AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1997
1933 ACT FILE NO. 333-____
1940 ACT FILE NO. 811-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [ ] [ ]
(CHECK APPROPRIATE BOX OR BOXES)
CypressTree Floating Income Fund, Inc.
--------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
125 High Street
Boston, Massachusetts 02110
------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 946-0600
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<PAGE>
Bradford K. Gallagher
President
CypressTree Floating Income Fund, Inc.
125 High Street
Boston, Massachusetts 02110
--------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
COPIES TO:
Ruth S. Epstein, Esquire
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044-7566.
If any of the securities being registered on this Form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Maximum Maximum
Title of Securities Amount Being Offering Price Aggregate Offering Amount of
Being Registered Registered Per Unit Price (1) Registration Fee (2)
<S> <C> <C> <C> <C>
Common Stock 100,000 $10.00 $1,000,000 $303.03
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Transmitted prior to the filing date to the designated lockbox at Mellon
Bank in Pittsburgh, PA.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with the provisions of
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
CypressTree Floating Income Fund
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-2
<TABLE>
<CAPTION>
PART A-ITEM ITEM CAPTION PROSPECTUS CAPTION
NO.
<S> <C> <C>
1. Outside Front Cover Cover Page
2. Inside Front and Outside Back Cover Page Cover Page; Outside Back Cover Page
3. Fee Table and Synopsis Fund Expenses
4. Financial Highlights Not Applicable
5. Plan of Distribution How to Buy Fund Shares
6. Selling Shareholders Not Applicable
7. Use of Proceeds Valuing Fund Shares; Investment
Policies; Investments; Use of Proceeds
8. General Description of the Registrant Description of Shares; Repurchase Offers
9. Management Management of the Fund
10. Capital Stock, Long-Term Debt, and Other Description of Shares; Valuing Fund
Securities Shares; Management of the Fund
11. Defaults and Arrears on Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement of Table of Contents of the Statement of
Additional Information Additional Information
<CAPTION>
PART B-ITEM ITEM CAPTION STATEMENT OF ADDITIONAL
NO. INFORMATION CAPTION
<S> <C> <C>
14. Cover Page Cover Page
15. Table of Contents Table of Contents
16. General Information and History The Fund; Other Information
17. Investment Objective and Policies Investment Restrictions and Fundamental
Policies; Description of Repurchase Offer
Fundamental Policy
18. Management Management; Advisory, Administration
and Distribution Services
<PAGE>
<S> <C> <C>
19. Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Shares
20. Investment Advisory and Other Services Advisory, Administration and Distribution
Services
21. Brokerage Allocation and Other Practices Portfolio Transactions
22. Tax Status Taxes
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
<PAGE>
Subject to Completion, dated July 31, 1997
[LOGO]
CypressTree Floating Income Fund, Inc.
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The CypressTree Floating Income Fund (the "Fund"), a newly organized closed-end
investment company, will seek to provide as high a level of current income as is
consistent with the preservation of capital by investing primarily in senior
secured floating rate loans. The Fund is engaged in a continuous public offering
of its shares at the next determined net asset value per share without a sales
charge. CypressTree Investment Management Company ("CIMCO") is the Fund's
investment adviser.
In order to provide liquidity to shareholders, the Fund will make monthly
Repurchase Offers for a percentage of its securities. Each Repurchase Offer will
be for a specified percentage of the Fund's outstanding shares, expected
generally to be 10%, and in any event no less than 5% and no greater than 25%.
See "Repurchase Offers" on page __. Shares of the Fund involve investment risks,
including the possible loss of some or all of the principal investment.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency.
This Prospectus sets forth important information about the Fund that an investor
should know before investing, and should be read and retained for future
reference. The Fund has filed a Statement of Additional Information for the Fund
dated ______ with the Securities and Exchange Commission, which is incorporated
by reference herein. The Table of Contents of the Statement of Additional
Information appears at the end of this Prospectus. The Statement of Additional
Information is available without charge from the Fund or its Distributor,
CypressTree Funds Distributors, Inc., at 125 High Street, Boston, Massachusetts
02110 ((800) 234-4943). The Statement of Additional Information and other
information about the Fund also are available on the Commission's website
(http://www.sec.gov).
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
===============================================================================
PRICE TO PROCEEDS TO
PUBLIC(1) SALES LOAD(2) FUND(3)
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Per Share $10.00 None $10.00
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Total $______ None $______
===============================================================================
CypressTree Funds Distributors, Inc.
PROSPECTUS DATED ______________
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(1) The shares are offered on a best efforts basis at a price equal to net
asset value, which initially is $10.00 per share.
(2) CypressTree Funds Distributors, Inc. will pay all distribution costs to
Authorized Intermediaries from its own assets.
(3) Assuming the sale of all shares registered hereby, and exclusion of $_____
organizational and initial offering expenses payable by the Fund. These expenses
will be amortized over the five year period beginning the date the Fund
commences investment operations, and charged against the Fund's income.
- 2 -
<PAGE>
The Repurchase Date will be the last business day of each month and shareholders
will be sent notification of each monthly Repurchase Offer 21 days before the
Repurchase Date. The Repurchase Price will be the Fund's net asset value as
determined after the close of business on the Repurchase Date. The Fund
generally will pay repurchase proceeds on the next business day following the
Repurchase Date, and, in any event, within five business days (or seven calendar
days, whichever is shorter) of the Repurchase Date. The first Repurchase Date
will occur within two months of the date of this prospectus. The Fund may
borrow, primarily in connection with the Fund's monthly Repurchase Offers for
its shares. See "Repurchase Offers" on page __, and "Borrowing by the Fund" on
page __.
No market presently exists for the Fund's shares and it is not currently
anticipated that a secondary market will develop for the Fund's shares. Fund
shares may not be considered to be readily marketable.
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<PAGE>
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TABLE OF CONTENTS
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Fund Expenses............................................................. 7
Summary................................................................... 9
The Fund.................................................................. 11
Investment Objective...................................................... 11
Use of Proceeds........................................................... 11
Investment Policies....................................................... 11
Investments............................................................... 12
Risk Factors.............................................................. 18
Repurchase Offers......................................................... 23
Management of the Fund.................................................... 27
Valuing Fund Shares....................................................... 30
Performance Information................................................... 31
How to Buy Fund Shares.................................................... 32
Shareholder Services...................................................... 34
Distributions............................................................. 35
Taxes..................................................................... 36
Description of Shares..................................................... 38
Reports to Shareholders................................................... 40
Appendix A -- Description of Ratings...................................... 41
Appendix B -- Sample Notification......................................... 43
Table of Contents of the Statement of Additional Information.............. 46
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<PAGE>
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FUND EXPENSES
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The following table and Example are designed to help investors understand the
direct and indirect expenses associated with investing in the Fund. Because the
Fund does not yet have an operating history, the percentages indicated as Annual
Fund Expenses and the amounts included in the Example are based on the Fund's
estimated fees and expenses, taking into account CIMCO's reimbursement as
described below, for the fiscal year ending December 31, 1997.
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load (as a percentage of offering price) None
Dividend Reinvestment Fees None
ANNUAL FUND EXPENSES
(as a percentage of net assets attributable to common shares)*
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Management Fee 0.75%
Interest Payments on Borrowed Funds 0.00%
Other Expenses (including administration fees of .40%)
(after reimbursement) 0.50%**
Service Fee None
Early Withdrawal Charge None
------
Total Annual Expenses 1.25%
======
*See "Management of the Fund."
**CIMCO has agreed to reimburse the Fund's expenses to the extent necessary so
that total annualized Fund expenses do not exceed 1.25% of average daily net
assets. If CIMCO had not agreed to reimburse these expenses, estimated expenses
would be: management fee of 0.75%, interest payments on borrowed funds of 0.00%,
administration fee of 0.40%, service fee of 0.00%, and other expenses of 0.20%;
and total annual expenses of 1.35%.
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<PAGE>
EXAMPLE
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
An investor would pay
the following expenses
on a $1,000 investment,
assuming 5% annual
return $13 $40 $71 $161
Federal regulations require the Example to assume a 5% annual return, but actual
return will vary. The Example assumes reinvestment of all dividends and
distributions at net asset value.
The Example should not be considered a representation of past or future
expenses because future expenses may be greater or less than those shown.
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<PAGE>
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SUMMARY
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Investment Objective
The Fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital by investing primarily in
senior secured floating rate loans and other senior secured floating rate debt
obligations ("Loans") that meet credit standards established by its investment
manager, CIMCO. See "Investment Objective" on page ___.
The Loans
The Fund will invest primarily in Loans, which are generally direct debt
obligations undertaken by U.S. corporations in connection with
recapitalizations, acquisitions, leveraged buy-outs, and refinancings. The Loans
have floating rates of interest that reset periodically and generally are tied
to a rate such as the London Interbank Offered Rate ("LIBOR") for 90-day dollar
deposits. The Loans are secured and generally hold the most senior position in
the borrower's capitalization structure.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in Loans. Up to 20% of the Fund's total assets may be held in cash or
cash equivalents, invested in investment grade short-term debt and medium term
obligations, and invested in unsecured senior floating rate loans. See
"Investment Policies" on page ___.
Repurchase Offers
The Fund is a closed-end investment company and, as such, does not redeem its
shares. It is not anticipated that a secondary market for Fund shares will
develop. In order to provide shareholders with liquidity and the ability to
receive net asset value on a disposition of shares, the Fund will conduct
monthly offers to repurchase at net asset value a percentage of its outstanding
shares, generally expected to be 10%, but no less than 5% and no greater than
25%. If properly tendered shares exceed this percentage, the Fund will
repurchase shares pro rata.
The "Repurchase Date" will be the last business day of each month. The Fund
expects to distribute payment on the next business day; in any event, the Fund
will pay repurchase proceeds no later than five business days (or seven calendar
days, whichever period is shorter) after the Repurchase Date. Shareholders will
be sent notification of each upcoming Repurchase Offer at least 21 days before
the next Repurchase Date. See "Repurchase Offers" on page ___.
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<PAGE>
Investment Management
The Fund engages CIMCO, a wholly-owned subsidiary of Cypress Holding Company, to
act as its investment adviser. CIMCO is an investment advisory firm founded in
1996 with $_____ million assets under management. See "Management of the Fund"
on page ___.
Risk Factors
As a newly organized entity, the Fund has no operating history. The Fund's net
asset value is expected to be relatively stable during normal market conditions
because the Fund's assets will consist primarily of floating rate Loans and
short-term instruments. Nevertheless, there are circumstances that could cause a
decline in the Fund's net asset value. The Fund is not a money market fund and
its net asset value will fluctuate.
Investments in Loans involve certain risks, including, among others, risks of
nonpayment of principal and interest; collateral impairment; nondiversification
and borrower industry concentration; and lack of full liquidity, which may
impair the Fund's ability to obtain full value for Loans sold. In addition,
shareholders' ability to liquidate their investments will be subject to the
limits on monthly Repurchase Offers. See "Risk Factors" on page ___.
How to Buy Fund Shares
Investors may purchase shares through Authorized Intermediaries. Investors may
be charged a fee if they effect transactions through a broker or agent.
Investors also may purchase shares directly from the Fund by check or by wire by
mailing a completed purchase agreement to the Fund's Transfer Agent. An initial
investment in the Fund must be at least $5,000, and additional investments must
be at least $500. There is no minimum initial or additional investment
requirement for Individual Retirement Accounts. The Fund reserves the right to
waive any minimum investment requirements and to refuse any order for the
purchase of shares. See "How to Buy Fund Shares" on page ___.
This Summary is not complete and is qualified in its entirety by reference to
the more detailed information included elsewhere in the Fund's Prospectus and in
the Fund's Statement of Additional Information. Investors should read this
Summary in conjunction with the more detailed information included elsewhere.
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<PAGE>
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THE FUND
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The Fund is a newly organized closed-end, non-diversified management investment
company that continuously offers its shares to the public. The Fund's principal
office is located at 125 High Street, Boston, Massachusetts 02110, and its
telephone number is (617) 946-0600
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INVESTMENT OBJECTIVE
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The Fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital by investing primarily in
senior secured floating rate loans and other institutionally traded senior
secured floating rate debt obligations ("Loans") that meet credit standards
established by CIMCO. There is no assurance that the Fund's objective will be
achieved.
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USE OF PROCEEDS
- --------------------------------------------------------------------------------
The Fund will invest net proceeds of this offering, after payment of
organizational and offering expenses by the Fund, in accordance with the Fund's
investment objective and policies within approximately six months after the
commencement of this offering. The precise time frame for these investments will
depend on the availability of Loans and other relevant conditions. Pending such
investment, the Fund will invest the net proceeds of this offering in investment
grade short-term or medium-term debt obligations.
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INVESTMENT POLICIES
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Under normal market conditions, the Fund will invest at least 80% of its total
assets in Loans. The Fund may invest up to 20% of the Fund's total assets in
cash and cash equivalents, in investment grade short-term and medium-term debt
obligations, or in senior unsecured floating rate loans ("Unsecured Loans").
- 9 -
<PAGE>
Loans consist generally of direct obligations of companies (collectively,
"Borrowers"), primarily U.S. companies or their affiliates, undertaken to
finance the growth of the Borrower's business, internally or externally, or to
finance a capital restructuring. A significant portion of Loans in which the
Fund will invest are highly leveraged Loans made in connection with leveraged
buyouts, recapitalizations, and other acquisitions.
The Fund will purchase Loans only if, in CIMCO's judgment, the Borrower can meet
debt service on the Loan (except in the case of Discount Loans as described
below). The Fund will acquire Loans that are, in the judgment of CIMCO, in the
category of senior debt of the Borrower and that generally hold the most senior
position in the Borrower's capitalization structure. A Borrower must also meet
other criteria established by CIMCO and deemed by it to be appropriate to the
analysis of the Borrower and the Loan.
The Fund's primary consideration in selecting Loans for investment by the Fund
is the Borrower's creditworthiness. Some of the Loans in which the Fund invests
are not currently rated by any nationally recognized statistical rating
organization. Moreover, the quality ratings assigned to other debt obligations
of a Borrower are generally not a material factor in evaluating Loans because
these rated obligations typically will be subordinated to the Loans and will be
unsecured. Instead, CIMCO will perform its own independent credit analysis of
the Borrower. CIMCO's analysis will include an evaluation of the Borrower's
industry and business, its management and financial statements, and the
particular terms of the Loan that the Fund may acquire. CIMCO will use
information prepared and supplied by the Agent (as defined below) or other
participants in the Loans. CIMCO's analysis will continue on an ongoing basis
for any Loan in which the Fund invests. There can be no assurance that the Fund
will be able to acquire Loans satisfying the Fund's investment criteria at
acceptable prices.
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INVESTMENTS
- --------------------------------------------------------------------------------
Loans
Characteristics of Loans
Each Loan will be secured by collateral that CIMCO believes to have a market
value, at the time of acquiring the Loan, that equals or exceeds the principal
amount of the Loan. The value of the collateral underlying a Loan may decline
after purchase, with the result that the Loan may no longer be as secured.
The Loans typically will have a stated term of five to nine years. However,
because the Loans typically amortize principal over their stated life and are
frequently prepaid, their average life is expected to be two to three years. The
degree to which Borrowers prepay Loans, whether as a
- 10 -
<PAGE>
contractual requirement or at their election, may be affected by general
business conditions, the Borrower's financial condition, and competitive
conditions among lenders. Accordingly, prepayments cannot be predicted with
accuracy. Prepayments generally will not have a material effect on the Fund's
performance because, under normal market conditions, the Fund should be able to
reinvest prepayments in other Loans that have similar or identical yields, and
because receipt of prepayment and facility fees may mitigate any adverse impact
on the Fund's yield.
The rate of interest payable on Loans is the sum of a base lending rate plus a
specified spread. These base lending rates are generally the London InterBank
Offered Rate ("LIBOR"), the Certificate of Deposit ("CD") Rate of a designated
U.S. bank, the Prime Rate of a designated U.S. bank, or another base lending
rate used by commercial lenders. A Borrower usually has the right to select the
base lending rate and to change the base lending rate at specified intervals.
The interest rate on LIBOR-based and CD Rate-based Loans is reset periodically
at intervals ranging from 30 to 180 days, while the interest rate on Prime
Rate-based Loans floats daily as the Prime Rate changes. Investment in Loans
with longer interest rate reset period may increase fluctuations in the Fund's
net asset value as a result of changes in interest rates. The Fund will attempt
to maintain a portfolio of Loans that will have a dollar-weighted average period
to next interest rate adjustment of approximately 90 days or less.
The yield on a Loan primarily will depend on the terms of the underlying Loan
and the base lending rate chosen by the Borrower initially and on subsequent
dates specified in the applicable loan agreement. The relationship between
LIBOR, the CD Rate, and the Prime Rate will vary as market conditions change.
Borrowers tend to select the base lending rate that results in the lowest
interest cost, and the rate selected may change from time to time.
Agents and Intermediate Participants
Loans are typically originated, negotiated and structured by a U.S. or foreign
commercial bank, insurance company, finance company or other financial
institution (the "Agent") for a lending syndicate of financial institutions. The
Borrower and the lender or lending syndicate enter into a loan agreement (the
"Loan Agreement"). The Agent typically administers and enforces the Loan on
behalf of the other lenders in the syndicate. In addition, an institution,
typically but not always the Agent (the "Collateral Bank"), holds any collateral
on behalf of the lenders. The Collateral Bank must be a qualified custodian
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
may not act as an Agent, a Collateral Bank, a guarantor or sole negotiator or
structuror with respect to a Loan.
In a typical Loan, the Agent administers the terms of the Loan Agreement and is
responsible for the collection of principal and interest and fee payments from
the Borrower and the apportionment of these payments to the credit of all
lenders that are parties to the Loan Agreement. The Fund generally will rely on
the Agent to collect its portion of the payments on a Loan. Furthermore, the
Fund will rely on the Agent to use appropriate creditor remedies against the
Borrower. Typically,
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<PAGE>
under Loan Agreements, the Agent is given broad discretion in enforcing the Loan
Agreement and is obligated to use only the same care it would use in the
management of its own property. The Borrower compensates the Agent for these
services. This compensation may include special fees paid on structuring and
funding the Loan and other fees paid on a continuing basis. The typical practice
of an Agent or a lender in relying exclusively or primarily on reports from the
Borrower may involve a risk of fraud by the Borrower.
In the event that an Agent becomes insolvent, or has a receiver, conservator, or
similar official appointed for it by the appropriate bank regulatory authority
or becomes a debtor in a bankruptcy proceeding, the Agent's appointment may be
terminated, and a successor agent would be appointed. Assets held by the Agent
under the Loan Agreement should remain available to holders of Loans. However,
if assets held by the Agent for the benefit of the Fund were determined by an
appropriate regulatory authority or court to be subject to the claims of the
Agent's general or secured creditors, the Fund might incur certain costs and
delays in realizing payment on a Loan or suffer a loss of principal and/or
interest. Furthermore, in the event of the Borrower's bankruptcy or insolvency,
the Borrower's obligation to repay the Loan may be subject to certain defenses
that the Borrower can assert as a result of improper conduct by the Agent.
The Fund's investment in a Loan may take the form of a "Participation." Lenders
may sell Loans to third parties called "Participants." Participations may be
acquired from a lender or from other Participants. If the Fund purchases a
Participation either from a lender or a Participant, the Fund will not have
established any direct contractual relationship with the Borrower. The Fund
would be required to rely on the lender or the Participant that sold the
Participation not only for the enforcement of the Fund's rights against the
Borrower but also for the receipt and processing of payments due to the Fund
under the Loan. The Fund is thus subject to the credit risk of both the Borrower
and a Participant. Lenders and Participants interposed between the Fund and a
Borrower are referred to as "Intermediate Participants."
In the case of Participations, because it may be necessary to assert through an
Intermediate Participant such rights as may exist against the Borrower in the
event the Borrower fails to pay principal and interest when due, the Fund may be
subject to delays, expenses and risks that are greater than those that would be
involved if the Fund could enforce its rights directly against the Borrower.
Moreover, under the terms of a Participation, the Fund may be regarded as a
creditor of the Intermediate Participant (rather than of the Borrower), so that
the Fund also may be subject to the risk that the Intermediate Participant may
become insolvent. The agreement between the buyer and seller may also limit the
rights of the holder of the Loan to vote on certain changes that may be made to
the Loan Agreement, such as waiving a breach of a covenant. However, in almost
all cases, the holder of a Loan will have the right to vote on certain
fundamental issues such as changes in principal amount, payment dates, and
interest rate.
CIMCO also analyzes and evaluates the financial condition of the Agent and, if
applicable, the Intermediate Participant. The Fund will invest in a Loan only if
the outstanding debt obligations of the Agent and Intermediate Participants, if
any, are, at the time of investment, investment grade (i.e.,
- 12 -
<PAGE>
(a) rated BBB or better by Standard and Poor's Ratings Group ("S&P") or Baa or
better by Moody's Investors Service, Inc. ("Moody's"); or (b) rated A-3 or
better by S&P or P-3 or better by Moody's; or (c) determined by CIMCO to be of
comparable quality).
Although the Fund generally holds only Loans for which the Agent and
Intermediate Participants, if any, are banks, the Fund may acquire Loans from
non-bank financial institutions and Loans originated, negotiated and structured
by non-bank financial institutions, if the Loans conform to the credit
requirements described above. As other types of Loans are developed and offered
to investors, CIMCO will consider making investments in these Loans, consistent
with the Fund's investment objective, policies and quality standards, and in
accordance with applicable custody and other requirements of the 1940 Act.
Discount Loans
The Fund may from time to time acquire Loans at a discount from their nominal
value or with a facility fee that exceeds the fee traditionally received in
connection with the acquisition of Loans ("Discount Loans"). The Borrowers with
respect to Discount Loans may have experienced, or may be perceived to be likely
to experience, credit problems, including involvement in or recent emergence
from bankruptcy reorganization proceedings or other forms of credit
restructuring. In addition, Discount Loans may become available as a result of
an imbalance in the supply of and demand for certain Loans. The Fund may acquire
Discount Loans in order to realize an enhanced yield or potential capital
appreciation when CIMCO believes that the market has undervalued those Loans due
to an excessively negative assessment of a Borrower's creditworthiness or an
imbalance between supply and demand. The Fund may benefit from any appreciation
in value of a Discount Loan, even if the Fund does not obtain 100% of the Loan's
face value or the Borrower is not wholly successful in resolving its credit
problems.
Other Information About Loans
A Borrower must comply with various restrictive covenants contained in the
applicable Loan Agreement. In addition to requiring the scheduled payment of
interest and principal, these covenants may include restrictions on dividend
payments and other distributions to stockholders, provisions requiring the
Borrower to maintain specific financial ratios, and limits on total debt. The
Loan Agreement may also contain a covenant requiring the Borrower to prepay the
Loan with any free cash flow. Free cash flow generally is defined as net cash
flow after scheduled debt service payments and permitted capital expenditures,
and includes the proceeds from asset dispositions or securities sales. A breach
of a covenant that is not waived by the Agent (or by the lenders directly, as
the case may be) is normally an event of default, which provides the Agent or
the lenders directly the right to call the outstanding Loan.
The Fund may have certain obligations in connection with a Loan, which may
include the obligation to make additional loans in certain circumstances. The
Fund will not invest in Loans that would require the Fund to make any additional
investments in connection with future advances if such
- 13 -
<PAGE>
commitments would exceed 20% of the Fund's total assets or would cause the Fund
to fail to meet the diversification requirements described below. The Fund will
maintain a segregated account with its Custodian of liquid, high-grade debt
obligations with a value equal to the amount, if any, of the Loan that the Fund
has obligated itself to make to the Borrower, but that the Borrower has not yet
requested.
The Fund may receive and/or pay certain fees in connection with its activities
in buying, selling and holding Loans. These fees are in addition to interest
payments received, and may include facility fees, commitment fees, commissions
and prepayment penalty fees. When the Fund buys a Loan, it may receive a
facility fee, and when it sells a Loan, it may pay a facility fee. The Fund may
receive a commitment fee based on the undrawn portion of the underlying line of
credit portion of a Loan, or, in certain circumstances, the Fund may receive a
prepayment penalty fee on the prepayment of a Loan by a Borrower. The Fund may
also receive other fees, including covenant waiver fees and covenant
modification fees.
From time to time CIMCO and its affiliates may borrow money from various banks
in connection with their business activities. These banks also may sell Loans to
the Fund or acquire Loans from the Fund, or may be Intermediate Participants
with respect to Loans owned by the Fund. These banks also may act as Agents for
Loans that the Fund owns.
Unsecured Loans and Short-Term and Medium-Term Obligations
Up to 20% of the Fund's total assets may be held in cash or invested in
short-term or medium-term debt obligations or in Unsecured Loans. The Fund will
invest only in Unsecured Loans that CIMCO determines have a credit quality at
least equal to that of the collateralized Loans in which the Fund primarily
invests. With respect to an Unsecured Loan, if the Borrower defaults on its
obligation, there is no specific collateral on which the Fund can foreclose,
although the Borrower typically will have assets that CIMCO believes exceed the
amount of the Unsecured Loan at the time of purchase.
The short-term and medium-term debt obligations in which the Fund may invest
include, but are not limited to, senior Unsecured Loans with a remaining
maturity of one year or less, certificates of deposit, commercial paper,
short-term and medium-term notes, bonds with remaining maturities of less than
five years, obligations issued by the U.S. Government or any of its agencies or
instrumentalities, and repurchase agreements. All of the debt instruments
described in this paragraph, other than Unsecured Loans, will be investment
grade (i.e., rated Baa, P-3 or better by Moody's or BBB, A-3 or better by S&P
or, if unrated, determined by CIMCO to be of comparable quality). For a
definition of the ratings assigned to instruments, see Appendix A. Pending
investment of the proceeds of Fund sales, or when CIMCO believes that investing
for defensive purposes is appropriate, more than 20% (up to 100%) of the Fund's
total assets may be temporarily held in cash or in the short-term and
medium-term debt obligations described in this paragraph.
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<PAGE>
Foreign Investments
The Fund also may acquire U.S. dollar denominated Loans made to non-U.S.
Borrowers (a) (i) located in any country whose unguaranteed, unsecured and
otherwise unsupported long-term sovereign debt obligations are rated "A3" or
better by Moody's and "A-" or better by S&P or (ii) with significant U.S.
dollar-based revenues or significant U.S.-based operations and (b) located in a
country that does not impose withholding taxes on payment of principal,
interest, fees, or other payments to be made by the Borrower; provided, however,
that any such Borrower meets the credit standards established by CIMCO for U.S.
Borrowers, and no more than 25% of the Fund's net assets are invested in Loans
of non-U.S. Borrowers. Loans to non-U.S. Borrowers may involve certain special
considerations not typically associated with investing in U.S. Borrowers.
Information about a foreign company may differ from that available with respect
to U.S. Borrowers, because foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to U.S. Borrowers. There generally
is less government supervision and regulation of financial markets and listed
companies in foreign countries than in the United States.
Repurchase Agreements
The Fund may enter into repurchase agreements with respect to its permitted
investments, but currently intends to do so only with member banks of the
Federal Reserve System or with primary dealers in U.S. Government securities.
Under a repurchase agreement, the Fund buys a security at one price and
simultaneously promises to sell that same security back to the seller at a
higher price. The Fund's repurchase agreements will provide that the value of
the collateral underlying the repurchase agreement always will be at least equal
to the repurchase price, including any accrued interest earned on the repurchase
agreement, and will be marked to market daily. The repurchase date is usually
within seven days of the original purchase date. In all cases, CIMCO must be
satisfied with the creditworthiness of the other party to the agreement before
entering into a repurchase agreement. In the event of the bankruptcy (or other
insolvency proceeding) of the other party to a repurchase agreement, the Fund
might experience delays in recovering its cash. To the extent that the value of
the securities the Fund purchased may have declined in the meantime, the Fund
could experience a loss.
Other Investments
The Fund may acquire warrants and other equity securities as part of a unit
combining Loans and equity securities of the Borrower or its affiliates, but
only incidentally to the Fund's purchase of a Loan. The Fund also may acquire
equity securities issued in exchange for a Loan or issued in connection with a
Borrower's debt restructuring or reorganization, or if the acquisition, in
CIMCO's judgment, may enhance the value of a Loan or otherwise would be
consistent with the Fund's investment policies.
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<PAGE>
Fundamental Investment Restrictions And Policies
The Fund has adopted certain fundamental investment restrictions and policies
which may not be changed unless authorized by a shareholder vote. These are set
forth in the Statement of Additional Information. Among these fundamental
restrictions, the Fund may not purchase any security if, as a result of the
purchase, more than 25% of the Fund's total assets (taken at current value)
would be invested in the securities of Borrowers and other issuers having their
principal business activities in the same industry (the electric, gas, water and
telephone utility industries being treated as separate industries for the
purpose of this restriction). There is no limitation on purchasing securities
the issuer of which is deemed to be in the financial institutions industry,
which includes commercial banks, thrift institutions, insurance companies and
finance companies. There is no limitation with respect to obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
Except for the fundamental restrictions and policies set forth as such in the
Fund's Statement of Additional Information, the Fund's investment objective and
policies are not fundamental policies and accordingly may be changed by the
Fund's Board of Directors without obtaining the approval of the Fund's
shareholders.
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RISK FACTORS
- --------------------------------------------------------------------------------
As a newly organized entity, the Fund has no operating history. CIMCO expects
that, because the Fund's assets will consist primarily of floating rate Loans
and short-term instruments, the Fund's net asset value will be relatively stable
during normal market conditions. The value of the Fund's assets may fluctuate
significantly less with changes in interest rates than a portfolio of fixed-rate
obligations. However, a number of factors may cause a decline in the Fund's net
asset value, including a default in a Loan, a material deterioration of a
Borrower's perceived or actual creditworthiness, or a sudden and extreme
increase in prevailing interest rates. These and other risks of investing in the
Fund are described below. Conversely, a sudden and extreme decline in interest
rates could result in an increase in the Fund's net asset value. The Fund is not
a money market fund and its net asset value will fluctuate.
Credit Risk
Loans may constitute substantially all of the Fund's investments. These
investments are primarily dependent upon the creditworthiness of the Borrower
for payment of interest and principal. The nonreceipt of scheduled interest or
principal on a Loan may adversely affect the Fund's income or the value of its
investments, which may in turn reduce the amount of dividends or the net asset
value of the Fund's shares. The Fund's ability to receive payment of principal
of and interest on a Loan also depends on the creditworthiness of any
institution interposed between the Fund and the Borrower. To reduce credit risk,
CIMCO actively manages the Fund as described above.
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<PAGE>
Loans made in connection with leveraged buy-outs, recapitalizations and other
highly leveraged transactions are subject to greater credit risks than other
Loans in which the Fund may invest. It is expected that these Loans will
constitute substantially all of the Fund's Loans. These credit risks include the
possibility of a default on the Loan or bankruptcy of the Borrower. The value of
these Loans is subject to a greater degree of volatility in response to interest
rate fluctuations and these Loans may be less liquid than other Loans.
Although the Fund generally will invest in Loans holding the most senior
position in a Borrower's capitalization structure, the capitalization of many
Borrowers will include non-investment grade subordinated debt. During periods of
deteriorating economic conditions, a Borrower may experience difficulty in
meeting its payment obligations under its subordinated debt obligations. These
difficulties may detract from the Borrower's perceived creditworthiness or its
ability to obtain financing to cover short-term cash flow needs and may force
the Borrower into bankruptcy or other forms of credit restructuring.
The Fund may acquire Loans designed to provide temporary or "bridge" financing
to a Borrower pending the sale of identified assets or the arrangement of
longer-term loans or the issuance and sale of debt obligations, or may invest in
Loans of Borrowers that have obtained bridge loans from other parties. A
Borrower's use of bridge loans involves a risk that the Borrower may be unable
to locate permanent financing to replace the bridge loan, which may impair the
Borrower's perceived creditworthiness.
Collateral Impairment
A Loan will be secured unless (a) the value of the collateral declines below the
amount of the Loan, (b) the Fund's security interest in the collateral is
invalidated for any reason by a court, or (c) the collateral is partially or
fully released under the terms of the Loan Agreement as the creditworthiness of
the Borrower improves. There is no assurance that liquidation of collateral
would satisfy the Borrower's obligation in the event of nonpayment of scheduled
interest or principal, or that collateral could be readily liquidated. The value
of collateral generally will be determined by reference to the Borrower's
financial statements, an independent appraisal performed at the request of the
Agent at the time the Loan was initially made, the market value of the
collateral (e.g., cash or securities) if it is readily ascertainable, and/or by
other customary valuation techniques that CIMCO considers appropriate.
Collateral generally is valued on the basis of the Borrower's status as a going
concern and this valuation may exceed the collateral's immediate liquidation
value.
Collateral may include (a) working capital assets, such as accounts receivable
and inventory, (b) tangible fixed assets, such as real property, buildings and
equipment, (c) intangible assets, such as licenses, trademarks and patent rights
(but excluding goodwill), and (d) security interests in shares of stock of
subsidiaries or affiliates. To the extent that collateral consists of the stock
of the Borrower's subsidiaries or other affiliates, the Fund will be subject to
the risk that this stock will decline in value. Such a decline, whether as a
result of bankruptcy proceedings or otherwise, could cause the Loan to become
undercollateralized or unsecured. Most credit agreements contain no
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<PAGE>
formal requirement to pledge additional collateral. In the case of Loans made to
non-public companies, the Borrower's shareholders or owners may provide
additional credit support in the form of fully secured guarantees and/or
security interests in assets that they own. The Fund may invest in Loans (a)
guaranteed by such shareholders or owners (provided that the guarantees are
fully secured), or (b) fully secured by assets of such shareholders or owners;
even if the Loans are not otherwise collateralized by the assets of the
Borrower.
If a Borrower becomes involved in bankruptcy proceedings, a court may invalidate
the Fund's security interest in the Loan collateral or may subordinate the
Fund's rights under the Loan to the interests of the Borrower's unsecured
creditors. For example, a court could base this action on a "fraudulent
conveyance" claim to the effect that the Borrower did not receive fair
consideration for granting the security interest in the Loan collateral to the
Fund. For Loans made in connection with a highly leveraged transaction, the
consideration received in exchange for granting a security interest may be
deemed inadequate if the Loan proceeds were not received or retained by the
Borrower, but instead were paid to other persons (such as shareholders of the
Borrower) in an amount that left the Borrower insolvent or without sufficient
working capital. There are also other events, such as the failure to perfect a
security interest due to faulty documentation or faulty official filings, which
could lead to the invalidation of the Fund's security interest in Loan
collateral. If the Fund's security interest in Loan collateral is invalidated or
if the Loan is subordinated to other debt of a Borrower in bankruptcy or other
proceedings, it is unlikely that the Fund would be able to recover the full
amount of the principal and interest due on the Loan.
There may be temporary periods when a Borrower's principal asset is the stock of
a related company, which may not legally be pledged to secure a Loan. In this
event, the Loan will be temporarily unsecured until the stock can be pledged or
is exchanged for or replaced by other assets which will be pledged as security
for the Loan. However, the Borrower's ability to dispose of these securities,
other than in connection with such pledge or replacement, will be strictly
limited for the protection of the holders of Loans.
Non-Diversification and Industry Concentration
The Fund is classified as a "non-diversified" investment company within the
meaning of the 1940 Act. Accordingly, the Fund is not limited by the 1940 Act in
the proportion of its assets that may be invested in a single issue. However,
the Fund is required to comply with the diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). See
"Taxes" in the Statement of Additional Information for a description of these
requirements.
To the extent the Fund invests a relatively high percentage of its assets in the
obligations of a limited number of issuers, the value of the Fund's investments
may be more affected by any single adverse economic, political or regulatory
event than will the value of the investments of a diversified investment
company. It is the Fund's current intention not to invest more than 10% of its
total assets in Loans of any single Borrower.
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<PAGE>
The Fund may acquire Loans made to Borrowers in any industry. The Fund will not
concentrate its investments in any one industry with respect to Borrowers or
interpositioned persons that the Fund determines to be issuers for the purpose
of this policy. See "Investment Restrictions" in the Statement of Additional
Information. However, because the Fund may regard the issuer of a Loan as
including the Agent and any Intermediate Participant as well as the Borrower,
the Fund may be deemed to be concentrated in securities of issuers in the
industry group consisting of financial institutions and their holding companies,
including commercial banks, thrift institutions, insurance companies and finance
companies. As a result, the Fund is subject to certain risks associated with
such institutions.
Banking and thrift institutions are subject to extensive governmental
regulations which may limit both the amounts and types of loans and other
financial commitments which these institutions may make and the interest rates
and fees which these institutions may charge. The profitability of these
institutions is largely dependent on the availability and cost of capital funds,
and has shown significant recent fluctuation as a result of volatile interest
rate levels. In addition, general economic conditions are important to the
operations of these institutions, with exposure to credit losses resulting from
possible financial difficulties of borrowers potentially having an adverse
effect. Insurance companies are also affected by economic and financial
conditions and are subject to extensive government regulation, including rate
regulation. Property and casualty companies may be exposed to material risks,
including reserve inadequacy, latent health exposure and inability to collect
from their reinsurance carriers. The financial services area is currently
undergoing relatively rapid change as existing distinctions between financial
service segments become less clear. In this regard, recent business combinations
have included insurance, finance and securities brokerage under single
ownership. Moreover, the federal laws generally separating commercial and
investment banking are currently being studied by Congress.
Illiquid Instruments
Not all Loans are readily marketable at present. Loans may be subject to legal
and contractual restrictions on resale. Although Loans are traded among certain
financial institutions, some of the Loans that the Fund acquires do not have the
liquidity of conventional investment grade debt securities traded in the
secondary market and may be considered illiquid. The Fund's ability to dispose
of a Loan may be reduced to the extent that there has been a perceived or actual
deterioration in the creditworthiness of an individual Borrower or the
creditworthiness of Borrowers in general, or by events that reduce the level of
confidence in the market for Loans. This may affect the Fund's ability to
realize its net asset value in the event of a voluntary or involuntary
liquidation of its assets. As the market for Loans becomes more seasoned,
liquidity should improve.
The Fund has no limitation on the amount of its investments that cannot be
readily marketable or subject to restrictions on resale, except to the extent
required to allow the Fund to make its monthly Repurchase Offers (generally
expected to be 10% of outstanding shares). The Board of Directors has adopted
written procedures reasonably designed, taking into account current market
conditions and the Fund's investment objectives, to ensure that the Fund's
portfolio assets are sufficiently liquid
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<PAGE>
so that the Fund can comply with the liquidity requirements for making monthly
Repurchase Offers. In the event that the Fund's assets fail to comply with these
requirements, the Board will cause the Fund to take such action as the Board
deems appropriate to ensure compliance. See "Repurchase Offers."
Borrowing By The Fund
The Fund may borrow money in amounts up to 33-1/3% of the value of its total
assets to finance Repurchase Offers, for temporary, extraordinary or emergency
purposes, or, while the Fund does not have any current intention of doing so,
for the purpose of financing additional investments. The Fund also may issue one
or more series of preferred shares, although it has no present intention to do
so. The Fund may borrow to finance additional investments or issue a class of
preferred shares only when it believes that the return that may be earned on
investments purchased with the proceeds of such borrowings or offerings will
exceed the associated costs, including debt service and dividend obligations.
However, to the extent such costs exceed the return on the additional
investments, the return realized by the Fund's shareholders will be adversely
affected.
Capital raised through borrowing will be subject to interest costs or dividend
payments which may or may not exceed the interest on the assets purchased. The
Fund may be required to maintain minimum average balances in connection with
borrowings or to pay a commitment or other fee to maintain a line of credit;
either of these requirements will increase the cost of borrowing over the stated
interest rate. The issuance of additional classes of preferred shares involves
offering expenses and other costs and may limit the Fund's freedom to pay
dividends on its common shares or to engage in other activities. Borrowings and
the issuance of a class of preferred stock having priority over the Fund's
common shares create an opportunity for greater income per common share, but at
the same time such borrowing or issuance is a speculative technique in that it
will increase the Fund's exposure to capital risk. These risks may be reduced
through the use of borrowings and preferred stock that have floating rates of
interest. Unless the income and appreciation, if any, on assets acquired with
borrowed funds or offering proceeds exceeds the costs of borrowing or issuing
additional classes of securities, the use of leverage will diminish the
investment performance of the Fund compared with what it would have been without
leverage.
The Fund may enter into an agreement with a financial institution providing for
an unsecured, discretionary credit facility (the "Facility"), the proceeds of
which may be used to finance, in part, Repurchases. The Facility will provide
for the borrowing by the Fund of up to the lesser of $100,000,000 or 33 1/3% of
the Fund's total assets, on an unsecured, uncommitted basis. Loans made under
the Facility will bear interest at a floating rate, such as LIBOR, to be
selected at the Fund's option.
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless
immediately after such incurrence the Fund has an asset coverage of 300% of the
aggregate outstanding principal balance of indebtedness. Additionally, under the
1940 Act the Fund may not declare any dividend or other distribution upon any
class of its capital stock, or purchase any such capital stock, unless the
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<PAGE>
aggregate indebtedness of the Fund has at the time of the declaration of any
such dividend or distribution or at the time of any such purchase an asset
coverage of at least 300% after deducting the amount of such dividend,
distribution, or purchase price, as the case may be. The Fund's inability to
make distributions as a result of these requirements could cause the Fund to
fail to qualify as a regulated investment company and/or subject the Fund to
income or excise taxes. The Fund may be required to dispose of portfolio
investments on unfavorable terms if market fluctuations or other factors reduce
the required asset coverage to less than the prescribed amount.
The Fund's willingness to borrow money for investment purposes, and the amount
it will borrow, will depend on many factors, the most important of which are
investment outlook, market conditions and interest rates. Successful use of a
borrowing strategy depends on CIMCO's ability to predict correctly interest
rates and market movements, and there is no assurance that a borrowing strategy
will be successful during any period in which it is employed.
Any indebtedness issued by the Fund or borrowing by the Fund either (a) will
mature by the next Repurchase Date (as defined below under "Repurchase Offers")
or (b) will provide for its redemption, call, or repayment by the Fund by the
next Repurchase Date without penalty or premium, as necessary to permit the Fund
to repurchase shares in the amount set by the Board of Directors in compliance
with the asset coverage requirements of the 1940 Act.
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REPURCHASE OFFERS
- -------------------------------------------------------------------------------
In order to provide shareholders with liquidity and the ability to receive net
asset value on a disposition of shares, the Fund will make monthly offers to
repurchase a percentage of outstanding shares at net asset value ("Repurchase
Offers"). Repurchase Offers will commence within two months of the date of this
prospectus.
As explained in more detail below, the "Repurchase Date" will be the last
business day of each month. The Fund will determine the net asset value
applicable to repurchases on that date. The Fund expects to distribute payment
on the next business day, and will distribute payment no later than five
business days (or seven calendar days, whichever period is shorter) after the
Repurchase Date. Shareholders will be sent notification of the next Repurchase
Offer at least 21 days prior to the next Repurchase Date.
Because the Fund is a closed-end fund, shareholders will not be able to redeem
their shares. It is unlikely that a secondary market for the Fund's shares will
develop, and the Distributor will not engage in any efforts to develop a
secondary market.
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<PAGE>
Repurchase Amount
Each month, the Fund's Board of Directors will determine the percentage of
shares to be repurchased ("Repurchase Amount"). The Repurchase Amount is
expected generally to be 10%, but may vary between 5% and 25%, of shares
outstanding on the Repurchase Date.
There is no minimum number of shares that must be tendered before the Fund will
honor repurchase requests. In other words, if, in the aggregate, only one share
is tendered in a given month, the Fund must repurchase it. However, there is a
maximum Repurchase Amount, so shareholders should be aware of the risk that the
Fund may not be able to repurchase all shares tendered in any given month. See
"Oversubscribed Repurchase Offers; Pro Rata Allocation."
Repurchase Requests
Shareholders will be sent a Notification of Repurchase Offer ("Notification") at
least 21 days before the next Repurchase Date. The Notification will provide
information about the Repurchase Offer, including the Repurchase Amount, the
Repurchase Date, and the means by which shareholders may determine the Fund's
net asset value. A sample Notification is attached as Appendix B to this
Prospectus.
A shareholder who wishes to tender shares for repurchase must notify the Fund or
an Authorized Intermediary on or before the Repurchase Date a "Repurchase
Request" in a manner designated by the Fund.
A shareholder may tender all or a portion of his or her holdings (although the
Fund may not be able to repurchase the shareholder's entire tender if aggregate
tenders exceed the Repurchase Amount (as discussed further below)). A
shareholder may withdraw or change a Repurchase Request at any point before the
Repurchase Date, but not after that date.
Determination of Repurchase Price
The Fund will establish the Repurchase Price at a share's net asset value as
determined after the close of business on the Repurchase Date. The Fund will
compute net asset value daily (as described under "Valuing Fund Shares"), and
shareholders may determine daily net asset value by calling _________________.
The Fund does not presently intend to deduct any repurchase fees from this
amount. However, in the future, the Board of Directors may determine to charge a
repurchase fee payable to the Fund reasonably to compensate it for its expenses
directly related to the repurchase. These fees could be used to compensate the
Fund for, among other things, its costs incurred in disposing of securities or
in borrowing in order to make payment for repurchased shares. Any repurchase fee
will never exceed two percent of the proceeds of the repurchase. It should be
noted that the Board may implement repurchase fees without a shareholder vote.
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<PAGE>
Payment
The Fund expects to distribute payment on the next business day; in any event,
the Fund will pay repurchase proceeds within five business days (or seven
calendar days, whichever is shorter) of the Repurchase Date. Repurchase proceeds
will be paid by wire transfer or check.
Oversubscribed Repurchase Offers; Pro Rata Allocation
In any given month, if tenders exceed the Repurchase Offer Amount (this
prospectus refers to this situation as an "Oversubscribed Repurchase Offer"),
the Fund may repurchase an additional two percent of the shares outstanding on
the Repurchase Date ("Additional Repurchase Amount"). If the Fund determines not
to repurchase the Additional Repurchase Amount, or if shareholders tender an
amount exceeding the Repurchase Offer Amount plus the Additional Repurchase
Amount, the Fund will repurchase the shares tendered on a pro rata basis.
However, the Fund may determine to alter these procedures in two situations:
(a) the Fund may accept all shares tendered by persons who own in the
aggregate not more than a specified number of shares (which number will not
exceed 100 shares) before prorating shares tendered by others; or
(b) the Fund may accept by lot shares tendered by shareholders who tender
all shares held by them and who, when tendering, elect to have either all
or none (or at least a minimum amount or none) accepted; however, the Fund
first must accept all shares tendered by shareholders who do not make this
election.
In the event of an Oversubscribed Repurchase Offer, shareholders may be unable
to liquidate some or all of their investment during that monthly Repurchase
Offer. A shareholder may have to wait until a later month to tender shares that
the Fund is unable to repurchase, and would be subject to the risk of net asset
value fluctuations during this time period.
Adoption of Repurchase Policy
The Board has adopted a resolution setting forth the Fund's fundamental policy
to conduct Repurchase Offers as described in this Prospectus ("Repurchase
Policy"). The Repurchase Policy may be changed only by a majority vote of the
Fund's outstanding voting securities. The Repurchase Policy states that the Fund
will make monthly Repurchase Offers, that the Repurchase Date will be the last
business day of the month, and that the Repurchase Price will be determined on
that date.
Liquidity Requirements
The Fund must maintain liquid assets equal to the Repurchase Offer Amount from
the time that the Notification is sent to shareholders until the Repurchase
Date. The Fund will ensure that a
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<PAGE>
percentage of its net assets equal to at least 100 percent of the Repurchase
Offer Amount consists of assets (a) that can be sold or disposed of in the
ordinary course of business at approximately the price at which the Fund has
valued the investment within the time period between the Repurchase Date and the
Repurchase Payment Deadline; or (b) that mature by the Repurchase Payment
Deadline.
The Board has adopted procedures that are reasonably designed to ensure that the
Fund's assets are sufficiently liquid so that the Fund can comply with the
Repurchase Policy and the liquidity requirements described in the previous
paragraph. If, at any time, the Fund falls out of compliance with these
liquidity requirements, the Board will take whatever action it deems appropriate
to ensure compliance.
The Fund intends to satisfy the liquidity requirements with cash on hand, cash
raised through borrowings, and Loans. There is some risk that the need to sell
Loans to fund Repurchase Offers may affect the market for those Loans. In turn,
this could diminish the Fund's net asset value.
Suspension or Postponement of a Repurchase Offer
The Fund may suspend or postpone a Repurchase Offer in limited circumstances,
and only by vote of a majority of the Board of Directors, including a majority
of the independent Directors. These circumstances are limited and include the
following:
(a) if the Repurchase would cause the Fund to lose its status as a
regulated investment company under Subchapter M of the Internal Revenue
Code;
(b) for any period during which an emergency exists as a result of which it
is not reasonably practicable for the Fund to dispose of securities it owns
or to determine the value of the Fund's net assets;
(c) for any other periods that the Securities and Exchange Commission
permits by order for the protection of shareholders;
(d) if the shares are listed on a national securities exchange or quoted in
an inter-dealer quotation system of a national securities association
(e.g., Nasdaq) and the Repurchase would cause the shares to lose that
status; or
(e) during any period in which any market on which the shares are
principally traded is closed, or during any period in which trading on the
market is restricted.
Consequences of Repurchase Offers
Although the Board believes that Repurchase Offers generally will be beneficial
to the Fund's shareholders, repurchases will decrease the Fund's total assets
and therefore have the possible effect
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<PAGE>
of increasing the Fund's expense ratio. Furthermore, if the Fund borrows to
finance repurchases, interest on that borrowing may reduce the Fund's net
investment income. The Fund intends to offer new shares continuously, which may
alleviate these potential consequences, although there is no assurance that the
Fund will be able to secure new investments.
If the Fund must liquidate portfolio securities in order to meet its repurchase
obligations, the Fund may realize gains and losses, including gains on
securities held for less than three months. Because less than 30% of the Fund's
annual gross income must be derived from the sale or disposition of securities
held less than three months (in order to retain the Fund's tax status as a
regulated investment company), these gains could reduce the Fund's ability to
sell other securities held for less than three months that the Fund may wish to
sell in the ordinary course of its portfolio management. This could affect the
Fund's yield adversely.
Repurchase Offers provide shareholders with the opportunity to dispose of shares
at net asset value. The Fund does not anticipate that a secondary market will
develop, but in the event that a secondary market were to develop, it is
possible that shares would trade in that market at a discount to net asset
value. The existence of periodic Repurchase Offers at net asset value may not
alleviate such a discount.
In addition, the repurchase of shares by the Fund will be a taxable event to
Shareholders. See "Distributions and Taxes" for further information.
- -------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------
Advisory Agreement
The Board of Directors oversees the management of the Fund and elects its
officers. The Fund's officers are responsible for the Fund's day-to-day
operations.
The Fund has engaged CIMCO, a wholly-owned subsidiary of Cypress Holding Company
("Cypress"), to act as its investment adviser under an investment advisory
agreement (the "Advisory Agreement"). Under the general supervision of the
Fund's Board of Directors, CIMCO manages the Fund's assets and makes its
investment decisions. CIMCO provides the Fund with office facilities, equipment
and personnel in connection with the Fund's investments. CIMCO compensates all
Fund Directors and officers who are members of the CIMCO organization and who
render investment services to the Fund, and also compensates all other CIMCO
personnel who provide research and investment services to the Fund.
In return for these services, facilities and payments, the Fund has agreed to
pay CIMCO as compensation under the Advisory Agreement a monthly fee in the
amount of 0.0625% (equivalent
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<PAGE>
to 0.75% annually) of the Fund's average daily gross assets. The Fund's gross
assets will be calculated by deducting all liabilities of the Fund except the
principal amount of any indebtedness for money borrowed, including debt
securities issued by the Fund.
CIMCO is an investment advisory firm founded in 1996 with $_____ million assets
under management. CIMCO is a wholly owned subsidiary of Cypress Holding Company,
which is an integrated investment management company. Cypress' founders,
Bradford K. Gallagher and Joseph T. Grause, Jr., have over 40 years combined
experience in the investment management industry. Cypress is affiliated with
Berkshire Partners, LLC, a leveraged buyout firm based in Boston, Massachusetts.
See "Directors and Officers" in the Statement of Additional Information.
Portfolio Manager
Jeffrey S. Garner, age 40, is the Fund's portfolio manager. Mr. Garner has been
employed as CIMCO's Chief Investment Officer since 1996. Previously, he was a
Vice President of Eaton Vance Management, where he served as the portfolio
manager for the Senior Debt Portfolio managed by Eaton Vance (the "master" fund
for Eaton Vance Prime Rate Reserves, EV Classic Senior Floating- Rate Fund, and
the EV Medallion Senior Floating-Rate Funds) (the "Eaton Vance Senior Debt
Portfolio").
From 1989 to 1996, Mr. Garner was primarily responsible for the day-to-day
management of the Eaton Vance Senior Debt Portfolio and its predecessor, Eaton
Vance Prime Rate Reserves. The investment objectives, policies, and strategies
of those portfolios were substantially similar in all material respects to those
of the Fund. Mr. Garner and the investment team he has assembled will use the
same analytical methods for identifying potential investments for the Fund as he
used for those portfolios. While at Eaton Vance, Mr. Garner managed no other
comparable registered investment companies or private accounts.
The following information sets forth for the quarterly periods ending on the
dates indicated the ending net asset value per share of beneficial interest in
Eaton Vance Prime Rate Reserves. This information does not relate to the Fund,
and is not necessarily indicative of the Fund's future performance. Unlike the
Fund, during the periods indicated, Eaton Vance Prime Rate Reserves generally
conducted quarterly, rather than monthly, tender offers, and was not required to
conduct a tender offer every quarter. Share prices for the Fund will fluctuate
reflecting market conditions, as well as changes in company-specific
fundamentals of portfolio investment.
- 26 -
<PAGE>
EATON VANCE PRIME RATE RESERVES
Quarter Ending Net Asset Value
Quarter NAV Quarter NAV Quarter NAV
Ending Ending Ending
09/30/89 $10.00 03/31/92 $ 9.95 06/30/94 $10.00
12/31/89 $10.00 06/30/92 $ 9.95 09/30/94 $ 9.96
03/31/90 $10.00 09/30/92 $ 9.99 12/31/94 $10.02
06/29/90 $10.00 12/31/92 $10.02 03/31/95 $10.04
09/28/90 $10.00 03/31/93 $ 9.97 06/30/95 $10.03
12/31/90 $ 9.97 06/30/93 $10.03 09/30/95 $10.03
03/30/91 $ 9.96 09/30/93 $10.05 12/31/95 $10.01
06/28/91 $ 9.96 12/30/93 $10.03 03/31/96 $10.00
09/30/91 $ 9.96 03/31/94 $10.00 06/30/96 $ 9.99
12/31/91 $ 9.96
Administration Agreement
The Fund also has engaged CIMCO to act as its Administrator under an
Administration Agreement (the "Administration Agreement"). Under the
Administration Agreement, CIMCO is responsible for managing the Fund's business
affairs, subject to supervision by the Fund's Board of Directors. CIMCO reserves
the right to delegate all or a part of its obligations under the Administration
Agreement to a third party. Any delegation of administrative duties will not
affect the administration fee paid by the Fund.
Services provided by the Administrator include recordkeeping, preparation and
filing of documents required to comply with federal and state securities laws,
supervising the activities of the Fund's custodian and transfer agent, providing
assistance in connection with the Directors' and shareholders' meetings,
providing services in connection with Repurchase Offers, and other
administrative services necessary to conduct the Fund's business. In return for
these services, facilities and payments, the Fund pays CIMCO a monthly fee in
the amount of 1/30 of 1% (equivalent to 0.40% annually) of the average daily
gross assets of the Fund as compensation under the Administration Agreement. In
calculating the Fund's gross assets, all liabilities are deducted, except the
principal amount of any indebtedness for money borrowed, including debt
securities that the Fund has issued.
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<PAGE>
CypressTree Floating Income Fund
PROSPECTUS
[Date]
INVESTMENT ADVISER
CypressTree Investment Management Co.
125 High Street
Boston, Massachusetts 02110
ADMINISTRATOR
CypressTree Investment Management Co.
125 High Street
Boston, Massachusetts 02110
DISTRIBUTOR
CypressTree Funds Distributors, Inc.
125 High Street
Boston, Massachusetts 02110
<PAGE>
Fund Costs and Expenses
The Fund will be responsible for all of its costs and expenses not expressly
stated to be payable by CIMCO under the Advisory Agreement, by CIMCO under the
Administration Agreement or by CypressTree Funds Distributors under its
Distribution Agreement. See "Advisory, Administration and Distribution Services"
in the Statement of Additional Information.
CIMCO has agreed to reimburse the Fund's expenses to the extent necessary so
that total annualized Fund expenses do not exceed 1.25% of average daily net
assets. If CIMCO had not agreed to reimburse these expenses, estimated Fund
expenses would be: management fee of 0.75%, interest payments on borrowed funds
of 0.00%, administration fee of 0.40%, service fee of 0.00%, and other expenses
of 0.20%; and total annual expenses of 1.35%.
- -------------------------------------------------------------------------------
VALUING FUND SHARES
- -------------------------------------------------------------------------------
The Fund values its shares once on each day the New York Stock Exchange ("NYSE")
is open for trading, as of 15 minutes after the close of regular trading. The
Custodian's address is _________________. The Fund is informed that, as of the
date of this prospectus, the NYSE observes the following business holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund's net asset value per share is determined by _____________________ (as
agent for the Fund) in the manner authorized by the Fund's Board of Directors.
_____________________ also serves as Custodian for the Fund and has custody of
the Fund's assets.
In determining the net asset value of a share of the Fund, the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accumulated but not yet received) minus all liabilities (including
accrued expenses) is divided by the total number of shares of the Fund
outstanding at that time. Expenses, including the fees payable to CIMCO, are
accrued daily.
Loans will be valued in accordance with guidelines established by the Board of
Directors. Under the Fund's current guidelines, Loans for which an active
secondary market exists to a reliable degree in CIMCO's opinion and for which
CIMCO can obtain at least two quotations from banks or dealers in Loans will be
valued by calculating the mean of the last available bid and asked prices in the
market for such Loans, and then using the mean of those two means. If only one
quote for a particular Loan is available, the Loan will be valued on the basis
of the mean of the last available bid and asked price in the market.
Loans for which an active secondary market does not exist to a reliable degree
in CIMCO's opinion will be valued at fair value, which is intended to
approximate market value. In valuing a Loan at fair
- 28 -
<PAGE>
value, CIMCO will consider, among other factors, (a) the creditworthiness of the
Borrower and any Intermediate Participants, (b) the terms of the Loan, (c)
recent prices in the market for similar Loans, if any, and (d) recent prices in
the market for instruments of similar quality, rate, period until next interest
rate reset and maturity.
Other portfolio securities (other than short-term obligations but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services that determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, other portfolio
securities are valued at the last sale price on the exchange that is the primary
market for such securities, or the last quoted bid price for those securities
for which the over-the-counter market is the primary market or for listed
securities in which there were no sales during the day. Positions in options are
valued at the last sale price on the principal trading market for the option.
Obligations purchased with remaining maturities of 60 days or less are valued at
amortized cost unless this method no longer produces fair valuation. Repurchase
agreements are valued at cost plus accrued interest. Rights or warrants to
acquire stock, or stock acquired pursuant to the exercise of a right or warrant,
may be valued taking into account various factors such as original cost to the
Fund, earnings and net worth of the issuer, market prices for securities of
similar issuers, assessment of the issuer's future prosperity, or liquidation
value or third party transactions involving the issuer's securities. Securities
for which there exist no price quotations or valuations and all other assets are
valued at fair value as determined in good faith by or on behalf of the Board of
Directors of the Fund.
- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
The Fund seeks to provide an effective yield that is higher than other
short-term instrument alternatives. From time to time, the Fund may include its
current and/or effective yield based on various specific time periods. Yields
will fluctuate from time to time and are not necessarily representative of
future results.
The current yield is calculated by annualizing the most recent monthly
distribution (i.e., multiplying by 365/31 for a 31 day month) and dividing the
product by the current maximum offering price. The effective yield is calculated
by dividing the current yield by 365/31 and adding 1. The resulting quotient is
then taken to the 365/31st power and reduced by 1. The result is the effective
yield.
On occasion, the Fund may compare its yield to: (a) LIBOR, quoted daily in the
Wall Street Journal, and (b) the CD Rate as quoted daily in the Wall Street
Journal as the average of top rates paid by major New York banks on primary new
issues of negotiable CDs, usually on amounts of $1 million or more. In addition,
the Fund may compare LIBOR and the CD Rate to each other. Yield comparisons
should not be considered indicative of the Fund's yield or relative performance
for any future period.
- 29 -
<PAGE>
Advertisements and communications to present or prospective shareholders also
may cite a total return for any period. Total return is calculated by
subtracting the net asset value of a single purchase of shares at a given date
from the net asset value of those shares (assuming reinvestment of
distributions) on a later date. The difference divided by the original net asset
value is the total return.
All dividends and distributions are assumed to be reinvested in additional
shares of the Fund at net asset value. Therefore, the calculation of the Fund's
total return and effective yield reflects the effect of compounding. The
calculation of total return, current yield and effective yield does not reflect
the amount of any shareholder income tax liability, which would reduce the
performance quoted. If the Fund's fees or expenses are waived or reimbursed, the
Fund's performance will be higher. Information about the performance of the Fund
or other investments is not necessarily indicative of future performance and
should not be considered a representation of what an investor's yield or total
return may be in the future.
- -------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- -------------------------------------------------------------------------------
The Fund engages in a continuous public offering of its shares at net asset
value without an initial sales charge. CypressTree Funds Distributors will make
payments from its own assets to certain financial service firms who have sale
agreements with CypressTree Funds Distributors ("Authorized Intermediaries").
The Fund does not currently intend to list its shares on any national securities
exchange or inter-dealer quotation system.
An initial investment in the Fund must be at least $5,000. Once an account has
been established, the shareholder may make additional investments of $500 or
more at any time. There is no minimum initial or additional investment
requirement for Individual Retirement Accounts. The Fund reserves the right to
waive any of these minimum investment requirements. See "Shareholder Services."
From time to time the Fund may suspend the continuous offering of its shares.
During any such suspension, shareholders who reinvest their distributions in
additional shares will be permitted to continue reinvestments, and the Fund may
permit tax sheltered retirement plans that own shares to purchase additional
shares of the Fund.
The Fund may refuse any order for the purchase of shares.
The Fund is not an appropriate investment for investors who are market-timers.
Investors who engage in excessive in-and-out trading activity generate
additional costs that are borne by all of the Fund's shareholders. To minimize
these costs, which reduce the ultimate returns achieved by all shareholders, the
Fund reserves the right to reject any purchase orders from investors identified
as market-timers.
- 30 -
<PAGE>
Direct Investment
Investors may purchase shares directly from the Fund by check or by wire.
Investors should complete a purchase agreement and mail the completed purchase
agreement to the Fund's Transfer Agent, __________________. The Transfer Agent's
address is ____________________. Investors purchasing shares by check should
include a check or money order payable in U.S. dollars, drawn on a U.S. bank,
and made payable to CypressTree Floating Income Fund, Inc. The Fund will not
accept cash, credit cards, third party checks, or credit card checks. The Fund
reserves the right to cancel any purchase for which a check does not clear.
Investors also may purchase shares of the Fund by wire. If the Fund is unable to
debit the predesignated bank account on the day of purchase, the Fund may make
additional attempts or may cancel the purchase.
If a purchase is cancelled for any reason, the investor will be responsible for
any losses or fees imposed by its bank and losses that may be incurred as a
result of any decline in the value of the cancelled purchase.
Investment Through Authorized Intermediaries
Investors may purchase shares through authorized intermediaries ("Authorized
Intermediaries") at the net asset value per share next determined after an order
is effective. Investors may be charged a fee if they effect transactions through
a broker or agent.
Some of the programs offered by Authorized Intermediaries may impose certain
conditions on an investment in the Fund that are in addition to (or different
from) those described in this prospectus, and may charge investors direct fees.
The terms of these programs also may modify or waive certain features described
in this prospectus, including initial and subsequent investment minimums and
certain trading restrictions. Therefore, an investor should contact the
Authorized Intermediary concerning the fees (if any) that the Authorized
Intermediary charges in connection with a purchase or repurchase of Fund shares,
and should read this prospectus in light of the terms governing the investor's
account with the Authorized Intermediary.
The Fund has entered into agreements with certain Authorized Intermediaries that
may enter confirmed purchase orders and Repurchase Requests on behalf of clients
and customers, with payment on purchase orders to follow no later than the
Fund's pricing on the following business day. If the Fund does not receive
payment by that time, the Authorized Intermediary may be held liable for
resulting fees and losses. Authorized Intermediaries will be responsible for
transmitting customer purchase orders and Repurchase Requests to the Fund
promptly in accordance with their agreements with customers.
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers the following optional services, at no extra charge. Any of
these services may be discontinued without penalty at any time. Investors may
obtain further information and an application for these services from Authorized
Intermediaries or from CypressTree Funds Distributors. The cost of administering
these services is borne by the Fund as an expense to all shareholders.
Dividend Reinvestment Plan
Dividends and distributions will be automatically reinvested at the net asset
value per share next determined on the payable date of the dividend or
distribution. Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"),
all dividends and other distributions, net of any applicable withholding taxes,
will be automatically reinvested in additional shares, newly issued by the Fund,
unless the shareholder otherwise instructs in writing the Fund's Transfer Agent,
as the Plan agent (the "Plan Agent"). There will be no charge to participants
for reinvesting dividends or other distributions. The Fund will pay the Plan
Agent's fees for the handling of reinvestment of distributions.
A shareholder whose shares are held by a broker-dealer or nominee that does not
provide a dividend reinvestment service may be required to have his or her
shares registered in his or her own name to participate in the Plan. Similarly,
a shareholder may be unable to transfer his or her account to certain
broker-dealers and continue to participate in the Plan. Investors who own shares
registered in street name should contact the broker or nominee for details
concerning participation in the Plan.
The Plan Agent will maintain all participant accounts in the Plan and furnish
written confirmations of all transactions in the accounts, including information
needed for personal and tax records. The Plan Agent may hold shares in the
participants' account in non-certificated form in the name of the Plan Agent or
the Plan Agent's nominee, and each shareholder's proxy will include those shares
purchased pursuant to the Plan. Participants in the Plan may withdraw from the
Plan on written notice to the Plan Agent.
In the case of a shareholder of record, such as a bank, broker-dealer or
nominee, that holds shares for others who are the beneficial owners, the Plan
Agent will administer the Plan on the basis of the number of shares certified
from time to time by the record shareholder as representing the total amount
registered in the shareholder's name and held for the account of beneficial
owners who participate in the Plan.
All registered holders of shares (other than brokers and nominees) will be
mailed information regarding the Plan, including a form with which they may
elect to terminate participation in the Plan
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<PAGE>
and receive further dividends and other distributions in cash. An election to
terminate participation in the Plan must be made in writing to the Plan Agent
and should include the shareholder's name and address as they appear on the
share certificate. An election to terminate will be deemed to be an election by
a shareholder to take all subsequent distributions in cash until the election is
changed. An election will be effective only for distributions declared and
having a record date at least ten days after the date on which the election is
received.
Shareholders who do not participate in the Plan will receive all dividends and
other distributions in cash, net of any applicable withholding taxes, paid in
U.S. dollars by check or wire transfer. Shareholders who do not wish to have
dividends and other distributions reinvested automatically should notify the
Plan Agent at __________________. Dividends and other distributions with respect
to shares registered in the name of a broker-dealer or other nominee (i.e., in
"street name") will be reinvested under the Plan unless the broker-dealer does
not provide that service, or if the nominee or the shareholder elects to receive
dividends and other distributions in cash.
The Fund and the Plan Agent reserve the right to terminate the Plan as applied
to any dividend or other distribution paid subsequent to notice of the
termination sent to the participants in the Plan at least 30 days before the
record date for the distribution. The Plan also may be amended by the Fund or
the Plan Agent, but (except when necessary or appropriate to comply with
applicable law, rules or policies of a regulatory authority) only by at least 30
days' written notice to participants in the Plan. Shareholders should direct all
correspondence regarding the Plan to the Plan Agent, at ______________________.
The receipt of dividends and other distributions in shares under the Plan will
not relieve participants of any income tax (including withholding taxes) that
may be payable with respect to the distributions. See "Taxes."
Automated Investment Plan
Shareholders may purchase shares of the Fund through the Fund's Automatic
Investment Plan. For accounts other than Individual Retirement Accounts (which
have no minimum initial or additional investment requirements), once the $5,000
minimum investment has been made, shareholders may make automatic cash
investments of $50 or more each month or quarter from the shareholder's bank
account.
- -------------------------------------------------------------------------------
DISTRIBUTIONS
- -------------------------------------------------------------------------------
The Fund will declare distributions daily and pay distributions monthly.
Substantially all of the Fund's investment income, less Fund expenses, will be
declared daily as a distribution to shareholders of record as recorded by the
Transfer Agent at the time of declaration. Daily distribution crediting will
begin on the day after the Transfer Agent has received funds for the
- 33 -
<PAGE>
purchase of Fund shares, even if orders to purchase shares had been placed with
Authorized Intermediaries. The Fund ordinarily will pay investment income
distributions on the first day of each month, whether the shareholder elects to
receive cash or to reinvest in additional shares. The Fund will distribute
realized net capital gains, if any, at least annually, usually in December,
after offset by any capital loss carryovers.
- -------------------------------------------------------------------------------
TAXES
- -------------------------------------------------------------------------------
The Fund intends to satisfy those requirements relating to the sources of its
income, the distribution of its income, and the diversification of its assets
necessary to qualify for the special tax treatment afforded to regulated
investment companies under the Code. Accordingly, the Fund will not be liable
for federal income or excise taxes to the extent that it distributes its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code. (For a detailed discussion of
tax issues pertaining to the Fund, see "Taxes" in the Statement of Additional
Information.)
Distributions paid by the Fund from its ordinary income or from an excess of net
short-term capital gain over net long-term capital loss will be treated as
ordinary income in the hands of the shareholders to the extent of the Fund's
earnings and profits. (Any such distributions in excess of the Fund's earnings
and profits first will reduce a shareholder's basis in his or her shares and,
after that basis is reduced to zero, will constitute capital gains to the
shareholder, assuming the shares are held as a capital asset.) Distributions, if
any, from the excess of net long-term capital gain over net short-term capital
loss are taxable to shareholders as long-term capital gain, regardless of the
length of time the shares of the Fund have been held by such shareholders.
Distributions will be taxed as described above, whether received by the
shareholders in cash or in additional shares. It is not expected that any
portion of distributions will be eligible for the corporate dividends-received
deduction.
Not later than 60 days after the close of the taxable year, the Fund will
provide its shareholders with a written notice designating the amounts of any
ordinary income dividends or capital gain dividends. If the Fund pays a dividend
in January that was declared in the previous October, November or December to
shareholders of record on a specified date in one of those months, then such
dividend will be treated for tax purposes as being paid by the Fund and received
by its shareholders on December 31 of the earlier year in which the dividend was
declared.
A holder of Fund shares who, pursuant to a Repurchase Offer, tenders all of his
or her Fund shares (and is not considered to own any other Fund shares pursuant
to attribution rules contained in the Code) may realize a taxable gain or loss
depending upon the shareholder's basis in the shares. Such gain or loss realized
on the disposition of shares (whether pursuant to a Repurchase Offer or in
connection with a sale or other taxable disposition of shares in a secondary
market) generally will be treated as long-term capital gain or loss if the
shares have been held as a capital asset for more
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<PAGE>
than one year and as short-term capital gain or loss if held as a capital asset
for one year or less. If Fund shares are sold at a loss after being held for six
months or less, the loss will be treated as long- term -- instead of short-term
- -- capital loss to the extent of any capital gain distributions received on
those shares. All or a portion of any loss realized on a sale or exchange of
shares of the Fund will be disallowed if the shareholder acquires other Fund
shares within 30 days before or after the disposition. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Different tax consequences may apply to tendering shareholders other than
fully-tendering shareholders described in the previous paragraph and to
non-tendering shareholders in connection with a Repurchase Offer. For example,
if a shareholder tenders fewer than all shares owned by or attributed to him or
her, the proceeds received could be treated as a taxable dividend, a return of
capital, or capital gain depending on the portion of shares tendered, the Fund's
earnings and profits, and the shareholder's basis in the tendered shares.
Moreover, when a shareholder tenders fewer than all shares owned pursuant to a
Repurchase Offer, there is a remote possibility that non-tendering shareholders
may be considered to have received a deemed distribution that is taxable to them
in whole or in part. Shareholders may wish to consult their tax advisors prior
to tendering.
The Fund must withhold 31% from distributions and repurchase payments, if any,
payable to any individuals and certain other noncorporate shareholders who have
not furnished to the fund a correct taxpayer identification number ("TIN") or a
properly completed claim for exemption on Form W-8 or W-9, or who are otherwise
subject to such "backup withholding." When establishing an account, an investor
must certify under penalties of perjury that the investor's TIN (generally, his
or her social security number) is correct and that the investor is not otherwise
subject to backup withholding.
Nonresident alien individuals, foreign corporations and certain other foreign
entities generally will be subject to a U.S. withholding tax at a rate of 30%
(or lower treaty rate) on distributions from ordinary income and from the excess
of net short-term capital gain over net long-term capital loss. Distributions to
such shareholders from the excess of net long-term capital gain over net
short-term capital loss and any amount treated as gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S.
taxation, provided that the shareholder has certified nonresident alien status.
Different U.S. tax consequences may result if the shareholder is engaged in a
trade or business in the United States or is present in the United States for
specified periods of time during a taxable year. Foreign shareholders should
consult their tax advisers regarding the U.S. and foreign tax consequences of an
investment in the Fund.
The discussion contained in this section is a general and abbreviated summary of
certain federal tax considerations affecting the Fund and its shareholders, and
is not intended as tax advice or to address a shareholder's particular
circumstances. This discussion does not address non-federal tax consequences, or
the special tax rules applicable to certain classes of investors, such as
retirement plans, tax-exempt entities, insurance companies and financial
institutions. For further information, reference should be made to the pertinent
sections of the Code and the regulations promulgated thereunder, which are
subject to change by legislative, judicial, or administrative action, either
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<PAGE>
prospectively or retroactively. Investors are urged to consult their tax
advisors regarding specific questions as to federal, state, local, or foreign
taxes. The Fund does not provide any guarantee regarding the tax consequences of
investing in the Fund.
- -------------------------------------------------------------------------------
DESCRIPTION OF SHARES
- -------------------------------------------------------------------------------
The Fund is a corporation organized under Maryland law. The Fund's Board of
Directors is responsible for the overall management and supervision of its
affairs.
The Fund currently has one class of shares of common stock, of which
1,000,000,000 shares have been authorized. Each such share has equal voting,
dividend, distribution and liquidation rights. Fractional shares may be voted in
proportion to the amount of the Fund's net asset value that they represent.
Shares have no preemptive or conversion rights and are freely transferable. When
issued and outstanding, the shares are fully paid and nonassessable by the Fund.
Although there is no current intent to do so, the Board of Directors has the
ability to classify and reclassify unissued shares, and could authorize issuance
of a new class of shares pursuant to this authority, consistent with the
requirements of the 1940 Act. Shares of the Fund will be issued in
uncertificated form.
The Fund's Articles of Incorporation generally may not be amended without the
affirmative vote of a majority of the outstanding shares of the Fund (or such
greater vote as is described below under "Anti-Takeover Provisions"). The Fund
will continue indefinitely.
Anti-Takeover Provisions
The Fund has certain anti-takeover provisions in its Articles of Incorporation
that are intended to limit, and could have the effect of limiting, the ability
of other entities or persons to acquire control of the Fund, to cause the Fund
to engage in certain transactions, or to modify the Fund's structure.
The affirmative vote or consent of the holders of two-thirds of each class,
voting separately, of the Fund's capital stock outstanding and entitled to vote
on the matter (a greater vote than that required by the 1940 Act), is required
to authorize the conversion of the Fund from a closed-end to an open-end
investment company. However, if two-thirds of the Board of Directors recommends
conversion, the approval by vote of the holders of a majority of the outstanding
shares entitled to vote on the matter will be sufficient. This provision of the
Fund's Articles of Incorporation may not be amended without the affirmative vote
or consent of two-thirds of the Fund's outstanding shares of capital stock.
The affirmative vote or consent of the holders of at least three-fourths of each
class of the Fund's shares of capital stock outstanding and entitled to vote on
the matter, voting separately, is required to approve any of the following Fund
transactions (the "Transactions"):
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<PAGE>
(a) merger, consolidation, or statutory share exchange with or into any
person;
(b) issuance of any Fund securities to any person for cash, securities, or
other property having a fair market value of $1,000,000 or more, except for
issuance or transfers of debt securities, sales of securities in connection
with a public offering, issuance of securities pursuant to a dividend
reinvestment plan, issuance of securities on the exercise of any stock
subscription rights distributed by the Fund, and portfolio transactions
effected in the ordinary course of business;
(c) sale, lease, exchange, mortgage, pledge, transfer, or other disposition
by the Fund of any assets having an aggregate fair market value of
$1,000,000 or more, except for portfolio transactions conducted in the
ordinary course of business;
(d) voluntary liquidation or dissolution of the Fund, or an amendment to
the Fund's Articles of Incorporation to terminate the Fund's existence; or
(e) unless federal law requires a lesser vote, any shareholder proposal as
to specific investment decisions made or to be made with respect to the
Fund's assets as to which shareholder approval is required under Maryland
or federal law.
In addition, in the case of a Transaction listed in (a), (b) or (c) above, the
affirmative vote or consent of the holders of at least two-thirds of each class
of the Fund's shares of capital stock outstanding and entitled to vote on the
matter, voting separately, excluding votes entitled to be cast by the person (or
an affiliate of the person) who is a party to the Transaction with the Fund, is
required.
However, the shareholder votes mentioned above will not be required with respect
to any Transaction (other than those set forth in (e) above) approved by a vote
of three-fourths of the Directors who do not have an interest in the
Transaction, including a majority of the Continuing Directors (as defined in the
Articles of Incorporation) who do not have an interest in the Transaction and
who are not "interested Directors," as that term is defined in the 1940 Act. In
that case, if Maryland law requires shareholder approval, the affirmative vote
of a majority of the shares of capital stock of the Fund outstanding and
entitled to vote on the matter, voting together as a single class, is required.
- 37 -
<PAGE>
The provisions of the Fund's Articles of Incorporation described in this section
relating to approval of Transactions may not be amended without the affirmative
vote or consent of three-fourths of the Fund's outstanding shares of capital
stock. For the full text of these provisions, see the Articles of Incorporation
on file with the Securities and Exchange Commission.
The provisions described in this section will make it more difficult to convert
the Fund to an open-end investment company and to consummate the Transactions
without the approval of the Board of Directors. These provisions could have the
effect of depriving shareholders of an opportunity to sell their shares at a
premium over prevailing market prices (in the event that a secondary market for
the Fund shares develops) by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. However, the Board
of Directors has considered these anti-takeover provisions and believes that
they are in the shareholders' best interests and benefit shareholders by
providing the advantage of potentially requiring persons seeking control of the
Fund to negotiate with its management regarding the price to be paid to
shareholders.
- -------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
The Fund will send semi-annual and annual reports to its shareholders. These
reports will include financial statements audited by the Fund's independent
certified public accountants. The Fund will provide shareholders with
information necessary to prepare federal and state tax returns shortly after the
end of each calendar year.
The Fund will describe the Repurchase Policy in its annual report to
shareholders. The annual report also will disclose the number of Repurchase
Offers conducted each year, the amount of each Repurchase Offer, the amount
tendered each month, and the extent to which the Fund repurchased shares in an
Oversubscribed Repurchase Offer.
- 38 -
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A -- DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
Moody's Long-Term Debt Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together, with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
- 39 -
<PAGE>
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
- 40 -
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B -- SAMPLE NOTIFICATION
- --------------------------------------------------------------------------------
CypressTree Floating Income Fund
NOTIFICATION OF REPURCHASE OFFER
[November 7, 1997]
Repurchase Offer and Amount
The Fund is offering to repurchase 10% of its outstanding shares.
Repurchase Request Deadline
Shareholders who wish to tender shares for this month's Repurchase Offer should
tender their shares in accordance with the procedures described below in
"Procedures for Tendering Shares" so that the Fund receives tenders by the close
of business on [November 28, 1997].
Repurchase Pricing Date
The Fund will determine the net asset value of its shares for purposes of paying
tendering shareholders after the close of business on [November 28, 1997]. For a
detailed description of how the Fund calculates net asset value, see the Fund's
prospectus dated _________.
Repurchase Payment Deadline
The Fund expects to distribute payment for shares accepted in the Repurchase
Offer on [December 1, 1997]; in any event, the Fund will pay repurchase proceeds
by [December 5, 1997].
Procedures for Tendering Shares
Shareholders who wish to tender shares for repurchase in this month's Repurchase
Offer should notify the Fund or an Authorized Intermediary by telephone or in
writing of the number of shares they wish to tender. A Repurchase Request form
is attached for your convenience. The Repurchase Request should be signed and
dated. Shareholders may return the Repurchase Request in the enclosed envelope
to CypressTree Floating Income Fund, 125 High Street, Boston, Massachusetts
02110. Shareholders also may fax completed Repurchase Requests to (617)
___________. All requests must be received by the Fund or an Authorized
Intermediary by 4:00 p.m. on [November 28, 1997].
- 41 -
<PAGE>
Procedures for Withdrawing or Modifying Repurchase Requests
Shareholders who wish to withdraw or modify their Repurchase Requests may
do so by the Repurchase Request Deadline by notifying the Fund or an Authorized
Intermediary of this intention. There is no required form for withdrawing or
modifying Repurchase Requests. If writing to the Fund, shareholders should
indicate their name, taxpayer I.D. number, date of original Repurchase Request,
amount of original Repurchase Request, and amount of revised Repurchase Request,
and should sign and date the withdrawal or modification. Written requests for
withdrawal or modification should be sent to CypressTree Floating Income Fund,
125 High Street, Boston, Massachusetts 02110, or by fax to (617) ______. All
requests for withdrawal or modifications must be received by the Fund or an
Authorized Intermediary by 4:00 p.m. on [November 28, 1997].
No Repurchase Fees
The Fund will not charge tendering shareholders any repurchase fees.
Possible Pro Rata Allocation
In the event that shareholders tender for repurchase shares representing more
than 10% of the Fund's total shares outstanding on the Repurchase Request
Deadline, the Fund may repurchase an additional 2% of the shares outstanding on
the Repurchase Request Deadline.
If the Fund determines not to repurchase the additional 2%, or if shareholders
tender an amount exceeding 12% of the Fund's total shares outstanding, the Fund
will repurchase the shares tendered on a pro rata basis. However, the Fund may
determine to alter these procedures in two situations:
(a) the Fund may accept all shares tendered by persons who own in the
aggregate not more than 100 shares before prorating shares tendered by
others; or
(b) the Fund may accept by lot shares tendered by shareholders who tender
all stock held by them and who, when tendering, elect to have either all or
none (or at least a minimum amount or none) accepted; however, the Fund
first will accept all shares tendered by shareholders who do not make this
election.
In the event of an oversubscribed Repurchase Offer, shareholders who wish to
participate in this month's Repurchase Offer may be unable to liquidate some or
all of their investment at net asset value. A shareholder may have to wait until
a later month to tender shares that the Fund is unable to repurchase, and would
be subject to the risk of net asset value fluctuations during this time period.
- 42 -
<PAGE>
Possible Suspension or Postponement of Repurchase Offer
The Fund may suspend or withdraw the Repurchase Offer by vote of a majority of
the Fund's Board of Directors, including a majority of its independent
Directors. The Fund may suspend or postpone the Repurchase Offer only in the
following limited circumstances:
(a) if the Repurchase would cause the Fund to lose its status as a
regulated investment company under Subchapter M of the Internal Revenue
Code;
(b) for any period during which an emergency exists as a result of which it
is not reasonably practicable for the Fund to dispose of securities it owns
or to determine the value of the Fund's net assets;
(c) for any other periods that the Securities and Exchange Commission
permits by order for the protection of shareholders;
(d) if the shares are listed on a national securities exchange or quoted in
an inter-dealer quotation system of a national securities association
(e.g., Nasdaq) and the Repurchase would cause the shares to lose that
status; or
(e) during any period in which any market on which the shares are
principally traded is closed, or during any period in which trading on the
market is restricted.
Shareholders will be notified if the Fund suspends or postpones the Repurchase
Offer. If the Fund renews the Repurchase Offer after a suspension or
postponement, shareholders will be sent a new Notification of Repurchase Offer.
Net Asset Value
On [November 7, 1997], the net asset value of the Fund's shares was [$10.00].
The Fund's shares are not traded on any organized market.
To determine the net asset value of the Fund's shares on any date up to and
including the Repurchase Request Deadline, shareholders should call (800)
- -------.
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Fund.................................................................. 1
Investment Restrictions and Fundamental Policies.......................... 1
Repurchase Offer Fundamental Policy....................................... 3
Management................................................................ 4
Advisory, Administration and Distribution Services........................ 7
Portfolio Transactions.................................................... 9
Custodian................................................................. 11
Transfer Agent............................................................ 11
Liquidity Requirements.................................................... 12
Taxes..................................................................... 12
Performance Information................................................... 14
Indemnification........................................................... 14
Auditors and Financial Statements......................................... 15
Other Information......................................................... 16
- --------------------------------------------------------------------------------
- 44 -
<PAGE>
CypressTree Floating Income Fund
PROSPECTUS
[Date]
INVESTMENT ADVISER
CypressTree Investment Management Co.
125 High Street
Boston, Massachusetts 02110
ADMINISTRATOR
CypressTree Investment Management Co.
125 High Street
Boston, Massachusetts 02110
DISTRIBUTOR
CypressTree Funds Distributors, Inc.
125 High Street
Boston, Massachusetts 02110
<PAGE>
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[/RED HERRING]
<PAGE>
Subject to Completion, dated July __ , 1997
STATEMENT OF
ADDITIONAL INFORMATION
[Date] ____________
CypressTree Floating Income Fund, Inc.
125 High Street
Boston, Massachusetts 02110
(617) 946-0600
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF CYPRESSTREE FLOATING INCOME FUND, INC. (THE
"FUND") DATED __________________ AS SUPPLEMENTED FROM TIME TO TIME. THIS
STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING THE
FUND'S DISTRIBUTOR, CYPRESSTREE FUNDS DISTRIBUTORS, INC., AT
__________________________________.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
The Fund................................................................... 1
Investment Restrictions and Fundamental Policies........................... 1
Repurchase Offer Fundamental Policy........................................ 3
Management................................................................. 4
Advisory, Administration and Distribution Services......................... 7
Portfolio Transactions..................................................... 9
Custodian.................................................................. 11
Transfer Agent............................................................. 11
Liquidity Requirements..................................................... 12
Taxes...................................................................... 12
Performance Information.................................................... 14
Indemnification............................................................ 14
Auditors and Financial Statements.......................................... 15
Other Information.......................................................... 16
- --------------------------------------------------------------------------------
- ii -
<PAGE>
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
CypressTree Floating Income Fund, Inc. (the "Fund") is a newly organized,
closed-end, non-diversified management investment company that continuously
offers its shares to the public. The Fund will conduct monthly repurchase offers
for its shares. The Fund's principal office is located at 125 High Street,
Boston, Massachusetts 02110. Capitalized terms used in this Statement of
Additional Information and not otherwise defined have the meanings given them in
the Fund's Prospectus.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS AND FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
The following fundamental policies cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities. A "majority"
for this purpose means the lesser of (a) 67% of the shares of the Fund present
or represented by proxy at a meeting if the holders of more than 50% of the
shares are present or represented at the meeting, or (b) more than 50% of the
shares of the Fund. The Fund may not:
(a) Borrow money or issue senior securities, except as permitted by the
1940 Act;
(b) Invest more than 25% of the Fund's total assets (taken at current
value) in the securities of Borrowers and other issuers having their
principal business activities in the same industry (the electric, gas,
water and telephone utility industries being treated as separate
industries for the purpose of this restriction); provided that (i)
there is no limitation on purchasing securities the issuer of which is
deemed to be in the financial institutions industry, which includes
commercial banks, thrift institutions, insurance companies and finance
companies and (ii) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities;
(c) Make loans to other persons, except that the Fund may (i) acquire
Loans, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objective and
policies, (ii) enter into repurchase agreements, and (iii) lend its
portfolio securities;
- 1 -
<PAGE>
(d) Underwrite securities issued by other persons, except insofar as it
may be deemed technically to be an underwriter under the Securities
Act of 1933 in selling or disposing of an investment;
(e) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities). The purchase of Loans, securities or other investment
assets with the proceeds of a permitted borrowing or securities
offering will not be deemed to be the purchase of securities on
margin;
(f) Purchase or sell real estate, although it may purchase and sell
securities secured by interests in real estate and securities of
issuers that invest or deal in real estate; provided that the Fund
reserves the freedom of action to hold and to sell real estate
acquired as a result of the ownership of securities; or
(g) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities. Physical commodities do not include
futures contracts with respect to securities, securities indices or
other financial instruments.
The Fund has adopted the following nonfundamental investment policies which may
be changed by the Fund's Board of Directors without shareholder approval. As a
matter of nonfundamental policy, the Fund may not:
(a) make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund either owns an equal
amount of such securities or owns securities convertible into or
exchangeable for, without payment of any further consideration,
securities of the same issuer as, and equal in amount to, the
securities sold short;
(b) purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development
programs;
(c) invest more than 10% of its total assets (taken at current value) in
the securities of issuers that, together with any predecessors, have a
record of less than three years continuous operation, except U.S.
Government securities, securities of issuers that are rated at least
"A" by at least one nationally recognized statistical rating
organization, municipal obligations and obligations issued or
guaranteed by any foreign government or its agencies or
instrumentalities; or
(d) invest more than 10% of its total assets in Loans of any single
Borrower.
- 2 -
<PAGE>
For the purpose of fundamental policies (a) and (e) and nonfundamental
investment policy (a), the Fund's arrangements (including escrow, margin and
collateral arrangements) with respect to transactions in all types of options
and futures contract transactions shall not be considered to be (a) a borrowing
of money or the issuance of securities (including senior securities) by the
Fund, (b) a pledge of the Fund's assets, (c) the purchase of a security on
margin, or (d) a short sale or position.
The Fund has no present intention of engaging in options or futures
transactions. The Fund has no present intention of issuing preferred shares.
For the purpose of fundamental policy (b), the Fund will consider all relevant
factors in determining who is the issuer of the Loan, including the Borrower's
credit quality, the amount and quality of the collateral, the terms of the Loan
Agreement and other relevant agreements (including inter-creditor agreements),
the degree to which the credit of an interpositioned person was deemed material
to the decision to purchase the Loan, the interest rate environment, and general
economic conditions applicable to the Borrower and an interpositioned person.
Notwithstanding the Fund's investment policies and restrictions, the Fund may
invest all or part of its investable assets in a management investment company
with substantially the same investment objective, policies and restrictions as
the Fund. This could allow creation of a "master/feeder" structure in the
future, although the Fund has no current intention to restructure in this
manner.
If a percentage restriction on investment policies or the investment or use of
assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
- --------------------------------------------------------------------------------
REPURCHASE OFFER FUNDAMENTAL POLICY
- --------------------------------------------------------------------------------
On July 23, 1997, the Board of Directors adopted a resolution setting forth the
Fund's fundamental policy that it will conduct monthly Repurchase Offers (the
"Repurchase Offer Fundamental Policy").
The Repurchase Offer Fundamental Policy sets the interval between each
Repurchase Offer at one month and provides that the Fund shall conduct a
Repurchase Offer each month (unless suspended or postponed in accordance with
regulatory requirements. Each repurchase will occur on the last business day of
the month. The Repurchase Offer Fundamental Policy also provides that the
repurchase pricing shall occur on the Repurchase Date (with pricing to occur
after the close of the New York Stock Exchange on that day).
The Repurchase Offer Fundamental Policy only may be changed by a majority vote
of the Fund's outstanding voting securities. In accordance with the requirements
of the 1940 Act, a "majority of the Fund's outstanding voting securities" means
the lesser of either: (a) the vote of 67 percent or
- 3 -
<PAGE>
more of the voting securities present at the annual or special meeting of the
Fund's shareholders, if the holders of more than 50 percent of the Fund's
outstanding securities are present or represented by proxy; or (b) the vote of
more than 50 percent of the Fund's outstanding voting securities.
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
The Fund's Directors and officers and their business backgrounds are listed
below. Those Directors and officers who, as defined in the 1940 Act, are
"interested persons" of the Fund, CIMCO, or Cypress by virtue of their
affiliation with any one or more of the Fund, CIMCO, or Cypress, are indicated
by an asterisk (*) ("Interested Persons").
Directors and Officers of the Fund
<TABLE>
<CAPTION>
Year
of
Name and Address Birth Position Held Business Background
<S> <C> <C> <C>
Bradford K. Gallagher* 1944 Director; President President, Cypress Holding Company
125 High Street (10/95-present); President, CypressTree
Boston, MA 02110 Asset Management Corp. (8/96-present);
President, Cypress Investments, Inc.
(12/96-present); President, CypressTree
Investment Management Co. (2/97-
present); President, CypressTree Funds
Distributors, Inc. (3/97-present);
President, Allmerica Financial Services
(4/90-9/95); Member of Operating
Committee and Founder/President of
Fidelity Investments Institutional
Services Co. (1/81-3/90)
William F. Achtmeyer 1955 Director President and Chief Executive Officer,
200 State Street The Parthenon Group (8/91-present);
Boston, MA 02109 Director, Bain & Company (9/77-6/96)
- 4 -
<PAGE>
William F. Devin 1938 Director Vice Chairman, Boston Stock Exchange
One Boston Place (10/90-present); Executive Vice
Boston, MA 02108 President, Fidelity Capital Markets Co.
(12/66-12/96)
Kenneth J. Lavery 1949 Director Vice President, Massachusetts Capital
420 Boylston Street Resource Company (5/82-present)
Boston, MA 02116
Jeffrey S. Garner* 1956 Executive Vice President; Vice President, Cypress Holding Company
125 High Street Portfolio Manager (8/96-present); Executive Vice President
Boston, MA 02110 and Chief Investment Officer,
CypressTree Investment Management Co.
(2/97- present); Vice President,
CypressTree Funds Distributors, Inc.
(3/97-present); Vice President, Eaton
Vance Management (1/88-7/96)
John W. Fraser* 1961 Vice President Vice President, CypressTree Investment
125 High Street Management Co. (5/97-present); Vice
Boston, MA 02110 President and Portfolio Manager, Merrill
Lynch Asset Management (6/91-5/97)
Peter K. Merrill* 1961 Vice President Vice President, CypressTree Investment
125 High Street Management Co. (6/97-present); Managing
Boston, MA 02110 Director, BankBoston Corp. (7/88-5/97)
Paul F. Foley* 1963 Treasurer Vice President, Cypress Holding Company
125 High Street (7/96-present); Financial Analyst, Fleet
Boston, MA 02110 Financial Group (6/95-7/96); Financial
Analyst, Allmerica Financial Services
(4/87-6/95)
John I. Fitzgerald* 1948 Secretary Secretary and Counsel, Cypress Holding
125 High Street Company (4/97-present); Executive Vice
Boston, MA 02110 President-Legal Affairs, Boston Stock
Exchange (6/93-3/97); Vice President and
General Counsel, Fechtor, Detwiler & Co.
(6/91-6/93); Senior Vice President and
Chief Legal Officer, Fidelity Brokerage
Services, Inc. (4/82-3/91)
- 5 -
<PAGE>
Philip C. Robbins* 1967 Assistant Assistant Vice President, CypressTree
125 High Street Vice President Investment Management Co., (9/96 -
Boston, MA 02110 present); Associate, Eaton Vance
Management (9/91 - 8/96)
</TABLE>
Messrs. _______ (Chairman) and ______ are members of the Audit Committee of the
Board of Directors. The Audit Committee makes recommendations to the Directors
regarding the selection of the independent certified public accountants, and
reviews with the accountants and the Fund Treasurer accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the Custodian and Transfer Agent.
Executive Compensation
The Fund pays the fees and expenses of those Directors who are not Interested
Persons (the "noninterested Directors"). The Directors who are Interested
Persons receive no compensation from the Fund. Noninterested Directors receive
$750 per quarter for each quarter during which the Director serves, plus $750
for each meeting attended in person and $200 for each telephone meeting. For the
period from the start of business, _____________, 1997, to December 31, 1997, it
is estimated that the Directors will earn the following compensation in their
capacities as Directors:
TOTAL COMPENSATION
AGGREGATE FROM FUND AND FUND
COMPENSATION COMPLEX PAID TO
NAME FROM FUND DIRECTORS
Bradford K. Gallagher $0 $0
William F. Achtmeyer $ 3,250 $ 3,250
William F. Devin $ 3,250 $ 3,250
Kenneth J. Lavery $ 3,250 $ 3,250
Election of Directors
As permitted by Maryland law, there normally will be no meetings of Fund
shareholders for the purpose of electing Directors in any year in which no such
election is required under the 1940 Act. Under the 1940 Act, an annual meeting
to elect Directors only is required when less than a majority of the Directors
holding office have been elected by shareholders. If a meeting is required, the
Directors then in office will call a shareholders' meeting for the election of
Directors. If no meeting is required, the Directors will continue to hold office
and may appoint successor Directors. The shares of the Fund do not provide for
cumulative voting. As a result, the holders of more than 50%
- 6 -
<PAGE>
of the shares voting for the election of Directors can elect 100% of the
Directors and, in this event, the holders of the remaining less than 50% of the
shares voting on the matter will not be able to elect any Directors.
Under the Fund's Articles of Incorporation, no person may serve as a Director if
shareholders holding seventy-five percent (75%) of shares entitled to vote on
the matter have removed him or her from office.
Control Persons and Principal Holders of Shares
As of the date of this Prospectus, CIMCO owns 100% of the issued and outstanding
shares of Shares of the Fund and, until the Fund completes the public offering
of its Shares, CIMCO will be deemed to control the Fund under the 1940 Act. See
also "Advisory, Administration and Distribution Services."
- --------------------------------------------------------------------------------
ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES
- --------------------------------------------------------------------------------
CIMCO is the Fund's investment advisor and administrator under an investment
advisory agreement ("Advisory Agreement") and an administration agreement (the
"Administration Agreement") between CIMCO and this Fund. CIMCO is a Delaware
corporation founded in August, 1996, and is engaged in the business of providing
investment advisory and other services to institutional, offshore and other
clients with respect to portfolios consisting primarily Loans. Currently, CIMCO
has $_____ million assets under management. The Directors of CIMCO are Bradford
K. Gallagher and J. Christopher Clifford.
CIMCO is a wholly-owned subsidiary of Cypress Holding Company. Cypress is a
Delaware corporation founded in 1995, and is an integrated investment management
firm. The Directors of Cypress are Bradford K. Gallagher and J. Christopher
Clifford. The largest shareholders of Cypress are Mr. Gallagher (approximately
30%) and Berkshire Fund IV L.P., an investment partnership (approximately 28%).
The remaining stock of Cypress is owned by Cypress employees.
Certain affiliates of Cypress have entered into an agreement to acquire from
NASL Financial Services, Inc. ("NASL Financial") that portion of NASL
Financial's business related to acting as investment adviser and distributor of
the North American Funds, an open-end investment company offering shares in
thirteen different portfolios. The North American Funds currently have
$___________ in assets. This acquisition is scheduled to close on or about
___________, 1997. An affiliate of CIMCO, CypressTree Asset Management
Corporation ("CAM"), will serve as investment adviser to the North American
Funds. The directors of CAM are Bradford K. Gallagher and J. Christopher
Clifford.
- 7 -
<PAGE>
The Fund will be responsible for all of its costs and expenses not expressly
stated to be payable by CIMCO under the Advisory Agreement and the
Administration Agreement, or by CypressTree Funds Distributors, Inc. under its
Distribution Agreement. These costs and expenses may include (without
limitation): expenses of acquiring, holding and disposing of securities and
other investments; investment advisory and administration fees; custody and
transfer agency fees and expenses, including those incurred for determining net
asset value and keeping accounting books and records; expenses of pricing and
valuation services; expenses of conducting repurchase offers; fees and expenses
of registering under the securities laws, and other governmental fees; expenses
of reports to shareholders and investors, proxy statements and other expenses of
shareholders' or investors' meetings; compensation and expenses of Directors not
affiliated with CIMCO or Cypress; interest, taxes and corporate fees; legal and
accounting expenses; printing and mailing expenses; insurance premiums; expenses
incurred in connection with litigation in which the Fund is a party and any
legal obligation to indemnify its officers and Directors with respect to
litigation; and membership dues in investment company organizations.
The Advisory Agreement and Administration Agreement each will remain in effect
until _____________, 1997. The Advisory Agreement may be continued from year to
year after ________________ so long as the continuance is approved at least
annually (a) by the vote of a majority of the Fund's Directors who are not
"interested persons" of the Fund or CIMCO cast in person at a meeting
specifically called for the purpose of voting on such approval; and (b) by the
vote of a majority of the Board of Directors or by the vote of a majority of the
outstanding Fund shares. The Advisory Agreement will terminate automatically in
the event of its assignment. The Administration Agreement may be continued from
year to year after _____________ so long as the continuance is approved annually
by the vote of a majority of the Fund's Directors. Each agreement may be
terminated at any time without penalty on sixty (60) days' written notice by the
Directors or CIMCO or by the vote of the majority of the outstanding Fund
shares. Each agreement provides that, in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties to
the Fund on the part of CIMCO, CIMCO will not be liable to the Fund for any loss
incurred.
CIMCO will receive fees under the Advisory Agreement and the Administration
Agreement. For a description of the compensation that the Fund pays CIMCO under
the Advisory Agreement and Administration Agreement, see the Fund's current
Prospectus.
CIMCO has agreed to reimburse the Fund's expense to the extent necessary so that
total annualized Fund expenses do not exceed 1.25% of average daily net assets.
If CIMCO had not agreed to reimburse these expenses, estimated Fund expenses
would be: management fee of 0.75%, interest payments on borrowed funds of 0.00%,
administration fee of 0.40%, service fee of 0.00%, and other expenses of 0.20%;
and total annual expenses of 1.35%.
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to policies established by the Board of Directors of the Fund, CIMCO is
primarily responsible for the execution of the Fund's portfolio transactions. In
executing such transactions, CIMCO seeks to obtain the best results for the
Fund, taking into account such factors as price (including the applicable fee,
commission or spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While CIMCO generally seeks reasonably competitive fee or commission
rates, the Fund does not necessarily pay the lowest commission or spread
available.
The Fund will purchase Loans in individually negotiated transactions with
commercial banks, thrifts, insurance companies, finance companies and other
financial institutions. In determining whether to purchase Loans from these
financial institutions, CIMCO may consider, among other factors, the financial
strength, professional ability, level of service and research capability of the
institution. While financial institutions generally are not required to
repurchase Participations in Loans which they have sold, they may act as
principal or on an agency basis in connection with the Fund's disposition of
Loans. The Fund has no obligation to deal with any bank, broker or dealer in
execution of transactions in portfolio securities.
Other securities in which the Fund may invest are traded primarily in the
over-the-counter markets, and the Fund intends to deal directly with the dealers
who make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. These dealers attempt to
profit from transactions by buying at the bid price and selling at the higher
asked price in the market for the obligations (the difference between the bid
and asked price customarily is referred to as the "spread"). The Fund also may
purchase fixed-income and other securities from underwriters, the cost of which
may include fees and concessions to the underwriters.
It is not anticipated that the Fund will pay significant brokerage commissions.
However, on occasion it may be necessary or desirable to purchase or sell a
security through a broker on an agency basis, in which case the Fund will incur
a brokerage commission. In executing all transactions, CIMCO seeks to obtain the
best results for the Fund. For the period from the start of business,
_____________, 1997, to the date of this Statement of Additional Information,
the Fund has paid no brokerage commissions.
Consistent with the interests of the Fund, CIMCO may select brokers to execute
the Fund's portfolio transactions on the basis of the research and brokerage
services they provide to CIMCO for its use in managing the Fund and its other
advisory accounts. Such services may include (a) furnishing analyses, reports
and information concerning issuers, industries, securities, geographic regions,
economic factors and trends, portfolio strategy, and performance of accounts;
and (b) effecting
- 9 -
<PAGE>
securities transactions and performing functions incidental to those securities
transactions (such as clearance and settlement). Research and brokerage services
received from such brokers are in addition to, and not in lieu of, the services
required to be performed by CIMCO under the Advisory Agreement. A commission
paid to such brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction, provided that CIMCO
determines in good faith that such commission is reasonable in relation to the
value of the services, in terms either of that particular transaction or the
overall responsibility of CIMCO to the Fund and its other clients. In reaching
this determination, CIMCO will not attempt to place a specific dollar value on
the brokerage and research services provided, or to determine what portion of
the compensation should be related to those services. The receipt of this
research will not reduce CIMCO's normal independent research activities.
However, it enables CIMCO to avoid the additional expenses that could be
incurred if CIMCO tried to develop comparable information through its own
efforts.
The Fund will not purchase securities from its affiliates in principal
transactions.
CIMCO is authorized to use research services provided by and to place portfolio
transactions with brokerage firms that have provided assistance in the
distribution of shares of the Fund or shares of other Cypress funds to the
extent permitted by law.
CIMCO may allocate brokerage transactions to broker-dealers that have entered
into arrangements with CIMCO under which the broker-dealer allocates a portion
of the commission paid by each fund toward payment of the fund's expenses, such
as transfer agent fees or custodian fees. However, the transaction quality must
be comparable to those of other qualified broker-dealers.
The frequency of portfolio purchases and sales (known as the "turnover rate")
will vary from year to year. It is anticipated that the Fund's turnover rate
will be between 50% and 100%. The Fund's portfolio turnover rate is not expected
to exceed 100%, but may vary greatly from year to year and will not be a
limiting factor when CIMCO deems portfolio changes appropriate. Although the
Fund generally does not intend to trade for short-term profits, the securities
held by the Fund will be sold whenever CIMCO believes it is appropriate to do
so, without regard to the length of time a particular security may have been
held. A 100% portfolio turnover rate would occur if the lesser of the value of
purchases or sales of the Fund's securities for a year (excluding purchases of
U.S. Treasury and other securities with a maturity at the date of purchase of
one year or less) were equal to 100% of the average monthly value of the
securities, excluding short-term investments, held by the Fund during the year.
Higher portfolio turnover involves corresponding greater brokerage commissions
and other transaction costs that the Fund will bear directly.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by CIMCO are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by CIMCO,
taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure would have a
detrimental effect on the price or
- 10 -
<PAGE>
volume of the security so far as the Fund is concerned. In other cases it is
possible that the ability to participate in volume transactions and to negotiate
lower brokerage commissions will be beneficial to the Fund.
- --------------------------------------------------------------------------------
CUSTODIAN
- --------------------------------------------------------------------------------
_____________________ (the "Custodian"), acts as custodian for the Fund. Its
principal business address is _______________________. The Custodian has custody
of all the Fund's assets, maintains the Fund's general ledger, and computes the
daily net asset value of Fund shares. The Custodian attends to details in
connection with the sale, exchange, substitution, transfer or other dealings
with the Fund's investments, receives and disburses all funds, and performs
various other ministerial duties on receipt of proper instructions from the
Fund. The Custodian charges custody fees based on ___ percent of Fund assets.
These fees are competitive within the industry.
CIMCO and its affiliates and their officers and employees from time to time have
transactions with various banks, including the Fund's Custodian. It is CIMCO's
opinion that the terms and conditions of these transactions were not and will
not be influenced by existing or potential custodial or other relationships
between the Fund and these banks.
- --------------------------------------------------------------------------------
TRANSFER AGENT
- --------------------------------------------------------------------------------
_________________ serves as transfer and dividend paying agent and as registrar.
Its principal business address is ___________________________________________.
- --------------------------------------------------------------------------------
LIQUIDITY REQUIREMENTS
- --------------------------------------------------------------------------------
From the time that the Fund sends a Notification to shareholders until the
Repurchase Date, the Fund will maintain a percentage of the Fund's assets equal
to at least 100 percent of the Repurchase Offer Amount either in: (a) assets
that can be sold or disposed of in the ordinary course of business at
approximately the price at which the Fund has valued the investment within a
period equal to the period between the Repurchase Date and the next Repurchase
Payment Deadline; or (b) assets that mature by the next Repurchase Payment
Deadline.
In the event that the Fund's assets fail to comply with the requirements in the
preceding paragraph, the Board shall cause the Fund to take such action as the
Board deems appropriate to ensure compliance.
- 11 -
<PAGE>
In supervising the Fund's operations and CIMCO's actions, the Board has adopted
written procedures (the "Liquidity Procedures") reasonably designed, taking into
account current market conditions and the Fund's investment objectives, to
ensure that the Fund's assets are sufficiently liquid so that the Fund can
comply with the Repurchase Offer Fundamental Policy and with the liquidity
requirements described above.
From time to time, the Board reviews the Fund's portfolio composition and makes
and approves such changes to the Liquidity Procedures as the Board deems
necessary.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
For a discussion of federal tax issues affecting shareholders in the Fund,
please see "Taxes" in the Prospectus.
The Fund intends to qualify for the special tax treatment afforded regulated
investment companies ("RICs") under Subchapter M of the Internal Revenue Code
(the "Code"). To qualify for that treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net ordinary investment income, net
short-term capital gains, and net gains from certain foreign currency
transactions) and must meet several additional requirements. Among these
requirements are the following: (a) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of securities, and
certain other related income; (b) the Fund must derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities
or certain other assets held less than three months; and (c) the Fund must
diversify its investments so that at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets are represented by cash
and cash items, U.S. Government securities, securities of other regulated
investment companies and other securities limited in respect of any one issuer
to not more than 5% of the value of the Fund's total assets and not more than
10% of that issuer's voting securities, and (ii) not more than 25% of the value
of its total assets may be invested in securities (other than U.S. Government
securities and securities of other regulated investment companies) of any one
issuer, or of two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or businesses.
Provided that the Fund satisfies the above requirements, it will not be subject
to federal income tax on that part of its investment company taxable income and
the excess of net long-term capital gain over net short-term capital loss that
it distributes to shareholders.
The Fund will be subject to a nondeductible 4% federal excise tax to the extent
that it does not distribute during each calendar year 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gain net
income, determined, in general, on an October 31 year end, plus
- 12 -
<PAGE>
certain undistributed amounts from previous years. The Fund will be subject to
the excise tax only on the amount by which it does not meet the foregoing
distribution requirements.
The federal income tax rules governing the taxation of interest rate swaps are
not entirely clear and may require the Fund to treat payments received under
such arrangements as ordinary income and to amortize payments under certain
circumstances. The Fund will limit its activity in this regard in order to
enable it to maintain its qualification as a RIC.
Certain Fund investments may bear original issue discount or market discount for
tax purposes. The Fund will be required to include in income each year a portion
of the original issue discount and may elect to include in income each year a
portion of the market discount. The Fund may have to dispose of investments that
it otherwise would have continued to hold in order to provide cash to satisfy
its distribution requirements with respect to such income.
Gains or losses (a) from the disposition of foreign currencies, (b) on the
disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (c) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest or other receivables or expenses or other liabilities
denominated in a foreign currency and the time it actually collects the
receivables or pays the liabilities generally are treated as ordinary income or
loss. These gains or losses, referred to under the Code as "section 988" gains
or losses, may increase or decrease the amount of investment company taxable
income available to the Fund for distribution to its shareholders.
The Fund may be subject to foreign withholding or other taxes with respect to
income on certain loans to foreign Borrowers. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes.
However, to the extent that foreign taxes are imposed, the taxes would reduce
the yield on the Loans. Because not more than 50% of the value of the Fund's
total assets at the close of any taxable year will consist of Loans to foreign
borrowers, the Fund will not be eligible to pass through to shareholders their
proportionate share of foreign taxes paid by the Fund, with the result that
shareholders will not be entitled to take any foreign tax credits or deductions
for foreign taxes paid by the Fund. However, the Fund may deduct foreign taxes
in calculating its distributable income.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The Fund may provide information about CIMCO, its affiliates and other related
funds in sales material or advertisements provided to investors or prospective
investors. Sales material or advertisements also may provide information on the
use of investment professionals by investors. For further information, see
"Performance Information" in the Fund's Prospectus.
- 13 -
<PAGE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate. When redeemed, shares may be worth more or less
than their original cost.
- --------------------------------------------------------------------------------
INDEMNIFICATION
- --------------------------------------------------------------------------------
The Fund will indemnify each Director and officer of the Fund to the fullest
extent permitted by the Maryland law, subject to the requirements of the 1940
Act. The Fund will indemnify and advance expenses to its officers to the same
extent as its Directors and to any further extent as is consistent with law.
To the fullest extent permitted by Maryland law no Director or officer may be
personally liable to the Fund or its shareholders for monetary damages (subject
to the requirements of the 1940 Act). This provision in the Fund's Articles of
Incorporation may not be amended to limit or eliminate the benefits provided to
Directors and officers in connection with any act or omission occurring before
the amendment. This provision applies to events occurring at the time a person
serves as a Director or officer, whether or not that person is a Director or
officer at the time of any proceeding in which liability is asserted.
Under the Fund's By-Laws, no Director, officer or employee will be indemnified
for any liabilities or expenses arising by reason of "disabling conduct,"
whether or not there is an adjudication of liability. "Disabling conduct" means
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of office. Whether liability arises from
disabling conduct may be determined: (a) by a final decision on the merits
(including, but not limited to, a dismissal for insufficient evidence of any
disabling conduct) by a court or other body that the person to be indemnified
was not eligible for indemnity because the liability arose by reason of
disabling conduct; or (b) in the absence of such a decision, by a reasonable
determination, based on a review of the facts, that the person is not eligible
for indemnity because the liability arose by reason of disabling conduct (i) by
the vote of a majority of a quorum of disinterested Directors; (ii) by
independent legal counsel in a written opinion if a quorum of disinterested
Directors so direct or if such a quorum is not obtainable; (iii) by majority
vote of the Fund's shareholders; or (iv) by any other reasonable and fair means.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or on a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that any liability or expense arose by
reason of disabling conduct.
No person who is or was a Director shall be indemnified under the Fund's By-Laws
for any liabilities or expenses incurred by reason of service in that capacity
if an act or omission of the Director was material to the matter giving rise to
the threatened or actual claim and that act or omission constituted disabling
conduct. The Fund may pay any liabilities or expenses in advance of the final
disposition of the claim as authorized by the Directors in the specific case:
(a) on receipt of a written affirmation by the indemnitee of his or her good
faith belief that his or her conduct met the standard
- 14 -
<PAGE>
of conduct necessary for indemnification; (b) on receipt of a written
undertaking by or on behalf of the indemnitee to repay the advance, unless it is
ultimately determined that that person is entitled to indemnification; and (c)
provided that (i) the indemnitee provides security for that undertaking, or (ii)
the Fund is insured against losses arising by reason of any lawful advances, or
(iii) a majority of a quorum of disinterested Directors, or independent legal
counsel in a written opinion, determines, based on a review of readily available
facts, that there is reason to believe that the indemnitee ultimately will be
found entitled to indemnification. Any such determination will not prevent the
recovery from any indemnitee of any amount advanced to that person as
indemnification if that person is subsequently determined not to be entitled to
indemnification. The indemnification provided by the By-Laws is not exclusive of
any rights to which those seeking indemnification may be entitled under any law,
agreement, vote of shareholders, or otherwise. The By-Laws do not authorize
indemnification inconsistent with the 1940 Act or the 1933 Act.
- --------------------------------------------------------------------------------
AUDITORS AND FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
_____________________________ are the independent accountants for the Fund,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
[financial statements to be filed by amendment]
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The Fund's Prospectus and Statement of Additional Information do not contain all
of the information set forth in the Registration Statement that the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by its rules and regulations. The complete
Registration Statement also is available on the Commission's website
(http:\\www.sec.gov).
- 15 -
<PAGE>
CypressTree Floating Income Fund
STATEMENT OF ADDITIONAL INFORMATION
[Date]
INVESTMENT ADVISER
CypressTree Investment Management Co.
125 High Street
Boston, Massachusetts 02110
ADMINISTRATOR
CypressTree Investment Management Co.
125 High Street
Boston, Massachusetts 02110
DISTRIBUTOR
CypressTree Funds Distributors, Inc.
125 High Street
Boston, Massachusetts 02110
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
INCLUDED IN PART A: None.
INCLUDED IN PART B: Report of Independent Accountants*
Statement of Assets and Liabilities*
(2) EXHIBITS:
(a) Articles of Incorporation*
(b) By-Laws*
(c) Not applicable
(d) Not applicable
(e) Dividend Reinvestment Plan*
(f) Not applicable
(g) Advisory Agreement dated ____________*
(h) Distribution Agreement dated ____________*
(i) Not applicable
(j) Custodial Agreement dated ____________*
(k) Administration Agreement dated ____________*
(l) Opinion and Consent of Counsel*
(m) Not applicable
(n) Consent of Independent Auditors*
(o) Not applicable
<PAGE>
(p) Subscription Agreement dated ____________*
(q) Not Applicable
(r) Financial Data Schedule*
(z)(1) Power of Attorney of Bradford K. Gallagher
(z)(2) Power of Attorney of William F. Devin
(z)(3) Power of Attorney of William F. Achtmeyer
(z)(4) Power of Attorney of Kenneth J. Lavery
*To be filed by amendment
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses incurred in connection
with the offerings of Registrant:
Registration fees..................................................$303.03
National Association of Securities Dealers, Inc. fees....................*
Printing and engraving expenses..........................................*
Fees and expenses of qualification under
state securities laws (excluding fees of counsel)......................*
Accounting fees and expenses.............................................*
Legal fees and expenses..................................................*
*To be supplied by amendment
<PAGE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Until such time as the Registrant completes the public offering of its
shares, CypressTree Investment Management Company ("CIMCO") will be a control
person of the Registrant. CIMCO is a wholly-owned subsidiary of Cypress Holding
Company, Inc. ("Cypress"), a Delaware corporation. Refer to the information set
forth under the caption "Advisory, Administration and Distribution Services" in
the Statement of Additional Information, constituting Part B of this
Registration Statement, which is incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Common Stock 1
ITEM 29. INDEMNIFICATION
The Registrant's Articles of Incorporation and By-Laws contain provisions
limiting the liability, and providing for indemnification, of the Directors and
officers under certain circumstances. Article IX of the Fund's Articles of
Incorporation, filed as Exhibit a to this Registration Statement, and Article
VIII of the Fund's By-Laws, filed as Exhibit b to this Registration Statement,
provide that the Fund shall indemnify its present and past Directors, officers,
employees and agents, and persons who are serving or have served at the Fund's
request in similar capacities for other entities to the maximum extent permitted
by applicable law (including Maryland law and the 1940 Act). Section 2-418(b) of
the Maryland General Corporation Law ("Maryland Code") permits the Fund to
indemnify its Directors unless it is established that the act or omission of the
Director was material to the matter giving rise to the preceding, and (a) the
act or omission was committed in bad faith or was the result of active and
deliberate dishonesty; (b) the Director actually received an improper personal
benefit in money, property or services or; or (c) in the case of any criminal
proceeding, the Director had reasonable cause to believe the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses incurred by the Director in connection with
a proceeding, in accordance with the Maryland Code. Pursuant to Section
2-418(j)(1) and Section 2-418(j)(2) of the Maryland Code, the Fund is permitted
to indemnify its officers, employees and agents to the same extent as its
Directors. The provisions set forth above apply insofar as consistent with
Section 17(h) of the 1940 Act, which prohibits indemnification of any Director
or officer of the Fund against any liability to the Fund or its shareholders to
which such director or officer otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Refer to the information set forth under the captions "Management of the Fund"
in the Prospectus and "Advisory, Administrative and Distribution Services" in
the Statement of Additional Information constituting Parts A and B,
respectively, of this Registration Statement, which summary is incorporated
herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by the
Registrant by Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be in the possession and custody of the Registrant's
custodian, _____________________, and its transfer agent,
_________________________, with the exception of certain corporate documents and
portfolio trading documents which are in the possession and custody of
CypressTree Investment Management Company ("CIMCO"), 125 High Street, Boston,
Massachusetts. Registrant is informed that all applicable accounts, books and
documents required to be maintained by registered investment advisers are in the
custody and possession of Cypress Holding Company and CIMCO.
ITEM 32. MANAGEMENT SERVICES
None.
ITEM 33. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To suspend the offering of shares until the prospectus is amended if
(1) subsequent to the effective date of its registration statement,
the net asset value declines more than 10% from
<PAGE>
its net asset value as of the effective date of the registration
statement or (2) the net asset value increases to an amount greater
than its net proceeds as stated in the prospectus.
(2) (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(1) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(2) To reflect in the prospectus any facts or events after the
effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(3) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) that, for the purpose of determining any liability under the 1993
Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(3) To send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of a written or
oral request, any Statement of Additional Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston and Commonwealth of Massachusetts on the 30th day of July, 1997.
CypressTree Floating Income
Fund, Inc.
By:
/s/ Bradford K. Gallagher*
--------------------------
Bradford K. Gallagher
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Bradford K. Gallagher* Director;
- ---------------------------- Chief Executive Officer
Bradford K. Gallagher July 30, 1997
/s/ William F. Devin* Director July 30, 1997
- ----------------------------
William F. Devin
/s/ William F. Achtmeyer* Director July 30, 1997
- ----------------------------
William F. Achtmeyer
/s/ Kenneth J. Lavery* Director July 30, 1997
- ----------------------------
Kenneth J. Lavery
/s/ Paul F. Foley* Principal Financial and July 30, 1997
- ---------------------------- Accounting Officer
Paul F. Foley
*BY /s/ John I. Fitzgerald, Attorney-in-Fact (pursuant to Power of Attorney
filed as an exhibit to this Registration Statement)
<PAGE>
EXHIBIT INDEX
-------------
EXHIBITS DESCRIPTION PAGE
-------- ----------- ----
99.1 Power of Attorney of
Bradford K. Gallagher
99.2 Power of Attorney of
William F. Devin
99.3 Power of Attorney of
William F. Achtmeyer
99.4 Power of Attorney of
Kenneth J. Lavery
LIMITED POWER OF ATTORNEY
WITH RESPECT TO CYPRESSTREE FLOATING INCOME FUND, INC.
Know all men by these presents that Bradford K. Gallagher, whose signature
appears below, hereby constitutes and appoints Jeffrey S. Garner, and John I.
Fitzgerald, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for CypressTree Floating Income Fund, Inc.,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
/s/ Bradford K. Gallagher
-------------------------
Bradford K. Gallagher
Director
CypressTree Floating Income Fund, Inc.
July 30, 1997
LIMITED POWER OF ATTORNEY
WITH RESPECT TO CYPRESSTREE FLOATING INCOME FUND, INC.
Know all men by these presents that William F. Devin, whose signature
appears below, hereby constitutes and appoints Jeffrey S. Garner, and John I.
Fitzgerald, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for CypressTree Floating Income Fund, Inc.,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
/s/ William F. Devin
-------------------------
William F. Devin
Director
CypressTree Floating Income Fund, Inc.
July 30, 1997
LIMITED POWER OF ATTORNEY
WITH RESPECT TO CYPRESSTREE FLOATING INCOME FUND, INC.
Know all men by these presents that William F. Achtmeyer, whose signature
appears below, hereby constitutes and appoints Jeffrey S. Garner, and John I.
Fitzgerald, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for CypressTree Floating Income Fund, Inc.,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
/s/ William F. Achtmeyer
-------------------------
William F. Achtmeyer
Director
CypressTree Floating Income Fund, Inc.
July 30, 1997
LIMITED POWER OF ATTORNEY
WITH RESPECT TO CYPRESSTREE FLOATING INCOME FUND, INC.
Know all men by these presents that Kenneth J. Lavery, whose signature
appears below, hereby constitutes and appoints Jeffrey S. Garner, and John I.
Fitzgerald, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for CypressTree Floating Income Fund, Inc.,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
/s/ Kenneth J. Lavery
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Kenneth J. Lavery
Director
CypressTree Floating Income Fund, Inc.
July 30, 1997
