of the Trust has been
increased by such tender. The Trust believes, however, that the nature of the
repurchase will be such that a tendering shareholder will qualify for "sale or
exchange" treatment (as opposed to "dividend" treatment).
14
<PAGE> 15
16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The Trust
reserves the right, at any time and from time to time, to extend the period of
time during which the Offer is pending by making a public announcement thereof.
In the event that the Trust so elects to extend the tender period, the Purchase
Price for the Common Shares tendered will be determined as of 5:00 P.M. Eastern
Standard time on the Expiration Date, as extended, and the Offer will terminate
as of 12:00 Midnight Eastern Standard time on the Expiration Date, as extended.
During any such extension, all Common Shares previously tendered and not
purchased or withdrawn will remain subject to the Offer. The Trust also reserves
the right, at any time and from time to time up to and including the Expiration
Date, to (a) terminate the Offer and not to purchase or pay for any Common
Shares or, subject to applicable law, postpone payment for Common Shares upon
the occurrence of any of the conditions specified in Section 6, and (b) amend
the Offer in any respect by making a public announcement thereof. Such public
announcement will be issued no later than 9:00 A.M. Eastern Standard time on the
next business day after the previously scheduled Expiration Date and will
disclose the approximate number of Common Shares tendered as of that date.
Without limiting the manner in which the Trust may choose to make a public
announcement of extension, termination or amendment, except as provided by
applicable law (including Rule 13e-4(e)(2)), the Trust shall have no obligation
to publish, advertise or otherwise communicate any such public announcement,
other than by making a release to the Dow Jones News Service.
If the Trust materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Trust will extend the Offer to the extent required by Rule 13e-4 promulgated
under the Exchange Act. These rules require that the minimum period during which
an offer must remain open following material changes in the terms of the offer
or information concerning the offer (other than a change in price or a change in
percentage of securities sought) will depend on the facts and circumstances,
including the relative materiality of such terms or information. If (i) the
Trust increases or decreases the price to be paid for Common Shares, or the
Trust increases the number of Common Shares being sought by an amount exceeding
2% of the outstanding Common Shares, or the Trust decreases the number of Common
Shares being sought and (ii) the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from,
and including, the date that notice of such increase or decrease is first
published, sent or given, the Offer will be extended at least until the
expiration of such period of ten business days.
17. MISCELLANEOUS. The Offer is not being made to, nor will the Trust
accept tenders from, owners of Common Shares in any jurisdiction in which the
Offer or its acceptance would not comply with the securities or Blue Sky laws of
such jurisdiction. The Trust is not aware of any jurisdiction in which the
making of the Offer or the tender of Common Shares would not be in compliance
with the laws of such jurisdiction. However, the Trust reserves the right to
exclude holders in any jurisdiction in which it is asserted that the Offer
cannot lawfully be made. So long as the Trust makes a good-faith effort to
comply with any state law deemed applicable to the Offer, the Trust believes
that the exclusion of holders residing in such jurisdiction is permitted under
Rule 13e-4(f)(9) promulgated under the Exchange Act. In any jurisdiction the
securities or Blue Sky laws of which require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on the Trust's behalf by
one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
March 19, 1999 VAN KAMPEN PRIME RATE INCOME TRUST
15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Prime Rate Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Prime Rate Income Trust (the "Trust"), including the portfolio of
investments, as of July 31, 1998, and the related statements of operations and
cash flows for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial 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, 1998, by correspondence with the custodian 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 Prime Rate Income Trust as of July 31, 1998, the results
of its operations and cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
September 4, 1998
A-1
<PAGE> 17
PORTFOLIO OF INVESTMENTS
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS 90.5%
AEROSPACE/DEFENSE 1.6%
$ 7,074 Aerostructures Corp., Term Loan....................... NR NR 12/31/03 $ 7,074,194
4,766 Alliant Techsystems, Inc., Term Loan.................. Ba2 BB 03/15/01 4,769,907
7,500 Fairchild Holding Corp., Term Loan.................... NR NR 06/18/04 7,500,000
42,813 Gulfstream Delaware Corp., Term Loan.................. NR NR 09/30/02 42,825,899
15,248 K & F Industries, Inc., Term Loan..................... Ba3 B+ 10/15/05 15,247,755
7,920 Tri-Star, Inc., Term Loan............................. NR NR 09/30/03 7,929,384
27,209 United Defense Industries, Inc., Term Loan............ B1 B+ 10/06/05 to 10/06/06 27,207,940
6,538 Whittaker Corp., Term Loan............................ NR NR 05/30/03 6,538,464
2,000 Whittaker Corp., Revolving Credit..................... NR NR 05/30/01 2,000,000
--------------
121,093,543
--------------
AUTOMOTIVE 2.7%
34,000 American Axle and Manufacturing, Inc., Co., Term
Loan.................................................. NR NR 04/30/06 34,000,000
8,500 American Bumper and Manufacturing Co., Term Loan...... NR NR 04/30/04 8,507,780
40,970 Breed Technologies, Inc., Term Loan................... B1 BB 04/27/04 to 04/27/06 40,970,032
68,701 Federal Mogul Corp., Term Loan........................ Ba2 NR 12/31/03 to 12/31/05 68,710,580
379 Federal Mogul Corp., Revolving Credit................. Ba2 NR 03/12/04 379,562
4,904 JMS Automotive Rebuilders, Inc., Term Loan............ NR NR 06/30/04 4,903,681
7,883 Murray's Discount Auto Stores, Inc., Term Loan........ NR NR 06/30/03 7,882,625
9,748 The Plastech Group, Term Loan......................... NR NR 04/01/02 to 04/01/04 9,747,576
20,000 Safelite Glass Corp., Term Loan....................... Ba3 NR 12/23/04 to 12/23/05 20,000,044
--------------
195,101,880
--------------
BROADCASTING -- CABLE 7.7%
19,175 Adelphia Cable Partners, L.P., Revolving Credit....... Ba2 NR 12/31/03 19,205,696
22,500 Bresnan Communications Co., L.P., Term Loan........... NR NR 03/31/06 22,567,009
5,910 Cable Systems International, Inc., Term Loan.......... NR NR 12/31/02 5,912,020
43,971 Charter Communications Entertainment I, Term Loan..... NR NR 06/30/04 43,971,090
17,500 Charter Communications Entertainment II, Term Loan.... Ba3 NR 12/31/07 17,500,025
32,000 Charter Communications Entertainment II & Long Beach,
Term Loan............................................. Ba3 NR 03/31/06 32,049,512
47,381 Chelsea Communications, Inc., Term Loan............... NR NR 12/31/04 47,381,250
16,603 Coaxial Communications of Central Ohio, Term Loan..... NR NR 12/31/99 16,603,352
12,000 Encore Investments, Term Loan......................... NR NR 06/30/04 12,000,314
37,000 Falcon Holdings Group, L.P., Term Loan................ Ba3 BB 12/31/07 37,000,057
15,000 Frontiervision Operating Partners, L.P., Term Loan.... Ba3 BB 03/31/06 15,000,043
22,361 Garden State Cablevision, L.P., Revolving Credit...... NR NR 06/30/05 22,358,780
14,972 Hilton Head Communications, L.P., Revolving Credit.... NR NR 06/30/03 14,996,182
11,000 Insight Communication Co., L.P., Term Loan............ NR NR 03/31/05 11,007,462
7,360 Insight Communication Co., L.P., Revolving Credit..... NR NR 03/31/05 7,367,956
53,500 InterMedia Partners IV, L.P., Term Loan............... Ba3 NR 01/01/05 to 12/31/07 53,504,334
62,427 Marcus Cable Operating Co., Term Loan................. Ba3 NR 12/31/02 to 04/30/04 62,454,707
4,171 Marcus Cable Operating Co., Revolving Credit.......... Ba3 NR 12/31/02 4,171,005
4,426 Mark Twain Cablevision, L.P., Term Loan............... NR NR 06/30/04 4,426,981
23,727 TCI Pacific, Inc., Term Loan.......................... NR NR 12/31/04 23,725,330
30,286 Triax Midwest Associates, Term Loan................... NR NR 06/30/06 to 06/30/07 30,286,004
798 Triax Midwest Associates, Revolving Credit............ NR NR 06/30/06 798,258
27,029 TW Fanch, Revolving Credit............................ NR NR 12/31/04 27,065,373
17,000 UCA Group, Revolving Credit........................... NR NR 09/30/03 17,000,318
15,000 USA Networks, Inc., Term Loan......................... Ba1 NR 12/31/03 15,000,093
--------------
563,353,151
--------------
</TABLE>
See Notes to Financial Statements
A-2
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
BROADCASTING -- DIVERSIFIED 1.4%
<C> <S> <C> <C> <C> <C>
$ 76,638 Chancellor Broadcasting Co., Term Loan................ Ba1 BB- 06/30/05 $ 76,764,326
23,497 Chancellor Broadcasting Co., Revolving Credit......... Ba1 BB- 06/30/05 23,571,806
--------------
100,336,132
--------------
BROADCASTING -- RADIO 0.5%
35,000 Jacor Communications, Inc., Term Loan................. Ba2 BB- 12/31/04 34,997,219
--------------
BROADCASTING -- TELEVISION 2.0%
12,000 Benedek Broadcasting Corp., Term Loan................. B1 NR 05/01/01 to 11/01/02 12,000,054
20,000 Black Entertainment Television, Inc., Term Loan....... NR NR 06/30/06 20,000,000
5,000 Lin Television Corp., Term Loan....................... Ba3 B- 03/31/07 4,999,794
43,421 NTL Group (UK), Inc., Term Loan....................... NR NR 12/31/05 43,421,166
66,000 Sinclair Broadcasting, Term Loan...................... Ba2 BB- 09/15/05 66,000,440
--------------
146,421,454
--------------
BUILDINGS & REAL ESTATE 0.7%
50,000 Walter Industries, Inc., Term Loan.................... NR NR 10/15/03 49,998,394
--------------
CHEMICAL, PLASTICS & RUBBER 3.3%
11,283 Cedar Chemical Corp., Term Loan....................... NR NR 10/30/03 11,287,698
10,581 Foamex, L.P., Term Loan............................... Ba3 B+ 06/30/05 to 06/30/06 10,585,600
5,276 Foamex, L.P., Revolving Credit........................ Ba3 B+ 06/12/03 5,277,046
10,000 Harris Specialty Chemicals, Inc., Term Loan........... NR NR 03/31/06 10,000,000
14,409 High Performance Plastics, Inc., Term Loan............ NR NR 03/31/05 14,409,091
58,310 Huntsman Group Holdings, Term Loan.................... Ba2 NR 12/31/02 to 12/31/05 58,319,167
10,762 Huntsman Group Holdings, Revolving Credit............. Ba2 NR 12/31/02 10,761,845
19,800 Huntsman Specialty Chemical Corp., Term Loan.......... Ba2 NR 03/15/04 to 03/15/05 19,806,383
5,102 NEN Acquisition, Inc., Term Loan...................... NR NR 03/31/05 5,118,605
9,900 Pioneer Americas Acquisition Corp., Term Loan......... B2 B+ 12/31/06 9,903,972
12,033 Reid Plastics, Inc., Term Loan........................ NR NR 11/12/03 12,044,728
43,021 Sterling Chemicals, Inc., Term Loan................... Ba3 NR 09/30/04 42,989,054
11,807 Texas Petrochemicals Corp., Term Loan................. Ba3 BB- 06/30/01 to 06/30/04 11,808,670
1,476 Texas Petrochemicals Corp., Revolving Credit.......... Ba3 BB- 12/31/02 1,475,593
6,538 TruSeal Technologies, Inc., Term Loan................. NR NR 06/30/04 6,536,586
8,180 Vinings Industries, Inc., Term Loan................... NR NR 03/31/05 8,179,988
--------------
238,504,026
--------------
COMMUNICATIONS -- TELEPHONE 0.2%
4,750 International Data Response Corp., Term Loan.......... NR NR 12/31/01 to 12/31/02 4,759,044
7,155 Mitel Corp., Term Loan................................ NR NR 12/26/03 7,155,000
--------------
11,914,044
--------------
CONSTRUCTION MATERIALS 1.9%
22,796 Behr Process Corp., Term Loan......................... NR NR 03/31/02 to 03/31/05 22,802,929
1,588 Behr Process Corp., Revolving Credit.................. NR NR 03/31/02 1,588,078
1,639 Brand Scaffold Services, Inc., Term Loan.............. B1 NR 09/30/02 1,644,625
10,000 Dayton Superior Corp., Term Loan...................... NR NR 09/29/05 10,000,084
6,833 Enclosures Holding Co., Term Loan..................... NR NR 02/28/05 6,925,478
13,671 Falcon Building Products, Inc., Term Loan............. B1 B+ 06/30/05 13,695,671
59,549 National Gypsum Co., Term Loan........................ NR NR 09/20/03 59,548,756
4,655 Panolam Industries, Inc., Term Loan................... NR NR 10/31/02 4,654,916
6,973 Reliant Building Products, Inc., Term Loan............ B1 B+ 03/31/04 6,973,479
14,925 Werner Holding Co., Inc., Term Loan................... Ba3 B+ 11/30/04 to 11/30/05 14,924,503
-----------
142,758,519
-----------
</TABLE>
See Notes to Financial Statements
A-3
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
CONTAINERS, PACKAGING & GLASS 3.9%
<C> <S> <C> <C> <C> <C>
$ 25,000 Dr. Pepper Bottling Holdings, Inc., Term Loan......... NR NR 12/31/05 $ 25,000,000
8,373 Fleming Packaging Corp., Term Loan.................... NR NR 08/30/04 8,372,500
9,967 Graham Packaging Co., Term Loan....................... B1 B+ 01/31/06 to 01/31/07 9,966,400
30,000 Huntsman Packaging Corp., Term Loan................... Ba2 BB- 09/30/05 to 09/30/06 30,000,000
29,850 IPC, Inc., Term Loan.................................. B1 NR 10/02/04 29,850,331
163,244 Stone Container Corp., Term Loan...................... Ba3 B+ 04/01/00 to 10/01/03 163,619,032
3,639 Stone Container Corp., Revolving Credit............... Ba3 B+ 05/15/99 3,639,468
8,051 Stronghaven, Inc., Term Loan.......................... NR NR 05/15/04 8,059,566
7,182 Tekni-Plex, Inc., Term Loan........................... B1 B+ 03/03/06 7,182,000
--------------
285,689,297
--------------
DIVERSIFIED MANUFACTURING 2.3%
4,024 Advanced Accessory Systems, LLC, Term Loan............ B1 B+ 10/30/04 4,024,443
9,000 CII Carbon, LLC, Term Loan............................ NR NR 06/25/08 9,003,360
6,406 ConMed Corp., Term Loan............................... B1 BB- 12/30/04 6,405,629
7,425 Desa International, Term Loan......................... Ba3 B+ 12/26/04 7,425,002
52,500 Evenflo & Spalding Holdings Corp., Term Loan.......... Ba3 B- 09/30/03 to 03/30/06 51,455,013
7,450 Evenflo & Spalding Holdings Corp., Revolving Credit... Ba3 B- 09/30/03 7,300,999
25,838 International Wire Group, Inc., Term Loan............. B1 NR 09/30/03 25,850,749
10,833 Intesys Technologies, Inc., Term Loan................. NR NR 06/30/04 to 06/30/06 10,833,351
763 Intesys Technologies, Inc., Revolving Credit.......... NR NR 06/30/06 762,671
8,782 M.W. Manufacturers, Term Loan......................... NR NR 09/15/02 8,782,483
8,500 Neenah Foundry Co., Term Loan......................... Ba3 BB- 09/30/05 8,500,000
24,896 UCAR International, Inc., Term Loan................... Ba2 B- 12/31/02 24,903,744
6,161 U.F. Acquisition, Term Loan........................... NR NR 12/15/02 6,161,250
--------------
171,408,694
--------------
ECOLOGICAL 1.4%
100,400 Safety-Kleen Corp., Term Loan......................... Ba3 BB 04/03/05 to 04/03/06 100,400,381
--------------
EDUCATION & CHILD CARE 0.2%
8,690 Kindercare Learning Centers, Inc., Term Loan.......... Ba3 B+ 03/21/06 8,690,000
5,000 La Petite Academy, Inc., Term Loan.................... B2 B 05/11/05 5,000,052
--------------
13,690,052
--------------
ELECTRONICS 3.3%
14,925 Alliance Imaging, Inc., Term Loan..................... B1 B+ 12/18/03 to 06/18/04 14,924,340
22,252 Amphenol Corp., Term Loan............................. Ba3 B+ 10/03/04 to 05/19/06 22,244,225
6,738 Banker's Systems, Inc., Term Loan..................... NR NR 11/01/02 6,737,500
7,268 Beltone Electronics, Inc., Term Loan.................. NR NR 10/31/03 to 10/31/04 7,267,582
9,205 Berg Electronics, Inc., Term Loan..................... Ba3 NR 06/30/03 9,204,172
5,850 Berg Electronics, Inc., Revolving Credit.............. Ba3 NR 06/30/03 5,850,011
10,894 Chatham Technologies Acquisition, Inc., Term Loan..... NR NR 08/18/03 to 08/18/05 10,894,175
5,888 Claricom, Inc., Term Loan............................. NR NR 11/30/02 5,887,963
7,000 Control Data Systems, Inc., Term Loan................. NR NR 11/26/00 7,000,012
43,768 DecisionOne Corp., Term Loan.......................... B1 B+ 08/07/03 to 08/07/05 43,768,158
17,143 Fairchild Semiconductor Corp., Term Loan.............. Ba3 BB 03/11/03 17,141,305
5,400 Fisher Scientific International, Inc., Term Loan...... Ba3 B+ 01/21/05 to 01/21/06 5,501,762
15,451 Graphic Controls Corp., Term Loan..................... B1 NR 09/28/03 15,393,342
3,981 Labtec, Inc., Term Loan............................... NR NR 10/07/04 3,980,921
8,358 Rowe International, Inc., Term Loan (a)............... NR NR 03/31/00 7,104,583
8,786 Sarcom, Inc., Term Loan............................... NR NR 12/31/02 8,805,564
25,000 Sterling Diagnostic Imaging, Inc., Term Loan.......... NR NR 09/30/05 25,000,000
</TABLE>
See Notes to Financial Statements
A-4
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
</TABLE>
<TABLE>
<C> <S> <C> <C> <C> <C>
ELECTRONICS (CONTINUED)
$ 13,707 Viasystems, Inc., Term Loan........................... B1 B+ 03/31/04 to 06/30/05 $ 13,714,170
91 Viasystems, Inc., Revolving Credit.................... B1 B+ 12/31/02 90,506
2,500 Wavetek Corp., Term Loan.............................. Ba3 BB- 12/15/02 2,500,026
500 Wavetek Corp., Revolving Credit....................... Ba3 BB- 12/15/02 500,005
4,925 WGL Acquisition Corp., Term Loan...................... NR NR 07/30/04 4,925,000
--------------
238,435,322
--------------
ENTERTAINMENT/LEISURE 4.3%
24,886 AMF Group, Inc., Term Loan............................ Ba2 BB- 03/31/03 to 03/31/04 24,879,867
21,500 ASC Network Corp., Term Loan.......................... NR NR 05/31/06 21,500,000
2,500 Camelot Music Holdings, Inc., Revolving Credit........ NR NR 01/27/02 2,500,000
33,000 Fleer Corp., Term Loan (a) (b)........................ NR NR 02/28/02 24,750,000
20,000 Florida Panthers Holding, Inc., Term Loan............. NR NR 12/15/98 20,000,000
7,920 KSL Recreation Group, Inc., Term Loan................. B2 B+ 04/30/05 to 04/30/06 7,927,479
4,503 KSL Recreation Group, Inc., Revolving Credit.......... B2 B+ 04/30/04 4,502,783
79,000 Metro-Goldwyn-Mayer, Inc., Term Loan.................. Ba1 NR 03/31/05 to 03/31/06 79,000,000
28,080 Metro-Goldwyn-Mayer, Inc., Revolving Credit........... Ba1 NR 09/30/03 28,080,273
7,000 Regal Cinemas, Inc., Term Loan........................ Ba3 BB- 05/27/06 to 05/27/07 7,000,000
9,646 RTI Funding Corp., Term Loan.......................... NR NR 02/08/03 to 02/08/04 9,645,988
10,000 SFX Entertainment, Inc., Term Loan.................... B1 BB- 03/31/06 10,000,027
6,700 Sportcraft, Ltd., Term Loan........................... NR NR 12/31/02 6,700,000
46,819 Viacom, Inc., Term Loan............................... Ba2 BB+ 04/01/02 to 07/01/02 46,837,385
4,152 Viacom, Inc., Revolving Credit........................ Ba2 BB+ 07/01/02 4,156,049
15,000 WestStar Cinemas, Inc., Term Loan..................... NR NR 09/30/05 15,000,000
--------------
312,479,851
--------------
FARMING & AGRICULTURE 0.4%
9,628 CBP Resources, Inc., Term Loan........................ NR NR 09/30/03 9,628,170
8,977 Seminis, Inc., Term Loan.............................. NR NR 12/31/03 to 12/31/04 8,977,005
4,937 Walco International, Inc., Term Loan.................. NR NR 03/31/04 4,945,000
3,416 Windy Hill Pet Food Co., Inc., Term Loan.............. Ba3 BB- 12/31/03 3,422,921
151 Windy Hill Pet Food Co., Inc., Revolving Credit....... Ba3 BB- 12/31/03 152,863
--------------
27,125,959
--------------
FINANCE 7.4%
1,586 Ark Asset Holdings, Inc., Term Loan................... NR NR 11/30/01 1,586,008
14,000 Blackstone Capital Co., Term Loan..................... NR NR 05/31/99 14,010,310
25,000 Bridge Information Systems, Inc., Term Loan........... NR NR 05/27/05 25,000,000
65,458 HM/RB Partners, L.P., Term Loan....................... NR NR 12/31/98 65,457,611
45,500 Mafco Finance Corp., Term Loan........................ NR NR 04/28/00 45,500,000
6,240 Mafco Finance Corp., Revolving Credit................. NR NR 04/28/00 6,240,016
39,982 OSI Holdings Corp., Term Loan......................... B2 NR 10/15/04 39,981,042
37,490 Patriot American Hospitality, Inc., Term Loan......... NR NR 03/31/99 to 03/31/03 37,488,577
65,000 Paul G. Allen, Term Loan.............................. NR NR 06/10/03 64,998,874
131,159 Starwood Hotels and Resorts, Inc., Term Loan.......... NR NR 02/23/99 to 02/23/03 131,159,105
107,899 Ventas Realty Ltd., Inc., Term Loan................... NR NR 04/30/03 107,886,471
--------------
539,308,014
--------------
FOOD/BEVERAGE 1.5%
11,500 Amerifoods Cos., Inc., Term Loan...................... NR NR 06/30/99 to 06/30/02 10,925,000
9,097 Edwards Baking Corp., Term Loan....................... NR NR 09/30/03 to 09/30/05 9,096,864
12,500 Favorite Brands International, Inc., Term Loan........ B2 B 05/19/05 12,500,000
</TABLE>
See Notes to Financial Statements
A-5
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
FOOD/BEVERAGE (CONTINUED)
$ 20,337 Fleming Cos., Inc., Term Loan......................... Ba3 B+ 07/25/04 $ 20,397,673
6,176 Fleming Cos., Inc., Revolving Credit.................. Ba3 B+ 07/25/03 6,307,373
7,500 Leon's Bakery, Inc., Term Loan........................ NR NR 05/02/05 7,500,000
7,257 Mistic Brands, Inc., Term Loan........................ NR NR 06/01/04 to 06/01/05 7,257,057
5,700 Southern Foods Group, Inc., Term Loan................. Ba3 BB- 02/28/06 5,700,004
22,898 Stroh Brewery Co., Term Loan.......................... NR NR 06/30/03 22,897,740
5,550 Windsor Quality Food Co., Ltd., Term Loan............. NR NR 12/31/01 5,550,431
--------------
108,132,142
--------------
FOOD STORES/GROCERY 1.5%
42,756 Bruno's, Inc., Term Loan (a) (b)...................... Caa2 NR 12/02/03 to 04/15/05 38,039,434
4,830 Bruno's, Inc., Revolving Credit (a) (b)............... Caa2 NR 12/02/03 4,294,150
12,464 Eagle Family Foods, Inc., Term Loan................... B1 B+ 12/31/05 12,464,338
4,592 Harvest Foods, Inc., Term Loan (a) (b)................ NR NR 06/30/02 91,830
30,954 Pathmark Stores, Inc., Term Loan...................... B1 B+ 06/15/01 to 12/15/01 30,987,966
3,636 Pathmark Stores, Inc., Revolving Credit............... B1 B+ 06/15/01 3,660,949
8,474 Randall's Food Markets, Inc., Term Loan............... Ba3 B+ 06/27/06 8,473,905
1,014 Randall's Food Markets, Inc., Revolving Credit........ Ba3 B+ 06/27/04 1,014,089
8,391 Star Markets Co., Inc., Term Loan..................... Ba3 NR 12/31/02 to 12/31/03 8,395,532
2,574 Star Markets Co., Inc., Revolving Credit.............. Ba3 NR 12/31/01 2,574,222
--------------
109,996,415
--------------
HEALTH CARE & BEAUTY AIDS 1.4%
7,180 Chattem, Inc., Term Loan.............................. Ba2 NR 02/14/04 7,177,281
17,216 Mary Kay Cosmetics, Inc., Term Loan................... NR NR 03/06/04 17,239,037
214 Mary Kay Cosmetics, Inc., Revolving Credit............ NR NR 03/06/04 219,013
24,750 Playtex Products, Inc., Term Loan..................... Ba2 BB 09/15/03 24,762,453
54,725 Revlon Consumer Products Corp., Term Loan............. Ba3 BB- 05/30/02 54,759,540
--------------
104,157,324
--------------
HEALTHCARE 10.8%
6,500 Charter Behavioral, Revolving Credit.................. NR NR 06/17/02 6,521,986
58,987 Community Health Systems, Inc., Term Loan............. NR NR 12/31/03 to 12/31/05 58,987,066
50,836 Dade International, Inc., Term Loan................... B1 NR 12/31/02 to 12/31/04 50,833,800
26,865 Extendicare Health Services, Inc., Term Loan.......... Ba3 B+ 12/31/03 26,865,189
27,397 FPA Medical Management, Inc., Term Loan............... Caa3 D 09/30/01 21,937,560
3,310 FPA Medical Management, Inc., Debtor in Possession.... Caa3 D 02/01/09 3,310,000
30,398 Genesis Healthcare Ventures, Inc., Term Loan.......... Ba3 B+ 09/30/04 to 06/01/05 30,398,333
150,000 Integrated Health Services, Inc., Term Loan........... Ba3 B+ 09/15/04 to 12/31/05 150,000,000
8,955 Kinetic Concepts, Inc., Term Loan..................... Ba3 B+ 12/31/04 to 12/31/05 8,955,038
50,000 Magellan Health Services, Inc., Term Loan............. B1 B+ 02/12/05 50,043,973
6,714 Medical Specialties Group, Inc., Term Loan............ NR NR 06/30/01 to 06/30/04 6,714,775
11,000 Mediq/PRN Life Support Services, Inc., Term Loan...... B1 B+ 06/30/06 11,009,847
16,230 MedPartners, Inc., Term Loan.......................... Ba3 BB- 05/31/01 16,229,793
3,536 MedPartners, Inc., Revolving Credit................... Ba3 BB- 05/31/01 3,535,718
15,209 Multicare Companies, Inc., Term Loan.................. B1 B+ 09/30/04 to 06/01/05 15,208,750
45,000 National Medical Care, Inc., Term Loan................ Ba1 BB 09/30/03 45,072,780
13,500 Oxford Health Plans, Inc., Term Loan.................. B3 NR 05/15/03 13,500,012
25,000 Paragon Health Network, Inc., Term Loan............... Ba3 B+ 03/31/05 to 03/31/06 25,000,000
35,142 Quest Diagnostics, Inc., Term Loan.................... Ba3 BB+ 12/05/02 to 06/30/06 35,186,936
7,940 SMT Health Services, Inc., Term Loan.................. NR NR 08/30/03 7,939,863
</TABLE>
See Notes to Financial Statements
A-6
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
HEALTHCARE (CONTINUED)
$ 49,704 Sun Healthcare Group, Inc., Term Loan................. Ba3 B+ 11/12/04 to 11/12/05 $ 49,709,375
90,000 Total Renal Care Holdings, Inc., Term Loan............ Ba2 NR 03/31/08 90,000,000
61,111 Vencor, Inc., Term Loan............................... B1 B+ 01/15/05 61,111,220
--------------
788,072,014
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE
CONSUMER PRODUCTS 1.7%
13,000 Corning Consumer Products, Co., Term Loan............. B1 BB- 10/09/06 13,000,000
50,765 Dal-Tile Group, Inc., Term Loan....................... NR NR 12/31/02 to 12/31/03 50,858,413
4,582 Dal-Tile Group, Inc., Revolving Credit................ NR NR 12/31/02 4,583,515
34,000 Furniture Brands International, Inc., Term Loan....... NR NR 06/30/07 34,014,648
20,834 Imperial Home Decor Group, Inc., Term Loan............ B1 B+ 03/12/04 to 03/13/06 20,834,026
2,252 Imperial Home Decor Group, Inc., Revolving Credit..... B1 B+ 03/12/04 2,252,252
--------------
125,542,854
--------------
HOTELS, MOTELS, & GAMING 0.8%
41,000 Aladdin Gaming, LLC, Term Loan........................ B2 NR 02/26/08 41,000,000
9,759 Alliance Gaming Corp., Term Loan...................... B2 NR 01/31/05 9,758,833
2,143 Alliance Gaming Corp., Delayed Draw Term Loan......... B1 BB 01/31/05 2,142,783
4,941 Las Vegas Sands, Inc., Term Loan...................... NR B+ 11/30/03 4,941,236
780 Las Vegas Sands, Inc., Revolving Credit............... NR B+ 11/30/03 779,836
--------------
58,622,688
--------------
INSURANCE 0.2%
17,500 BRW Acquisition, Inc., Term Loan...................... NR NR 07/10/06 to 07/10/07 17,500,000
--------------
MACHINERY 0.4%
9,500 Alliance Laundry Systems, LLC, Term Loan.............. B1 B+ 06/30/05 9,501,790
15,000 Ocean Rig (Norway), Term Loan......................... NR NR 06/01/08 15,000,700
5,916 RIGCO N. A., LLC, Term Loan........................... NR NR 09/30/98 5,919,724
--------------
30,422,214
--------------
MINING, STEEL, IRON, & NON-PRECIOUS METALS 0.4%
10,195 Alliance Coal Corp., Term Loan........................ NR NR 12/31/01 to 12/31/02 10,199,370
5,486 Earle M. Jorgensen, Term Loan......................... B1 B+ 03/31/04 5,507,098
9,603 Fairmont Minerals Ltd., Term Loan..................... NR NR 02/25/05 9,602,396
4,997 Global Metal Technologies, Inc., Term Loan............ NR NR 03/13/05 4,996,202
--------------
30,305,066
--------------
NATURAL RESOURCES -- COAL 0.1%
4,711 Centennial Resources, Inc., Term Loan................. NR NR 03/31/02 to 03/31/04 4,248,201
--------------
NON-DURABLE CONSUMER PRODUCTS 0.1%
4,045 Homemaker Industries, Inc., Term Loan................. NR NR 06/30/04 4,053,574
--------------
PAPER & FOREST PRODUCTS 0.9%
24,509 Crown Paper Co., Term Loan............................ Ba3 BB 08/23/02 24,512,546
3,258 Crown Paper Co., Revolving Credit..................... Ba3 BB 08/23/02 3,259,818
4,000 CST/Office Products Corp., Term Loan.................. NR NR 12/31/01 4,003,767
15,000 Le Group Forex, Inc., Term Loan....................... NR BB 06/30/05 15,000,000
17,156 Paper Acquisition Corp., Term Loan.................... NR NR 06/17/01 17,156,190
--------------
63,932,321
--------------
PERSONAL & MISCELLANEOUS SERVICES 0.5%
9,150 Arena Brands, Inc., Term Loan......................... NR NR 06/01/02 9,150,000
600 Arena Brands, Inc., Revolving Credit.................. NR NR 06/01/02 600,000
22,795 Boyds Collection Ltd., Term Loan...................... Ba3 B+ 04/21/06 22,795,022
</TABLE>
See Notes to Financial Statements
A-7
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
PERSONAL & MISCELLANEOUS SERVICES (CONTINUED)
$ 4,786 Smarte Carte Corp., Term Loan......................... NR NR 06/30/03 $ 4,790,084
--------------
37,335,106
--------------
PHARMACEUTICALS 0.4%
17,167 Endo Pharmaceuticals, Inc., Term Loan................. NR NR 06/30/04 17,166,717
11,726 King Pharmaceuticals, Inc., Term Loan................. NR NR 02/27/04 11,725,916
--------------
28,892,633
--------------
PRINTING/PUBLISHING 4.2%
15,000 Advanstar Communications, Term Loan................... Ba3 B+ 04/30/05 15,000,000
13,889 ADVO, Inc., Term Loan................................. NR NR 09/29/03 13,889,458
35,000 American Media Operations, Inc., Term Loan............ Ba2 BB- 03/31/04 35,000,094
9,950 Bear Island Paper Co., LLC, Term Loan................. Ba3 B+ 12/31/05 9,949,705
9,000 Cygnus Publishing, Inc., Term Loan.................... NR NR 06/05/05 9,018,267
60,000 Journal Register Co., Term Loan....................... Ba1 BB+ 09/30/06 60,000,000
32,385 Morris Communications, Inc., Term Loan................ NR NR 03/31/04 to 06/30/05 32,393,080
34,315 Outdoor Systems, Inc., Term Loan...................... Ba2 BB- 06/30/04 34,323,366
19,000 PRIMEDIA, Inc., Term Loan............................. Ba3 NR 06/30/04 19,001,836
7,429 TransWestern Publishing, L.P., Term Loan.............. Ba3 B+ 10/01/04 7,429,412
7,845 Von Hoffman Press, Inc., Term Loan.................... B1 B+ 05/30/03 to 05/30/05 7,852,215
2,016 Von Hoffman Press, Inc., Revolving Credit............. B1 B+ 05/30/03 2,016,000
5,000 Yellow Book USA, L.P., Term Loan...................... NR NR 12/15/05 to 12/05/06 5,000,000
45,000 Ziff-Davis Publishing, Inc., Term Loan................ Ba2 BB 03/31/05 45,000,000
9,975 21st Century Newspaper, Inc., Term Loan............... NR NR 09/15/05 9,973,953
--------------
305,847,386
--------------
RESTAURANTS & FOOD SERVICE 1.9%
12,500 Applebee's International, Inc., Term Loan............. Ba3 NR 03/31/06 12,500,429
5,657 California Pizza Kitchen, Inc., Term Loan............. NR NR 09/30/04 5,657,250
943 Carvel Corp., Term Loan............................... NR NR 12/31/98 848,403
37,730 CKE Restaurants, Inc., Term Loan...................... Ba2 NR 04/15/03 37,730,196
9,893 IM Stadium, Inc., Term Loan........................... NR NR 12/31/02 to 12/31/03 9,892,833
5,932 Jet Plastica Industries, Inc., Term Loan.............. NR NR 12/31/02 to 12/31/04 5,944,157
42,253 S.C International Services, Inc., Term Loan........... Ba3 NR 08/28/02 42,252,500
26,275 Shoney's, Inc., Term Loan............................. Ba3 NR 04/30/02 26,275,244
--------------
141,101,012
--------------
RETAIL -- CATALOG 0.0%
2,267 Brylane, L.P., Term Loan.............................. Ba2 NR 10/20/02 2,266,667
860 Brylane, L.P., Revolving Credit....................... Ba2 NR 06/30/02 860,017
--------------
3,126,684
--------------
RETAIL -- LUXURY GOODS 0.1%
9,321 Ebel USA, Inc., Term Loan............................. NR NR 09/30/01 9,322,247
--------------
RETAIL -- OFFICE PRODUCTS 0.7%
6,386 Identity Group, Inc., Term Loan....................... NR NR 11/22/03 6,392,008
45,000 U.S. Office Products Co., Term Loan................... B1 B- 06/09/06 45,000,235
--------------
51,392,243
--------------
RETAIL -- OIL & GAS 0.2%
11,900 TravelCenters of America, Inc., Term Loan............. Ba2 BB 03/31/05 11,915,060
--------------
RETAIL -- SPECIALTY 0.2%
7,083 Hollywood Entertainment Corp., Revolving Credit....... Ba3 NR 09/05/02 7,083,330
7,952 Luxottica Group SPA, Term Loan........................ NR NR 06/30/01 7,952,383
--------------
15,035,713
--------------
RETAIL -- STORES 1.1%
11,500 Advance Stores Inc., Term Loan........................ NR NR 04/15/06 11,500,199
</TABLE>
See Notes to Financial Statements
A-8
<PAGE> 24
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
RETAIL -- STORES (CONTINUED)
$ 17,086 Color Tile, Inc., Term Loan........................... NR NR 12/31/98 $ 6,663,504
5,897 Kirkland's Holdings, Term Loan........................ NR NR 06/30/02 5,898,978
7,500 Nebraska Book Co., Inc., Term Loan.................... B1 B+ 03/31/06 7,500,010
24,407 Payless Cashways, Inc., Term Loan..................... B3 NR 11/30/02 24,406,856
5,700 Payless Cashways, Inc., Revolving Credit.............. B3 NR 05/31/02 5,700,006
15,702 Peebles, Inc., Term Loan.............................. NR NR 06/09/02 15,699,633
4,922 Vitamin Shoppe Industries, Inc., Term Loan............ NR NR 05/15/04 4,921,857
--------------
82,291,043
--------------
TELECOMMUNICATIONS -- CELLULAR 3.4%
10,000 American Cellular Wireless, Inc., Term Loan........... B2 NR 06/30/07 10,002,667
100,000 BCP SP Ltd., Term Loan................................ NR NR 03/16/00 99,000,420
75,000 Cellular, Inc., Financial Corp. (CommNet), Term
Loan.................................................. B1 B 09/18/06 to 09/18/07 75,001,104
65,000 Western Wireless Corp., Term Loan..................... B1 NR 03/31/05 65,000,101
--------------
249,004,292
--------------
TELECOMMUNICATIONS -- HYBRID 1.5%
21,120 Atlantic Crossing, Term Loan.......................... NR NR 11/30/02 21,120,151
90,000 Nextel Finance Co., Term Loan......................... Ba3 B- 09/30/06 90,001,092
2,870 Nextel Finance Co., Term Loan (Argentina)............. Ba3 B- 03/31/03 2,870,034
--------------
113,991,277
--------------
TELECOMMUNICATIONS -- PERSONAL COMMUNICATION
SYSTEMS 4.9%
50,000 Cox Communications, Inc., Term Loan................... Baa2 NR 12/31/06 49,995,848
74,822 Omnipoint Communications, Inc., Term Loan............. B2 B 02/17/06 74,822,229
11,000 Powertel PCS, Inc., Revolving Credit.................. NR NR 03/31/06 11,000,000
78,775 Sprint Spectrum L.P., Term Loan....................... Ba1 NR 01/31/02 78,847,703
70,000 Sprint, Lucent Technologies Vendor Facility, Term
Loan.................................................. NR NR 06/30/01 70,180,074
50,000 Sprint, Northern Telecom Vendor Facility, Term Loan... NR NR 03/31/05 50,252,588
21,000 Triton PCS, Inc., Term Loan........................... B1 B 05/04/07 21,000,000
--------------
356,098,442
--------------
TELECOMMUNICATIONS -- WIRELESS MESSAGING 2.2%
28,105 Arch Communications, Inc., Term Loan.................. B3 B- 12/31/02 to 06/30/06 28,108,136
30,412 Iridium Operating LLC, Term Loan...................... B2 B 12/31/98 30,412,502
12,500 Metrocall, Inc., Term Loan............................ B1 B 12/31/04 12,500,035
3,916 Metrocall, Inc., Revolving Credit..................... B1 B 12/31/04 3,981,840
64,005 Mobilemedia Communications, Inc., Term Loan........... NR NR 06/30/02 to 06/30/03 64,006,982
2,555 Mobilemedia Communications, Inc., Revolving Credit.... NR NR 06/30/02 2,555,872
9,500 Teletouch Communications, Inc., Term Loan............. NR NR 11/30/05 9,500,059
11,000 TSR Wireless LLC, Term Loan........................... NR NR 06/30/05 10,999,698
--------------
162,065,124
--------------
TEXTILES & LEATHER 1.1%
11,213 American Marketing Industries, Inc., Term Loan........ NR NR 11/30/02 11,212,500
8,910 GFSI, Inc., Term Loan................................. NR NR 03/31/04 8,914,031
14,913 Joan Fabrics Corp., Term Loan......................... NR NR 06/30/05 to 06/30/06 14,913,158
13,392 Johnston Industries, Inc., Term Loan.................. NR NR 07/01/00 13,391,679
9,925 Norwood Promotional Products, Inc., Term Loan......... NR NR 08/28/04 9,924,575
10,783 Polyfibron Technologies, Inc., Term Loan.............. NR NR 12/28/03 10,790,749
6,512 Simmons Co., Term Loan................................ Ba3 NR 03/31/03 6,512,466
6,984 William Carter Co., Term Loan......................... Ba3 BB- 10/30/03 6,988,949
--------------
82,648,107
--------------
</TABLE>
See Notes to Financial Statements
A-9
<PAGE> 25
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
TRANSPORTATION -- CARGO 1.4%
$ 28,695 Atlas Freighter Leasing, Inc., Term Loan.............. Ba3 NR 05/29/04 to 06/30/04 $ 28,707,711
9,975 CTC Distribution Services, LLC, Term Loan............. NR NR 02/15/06 9,975,083
39,245 Evergreen International Aviation, Inc., Term Loan..... Ba3 NR 05/31/02 to 05/31/03 39,321,652
7,550 Gemini Air Cargo, Inc., Term Loan..................... B1 NR 12/12/02 7,550,000
7,500 North American Van Lines, Inc., Term Loan............. NR NR 03/30/05 7,500,000
9,000 OmniTrax Railroads, LLC, Term Loan.................... NR NR 05/14/05 9,000,070
--------------
102,054,516
--------------
TRANSPORTATION -- MANUFACTURING COMPONENTS 0.5%
27,860 Cambridge Industries, Inc., Term Loan................. B1 NR 06/30/05 27,876,493
9,250 Eagle-Picher Industries, Inc., Term Loan.............. B1 B+ 08/31/05 to 08/31/06 9,250,027
--------------
37,126,520
--------------
TRANSPORTATION -- PERSONAL 0.9%
17,176 Blue Bird Body Co., Term Loan......................... Ba2 BB- 11/02/02 to 11/01/03 17,183,816
49,964 Continental Airlines, Inc., Term Loan................. Ba1 BB 07/31/02 to 07/31/04 50,000,617
--------------
67,184,433
--------------
TRANSPORTATION -- RAIL MANUFACTURING 0.3%
23,003 Johnstown America Industries, Inc., Term Loan......... Baa3 NR 03/31/03 23,003,430
--------------
TOTAL VARIABLE RATE ** SENIOR LOAN INTERESTS 90.5%............................................... 6,617,436,013
--------------
FIXED INCOME SECURITIES 0.8%
London Fog Industries, Inc. ($13,541,264 par, 10.00% coupon, maturing 02/27/03)................... 13,541,264
Satelites Mexicanos ($39,969,000 par, 10.00% coupon, maturing 06/30/04)........................... 40,018,961
--------------
TOTAL FIXED INCOME SECURITIES..................................................................... 53,560,225
--------------
EQUITIES 1.6%
AFC Enterprises, Inc. (604,251 common shares) (c)(d).............................................. 3,625,506
Best Products Co., Inc. (297,480 common shares) (d)............................................... 0
Best Products Co., Inc. (Warrants for 28,080 common shares) (d)................................... 0
Camelot Music Holdings, Inc. (1,994,717 common shares) (d)........................................ 84,775,472
Classic Cable, Inc. (Warrants for 760 common shares) (d).......................................... 0
Dan River, Inc. (192,060 common shares) (d)....................................................... 2,904,908
Flagstar Cos., Inc. (8,755 common shares) (d)..................................................... 22
London Fog Industries, Inc. (1,083,301 common shares) (c)(d)...................................... 24,298,441
London Fog Industries, Inc. (Warrants for 66,580 common shares) (d)............................... 446,752
Nextel Communications, Inc. (Warrants for 60,000 common shares) (c)(d)............................ 706,875
Payless Cashways, Inc. (1,024,159 common shares) (d).............................................. 2,304,358
RIGCO N.A., LLC (Warrants for .325% interest of company's fully diluted equity) (d)............... 16,250
Sarcom, Inc. (43 common shares) (d)............................................................... 0
--------------
TOTAL EQUITIES.................................................................................... 119,078,584
--------------
TOTAL LONG-TERM INVESTMENTS 92.9%
(Cost $6,795,256,044)............................................................................. 6,790,074,822
--------------
</TABLE>
See Notes to Financial Statements
A-10
<PAGE> 26
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Borrower Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS (CONTINUED)
SHORT-TERM INVESTMENTS 6.3%
COMMERCIAL PAPER 2.0%
Case Credit Corp. ($30,000,000 par, maturing 08/03/98, yielding 5.80% to 5.82%)................. $ 29,990,311
CSX Corp. ($30,000,000 par, maturing 08/06/98, yielding 5.77%).................................. 29,975,958
Illinois Central Railroad Co. ($7,900,000 par, maturing 08/05/98 to 08/11/98, yielding 5.70% to
5.81%).......................................................................................... 7,890,108
Nabisco, Inc. ($10,000,000 par, maturing 08/05/98, yielding 5.70%).............................. 9,993,667
Rite Aid Corp. ($8,500,000 par, maturing 08/06/98, yielding 5.70%).............................. 8,493,271
Safeway, Inc. ($14,000,000 par, maturing 09/02/98, yielding 5.71%).............................. 13,928,942
Tandy Corp. ($5,000,000 par, maturing 08/04/98, yielding 5.67%)................................. 4,997,638
Texas Utilities Co. ($31,000,000 par, maturing 08/04/98, yielding 5.82%)........................ 30,984,965
Western Resources, Inc. ($15,000,000 par, maturing 08/03/98, yielding 5.75%).................... 14,995,208
--------------
TOTAL COMMERCIAL PAPER.......................................................................... 151,250,068
--------------
SHORT-TERM LOAN PARTICIPATIONS 4.3%
Alltel Corp. ($5,000,000 par, maturing 08/07/98, yielding 5.66%)................................ 5,000,000
American Stores Co. ($22,500,000 par, maturing 08/31/98 to 09/28/98, yielding 5.78% to 5.80%)... 22,500,000
Anadarko Pete Corp. ($26,500,000 par, maturing 08/05/98 to 08/21/98, yielding 5.69%)............ 26,500,000
Bell Atlantic Financial Services, Inc. ($4,000,000 par, maturing 08/03/98, yielding 5.67%)...... 4,000,000
Cabot Corp. ($7,800,000 par, maturing 08/13/98, yielding 5.70%)................................. 7,800,000
Centex Corp. ($12,500,000 par, maturing 08/03/98, yielding 5.80%)............................... 12,500,000
Englehard Corp. ($30,000,000 par, maturing 08/04/98 to 08/07/98, yielding 5.69% to 5.76%)....... 30,000,000
International Paper Co. ($30,000,000 par, maturing 08/03/98, yielding 5.80%).................... 30,000,000
Nabisco, Inc. ($20,000,000 par, maturing 08/03/98, yielding 5.81%).............................. 20,000,000
Ralston Purina Co. ($39,000,000 par, maturing 08/04/98 to 08/09/98, yielding 5.69% to 5.76%).... 39,000,000
Tandy Corp. ($7,000,000 par, maturing 08/18/98, yielding 5.71%)................................. 7,000,000
Temple Inland, Inc. ($50,000,000 par, maturing 08/05/98 to 08/25/98, yielding 5.78% to 5.82%)... 50,000,000
Times Mirror Co. ($20,900,000 par, maturing 08/05/98, yielding 5.60% to 5.63%).................. 20,900,000
Times Mirror ($2,400,000 par, maturing 08/04/98, yielding 5.60%)................................ 2,400,000
Universal Corp. ($20,000,000 par, maturing 08/07/98, yielding 5.67%)............................ 20,000,000
Western Resources, Inc. ($15,000,000 par, maturing 08/20/98, yielding 5.71%).................... 15,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS............................................................ 312,600,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $463,850,068)............................................................................. 463,850,068
--------------
TOTAL INVESTMENTS 99.2%
(Cost $7,259,106,112)........................................................................... 7,253,924,890
OTHER ASSETS IN EXCESS OF LIABILITIES 0.8%...................................................... 58,958,513
--------------
NET ASSETS 100.0%............................................................................... $7,312,883,403
------------
</TABLE>
NR = Not rated
(a) This Senior Loan interest is non-income producing.
(b) This Borrower has filed for protection in federal bankruptcy court.
(c) Restricted security.
(d) Non-income producing security as this stock currently does not declare
dividends.
+ 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.
* 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 prime rate offered by
one or more major United States banks, (ii) the lending rate offered by one
or more major European banks, such as the London Inter-Bank Offered Rate
('LIBOR') 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
A-11
<PAGE> 27
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1998
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Total Investments (Cost $7,259,106,112)..................... $7,253,924,890
Receivables:
Interest and Fees......................................... 57,766,824
Fund Shares Sold.......................................... 26,406,743
Investments Sold.......................................... 9,271,953
Other....................................................... 55,596
--------------
Total Assets.......................................... 7,347,426,006
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 9,528,711
Custodian Bank............................................ 7,513,945
Investment Advisory Fee................................... 5,771,520
Administrative Fee........................................ 1,556,016
Fund Shares Repurchased................................... 1,368,644
Distributor and Affiliates................................ 1,299,338
Accrued Expenses............................................ 4,074,334
Deferred Facility Fees...................................... 3,273,920
Trustees' Deferred Compensation and Retirement Plans........ 156,175
--------------
Total Liabilities..................................... 34,542,603
--------------
NET ASSETS.................................................. $7,312,883,403
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 733,069,022 shares issued and
outstanding).............................................. $ 7,330,690
Paid in Surplus............................................. 7,327,247,726
Accumulated Undistributed Net Investment Income............. 10,753,143
Net Unrealized Depreciation................................. (5,181,222)
Accumulated Net Realized Loss............................... (27,266,934)
--------------
NET ASSETS.................................................. $7,312,883,403
==============
NET ASSET VALUE PER COMMON SHARE ($7,312,883,403 divided by
733,069,022 shares outstanding)........................... $ 9.98
==============
</TABLE>
See Notes to Financial Statements
A-12
<PAGE> 28
STATEMENT OF OPERATIONS
For the Year Ended July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $536,579,706
Fees........................................................ 17,284,122
Other....................................................... 3,414,378
------------
Total Income............................................ 557,278,206
------------
EXPENSES:
Investment Advisory Fee..................................... 63,011,682
Administrative Fee.......................................... 16,947,689
Shareholder Services........................................ 7,456,983
Legal....................................................... 2,007,500
Custody..................................................... 1,898,141
Trustees' Fees and Expenses................................. 192,260
Other....................................................... 4,191,259
------------
Total Expenses.......................................... 95,705,514
------------
NET INVESTMENT INCOME....................................... $461,572,692
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(17,725,403)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (31,460,156)
End of the Period......................................... (5,181,222)
------------
Net Unrealized Appreciation During the Period............... 26,278,934
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 8,553,531
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $470,126,223
============
</TABLE>
See Notes to Financial Statements
A-13
<PAGE> 29
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended July 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1998 July 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net Investment Income....................................... $ 461,572,692 $ 392,667,747
Net Realized Gain/Loss...................................... (17,725,403) 442,960
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 26,278,934 (25,147,243)
-------------- --------------
Change in Net Assets from Operations........................ 470,126,223 367,963,464
Distributions from Net Investment Income.................... (461,726,242) (390,215,999)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 8,399,981 (22,252,535)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Sold............................ 1,654,063,711 1,781,772,630
Value of Shares Issued Through Dividend Reinvestment........ 245,628,149 209,636,808
Cost of Shares Repurchased.................................. (832,176,219) (597,973,300)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 1,067,515,641 1,393,436,138
-------------- --------------
TOTAL INCREASE IN NET ASSETS................................ 1,075,915,622 1,371,183,603
NET ASSETS:
Beginning of the Period..................................... 6,236,967,781 4,865,784,178
-------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $10,753,143 and $5,369,829,
respectively)............................................... $7,312,883,403 $6,236,967,781
============== ==============
</TABLE>
See Notes to Financial Statements
A-14
<PAGE> 30
STATEMENT OF CASH FLOWS
For the Year Ended July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 470,126,223
---------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (1,046,568,647)
Increase in Interest and Fees Receivables................. (12,378,076)
Increase in Receivable for Investments Sold............... (8,515,656)
Increase in Other Assets.................................. (18,384)
Decrease in Deferred Facility Fees........................ (14,834,232)
Increase in Investment Advisory and Administrative Fees
Payable................................................. 1,043,363
Increase in Distributor and Affiliates Payable............ 357,450
Increase in Accrued Expenses.............................. 2,210,345
Increase in Deferred Compensation and Retirement Plans
Expenses................................................ 87,832
---------------
Total Adjustments....................................... (1,078,616,005)
---------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (608,489,782)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 1,650,625,395
Payments on Shares Repurchased.............................. (831,182,017)
Increase in Intra-day Credit Line with Custodian Bank....... 2,416,918
Cash Dividends Paid......................................... (213,370,514)
---------------
Net Cash Provided by Financing Activities................. 608,489,782
---------------
NET INCREASE IN CASH........................................ -0-
Cash at Beginning of the Period............................. -0-
---------------
CASH AT END OF THE PERIOD................................... $ -0-
===============
</TABLE>
See Notes to Financial Statements
A-15
<PAGE> 31
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended July 31,
----------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $ 9.963 $ 10.002 $ 10.046 $ 10.052 $ 10.004
-------- -------- -------- -------- --------
Net Investment Income..................................... .675 .701 .735 .756 .618
Net Realized and Unrealized Gain/Loss..................... .015 (.042) (.028) (.004) .015
-------- -------- -------- -------- --------
Total from Investment Operations............................ .690 .659 .707 .752 .633
Less Distributions from Net Investment Income............... .677 .698 .751 .758 .585
-------- -------- -------- -------- --------
Net Asset Value, End of the Period.......................... $ 9.976 $ 9.963 $ 10.002 $ 10.046 $ 10.052
======== ======== ======== ======== ========
Total Return (a)............................................ 7.22% 6.79% 7.22% 7.82% 6.52%
Net Assets at End of the Period (In millions)............... $7,312.9 $6,237.0 $4,865.8 $2,530.1 $1,229.0
Ratio of Expenses to Average Net Assets..................... 1.41% 1.42% 1.46% 1.49% 1.53%
Ratio of Net Investment Income to Average Net Assets........ 6.81% 7.02% 7.33% 7.71% 6.16%
Portfolio Turnover (b)...................................... 73% 83% 66% 71% 74%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the contingent deferred sales charge.
(b) Calculation includes the proceeds from repayments and sales of variable rate
senior loan interests.
See Notes to Financial Statements
A-16
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
July 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Prime Rate Income Trust, formerly known as Van Kampen American
Capital Prime Rate 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 United States
corporations, partnerships and other entities. The Trust commenced investment
operations on October 4, 1989.
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 generally
accepted accounting principles 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 value of the Trust's Variable Rate Senior Loan
interests, totaling $6,617,436,013 (90.5% of net assets) is determined in the
absence of actual market values by Van Kampen Investment Advisory Corp. (the
"Adviser") following guidelines and procedures established, and periodically
reviewed, by the Board of Trustees. The value of a Variable Rate Senior Loan
interest in the Trust's portfolio is determined with reference to changes in
market interest rates and to the creditworthiness of the underlying obligor. In
valuing Variable Rate Senior Loan interests, the Adviser considers market
quotations and transactions in instruments that the Adviser believes may be
comparable to such Variable Rate Senior Loan interests. In determining the
relationship between such instruments and the Variable Rate Senior Loan
interests, the Adviser considers such factors as the creditworthiness of the
underlying obligor, the current interest rate, the interest rate redetermination
period and maturity date. To the extent that reliable market transactions in
Variable Rate Senior Loan interests have occurred, the Adviser also considers
pricing information derived from such secondary market transactions in valuing
Variable Rate Senior Loan interests. Because of uncertainty inherent in the
valuation process, the estimated value of a Variable Rate Senior Loan interest
may differ significantly from the value that would have been used had there been
market activity for that Variable Rate Senior Loan interest. Equity securities
are valued on the basis of prices furnished by pricing services or as determined
in good faith by the Adviser. Short-term securities with remaining maturities of
60 days or less are valued at amortized cost.
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 recognized as income ratably over the expected life of the
loan. Facilities fees on senior loans purchased after July 31, 1997, are treated
as market discounts. Market premiums and discounts are amortized over the stated
life of each applicable security.
A-17
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
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, 1998, the Trust had an accumulated capital
loss carryforward for tax purposes of $3,873,769, which will expire between July
31, 2004 and July 31, 2006. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of wash sales, past
October losses which may not be recognized for tax purposes until the first day
of the following fiscal year and losses that were recognized for tax purposes
but not for book purposes at the end of the fiscal year.
At July 31, 1998, for federal income tax purposes cost of long- and
short-term investments is $7,264,846,206, the aggregate gross unrealized
appreciation is $37,643,032 and the aggregate gross unrealized depreciation is
$48,564,348 resulting in net unrealized depreciation of $10,921,316.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1998 fiscal year have been identified and appropriately
reclassified. Permanent differences relating to expenses which are not
deductible for tax purposes totaling $293,828 were reclassified from accumulated
undistributed net investment income to capital, $3,294,396 relating to losses
recognized on the sale of securities which are deferred for tax purposes were
reclassified from accumulated net realized gains/losses to capital and
$5,243,036 relating to income and gain/loss recognized on restructured
securities were reclassified from accumulated net investment income to
accumulated net realized gain/loss.
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 payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ------------------------------------------------------------------------
<S> <C>
First $4.0 billion.......................................... .950 of 1%
Next $3.5 billion........................................... .900 of 1%
Next $2.5 billion........................................... .875 of 1%
Over $10.0 billion.......................................... .850 of 1%
</TABLE>
In addition, the Trust will pay a monthly administrative fee to Van
Kampen Funds Inc., the Trust's Administrator, at an annual rate of .25% of the
average net assets of the Trust. The administrative services to be 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.
A-18
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
For the year ended July 31, 1998, the Trust recognized expenses of
approximately $375,100 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.
For the year ended July 31, 1998, the Trust recognized expenses of
approximately $81,300 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing legal services to the Trust.
Van Kampen Investor Services Inc., ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Trust. For the year ended July
31, 1998, the Trust recognized expenses for these services of approximately
$5,423,300. Beginning in 1998, the transfer agency fees are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
market benchmarks.
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 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.
3. CAPITAL TRANSACTIONS
At July 31, 1998 and July 31, 1997, paid in surplus aggregated $7,327,247,726
and $6,264,390,819, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 1998 JULY 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................................ 626,018,023 486,490,317
----------- -----------
Shares Sold................................................. 165,907,778 178,438,954
Shares Issued Through Dividend Reinvestment................. 24,636,104 20,996,830
Shares Repurchased.......................................... (83,492,883) (59,908,078)
----------- -----------
Net Increase in Shares Outstanding.......................... 107,050,999 139,527,706
----------- -----------
Ending Shares............................................... 733,069,022 626,018,023
=========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $5,864,054,259 and
$4,408,914,721, respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Trust to make tender offers for all or a portion of its then outstanding
common shares at the then net asset value of the common shares. For the year
ended July 31, 1998, 83,492,883 shares were tendered and repurchased by the
Trust.
A-19
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
6. EARLY WITHDRAWAL CHARGE
An early withdrawal charge to recover offering expenses will be imposed in
connection with most common shares held for less than five years which are
accepted by the Trust for repurchase pursuant to tender offers. The early
withdrawal charge will be payable to Van Kampen. Any early withdrawal charge
which is required to be imposed will be made in accordance with the following
schedule.
<TABLE>
<CAPTION>
WITHDRAWAL
YEAR OF REPURCHASE CHARGE
- -----------------------------------------------------------------------
<S> <C>
First....................................................... 3.0%
Second...................................................... 2.5%
Third....................................................... 2.0%
Fourth...................................................... 1.5%
Fifth....................................................... 1.0%
Sixth and following......................................... 0.0%
</TABLE>
For the year ended July 31, 1998, Van Kampen received early withdrawal
charges of approximately $16,169,200 in connection with tendered shares of the
Trust.
7. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $417,155,600 as of July
31, 1998. The Trust generally will maintain with its custodian short-term
investments having an aggregate value at least equal to the amount of unfunded
loan commitments.
The Trust has entered into a revolving credit agreement with a syndicate led
by Bank of America for an aggregate of $500,000,000. The proceeds of any
borrowing by the Trust under the revolving credit agreement may only be used,
directly or indirectly, for liquidity purposes in connection with the
consummation of a tender offer by the Trust for its shares. Annual commitment
fees of .065% are charged on the unused portion of the credit line. Borrowings
under this facility will bear interest at either the LIBOR rate or the Federal
Funds rate plus .375%. There have been no borrowings under this agreement to
date.
A-20
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. 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 Trust and the borrower.
At July 31, 1998, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Trust on a participation
basis.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Lehman Brothers............................................. $100,000 $100,000
Chase Securities Inc........................................ 77,732 77,735
Bankers Trust............................................... 60,071 59,991
Bank of New York............................................ 52,257 52,257
Donaldson Lufkin Jenrette................................... 9,748 9,748
Canadian Imperial Bank of Commerce.......................... 6,619 6,622
Goldman Sachs............................................... 6,480 6,350
Fleet National Bank......................................... 3,000 3,000
-------- --------
Total....................................................... $315,907 $315,703
======== ========
</TABLE>
9. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position our business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Trust, but we do not
anticipate that the move to Year 2000 will have a material impact on our ability
to continue to provide the Trust with service at current levels. In addition, it
is possible that the securities markets in which the Trust invests may be
detrimentally affected by computer failures throughout the financial services
industry beginning January 1, 2000. Improperly functioning trading systems may
result in settlement problems and liquidity issues.
A-21
<PAGE> 1
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-------------------------------------------------------------------------------
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
REGARDING COMMON SHARES
OF
VAN KAMPEN PRIME RATE INCOME TRUST
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 19, 1999
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT EASTERN STANDARD
TIME ON APRIL 16, 1999, UNLESS THE OFFER IS EXTENDED
Ladies and Gentlemen:
The undersigned hereby tenders to the Van Kampen Prime Rate Income Trust, a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust (the "Trust"), the common shares of beneficial
interest, par value $0.01 per share, of the Trust (the "Common Shares")
described below in Box No. 1, at a price (the "Purchase Price") equal to the net
asset value per Common Share ("NAV") determined as of 5:00 P.M. Eastern Standard
time on the Expiration Date (as defined in the Offer to Purchase), upon the
terms and conditions set forth in the Offer to Purchase, dated March 19, 1999,
receipt of which is hereby acknowledged, and in this Letter of Transmittal and
the Instructions hereto (which together constitute the "Offer"). An Early
Withdrawal Charge (as defined in the Offer to Purchase) will be imposed on most
Common Shares accepted for payment which have been held for less than five
years.
Subject to and effective upon acceptance for payment of the Common Shares
tendered hereby in accordance with the terms of the Offer (including, if the
Offer is extended or amended, the terms or conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Trust all right, title and interest in and to all Common Shares
tendered hereby that are purchased pursuant to the Offer and hereby irrevocably
constitutes and appoints Van Kampen Investor Services Inc. (the "Depositary") as
attorney-in-fact of the undersigned with respect to such Common Shares, with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) deliver certificates for
such Common Shares or transfer ownership of such Common Shares on the Trust's
books, together in either such case with all accompanying evidences of transfer
and authenticity, to or upon the order of the Trust, upon receipt by the
Depositary, as the undersigned's agent, of the NAV per Common Share with respect
to such Common Shares; (b) present certificates for such Common Shares, if any,
for cancellation and transfer on the Trust's books; (c) deduct from the Purchase
Price deposited with the Depositary any applicable Early Withdrawal Charge and
remit such charge to Van Kampen Funds Inc.; and (d) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Common Shares,
subject to the next paragraph, all in accordance with the terms of the Offer.
<PAGE> 2
The undersigned hereby represents and warrants that: (a) the undersigned
has a "net long position" in the Common Shares tendered hereby within the
meaning of Rule 14e-4 promulgated under the Securities Act of 1934, as amended,
and has full power and authority to validly tender, sell, assign and transfer
the Common Shares tendered hereby; (b) when and to the extent the Trust accepts
the Common Shares for purchase, the Trust will acquire good, marketable and
unencumbered title to them, free and clear of all security interests, liens,
charges, encumbrances, conditional sales agreements or other obligations
relating to their sale or transfer, and not subject to any adverse claim; (c) on
request, the undersigned will execute and deliver any additional documents the
Depositary or the Trust deems necessary or desirable to complete the assignment,
transfer and purchase of the Common Shares tendered hereby; and (d) the
undersigned has read and agrees to all of the terms of this Offer.
The names and addresses of the registered owners should be printed, if they
are not already printed, in Box 1 as they appear on the registration of the
Common Shares. The number of Common Shares that the undersigned wishes to tender
should be indicated in Box No. 1, which number may be determined by indicating
in Option B of such box the dollar amount of proceeds the undersigned desires to
receive pursuant to the tender offer after any applicable Early Withdrawal
Charge has been deducted from such proceeds. The undersigned may elect to have
the Depositary invest the cash proceeds of the Offer in Class B Shares of
certain open-end investment companies advised by either Van Kampen Investment
Advisory Corp. or Van Kampen Asset Management Inc. and distributed by Van Kampen
Funds Inc. by indicating in Option C. If the Common Shares tendered hereby are
in certificate form, the certificates representing such Common Shares must be
returned together with this Letter of Transmittal.
The undersigned recognizes that under certain circumstances set forth in
the Offer to Purchase, the Trust may terminate or amend the Offer or may not be
required to purchase any of the Common Shares tendered hereby. In any such
event, the undersigned understands that certificate(s) for any Common Shares not
purchased, if any, will be returned to the undersigned at the address indicated
below in Box No. 1 unless otherwise indicated under the Special Payment and
Delivery Instructions in Box No. 2.
The undersigned understands that acceptance of Common Shares by the Trust
for payment will constitute a binding agreement between the undersigned and the
Trust upon the terms and subject to the conditions of the Offer.
The check for the Purchase Price of the tendered Common Shares purchased,
minus any applicable Early Withdrawal Charge, will be issued to the order of the
undersigned and mailed to the address indicated below in Box No. 1, unless
otherwise indicated in Box No. 2. Shareholders tendering Common Shares remain
entitled to receive dividends declared on such shares up to the settlement date
of the Offer. The Trust will not pay interest on the Purchase Price under any
circumstances.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and all obligations of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Except as stated in the Offer, this tender is
irrevocable.
DELIVERY TO AN ADDRESS OTHER THAN THAT SHOWN BELOW DOES NOT CONSTITUTE VALID
DELIVERY.
SEND TO: VAN KAMPEN INVESTOR SERVICES INC., Depositary
<TABLE>
<S> <C>
By Regular Mail, By, Certified, Registered,
Van Kampen Investor Services Inc. Overnight Mail or Courier
P.O. Box 419511 Van Kampen Investor Services Inc.
Kansas City, MO 64141-6511 7501 Tiffany Springs Parkway
Attn: Van Kampen Kansas City, MO 64153
Prime Rate Income Trust Tender Attn: Van Kampen
Prime Rate Income Trust Tender
</TABLE>
FOR ADDITIONAL INFORMATION CALL:
(800) 341-2911
38 PRT004(a)-03/99
<PAGE> 3
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-------------------------------------------------------------------------------
THIS LETTER OF TRANSMITTAL IS TO BE USED ONLY IF THE COMMON SHARES TO BE
TENDERED ARE REGISTERED IN THE SHAREHOLDER'S NAME AND THE NECESSARY DOCUMENTS
WILL BE TRANSMITTED TO THE DEPOSITARY BY THE SHAREHOLDER OR HIS BROKER, DEALER
OR OTHER SELLING GROUP MEMBER. DO NOT USE THIS FORM IF A BROKER, DEALER OR OTHER
SELLING GROUP MEMBER IS THE REGISTERED OWNER OF THE COMMON SHARES AND IS
EFFECTING THE TRANSACTION FOR THE SHAREHOLDER.
IF THE COMMON SHARES TENDERED HEREBY ARE IN CERTIFICATE FORM, THE
CERTIFICATES REPRESENTING SUCH COMMON SHARES MUST BE RETURNED TOGETHER WITH THIS
LETTER OF TRANSMITTAL. PLEASE NOTE THAT WE SUGGEST THAT SUCH CERTIFICATES BE
RETURNED VIA CERTIFIED OR REGISTERED MAIL.
TO ENSURE PROCESSING OF YOUR REQUEST, THIS LETTER OF TRANSMITTAL OR A
MANUALLY SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR COMMON
SHARES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY ON
OR BEFORE THE EXPIRATION DATE (APRIL 16, 1999).
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BOX NO. 1: SHAREHOLDER INFORMATION
- ---------------------------------------------------
Name and Address of Registered Owner Shareholder Information
- ---------------------------------------------------
PLEASE PROVIDE:Social Security No.
Confirm No.
(if applicable)
ACCOUNT NO.:
- ---------------------------------------------------
</TABLE>
CHECK ONE OF THE FOLLOWING AND FILL IN THE APPROPRIATE AMOUNT
OPTION A: [ ] I hereby tender ALL COMMON SHARES of the Trust. I understand
that an Early Withdrawal Charge will be imposed on most
Common Shares accepted for payment that have been held for
less than five years and that such charge, if any, will be
deducted from the proceeds from such Common Shares. (See
Instruction 3 and 4(f)).
OPTION B: [ ] I hereby tender __________ Common Shares of the Trust or
that certain number of Common Shares of the Trust necessary
to receive $__________ from the Trust after the Early
Withdrawal Charge, if any, is to be deducted from tendering
these Common Shares. (See Instruction 3 and 4(f)).
OPTION C: [ ] I hereby tender __________ Common Shares of the Trust and
elect to have the proceeds from such tender invested into
Class B Shares of __________________________________ Fund
Acct. No. __________ (if applicable). (See Instruction 3).
- --------------------------------------------------------------------------------
PLEASE NOTE:
1. Additional legal documentation may be required.
2. If the account indicated by the account number in this Box No. 1 is a Van
Kampen FIDUCIARY IRA ACCOUNT, an IRA DISTRIBUTION FORM MUST be submitted
with this Letter of Transmittal.
3. If the SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER IS NOT
CERTIFIED, OR THE ACCOUNT IS BEING TRANSFERRED TO A NEW SOCIAL SECURITY
NUMBER OR TAX IDENTIFICATION NUMBER, THE ENCLOSED FORM W-9 MUST be
completed and signed by the account owner. (Estate accounts must be signed
by the legal representative of the estate and bear the estate tax
identification number and not the social security number of the deceased.
Completion of the Form W-9 certifies the tax identification number.
Certification will prevent a 31% withholding pursuant to Internal Revenue
Service regulations.)
PLEASE BE SURE TO COMPLETE BOTH SIDES OF THIS FORM
<PAGE> 4
<TABLE>
<S> <C>
-----------------------------------------------
BOX NO. 2: SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 3 AND 4)
-----------------------------------------------
To be completed ONLY if any checks are to be sent or wired to someone other than the undersigned
and/or any checks or certificates for Common Shares not tendered or not purchased are to be sent
to the undersigned at an address other than that shown above in Box No. 1. A SIGNATURE GUARANTEE
IS REQUIRED IF THIS PORTION IS COMPLETED.
-----------------------------------------------
CHECK/CERTIFICATE INFORMATION BANK WIRE INFORMATION
-----------------------------------------------
PAYEE: Wire Proceeds To: [ ] Checking [
If you would like the check and/or certificates ] Savings
PAYABLE to someone other than who the account (Minimum $5,000 to be wired)
is registered, please provide the following:
Bank
Name(s) (NAME)
(PLEASE PRINT)
Address
Address
ABA Routing No.
(INCLUDE ZIP CODE) Account No.
(SHAREHOLDER'S BANK ACCOUNT NO.)
MAILING:
If you would like the check and/or certificates Bank Account Registration
MAILED to an address other than the account (NAME)
registration, please provide the following: Please attach a voided check or deposit slip if
possible.
Name(s)
(PLEASE PRINT)
Address
(INCLUDE ZIP CODE)
-----------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------
</TABLE>
BOX NO. 3: SIGNATURES (SEE INSTRUCTIONS 2, 3 AND 4)
- --------------------------------------------------------------------------------
A. By signing this Letter of Transmittal, you represent that you have read
the letter printed on the other side of this page and the Instructions
enclosed herewith, which Instructions form part of the terms and
conditions of the Offer.
B. This Letter of Transmittal must be signed by the registered owner(s) of
the Common Shares tendered hereby or by person(s) authorized to become
registered owner(s) by documents transmitted herewith. If signature is by
attorney-in-fact, executor, administrator, trustee, guardian, officer of
a corporation or another acting in a fiduciary or representative
capacity, please set forth the name and full title of such authorized
signor and include the required additional legal documentation regarding
the authority of the signor. See Instruction 4.
NOTE: ANY QUESTIONS REGARDING ADDITIONAL LEGAL DOCUMENTATION WHICH MAY BE
REQUIRED SHOULD BE DIRECTED TO OUR INVESTOR SERVICES DEPARTMENT AT (800)
341-2911.
C. YOUR SIGNATURE MUST BE GUARANTEED and you MUST complete the signature
guarantee in this Box No. 3 if (i) the value of the Common Shares
tendered herewith pursuant to the OFFER IS GREATER THAN $50,000, (ii)
this LETTER OF TRANSMITTAL IS SIGNED BY SOMEONE OTHER THAN THE REGISTERED
HOLDER OF THE COMMON SHARES TENDERED HEREWITH, or (iii) you REQUEST
PAYMENT FOR THE COMMON SHARES TENDERED HEREWITH TO BE SENT TO A PERSON
OTHER THAN THE REGISTERED OWNER of such Common Shares for the benefit of
such owner(s) and/or TO AN ADDRESS OTHER THAN THE REGISTERED ADDRESS OF
THE REGISTERED OWNER of the Common Shares. For information with respect
to what constitutes an acceptable guarantee, please see Instruction 4(f).
D. See Instruction 8 and Form W-9 enclosed herewith regarding backup
withholding.
................................................................................
................................................................................
(SIGNATURE(S) OF OWNER(S) EXACTLY AS REGISTERED)
Dated ...................................................., 1999 DAYTIME
TELEPHONE NUMBER( ) ...........................................
SIGNATURE GUARANTEE (IF
APPLICABLE):
............................................................................
Bank Name
............................................................................
Print Name of Authorized
Signer
Telephone Number ( )
............................... (Affix signature guarantee stamp above if
required)
- --------------------------------------------------------------------------------
38 PRT004(b)-03/99
<PAGE> 5
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VAN KAMPEN PRIME RATE INCOME TRUST
LETTER OF TRANSMITTAL (CONTINUED)
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used only if the Common Shares to be tendered are
registered in the shareholder's name and the necessary documents will be
transmitted to the Depositary by the shareholder or his broker, dealer or other
selling group member. Do not use this form if a broker, dealer or other selling
group member is the registered owner of the Common Shares and is effecting the
transaction for the shareholder. A PROPERLY COMPLETED AND DULY EXECUTED LETTER
OF TRANSMITTAL OR MANUALLY SIGNED FACSIMILE OF IT, ANY CERTIFICATES REPRESENTING
COMMON SHARES TENDERED AND ANY OTHER DOCUMENTS REQUIRED BY THIS LETTER OF
TRANSMITTAL SHOULD BE MAILED OR DELIVERED TO THE DEPOSITARY AT THE ADDRESS SET
FORTH IN THIS LETTER OF TRANSMITTAL AND MUST BE RECEIVED BY THE DEPOSITARY ON OR
PRIOR TO THE EXPIRATION DATE (APRIL 16, 1999).
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR COMMON
SHARES, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED.
THE TRUST WILL NOT ACCEPT ANY ALTERNATIVE, CONDITIONAL OR CONTINGENT
TENDERS. ALL TENDERING SHAREHOLDERS, BY EXECUTION OF THIS LETTER OF TRANSMITTAL
(OR A MANUALLY SIGNED FACSIMILE OF IT), WAIVE ANY RIGHT TO RECEIVE ANY NOTICE OF
THE ACCEPTANCE OF THEIR TENDER.
2. COMPLETING THIS LETTER OF TRANSMITTAL. If you intend to tender any
Common Shares pursuant to the Offer, please complete the Letter of Transmittal
as follows:
(a) Read the Letter of Transmittal in its entirety. By signing the
Letter of Transmittal in Box No. 3, you agree to its terms.
(b) Complete Box No. 1 by providing your Social Security Number, a
Confirm Number, if applicable, and selecting and completing either Option
A, Option B or Option C.
(c) Complete Box No. 2 if certificates for Common Shares not tendered
or not purchased and/or any check issued in the name of a person other than
the signer of the Letter of Transmittal are to be sent or wired to someone
other than such signer or to the signer at an address other than that shown
in Box No. 1.
(d) Complete Box No. 3 in accordance with Instruction 4 set forth
below.
3. PARTIAL TENDERS, UNPURCHASED SHARES AND EXCHANGES. If fewer than all of
the Common Shares evidenced by any certificate submitted are to be tendered and
if any tendered Common Shares are purchased, a new certificate for the remainder
of the Common Shares evidenced by your old certificate(s) will be issued and
sent to the registered owner, unless otherwise specified in Box No. 2 of this
Letter of Transmittal, as soon as practicable after the Expiration Date of the
Offer.
Tendering shareholders who elect to have the Depositary invest the cash
proceeds from the tender of Common Shares of the Trust in Class B Shares of
certain open-end investment companies advised by either Van Kampen Investment
Advisory Corp. or Van Kampen Asset Management Inc. and distributed by Van Kampen
Funds Inc. should select and complete Option C. The Early Withdrawal Charge will
be waived for Common Shares tendered for reinvestment pursuant to this election;
however, such Class B Shares immediately become subject to a contingent deferred
sales charge schedule equivalent to the Early Withdrawal Charge schedule of the
Trust.
4. SIGNATURES ON LETTER OF TRANSMITTAL, AUTHORIZATIONS AND ENDORSEMENTS.
(a) If this Letter of Transmittal is signed by the registered owner(s)
of the Common Shares tendered hereby, the signature(s) must correspond
exactly with the name(s) in which the Common Shares are registered.
(b) If the Common Shares are held of record by two or more joint
owners, each such owner must sign this Letter of Transmittal.
(c) If any tendered Common Shares are registered in different names,
it will be necessary to complete, sign and submit as many separate Letters
of Transmittal (or manually signed facsimiles of it) as there are different
registrations of Common Shares.
(d) When this Letter of Transmittal is signed by the registered
owner(s) of the Common Shares listed and transmitted hereby, no
endorsements of any certificate(s) representing such Common Shares or
separate authorizations are required. If, however, payment is to be made to
a person other than the registered owner(s), any unpurchased Common Shares
are to be registered in the name of any person other than the registered
owner(s) or any certificates for unpurchased Common Shares are to be issued
to a person other than the registered owner(s), then the Letter of
Transmittal and, if applicable, the certificate(s) transmitted hereby, must
be endorsed or accompanied by appropriate authorizations, in either case
signed exactly as such name(s) appear on the registration of the Common
Shares and on the face of the certificate(s) and such endorsements or
authorizations must be guaranteed by an institution described in Box No. 3.
(e) If this Letter of Transmittal or any certificates or
authorizations are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in
a fiduciary or representative capacity, such persons should so indicate
when signing and must submit proper evidence satisfactory to the Trust of
their authority so to act.
<PAGE> 6
(f) Your signature MUST be guaranteed and you MUST complete the
signature guarantee in Box No. 3 if (i) the value of the Common Shares
tendered herewith pursuant to the Offer is greater than $50,000, (ii) this
Letter of Transmittal is signed by someone other than the registered holder
of the Common Shares tendered herewith, or (iii) you request payment for
the Common Shares tendered herewith to be sent to a payee other than the
registered owner of such Common Shares and/or to an address other than the
registered address of the registered owner of the Common Shares. An
acceptable guarantee is one made by a bank or trust company; a
broker-dealer; a credit union; a national securities exchange, registered
securities association or clearing agency; a savings and loan association;
or a federal savings bank. The guarantee must state the words "Signature
Guaranteed" along with the name of the granting institution. Shareholders
should verify with the institution that it is an eligible guarantor prior
to signing. A guarantee from a notary public is not acceptable.
5. TRANSFER TAXES. The Trust will pay all share transfer taxes, if any,
payable on the transfer to it of Common Shares purchased pursuant to the Offer.
If, however, (a) payment of the Purchase Price is to be made to any person other
than the registered owner(s), (b) (in the circumstances permitted by the Offer)
unpurchased Common Shares are to be registered in the name(s) of any person
other than the registered owner(s) or (c) tendered certificates are registered
in the name(s) of any person other than the person(s) signing this Letter of
Transmittal, the amount of any transfer taxes (whether imposed on the registered
owner(s) or such other persons) payable on account of the transfer to such
person(s) will be deducted from the Purchase Price by the Depositary unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted.
6. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of Common Shares will
be determined by the Trust in its sole discretion, whose determination shall be
final and binding on all parties. The Trust reserves the absolute right to
reject any or all tenders determined by it not to be in appropriate form or the
acceptance of or payment for any Common Shares which may, in the opinion of the
Trust's counsel, be unlawful. The Trust also reserves the absolute right to
waive any of the conditions of the Offer or any defect or irregularity in tender
of any particular Common Shares or any particular shareholder, and the Trust's
interpretations of the terms and conditions of the Offer (including these
Instructions) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders must be cured within such
time as the Trust shall determine. Tendered Common Shares will not be accepted
for payment unless all defects and irregularities have either been cured within
such time or waived by the Trust. None of the Trust, Van Kampen Funds Inc., the
Depositary, or any other person shall be obligated to give notice of defects or
irregularities in tenders, nor shall any of them incur any liability for failure
to give any such notice.
7. QUESTIONS AND REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to, and additional copies of the
Offer to Purchase and this Letter of Transmittal may be obtained from Van Kampen
Funds Inc. located at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL
60181-5555, or by telephoning (800) 341-2911.
8. FORM W-9. Each tendering shareholder who has not already submitted a
completed and signed Form W-9 to the Trust is required to provide the Depositary
with a correct taxpayer identification number ("TIN") on Form W-9 which is
enclosed herewith. Failure to provide the information on the form may subject
the tendering shareholder to 31% federal income tax withholding on the payments
made to the shareholder or other payee with respect to Common Shares purchased
pursuant to the Offer.
9. WITHHOLDING ON FOREIGN SHAREHOLDERS. The Depositary will withhold
federal income taxes equal to 30% of the gross payments payable to a foreign
shareholder unless the Depositary determines that a reduced rate of withholding
or an exemption from withholding is applicable. For this purpose, a foreign
shareholder is any shareholder that is not (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) any estate the income of which is subject to United States
federal income taxation regardless of the source of such income or (iv) a trust
whose administration is subject to the primary jurisdiction of a United States
court and which has one or more United States fiduciaries who have authority to
control all substantial decisions of the trust. The Depositary will determine a
shareholder's status as a foreign shareholder and eligibility for a reduced rate
of, or an exemption from, withholding by reference to the shareholder's address
and to any outstanding certificates or statements concerning eligibility for a
reduced rate of, or exemption from, withholding unless facts and circumstances
indicate that reliance is not warranted. A foreign shareholder who has not
previously submitted the appropriate certificates or statements with respect to
a reduced rate of, or an exemption from, withholding for which such shareholder
may be eligible should consider doing so in order to avoid overwithholding. A
foreign shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss treatment
described in Section 15 of the Offer to Purchase or is otherwise able to
establish that no tax or a reduced amount of tax was due.
IMPORTANT: THE LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF IT
(TOGETHER WITH ANY CERTIFICATES FOR COMMON SHARES AND ALL OTHER REQUIRED
DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY ON OR BEFORE THE EXPIRATION DATE.
38 PRT005-03/99
<PAGE> 1
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EXHIBIT (a)(3)(i)
OFFER BY
VAN KAMPEN PRIME RATE INCOME TRUST
TO PURCHASE 56,800,049
OF ITS COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE
March 19, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees:
Pursuant to your request, we are enclosing herewith the material listed
below relating to the offer of Van Kampen Prime Rate Income Trust (the "Trust")
to purchase up to 56,800,049 of its common shares of beneficial interest with
par value of $0.01 per share (the "Common Shares") at net asset value per Common
Share ("NAV") determined as of 5:00 P.M. Eastern Standard time on the Expiration
Date (defined below) upon the terms and subject to the conditions set forth in
the Offer to Purchase dated March 19, 1999 and in the related Letter of
Transmittal (which together constitute the "Offer"). The Offer and withdrawal
rights will expire at 12:00 Midnight Eastern Standard time on April 16, 1999,
unless extended (the "Expiration Date"). An "Early Withdrawal Charge" will be
imposed on most Common Shares accepted for payment which have been held for less
than five years. The Offer is not conditioned upon any minimum number of Common
Shares being tendered but is subject to certain conditions as set forth in the
Offer to Purchase.
If more than 56,800,049 Common Shares are duly tendered prior to the
expiration of the Offer, the Trust presently intends to, assuming no changes in
the factors originally considered by the Board of Trustees when it determined to
make the Offer and the other conditions set forth in the Offer, but is not
obligated to, extend the Offer period, if necessary, and increase the number of
Common Shares that the Trust is offering to purchase to an amount which it
believes will be sufficient to accommodate the excess Common Shares tendered as
well as any Common Shares tendered during the extended Offer period or purchase
56,800,049 Common Shares (or such greater number of Common Shares sought) on a
pro rata basis.
No fees or commissions will be payable to brokers, dealers or other persons
for soliciting tenders of Common Shares pursuant to the Offer. The Trust will,
however, upon request, reimburse you for customary mailing and handling expenses
incurred by you in forwarding any of the enclosed materials to those of your
clients who have requested such materials. The Trust will pay all transfer taxes
on its purchase of shares, subject to Instruction 5 of the Letter of
Transmittal. However, backup tax withholding at a 31% rate may be required
unless an exemption is proved or unless the required tax identification
information is or has previously been provided. See Section 15 of the Offer to
Purchase and Instructions 8 and 9 to the Letter of Transmittal.
For your information and for forwarding to those of your clients who have
requested them, we are enclosing the following documents:
(1) Offer to Purchase dated March 19, 1999;
(2) Letter of Transmittal to be used by holders of Common Shares to
tender such shares to the Depositary directly or through their broker,
dealer or other nominee who is not the registered owner;
(3) Guidelines for Certification of Taxpayer Identification Number;
(4) Letter to Clients which may be sent to your clients for whose
account you hold Common Shares registered in your name (or in the name of
your nominee, with space provided for obtaining such clients' instructions
with regard to the Offer); and
(5) Return envelope addressed to the Depositary.
PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT
EASTERN STANDARD TIME ON APRIL 16, 1999, UNLESS THE OFFER IS EXTENDED. TO ENSURE
PROCESSING OF YOUR OR YOUR CLIENT'S REQUEST, A LETTER OF TRANSMITTAL OR A
MANUALLY SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR COMMON
SHARES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY ON
OR BEFORE THE EXPIRATION DATE (APRIL 16, 1999).
38 PRT009-03/99
BDR
<PAGE> 2
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Common Shares residing in any jurisdiction in which the
making of the Offer or the acceptance thereof would not be in compliance with
the laws of such jurisdiction.
Additional copies of the enclosed material may be obtained from Van Kampen
Funds Inc. at the appropriate address and telephone number set forth in the
Offer to Purchase. Any questions you have with respect to the Offer should be
directed to Van Kampen Funds Inc. at (800) 421-5666.
Very truly yours,
VAN KAMPEN PRIME RATE INCOME TRUST
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE TRUST OR THE DEPOSITARY OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY MATERIAL ON THEIR BEHALF WITH
RESPECT TO THE OFFER, OTHER THAN THE MATERIAL ENCLOSED HEREWITH AND THE
STATEMENTS SPECIFICALLY SET FORTH IN SUCH MATERIAL.
<PAGE> 1
(tear along dotted line)
-------------------------------------------------------------------------------
EXHIBIT (a)(3)(ii)
OFFER BY
VAN KAMPEN PRIME RATE INCOME TRUST
TO PURCHASE 56,800,049
OF ITS COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated March 19,
1999, of Van Kampen Prime Rate Income Trust (the "Trust") and related Letter of
Transmittal pursuant to which the Trust is offering to purchase up to 56,800,049
of its common shares of beneficial interest with par value of $0.01 per share
(the "Common Shares") at the net asset value per Common Share ("NAV") determined
as of 5:00 P.M. Eastern Standard time on the Expiration Date (defined below)
upon the terms and subject to the conditions set forth in the Offer to Purchase
and the Letter of Transmittal (which together constitute the "Offer"). An "Early
Withdrawal Charge" will be imposed on most Common Shares accepted for payment
which have been held for less than five years.
The Offer to Purchase and the Letter of Transmittal are being forwarded to
you as the beneficial owner of Common Shares held by us for your account but not
registered in your name. A tender of such shares can be made only by us as the
holder of record and only pursuant to your instructions. WE ARE SENDING YOU THE
LETTER OF TRANSMITTAL FOR YOUR INFORMATION ONLY; YOU CANNOT USE IT TO TENDER
COMMON SHARES WE HOLD FOR YOUR ACCOUNT.
Your attention is called to the following:
(1) The tender price is the NAV per Common Share determined as of 5:00
P.M. Eastern Standard time on the Expiration Date. An "Early Withdrawal
Charge" will be imposed on most Common Shares accepted for payment which
have been held for less than five years.
(2) The Offer is not conditioned upon any minimum number of Common
Shares being tendered, but is subject to certain conditions set forth in
the Offer to Purchase.
(3) The Offer and withdrawal rights expire at 12:00 Midnight Eastern
Standard time on April 16, 1999, unless extended (the "Expiration Date").
(4) The Offer is for 56,800,049 Common Shares, constituting
approximately 7% of the Common Shares outstanding as of March 12, 1999.
(5) Tendering shareholders will not be obligated to pay brokerage
commissions or, subject to Instruction 5 of the Letter of Transmittal,
transfer taxes on the purchase of Common Shares by the Trust pursuant to
the Offer. However, a broker, dealer or selling group member may charge a
fee for processing the transaction on your behalf.
(6) If more than 56,800,049 Common Shares are duly tendered prior to
the expiration of the Offer, the Trust presently intends to, assuming no
changes in the factors originally considered by the Board of Trustees when
it determined to make the Offer and the other conditions set forth in the
Offer, but is under no obligation to, extend the Offer period, if
necessary, and increase the number of Common Shares that the Trust is
offering to purchase to an amount which it believes will be sufficient to
accommodate the excess Common Shares tendered as well as any Common Shares
tendered during the extended Offer period or purchase 56,800,049 Common
Shares (or such greater number of Common Shares sought) on a pro rata
basis.
If you wish to have us tender any or all of your Common Shares, please so
instruct us by completing, executing and returning to us the attached
instruction form. An envelope to return your instructions to us is enclosed. If
you authorize us to tender your Common Shares, all such Common Shares will be
tendered
38 PRT007-03/99
<PAGE> 2
unless you specify otherwise on the attached instruction form. WE MUST RECEIVE
YOUR INSTRUCTIONS, IF ANY, SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE (APRIL
16, 1999) TO PROVIDE US WITH TIME TO PROCESS SUCH INSTRUCTIONS AND FORWARD THEM
TO THE DEPOSITARY SO THAT THE DEPOSITARY WILL RECEIVE THEM ON OR PRIOR TO SUCH
EXPIRATION DATE. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT
EASTERN STANDARD TIME ON APRIL 16, 1999, UNLESS THE OFFER IS EXTENDED.
The Trust is not making the Offer to, nor will it accept tenders from or on
behalf of, owners of Common Shares in any jurisdiction in which the Offer or its
acceptance would violate the securities, Blue Sky or other laws of such
jurisdiction. In any jurisdiction the securities or Blue Sky laws of which
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on the Trust's behalf by one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
<PAGE> 3
(tear along dotted line)
-------------------------------------------------------------------------------
INSTRUCTIONS
WITH RESPECT TO OFFER BY
VAN KAMPEN PRIME RATE INCOME TRUST
TO PURCHASE 56,800,049
OF ITS COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE
THIS FORM IS NOT TO BE USED TO TENDER COMMON SHARES DIRECTLY TO THE
DEPOSITARY. IT SHOULD BE SENT TO YOUR BROKER ONLY IF YOUR BROKER IS THE HOLDER
OF RECORD OF YOUR COMMON SHARES AND WILL BE EFFECTING THE TENDER ON YOUR BEHALF.
IT SHOULD BE SENT TO SUCH BROKER SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
(APRIL 16, 1999) TO PROVIDE THE BROKER WITH TIME TO PROCESS THESE INSTRUCTIONS
AND FORWARD THEM TO THE DEPOSITARY SO THAT THE DEPOSITARY WILL RECEIVE THEM ON
OR PRIOR TO THE EXPIRATION DATE (APRIL 16, 1999).
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated March 19, 1999, and the related Letter of Transmittal
(which together constitute the "Offer"), in connection with the offer by Van
Kampen Prime Rate Income Trust (the "Trust") to purchase 56,800,049 common
shares of beneficial interest with par value of $0.01 per share (the "Common
Shares") at the net asset value per Common Share determined as of 5:00 P.M.
Eastern Standard time on the Expiration Date on the terms and subject to the
conditions of the Offer. The undersigned acknowledges that an "Early Withdrawal
Charge" will be imposed on most Common Shares accepted for payment which have
been held for less than five years.
The undersigned hereby instructs you to tender to the Trust the number of
Common Shares indicated below (or, if no number is indicated below, all Common
Shares) which are held by you for the account of the undersigned, upon the terms
and subject to the conditions of the Offer.
Aggregate number of Common Shares to be tendered
by you for us (fill in number below):
______ Common Shares
Unless otherwise indicated above, it will be assumed that all of the Common
Shares held for the account of the undersigned are to be tendered.
SIGNATURE(S)
----------------------------------------------------------------------
......................................................................
......................................................................
(SIGNATURES(S) OF BENEFICIAL OWNERS)
......................................................................
(ACCOUNT NUMBER)
......................................................................
(PLEASE PRINT NAME(S) AND ADDRESSES HERE)
......................................................................
(AREA CODE AND TELEPHONE NUMBER)
......................................................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
----------------------------------------------------------------------
Date: , 1999
- - 38 PRT008-03/99
- -
<PAGE> 1
EXHIBIT (a)(3)(iii)
[VAN KAMPEN LETTERHEAD]
March 19, 1999
RE: VAN KAMPEN PRIME RATE INCOME TRUST
Commencement of Tender Offer
To Our Dealer Friends:
As you may be aware, it is the policy of the Board of Trustees of Van
Kampen Prime Rate Income Trust (the "Trust") to consider on a quarterly basis
whether to make a tender offer for common shares of the Trust. We are pleased to
announce that the Board has authorized the Trust's thirty-eighth consecutive
quarterly tender offer commencing today, March 19, 1999, for the purpose of
providing liquidity to its shareholders. The commencement of the tender offer
was announced in the Wall Street Journal today.
The Trust is offering to purchase up to 56,800,049 its common shares
(approximately 7% of its issued and outstanding common shares) at a price equal
to the net asset value per common share of the Trust determined as of 5:00 P.M.
Eastern Standard time on the expiration date of the offer. The offer is
scheduled to terminate as of 12:00 Midnight Eastern Standard time on April 16,
1999, the expiration date of the offer (unless extended). An "Early Withdrawal
Charge" will be imposed on most common shares accepted for payment that have
been held for less than five years.
Terms and conditions of the tender offer are contained in the Trust's Offer
to Purchase dated March 19, 1999, and the related Letter of Transmittal, copies
of which are available to you upon request.
Should you have any questions regarding the tender offer, please contact
Van Kampen's Investor Services Department at 1-800-421-5666.
Sincerely,
VAN KAMPEN FUNDS INC.
38 PRT003-03/99
<PAGE> 1
EXHIBIT (A)(3)(IV)
ANNOUNCING . . .
VAN KAMPEN PRIME RATE INCOME TRUST
COMMENCEMENT OF TENDER OFFER
It is the policy of the Board of Trustees of the Van Kampen Prime Rate
Income Trust to consider on a quarterly basis whether to make a Tender Offer for
common shares of the Trust. We are pleased to announce that the Board has
authorized the Trust's thirty-eighth consecutive quarterly Tender Offer
commencing on March 19, 1999, for the purpose of providing liquidity to its
shareholders. The commencement of the Tender Offer is announced in today's Wall
Street Journal. Shareholders of the Trust may elect to have the cash proceeds
from the Tender Offer invested in Class B Shares of eligible open-end investment
companies advised by either Van Kampen Investment Advisory Corp. or Van Kampen
Asset Management Inc. and distributed by Van Kampen Funds Inc. Please note that
the Class B Shares acquired pursuant to this election are subject to a
contingent deferred sales charge schedule equal to the Early Withdrawal Charge
schedule of the Trust.
The Trust is offering to purchase up to 56,800,049 of its common shares
(approximately 7% of its issued and outstanding common shares) at a price equal
to the net asset value per common share of the Trust as of 5:00 P.M., Eastern
Standard Time on April 16, 1999, the expiration date of the Tender Offer (unless
extended). The Tender Offer and the withdrawal rights expire at 12:00 Midnight
Eastern Standard Time on April 16, 1999, unless the Tender Offer is extended. An
"Early Withdrawal Charge" will be imposed on most common shares accepted for
payment that have been held for less than five years.
Terms and conditions of the tender offer are contained in the Trust's Offer
to Purchase dated March 19, 1999, and the related Letter of Transmittal. Copies
are available upon request by calling Van Kampen's Investor Services Department
at (800) 421-5666.
Shareholders may tender by completing and returning the Letter of
Transmittal by April 16, 1999. Alternatively, Selling Firms may tender account
positions with a wire order redemption via NSCC Fund/SERV or by calling Van
Kampen's Brokerage Operations Support Services at (800) 421-3863, on April 16,
1999 (trade date of the Tender Offer). The Trust's CUSIP is 920914-108.
PLEASE DIRECT YOUR QUESTIONS TO THE FOLLOWING AREAS:
MAIN OFFICE OPERATIONS: BROKERAGE OPERATIONS SUPPORT SERVICES (BOSS) AT (800)
421-3863.
REGISTERED REPRESENTATIVES: INVESTOR SERVICES DEPARTMENT AT (800) 421-5666.
This material is prepared for internal or broker/dealer use only. It may
not be reproduced or shown to members of the public or used in written form as
sales literature. Such use would be in violation of the NASD code of conduct.
This material is subject to change, please consult the prospectus.
<PAGE> 1
EXHIBIT (a)(4)
Dear Shareholder:
As you requested, we are enclosing a copy of the Van Kampen Prime Rate
Income Trust ("Trust") Offer to Purchase 56,800,049 of its issued and
outstanding common shares of beneficial interest ("Common Shares") and the
related Letter of Transmittal (which together constitute the "Offer"). The Offer
is at the net asset value ("NAV") per Common Share determined as of 5:00 P.M.
Eastern Standard time on April 16, 1999, the Expiration Date of the Offer. An
"Early Withdrawal Charge" will be imposed on most Common Shares accepted for
payment that have been held for less than five years. Please read carefully the
enclosed documents, as well as the Trust's most current financial statements.
If, after reviewing the information set forth in the Offer, you wish to
tender Common Shares for purchase by the Trust, please either follow the
instructions contained in the Offer to Purchase and Letter of Transmittal or, if
your Common Shares are held of record in the name of a broker, dealer or other
nominee, contact such broker, dealer or nominee to effect the tender for you.
Neither the Trust nor its Board of Trustees is making any recommendation to
any holder of Common Shares as to whether to tender Common Shares. Each
shareholder is urged to consult his or her broker or tax adviser before deciding
whether to tender any Common Shares.
The Trust's NAV per Common Share from March 12, 1997 through March 12, 1999
ranged from a high of $9.99 to a low of $9.91. On March 12, 1999 the NAV was
$9.92 per Common Share. You can obtain current NAV quotations from Van Kampen
Funds Inc. by calling (800) 341-2911 between the hours of 7:00 A.M. and 7:00
P.M. Central Standard time, Monday through Friday, except holidays. NAV quotes
also may be obtained through the ICI Pricing Service which will be released each
Friday evening and published by the Dow Jones Capital Markets Wire Service on
each Friday; published in the New York Times on each Saturday; published in the
Chicago Tribune on each Sunday; and published weekly in Barron's magazine. The
Trust offers and sells its Common Shares to the public on a continuous basis.
The Trust is not aware of any secondary market trading for the Common Shares.
Should you have any questions on the enclosed material, please call Van
Kampen Funds Inc. at (800) 341-2911 during ordinary business hours. We
appreciate your continued interest in Van Kampen Prime Rate Income Trust.
Sincerely,
VAN KAMPEN PRIME RATE INCOME TRUST
TO ENSURE PROCESSING OF YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY
SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR COMMON SHARES AND ALL
OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY ON OR BEFORE THE
EXPIRATION DATE (APRIL 16, 1999).
38 PRT-010-03/99
S/O
<PAGE> 1
EXHIBIT (a)(5)
CONTACT: Nicholas Dalmaso
(630) 684-6774
FOR IMMEDIATE RELEASE
VAN KAMPEN PRIME RATE INCOME TRUST
BEGINS TENDER OFFER FOR COMMON SHARES
OAKBROOK TERRACE, IL., March 19, 1999 -- Van Kampen Prime Rate Income
Trust, distributed by Van Kampen Funds Inc., a subsidiary of Van Kampen
Investments Inc. (Van Kampen), announced today that it has commenced a tender
offer for 56,800,049 or approximately seven percent of its outstanding common
shares of beneficial interest.
The offer is not conditioned on any minimum number of common shares that
must be tendered. The offer is subject to the terms and conditions set forth in
the Offer to Purchase and the Letter of Transmittal. The common shares are being
tendered at a price equal to the net asset value per common share determined as
of 5:00 p.m., Eastern Standard time, on April 16, 1999, the expiration date,
unless extended. The offer and withdrawal rights will expire, as of 12:00
Midnight, Eastern Standard time, on April 16, 1999, unless extended. An early
withdrawal charge will be imposed on most common shares accepted for payment
that have been held for less than five years.
As indicated in the Trust's current prospectus, the Board of Trustees
currently intends, each quarter, to consider authorizing the Trust to make
tender offers for its common shares in order to attempt to provide liquidity to
its investors.
The Van Kampen Prime Rate Income Trust tender offer is being made only by
the Offer to Purchase dated March 19, 1999 and the related Letter of
Transmittal. Questions and requests for assistance, for current net asset value
quotes, or for copies of the Offer to Purchase, Letter of Transmittal, and any
other tender offer documents may be directed to Van Kampen by calling
1-800-421-5666.
Van Kampen is a diversified asset management company with more than two
million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $75 billion under management or
supervision. Van Kampen has more than 50 open-end and 39 closed-end funds and
more than 2,500 unit investment trusts are professionally distributed by leading
financial advisors nationwide. Van Kampen is an indirect wholly owned subsidiary
of Morgan Stanley Dean Witter & Co.
<PAGE> 1
EXHIBIT (b)
============================================================
CREDIT AGREEMENT
Dated as of April 17, 1997
among
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST,
THE FINANCIAL INSTITUTIONS PARTY HERETO
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent,
Arranged by
BANCAMERICA ROBERTSON STEPHENS
First Amendment and Restatement dated as of April 16, 1998
============================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. DEFINITIONS AND INTERPRETATION....................................................1
1.1. Defined Terms.........................................................1
1.2. Interpretation........................................................1
1.3. Accounting Terms......................................................2
II. THE CREDITS......................................................................2
2.1. Amounts and Terms of Commitments......................................2
2.2. Notes.................................................................3
2.3. Procedure for Borrowing...............................................3
2.4. Conversion and Continuation Elections.................................4
2.5. Voluntary Termination or Reduction of Commitments.....................5
2.6. Prepayments...........................................................5
2.7. Repayment.............................................................6
2.8. Interest..............................................................6
2.9. Fees..................................................................7
2.10. Computation of Fees and Interest......................................7
2.11. Payments..............................................................8
2.12. Payments by the Banks to the Agent....................................8
2.13. Sharing of Payments, etc..............................................9
III. TAXES, YIELD PROTECTION AND ILLEGALITY..........................................9
3.1. Taxes.................................................................9
3.2. Illegality...........................................................11
3.3. Increased Costs and Reduction of Return..............................11
3.4. Funding Losses.......................................................12
3.5. Inability to Determine Rates.........................................13
3.6. Certificates of Banks................................................13
3.7. Substitution of Banks................................................13
3.8. Survival.............................................................14
IV. CONDITIONS TO AMENDMENTS AND BORROWING..........................................14
4.1. Conditions to Amendment and Restatement..............................14
4.2. All Borrowings.......................................................15
4.3. Consequences of Effectiveness, etc...................................16
4.4. Reallocation of Loans................................................16
4.5. Amounts Outstanding Under the Original Credit Agreement Deemed
to Be Loans Under This Agreement..................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
V. REPRESENTATIONS AND WARRANTIES...................................................17
5.1. Existence............................................................17
5.2. Authorization........................................................17
5.3. No Conflicts.........................................................17
5.4. Validity and Binding Effect..........................................17
5.5. No Default...........................................................18
5.6. Financial Statements.................................................18
5.7. Litigation...........................................................18
5.8. Liens................................................................18
5.9. Partnerships.........................................................19
5.10. Purpose..............................................................19
5.11. Compliance and Government Approvals..................................19
5.12. Pension and Welfare Plans............................................19
5.13. Taxes................................................................19
5.14. Subsidiaries; Investments............................................19
5.15. Full Disclosure......................................................19
5.16. Investment Policies..................................................20
5.17. Regulations U and X..................................................20
5.18. Status of Loans......................................................20
5.19. Prospectus...........................................................20
5.20. Affiliated Person....................................................20
5.21. Computer Systems.....................................................20
VI. COVENANTS.......................................................................20
6.1. Financial Statements and Other Reports...............................20
6.2. Notices..............................................................22
6.3. Existence............................................................22
6.4. Nature of Business...................................................23
6.5. Books, Records and Access............................................23
6.6. Insurance............................................................23
6.7. Investment Policies and Restrictions.................................23
6.8. Taxes................................................................24
6.9. Compliance...........................................................24
6.10. Pension Plans........................................................24
6.11. Merger, Purchase and Sale............................................24
6.12. Asset Coverage Ratio.................................................25
6.13. Liens................................................................25
6.14. Guaranties...........................................................25
6.15. Other Agreements.....................................................25
6.16. Transactions with Related Parties....................................26
6.17. Other Indebtedness...................................................26
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
6.18. Changes to Organization Documents, etc...............................26
6.19. Proceeds of Loans....................................................26
VII. EVENTS OF DEFAULT..............................................................26
7.1. Events of Default....................................................26
7.2. Remedies.............................................................28
VIII. THE AGENT.....................................................................29
8.1. Appointment and Authorization........................................29
8.2. Delegation of Duties.................................................29
8.3. Liability of Agent...................................................29
8.4. Reliance by Agent....................................................29
8.5. Notice of Default....................................................30
8.6. Credit Decision......................................................30
8.7. Indemnification of Agent.............................................31
8.8. Agent in Individual Capacity.........................................31
8.9. Successor Agent......................................................31
8.10. Withholding Tax......................................................32
IX. MISCELLANEOUS PROVISIONS........................................................33
9.1. Amendments and Waivers...............................................33
9.2. Notices..............................................................34
9.3. No Waiver; Cumulative Remedies.......................................35
9.4. Costs and Expenses...................................................35
9.5. Borrower Indemnification.............................................35
9.6. Payments Set Aside...................................................36
9.7. Successors and Assigns...............................................37
9.8. Confidentiality......................................................38
9.9. Set-off..............................................................39
9.10. Notification of Addresses, Lending Offices, etc......................39
9.11. Counterparts.........................................................39
9.12. Survival.............................................................39
9.13. Disclaimer...........................................................40
9.14. Severability.........................................................40
9.15. No Third Parties Benefited...........................................40
9.16. Governing Law and Jurisdiction.......................................40
9.17. Waiver of Jury Trial.................................................40
9.18. Entire Agreement.....................................................41
9.19. Affiliated Person....................................................41
9.20. Continuing Effectiveness, etc........................................41
9.21. Facsimile Execution..................................................41
</TABLE>
iii
<PAGE> 5
SCHEDULE I Definitions
SCHEDULE II Commitments and Pro Rata Shares
SCHEDULE III Offshore and Domestic Lending Offices, Addresses for Notices
EXHIBIT 2.2 Form of Note
EXHIBIT 2.3 Form of Loan Request
EXHIBIT 2.4 Form of Continuation/Conversion Notice
EXHIBIT 4.1(c)-1 Form of Opinion of Counsel to the Borrower
EXHIBIT 4.1(c)-2 Form of Opinion of Counsel to the Agent
EXHIBIT 5.7-1 Schedule of Litigation
EXHIBIT 5.7-2 Schedule of Contingent Liabilities
EXHIBIT 6.1 Form of Borrowing Base Certificate
vi
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of April 16,
1998 by the parties hereto and amends and restates that certain Credit
Agreement, dated as of April 17, 1997, by and among VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST (the "Borrower"), the various banks (as defined in
Section 2(a)(5) of the Act) party to this Agreement (collectively, the
"Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"),
as agent (in such capacity, the "Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Borrower, certain of the Banks and Bank of America National
Trust and Savings Association, as agent for the Banks, have entered into a
Credit Agreement dated as of April 17, 1997 (as originally executed and
delivered, the "Original Agreement"), which provided for the Banks to extend
Loans to the Borrower from time to time; and
WHEREAS, the Borrower and the Banks desire to amend the Original
Agreement, among other things, to increase the aggregate of the Commitments to
$500,000,000, extend the scheduled Commitment Termination Date and to amend the
Original Agreement in certain other respects, all as more fully hereinafter set
forth (the "Refinancing");
NOW, THEREFORE, the parties hereto agree that the Original Agreement shall
be amended and restated, as of the Refinancing Date, upon satisfaction of the
conditions set forth herein, to state in its entirety as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
I.1. Defined Terms. Unless otherwise defined herein, terms defined in
Schedule I have the same respective meanings when used in this Agreement.
I.2. Interpretation. In this Agreement, unless otherwise specified
herein:
(a) the singular number includes the plural number and vice versa;
(b) reference to any Person includes such Person's successors and
assigns but, if specified herein, only if such successors and assigns are
not prohibited by this Agreement, and reference to a Person in a
particular capacity excludes such Person in
<PAGE> 7
any other capacity or individually;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement), document
or instrument means such agreement, document or instrument as amended,
restated, supplemented or otherwise modified and in effect from time to
time in accordance with the terms thereof and, if specified herein, the
terms hereof and the other Credit Documents and reference to any
promissory note includes any promissory note which is an extension or
renewal thereof or a substitute or replacement therefor;
(e) reference to any applicable law means such applicable law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder, and reference to any section or other provision
of any applicable law means that provision of such applicable law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section or
other provision;
(f) reference to any Article, Section, Annex, Schedule or Exhibit
means such Article or Section hereof or Annex, Schedule or Exhibit
hereto;
(g) "hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to this Agreement as a whole and not to any
particular Article, Section or other provision hereof;
(h) "including" (and with the correlative meaning "include") means
including without limiting the generality of any description preceding
such term;
(i) "or" is not exclusive; and
(j) relative to the determination of any period of time, "from"
means "from and including" and "to" and "through" mean "to but
excluding".
I.3. Accounting Terms. In this Agreement, unless expressly otherwise
provided, accounting terms shall be construed and interpreted, and accounting
determinations and computations shall be made, in accordance with GAAP in
effect from time to time.
ARTICLE II
THE CREDITS
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II.1. Amounts and Terms of Commitments. Each Bank severally agrees, on
the terms and conditions set forth herein, to make Loans to the Borrower from
time to time on any Business Day during the period from the Refinancing Date to
the Commitment Termination Date equal to its Pro Rata Share of the aggregate
amount of the Borrowing requested by the Borrower to be made on such day. The
Commitment of each Bank and the outstanding principal amount of Loans made by
each Bank hereunder shall not exceed at any time the aggregate amount set forth
on Schedule II (such amount as the same may be reduced under Section 2.5 or as
a result of one or more assignments as permitted herein pursuant to Section 3.7
and Section 9.7, the Bank's "Commitment"); provided, however, that, after
giving effect to any Borrowing, the aggregate principal amount of all
outstanding Loans shall not at any time exceed the Commitment Amount, and
provided that the aggregate principal amount of all Loans outstanding from time
to time to the Borrower shall not exceed the Borrowing Base for the Borrower.
Within the limits of each Bank's Commitment, and subject to the other terms and
conditions hereof, the Borrower may borrow under this Section 2.1, repay under
the terms hereof and reborrow under this Section 2.1.
II.2. Notes. The Loans made by each Bank under its Commitment to the
Borrower shall be evidenced by a Note in the form of Exhibit 2.2. Each such
Bank shall record on the schedules annexed to its Note the date, amount and
maturity of each Loan made by it and the amount of each payment of principal
made by the Borrower with respect thereto. Each such Bank is irrevocably
authorized by the Borrower to so record such information on such schedules to
its Note, and each Bank's record shall be rebuttable presumptive evidence;
provided, however, that the failure of a Bank to make, or an error in making, a
notation thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Borrower hereunder or under any such Note to such Bank.
Promptly following the Refinancing Date, each Bank that is a party to the
Original Credit Agreement the Commitment of which shall change as of the
Refinancing Date shall return to the Borrower for cancellation any promissory
note issued to it by the Borrower under the Original Credit Agreement and not
theretofore canceled.
II.3. Procedure for Borrowing (a) Each Borrowing shall be made upon
the Borrower's irrevocable written notice or telephonic notice confirmed in
writing within 24 hours delivered to the Agent in the form of a loan request
("Loan Request") substantially in the form of Exhibit 2.3 hereto (which notice
must be received on a Business Day by the Agent prior to 9:00 a.m. (San
Francisco time) (i) three Business Days prior to the requested Borrowing Date,
in the case of Offshore Rate Loans, and (ii) on the Borrowing Date for which a
Loan is requested, in the case of Federal Funds Rate Loans, specifying:
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(A) the amount of the Borrowing, which shall be in an aggregate
minimum amount of $1,000,000 or any multiple of $1,000,000 in excess
thereof;
(B) the requested Borrowing Date, which shall be a Business
Day;
(C) the Type of Loans comprising the Borrowing; and
(D) the duration of the Interest Period applicable to such
Loans included in such notice. If the Loan Request fails to specify the
duration of the Interest Period for any Borrowing comprised of Offshore
Rate Loans, such Interest Period shall be two weeks.
In the event that more than one Loan Request is delivered on any Business
Day, the Agent shall, for purposes of ensuring that the aggregate of the
then-outstanding Loans and the Loans which are the subject of the Loan Requests
will not exceed the Commitment Amount, process the Loan Requests in the order
of receipt.
(b) The Agent will promptly notify each Bank of its receipt of any Loan
Request and of the amount of such Bank's Pro Rata Share of that Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Borrower at the Agent's
Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date
requested by the Borrower in funds immediately available to the Agent for
deposit to the account which the Agent shall from time to time specify by
notice to the Banks. The proceeds of all such Loans will then be made
available promptly to the Borrower by the Agent in accordance with written
instructions provided to the Agent by the Borrower in like funds as received by
the Agent. No Bank's obligation to make any Loan shall be affected by any
other Bank's failure to make any Loan.
(d) After giving effect to any Borrowing, there may not be more than
three (3) different Interest Periods in effect.
II.4. Conversion and Continuation Elections. (a) The Borrower may, upon
irrevocable written notice or telephonic notice confirmed in writing within 24
hours to the Agent in accordance with Section 2.4(b):
(i) elect, as of any Business Day, in the case of Federal Funds
Rate Loans, or as of the last day of the applicable Interest Period, in
the case of any other Type of Loans, to convert any such Loans (or any
part thereof in an amount that is not less than $1,000,000 or an integral
multiple of $1,000,000 in excess thereof) into Loans of any other Type;
or
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(ii) elect, as of the last day of the applicable Interest
Period, to continue any Loans having Interest Periods expiring on such
day (or any part thereof in an amount that is not less than $1,000,000 or
an integral multiple of $1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced by payment, prepayment or conversion of
part thereof to be less than $1,000,000, such Offshore Rate Loans shall
automatically convert into Federal Funds Rate Loans, and on and after such
date, the right of the Borrower to continue such Loans as, and convert such
Loans into, Offshore Rate Loans shall terminate.
Notwithstanding anything to the contrary, no Loan shall be outstanding for
a period of more than sixty (60) days, and there shall be no more than three
Interest Periods in respect of an Offshore Rate Loan.
(b) The Borrower shall deliver a Conversion/Continuation Notice to be
received by the Agent not later than 9:00 a.m. (San Francisco time) at least
(i) three Business Days in advance of the Conversion/Continuation Date, if the
Loans are to be converted into or continued as Offshore Rate Loans, and (ii) on
the Conversion/Continuation Date, if the Loans are to be continued or converted
into Federal Funds Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or continued;
(C) the Type of Loans resulting from the proposed conversion or
continuation; and
(D) other than in the case of conversions into Federal Funds
Rate Loans, the duration of the requested Interest Period.
(c) The Agent will promptly notify each Bank of its receipt of a
Conversion/Continuation Notice. All conversions and continuations shall be
made ratably according to the respective outstanding principal amounts of the
Loans with respect to which the notice was given held by each Bank.
(d) Unless the Majority Banks otherwise agree, during the existence
of a Default, the Borrower may not elect to have a Loan converted into or
continued as an Offshore Rate Loan.
II.5. Voluntary Termination or Reduction of Commitments. The Borrower
may, upon
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not less than five Business Days' prior written or telephonic notice to the
Agent, terminate the Commitments, or permanently reduce the Commitments by an
aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess
thereof; unless, after giving effect thereto and to any prepayments of Loans
made on the effective date thereof, the then-outstanding principal amount of
the Loans would exceed the amount of the Commitment Amount then in effect.
Once reduced in accordance with this Section, the Commitment Amount may not be
increased. Any reduction of the Commitment Amount shall be applied to each
Bank according to its Pro Rata Share. All accrued commitment fees to but not
including the effective date of any termination of Commitments shall be paid on
the effective date of such termination. All accrued commitment fees to but not
including the effective date of any reduction of Commitments shall be paid on
the last Business Day of the then-current calendar quarter.
II.6. Prepayments. (a) If at any time the outstanding balance of the
Borrower's Indebtedness shall exceed the then-current Borrowing Base of the
Borrower and at such time as there are Loans outstanding to the Borrower, the
Borrower shall immediately prepay the outstanding principal amount of such
Loans in an amount equal to such excess, together with interest accrued thereon
and amounts required under Section 3.4.
(b) Subject to Section 3.4, the Borrower may, at any time or from
time to time, upon not less than three Business Days' irrevocable written or
telephonic notice to the Agent, ratably prepay Loans, in whole or in part, in
minimum amounts of $1,000,000 or any multiple of $1,000,000 in excess thereof.
Such notice of prepayment shall specify the date and amount of such prepayment
and the Type(s) of Loans to be prepaid. If such notice is given, the Borrower
shall make such prepayment to the Agent, and the payment amount specified in
such notice shall be due and payable on the date specified therein, together
with, in the case of the prepayment of Offshore Rate Loans, accrued interest to
each such date on the amount prepaid and any amounts required pursuant to
Section 3.4.
(c) The Agent will promptly notify each Bank of its receipt of any
such notice and of such Bank's Pro Rata Share of such prepayment.
(d) Each prepayment of any Loans pursuant to this Section shall be
without premium or penalty, except as may be required by Section 3.4. No
voluntary prepayment of principal of any Loans shall cause a reduction in the
Commitment Amount.
II.7. Repayment. The Borrower shall repay to the Agent for the benefit
of the Banks on the Commitment Termination Date the aggregate principal amount
of its Loans outstanding on such date.
II.8. Interest. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per
annum equal to the Federal Funds
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Rate or the Offshore Rate, as the case may be (and subject to the Borrower's
right to convert to another Type of Loans under Section 2.4), plus the
Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Offshore Rate Loans under Section 2.6 for the portion of the Loans so prepaid
and upon payment (including prepayment) in full thereof, and during the
existence of any Event of Default, interest shall be paid on demand of the
Agent at the request or with the consent of the Majority Banks.
Notwithstanding subsection (a) of this Section, if any amount of
principal of or interest on any Loan, or any other amount payable hereunder or
under any other Credit Document, is not paid in full when due (whether at
stated maturity or by acceleration, demand or otherwise), the Borrower agrees,
to the extent permitted by law, to pay interest on such unpaid principal or
other amount from the date such amount becomes due until the date such amount
is paid in full, and after as well as before any entry of judgment thereon,
payable on demand at a fluctuating rate per annum equal to the Base Rate plus
2%.
(c) Anything herein to the contrary notwithstanding, the obligations
of the Borrower to any Bank hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Bank would be contrary to the provisions of
any law applicable to such Bank limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Bank, and in such event
the Borrower shall pay such Bank interest at the highest rate permitted by
applicable law.
II.9. Fees. (a) Arrangement, Agency Fees. The Borrower shall pay an
arrangement fee to the Arranger for the Arranger's own account, and shall pay
agency fees to the Agent for the Agent"s own account, as required by the letter
agreement ("Arrangement Fee Letter") among the Borrower, the Arranger and the
Agent dated February 2, 1998.
(b) Commitment Fees. The Borrower shall pay to the Agent for the
account of each Bank a commitment fee on the daily unused portion of such Bank's
Commitment, computed on a quarterly basis in arrears on the last Business Day
of each calendar quarter based upon the daily utilization for that quarter as
calculated by the Agent, equal to 0.07% per annum. Such commitment fee shall
accrue from the date of this Agreement to the Commitment Termination Date and
shall be due and payable quarterly in arrears on the last Business Day of each
March, June, September and December commencing on June 30, 1998 through the
Commitment Termination Date, with the final payment to be made on the
Commitment Termination Date. All accrued commitment fees to but not including
the effective date of any termination of Commitments shall be paid on the
effective date of such
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termination. All accrued commitment fees to but not including the effective
date of any reduction of Commitments shall be paid on the last Business Day of
the then-current calendar quarter, with such quarterly payment being calculated
on the basis of the period from such reduction date to such quarterly payment
date. The commitment fees provided in this subsection shall accrue at all
times after the above-mentioned commencement date, including at any time during
which one or more conditions in Article IV are not met.
II.10. Computation of Fees and Interest (a) All computations of interest
on the basis of the Base Rate shall be made on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed. All other computations
of fees and interest shall be made on the basis of a 360-day year and actual
days elapsed (which results in more interest being paid than if computed on the
basis of a 365- or 366-day year). Interest and fees shall accrue during each
period during which interest or such fees are computed from the first day
thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be
conclusive and binding on the Borrower and the Banks in the absence of manifest
error. The Agent will, at the request of the Borrower or any Bank, deliver to
the Borrower or Bank, as the case may be, a statement showing the quotations
used by the Agent in determining any interest rate and the resulting interest
rate.
II.11. Payments. (a) All payments to be made by the Borrower shall be
made without set-off, recoupment or counterclaim, subject to Section 3.1.
Except as otherwise expressly provided herein, all such payments shall be made
to the Agent for the account of the Banks at the Agent's Payment Office and
shall be made in Dollars and in immediately available funds no later than
11:00 a.m. (San Francisco time) on the date specified herein. The Agent will
promptly distribute to each Bank its Pro Rata Share (or other applicable share
as expressly provided herein) of such payment in like funds as received. Any
payment received by the Agent later than 11:00 a.m. (San Francisco time) shall
be deemed to have been received on the following Business Day, and any
applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than
a Business Day, such payment shall be made on the following Business Day, and
such extension of time shall in such case be included in the computation of
interest or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrower prior to the
date on which any payment is due to the Banks that the Borrower will not make
such payment in full as and when required, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date in immediately
available funds, and the Agent may (but shall not be so required), in reliance
upon such assumption, distribute to each Bank on such due date an
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amount equal to the amount then due such Bank. If and to the extent the
Borrower has not made such payment in full to the Agent, each Bank shall repay
to the Agent on demand such amount distributed to such Bank, together with
interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Bank until the date repaid.
II.12. Payments by the Banks to the Agent (a) Unless the Agent receives
notice from a Bank on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at least one Business Day prior to the date
of such Borrowing, that such Bank will not make available as and when required
hereunder to the Agent for the account of the Borrower the amount of that
Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has
made such amount available to the Agent in immediately available funds on the
Borrowing Date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made its
full amount available to the Agent in immediately available funds and the Agent
in such circumstances has made available to the Borrower such amount, that Bank
shall on the Business Day following such Borrowing Date make such amount
available to the Agent, together with interest at the Federal Funds Rate for
each day during such period. A notice of the Agent submitted to any Bank with
respect to amounts owing under this subsection (a) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the Agent
shall constitute such Bank's Loan on the date of Borrowing for all purposes of
this Agreement. If such amount is not made available to the Agent on the
Business Day following the Borrowing Date, the Agent will notify the Borrower
of such failure to fund, and upon demand by the Agent, the Borrower shall pay
such amount to the Agent for the Agent's account, together with interest
thereon for each day elapsed since the date of such Borrowing, at a rate per
annum equal to the interest rate applicable at the time to the Loans comprising
such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing
Date.
II.13. Sharing of Payments, etc. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off or otherwise) in excess of its Pro Rata Share, such Bank shall
immediately (a) notify the Agent of such fact and (b) purchase from the other
Banks such participations in the Loans made by them as shall be necessary to
cause such purchasing Bank to share the excess payment pro rata with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with
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an amount equal to such paying Bank's ratable share (according to the
proportion of (i) the amount of such paying Bank's required repayment to the
purchasing Bank to (ii) the total amount so recovered from the purchasing Bank)
of any interest or other amount paid or payable by the purchasing Bank in
respect of the total amount so recovered. The Borrower agrees that any Bank so
purchasing a participation from another Bank may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off with respect to such participation) as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation. The Agent
will keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased under this Section and will in each
case notify the Banks following any such purchases or repayments.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
III.1. Taxes. (a) Any and all payments by the Borrower to each Bank or
the Agent under this Agreement and any other Credit Document shall be made
free and clear of, and without deduction or withholding for, any Taxes.
In addition, the Borrower shall pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless each Bank and
the Agent for the full amount of Taxes or Other Taxes in connection with a
payment by it (including any Taxes or Other Taxes imposed by any jurisdiction
on amounts payable by it under this Section) paid by the Bank or the Agent and
any liability (including penalties, interest, additions to tax and expenses
other than penalties, additions to tax, interest and expenses arising solely
as a result of the willful misconduct or gross negligence of such Bank or
Agent) arising therefrom or with respect thereto, whether or not such Taxes or
Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days after the date the Bank or the
Agent makes written demand therefor including with such demand an
identification of the Taxes or Other Taxes (and amounts thereof) with respect
to which such demand for indemnification is being sought.
(c) If the Borrower shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section), such Bank or the Agent, as the case may be, receives an
amount equal to the sum it would have
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received had no such deductions or withholdings been made;
(ii) the Borrower shall make such deductions and withholdings;
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Borrower shall also pay to the Agent for the account
of such Bank, at the time interest is paid, all additional amounts which
the respective Bank specifies as necessary to preserve the after-tax
yield the Bank would have received if such Taxes or Other Taxes had not
been imposed.
(d) Within 30 days after the date of any payment by the Borrower of
Taxes or Other Taxes, the Borrower shall furnish the Agent the original or a
certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Agent.
(e) If the Borrower is required to pay additional amounts to any Bank
or the Agent pursuant to subsections (b) or (c) of this Section, then such Bank
shall use reasonable efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by the Borrower which may thereafter
accrue, if such change in the judgment of such Bank is not otherwise
disadvantageous to such Bank. The Borrower shall have no obligation to pay any
amounts or increase any amounts payable to any Bank pursuant to this Section
3.1 which are owing on account of such Bank's failure to comply with its
obligations under Section 8.10.
(f) Within 30 days after the written request of the Borrower, each
Bank or Agent shall execute and deliver to the Borrower such certificates or
forms as are reasonably requested by the Borrower in such request, which can be
furnished consistent with the facts and which are necessary to assist the
Borrower in applying for refunds of Taxes or Other Taxes paid or indemnified by
the Borrower hereunder. If a Bank or Agent receives a refund of any Taxes or
Other Taxes with respect to which Borrower has made a payment of additional
amounts, such Bank or Agent shall pay over such refund to the Borrower within
30 days of receipt in an amount not in excess of the payments made by the
Borrower with respect thereto.
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III.2. Illegality. (a) If any Bank reasonably determines that the
introduction of any Requirement of Law, or any change in any Requirement of
Law, or in the interpretation or administration of any Requirement of Law, has
made it unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for any Bank or its applicable Lending Office to
make Offshore Rate Loans, then, on notice thereof by the Bank to the Borrower
through the Agent, any obligation of that Bank to make Offshore Rate Loans
shall be suspended until the Bank gives notice, and the Bank agrees promptly to
give such notice, to the Agent and the Borrower when the circumstances giving
rise to such determination no longer exist.
(b) If a Bank reasonably determines that it is unlawful to maintain
any Offshore Rate Loan, the Borrower shall, upon its receipt of notice of such
fact and demand from such Bank (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 3.4, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to maintain such Offshore Rate Loan, as provided in a notice
from the Bank to the Borrower. If the Borrower is required to so prepay any
Offshore Rate Loan, then concurrently with such prepayment, the Borrower may
borrow from the affected Bank, in the amount of such repayment, a Federal Funds
Rate Loan.
(c) If the obligation of any Bank to make or maintain Offshore Rate
Loans has been so terminated or suspended, the Borrower may elect, by giving
notice to the Bank through the Agent, that all Loans which would otherwise be
made by the Bank as Offshore Rate Loans shall be instead Federal Funds Rate
Loans.
(d) Before giving any notice to the Agent under this Section, the
affected Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise materially disadvantageous to the Bank.
III.3. Increased Costs and Reduction of Return. (a) If any Bank
reasonably determines that, due to the introduction of or any change in or in
the interpretation of any law or regulation or the compliance by that
Bank with any guideline or request made subsequent to the date of this
Agreement from any central bank or other Governmental Authority (whether or not
having the force of law), there shall be any increase in the cost to such Bank
(not included in the calculation of the Eurodollar Reserve Percentage) of
agreeing to make or making, funding or maintaining any Offshore Rate Loans,
then the Borrower shall be liable for, and shall from time to time within 30
days after demand (with a copy of such demand to be sent to the Agent) pay to
the Agent, for the account of such Bank, additional amounts as are sufficient
to compensate such Bank for such increased costs.
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(b) If any Bank shall have reasonably determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration
of any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof or (iv)
compliance by such Bank (or its Lending Office) or any corporation controlling
such Bank with any guideline or request made subsequent to the date hereof with
respect to any Capital Adequacy Regulation affects or would affect the amount
of capital required or expected to be maintained by such Bank or any
corporation controlling such Bank and (taking into consideration such Bank's or
such corporation's policies with respect to capital adequacy and such Bank's
desired return on capital) and such Bank determines that, as a result of any of
the foregoing, the amount of such capital is increased as a consequence of its
Commitment, Loans, credits or other obligations under this Agreement, then,
within 30 days after demand therefor accompanied by the certificate
contemplated by Section 3.6 of such Bank to the Borrower through the Agent, the
Borrower shall pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank for any reduced return on
such capital as a result of such increase.
III.4. Funding Losses. The Borrower will reimburse each Bank and hold
each Bank harmless from any loss or expense which the Bank may reasonably
sustain or incur as a consequence of:
(a) the failure of the Borrower to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Borrower to borrow, continue or convert a Loan
after the Borrower has given (or is deemed to have given) a Loan Request or a
Conversion/Continuation Notice;
(c) the failure of the Borrower to make any prepayment in accordance
with any notice delivered under Section 2.6; or
(d) the prepayment or other payment (including after acceleration
thereof) of an Offshore Rate Loan on a day that is not the last day of the
relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees
payable to terminate the deposits from which such funds were obtained. For
purposes of calculating amounts payable by the Borrower to the Banks under this
Section and under Section 3.3(b), each Offshore Rate Loan made by a Bank (and
each related reserve, special deposit or similar requirement) shall be
conclusively deemed to have been funded at the IBOR used in determining the
Offshore
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Rate for such Offshore Rate Loan by a matching deposit or other borrowing in
the interbank eurodollar market for a comparable amount and for a comparable
period, whether or not such Offshore Rate Loan is in fact so funded.
III.5. Inability to Determine Rates. If the Agent determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan or that the Offshore Rate applicable pursuant to Section 2.8(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does
not adequately and fairly reflect the cost to any Bank of funding such
Loan, the Agent will promptly so notify the Borrower and each Bank.
Thereafter, the obligation of the Banks to make or maintain Offshore Rate Loans
hereunder shall be suspended until the Agent gives notice (and, if appropriate,
the Agent shall give such notice) to the Borrower that adequate and reasonable
means do exist for determining such Offshore Rate or such Offshore Rate does
adequately and fairly reflect the costs to the Banks of funding such Loans.
Upon receipt of such notice, the Borrower may revoke any Loan Request or
Conversion/Continuation Notice then submitted by it. If the Borrower does not
revoke such Notice, the Banks shall make, convert or continue the Loans at the
end of the applicable Interest Period, as proposed by the Borrower, in the
amount specified in the applicable notice submitted by the Borrower, but such
Loans shall be made, converted or continued as Federal Funds Rate Loans instead
of Offshore Rate Loans until the Agent revokes such notice.
III.6. Certificates of Banks. Any Bank claiming reimbursement or
compensation under this Article III shall deliver to the Borrower (with a copy
to the Agent) a certificate setting forth in reasonable detail the amount
payable to the Bank hereunder, and such certificate shall be conclusive and
binding on the Borrower in the absence of manifest error.
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III.7. Substitution of Banks. Upon the receipt by the Borrower from any
Bank (an "Affected Bank") of a claim for compensation under Section 3.1 or
Section 3.3 or any circumstances exist with respect to such Bank described in
Section 3.2, the Borrower may: (i) request the Affected Bank to use its
best efforts to obtain a replacement bank or financial institution satisfactory
to the Borrower to acquire and assume all or a ratable part of all of such
Affected Bank's Loans and Commitment (a "Replacement Bank"); (ii) request one
or more of the other Banks to acquire and assume all or part of such Affected
Bank's Loans and Commitment (it being understood that no such other Bank shall
in any way be required to effect any such acquisition and assumption); or (iii)
designate a Replacement Bank. Any such designation of a Replacement Bank under
clause (i) or (iii) shall be subject to the prior written consent of the Agent
(which consent shall not be unreasonably withheld) and payment in full of all
amounts due and owing hereunder to the Replacement Bank. Each Bank which is an
Affected Bank agrees to execute the necessary documentation to assign its
interest to a Replacement Bank upon five (5) days' written notice from the
Borrower after a Replacement Bank is identified.
8. Survival. The agreements and obligations of the Borrower in this
Sections 3.1, 3.3 and 3.4 shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS TO AMENDMENTS AND BORROWING
IV.1. Conditions to Amendment and Restatement. This amended and restated
Agreement shall take effect from the first day that the Agent shall have
received counterparts hereof signed by the Borrower, the Agent and the Banks,
and each of the conditions set forth in this Section 4.1 has been waived by
the Agent and each Bank or met.
(a) The Agent shall have received from the Borrower a certificate,
dated the Refinancing Date, of its Secretary or Assistant Secretary as to
(i) resolutions of its board of trustees then in full force and
effect authorizing the execution, delivery and performance of this
amended and restated Agreement, the Notes and each other Credit Document
to be executed by it and the Borrower's Amended and Restated Declaration
of Trust and By-Laws;
(ii) the incumbency and signatures of those of its officers or
agents authorized to act with respect to this amended and restated
Agreement, the Notes and each other Credit Document executed by it;
(iii) the Borrower's valid existence as evidenced by a certificate
issued by
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the Secretary of State of the Commonwealth of Massachusetts and appended
to the relevant certificate of its Secretary or Assistant Secretary; and
(iv) the fact that the agreements delivered by the Borrower
pursuant to Section 4.1(e) constitute all such agreements between the
Borrower and the Adviser as of such date;
upon which certificate the Agent and each Bank may conclusively rely as to the
matters described in clauses (i) and (ii) until they shall have received a
further certificate from the Borrower canceling or amending such prior
certificate.
(b) The Agent shall have received, for the account of each Bank the
Commitment of which shall change as of the Refinancing Date, a Note of the
Borrower duly executed and delivered by the Borrower and made payable to the
order of such Bank.
(c) The Agent shall have received (1) an opinion, dated the
Refinancing Date and addressed to the Agent and all Banks, from Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Borrower, substantially in the
form of Exhibit 4.1(c)-1 and (2) an opinion, dated the Refinancing Date and
addressed to the Agent and all Banks, from Mayer, Brown & Platt, counsel to the
Agent, substantially in the form of Exhibit 4.1(c)-2
(d) The Agent shall have received evidence of payment of all accrued
and unpaid fees, costs and expenses to the extent then due and payable on the
Refinancing Date, together with Attorney Costs of the Agent to the extent
invoiced prior to or on the Refinancing Date, plus such additional amounts of
Attorney Costs as shall constitute the Agent's reasonable estimate of Attorney
Costs incurred or to be incurred by it through the closing proceedings
(provided that such estimate shall not thereafter preclude final settling of
accounts between the Borrower and the Agent), including any such costs, fees
and expenses then due and payable arising under or referenced in Section 2.9(a)
and those then due and payable pursuant to Section 9.4.
(e) The Agent shall have received copies of each investment advisory
agreement between the Borrower and the Adviser, together with all sub-advisory
agreements, if any in effect as of the Refinancing Date.
(f) The Agent shall have received a Borrowing Base Certificate for
the Borrower completed as of a date that is no more than three Business Days
prior to the Refinancing Date.
(g) The Agent shall have received copies of the most recent
prospectus and statement of additional information for the Borrower in effect
as of the Refinancing Date.
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IV.2. All Borrowings. The obligation of each Bank to fund any Loan on
the occasion of any Borrowing (including the initial Borrowing) by the Borrower
shall be subject to the satisfaction of each of the conditions precedent set
forth in this Section 4.2.
(a) No Default shall have occurred and be continuing with respect to
the Borrower on such date.
(b) The representations and warranties of the Borrower contained in
Article V (except to the extent such representations and warranties relate
solely to an earlier date, in which case they shall be true and correct as of
such earlier date) shall be true and correct in all material respects on and as
of the date of such Borrowing, both immediately before and after giving effect
to such Borrowing, as if then made.
(c) In the case of a Borrowing, the Agent shall have received a Loan
Request for such Borrowing. Each of the delivery of a Loan Request and the
acceptance by the Borrower of the proceeds of such Borrowing shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
(both immediately before and after giving effect to such Borrowing and the
application of the proceeds thereof), the statements made in Sections 4.2(a),
(b), (d) and (e) are true and correct.
(d) Both before and after the Loan in question, the Borrower's Asset
Coverage Ratio shall be at least 8 to 1.
(e) There shall not have been outstanding as of the close of business
(San Francisco time) on the day preceding the proposed Borrowing Date for the
requested Loan a Loan that had been outstanding for more than sixty (60) days.
Any instrument, agreement or other document to be received by the Agent
pursuant to this Article IV, and any other condition precedent required to be
met or satisfied under this Article IV, shall be in form and substance
reasonably satisfactory to the Agent and each Bank and in sufficient copies for
each Bank.
IV.3. Consequences of Effectiveness, etc. On the Refinancing Date the
Original Credit Agreement shall be automatically amended and restated to read
as set forth herein. On and after the Refinancing Date the rights and
obligations of the parties hereto shall be governed by this amended and
restated Agreement; provided that rights and obligations of the parties hereto
with respect to the period prior to the Refinancing Date shall continue to be
governed by the provisions of the Original Credit Agreement. On the
Refinancing Date, the Pro Rata Share of each Bank shall immediately become the
percentage set forth opposite the name of such Bank on Schedule II. With
effect from and including the Refinancing Date, each Person listed on the
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signature pages hereof that is not a party to the Original Credit Agreement
shall become a party to this Agreement. [Any Bank that is a party to the
Original Credit Agreement whose Pro Rata Share becomes 0% on the occurrence of
the Refinancing shall, upon the occurrence thereof and the reallocation of
Loans pursuant to Section 4.4, cease to be a Bank party to this Agreement, and
all accrued fees and other amounts payable under the Original Credit Agreement
for the account of such Bank shall be due and payable on such date; provided
that the provisions of Sections 3.1, 3.3, 3.4, 9.4 and 9.5 shall continue to
inure to the benefit of each such Bank and each such Bank shall continue to be
subject to and bound by Section 9.8.]
IV.4. Reallocation of Loans. On the occurrence of the Refinancing, (a)
each Bank that, as a result of the adjustment of the Pro Rata Shares, is to
have a greater principal amount of Loans outstanding than such Bank had
outstanding immediately prior to the occurrence of the Refinancing shall, if
requested by the Agent, deliver to the Agent immediately available funds to
cover such Loans (and the Agent shall, to the extent of the funds so received
and the funds received from any Banks that are not parties to the Original
Credit Agreement, disburse funds to each Bank that, as a result of such
adjustment of the Pro Rata Shares, is to have a lesser principal amount
outstanding than such Bank had outstanding under the Original Credit
Agreement), and (b) immediately prior to the Refinancing each Bank that is not
a party to the Original Credit Agreement shall deliver to the Agent immediately
available funds to cover its Loans that will equal such Bank's Pro Rata Share
of the aggregate principal amount outstanding under this Agreement immediately
after the occurrence of the Refinancing.
IV.5. Amounts Outstanding Under the Original Credit Agreement Deemed to
Be Loans Under This Agreement. The principal amounts of Loans owing under the
Original Credit Agreement as at the Refinancing Date to each Bank that is a
party thereto (as reallocated pursuant to this Agreement) shall be deemed to be
Loans made by that Bank hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks and the Agent to enter into this Agreement
and to make Loans hereunder, the Borrower represents and warrants unto the
Agent and each Bank with respect to itself as set forth in this Article V. The
representations and warranties contained in this Article V shall be deemed to
be repeated each time that the Borrower requests that a Loan be made as
provided in Article IV.
V.1. Existence. The Borrower is a Massachusetts business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Borrower is a duly registered,
non-diversified, closed-end investment company under the
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Act and has registered the sale of its common shares of beneficial interest
under the Securities Act of 1933, as amended, pursuant to one or more
registration statements, including any related prospectus, that is or are
currently effective. The Borrower is in good standing and is duly qualified to
do business in each state where, because of the nature of its activities or
properties, such qualification is required, except where the failure to be so
qualified could not reasonably be expected to have a material adverse effect on
the business or operations of the Borrower.
V.2. Authorization. The Borrower is duly authorized to execute and
deliver this Agreement and the Notes and, so long as this Agreement shall
remain in effect, the Borrower will continue to be duly authorized to borrow
monies hereunder and to perform its obligations under this Agreement and the
Notes.
V.3. No Conflicts. The execution, delivery and performance by the
Borrower of this Agreement and the Notes do not and, so long as this Agreement
shall remain in effect with respect to them, will not (i) conflict with any
provision of law, (ii) conflict with the Trust Agreement or its by-laws, (iii)
conflict with any material agreement or instrument binding upon it, (iv)
conflict with the Borrower's most recent prospectus or its most recent
statement of additional information, (v) conflict with any court or
administrative order or decree applicable to it or (vi) require or result in
the creation or imposition of any Lien on any of its assets.
V.4. Validity and Binding Effect. This Agreement is, and the Notes when
duly executed and delivered will be, the legal, valid and binding obligation of
the Borrower, enforceable against it in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
receivership, fraudulent conveyance, fraudulent transfer, moratorium or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of
equitable remedies.
V.5. No Default. The Borrower is not in default under any agreement or
instrument to which it is a party or by which any of its respective properties
or assets is bound or affected, other than defaults that could not reasonably
be expected to result in a Material Adverse Change. To the best of its
knowledge, no Default with respect to it has occurred and is continuing.
V.6. Financial Statements. The Borrower's most recent audited Statement
of Assets and Liabilities and its most recent semi-annual asset statement,
copies of which have been or will be furnished to the Banks, have been
prepared in conformity with GAAP applied on a basis consistent with that of the
preceding Fiscal Year or period and present fairly its financial condition as
at such dates and the results of its operations for the periods then ended,
subject
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(in the case of the interim financial statement) to year-end audit adjustments.
Since the date of its most recent Statement of Assets and Liabilities and such
semi-annual asset statement, there has been no Material Adverse Change.
V.7. Litigation. No claims, litigation, arbitration proceedings or
governmental proceedings that could reasonably be expected to result in a
Material Adverse Change are pending or, to the best of its knowledge, are
threatened against or are affecting the Borrower, except those referred to in
Exhibit 5.7-1. Other than any liability incident to such claims, litigation or
proceedings or provided for or disclosed in the financial statements referred
to in Section 5.6 or listed on Exhibit 5.7-2, to the best of its knowledge, it
has no contingent liabilities which are material to it other than those
incurred in the ordinary course of business.
V.8. Liens. None of the Borrower's property, revenues or assets is
subject to any Lien, except (i) Liens in favor of the Banks, if any,
(ii) Liens for current Taxes not delinquent or Taxes being contested in good
faith and by appropriate proceedings and as to which such reserves or other
appropriate provisions as may be required by GAAP are being maintained, (iii)
Liens as are necessary in connection with a secured letter of credit opened by
or for it in connection with its trustees' and officers' errors and omissions
liability insurance policy, (iv) Liens in connection with the payment of
initial and variation margin in connection with authorized futures and options
transactions and collateral arrangements with respect to options, futures
contracts, options on futures contracts, when-issued or delayed-delivery
securities or other authorized investments, (v) Liens arising under any
custodian agreement to which it is a party, (vi) other Liens on assets with a
value no greater than $2,000,000, and (vii) Liens in connection with reverse
repurchase transactions. Less than 25% of the value (as determined by any
reasonable method) of the assets of the Borrower, not including shares of the
Borrower itself, consists of "margin stock" as defined in FRB Regulation U.
V.9. Partnerships. The Borrower is not a general partner or joint
venturer in any partnership or joint venture.
V.10. Purpose. The proceeds of the Loans will be used by it for
short-term liquidity and other temporary emergency purposes, which purposes are
permitted under the Act and by its prospectus and statement of additional
information. Neither the making of any Loan nor the use of the proceeds
thereof will violate or be inconsistent with the provisions of FRB Regulation
T, U or X. It acknowledges that Loans made to it may be deemed by the FRB to
be "purpose loans" under Regulation U because of its status as an investment
company (or the functional equivalent thereof).
V.11. Compliance and Government Approvals. The Borrower is in compliance
with all statutes and governmental rules and regulations applicable to it,
including, without limitation, the Act, other than incidents of non-compliance
that could not reasonably be
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expected to result in a Material Adverse Change. No authorization or approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or other person is required for the due execution, delivery
or performance by the Borrower of this Agreement, the Notes or any of the other
Credit Documents and the Borrowings, other than those which have been obtained
or made.
V.12. Pension and Welfare Plans. The Borrower has not established or
maintained, nor is it liable under, any Plan.
V.13. Taxes. The Borrower has filed all tax returns that are
required to have been filed and has paid, or made adequate provisions for the
payment of, all of its Taxes that are due and payable, except such Taxes, if
any, as are being contested in good faith and by appropriate proceedings and as
to which such reserves or other appropriate provisions as may be required by
GAAP have been maintained. The Borrower is not aware of any proposed
assessment against it for additional Taxes (or any basis for any such
assessment) which might be material in amount to it. The Borrower has
substantially complied with all requirements of the Code applicable to
regulated investment companies so as to be relieved of federal income tax on
net investment income and net capital gains distributed to its shareholders.
V.14. Subsidiaries; Investments. The Borrower has no Subsidiaries or
equity investments or any interest in any other Person other than portfolio
securities (including investment company securities) which may have been
acquired in the ordinary course of business.
V.15. Full Disclosure. No document or instrument furnished by the
Borrower to the Banks in connection herewith contains any untrue statement of
any material fact as of the date when made or omits to state any material fact
necessary to make the statements herein or therein taken as a whole not
misleading as of the date when made in light of the circumstances in which the
same were made.
V.16. Investment Policies. The Borrower's assets are being invested
substantially in accordance with the investment policies and restrictions set
forth in its most recent prospectus and its most recent statement of additional
information other than any de minimis violation of such policies arising in the
ordinary course of business which the Borrower is in the process of correcting.
V.17. Regulations U and X. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock.
V.18. Status of Loans. The Borrower's obligation in connection with the
repayment of any Loans made to it hereunder shall at all times rank at least
pari passu in priority of
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payment with all of its other present and future unsecured and unsubordinated
Indebtedness.
V.19. Prospectus. The asset coverage restrictions on the Borrower in its
prospectus are not more restrictive than the provisions of Section 6.12 hereof.
V.20. Affiliated Person. To the best of the knowledge of the Borrower
as of the date hereof, it is not an "Affiliated Person" or an "Affiliated
Person" of such an "Affiliated Person", as defined in the Act, of any Bank
party to the Agreement as of the date hereof.
V.21. Computer Systems. The Borrower has developed and implemented a
comprehensive, detailed program to address on a timely basis the "Year 2000
Problem" (that is, the risk that computer applications used by the
Borrower may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999) and reasonably anticipates that it will on a timely basis successfully
resolve the Year 2000 Problem for all material computer applications used by
it. The Borrower believes, based upon inquiry made, that each supplier and
vendor of the Borrower that is of material importance to the financial
well-being of the Borrower will also successfully resolve on a timely basis the
Year 2000 Problem for all of its material computer applications.
ARTICLE VI
COVENANTS
From the date of this Agreement and thereafter until the expiration or
termination of the Commitments and until all Obligations other than those
expressly stated to survive expiration or termination of this Agreement have
been paid or performed in full, the Borrower shall perform the obligations made
applicable to it in this Article VI.
VI.1. Financial Statements and Other Reports. The Borrower shall deliver
to the Agent, with sufficient copies for each Bank:
(a) As soon as available and in any event within 70 days after each
of its Fiscal Years commencing with the Fiscal Year ending July 31, 1997,
a copy of its annual audited Statement of Assets and Liabilities,
including a statement of investments, prepared in conformity with GAAP
and certified by KPMG Peat Marwick or such other independent certified
public accountant who, in the commercially reasonable judgment of the
Majority Banks, shall be satisfactory to the Majority Banks, together
with a certificate from such accountant (i) acknowledging to the Banks
such accountant's understanding that the Banks are relying on such
Statement of Assets and Liabilities, (ii) containing a computation of,
and showing compliance with, the financial ratio contained in Section
6.12 and (iii) to the effect that, in making the examination
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necessary for the signing of such Statement of Assets and Liabilities,
such accountant has not become aware of any Default that has occurred and
is continuing, or if such accountant has become aware of any such event,
describing it and the steps, if any, being taken to cure it;
(b Within 70 days after the end of the first six months of its
Fiscal Year, a copy of its published semi-annual asset statement,
prepared in conformity with GAAP;
(c Within 15 days after the end of each calendar quarter, (i) a
certificate substantially in the form of Exhibit 6.1 ("Borrowing Base
Certificate") setting forth its (A) borrowing base (as calculated in the
manner contemplated by the form of Borrowing Base Certificate)
("Borrowing Base") and (B) Asset Coverage Ratio as of the last day of
such calendar quarter and (ii) a certificate signed by an Authorized
Officer certifying that, to the best of such Person's knowledge, no
Default has occurred and is continuing or, if an Event of Default has
occurred and is continuing, the steps being taken to remedy the same;
(d (i) Within 15 days following the filing thereof, any
preliminary proxy materials filed with the Securities and Exchange
Commission and (ii) within 15 days after the same become available,
copies of its current prospectus and statement of additional information
(marked to show changes from the prospectus and statement of additional
information most recently delivered to the Banks), except that if its
investment policies are changed materially (including any change in its
ability to borrow hereunder), copies of a revised prospectus (or a
prospectus supplement) and statement of additional information (marked to
show changes from the prospectus (or prospectus supplement) and statement
of additional information most recently delivered to the Banks)
reflecting any such changes shall be provided to the Agent within 15 days
after the same become available; and
(e Promptly from time to time such other reports or information as
any of the Banks may reasonably request.
VI.2. Notices. The Borrower shall notify the Agent in writing of any
of the following immediately upon learning of the occurrence thereof,
describing the same and, if applicable, stating the steps being taken by the
Person(s) affected with respect thereto:
(a the occurrence of a Default;
(b the institution of any litigation, arbitration proceeding or
governmental proceeding which is likely to result in a Material Adverse
Change;
(c the entry of any judgment or decree against it if the aggregate
amount of
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all judgments and decrees then outstanding against it exceeds the lesser
of 5% of its Net Asset Value or $5,000,000 after deducting (i) the amount
with respect to which it is insured and with respect to which the insurer
has assumed responsibility in writing and (ii) the amount for which it is
otherwise indemnified if the terms of such indemnification and the Person
providing such indemnification are satisfactory to the Majority Banks;
(d the occurrence of a change of its name (whether of its legal
name or a "d/b/a" designation). The Borrower shall promptly execute and
deliver to each Bank a new Note for execution in its new name, together
with such other documents in connection therewith as the Banks shall
reasonably request; and
(e the scheduling of consideration by the board of trustees of the
Borrower of a change in the Borrower's Adviser, distributor,
administrator, custodian (unless such custodian is a Bank) or independent
accountant, or the appointment of any sub-adviser or any Person acting in
a similar capacity to an Adviser; provided that a mailing to shareholders
with respect to any of the foregoing shall not be deemed to be sufficient
notice hereunder.
Notwithstanding anything to the contrary in the foregoing, in the case of
the matters described in subparagraph (e), the notice contemplated by this
Section 6.2 shall be given not later than 30 days prior to the time (i) the
board of trustees of the Borrower is to consider approval of such change or
appointment or otherwise determines to recommend such change or appointment (if
necessary) to the Borrower's shareholders for their approval and (ii) of any
change of the Borrower's custodian; provided, however, if in the case of the
matters contemplated by subparagraph (e) the Borrower could not in good faith
have provided the specified advance notice, such notice shall be given by the
Borrower immediately following the earliest feasible time the notice could have
been provided.
VI.3. Existence. The Borrower, except as specified in Section 6.11(a),
shall maintain and preserve its existence as a registered investment company,
and maintain and preserve all rights, privileges, licenses, copyrights,
trademarks, trade names, franchises and other authority to the extent material
and necessary for the conduct of its business in the ordinary course as
conducted from time to time, unless the Borrower has no Loans outstanding and
the Borrower has irrevocably notified the Agent (which shall thereupon promptly
notify the Banks) that it shall not request any Loans hereunder.
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VI.4. Nature of Business. The Borrower shall continue in, and limit its
operations to, the business of a closed-end management investment company,
within the meaning of the Act, and maintain in full force and effect at all
times all governmental licenses, registrations, permits and approvals necessary
for the continued conduct of its business, including, without limitation, its
registration with the Securities and Exchange Commission under the Act as a
closed-end investment company, except where the failure to so maintain such
licenses, registrations, permits and approvals would not result in a Material
Adverse Change.
VI.5. Books, Records and Access. The Borrower shall maintain complete
and accurate books and records in which full and correct entries in conformity
with GAAP shall be made of all transactions in relation to its business and
activities; upon reasonable notice, the Borrower shall at the expense of the
Banks prior to Default or at the expense of the Borrower after Default permit
access by the Banks to its books and records during normal business hours and
permit the Banks to make copies of such books and records; provided, that the
Banks agree that Borrower shall not be required to provide the Banks with
access to such of its books and records that are subject to confidentiality
agreements which prohibit such access or which are proprietary in nature.
VI.6. Insurance. The Borrower shall maintain in full force and effect
insurance to such extent and against such liabilities as is commonly
maintained by companies similarly situated, including, but not limited to (i)
such fidelity bond coverage as shall be required by Rule 17g-1 promulgated
under the Act or any similar or successor provision and (ii) errors and
omissions, director and officer liability and other insurance against such
risks and in such amounts (and with such co-insurance and deductibles) as is
usually carried by other companies of comparable size and financial strength
engaged in the same or similar businesses and similarly situated and will, upon
the reasonable request of the Agent, furnish to the Banks a certificate of an
Authorized Officer setting forth the nature and extent of all insurance
maintained by the Borrower in accordance with this Section.
VI.7. Investment Policies and Restrictions. (a) The Borrower, without
prior written notice to the Agent of at least 30 days, shall not rescind, amend
or modify any investment policy described as "fundamental" in any prospectus or
any registration statement(s) that may be on file with the Securities and
Exchange Commission with respect thereto (collectively herein, a "proposed
change"). If, in the reasonable judgment of the Majority Banks, such proposed
change will result in a change in the Banks' analysis of the creditworthiness
of the Borrower, the Agent shall notify the Borrower of such decision;
thereafter, if such proposed change is implemented, the Banks may terminate
their Commitments to lend to the Borrower, and all Loans outstanding
to the Borrower shall become immediately due and payable.
(b The Borrower's investment in any assets shall be made in
accordance with its investment policies and restrictions set forth in its most
recent prospectus and
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statement of additional information other than any investment which shall
constitute a de minimis violation of such policies arising in the ordinary
course of business which the Borrower is in the process of correcting.
VI.8. Taxes. The Borrower shall pay when due all of its Taxes, unless
and only to the extent that such Taxes are being contested in good faith
and by appropriate proceedings and it shall have set aside on its books such
reserves or other appropriate provisions therefor as may be required by GAAP.
The Borrower shall at all times comply with all requirements of the Code
applicable to regulated investment companies, to such effect as not to be
subject to federal income taxes on net investment income and net capital gains
distributed to its shareholders.
VI.9. Compliance. The Borrower shall comply in all material respects
with all statutes and governmental rules and regulations applicable to it,
including, without limitation, the Act.
VI.10. Pension Plans. The Borrower shall not enter into, or incur any
liability relating to, any Plan.
VI.11. Merger, Purchase and Sale. The Borrower shall not:
(a be a party to any merger or consolidation; provided,
however, that the Borrower may merge or consolidate with any other Person
in accordance with 17 C.F.R. Section 270.17a-8 if (i) such merger or
consolidation complies in all material respects with the requirements of
17 C.F.R. Section 270.17a-8 and all rules promulgated in connection
therewith, (ii) the surviving entity assumes all of the obligations to
the Banks of the Borrower prior to such merger or consolidation and (iii)
in the good faith judgment of the Majority Banks the financial condition
and investment policies and restrictions of the surviving entity are not
fundamentally different from those of the Borrower prior to such merger
or consolidation, unless the Majority Banks otherwise consent;
(b except as permitted by Section 6.11(a) and except for
sales or other dispositions of assets in the ordinary course of its
business or to meet shareholder redemption requests, sell, transfer,
convey, lease or otherwise dispose of all or any substantial part of its
assets; provided, however, that the Borrower may sell substantially all
of its assets to another Person in accordance with 17 C.F.R. Section
270.17a-8 if (i) such sale complies in all material respects with the
requirements of 17 C.F.R. Section 270.17a-8 and all rules promulgated in
connection therewith, (ii) the purchasing entity assumes all obligations
to the Banks of the Borrower prior to such sale and (iii) in the good
faith judgment of the Majority Banks, the financial condition
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and investment policies and restrictions of the purchasing entity are not
fundamentally different from those of the Borrower prior to the asset
sale; or
(c except as permitted by Section 6.11(a), purchase or
otherwise acquire all or substantially all the assets of any Person
without the review and consent thereto of the Majority Banks, which
consent shall not be unreasonably withheld.
For purposes of this Section 6.11 only, a sale, transfer, conveyance,
lease or other disposition of assets shall be deemed to be a "substantial part"
of the assets of the Borrower only if the value of such assets, when added to
the value of all other assets sold, transferred, conveyed, leased or otherwise
disposed of by the Borrower (other than in the normal course of business or in
a manner otherwise consistent with the Borrower's investment policies and other
than payments or transfers made to satisfy quarterly tenders of shares of the
Borrower) during the same Fiscal Year, exceeds 15% of the Borrower's Total
Assets determined as of the end of the immediately preceding Fiscal Year.
VI.12. Asset Coverage Ratio. The Borrower shall not at any time permit
its Asset Coverage Ratio to be less than 8 to 1 or such other more restrictive
ratio as may be set forth in any prospectus with respect to the Borrower.
VI.13. Liens. The Borrower shall not create or permit to exist any Lien
with respect to any property, revenues or assets now owned or hereafter
acquired by it, except (i) Liens in favor of the Banks, if any, (ii) Liens for
current Taxes not delinquent or Taxes being contested in good faith and by
appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained, (iii) Liens as are
necessary in connection with a secured letter of credit opened by or on
behalf of the Borrower in connection with the Borrower's trustees' errors and
omissions liability insurance policy, (iv) Liens incurred in the ordinary
course of business in connection with authorized futures and options
transactions and collateral arrangements with respect to options, futures
contracts, options on futures contracts, when-issued or delayed-delivery
securities or other authorized investments, (v) Liens arising under any
custodian agreement to which the Borrower is a party, (vi) Liens in connection
with reverse repurchase agreements and (vii) other Liens on assets with a value
no greater than $2,000,000; provided, however, the value of any of its assets
subject to a Lien shall be excluded from calculation of its Borrowing Base. The
Borrower shall not permit "margin stock" as defined in FRB Regulation U (not
including shares of the Borrower itself) to constitute 25% or more of the value
(as determined by any reasonable method) of the assets of the Borrower.
VI.14. Guaranties. The Borrower shall not become or be a guarantor or
surety of, or otherwise become or be responsible in any manner (whether by
agreement to purchase any obligations, stock, assets, goods or services, or to
supply or advance any funds, assets, goods
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or services or as an account party under any letter of credit issued in favor
of a third party, or otherwise) with respect to, any undertaking of any other
Person, except for the endorsement, in the ordinary course of collection, of
instruments payable to it or its order.
VI.15. Other Agreements. The Borrower shall not enter into any agreement
containing any provision that would be violated or breached by performance of
its obligations hereunder or under any instrument or document delivered or to
be delivered by it hereunder or in connection herewith.
VI.16. Transactions with Related Parties. The Borrower shall not enter
into or be a party to any transaction or arrangement, including, without
limitation, the purchase, sale, loan, lease or exchange of property or the
rendering of any service, with any Related Party, except in the ordinary course
of and pursuant to the reasonable requirements of its business and upon fair
and reasonable terms no less favorable to it than would be obtainable in a
comparable arm's-length transaction with a Person not a Related Party; provided
that any such transaction must be made in substantial compliance with Section
17 of the Act or an exemption therefrom.
VI.17. Other Indebtedness. The Borrower shall not incur or permit to
exist any Indebtedness, other than (i) the Loans; (ii) unsecured Indebtedness
that is subordinated in right of payment upon liquidation of the Borrower to
the payment of the Loans; (iii) Indebtedness incurred in connection with Liens
permitted by Section 6.13; (iv) reverse repurchase transactions in an amount
not exceeding that permitted by the Borrower's investment policies and
restrictions; and (v) other Indebtedness approved in writing by the Majority
Banks.
VI.18. Changes to Organization Documents, etc. The Borrower shall not
make or permit to be made any material changes to its Organization Documents
without the prior written consent of the Majority Banks.
VI.19. Proceeds of Loans. The Borrower shall utilize the proceeds of
each Loan made to it to provide temporary liquidity funding allowed under the
Act.
ARTICLE VII
EVENTS OF DEFAULT
VII.1. Events of Default. Each of the following shall constitute an
Event of Default with respect to the Borrower under this Agreement:
(a Default in payment by the Borrower (i) when and as
required to be
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paid herein of any amount of principal of any Loan or (ii) within five
days after the same becomes due of any interest, fee or any other amount
payable hereunder or under any other Credit Document.
(b Default by the Borrower in the payment when due, whether by
acceleration or otherwise (subject to any applicable grace period), of
any Indebtedness of, or guaranteed by, the Borrower in excess of
$5,000,000 (other than the Indebtedness evidenced by the Notes).
(c Any event or condition shall occur that results in the
acceleration of the maturity of any Indebtedness of, or guaranteed by,
the Borrower in excess of $5,000,000 or enables the holder or holders of
such other Indebtedness or any trustee or agent for such holders (any
required notice of default having been given and any applicable grace
period having expired) to accelerate the maturity of such other
Indebtedness.
(d The Borrower (i) becomes insolvent, or generally fails to
pay, or admits in writing its inability to pay, its debts as they become
due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) voluntarily ceases to conduct its business in
the ordinary course; (iii) commences any Insolvency Proceeding with
respect to itself; or (iv) takes any action to effectuate or authorize
any of the foregoing.
(e (i) Any involuntary Insolvency Proceeding is commenced or
filed against the Borrower, or any writ, judgment, warrant of attachment,
execution or similar process is issued or levied against a substantial
part of its assets, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or
similar process shall not be released, vacated or fully bonded within 60
days after commencement, filing or levy; (ii) the Borrower admits the
material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S. law)
is ordered in any Insolvency Proceeding; or (iii) it acquiesces in the
appointment of a receiver, trustee, custodian, liquidator, mortgagee in
possession (or agent therefor) or other similar Person for itself or a
substantial part of its property or business.
(f The Borrower shall default in the performance of its
agreement under Section 6.4, 6.11 or 6.12.
(g The Borrower shall default in the performance of its other
agreements herein set forth (and not constituting an Event of Default
under any of the other subsections of this Section 7.1), and such default
shall continue for 30 days (or five Business Days in the case of the
agreement contained in the last sentence of the
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definition of "Total Assets") after notice thereof to the Borrower from
the Agent.
(h Any representation or warranty made by the Borrower herein,
or in any schedule, statement, report, notice, certificate or other
writing furnished by it on or as of the date as of which the facts set
forth therein are stated or certified, is untrue or misleading in any
material respect when made or deemed made or any certification made or
deemed made by it to the Banks is untrue or misleading in any material
respect on or as of the date made or deemed made.
(i There shall be entered against the Borrower one or more
judgments or decrees which, when taken together, will exceed $5,000,000
at any one time outstanding, excluding those judgments or decrees (i)
that shall have been stayed or discharged within 30 calendar days from
the entry thereof and (ii) those judgments and decrees for and to the
extent which the Borrower is insured and with respect to which the
insurer has assumed responsibility in writing or for and to the extent
which the Borrower is otherwise indemnified if the terms of such
indemnification and the Person providing such indemnification are
satisfactory to the Majority Banks.
(j The Borrower shall no longer be in compliance in all
material respects with all material provisions of the Act after giving
effect to all notice, cure and contest periods thereunder.
(k The Borrower shall violate or take any action that would
result in a violation of any of its investment restrictions or fundamental
investment policies as from time to time in effect, except for violations
or the taking of such actions that could not reasonably be expected to
result in a Material Adverse Change.
(l There occurs a Change in Control of the Borrower's Adviser.
(m The Borrower shall have failed to maintain Van Kampen
American Capital Investment Advisory Corp. or one of its Affiliates as
Adviser to it and the Majority Banks shall not have consented to such
failure.
(n The Borrower shall have changed its distributor, custodian,
accountant or administrator and the Majority Banks shall not have
provided their prior written consent to such change; provided, however,
that the Majority Banks shall not withhold such consent unless, based
upon their reasonable judgment, the Majority Banks in good faith conclude
that such change would result in a change in the creditworthiness of the
Borrower.
VII.2. Remedies. If any Event of Default described in Section 7.1 shall
have occurred
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and be continuing, the Agent, upon the direction of the Majority Banks, shall
declare the Commitments to be terminated and the Borrower's obligations under
its Notes to be due and payable, whereupon such Commitments shall immediately
terminate with respect to the Borrower and the Borrower's Notes shall become
immediately due and payable, all without advance notice of any kind (except
that if an event described in Section 7.1(d) or Section 7.1(e) occurs, the
Commitments shall immediately terminate with respect to the Borrower and the
obligations under the Notes with respect to the Borrower shall become
immediately due and payable without declaration or advance notice of any kind).
The Agent shall promptly advise the Borrower of any such declaration, but
failure to do so shall not impair the effect of such declaration. If an Event
of Default shall have occurred, the Agent may exercise on behalf of itself and
the Banks all rights and remedies available to it and the Banks against the
Borrower under the Credit Documents or applicable law.
ARTICLE VIII
THE AGENT
VIII.1. Appointment and Authorization. Each Bank hereby irrevocably
(subject to Section 8.9) appoints, designates and authorizes the Agent to take
such action on its behalf under the provisions of this Agreement and each other
Credit Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Credit
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Credit Document, the Agent shall not have any duties
or responsibilities, except those expressly set forth herein, nor shall the
Agent have or be deemed to have any fiduciary relationship with any Bank, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against the Agent.
VIII.2. Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Credit Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
VIII.3. Liability of Agent. None of the Agent-Related Persons shall (i)
be liable to any of the Banks for any action taken or omitted to be taken by
any of them under or in connection with this Agreement or any other Credit
Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct) or (ii) be responsible in any manner to any
of the Banks for any recital, statement, representation or
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warranty made by Borrower or any officer or agent thereof contained in this
Agreement or in any other Credit Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Credit Document,
or the validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Credit Document, or for any failure of the Borrower
or any other party to any Credit Document to perform its obligations hereunder
or thereunder. No Agent-Related Person shall be under any obligation to any
Bank to ascertain or to inquire as to the observance or performance of any of
the agreements contained in or conditions of this Agreement or any other Credit
Document or to inspect the properties, books or records of the Borrower.
VIII.4. Reliance by Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement, or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Credit Document
unless it shall first receive such advice or concurrence of the Majority Banks
as it deems appropriate, and if it so requests, it shall first be indemnified
to its satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Credit Document in
accordance with a request or consent of the Majority Banks and such request,
and any action taken or failure to act pursuant thereto shall be binding upon
all of the Banks.
VIII.5. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default, except with respect to
defaults in the payment of principal, interest and fees required to be paid to
the Agent for the account of the Banks, unless the Agent shall have received
written notice from a Bank or the Borrower referring to this Agreement,
describing such Default and stating that such notice is a "notice of default".
The Agent will notify the Banks of its receipt of any such notice. The Agent
shall take such action with respect to such Default as may be requested by the
Majority Banks in accordance with Article VII; provided, however, that unless
and until the Agent has received any such request, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action,
with respect to such Default as it shall deem advisable or in the best
interest of the Banks.
VIII.6. Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it and that
no act by the Agent hereinafter taken, including any review of the affairs of
the Borrower, shall be deemed to constitute any
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representation or warranty by any Agent-Related Person to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition, and
creditworthiness of the Borrower, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to the Borrower hereunder. Each
Bank also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Credit Documents and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations, property,
financial and other condition, and creditworthiness of the Borrower. Except
for notices, reports and other documents expressly herein required to be
furnished to the Banks by the Agent, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition, or creditworthiness of the Borrower which may come into the
possession of any of the Agent-Related Persons.
VIII.7. Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
that no Bank shall be liable for the payment to the Agent-Related Persons of
any portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Credit Document, or any
document contemplated by or referred to herein, to the extent that the Agent is
not reimbursed for such expenses by or on behalf of the Borrower. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent.
VIII.8. Agent in Individual Capacity. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Borrower and
their Affiliates as though BofA were not the Agent hereunder and without notice
to or consent of the Banks. The Banks acknowledge that, pursuant to such
activities, BofA or its Affiliates may receive information regarding the
Borrower or their
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Affiliates (including information that may be subject to confidentiality
obligations in favor of the Borrower) and acknowledge that the Agent shall be
under no obligation to provide such information to them. With respect to its
Loans, BofA shall have the same rights and powers under this Agreement as any
other Bank and may exercise the same as though it were not the Agent, and the
terms "Bank" and "Banks" include BofA in its individual capacity.
VIII.9. Successor Agent. The Agent may, and at the request of the
Majority Banks shall, resign as Agent upon 30 days' notice to the Banks and the
Borrower. If the Agent resigns under this Agreement, the Majority Banks
shall appoint from among the Banks a successor agent for the Banks, which
successor agent shall be subject to approval by the Borrower. If no successor
agent is appointed prior to the effective date of the resignation of the Agent,
the Agent may appoint, after consulting with the Banks and the Borrower, a
successor agent from among the Banks. Upon the acceptance of its appointment
as successor agent hereunder, such successor agent shall succeed to all the
rights, powers and duties of the retiring Agent and the term "Agent" shall mean
such successor agent, and the retiring Agent's appointment, powers and duties
as Agent shall be terminated. After any retiring Agent's resignation hereunder
as Agent, the provisions of this Article VIII and Sections 9.4 and 9.5 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor agent has accepted
appointment as Agent by the date which is 30 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective, and the Banks shall perform all of the duties of
the Agent hereunder until such time, if any, as the Majority Banks appoint a
successor agent as provided for above.
VIII.10. Withholding Tax. (a) On or prior to the date of execution and
delivery of this Agreement in the case of each initial Bank, and on or prior to
the date of the assignment pursuant to which it becomes a party to this
Agreement in the case of an assignee Bank, and from time to time thereafter if
requested by the Agent or Borrower, any Bank that is a "foreign corporation,
partnership or trust" within the meaning of the Code agrees with and in favor
of the Agent and the Borrower to deliver to the Agent and the Borrower IRS Form
1001 and IRS Form W-8, two copies of IRS Form 4224, as appropriate, or any
successor form or forms as may be required under the Code or other laws of the
United States as a condition to exemption from, or reduction of, United States
withholding tax.
A Bank providing IRS Forms 1001 and W-8 shall also provide to the Agent
and Borrower properly completed IRS Forms 1001 and W-8 in each third succeeding
calendar year during which interest may be paid under this Agreement. A Bank
providing IRS Form 4224 shall also provide to the Agent and Borrower two
properly completed IRS Forms 4224 before the payment of interest is due in each
succeeding taxable year of such Bank during which interest may be paid under
this Agreement.
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Such Bank agrees to promptly notify the Agent and the Borrower of any change in
circumstances that would modify or render invalid any claimed exemption or
reduction. If the IRS form provided by a Bank at the time such Bank first
becomes a party to this Agreement indicates a United States withholding tax in
excess of zero, withholding tax at such rate shall be considered excluded from
Taxes and Other Taxes unless and until such Bank provides the appropriate form
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes and Other Taxes for the
period governed by such form; provided, however, that, if at the date of an
assignment pursuant to which an assignee becomes a party to this Agreement, the
Bank assignor was entitled to payments under Section 3.1 in respect of United
States withholding tax with respect to interest paid at such date, then, to
such extent, the term Taxes shall include United States withholding tax, if
any, applicable with respect to the Bank assignee on such date. For any period
with respect to which a Bank that is a "foreign corporation, partnership or
trust" within the meaning of the Code has failed to provide the Agent and
Borrower with the appropriate IRS forms described above (other than if such
failure is due to a change in law occurring subsequent to the date on which a
Bank, or an assignee thereof, becomes a party to this Agreement), such Bank
shall not be entitled to indemnification under Section 3.1 with respect to
withholding taxes imposed by the United States; provided, however, that should
a Bank become subject to withholding taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as the Bank shall
reasonably request to assist the Bank to recover such Taxes.
(b If any Bank claims exemption from or reduction of withholding tax
under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part
of the Obligations of the Borrower to such Bank, such Bank agrees to notify the
Agent and the Borrower of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrower to such Bank. To the extent of
such percentage amount, the Agent and the Borrower will treat such Bank's IRS
Form 1001 as no longer valid.
(c If any Bank claiming exemption from United States withholding tax by
filing IRS Form 4224 with the Agent sells, assigns, grants a participation in,
or otherwise transfers all or part of the Obligations of the Borrower to such
Bank, such Bank agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the Code.
(d If the IRS or any other Governmental Authority of the United States
or other jurisdiction asserts a claim that the Agent or the Borrower did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered, was not properly executed, or
because such Bank failed to notify the Agent or the Borrower of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason), such Bank shall indemnify the Agent
and
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the Borrower fully for all amounts paid, directly or indirectly, by the Agent
or the Borrower as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to the
Agent or the Borrower under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
ARTICLE IX
MISCELLANEOUS PROVISIONS
IX.1. Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Credit Document, and no consent with respect to
any departure by the Borrower therefrom, shall be effective unless the same
shall be in writing and signed by the Majority Banks (or by the Agent at the
written request of the Majority Banks) and the Borrower and acknowledged by the
Agent, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing
and signed by all the Banks and the Borrower and acknowledged by the Agent, do
any of the following:
(a increase or extend the Commitments of any Bank (or reinstate
any Commitment(s) terminated pursuant to Section 7.1);
(b postpone or delay any date fixed by this Agreement or any
other Credit Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Credit
Document;
(c reduce the principal of, or the rate of interest specified
herein on, any Loan, or (subject to clause (ii) below) any fees or other
amounts payable hereunder or under any other Credit Document;
(d change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder; or
(e amend this Section, Section 2.13, Section 6.12, the
definition of "Asset Coverage Ratio" (or any defined term as it is used in such
definition) or any provision herein providing for consent or other action by
all Banks;
and, provided further, that (i) no amendment, waiver or consent shall, unless
in writing and
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signed by the Agent in addition to the Majority Banks or all the Banks, as the
case may be, affect the rights or duties of the Agent under this Agreement or
any other Credit Document and (ii) the Fee Letter may be amended, or rights or
privileges thereunder waived, in a writing executed by the parties thereto.
IX.2. Notices. (a) All notices, requests and other communications
shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission, provided that any matter transmitted by
the Borrower by facsimile (i) shall be immediately confirmed by a telephone
call to the recipient at the number specified on Schedule III and (ii) shall be
followed promptly by delivery of a hard copy original thereof) and mailed by
certified mail return receipt requested postage prepaid, faxed or delivered to
the address or facsimile number specified for notices on Schedule III, or, as
directed to the Borrower or the Agent, to such other address as shall be
designated by such party in a written notice to the other parties, and as
directed to any other party, at such other address as shall be designated by
such party in a written notice to the Borrower and the Agent.
(b All such notices, requests and communications shall, when
transmitted by overnight delivery or faxed, be effective when delivered for
overnight (next-day) delivery or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail by certified mail return receipt requested, or if
delivered, upon delivery; provided that notices pursuant to Article II or VIII
shall not be effective until actually received by the Agent.
(c Any agreement of the Agent and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Borrower. The Agent and the Banks shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by the
Borrower to give such notice, and the Agent and the Banks shall not have any
liability to the Borrower or other Person on account of any action taken or not
taken by the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Borrower to repay the Loans shall not be
affected in any way or to any extent by any failure by the Agent and the Banks
to receive written confirmation of any telephonic or facsimile notice or the
receipt by the Agent and the Banks of a confirmation which is at variance with
the terms understood by the Agent and the Banks to be contained in the
telephonic or facsimile notice.
IX.3. No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Agent or any Bank, any right, remedy, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege.
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IX.4. Costs and Expenses. The Borrower shall:
(a whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (so long as it is the Agent, or if BofA is
not the Agent, the Bank acting as successor Agent) (including in its capacity
as Agent) within five Business Days after demand for all reasonable costs and
expenses incurred by BofA (so long as it is the Agent, or if BofA is not the
Agent, the Bank acting as successor Agent) (including in its capacity as Agent)
in connection with the preparation, delivery, administration and execution of,
and any amendment, supplement, waiver or modification to (in each case, whether
or not consummated), this Agreement, any Credit Document and any other
documents prepared in connection herewith or therewith, and the consummation of
the transactions contemplated hereby and thereby, including reasonable
Attorney Costs incurred by BofA (so long as it is the Agent, or if BofA is not
the Agent, the Bank acting as successor Agent) (including in its capacity as
Agent) with respect thereto; provided, however, notwithstanding anything to the
contrary in the foregoing, the responsibility of the Borrower to reimburse BofA
(so long as it is the Agent, or if BofA is not the Agent, the Bank acting as
successor Agent) for Attorney Costs in connection with the development,
preparation, delivery and execution of this amended and restated Agreement and
such other documents and the consummation of such transactions shall be limited
to the reasonable fees and disbursements of outside counsel to BofA (so long as
it is the Agent, or if BofA is not the Agent, the Bank acting as successor
Agent); and
(b pay or reimburse the Agent, the Arranger and each Bank
within five Business Days after demand for all costs and expenses (including
Attorney Costs) incurred by them in connection with the enforcement, attempted
enforcement, or preservation of any rights or remedies under this Agreement or
any other Credit Document during the existence of an Event of Default or after
acceleration of the Loans (including in connection with any "workout" or
restructuring regarding the Loans and including in any Insolvency Proceeding or
appellate proceeding).
IX.5. Borrower Indemnification. (a Whether or not the transactions
contemplated hereby are consummated, the Borrower shall indemnify and hold the
Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person"), harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including reasonable Attorney Costs) of
any kind or nature whatsoever which may at any time (including at any time
following repayment of the Loans and the termination, resignation or
replacement of the Agent or replacement of any Bank) be imposed on, incurred by
or asserted against any such Person in any way relating to or arising out of
this Agreement or any Credit Document, or the transactions contemplated hereby,
or any action taken or omitted by any such Person under or in connection with
any of the foregoing, including with respect to any investigation, litigation
or proceeding (including any
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<PAGE> 44
Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided that the Borrower shall not have an
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of
all other Obligations.
(b Promptly after receipt by an Indemnified Person under
subsection (a) above of notice of the commencement of any action, such
Indemnified Person shall, if a claim in respect thereof is to be made against
the Borrower under such subsection, notify the Borrower in writing of the
commencement thereof, but the omission so to notify the Borrower shall not
relieve it from any liability which it may have to any Indemnified Person
otherwise than under such subsection. In case any such action shall be
brought against any Indemnified Person and it shall notify the Borrower of the
commencement thereof, the Borrower shall be entitled to participate therein
and, to assume the defense thereof, with counsel reasonably satisfactory to
such Indemnified Person (who shall not, except with the consent of the
Indemnified Person, be counsel to the Borrower), and after notice from the
Borrower to such Indemnified Person of its election so to assume the defense
thereof; provided that in no event shall any settlement or compromise of any
such claims, actions or demands be made without the consent of the Indemnified
Person, the consent of which shall not be unreasonably withheld; and provided,
further, that the Borrower shall not be required to reimburse the expenses of
more than one counsel in any jurisdiction unless the Indemnified Parties shall
determine in their sole discretion that their interests may differ.
(c The agreements in this Section 9.5 shall survive payment of
all other Obligations.
IX.6. Payments Set Aside. To the extent that the Borrower makes a
payment to the Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement
entered into by the Agent or such Bank in its discretion) to be repaid to a
trustee, receiver or any other party, in connection with any Insolvency
Proceeding or otherwise, then (a) to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred and (b) each Bank severally agrees to pay to the
Agent upon demand its pro rata share of any amount so recovered from or repaid
by the Agent.
IX.7. Successors and Assigns (a) The provisions of this Agreement shall
be binding upon and shall inure to the benefit of the Borrower, the Agent and
the Banks and their
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<PAGE> 45
respective successors and assigns, except that Borrower may not assign or
otherwise transfer any of its rights under this Agreement without the prior
written consent of the Banks; provided that the Banks hereby agree that (i)
they each consent to any transfer or assignment made to another Person pursuant
to Section 6.11(b) (the "New Borrower") so long as all of the conditions in
the proviso in Section 6.11(b) are met; (ii) the Banks further agree they will
enter into all amendments and waivers to this Agreement to accommodate the New
Borrower and its structure and to waive any Default and other provisions of
this Agreement in connection with any such assignment or transfer; (iii) the
Banks further agree that any transfer or assignment made pursuant to Section
6.11(b) shall not itself be deemed to be a rescission, amendment or
modification of any "fundamental" investment policy under Section 6.7(a) or a
violation of Section 6.7(b); and (iv) the Banks agree to release the original
Borrower from all liability hereunder.
(b) The Loans are being made by the Banks in the ordinary course
of their business and not with a view toward distribution, it being understood
that each Bank may sell participations and assignments in its Commitments and
the Loans as provided herein. Any Bank may at any time assign, subject to the
Borrower's consent, which consent shall not be unreasonably withheld, to one or
more financial institutions (each of which shall have a net worth of at least
$500,000,000 (or the equivalent thereof in another currency)) not an affiliate
(as defined in the Act) of or an affiliate (as defined in the Act) of such an
affiliate of the Borrower or Van Kampen American Capital Investment Advisory
Corp. (each an "Assignee") all, or a proportionate part of all, of its rights
under this Agreement and the Borrower's Notes in a minimum amount of
$25,000,000; provided that the Borrower may continue to deal solely and
directly with the Bank in connection with any interest assigned until the
Borrower receives written notice of assignment, the address of the assignee and
the Borrower consents. Any Bank may at any time grant to one or more financial
institutions (each of which shall have a net worth of at least $500,000,000 (or
the equivalent thereof in another currency)) not an affiliate (as defined in
the Act) of the Borrower or Van Kampen American Capital Investment Advisory
Corp. (each a "Participant") participating interests in its Commitments or any
or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower, such Bank shall remain responsible for the performance of its
obligations hereunder, and the Borrower shall continue to deal solely and
directly with such Bank in connection with the Bank's rights and obligations
under this Agreement. Any agreement pursuant to which such Bank may grant such
a participating interest shall provide that the Bank shall retain the sole
right and responsibility to enforce the obligations of the Borrower hereunder,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; provided that such participation
agreement may provide that such Bank will not agree to any modification,
amendment or waiver of this Agreement (i) which increases or decreases the
Commitments of the Bank, (ii) reduces the principal of or rate of interest on
any Loan or fees hereunder or (iii) postpones the date fixed for any payment of
principal of or interest on any Loan or any fees
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<PAGE> 46
hereunder without the consent of the Participant. The Borrower agrees that
each Participant shall, to the extent provided in its participation agreement,
be entitled to the benefits of Article III hereof with respect to its
participating interest subject to clause (d) below and subject to compliance
with Section 8.10 by the participant as if it were a Bank.
(c) Any Bank may at any time assign all or any portion of its
rights under this Agreement and the Notes to a Federal Reserve Bank. No such
assignment shall release such Bank from its obligations hereunder.
(d) No Assignee, Participant or other transferee of a Bank's
rights shall be entitled to receive any greater payment under Section 3.1 and
Section 3.3 hereof than such Bank would have been entitled to receive with
respect to the rights transferred, unless such transfer is made with the
Borrower's prior written consent or at a time when the circumstances giving
rise to such greater payment did not exist.
IX.8. Confidentiality. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise
due care to maintain the confidentiality of all written information identified
as "confidential" or "secret" by the Borrower and provided to it by or on
behalf of the Borrower, or by the Agent on the Borrower's behalf, under this
Agreement or any other Credit Document, and neither it nor any of its
Affiliates shall use any such information other than in connection with or in
enforcement of this Agreement and the other Credit Documents, except to the
extent such information (i) was or becomes generally available to the public
other than as a result of disclosure by the Bank or (ii) was or becomes
available on a non-confidential basis from a source other than the Borrower,
provided that such source is not bound by a confidentiality agreement with the
Borrower known to the Bank; provided, however, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other legal process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent,
any Bank or their respective Affiliates may be party; (E) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Credit Document; (F) to such Bank's independent auditors and
other professional advisors; (G) to any Participant or Assignee, actual or
potential, provided that such Person agrees in writing to keep such information
confidential to the same extent as required by the Banks hereunder; (H) as to
any Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower is party
or is deemed party with such Bank or such Affiliate; and (I) to its Affiliates;
provided that each Bank shall require its Affiliates to agree to comply with
the provisions of Section 9.9; and provided further that in the case of clauses
(B), (C) and (D), such Bank shall use reasonable efforts to notify the Borrower
promptly of any requests to disclose such
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information so that the Borrower may seek a protective order or other
appropriate remedy.
IX.9. Set-off. (a) In addition to any rights and remedies of the Banks
provided by law, but subject to Section 9.9(b), if, as to the Borrower, an
Event of Default exists and is continuing or the Loans have been accelerated,
each Bank is authorized at any time and from time to time, without prior notice
to the Borrower (any such notice being waived by the Borrower to the fullest
extent permitted by law), to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Bank to or for the credit or the
account of the Borrower against any and all Obligations owing to such Bank, now
or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Credit Document and although
such Obligations may be contingent or unmatured provided that any such
appropriation and application shall be subject to the provisions of Section
2.13. Each Bank agrees promptly to notify the Borrower and the Agent after any
such set-off and application made by such Bank; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application.
(b) Notwithstanding the foregoing, in no event shall any Bank
have any right to set off or otherwise apply any deposits of any kind at any
time held by any such Bank to the extent that such Bank holds such deposits as
the Borrower's custodian or agent. Without limiting the foregoing, in no event
shall State Street Bank and Trust Company set off or otherwise apply any
deposits of any kind at any time held by State Street Bank and Trust Company
pursuant to that certain Custodian Contract between the Borrower and State
Street Bank and Trust Company as in effect on the date hereof and as the same
may be amended, restated, supplemented or otherwise modified from time to time.
IX.10. Notification of Addresses, Lending Offices, etc. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
IX.11. Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
IX.12. Survival. The obligations of the Borrower under Sections 2.9,
3.1, 3.3, 3.4 and Sections 9.4 and 9.5, and the obligations of the Banks under
Sections 8.7 and 9.8, shall in each case survive any termination of this
Agreement, the payment in full of all Obligations and the termination of all
Commitments. The representations and warranties made by the Borrower in this
Agreement and in each other Credit Document shall survive the execution
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and delivery of this Agreement and each such other Credit Document.
IX.13. Disclaimer. None of the shareholders, trustees, officers,
employees and other agents of the Borrower shall be personally bound by or
liable for any indebtedness, liability or obligation hereunder or under the
Notes, nor shall resort be had to their private property for the satisfaction
of any obligation or claim hereunder.
IX.14. Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not
in any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
IX.15. No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrower, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and
assigns, and no other Person shall be a direct or indirect legal beneficiary
of, or have any direct or indirect cause of action or claim in connection with,
this Agreement or any of the other Credit Documents.
IX.16. Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
ILLINOIS; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING
UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT AGAINST THE BORROWER IN
THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
BORROWER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. THE BORROWER IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE BORROWER WAIVES PERSONAL SERVICE
OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER
MEANS PERMITTED BY ILLINOIS LAW.
IX.17. Waiver of Jury Trial. THE BORROWER, THE BANKS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
CREDIT DOCUMENTS, OR THE TRANSACTIONS
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CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION
OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS OR OTHERWISE. THE BORROWER, THE BANKS AND THE AGENT
EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER CREDIT DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
IX.18. Entire Agreement. This Agreement, togetherwith the other Credit
Documents, embodies the entire agreement and understanding among the Borrower,
the Banks and the Agent and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
IX.19. Affiliated Person. Each Bank represents that it is not
an"Affiliated Person" or an "Affiliated Person" of such an "Affiliated Person",
as defined in the Act, of the Borrower.
IX.20. Continuing Effectiveness, etc. After the Refinancing Date, all
references in the Credit Documents or other similar documents to "Credit
Agreement" or words of like import shall refer to this Agreement. The
execution, delivery and effectiveness of this Agreement shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
the Banks under any of the other Credit Documents, nor constitute a waiver of
any provision of the Credit Documents.
IX.21. Facsimile Execution. One or more executed counterparts of this
Agreement or any document or instrument related hereto may be delivered by
facsimile, with the intention that such counterparts have the same effect as an
original executed counterpart hereof or thereof. Any party hereto delivering an
executed counterpart of this Agreement or any related document or instrument by
facsimile, shall promptly provide an original of such executed counterpart to
the Agent.
[Balance of page left blank intentionally.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Edward C. Wood, III
-------------------------------
Title: Vice President & CFO
----------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ John G. Hayes
-------------------------------
Title: Vice President
----------------------------
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BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ John G. Hayes
-------------------------------
Title: Vice President
----------------------------
THE BANK OF NEW YORK
By: /s/ Scott H. Buitekant
-------------------------------
Title: Asst. Vice President
----------------------------
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESELLSCHAFT, New York branch
By: /s/ David A. Rockwell
-------------------------------
Title: Sr. Vice President
----------------------------
By: /s/ Constance Madden
-------------------------------
Title: Vice President
----------------------------
FLEET NATIONAL BANK
By: /s/ Leonard Lapolice
-------------------------------
Title: Asst. Vice President
----------------------------
S-2
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STATE STREET BANK AND TRUST COMPANY
By: /s/ Edward A. Siegel
-------------------------------
Title: Asst. Vice President
----------------------------
CITIBANK, N.A.
By: /s/ Jervis Smith
-------------------------------
Title: Attorney-in-fact
----------------------------
COMMERZBANK AKTIENGESELLSCHAFT, NEW
YORK BRANCH
By: /s/ William M. Earley
-------------------------------
Title: Vice President
----------------------------
By: /s/ Joseph J. Hayes
-------------------------------
Title: Asst. Vice President
----------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Reanud d'Merbes
-------------------------------
Title: Sr. Vice President
----------------------------
HARRIS TRUST AND SAVINGS BANK
By: /s/ Scott Harris
-------------------------------
Title: Vice President
----------------------------
S-3
<PAGE> 53
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By: /s/ Edward J. Meyer Jr.
-------------------------------
Title: Vice President
----------------------------
S-4
<PAGE> 54
SCHEDULE I
Definitions
"Act" means the Investment Company Act of 1940.
"Adviser" means Van Kampen American Capital Investment Advisory Corp., a
Delaware corporation or any of its wholly-owned Subsidiaries as investment
adviser, sub-adviser or administrator to the Borrower.
"Affected Bank" is defined in Section 3.7.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"Agent" is defined in the preamble and includes each other Person as shall
have subsequently been appointed as the successor Agent pursuant to Section
8.9.
"Agent-Related Persons" means BofA and any successor agent arising under
Section 8.9, together with their respective Affiliates (including, in the case
of BofA, the Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth on
Schedule III in relation to the Agent or such other address as the Agent may
from time to time specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" means,
(i) with respect to Federal Funds Rate Loans, 0.375%; provided,
however, that during any period the aggregate outstanding Loans exceed
$250,000,000.00, the Applicable Margin shall be 0.500% for such period;
and
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(ii) with respect to Offshore Rate Loans, 0.375%; provided,
however, that during any period the aggregate outstanding Loans exceed
$250,000,000.00, the Applicable Margin shall be 0.500% for such period.
"Arrangement Fee" is defined in Section 2.9.
"Arranger" means BancAmerica Robertson Stephens, a Delaware corporation.
"Asset Coverage Ratio" means, with respect to the Borrower, the ratio
which the Net Asset Value of the Borrower, less the value of assets subject to
Liens, bears to the aggregate amount of Indebtedness of the Borrower.
"Assignee" is defined in Section 9.7(b).
"Attorney Costs" means and includes any and all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all reasonable disbursements of internal counsel.
"Authorized Officer" means, relative to the Borrower, those of its
officers or agents whose signatures and incumbency shall have been certified to
the Agent and the Banks pursuant to Section 4.1(a).
"Banks" is defined in the preamble.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978.
"Base Rate" means, for any day, the rate of interest in effect for such
day as publicly announced from time to time by BofA in San Francisco,
California, as its "reference rate." The "reference rate" is a rate set by
BofA based upon various factors, including BofA's costs and desired return,
general economic conditions and other factors and is used as a reference point
for pricing some loans, which may be priced at, above or below such announced
rate. Any change in the reference rate announced by BofA shall take effect at
the opening of business on the day specified in the public announcement of such
change.
"BofA" is defined in the preamble.
"Borrower" means Van Kampen American Capital Prime Rate Income Trust and
its successors and assigns permitted pursuant to Section 9.7(a).
"Borrowing" means a borrowing hereunder consisting of Loans of the same
Type made to the Borrower on the same day by the Banks under Article II and,
other than in the case of Federal Funds Rate Loans, having the same Interest
Period.
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"Borrowing Base" has the meaning set forth in Section 6.1(c).
"Borrowing Base Certificate" means a Borrowing Base Certificate as defined
in Section 6.1(c) and substantially in the form of Exhibit 6.1 attached hereto.
"Borrowing Date" means any date on which a Borrowing occurs under Section
2.3.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in Chicago, New York City or San Francisco are
authorized or required by law to close and, if the applicable Business Day
relates to any Offshore Rate Loan, means such a day on which dealings are
carried on in the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or directive of
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capitalized Lease" means any lease which is or should be capitalized on
the balance sheet of the lessee in accordance with GAAP.
"Change in Control" means with respect to any Person any transaction or
series of transactions where (i) any "person" (as such term is used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") as in effect on the date hereof) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, as in effect on the date
hereof), directly or indirectly, of securities of such Person (the "Target")
representing 20% or more of the combined voting power of the Target's
then-outstanding securities; (ii) at any time less than a majority of the
members of the Target's board of directors shall be persons who were either
nominated for election or were elected by such board of directors; (iii) the
Target's stockholders approve a merger or consolidation of the Target with
any other Person, other than a merger or consolidation that would result in
the voting securities of the Target outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 75% of the
combined voting power of the voting securities of the Target or such
surviving entity outstanding immediately after such merger or consolidation;
or (iv) the Target's stockholders approve a plan of complete liquidation of
the Target or an agreement for the sale or disposition of all or
substantially all of the Target's assets; provided that no merger between
Morgan Stanley Group, Inc. and Dean Witter, Discover & Co. shall be deemed a
"Change in Control".
"Closing Date" means April 17, 1997.
"Code" means the Internal Revenue Code of 1986.
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"Commitment" means, relative to any Bank, such Bank's obligation to make
Loans pursuant to Section 2.1.
"Commitment Amount" means, on any date, $500,000,000, as such amount may
be reduced from time to time pursuant to Section 2.5.
"Commitment Termination Date" means the earliest to occur of:
(a) April 15, 1999;
(b) the date on which the Commitments terminate in accordance with
the provisions of this Agreement; and
(c) the date on which any Event of Default described in Section
7.1(e) or Section 7.1(f) occurs.
Upon the occurrence of any event described in clause (b) or (c) above, the
Commitments shall terminate automatically and without further action.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit 2.4.
"Credit Documents" means this Agreement, any Notes, the Fee Letter and all
other documents delivered to the Agent or any Bank in connection herewith.
"Default" means any Event of Default or any condition, occurrence or event
which, with notice or lapse of time or both, would, unless cured or waived,
constitute an Event of Default.
"Dollar" and the symbol "$" mean the lawful money of the United States.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Eurodollar Reserve Percentage" has the meaning specified in the
definition of "Offshore Rate".
"Event of Default" means any of the events described in Section 7.1.
"Exchange Act" has the meaning specified in the definition of "Change in
Control".
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"Federal Funds Rate" means, for any day, the rate as quoted by the Federal
Reserve Bank of New York and confirmed in the weekly statistical release
designated as H.15(519), or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor "H.15(519)") on the
preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such preceding
Business Day, the rate for such day will be the arithmetic mean as determined
by the Agent of the rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m. (New York City time) on that day by each of three
leading brokers of Federal funds transactions in New York City selected by the
Agent.
"Federal Funds Rate Loan" means a Loan that bears interest based on the
Federal Funds Rate.
"Fee Letter" means the letter agreement referred to in Section 2.9.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months
ending on the last day of such twelve-month period; references to a Fiscal Year
with a number corresponding to any calendar year (e.g., the "1995 Fiscal Year")
refer to the Fiscal Year ending on July 31 during such calendar year.
"FRB" means the Board of Governors of the Federal Reserve System and any
Governmental Authority succeeding to any of its principal functions.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing which exercise
a similar function.
"Indebtedness" of any Person means, without duplication, (i) any
obligation of such Person for borrowed money, including, without limitation (a)
any obligation of such Person evidenced by bonds, debentures, notes or other
similar debt instruments, and (b) any obligation for borrowed money which is
non-recourse to the credit of such Person but which is secured by a Lien on any
asset of such Person, (ii) any obligation of such Person on account of
advances, (iii) any obligation of such Person for the deferred purchase price
of any property or services, except Trade Accounts Payable, (iv) any obligation
of such Person as lessee under a Capitalized Lease, (v) all net obligations
with respect to Swap Contracts and (vi) any Indebtedness of another Person
secured by a Lien on any asset of such first
I-5
<PAGE> 59
Person, whether or not such Indebtedness is assumed by such first Person. For
all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer.
"Indemnified Liabilities" is defined in Section 9.5.
"Indemnified Persons" is defined in Section 9.5.
"Insolvency Proceeding" means, with respect to any Person, (a) any case,
action or proceeding before any court or other Governmental Authority relating
to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors or (b) any general assignment for
the benefit of creditors, composition, marshalling of assets for creditors, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, undertaken under U.S. Federal, state or
foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Federal Funds
Rate Loan, the last day of each Interest Period applicable to such Loan and, as
to any Federal Funds Rate Loan, the last Business Day of each calendar quarter.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as an Offshore Rate Loan
and ending on the date one day to 60 days thereafter as selected by the
Borrower in its Loan Request or Conversion/Continuation Notice,
provided that:
(i) if any Interest Period would otherwise end on a day that is not
a Business Day, that Interest Period shall be extended to the following
Business Day unless, in the case of an Offshore Rate Loan, the result of
such extension would be to carry such Interest Period into another
calendar month, in which event such Interest Period shall end on the
preceding Business Day; and
(ii) no Interest Period for any Loan shall extend beyond the
Commitment Termination Date.
"IRS" means the Internal Revenue Service and any Governmental Authority
succeeding to any of its principal functions under the Code.
"Lending Office" means, as to any Bank, the office or offices of such Bank
specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the
I-6
<PAGE> 60
case may be, on Schedule III hereto or in the case of an Assignee Bank, in the
Bank Assignment Agreement or such other office or offices as such Bank may from
time to time notify to the Borrower and the Agent.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, segregated asset
arrangement established in connection with reverse repurchase transactions,
encumbrance, lien (statutory or other), or preferential arrangement of any kind
or nature whatsoever in respect of any property (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing lease
having substantially the same economic effect as any of the foregoing, or the
filing of any financing statement naming the owner of the asset to which such
lien relates as debtor, under the Uniform Commercial Code or any comparable
law) and any contingent or other agreement to provide any of the foregoing, but
not including the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to the Borrower under
Article II and may be a Federal Funds Rate Loan or an Offshore Rate Loan (each,
a "Type" of Loan).
"Loan Request" means a request for a Loan given by the Borrower to the
Agent, substantially in the form of Exhibit 2.3.
"Majority Banks" means, at any time, at least two Banks (which are not
Affiliates of each other) then holding at least 51% of the then aggregate
unpaid principal amount of the Loans or, if no such principal amount is then
outstanding, at least two Banks then having at least 51% of the Commitments.
"Material Adverse Change" means any change that is material and adverse to
(x) the condition (financial or otherwise) or business of the Borrower,
provided any change occurring after the most recent Borrowing Date resulting
from a decrease in the Net Asset Value of the Borrower shall not be deemed a
Material Adverse Change as long as the Borrower's Net Asset Value has not
decreased by more than 25% per share since the Borrowing Date, or (y) the
ability of the Borrower to duly and punctually pay and perform all or any of
its Obligations.
"Net Asset Value" means, at any date, Total Assets less Total Liabilities.
"Note" means the promissory note of the Borrower, substantially in the
form set forth as Exhibit 2.2.
"Obligations" means all obligations (monetary or otherwise) of the
Borrower to the Banks and the Agent under the Credit Documents and the Fee
Letter, including (a) all
I-7
<PAGE> 61
obligations to make payments to the Banks of, and in respect of the principal
amount of and interest on, any Loan and (b) all obligations of the Borrower to
the Banks and the Agent in respect of fees, costs, expenses and indemnification
under Sections 9.4 and 9.5.
"Offshore Rate" means, for any Interest Period, with respect to Offshore
Rate Loans comprising part of the same Borrowing, the rate of interest per
annum (rounded upward to the next 1/100th of 1%) determined by the Agent as
follows:
Offshore Rate = IBOR
--------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means, for any day for any Interest
Period, the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day (whether
or not applicable to any Bank) under regulations issued from time to time
by the FRB for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"); and
"IBOR" means the rate of interest per annum determined by the Agent
as the rate at which Dollar deposits in the approximate amount of BofA's
Offshore Rate Loan for such Interest Period would be offered by BofA's
Grand Cayman Branch, Grand Cayman B.W.I. (or such other office as may be
designated for such purpose by BofA), to major banks in the offshore
Dollar interbank market at their request at approximately 9:00 a.m. (San
Francisco time) one Business Day prior to the commencement of such
Interest Period.
The Offshore Rate shall be adjusted automatically as to all Offshore Rate
Loans then outstanding as of the effective date of any change in the Eurodollar
Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the
Offshore Rate.
"Organization Documents" means, for the Borrower, the Trust Agreement, the
bylaws, any certificate of determination or instrument relating to the rights
of preferred shareholders of the Borrower and all applicable resolutions of the
board of trustees (or any committee thereof) of the Borrower.
"Original Agreement" is defined in the first recital to this amended and
restated Agreement.
"Other Taxes" means any present or future stamp or documentary taxes or
any other
I-8
<PAGE> 62
excise or property taxes, charges or similar levies that arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement or any other Credit Documents.
"Participant" is defined in Section 9.7(b).
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan" means any "pension plan" or "welfare benefit plan" as such terms
are defined in ERISA.
"Pro Rata Share" means, as to any Bank (a) at any time there are no Loans
outstanding, the percentage equivalent (expressed as a decimal, rounded to the
ninth decimal place) at such time of such Bank's Commitment divided by
the combined Commitments of all Banks, as set forth on Schedule II, as such
amount may be adjusted from time to time as a result of an assignment made by
such Bank pursuant to Section 9.7, and (b) at any other time, the percentage
equivalent at such time of such Bank"s Loans divided by the combined Loans of
all the Banks.
"Refinancing" is defined in the second recital to this Agreement.
"Refinancing Date" means April 16, 1998.
"Regulation U" means the FRB's Regulation U.
"Related Party" means, with respect to the Borrower and for purposes of
Section 6.16 only, any Person (i) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, the Borrower, (ii) which beneficially owns or holds 5% or more of the
equity interest of the Borrower or (iii) 5% or more of the equity interest of
which is beneficially owned or held by the Borrower. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Replacement Bank" is defined in Section 3.7.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person
or any of its property or to which the Person or any of its property is
subject.
I-9
<PAGE> 63
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, limited liability company, joint venture or other
business entity of which more than 50% of the outstanding capital stock,
membership interests or other equity interests having ordinary voting power to
elect a majority of the board of directors (or other similar body) of such
entity (irrespective of whether at the time capital stock, membership interests
or other equity interests, of any other class or classes of such entity shall
or might have voting power upon the occurrence of any contingency) is at the
time directly or indirectly owned by such Person, by such Person and one or
more other Subsidiaries of such Person, or by one or more other Subsidiaries of
such Person.
"Swap Contracts" means swap agreements (as such term is defined in Section
101 of the Bankruptcy Code) and any other agreements or arrangements designed
to provide protection against fluctuations in interest or currency exchange
rates or commodity prices.
"Target" has the meaning specified in the definition of "Change in
Control".
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Bank and the Agent, franchise taxes and such
taxes (including income taxes) as are imposed on or measured by each Bank's net
income by the jurisdiction (or any political subdivision thereof) under the
laws of which such Bank or the Agent, as the case may be, is organized or
maintains a lending office.
"Total Assets" means, with respect to the Borrower as of any date, the
aggregate amount of all items that would be set forth as assets on a balance
sheet of the Borrower on such date prepared in accordance with GAAP in effect
on such date. The assets of the Borrower shall be valued in accordance with
the Act, the rules and regulations under the Act, and the valuation procedures
set forth in its most recent statement of additional information. Upon the
written request of the Agent, the Borrower shall promptly furnish all such
information as the Agent shall reasonably request relating to the value of any
portfolio security or other asset of the Borrower or the assignment of values
thereto by the Borrower or any other Person.
"Total Liabilities" means, with respect to the Borrower as of any date,
the aggregate amount of all items that would be set forth as liabilities on a
balance sheet of the Borrower on such date prepared in accordance with GAAP in
effect on such date.
"Trade Accounts Payable" of any Person means trade accounts payable of
such Person with a maturity of not greater than 90 days incurred in the
ordinary course of such Person's business.
I-10
<PAGE> 64
"Trust Agreement" means, with respect to the Borrower, the Borrower's
Amended and Restated Agreement and Declaration of Trust dated September 19,
1989 as amended in accordance with the Agreement.
"Type" has the meaning specified in the definition of "Loan".
"United States" or "U.S." means the United States of America, its 50
States and the District of Columbia.
I-11
<PAGE> 1
Exhibit (c) (1)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT, dated as of May 31, 1997 (the "Agreement"),
by and between VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST, a
Massachusetts business trust (the "Trust"), and VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP. (the "ADVISER"), a Delaware corporation.
1. (a) RETENTION OF ADVISER BY FUND. Subject to the terms and conditions
set forth herein, the Fund hereby employs the Adviser to act as the investment
adviser for and to manage the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objectives and policies and
limitations, and to administer its affairs to the extent requested by, and
subject to the review and supervision of, the Board of Trustees of the Fund for
the period and upon the terms herein set forth. The investment of funds shall
be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Adviser.
(b) ADVISER'S ACCEPTANCE OF EMPLOYMENT. The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation the
selection of securities for the Fund to purchase, hold or sell and the
selection of brokers through whom the Fund's portfolio transactions are
executed, in accordance with the policies adopted by the Fund and its Board of
Trustees), to administer the business affairs of the Fund, to furnish offices
and necessary facilities and equipment to the Fund, to provide administrative
services for the Fund, to render periodic reports to the Board of Trustees of
the Fund, and to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
(c) ESSENTIAL PERSONNEL. For a period of one year commencing on the
effective date of this Agreement, the Adviser and the Fund agree that the
retention of (i) the chief executive officer, president, chief financial
officer and secretary of the Adviser and (ii) each director, officer and
employee of the Adviser or any of its Affiliates (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) who serves as an officer of
the Fund (each person referred to in (i) or (ii) hereinafter being referred to
as an "Essential Person"), in his or her current capacities, is in the best
interest of the Fund and the Fund's shareholders. In connection with the
Adviser's acceptance of employment hereunder, the Adviser hereby agrees and
covenants for itself and on behalf of its Affiliates that neither the Adviser
nor any of its Affiliates shall make any material or significant personnel
changes or replace or seek to replace any Essential Person or cause to be
replaced any Essential Person, in each case without first informing the Board
of Trustees of the Fund in a timely manner. In Addition, neither the Adviser
nor any Affiliate of the Adviser shall change or seek to change or cause to be
changed, in any material respect, the duties and responsibilities of any
Essential Person, in each case without first informing the Board of Trustees of
the Fund in a timely manner.
(d) INDEPENDENT CONTRACTOR. The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Fund in any way or otherwise be deemed as agent of the Fund.
(e) NON-EXCLUSIVE AGREEMENT. The services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
<PAGE> 2
2. (a) FEE. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee computed based on a fee rate (expressed as a
percentage per annum) applied to the average daily net assets of the Fund as
follows:
<TABLE>
<CAPTION>
FEE PERCENT
PER ANNUM OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS (MILLIONS) NET ASSETS
--------------------- ----------
<S> <C>
First $4.0 billion 0.950 of 1.00%
Next $3.5 billion 0.900 of 1.00%
Next $2.5 billion 0.875 of 1.00%
Over $10.0 billion 0.850 of 1.00%
</TABLE>
(b) DETERMINATION OF NET ASSET VALUE. The net asset value of the Fund
shall be calculated as of the close of the New York Stock Exchange on the last
day the Exchange is open for trading or such other time or times as the
trustees may determine in accordance with the provisions of applicable law and
the Declaration of Trust and By-Laws of the Trust, and resolutions of the Board
of Trustees of the Fund as from time to time in force. For the purpose of the
foregoing computations, on each such day when net asset value is not
calculated, the net asset value of a share of beneficial interest of the Fund
shall be deemed to be the net asset value of such share as of the close of
business of the last day on which such calculation was made.
(c) PRORATION. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in
effect during such month and year, respectively.
3. EXPENSES. In addition to the fee of the Adviser, the Fund shall
assume and pay any expenses for services rendered by a custodian for the
safekeeping of the Fund's securities or other property, for keeping its books
of account, for any other changes of the custodian and for calculating the net
asset value of the Fund as provided above. The adviser shall not be required
to pay, and the Fund shall assume and pay, the charges and expenses of its
operations, including compensation of the trustees (other than those who are
interested persons of the Adviser and other than those who are interested
persons of the distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and expenses of
independent accountants, of legal counsel and of any transfer or dividend
disbursing agent, costs of acquiring and disposing of portfolio securities,
cost of listing shares on the New York Stock Exchange or other exchange,
interest (if any) on obligations incurred by the Fund, costs of shares
certificates, membership dues in the Investment Company Institute or any
similar organization, costs of reports and notices to shareholders, cost of
registering shares of the Fund under the federal securities laws, miscellaneous
expenses and all taxes and fees to federal, state or other governmental
agencies on account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not pay or incur
any obligation for any management or administrative expenses for which the Fund
intends to seek reimbursement from the Adviser without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by the law.
<PAGE> 3
4. INTERESTED PERSONS. Subject to applicable statutes and regulations,
it is understood that trustees, officers, shareholders and agents of the Fund
are or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents
of the Adviser may be interested in the Fund as trustees, officers,
shareholders, agents or otherwise.
5. LIABILITY. 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 this 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 this Agreement.
6. (a) TERM. This Agreement shall become effective on the date hereof
and shall remain in full force until May 31, 1999 unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only for so long as such continuance is specifically approved
as least annually, in the manner required by the 1940 Act.
(b) TERMINATION. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty (60) days
written notice to the other party. The Fund may effect termination by action
of the Board of Trustees or by vote of a majority of the outstanding shares of
stock of the Fund, accompanied by appropriate notice. This Agreement may be
terminated at any time without the payment of any penalty and without advance
notice by the Board of Trustees or by vote of a majority of the outstanding
shares of the Fund in the event that it shall have been established by a court
of competent jurisdiction that the Adviser or any officer or director of the
Adviser has taken any action which results in a breach of the covenants of the
Adviser set forth herein.
(c) PAYMENT UPON TERMINATION. Termination of this Agreement shall not
affect the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.
7. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statue, rule or otherwise, the remainder
shall not thereby be affected.
8. NOTICES. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
9. DISCLAIMER. The Adviser acknowledges and agrees that, as provided by
Section 5.5 of the Declaration of Trust of the Trust, the shareholders,
trustees, officers, employees and other agents of the Trust and the Fund shall
not personally be bound by or liable hereunder, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
hereunder.
10. GOVERNING LAW. All questions concerning the validity, meaning and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of Delaware applicable to contracts made and to be performed in that state.
11. NAME. In connection with its employment hereunder, the Adviser
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees of the Fund.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
VAN KAMPEN AMERICAN VAN KAMPEN AMERICAN
CAPITAL INVESTMENT ADVISORY CAPITAL PRIME RATE INCOME TRUST
CORP.
By: /s/ Dennis J. McDonnell By: /s/ Ronald A. Nyberg
------------------------------ ---------------------------------
Name: Dennis J. McDonnell Name: Ronald A. Nyberg
Title: President Title: Vice President
<PAGE> 1
ADMINISTRATION AGREEMENT EXHIBIT (c) (2)
Agreement made as of May 31, 1997 , between VAN KAMPEN AMERICAN
CAPITAL PRIME RATE INCOME TRUST, a Massachusetts business trust (the "Fund"),
and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., a Delaware corporation (the
"Administrator").
WHEREAS, the Fund intends to operate as a closed-end management investment
company, and is so registered under the Investment Company act of 1940, as
amended ( "1940 Act"); and
WHEREAS, the Fund wishes to retain the Administrator to provide certain
administrative services to the Fund, under the terms and conditions stated
below, and the Administrator is willing to provide such services for the
compensation set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties agree as follows:
1. Appointment. The Fund hereby appoints the Administrator to administer
the Fund, and the Administrator accepts such appointment and agrees that it
will furnish the services set forth in paragraph 2 below.
2. Services and Duties of the Administrator. Subject to the supervision
of the Fund's Board of Trustees (the "Board"), the Administrator will:
(a) 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;
(b) Prepare all reports required to be sent to Fund
shareholders, and arrange for the printing and dissemination
of such reports to shareholders;
(c) Arrange for the dissemination to shareholders of
the Fund's proxy materials and oversee the tabulation of
proxies by the Fund's transfer agent;
(d) Negotiate the terms and conditions under which
custodian services will be provided to the Fund and the fees
to be paid by the Fund to its custodian (which may or may not
be an affiliate of the Fund's investment adviser), in
connection therewith;
(e) 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;
review the provision of dividend disbursing services to the
Fund;
(f) Determine the amounts available for distribution
as dividends and distributions to be paid by the Fund to its
Shareholders; prepare and arrange for the printing of dividend
notices to Shareholders; and provide the Fund's dividend
disbursing agent and custodian with such information as is
required for such parties to effect the payment of dividends
and distributions and to implement the Fund's dividend
reinvestment plan;
(g) Make such reports and recommendations to the
Board as the Board reasonably requests or deems appropriate;
and
(h) Provide shareholder services to holders or
potential holders of the Fund's securities including but not
limited to responding to shareholder requests for information.
1
<PAGE> 2
3. Public Inquiries. The Fund and the Administrator agree that the
Administrator will not be responsible for replying to questions or requests for
information concerning the Fund from shareholders, brokers or the public. The
Fund will inform the Administrator of the party or parties to whom any such
questions or requests should be directed, and the Administrator will refer such
questions and requests to such party or parties.
4. Compliance with the Fund's Governing Documents and Applicable Law. In
all matters relating to the performance of this Agreement, the Administrator
will act in conformity with the Declaration of Trust, By-Laws and registration
statement of the Fund and with the directions of the Board and Fund executive
officers and will conform to and comply with the requirements of the 1940 Act
and all other applicable federal or state laws and regulations.
5. Services Not Exclusive. The Administrator's services hereunder are not
deemed to be exclusive, and the Administrator is free to render administrative
or other services to other funds or clients so long as the Administrator's
services under this Agreement are not impaired thereby.
6. Compensation. For the services provided and expenses assumed by the
Administrator under this Agreement, the Fund will pay the Administrator a fee,
accrued daily and paid monthly, at the annualized rate of .25% of the Fund's
average daily net assets.
7. Limitation of Liability of the Administrator. The Administrator will
not be liable for any error of judgement or mistake of law or for any loss
suffered by the Fund or its shareholders in connection with the performance of
its duties under this Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its duties under this Agreement.
8. Limitation of Liability of the Trustees and Shareholders of the Fund.
Pursuant to the provisions of Article V, Section 5.5 of the Declaration of
Trust as amended or restated as of the date hereof, this Agreement is entered
into by the Board not individually, but as trustees under such Declaration of
Trust and the obligations of the Fund hereunder are not binding upon any such
trustees or Shareholders of the Fund, but bind only the trust estate.
9. Duration and Termination. This Agreement will become effective upon
the date hereabove written and shall continue in effect thereafter until
terminated without penalty by the Administrator or the Fund upon 30 days'
written notice to the other and shall automatically terminate in the event of
its assignment as that term is defined in the 1940 Act.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Governing Law. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts and the 1940 Act. To the extent
that the applicable laws of the Commonwealth of Massachusetts conflict with the
applicable provisions of the 1940 Act, the latter shall control.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Attest: VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
/s/ Weston B. Wetherell By: /s/ Edward C. Wood, III
- ------------------------------ ------------------------------------------
Weston B. Wetherell Edward C. Wood, III, Vice President and
Assistant Secretary Chief Financial Officer
Attest: VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
/s/ Weston B. Wetherell By: /s/ William R. Molinari
- ------------------------------ ------------------------------------------
Weston B. Wetherell William R. Molinari, President
Assistant Secretary
3
<PAGE> 1
Exhibit (c) (3)
OFFERING AGREEMENT
THIS OFFERING AGREEMENT, dated as of May 31, 1997 (the "Agreement"), by
and between VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST (the "Fund"), a
Massachusetts business trust, and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS,
INC., a Delaware corporation (the "Principal Underwriter").
1. (a) Appointment of Principal Underwriter. The Fund appoints the
Principal Underwriter as a principal underwriter and exclusive distributor of
shares of the Fund (the "Shares") effective as of the date upon which the
continuous public offering of the Fund's Shares, as described in the Fund's
then current Prospectus, shall commence. The Fund reserves the right, however,
to refuse at any time or times to sell Shares hereunder for any reason at any
time or times to sell Shares hereunder for any reason deemed adequate by the
Board of Trustees of the Fund.
(b) Best Efforts. The Principal Underwriter shall use its best efforts to
sell through its organization and through other dealers and agents the Shares
which the Principal Underwriter has the right to purchase under Section 2
hereof, but the Principal Underwriter does not undertake to sell any specific
number of Shares. Without the prior approval of the Board of Trustees, the
Principal Underwriter shall not, directly or indirectly, distribute, sell or
market, through its organization or other brokers, dealers or agents, shares of
any investment companies unless the Board of Trustees of the Fund determines
that such companies do not compete, or potentially compete, with the Fund.
(c) Positions in the Shares. The Principal Underwriter agrees that it
will not take any long or short positions in the Shares, except for long
positions in those Shares purchased by the Principal Underwriter in accordance
with any systematic sales plan described in the then current Prospectus of the
Fund and except as permitted by Section 2 hereof, and that so far as it can
control the situation, it will prevent any of its trustees, officers or
shareholders from taking any long or short positions in the Shares, except for
legitimate investment purposes.
(d) Essential Personnel. The Principal Underwriter and the Fund agree
that the retention of (i) the chief executive officer, president, treasurer and
secretary of the Principal Underwriter, and (ii) each director, officer and
employee of the Principal Underwriter or any of its Affiliates (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) who serves as
an officer of the Fund (each person referred to in (i) or (ii) hereinafter
being referred to as an "Essential Person"), in his or her current capacities,
is in the best interest of the Fund and the Fund's shareholders. In connection
with the Principal Underwriter's acceptance of employment hereunder, the
Principal Underwriter hereby agrees and covenants for itself and on behalf of
its Affiliates that neither the Principal Underwriter nor any of its Affiliates
shall replace or seek to replace any Essential Person or cause to be replaced
any Essential Person, in each case without first consulting with the Board of
Trustees of the Fund in a timely manner. In addition, neither the Principal
Underwriter nor any Affiliate of the Principal Underwriter, shall change or
seek to change or cause to be changed, in any material respect, the duties and
responsibilities of any Essential Person, in each case without first consulting
with the Board of Trustees of the Fund in a timely manner.
2. Sale of Shares to Principal Underwriter; Early Withdrawal Charge.
The Fund hereby grants to the Principal Underwriter the exclusive right, except
as herein otherwise provided, to purchase Shares upon the terms herein set
forth. Such exclusive right hereby granted shall not apply to Shares issued or
transferred or sold at net asset value: (a) in connection with the merger or
consolidation of the Fund with any other investment company or the acquisition
by the Fund of all or substantially all of the assets of or the outstanding
Shares of any investment company; (b) in connection with a pro rata
distribution directly to the holders of Shares in the nature of a stock
dividend or stock split or in connection with any other recapitalization
approved by the Board of Trustees; (c) upon the exercise of purchase or
subscription rights granted to the holders of Shares on a pro rata basis; or
(d) in connection with the automatic reinvestment of dividends and
distributions from the Fund.
<PAGE> 2
The Principal Underwriter shall have the right to buy from the Fund the
Shares needed, but not more than the Shares needed (except for reasonable
allowances for clerical errors, delays and errors of transmission and
cancellation of orders) to fill unconditional orders for Shares received by the
Principal Underwriter from dealers, agents and investors during each period
when a particular net asset value and public offering price are in effect as
provided in Section 3 hereof; and the price which the Principal Underwriter
shall pay for the Shares so purchased shall be the net asset value used in
determining the public offering price on which such orders were based. The
Principal Underwriter shall notify the Fund at the end of each such period, or
as soon thereafter on that business day as the orders received in such period
have been compiled, of the number of Shares which the Principal Underwriter
elects to purchase hereunder.
The Fund shall impose an early withdrawal charge, payable to the Principal
Underwriter, on most shares accepted for tender by the Fund which have been
held for less than five years, as set forth in the current Fund Prospectus.
3. Public Offering Price. The public offering price per Share shall be
determined in accordance with the then current Prospectus of the Fund. In no
event shall the public offering price exceed the net asset value per Share.
The net asset value per Share shall be determined in the manner provided in the
Declaration of Trust and By-laws of the Fund as then amended and in accordance
with the then current Prospectus of the Fund. The Fund will cause immediate
notice to be given to the Principal Underwriter of each change in net asset
value as soon as it is determined. Compensation from the Principal Underwriter
to dealers purchasing Shares from the Principal Underwriter for resale and to
brokers and other eligible agents making sales to investors shall be sent the
forms of agreement between the Principal Underwriter and such dealers or
agents, respectively, as from time to time amended, and, if such compensation
from the Principal Underwriter is described in the then current Prospectus for
the Fund, shall be as so set forth. In connection with the Principal
Underwriter's employment hereunder, the Principal Underwriter hereby agrees to
distribute the Shares through brokers, dealers and other agents of Dean Witter
Distributors, Inc. on a "proprietary basis" substantially identical to the
distribution of shares of proprietary open-end investment companies distributed
by Dean Witter Distributors, Inc.
4. Compliance with NASD Rules, etc. In selling Fund Shares, the
Principal Underwriter will in all respects duly comply with all state and
Federal laws relating to the sale of such securities and with all applicable
rules and regulations of all regulatory bodies, including, without limitation,
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and all applicable rules and regulations of the Securities and Exchange
Commission under the 1940 Act, and will indemnify and save the Fund harmless
from any damage or expense on account of any unlawful act by the Principal
Underwriter or its agents or employees. The Principal Underwriter is not,
however, to be responsible for the acts of other dealers or agents except as
and to the extent that they shall be acting for the Principal Underwriter or
under its direction or authority. None of the Principal Underwriter, any
dealer, any agent or any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus heretofore or hereafter filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act") (as any such Registration Statement and Prospectus may have
been or may be amended from time to time), covering the Shares and in any
supplemental information to any such Prospectus approved by the Fund in
connection with the offer of sale of Shares. None of the Principal
Underwriter, any dealer, any broker or any other person is authorized to act as
agent for the Fund in connection with the offering or sale of Shares to the
public or otherwise. All such sales shall be made by the Principal Underwriter
as principal for its own account.
<PAGE> 3
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of Shares
under the Federal securities laws, and the Fund will exercise its best
efforts to obtain said registration and qualification;
(ii) all expenses in connection with the printing of any notices
of shareholders' meetings, proxy and proxy statements and enclosures
therewith, as well as any other notice or communication sent to
shareholders in connection with any meeting of the shareholders or
otherwise, any annual, semi-annual or other reports or communications
sent to the shareholders, and the expense of sending prospectuses
relating to the Shares to existing shareholders;
(iii) all expenses of any Federal or state original issue tax or
transfer tax payable upon the issuance, transfer or delivery of Shares
from the Fund to the Principal Underwriter; and
(iv) the costs of preparing and issuing any Share certificates
which may be issued to represent Shares.
(b) The Principal Underwriter will pay the costs and expenses of
qualifying and maintaining qualification of the Shares for sale under the
securities laws of the various states. The Principal Underwriter will also
permit its officers and employees to serve without compensation as trustees and
officers of the Fund if duly elected to such positions.
6. No Secondary Market Activity. It is understood that Shares of the
Fund will not be repurchased by either the Fund or the Principal Underwriter,
and that no secondary market for the Fund shares exists currently, or is
expected to develop. While the Board of Trustees of the Fund intends to
consider tendering for all or a portion of the Fund's shares on a quarterly
basis, there is no assurance that the Fund will tender for shares at any time
or, following such a tender offer, that shares so tendered will be repurchased
by the Fund. Accordingly investment in the Fund's shares would be considered
illiquid. ANY REPRESENTATION AS TO A TENDER OFFER BY THE FUND, OTHER THAN THAT
WHICH IS SET FORTH IN THE FUND'S THEN CURRENT PROSPECTUS, IS EXPRESSLY
PROHIBITED.
The Principal Underwriter hereby covenants that it (i) will not make a
secondary market in any shares of the Fund, (ii) will not purchase or hold such
shares in inventory for the purpose of resale in the open market, (iii) will
not repurchase shares in the open market, and (iv) will require every bank,
broker or dealer participating in the continuous offering of the shares to make
the covenants contained in clauses (i), (ii) and (iii) of this Section 6 as a
condition precedent to their participation in such offering.
7. Indemnification. The Fund agrees to indemnify and hold harmless the
Principal Underwriter and each of its trustees and officers and each person, if
any, who controls the Principal Underwriter within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damages, or expenses
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expenses and reasonable counsel fees incurred in
connection therewith), arising by reason of any person acquiring any Shares,
based upon the grounds that the registration statement, Prospectus, shareholder
reports or other information filed or made public by the Fund (as from time to
time amended), included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make the
statements not misleading under the 1933 Act or any other statute or the common
law. However, the Fund does not agree to indemnify the Principal Underwriter
or hold it harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund by or
on behalf of the Principal Underwriter. In no case (i) is the indemnity of the
Fund in favor of the Principal Underwriter or any person indemnified to be
deemed to protect the Principal Underwriter or any person against any liability
to the Fund or its security
<PAGE> 4
holders to which the Principal Underwriter or such person would
otherwise by subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Fund to be liable under its indemnity agreement contained in this Section with
respect to any claim made against the Principal Underwriter or any other person
unless the Principal Underwriter or such other person shall have notified the
Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon the Principal Underwriter or any such person (or
after the Principal Underwriter or the person shall have received notice of
service on any designated agent). However, failure to notify the Fund of any
claim shall not relieve the Fund from any liability which it may have to the
Principal Underwriter or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any such action brought
to enforce any claims, but if the Fund elects to assume the defense, the
defense shall be conducted by counsel chosen by it and satisfactory to the
Principal Underwriter or officers or trustees or controlling person or persons
or defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any suit and retain counsel, the Principal Underwriter, officers
or trustees or controlling person or persons or defendant or defendants in the
suit shall bear the fees and expenses of any additional counsel retained by
them. If the Fund does not elect to assume the defense of any suit, it will
reimburse the Principal Underwriter, officers or trustees or controlling person
or persons or defendant or defendants in the suit for the reasonable fees and
expenses of any counsel retained by them. The Fund agrees to notify the
Principal Underwriter promptly of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of any of the Shares.
The Principal Underwriter also covenants and agrees that it will
indemnify and hold harmless the Fund and each of its trustees and officers and
each person, if any, who controls the Fund within the meaning of Section 15 of
the 1933 Act, against any loss, liability, damages, claim or expense (including
the reasonable cost of investigating or defending any alleged loss, liability,
damages, claim or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any Shares, based upon the
1933 Act or any other statute or common law, alleging any wrongful act of the
Principal Underwriter or any of its employees or alleging that the registration
statement, Prospectus, shareholder reports or other information filed or made
public by the Fund (as from time to time amended), included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading, insofar as the
statement or omission was made in reliance upon, and in conformity with
information furnished to the Fund by or on behalf of the Principal Underwriter.
In no case (i) is the indemnity of the Principal Underwriter in favor of the
Fund or any person indemnified to be deemed to protect the Fund or any such
person against any liability to which the Fund or such person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Principal
Underwriter to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or person, as the case may be, shall have notified
the Principal Underwriter in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Fund or person (or after
the Fund or such person shall have received notice of service on any designated
agent). However, failure to notify the Principal Underwriter of any claim
shall not relieve the Principal Underwriter from any liability which it may
have to the Fund or any person against whom the action is brought otherwise
than on account of its indemnity agreement contained in this paragraph. In the
case of any notice to the Principal Underwriter, it shall be entitled to
participate, at its own expense, in the defense or, if it so elects, to assume
the defense of any suit brought to enforce the claim, but if the Principal
Underwriter elects to assume the defense the defense shall be conducted by
counsel chosen by it and satisfactory to the Fund, to its officers and trustees
and to any controlling person or persons, defendant or defendants in the suit.
In the event that the Principal Underwriter elects to assume the defense of any
suit and retain counsel, the Fund or controlling persons or defendants in the
suit shall bear the fees and expenses of any additional counsel retained by
them. If the Principal Underwriter does not elect to assume the defense of any
suit, it will reimburse the Fund, officers and trustees or controlling
<PAGE> 5
person or persons or defendant or defendants in the suit for the
reasonable fees and expenses of any counsel retained by them. The Principal
Underwriter agrees to notify the Fund promptly of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any of the Shares.
8. Continuation, Amendment or Termination of the Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect from year to year so long as such continuance
is approved at least annually (i) by the Board of Trustees of the Fund or by a
vote of a majority of the outstanding voting securities of the Fund, and (ii)
by vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Disinterested Trustees") cast in
person at a meeting called for the purpose of voting on such approval,
provided, however, that (a) this Agreement may at any time be terminated
without the payment of any penalty either by vote of a majority of the
Disinterested Trustees, or by vote of a majority of the outstanding voting
securities of the Fund, on written notice to the Principal Underwriter; (b)
this Agreement shall immediately terminate in the event of its assignment; and
(c) this Agreement may be terminated by the Principal Underwriter on ninety
(90) days' written notice to the Fund. Upon termination of this Agreement, the
obligations of the parties hereunder shall cease and terminate as of the date
of such termination, except for any obligation to respond for a breach of this
Agreement committed prior to such termination and except with respect to any
rights and obligations of indemnification arising out of any action or inaction
occurring prior to such termination.
This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved (i) by the Board of Trustees of the Fund, or by a vote of the majority
of the outstanding voting securities of the Fund and (ii) by vote of a majority
of the Disinterested Trustees cast in person at a meeting called for the
purpose of voting on such amendment.
For purposes of this section, the terms "vote of a majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the meanings defined in the 1940 Act, as amended.
9. Disclaimer Liability. Notwithstanding anything to the contrary
contained in this Agreement, you acknowledge and agree that, as provided by
Section 5.5 of the Declaration of Trust of the Fund, the shareholders,
trustees, officers, employees and other agents of the Fund shall not personally
be bound by or liable hereunder, nor shall any resort to their personal
property being had for the satisfaction of any obligation or claim hereunder.
10. Notice. Any notice given under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the other party at any
office of such party or at such other address as such party shall have
designated in writing.
11. Name. In connection with its employment hereunder, the Principal
Underwriter hereby agrees and covenants not to change its name without the
prior consent of the Board of Trustees.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
executed on their behalf on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Dennis J. McDonnell
-------------------------------
Name: Dennis J. McDonnell
Title: President
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS INC.
By: /s/ William R. Molinari
-------------------------------
Name: William R. Molinari
Title: President
