As filed with the Securities and Exchange Commission on March 26, 1998
1933 ACT FILE NO. 333-32529
1940 ACT FILE NO. 811-8309
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 3 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT
Under
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 3 [X]
(Check appropriate box or boxes)
CypressTree Senior Floating Rate Fund, Inc.
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(Exact name of registrant as specified in Charter)
125 High Street
Boston, Massachusetts 02110
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(Address of Principal Executive Officers)
Registrant's telephone number, including area code (617) 946-0600
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Bradford K. Gallagher
President
CypressTree Senior Floating Rate Fund, Inc.
125 High Street
Boston, Massachusetts 02110
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(Name and Address of agent for service)
Approximate date of proposed public: 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]
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933
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<TABLE>
<CAPTION>
Proposed* Proposed*
Amount of Maximum Maximum Amount of
Shares Being Offering Price Aggregate Registration
Title of Securities Being Registered Registered Per Unit Offering Price Fee
<S> <C> <C> <C> <C>
Common Stock (par value $0.01 per share) 10,000,000 $ 10.00 $100,000,000 $ 29,500*
</TABLE>
*Estimated solely for the purpose of calculating the registration fee. $303.63
has previously been paid.
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.
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<PAGE>
CypressTree Senior Floating Rate Fund
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-2
<TABLE>
<CAPTION>
Part A-
Item No. Item Caption Prospectus Caption
<S> <C> <C>
1. Outside Front Cover Cover Page
2. Inside Front and Outside Back Cover Page Cover Page
3. Fee Table and Synopsis Fund Expenses; Summary
4. Financial Highlights Not Applicable
5. Plan of Distribution How to Buy Fund Shares; Management of
the Fund
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds
8. General Description of the Registrant Description of Shares; Repurchase Offers;
Investment Objectives; Investment Policies;
Investments; Risk Factors
9. Management Management of the Fund; Valuing Fund
Shares; How to Buy Fund Shares
10. Capital Stock, Long-Term Debt, and Description of Shares; Valuing Fund
Other 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
</TABLE>
<TABLE>
<CAPTION>
Part B-
Item No. Item Caption Statement of Additional Information Caption
<S> <C> <C>
14. Cover Page Cover Page
15. Table of Contents Table of Contents
16. General Information and History The Fund
17. Investment Objective and Policies Investment Restrictions and Fundamental
Policies; Repurchase Offer Fundamental
Policy
18. Management Management
19. Control Persons and Principal Holders Management; Outside Back Cover Page
of Securities
20. Investment Advisory and Other Services Advisory, Administration and Distribution
Services; Custodian; Auditors and Financial
Statements
21. Brokerage Allocation and Other Practices Portfolio Transactions
22. Tax Status Taxes
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
Subject to Completion, dated March 26, 1998
[LOGO]
CypressTree Senior Floating Rate Fund, Inc.
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The CypressTree Senior Floating Rate 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 Asset Management Corporation, Inc. ("CAM")
is the Fund's investment adviser. CAM has engaged CypressTree Investment
Management Company, Inc. ("CypressTree") as subadviser to manage the investment
of the Fund's assets.
In order to provide liquidity to shareholders, the Fund will make monthly
Repurchase Offers for a percentage of its outstanding shares, which is
generally expected to be 10%. See "Repurchase Offers" on page 13.
Shares of the Fund involve investment risks, including the possible loss
of some or all of the principal investment. The Fund may invest all or
substantially all of its assets in securities that are rated below investment
grade by a nationally recognized statistical rating organization, or in
comparable unrated securities. See "Risk Factors" on page 10. The Fund may
borrow, primarily in connection with the Fund's monthly Repurchase Offers for
its shares. See "Repurchase Offers" on page 13 and "Borrowing by the Fund" on
page 13.
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.
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 286 Congress Street,
Boston, Massachusetts 02210 ((800) 860-5575). The Statement of Additional
Information and other information about the Fund also are available on the
Commission's website (http://www.sec.gov).
The Repurchase Request Date will be the last business day of each month.
The Repurchase Price will be the Fund's net asset value as determined after the
close of business on the Pricing Date, which, under normal circumstances, is
expected to be the Repurchase Request Date. The Fund generally will pay
repurchase proceeds on the next business day following the Pricing Date, and,
in any event, within five business days (or seven calendar days, whichever is
shorter) of the Pricing Date. The first Repurchase Request Date is expected to
be .
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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<TABLE>
<CAPTION>
PRICE TO PROCEEDS TO
PUBLIC(1) SALES LOAD(2) FUND(3)
---------------- --------------- ----------------
<S> <C> <C> <C>
Per Share $ 10.00 None $ 10.00
- ----------- ------------ --------------- ------------
Total $100,000,000 None $100,000,000
=========== ============ =============== ============
</TABLE>
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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 from
its own assets.
(3) Assuming the sale of all shares registered hereby, and exclusion of
approximately $250,000 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.
CypressTree Funds Distributors, Inc.
PROSPECTUS DATED
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 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 or 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>
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Fund Expenses ........................................................ 3
Summary .............................................................. 4
The Fund ............................................................. 6
Investment Objective ................................................. 6
Use of Proceeds ...................................................... 6
Investment Policies .................................................. 6
Investments .......................................................... 6
Risk Factors ......................................................... 10
Repurchase Offers .................................................... 13
Management of the Fund ............................................... 16
Valuing Fund Shares .................................................. 17
Performance Information .............................................. 18
How to Buy Fund Shares ............................................... 19
Shareholder Services ................................................. 19
Distributions ........................................................ 20
Taxes ................................................................ 21
Description of Shares ................................................ 22
Reports to Shareholders .............................................. 23
Appendix A--Description of Ratings ................................... 24
Table of Contents of the Statement of Additional Information ......... 25
</TABLE>
2
<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, this information is based on
estimated amounts for the fiscal year ending December 31, 1998 after expense
reimbursement.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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<S> <C>
Sales Load (as a percentage of offering price) .......... None
Dividend Reinvestment Fees .............................. None
ANNUAL FUND EXPENSES
(as a percentage of average net assets attributable to common shares)*
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Management Fee .......................................... 0.85%**
Interest Payments on Borrowed Funds ..................... 0.00%
Other Expenses (including administration fee of .40%**)
(after reimbursement) .................................. 0.65%***
Service Fee ............................................. None
Early Withdrawal Charge ................................. None
Total Annual Expenses ................................... 1.50 %
*See "Management of the Fund" for additional information.
</TABLE>
**The management fee and administration fee are based on a percentage of the
Fund's average daily gross assets, (gross assets are total assets minus all
liabilities except debt).
***The Fund's investment adviser has agreed to reimburse the Fund's expenses to
the extent necessary so that total annualized Fund expenses do not exceed 1.50%
of average daily gross assets (gross assets are total assets minus all
liabilities except debt). Absent such reimbursement, estimated expenses would
be: management fee of 0.85%, interest payments on borrowed funds of 0.00%,
administration fee of 0.40%, service fee of 0.00%, and other expenses of 0.30%;
and total annual expenses of 1.55%. This agreement may be terminated by CAM at
any time after December 31, 1998 on thirty (30) days' written notice.
<TABLE>
<CAPTION>
EXAMPLE
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
assuming 5% annual return ......... $15 $48 $84 $191
</TABLE>
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.
3
<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"). See "Investment Objective" on page 6.
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. In selecting Loans, the
Fund will employ credit standards established by CypressTree.
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, invested in investment grade short-term debt and medium term obligations,
and invested in unsecured senior floating rate loans. See "Investment Policies"
on page 6.
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, which is generally expected to be 10%. If a Repurchase Offer is
oversubscribed the Fund will repurchase shares pro rata, and may repurchase up
to an additional 2% of outstanding shares during any three-month period.
The "Repurchase Request Date" will be the last business day of each month.
The Repurchase Price will be the Fund's net asset value as determined after the
close of business on the Pricing Date, which, under normal circumstances, is
expected to be the Repurchase Request Date. 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 Pricing Date (the "Repurchase Payment Deadline").
Shareholders will be sent notification of each upcoming Repurchase Offer 7 to
14 days before the next Repurchase Request Date. See "Repurchase Offers" on
page 13.
Investment Management
CAM is the Fund's investment adviser. CypressTree, as subadviser to the
Fund, is responsible for managing the investment and reinvestment of the Fund's
assets. See "Management of the Fund" on page 16.
CypressTree was founded in 1996 by Bradford K. Gallagher and Jeffrey S.
Garner as the nation's first independent investment advisory firm specializing
in the loan asset class. Mr. Garner was, prior to the establishment of
CypressTree, the portfolio manager for the Eaton Vance Senior Debt Portfolio
and its predecessor fund, Eaton Vance Prime Rate Reserves, since its inception
in 1989. CypressTree currently has approximately $650 million in assets under
management. See "Management of the Fund--Portfolio Manager."
Risk Factors
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. As a
newly organized entity, the Fund has no operating history.
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
10.
The Fund may invest all or substantially all of its assets in Loans or
other securities that are rated below investment grade, or in comparable
unrated securities. Loans made in connection with recapitalizations,
acquisitions, leveraged buy-outs, and refinancings are subject to greater
credit risks than other Loans in which the Fund may
4
<PAGE>
invest. It is expected that the Fund's Loans will consist primarily of such
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.
How to Buy Fund Shares
Investors may purchase shares directly by check or by wire by mailing a
completed application to the Fund's Transfer Agent or through Authorized
Intermediaries. Investors may be charged a fee if they effect transactions
through a broker or agent. An initial investment in the Fund must be at least
$5,000, and additional investments must be at least $500. There is a $100
minimum initial and $50 additional investment requirement for purchases in
connection with tax-sheltered 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 19.
- ------------
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.
5
<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"). 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 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 (i.e., senior secured floating rate loans and other
institutionally traded secured floating rate debt obligations). The Fund may
invest up to 20% of the Fund's total assets in cash, in investment grade
short-term and medium-term debt obligations, or in senior unsecured floating
rate loans ("Unsecured Loans").
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. Loans in which the Fund will invest are
primarily highly leveraged Loans made in connection with recapitalizations,
acquisitions, leveraged buyouts, and refinancings.
In selecting Loans, the Fund will employ credit standards established by
CypressTree. The Fund will purchase Loans only if, in CypressTree'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 CypressTree, 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 CypressTree
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. The Fund has no minimum rating requirement for Loans. 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, CypressTree
will perform its own independent credit analysis of the Borrower. CypressTree'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. CypressTree will use information prepared and
supplied by the Agent (as defined below) or other participants in the Loans.
CypressTree will continue to analyze in a similar manner on an ongoing basis
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 CypressTree 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 fully
secured. The Fund will not necessarily dispose of such a Loan, even if the
collateral impairment would result in the Fund having less than 80% of its
assets in fully secured Loans.
6
<PAGE>
The Loans typically will have a stated term of five to nine years.
However, because the Loans are frequently prepaid, their average credit
exposure is expected to be two to three years. The degree to which Borrowers
prepay Loans, whether as a 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") for 90-day dollar deposits, 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, under Loan Agreements, the Agent is
given broad discretion in monitoring the Borrower's performance under the Loan
Agreement and is obligated to use only the same care it would use in the
management of its own property. Upon an event of default, the Agent typically
will act to enforce the Loan Agreement after instruction from lenders holding a
majority of the Loan. 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
7
<PAGE>
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 the entity selling the
Participation. 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.
CypressTree 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.,
(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 CypressTree 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, CypressTree 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 when
CypressTree 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, such as,
under a revolving credit facility that is not fully drawn down to fund
additional amounts under the terms of the facility. The Fund will not invest in
Loans that would require the Fund to make any additional investments in
connection with future advances if such 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.
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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,
amendment 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 CypressTree 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 CypressTree 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 CypressTree
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 CypressTree 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 CypressTree 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.
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
CypressTree 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 may be greater risk in valuing and monitoring the value of
collateral underlying Loans to non-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. The Fund will not invest in
Unsecured Loans of non-U.S. Borrowers.
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,
CypressTree 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.
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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 CypressTree's judgment, may enhance the value of a Loan or otherwise would
be consistent with the Fund's investment policies.
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
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CypressTree expects that, because the Fund's assets will consist primarily
of Loans which are floating rate instruments, 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. As a newly organized
entity, the Fund has no operating history. The Fund is not a money market fund
and its net asset value will fluctuate.
Credit Risk
Under normal conditions, the Fund will invest at least 80% of its assets
in Loans. 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, CypressTree actively manages the Fund as
described above.
Loans made in connection with recapitalizations, acquisitions, leveraged
buy-outs, and refinancings are subject to greater credit risks than other Loans
in which the Fund may invest. It is expected that the Fund's Loans will consist
primarily of such 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.
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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 CypressTree
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 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.
Investments in Lower Quality Securities
The Fund may invest all or substantially all of its assets in Loans or
other securities that are rated below investment grade by Moody's Investors
Service, comparably rated by another nationally recognized statistical rating
organization, or, if unrated, deemed by CypressTree to be of equivalent
quality. Debt rated Baa or higher by Moody's is considered to be investment
grade. Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated Ba or B by Moody's is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and to repay principal in accordance with the terms of the obligation. While
lower-quality debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Securities rated Ba and lower are the
equivalent of high-yield, high-risk bonds, commonly known as "junk bonds," and
involve a high degree of risk. CypressTree does not expect to invest in any
securities rated lower than B3 at the time of investment. See "Appendix
A--Description of Ratings" for a full description of Moody's long-term debt
ratings. In the event of a downgrade in a Loan, CypressTree will consider
whether to dispose of that Loan.
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates.
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The market values of lower-quality debt securities tend to reflect
individual developments of the issuer to a greater extent than do
higher-quality securities, which react primarily to fluctuations in the general
level of interest rates. In addition, lower-quality debt securities tend to be
more sensitive to economic conditions and generally have more volatile prices
than higher-quality securities. During an economic downturn or a sustained
period of rising interest rates, issuers of lower-quality debt securities may
not have sufficient revenues to meet their interest payment obligations. The
issuer's ability to service its debt obligations may also be adversely affected
by specific developments affecting the issuer, such as the issuer's inability
to meet specific projected business forecasts or the unavailability of
additional financing.
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. 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 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."
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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
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 CypressTree'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 Request Date (as defined below under
"Repurchase Offers") or (b) will provide for its redemption, call, or repayment
by the Fund by the next Repurchase Request 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. Because the Fund is a closed-end fund, shareholders
will not be able to redeem their shares on a daily basis.
As explained in more detail below, the "Repurchase Request Date" will be
the last business day of each month. Under normal circumstances, it is expected
that the Fund will determine the net asset value applicable to repurchases
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on that date. The Fund expects to distribute payment on the next business day,
and will distribute payment on or before the Repurchase Payment Deadline, which
is no later than five business days (or seven calendar days, whichever period
is shorter) after the Pricing Date. Shareholders will be sent notification of
the next Repurchase Offer 7 to 14 days prior to the next Repurchase Request
Date. 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.
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 Request Date. Currently, the Fund is subject to
an undertaking that the Repurchase Amount will not exceed 10%.
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") 7 to 14 days before the next Repurchase Request Date. The
Notification will provide information about the Repurchase Offer, including the
Repurchase Amount, the Repurchase Request Date, and the means by which
shareholders may obtain the Fund's net asset value.
Shareholders who wish to tender shares for repurchase must notify the Fund
or their Authorized Intermediary on or before the Repurchase Request Date in a
manner designated by the Fund. THE REPURCHASE REQUEST DATE IS A DEADLINE THAT
WILL BE STRICTLY OBSERVED. Shareholders and Authorized Intermediaries that fail
to submit Repurchase Requests in good order by this deadline will be unable to
liquidate shares until a subsequent repurchase offer.
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 Request 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 Pricing Date. Under normal
circumstances, it is expected that the Pricing Date generally will be the
Repurchase Request Date. In no event will the Pricing Date be more than three
business days after the Repurchase Request Date. The Fund will compute net
asset value daily (as described under "Valuing Fund Shares"), and shareholders
may obtain daily net asset value by calling 800-860-5575.
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.
Payment
The Fund expects to distribute payment on the next business day after the
Pricing Date; in any event, the Fund will pay repurchase proceeds no later than
the Repurchase Payment Deadline, which is five business days (or seven calendar
days, whichever is shorter) after the Pricing Date. Repurchase proceeds will be
paid by wire transfer or check.
Oversubscribed Repurchase Offers; Pro Rata Allocation
In any given month, shareholders may tender a number of shares that
exceeds the Repurchase Offer Amount (this prospectus refers to this situation
as an "Oversubscribed Repurchase Offer"). In the event of an Oversubscribed
Repurchase Offer, the Fund may repurchase additional shares in excess of 10%
but only up to a maximum aggregate of two percent of the shares outstanding for
any three consecutive Repurchase Offers ("Additional Repurchase Amount").
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For example, if in Month 1 the Fund offers to repurchase 10% of shares
outstanding, and shareholders tender 11%, the Fund could determine to
repurchase the extra 1% of shares outstanding. In that event, over the next two
repurchase offers, the Fund only would be able to repurchase an aggregate of 1%
of shares outstanding pursuant to an Oversubscribed Repurchase Offer. 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 pro rata
allocation 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 ("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 Request Date will be the last business
day of the month, and that the Pricing Date will be no later than three
business days after the Repurchase Request Date. Under the Repurchase Policy,
the Repurchase Amount may be from 5% to the 25% of the Fund's shares
outstanding on the Repurchase Request Date. The Fund's undertaking to limit the
Repurchase Amount to 10% is not part of the Repurchase Policy and may be
changed without a shareholder vote. The Fund also may offer to repurchase its
shares on a discretionary basis, not pursuant to its fundamental policy, not
more frequently than once every two years.
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 Pricing
Date. The Fund will ensure that a 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 Request 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;
15
<PAGE>
(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 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.
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
- --------------------------------------------------------------------------------
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.
Advisory Arrangements
CAM is the investment adviser for the Fund. CAM was formed in 1996,
together with CypressTree Funds Distributors, Inc. ("Distributors"), to advise
and distribute mutual funds through broker-dealers, banks and other
intermediaries. CAM and Distributors are wholly-owned subsidiaries of
CypressTree Investments, Inc., an affiliate of Cypress Holding Company, Inc.,
which is controlled by its management and Berkshire Fund IV, L.P. The address
of CAM is 125 High Street, Boston, Massachusetts 02110, and the address of
Distributors is 286 Congress Street, Boston, Massachusetts 02210. CAM also
serves as investment adviser to an open-end series fund with 15 separate
investment portfolios managed by ten different subadvisers, with approximately
$1 billion in aggregate assets.
Pursuant to its advisory agreement with the Fund (the "Advisory
Agreement"), CAM oversees the administration of certain aspects of the business
and affairs of the Fund, and selects, contracts with and compensates the
subadviser to manage the Fund's assets. CAM monitors the compliance of the
subadviser with the investment objectives and related policies of the Fund,
reviews the performance of the subadviser and reports periodically on such
performance to the Board of Directors. CAM permits its directors, officers and
employees to serve as directors or officers of the Fund, without cost to the
Fund.
As compensation for its services, CAM receives from the Fund an annual fee
paid monthly equal to the following percentage of average daily gross assets,
depending on the size of the Fund: 0.85% for the first $1 billion of average
daily gross assets; 0.80% for average daily gross assets of between $1 billion
and $2 billion; and 0.75% for average daily gross assets of more than $2
billion. For purposes of computing the advisory fee, average daily gross assets
are determined by deducting from total assets of the Fund all liabilities
except the principal amount of any indebtedness from money borrowed, including
debt securities issued by the Fund.
CAM has agreed to waive a portion of its advisory fee or reimburse the
Fund in order to prevent the total expenses of the Fund, excluding taxes,
portfolio brokerage commissions, interest, certain litigation and
indemnification expenses, and extraordinary expenses, from exceeding 1.50% of
average daily gross assets. This agreement may be terminated by CAM at any time
after December 31, 1998 on thirty (30) days' written notice.
CypressTree has been retained by CAM as the subadviser to the Fund to
manage the investment and reinvestment of the Fund's assets. CypressTree was
founded in 1996 as the nation's first independent investment advisory firm
specializing in the loan asset class and currently has $650 million in assets
under management. CypressTree is a wholly-owned subsidiary of Cypress Holding
Company, Inc.
Pursuant to a subadvisory agreement between CAM and CypressTree (the
"Subadvisory Agreement"), CypressTree selects the investments made by the Fund
and establishes and applies credit standards applicable to the Fund's
investments in Loans. See "Investment Policies." As compensation for its
services as subadviser,
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<PAGE>
CypressTree receives from CAM an annual fee paid monthly equal to the following
percentage of average daily gross assets, based on the size of the Fund: 0.45%
for the first $1 billion of average daily gross assets; 0.40% for average daily
gross assets between $1 billion and $2 billion; and 0.35% for average daily
gross assets of more than $2 billion. Average daily gross assets are computed
as described above. The fee to CypressTree is paid by CAM and is not an
additional charge to the Fund or its shareholders. For further information, see
"Advisory, Administration and Distribution Services" in the Statement of
Additional Information.
Portfolio Manager
Jeffrey S. Garner, age 41, is the Fund's portfolio manager. Mr. Garner has
been employed as CypressTree's Chief Investment Officer since 1996. From 1989
to 1996, Mr. Garner 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").
Administration Agreement
CAM will act as the Fund's Administrator under an Administration Agreement
(the "Administration Agreement"). Under the Administration Agreement, CAM is
responsible for managing the Fund's business affairs, subject to supervision by
the Fund's Board of Directors. CAM 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 CAM an annual fee paid
monthly equal to 0.40% annually of the average daily gross assets of the Fund
as compensation under the Administration Agreement. In calculating the Fund's
average daily gross assets, all liabilities are deducted from total assets,
except the principal amount of any indebtedness for money borrowed, including
debt securities that the Fund has issued.
Fund Costs and Expenses
The Fund will be responsible for all of its costs and expenses not
expressly stated to be payable by CAM under the Advisory Agreement or the
Administration Agreement or by Distributors under its Distribution Agreement.
See "Advisory, Administration and Distribution Services" in the Statement of
Additional Information.
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VALUING FUND SHARES
- --------------------------------------------------------------------------------
The Fund values its shares once on each day the New York Stock Exchange
("NYSE") is open for trading as of close of regular trading on the exchange.
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 State Street Bank &
Trust Company (as agent for the Fund) in the manner authorized by the Fund's
Board of Directors. State Street Bank & Trust Company also serves as Transfer
Agent and Custodian for the Fund and has custody of the Fund's assets. The
Custodian's address is 225 Franklin Street, Boston, Massachusetts 02110.
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 CAM, 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 CypressTree's opinion
and for which CypressTree 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.
17
<PAGE>
Loans for which an active secondary market does not exist to a reliable
degree in CypressTree's opinion will be valued at fair value, which is intended
to approximate market value. In valuing a Loan at fair value, CypressTree 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 the distribution amount 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, (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, (c) the
Prime Rate, quoted daily in The Wall Street Journal as the base rate on
corporate loans at large U.S. money center commercial banks, (d) one or more
averages compiled by Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market mutual
funds, (e) the average yield reported by the Bank Rate Monitor National IndexTM
for money market deposit accounts offered by the 100 leading banks and thrift
institutions in the ten largest standard metropolitan statistical areas, (f)
yield data published by Lipper Analytical Services, Inc., (g) the yield on an
investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding, or (h) the yield on an index of loan funds comprised of all
continually offered closed-end bank loan funds, as categorized by Lipper (the
"loan fund index"). In addition, the Fund may compare the Prime Rate, the
Donoghue's averages and the other yield data described above to each other.
Yield comparisons should not be considered indicative of the Fund's yield or
relative performance for any future period.
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. The Fund may include information about the
total return on the loan fund index, and compare that to the total return of
the Fund and other indices.
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.
18
<PAGE>
Finally, the Fund may include information on the history of the Fund's net
asset value per share and the net asset value per share of the loan fund index,
including comparisons between them, in advertisements and other material
furnished to present and prospective shareholders. 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. Shares may be purchased directly,
through CypressTree Funds Distributors ("Distributors"), or from certain
financial services firms that have sales agreements with Distributors
("Authorized Intermediaries"). Investors may be charged a fee if they effect
transactions through a broker or agent. The Fund does not currently intend to
list its shares on any national securities exchange or inter-dealer quotation
system. Shares of the Fund also are available for purchase by retirement plans
and trusts created under the Uniform Gifts to Minors Act.
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 a $100 minimum initial and $50 additional
investment requirement for purchases in connection with tax-sheltered
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 in response to market conditions or otherwise, and may later resume the
continuous offering. 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.
Investors may purchase shares directly by check or by wire. Investors
should complete a Fund Application and mail it to the Fund's Transfer Agent,
State Street Bank & Trust Company. The Transfer Agent's address is Post Office
Box 8360, Boston, Massachusetts 02266-8360. 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 Senior Floating Rate 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.
- --------------------------------------------------------------------------------
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.
19
<PAGE>
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 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 account registration. 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 Post Office Box 8360, Boston, Massachusetts 02266-8360. 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 Post Office Box
8360, Boston, Massachusetts 02266-8360.
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. Once the $5,000 minimum investment has been made ($100 for
purchases in connection with tax-sheltered retirement accounts), shareholders
may make automatic cash investments of $50 or more each month or quarter from
the shareholder's bank account.
Tax-Sheltered Retirement Accounts
Shares of the Fund are available for purchase in connection with pension
and profit sharing plans, individual retirement account plans, and 403(b)
retirement plans. Detailed information concerning these plans and copies of the
plans are available from Distributors. This information should be read
carefully and consultation with an attorney or tax adviser may be advisable.
This information sets forth the service fee charged for retirement plans and
describes the federal income tax consequences of establishing a plan. Under
each tax-sheltered retirement account, all distributions will be automatically
reinvested in additional shares of the Fund.
- --------------------------------------------------------------------------------
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
20
<PAGE>
Agent has received funds for the 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 last 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.
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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 Internal Revenue Code (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 calendar 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 than one year and as
short-term capital gain or loss if held as a capital asset for one year or
less. If an individual shareholder has net capital gain in a taxable year and
recognizes long-term capital gains upon the disposition of shares, the tax
rates applicable to these long-term gains will vary based on whether the shares
have been held for more than one year but not more than 18 months, more than 18
months, or, starting in 2001, more than five years, with lower rates applicable
to longer holding periods. 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
21
<PAGE>
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 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 was
incorporated on July 16, 1997. 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 par value $0.01
per share, 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"):
(a) merger, consolidation, or statutory share exchange with or into any
person;
22
<PAGE>
(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.
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.
23
<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.
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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its long-term debt ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
24
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund .................................................... 1
Investment Restrictions and Fundamental Policies ............ 1
Repurchase Offer Fundamental Policy ......................... 2
Management .................................................. 3
Advisory, Administration and Distribution Services .......... 5
Portfolio Transactions ...................................... 6
Custodian ................................................... 7
Transfer Agent .............................................. 7
Liquidity Requirements ...................................... 7
Taxes ....................................................... 8
Performance Information ..................................... 9
Indemnification ............................................. 9
Auditors and Financial Statements ........................... 9
Statement of Assets and Liabilities--March 13, 1998 ......... 10
Notes to Financial Statement ................................ 10
Independent Auditor's Report ................................ 10
Other Information ........................................... 11
</TABLE>
25
<PAGE>
CypressTree Senior Floating Rate Fund
PROSPECTUS
[Date]
INVESTMENT ADVISER
CypressTree Asset Management Corporation, Inc.
125 High Street
Boston, Massachusetts 02110
INVESTMENT SUBADVISER
CypressTree Investment Management Company, Inc.
125 High Street
Boston, Massachusetts 02110
ADMINISTRATOR
CypressTree Asset Management Corporation, Inc.
125 High Street
Boston, Massachusetts 02110
DISTRIBUTOR
CypressTree Funds Distributors, Inc.
286 Congress Street
Boston, Massachusetts 02210
26
<PAGE>
Subject to Completion, dated March 26, 1998
STATEMENT OF
ADDITIONAL INFORMATION
[Date]
CypressTree Senior Floating Rate 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 SENIOR FLOATING RATE 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 800-860-5575.
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 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 or 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>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund .................................................... 1
Investment Restrictions and Fundamental Policies ............ 1
Repurchase Offer Fundamental Policy ......................... 2
Management .................................................. 3
Advisory, Administration and Distribution Services .......... 5
Portfolio Transactions ...................................... 6
Custodian ................................................... 7
Transfer Agent .............................................. 7
Liquidity Requirements ...................................... 7
Taxes ....................................................... 8
Performance Information ..................................... 9
Indemnification ............................................. 9
Auditors and Financial Statements ........................... 9
Statement of Assets and Liabilities--March 13, 1998 ......... 10
Notes to Financial Statement ................................ 10
Independent Auditor's Report ................................ 10
Other Information ........................................... 11
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
CypressTree Senior Floating Rate 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. 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 more of the voting securities present at the annual or a special
meeting of the Fund's shareholders, if the holders of more than 50 percent of
the Fund's outstanding voting securities are present or represented by proxy;
or (b) the vote of more than 50 percent of the Fund's outstanding voting
securities.
(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 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;
(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,
and in any event only to the extent that no more than 5% of its net assets
are committed to short sales;
(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
1
<PAGE>
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.
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 or in short sales, or 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
- --------------------------------------------------------------------------------
The Board of Directors has 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). The Repurchase Request Date will be the last business
day of the month. The Repurchase Offer Fundamental Policy also provides that
the repurchase pricing shall occur not later than three business days after the
Repurchase Request Date.
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 more of
the voting securities present at the annual or a special meeting of the Fund's
shareholders, if the holders of more than 50 percent of the Fund's outstanding
voting securities are present or represented by proxy; or (b) the vote of more
than 50 percent of the Fund's outstanding voting securities.
2
<PAGE>
- --------------------------------------------------------------------------------
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. CAM, CypressTree, or Cypress by virtue of
their affiliation with any one or more of the Fund, CAM, CypressTree, 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 (10/95-
125 High Street present); President, CypressTree Asset
Boston, MA 02110 Management Corp. (8/96-present);
President, CypressTree Investments, Inc. (12/96-
present); President, CypressTree Investment
Management Co. (8/96-present); President,
CypressTree Funds Distributors, Inc. (3/97-
present); President, Trustee, North American
Funds; (10/97-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, The
200 State Street Parthenon Group (8/91-present); Trustee, North
Boston, MA 02109 American Funds; Director, Bain & Company
(9/77-6/96)
William F. Devin 1938 Director Member, Board of Governors, Boston Stock
One Boston Place Exchange (1/85-present); Trustee, North
Boston, MA 02108 American Funds; Executive Vice President,
Fidelity Capital Markets Co. (12/66-12/96)
Kenneth J. Lavery 1949 Director Vice President, Massachusetts Capital Resource
420 Boylston Street Company (5/82-present); Trustee, North
Boston, MA 02116 American Funds
Jeffrey S. Garner* 1956 Executive Vice President; Vice President, Cypress Holding Company
125 High Street Portfolio Manager (8/96-present); Executive Vice President and
Boston, MA 02110 Chief Investment Officer, CypressTree
Investment Management Co. (8/96-present);
Vice President, CypressTree Funds Distributors,
Inc. (3/97-present); Vice President, Eaton Vance
Management (1/88-7/96)
Joseph T. Grause, Jr.* 1952 Executive Vice President Vice President, Cypress Holding Company
286 Congress Street (1/96-present); Treasurer, North American Funds
Boston, MA 02210 (10/97-present); Senior Vice President, Sales &
Marketing, First Data Investor Services Group
(5/93-11/95); Senior Vice President, Fidelity
Investments (6/76-5/93)
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)
Philip C. Robbins* 1967 Assistant Vice President Assistant Vice President, CypressTree
125 High Street Investment Management Co. (9/96-present);
Boston, MA 02110 Associate, Eaton Vance Management (9/91-8/96)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
- --------------------- -------- -------------------------- ---------------------------------------------------
<S> <C> <C> <C>
Joseph A. Germain* 1969 Assistant Vice President Associate, CypressTree Investment Management
125 High Street Co. (2/97-present); Supervisor, Investors Bank
Boston, MA 02110 & Trust Co. (3/94-1/97)
Thomas J. Brown* 1946 Assistant Treasurer Principal, Cypress Holding Company (7/97-
286 Congress Street present); Consultant (10/95-6/97); Executive
Boston, MA 02210 Vice President, Boston Company Advisors
(8/94-10/95); Executive Vice President/Chief
Financial Officer, Freedom Capital Management
(6/81-8/94)
Paul F. Foley* 1963 Treasurer Vice President, Cypress Holding Company
125 High Street (7/96-present); Financial Analyst. Fleet Financial
Boston, MA 02110 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); Secretary, North
Boston, MA 02110 American Funds (10/97-present); Executive Vice
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)
</TABLE>
Messrs. Devin (Chairman) and Lavery and Achtmeyer are members of the
Administration Committee of the Board of Directors. The Administration
Committee makes recommendations to the Directors regarding the selection of the
independent certified public accountants, reviews with the accountants and the
Fund Treasurer accounting and auditing practices and procedures, accounting
records, and internal accounting controls, reviews the Fund's advisory
contracts and advisory fees, and acts as nominating committee with regard to
disinterested directors.
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 to December 31,
1998, it is estimated that the Directors will earn the following compensation
in their capacities as Directors:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM FUND AND FUND
COMPENSATION COMPLEX PAID TO
NAME FROM FUND DIRECTORS*
- ----------------------- -------------- -------------------
<S> <C> <C>
Bradford K. Gallagher $ 0 $ 0
William F. Achtmeyer $7,800 $13,800
William F. Devin $7,800 $13,800
Kenneth J. Lavery $7,800 $13,800
</TABLE>
- ------------
*Includes compensation for service as director of the Fund and as trustee of
another investment company also advised by CAM.
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
4
<PAGE>
than 50% 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, CAM owns 100% of the issued and
outstanding shares of Shares of the Fund and, until the Fund completes the
public offering of its Shares, CAM will be deemed to control the Fund under the
1940 Act. See also "Advisory, Administration and Distribution Services."
- --------------------------------------------------------------------------------
ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES
- --------------------------------------------------------------------------------
CAM is the Fund's investment adviser and administrator under an investment
advisory agreement ("Advisory Agreement") and an administration agreement (the
"Administration Agreement") between CAM and the Fund. CAM is a Delaware
corporation founded in 1996, and is a general investment advisory firm. The
Directors of CAM are Bradford K. Gallagher and J. Christopher Clifford.
CypressTree serves as the Fund's subadviser under an investment
subadvisory agreement (the "Subadvisory Agreement") between CAM and
CypressTree. CypressTree 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 of Loans. Currently, CypressTree has approximately $650
million assets under management. The directors of CypressTree are Bradford K.
Gallagher and J. Christopher Clifford.
CAM is an affiliate of and CypressTree is a wholly-owned subsidiary of
Cypress Holding Company ("Cypress"). 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 15%) and Berkshire
Fund IV L.P., an investment partnership (approximately 56%). The remaining
stock of Cypress is owned by Cypress employees.
The Fund will be responsible for all of its costs and expenses not
expressly stated to be payable by CAM under the Advisory Agreement and the
Administration Agreement, by CypressTree under the Subadvisory Agreement, or by
Distributors under its Distribution Agreement. These costs and expenses may
include (without limitation): expenses of acquiring, holding and disposing of
securities and other investments, including brokerage commissions; shareholder
servicing expenses; 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 CAM, CypressTree 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; membership dues in investment company organizations;
communications equipment expenses; and any nonrecurring or extra-ordinary
expenses.
The Advisory Agreement, Subadvisory Agreement, and Administration
Agreement each will remain in effect until December 15, 1999. The Advisory
Agreement may be continued from year to year after December 15, 1999 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 CAM 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 Subadvisory
Agreement may be continued from year to year after December 15, 1999 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
CypressTree 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
Subadvisory Agreement will terminate automatically in the event of its
assignment. The Administration Agreement may be continued from year to year
after December 15, 1999 so long as the continuance is approved annually (a) by
the vote of a majority of the Fund's Directors who are not "interested persons"
of the Fund or CAM cast in person at a meeting specifically called for the
purpose of voting or such approval; and (b) by the vote of
5
<PAGE>
a majority of the Board of Directors or by the vote of a majority of the
outstanding Fund shares. Each agreement may be terminated at any time without
penalty on sixty (60) days' notice by the Directors or CAM or CypressTree, as
applicable, 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 CAM or CypressTree, as applicable, CAM or CypressTree, as
applicable, will not be liable to the Fund for any loss incurred.
CAM will receive fees under the Advisory Agreement and the Administration
Agreement. For a description of the compensation that the Fund pays CAM under
the Advisory Agreement and Administration Agreement, see the Fund's current
Prospectus.
CAM has agreed to reimburse the Fund's expenses to the extent necessary so
that total annualized Fund expenses do not exceed 1.50% of average daily gross
assets. If CAM had not agreed to reimburse these expenses, estimated Fund
expenses would be: management fee of 0.85%, interest payments on borrowed funds
of 0.00%, administration fee of 0.40%, service fee of 0.00%, and other expenses
of 0.30%; and total annual expenses of 1.55%. This agreement may be terminated
by CAM at any time after December 31, 1998 on thirty (30) days' written notice.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to policies established by the Board of Directors of the Fund and
oversight by CAM, CypressTree is primarily responsible for the execution of the
Fund's portfolio transactions. In executing such transactions, CypressTree
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 CypressTree 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, CypressTree 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 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, CypressTree
seeks to obtain the best results for the Fund. For the period from the start of
business to the date of this Statement of Additional Information, the Fund has
paid no brokerage commissions.
Consistent with the interests of the Fund, CypressTree may select brokers
to execute the Fund's portfolio transactions on the basis of the research and
brokerage services they provide to CypressTree 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 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 CypressTree under the Subadvisory 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 CypressTree
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 CypressTree to the Fund and its other clients. In
reaching this determination, CypressTree will not attempt
6
<PAGE>
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 CypressTree's
normal independent research activities. However, it enables CypressTree to
avoid the additional expenses that could be incurred if CypressTree tried to
develop comparable information through its own efforts.
The Fund will not purchase securities from its affiliates in principal
transactions.
CypressTree 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.
CypressTree may allocate brokerage transactions to broker-dealers that
have entered into arrangements with CypressTree 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 CypressTree 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 CypressTree believes it
is appropriate to do so, without regard to the length of time a particular
security may have been held. 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 CypressTree 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 CypressTree, 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 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
- --------------------------------------------------------------------------------
State Street Bank & Trust Company (the "Custodian"), acts as custodian for
the Fund. Its principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. 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 custody fees are
competitive within the industry.
CAM, CypressTree, and their affiliates and their officers and employees
from time to time have transactions with various banks, including the Fund's
Custodian. It is the opinion of CAM and CypressTree that the terms and
conditions of these transactions were not and will not be influenced by
existing or potential custodian or other relationships between the Fund and
these banks.
- --------------------------------------------------------------------------------
TRANSFER AGENT
- --------------------------------------------------------------------------------
State Street Bank & Trust Company serves as transfer and dividend paying
agent and as registrar. Its principal business address is Post Office Box 8360,
Boston, Massachusetts 02266-8360.
- --------------------------------------------------------------------------------
LIQUIDITY REQUIREMENTS
- --------------------------------------------------------------------------------
From the time that the Fund sends a Notification to shareholders until the
Pricing 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 Request Date and the next Repurchase Payment
Deadline; or (b) assets that mature by the next Repurchase Payment Deadline.
7
<PAGE>
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.
In supervising the Fund's operations and the actions of CAM and
CypressTree, 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; and (b) 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
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,
8
<PAGE>
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 CAM, CypressTree, their 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.
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
- --------------------------------------------------------------------------------
Under the Fund's By-Laws, each officer and director of the Fund will be
indemnified by the Fund to the full extent permitted under the General Laws of
the State of Maryland, except that such indemnity will not protect any such
person against any liability to the Fund or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Fund to indemnify
such person must be based upon the reasonable determination of independent
legal counsel or the vote of a majority of a quorum of the directors who are
neither "interested persons," as defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended, nor parties to the proceeding ("non-party
independent directors"), after review of the facts, that such officer or
director is not guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or on a plea of nolo contendere or its equivalent, will
not, of itself, create a presumption that any liability or expense arose by
reason of willful malfeasance, bad faith, gross negligence or reckless
disregard of the duties of the director's or officer's office.
Each officer and director of the Fund claiming indemnification will be
entitled to advances from the Fund for payment of the reasonable expenses
incurred by him or her in connection with proceedings to which he or she is a
party in the manner and to the full extent permitted under the General Laws of
the State of Maryland; provided, however, that the person seeking
indemnification will provide to the Fund a written affirmation of his or her
good faith belief that the standard of conduct necessary for indemnification by
the Fund has been met and a written undertaking to repay any such advance, if
it should ultimately be determined that the standard of conduct has not been
met, and provided further that at least one of the following additional
conditions is met: (a) the person seeking indemnification will provide a
security in form and amount acceptable to the Fund for his or her undertaking;
(b) the Fund is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, will determine, based on a review of facts
readily available to the Fund at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
The Fund may indemnify, make advances or purchase insurance to the extent
provided in its By-Laws on behalf of an employee or agent who is not an officer
or director of the Fund.
The indemnification provided by the Fund's 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 Fund's By-Laws do not
authorize indemnification inconsistent with the 1940 Act or the Securities Act
of 1933. Any indemnification provided by the Fund's By-Laws will continue as to
a person who has ceased to be a director, officer, or employee, and will inure
to the benefit of that person's heirs, executors and administrators. In
addition, no amendment, modification or repeal of the indemnification
provisions of the By-Laws will adversely affect any right or protection of an
indemnitee that exists at the time of the amendment, modification or repeal.
- --------------------------------------------------------------------------------
AUDITORS AND FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deloitte & Touche LLP 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. The auditors' address is 125 Summer Street, Boston,
Massachusetts 02110.
9
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES--March 13, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Cash $ 100,000
Deferred organization expenses (Note 2) 250,208
---------
Total assets 350,208
---------
LIABILITIES:
Accrued organization expenses 250,208
NET ASSETS (applicable to 10,000 shares of
Common Stock issued and outstanding) $ 100,000
=========
NET ASSET VALUE AND OFFERING PRICE
PER SHARE $ 10.00
=========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
1. CypressTree Senior Floating Rate Fund, Inc. ("the Fund"), a Maryland
corporation, was incorporated on July 16, 1997. The Fund has been inactive
since that date, except for matters relating to the Fund's establishment, the
designation and the registration under the Securities Act of 1933 of the Fund's
common stock ("shares") and the sale of shares ("initial shares") to
CypressTree Asset Management Corporation, Inc.
2. Organization expenses are being deferred and will be amortized on a
straight line basis over a period not to exceed five years, commencing on the
effective date of the Fund's initial offering of its shares. The amount paid by
the Fund on any withdrawal by the holder of the initial shares of any of the
respective initial shares will be reduced by a portion of any unamortized
organization expenses, equal to the proportion of the amount of the initial
shares withdrawn to the initial shares then outstanding.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
CypressTree Senior Floating Rate Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
CypressTree Senior Floating Rate Fund, Inc. as of March 13, 1998. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of CypressTree Senior Floating
Rate Fund, Inc. as of March 13, 1998, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
March 13, 1998
10
<PAGE>
- --------------------------------------------------------------------------------
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).
11
<PAGE>
CypressTree Senior Floating Rate Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
[Date]
INVESTMENT ADVISER
CypressTree Asset Management Corporation, Inc.
125 High Street
Boston, Massachusetts 02110
INVESTMENT SUBADVISER
CypressTree Investment Management Company, Inc.
125 High Street
Boston, Massachusetts 02110
ADMINISTRATOR
CypressTree Asset Management Corporation, Inc.
125 High Street
Boston, Massachusetts 02110
DISTRIBUTOR
CypressTree Funds Distributors, Inc.
286 Congress Street
Boston, Massachusetts 02210
12
<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:
<TABLE>
<S> <C>
(a)(1) Amended and Restated Articles of
Incorporation*
(b) By-Laws*
(c) Not applicable
(d) Not applicable
(e) Form of Dividend Reinvestment Plan*
(f) Not applicable
(g)(1) Form of Advisory Agreement**
(g)(2) Form of Sub Advisory Agreement**
(h)(1) Form of Distribution Agreement**
(h)(2) Form of Dealer Agreement*
(i) Not applicable
(j) Form of Custodian Agreement*
(k) Form of Administration Agreement**
</TABLE>
<TABLE>
<S> <C>
(l) Opinion and Consent of Counsel*
(m) Not applicable
(n) Consent of Independent Auditors*
(o) Not applicable
(p) Investment Letter*
(q) Model Retirement Plan*
(r) Financial Data Schedule (Not Applicable)
(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**
</TABLE>
*Filed herewith
**Previously filed
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:
<TABLE>
<S> <C>
Registration fees ............................................ $ 29,500
National Association of Securities Dealers, Inc. fees ........ $ 10,500
Printing and engraving expenses .............................. $ 5,000
Fees and expenses of qualification under state securities
laws (excluding fees of counsel) ..................................... $ 40,000
Accounting fees and expenses ................................. $ 1,000
Legal fees and expenses ...................................... $170,000
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Until such time as the Registrant completes the public offering of its
shares, the Registrant's adviser, CypressTree Asset Management Corporation,
Inc. ("CAM"), a Delaware corporation, will be a control person of the
Registrant. CAM is a wholly-owned subsidiary of CypressTree Investments, Inc.
("CypressTree"), a Delaware corporation based in Boston, Massachusetts.
CypressTree is also the parent company of CypressTree Funds Distributors, Inc.,
a Delaware corporation and the Registrant's distributor. CypressTree is an
affiliate of Cypress Holding Company, Inc., a Delaware corporation which is
controlled by its management and by Berkshire Fund IV, L.P. Berkshire Fund IV,
L.P., a Massachusetts investment partnership, is sponsored by Berkshire
Partners, L.L.C., a private equity investor based in Boston; the general
partner of Berkshire Fund IV, L.P. is Berkshire Investors, L.L.C. The largest
shareholders of Cypress Holding Company, Inc. are Bradford K. Gallagher (15%)
and Berkshire Fund IV L.P. (56%). The remaining stock of Cypress Holding
Company is owned by Cypress employees. The Registrant's subadviser, CypressTree
Investment Management Company, Inc. ("CypressTree"), a Delaware corporation, is
a wholly-owned subsidiary of Cypress Holding Company.
<PAGE>
The following is a list of the ownership interests in CypressTree Investments
as of February 17, 1998:
<TABLE>
<S> <C>
1. Cypress Holding Company, Inc. ......... 20.26%
2. Berkshire Fund IV, L.P. ............... 56.03%
3. Berkshire Investors, LLC .............. 2.61%
4. Standish, Ayer & Wood, Inc. ........... 20.00%
5. Employees and Management .............. 1.10%
</TABLE>
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
<S> <C>
Common Stock 1
</TABLE>
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.
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. For information as to the business, profession, vocation
or employment of a substantial nature of each director or officer of the
adviser or subadviser, reference is made to the respective Form ADV, as
amended, filed under the Investment Advisers Act of 1940.
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 transfer agent, State Street Bank & Trust Company,
with the exception of certain corporate documents and portfolio trading
documents which are in the possession and custody of CAM or CypressTree, 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 CypressTree.
<PAGE>
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 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 Amendment No. 3 to
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
26th day of March, 1998.
CypressTree Senior Floating Rate 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------- ---------------
<S> <C> <C>
/s/ Bradford K. Gallagher*
Director;
- ------------------------- Chief Executive Officer March 26, 1998
Bradford K. Gallagher
/s/ William F. Devin*
- -------------------------
William F. Devin Director March 26, 1998
/s/ William F. Achtmeyer*
- -------------------------
William F. Achtmeyer Director March 26, 1998
/s/ Kenneth J. Lavery*
- -------------------------
Kenneth J. Lavery Director March 26, 1998
/s/ Paul F. Foley* Principal Financial and
- ------------------------- Accounting Officer March 26, 1998
Paul F. Foley
</TABLE>
*BY /s/ John I. Fitzgerald, Attorney-in-Fact (pursuant to Power of Attorney
filed as an exhibit to this Registration Statement)
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
(March 1998)
ARTICLE I
The following are the amended and restated Articles of Incorporation of
the CypressTree Senior Floating Rate Fund, Inc., a Maryland corporation.
ARTICLE II
NAME
The name of the Corporation is CypressTree Senior Floating Rate Fund, Inc.
(the "Corporation").
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed is to act as
and to conduct the business of a closed-end management investment company under
the federal Investment Company Act of 1940, as amended, (the "1940 Act"). The
Corporation shall be authorized to exercise and enjoy all of the powers, rights
and privileges granted to, or conferred on, corporations by the General Laws of
the State of Maryland now or hereafter in force. The term "Charter" refers to
the Corporation's Articles of Incorporation, as amended from time to time, and
as supplemented by Articles Supplementary.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name of the resident agent of the Corporation in
this State is The Corporation Trust Incorporated, a corporation of this State,
and the post office address of the resident agent is 32 South Street, Baltimore,
Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is one billion (1,000,000,000) shares of capital
stock, of the par value of $0.01 per share and of the aggregate par value of
$10,000,000, all of which shares initially are classified as "Common Stock."
<PAGE>
(2) Without the assent or vote of the shareholders, the Board of Directors
may classify and reclassify any unissued shares of capital stock into one or
more additional or other classes or series as may be established from time to
time by setting or changing in any one or more respects the designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of stock and pursuant to such classification or reclassification
to increase or decrease the number of authorized shares of any existing class or
series.
(3) Unless otherwise expressly provided in the Corporation's Charter, the
holders of each class or series of capital stock shall be entitled to dividends
and distributions in such amounts and at such times as may be determined by the
Board of Directors, and the dividends and distributions paid with respect to the
various classes or series of capital stock may vary among such classes and
series.
(4) Each share of Common Stock shall have one vote, and, except as
otherwise provided in respect of any class of stock hereafter classified or
reclassified, the exclusive voting power for all purposes shall be vested in the
holders of the Common Stock.
(5) Except as otherwise provided in the Corporation's Charter, where any
provision of Maryland law requires a greater proportion than a majority of the
votes entitled to be cast in order to take or authorize any action,
notwithstanding such provision of Maryland law, any such action may be taken or
authorized by the Corporation on the affirmative vote of a majority of the votes
entitled to be cast on the matter (or by a majority of the votes entitled to be
cast thereon as a separate class).
(6) Unless otherwise expressly provided in the Corporation's Charter, in
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of all classes and series of
capital stock of the Corporation shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Corporation, to share
ratably in the remaining net assets of the Corporation.
(7) Any fractional shares shall carry proportionately all the rights of a
whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
(8) All persons who acquire capital stock in the Corporation shall acquire
the same subject to the provisions of the Corporation's Charter.
<PAGE>
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF
THE CORPORATION AND OF THE DIRECTORS AND SHAREHOLDERS
(1) The number of directors of the Corporation shall be three (3), which
number may be increased pursuant to the By-Laws of the Corporation but shall
never be less than three (3).
(2) Without the assent or vote of the shareholders, the Board of Directors
shall have the power to authorize the issuance from time to time of shares of
the capital stock of any class of the Corporation, whether now or hereafter
authorized, and securities convertible into shares of capital stock of the
Corporation or of any class or classes, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable.
(3) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the shareholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the 1940 Act.
(4) A director may be removed only with cause, and any such removal may be
made only by the vote of three-fourths (75%) of the shares of capital stock of
the Corporation outstanding and entitled to vote on the matter.
(5) The Corporation's books may be kept outside the state of Maryland at
such place or places as may be designated from time to time by the Board of
Directors or in the Corporation's By-Laws, subject to any provisions of Maryland
law.
(6) All corporate powers and authority of the Corporation shall be vested
in and exercised by the Board of Directors except as otherwise provided by
statute, the Corporation's Charter, or the Corporation's By-Laws. The
enumeration and definition of the particular powers of the Board of Directors
included in the Corporation's Charter shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or any
other Article of the Charter, or construed as or deemed by inference or
otherwise in any manner to exclude or limit any powers conferred on the Board of
Directors under the General Laws of the State of Maryland in force now or in the
future.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
Shareholders shall not have preemptive or preferential rights to acquire
or subscribe to any shares of capital stock of the Corporation, now or hereafter
to be authorized, or any notes, debentures, bonds or other securities
convertible into shares of capital stock,
<PAGE>
now or hereafter to be authorized, whether or not the issuance of any such
shares, or notes, debentures, bonds or other securities would adversely affect
the dividend or voting rights of such shareholder. Any or all such shares or
securities, whenever authorized, may be issued, or may be reissued and
transferred if such shares have been reacquired and have treasury status, to any
person, firm, corporation, trust, partnership, association or other entity for
such lawful consideration and on such terms as the Board of Directors determines
in its sole discretion without first offering the shares to any such holder. The
Board of Directors may issue shares of any class of the Corporation, or any
notes, debentures, bonds, other securities convertible into shares of a class,
either in whole or in part, to the existing shareholders.
ARTICLE VIII
DETERMINATION BINDING
The Board of Directors shall have the power to determine, in accordance
with generally accepted accounting principles, the Corporation's net income, its
total assets and liabilities, and the net asset value of the shares of capital
stock of the Corporation. The Board of Directors may delegate such power to any
one or more of the directors or officers of the Corporation, its investment
adviser, administrator, custodian, or depositary of the Corporation's assets, or
another agent of the Corporation appointed for such purposes.
ARTICLE IX
INDEMNIFICATION AND LIMITATION OF LIABILITY
(1) Each director and each officer of the Corporation shall be indemnified
by the Corporation to the fullest extent permitted by the General Laws of the
State of Maryland, subject to the requirements of the 1940 Act. This paragraph
shall not be construed as the exclusive means of indemnification of directors
and officers. The Corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and to such further extent as is
consistent with law. The Board of Directors may by By-Law, resolution, or
agreement make further provisions for indemnification of directors, officers,
employees, and agents to the fullest extent permitted by the General Laws of the
State of Maryland.
(2) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the 1940 Act, no director or officer of
the Corporation shall be personally liable to the Corporation or its security
holders for money damages. No amendment of the Corporation's Charter or repeal
of any provision of the Corporation's Charter shall limit or eliminate the
benefits provided to directors and officers under this provision in connection
with any act or omission that occurred prior to such amendment or repeal. This
provision applies to events occurring at the time a person serves as a director
or officer of the Corporation, whether or not that person is a director or
officer at the time of any proceeding in which liability is asserted.
(3) References to the General Laws of the State of Maryland in this
Article are to the law as from time to time amended. No further amendment of the
Corporation's Charter shall affect any right of any person under this Article
based on any event, omission, or proceeding prior to such amendment.
<PAGE>
ARTICLE X
PRIVATE PROPERTY OF SHAREHOLDERS
The private property of shareholders shall not be subject to the payment
of corporate debts to any extent whatsoever.
ARTICLE XI
CONVERSION TO OPEN-END COMPANY
Notwithstanding any other provisions of the Corporation's Charter, the
conversion of the Corporation from a "closed-end company" to an "open-end
company," as those terms are defined in Sections 5(a)(2) and 5(a)(1),
respectively, of the 1940 Act, shall require the affirmative vote or consent of
the holders of two-thirds (66 2/3%) of each class of capital stock outstanding
and entitled to vote unless such action has previously been approved, adopted,
or authorized by the affirmative vote of at least two-thirds of the total number
of directors fixed in accordance with the Corporation's By-Laws, in which case
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote on the matter shall be
required.
ARTICLE XII
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE XIII
CERTAIN TRANSACTIONS
(1) In addition to the affirmative vote of three-fourths (75%) of the
entire Board of Directors, the affirmative vote of at least (i) three-fourths
(75%) of each class of shares of capital stock of the Corporation outstanding
and entitled to vote on the matter and (ii) in the case of a "Business
Combination" (as defined below), two-thirds (66 2/3%) of each class of shares of
capital stock of the Corporation outstanding and entitled to vote on the matter,
excluding votes entitled to be cast by an "Interested Party" (as defined below)
who is, or whose "Affiliate" (as defined below), is a party to a Business
Combination or an Affiliate or associate of the Interested Party, shall be
required to advise, approve, adopt or authorize any of the following:
(a) a merger, consolidation or statutory share exchange of the
Corporation with or into another person;
<PAGE>
(b) issuance or transfer by the Corporation (in one or a series
of transactions in any 12 month period) of any securities of the
Corporation to any person or entity for cash, securities or other
property (or combination thereof) having an aggregate fair market
value of $1,000,000 or more, excluding issuances or transfers of
debt securities of the Corporation, sales of securities of the
Corporation in connection with a public offering, issuances of
securities of the Corporation pursuant to a dividend reinvestment
plan adopted by the Corporation, issuances of securities by the
Corporation on the exercise of any stock subscription rights
distributed by the Corporation and portfolio transactions
effected by the Corporation in the ordinary course of business;
(c) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Corporation (in one or a series of
transactions in any 12 month period) to or with any person or
entity of any assets of the Corporation having an aggregate fair
market value of $1,000,000 or more, except for portfolio
transactions (including pledges of portfolio securities in
connection with borrowings) effected by the Corporation in the
ordinary course of its business, and except for transactions
undertaken pursuant to the Corporation's fundamental policy to
conduct repurchase offers pursuant to Rule 23c-3 of the General
Rules and Regulations under the 1940 Act, as that rule may be
amended or re- designated from time to time and as modified by
exemptive orders issued by the U.S. Securities and Exchange
Commission;
(d) the voluntary liquidation or dissolution of the Corporation,
or an amendment to the Corporation's Charter to terminate the
Corporation's existence; or
(e) unless the 1940 Act or federal law requires a lesser vote,
any shareholder proposal as to specific investment decisions made
or to be made with respect to the Corporation's assets as to
which shareholder approval is required under federal or Maryland
law.
(2) However, the three-fourths (75%) and two-thirds (66 2/3%) shareholder
votes will not be required by this Article XIII with respect to any of the above
described transactions (other than those set forth in (e) above) if they are
approved by a vote of three-fourths (75%) of the Continuing Directors (as
defined below), including a majority of the Continuing Directors who are not
"interested persons" of the Corporation, as that term is defined in the 1940
Act.
(3) For the purposes of this Article XIII, the following terms shall have
the following meaning:
<PAGE>
(a) "Affiliate" has the meaning ascribed to that term in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended;
(b) "Business Combination" means any of the transactions
described in clauses (1)(a), (1)(b), or (1)(c) of this Article
XIII;
(c) "Continuing Director" means any member of the Board of
Directors of the Corporation who is not an Interested Party or an
Affiliate of an Interested Party and has been a member of the
Board of Directors for a period of at least 12 months, or has
been a member of the Board of Directors since the date of these
Articles of Incorporation, or is a successor of a Continuing
Director who is unaffiliated with an Interested Party and is
recommended to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors;
(d) For purposes of this Article XIII, the term "Corporation"
includes the Corporation and/or any or all of its subsidiaries;
(e) "Interested Party" means any person, other than an investment
company advised by the Corporation's initial investment manager
or any of its Affiliates, which enters, or proposes to entire,
into a Business Combination with the Corporation.
(4) The Board of Directors will have the power and duty to determine for
the purposes of this Article XIII on the basis of information known to them,
whether (i) a corporation, person or entity is an Affiliate of another, or (ii)
the assets being sold or acquired or leased to or by the Corporation have an
aggregate fair market value of less than $1,000,000. Any such determination
shall be conclusive and binding for all purposes of this Article XIII.
ARTICLE XIV
CONSENT OF SHAREHOLDERS
Notwithstanding any other provisions of the Corporation's Charter or
By-Laws, any action taken by the written consent of the holders of the
outstanding shares of the capital stock of the Corporation must be taken by
unanimous written consent of the holders of the outstanding shares of capital
stock of the Corporation entitled to be voted on the matter.
ARTICLE XV
SHAREHOLDER MEETINGS
The Corporation shall not hold annual meetings of shareholders in any year
in which the election of directors is not required to be acted on under the 1940
Act.
<PAGE>
ARTICLE XVI
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Corporation's Charter, in the manner now or hereafter
prescribed by statute, including any amendment that alters the contract rights,
as expressly set forth in the Corporation's Charter, of any outstanding stock
and substantially adversely affects the shareholders' rights, and all rights
conferred upon shareholders herein are granted subject to this reservation.
Notwithstanding any other provisions of the Corporation's Charter or By-Laws
(and notwithstanding the fact that a lesser percentage may be specified by law,
the Corporation's Charter or By-Laws), the amendment or repeal of Section (5) of
Article V, Section (1), Section (3), Section (4) of Article VI, Article IX,
Article X, Article XII, Article XIV, and this Article XVI of these Articles of
Incorporation shall require the affirmative vote of the holders of at least
two-thirds (66 2/3%) of the outstanding shares of capital stock of the
Corporation entitled to be voted on the matter. Notwithstanding any other
provisions of the Corporation's Charter or By-Laws (and notwithstanding the fact
that a lesser percentage may be specified by law, the Corporation's Charter or
By-Laws), the amendment or repeal of Article XI and this sentence of this
Article XVI shall require the affirmative vote or consent of the holders of at
least two-thirds (66 2/3%) of each class of the Corporation's shares of capital
stock outstanding and entitled to vote on the matter, voting separately.
Notwithstanding any other provisions of the Corporation's Charter or By-Laws
(and notwithstanding the fact that a lesser percentage may be specified by law,
the Corporation's Charter or By-Laws), the amendment or repeal of Article XIII
and this sentence of this Article XVI shall require the affirmative vote of the
holders of at least three-fourths (75%) of each class of outstanding shares of
capital stock of the Corporation outstanding and entitled to vote on the matter.
BY-LAWS
OF
CYPRESSTREE SENIOR
FLOATING RATE FUND, INC.
MARCH 10, 1998
<PAGE>
March 10, 1998
BY-LAWS
OF
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
ARTICLE I
Offices
-------
Section 1. The principal office of the Corporation in the
State of Maryland shall be in Baltimore, Maryland.
Section 2. The Corporation shall also maintain an office at 125 High
Street, Boston, Massachusetts 02110, and also may have offices at any other
places in or out of the State of Maryland as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Shareholders
------------------------
Section 1. Meetings of shareholders shall be held at the office of the
Corporation in Boston, Massachusetts, or at any other place within the United
States as shall be designated from time to time by the Board of Directors and
stated in the notice of meeting or in a duly executed waiver of notice of
meeting.
Section 2. The Corporation is not required to hold an annual meeting in
any year in which the election of directors is not required by the Investment
Company Act of 1940, as amended (the "1940 Act"). If the Corporation is required
to hold a meeting of shareholders to elect directors, the meeting shall be
designated as the annual
<PAGE>
meeting of shareholders for that year, and shall be held within the thirty-one
(31) day period ending on the date 120 days after the occurrence of the event
requiring the meeting and at an hour as may be designated by the Board of
Directors and stated in the notice of the meeting. Any business of the
Corporation may be considered at an annual meeting without being specified in
the notice, except as otherwise required by law.
Section 3. At any time in the interval between annual meetings, special
meetings of the shareholders may be called by the Chairman of the Board of
Directors, any Vice Chairman of the Board of Directors, by the President of the
Corporation, or by a majority of the Board of Directors.
Section 4. Special meetings of shareholders shall be called by the
Secretary upon the written request of the shareholders holding not less than a
majority of all the votes entitled to be cast at a meeting. This request must
state the purpose or purposes of such meeting and the matters proposed to be
acted on at the meeting. The Secretary shall inform such shareholders of the
reasonably estimated cost of preparing and mailing notice of the meeting, and on
payment to the Corporation of those costs, the Secretary will give notice
stating the purpose or purposes of the meeting. No special meeting need be
called on the request of the shareholders holding less than a majority of all
the votes entitled to be cast at the meeting to consider any matter that is
substantially the same as a matter voted on at any meeting of the shareholders
held during the preceding twelve months.
Section 5. Not less than ten (10) nor more than ninety (90) days before
the date of each shareholders' meeting, the Secretary shall give to each
shareholder
2
<PAGE>
entitled to vote at the meeting, and to each shareholder not entitled to vote
who is entitled by statute to notice, written or printed notice stating the time
and place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, either by mail or by presenting it to
him or her personally or by leaving it at his or her residence or usual place of
business. If mailed, the notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, addressed to the shareholder at his or
her mailing address as it appears on the records of the Corporation.
No notice of the time, place, or purpose of any meeting of shareholders
need be given to any shareholder who attends in person or by proxy or to any
shareholder who, in writing executed and filed with the records of the meeting,
either before or after the meeting, waives such notice.
Section 6. At any meeting of shareholders, the presence in person or by
proxy of shareholders entitled to cast a majority of the votes entitled to be
cast at the meeting shall constitute a quorum; but this section shall not affect
any requirement under any statute or under the Articles of Incorporation of the
Corporation (the "Articles") for the vote necessary for the adoption of any
measure. If, however, a quorum shall not be present or represented by proxy at
any meeting of the shareholders, a majority of those votes present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At an adjourned meeting at which a quorum is present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
3
<PAGE>
Section 7. The Board of Directors may set a record date or direct that the
stock transfer books be closed for a stated period for the purpose of making any
proper determination with respect to shareholders, including which shareholders
are entitled to notice of a meeting, vote at a meeting, receive a dividend or be
allotted other rights. The record date may not be more than ninety (90) days
before the date on which the action requiring the determination will be taken.
The transfer books may not be closed for a period longer than twenty (20) days.
In the case of a meeting of shareholders, the record date or the closing of the
stock transfer books shall be at least ten (10) days and not more than ninety
(90) days before the date of the meeting.
Section 8. A majority of the votes cast at a meeting of shareholders, duly
called and at which a quorum is present, shall be sufficient to take or
authorize action on any matter which may properly come before the meeting,
unless more than a majority of the votes cast is required by statute or by the
Articles. Notwithstanding the previous sentence, a plurality of all the votes
cast at a meeting at which a quorum is present is sufficient to elect a
director, unless a higher vote is required by statute or by the Articles. At all
meetings of shareholders, every shareholder of record entitled to vote at that
meeting shall have one vote for each share of stock standing in his or her name
on the Corporation's books.
Section 9. At all meetings of shareholders, every shareholder of record
entitled to vote at that meeting shall be entitled to vote at the meeting either
in person or by proxy appointed by instrument in writing subscribed by the
shareholder or his or her duly authorized attorney. No proxy shall be valid
after eleven (11) months from its date,
4
<PAGE>
unless otherwise provided in the proxy. At all meetings of shareholders, unless
the voting is conducted by inspectors, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting.
Section 10. At any meeting of shareholders at which Directors are to be
elected, the Board of Directors prior to the meeting may, or, if they have not
so acted, the Chairman of the meeting may, and on the request of the
shareholders holding ten percent (10%) of the votes entitled to be cast at the
meeting shall, appoint two Inspectors of Election who shall first subscribe an
oath or affirmation to execute faithfully the duties of Inspectors at the
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken on any
election or matter. A vote by ballot shall be taken upon the request of the
shareholders holding ten percent (10%) of the votes entitled to be cast on the
election or matter.
Section 11. At all meetings of shareholders, all proxies shall be received
and taken in charge of and all ballots shall be received and canvassed by the
Chairman of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, and whose decision will be final and conclusive in all
respects. In the event that Inspectors of Election are
5
<PAGE>
appointed as provided in Article II, Section 10, the Inspectors of Election
shall decide all such questions, which decision will be final and conclusive in
all respects.
Section 12. Shareholder meetings shall be presided over by a Chairman of
the meeting who shall be the Chairman of the Board of Directors, or if he is not
present, by the President of the Corporation, or if he is not present, by a
Chairman elected at the meeting.
Section 13. Any action to be taken by shareholders may be taken without a
meeting or prior notice if (a) all shareholders entitled to vote on the matter
consent to the action in writing, (b) all shareholders entitled to notice of the
meeting, but not entitled to vote at it, sign a written waiver of any right to
dissent, and (c) these consents and waivers are filed with the records of the
meetings of shareholders. Such consent shall be treated for all purposes as a
vote at the meeting.
ARTICLE III
Board of Directors
------------------
Section 1. The Board of Directors of the Corporation shall consist of
three (3) directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each director shall hold office until his or her
successor is duly elected and qualifies, or until his or her death, or until he
or she shall resign or shall have been removed in the manner provided for in the
Articles. Directors need not be shareholders.
Section 2. By vote of a majority of the entire Board of Directors, the
number of directors fixed by the Articles or by these By-Laws may be increased
or
6
<PAGE>
decreased from time to time, but the number shall not be less than three (3) nor
more than twenty (20), and the tenure of office of a director shall not be
affected by any decrease in the number of directors so made by the Board of
Directors. Except as provided in Section 3 of this Article, until the first
meeting of shareholders and until successors are duly elected and qualified, the
Board of Directors shall consist of the persons named in the Articles.
Section 3. Any vacancy occurring on the Board of Directors for any cause
other than by reason of an increase in the number of directors may be filled by
a majority of the remaining members of the Board of Directors, regardless of
whether that majority is less than a quorum. Any vacancy occurring by reason of
an increase in the number of directors may be filled by action of a majority of
the entire Board of Directors. A director elected by the Board of Directors to
fill a vacancy shall be elected to hold office until the next meeting of
shareholders and until his or her successor is duly elected and qualified. The
Board may not elect any director to fill any vacancy as provided in these
By-Laws unless immediately after filling any vacancy, at least two-thirds of the
directors then holding office shall be those named in the Articles or shall have
been elected to office by the shareholders. If at any time after the first
meeting of shareholders of the Corporation, a majority of the directors in
office consists of directors elected by the Board of Directors, a meeting of the
shareholders shall be called within sixty (60) days for the purpose of electing
the entire Board of Directors, and the terms of office of the directors then in
office shall terminate on the election and qualification of the new Board of
Directors.
7
<PAGE>
Section 4. The Board of Directors shall manage the business and affairs of
the Corporation, which may exercise all of the powers of the Corporation, except
those powers that are by statute or by the Articles or by these By-Laws
conferred on or reserved to the shareholders.
Section 5. Regular meetings of the Board of Directors may be held at any
place in or out of the State of Maryland as the Board of Directors may from time
to time determine.
Section 6. Regular meetings of the Board of Directors may be held at times
as the Board of Directors shall from time to time determine.
Section 7. Special meetings of the Board of Directors may be called at any
time by the Chairman of the Board of Directors, if one is appointed, or by the
executive committee, if one is constituted, by vote at a meeting, or by the
President or by a majority of the Directors or by any Vice Chairman of the Board
of Directors. Special meetings may be held at any place in or out of the State
of Maryland and at any time as may be designated from time to time by the Board
of Directors. In the absence of designation, meetings shall be held at any place
designated in the call.
Section 8. Notice of the place and time of every meeting of the Board of
Directors or Board committee shall be given to each director orally or sent to
him or her by facsimile, telegraph, mail, or electronic correspondence, left at
his or her residence or usual place of business not less than one (1) day before
the date of the meeting. If mailed, notice shall be deemed to be given four (4)
business days after being deposited in the United States mail postage prepaid,
addressed to the director at his or her mailing
8
<PAGE>
address as it appears on the records of the Corporation. Unless required by
statute or otherwise, determined by resolution of the Board of Directors in
accordance with these By-Laws, notices need not state the business to be
transacted at or the purpose of any meeting, and no notice need be given to any
director who is present in person or to any director who, before or after the
meeting, signs a waiver of notice which is filed with the records of the
meeting. Waivers of notice need not state the purpose or purposes of the
meeting.
Section 9. At all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the action of a majority of the directors present at any meeting at
which a quorum is present shall be the action of the Board of Directors, unless
the concurrence of a greater proportion is required for action by statute, the
Articles or these By-Laws. If a quorum is not present at any meeting of
directors, the directors present may, by a majority vote, adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
Section 10. Members of the Board of Directors or any Board committee may
participate in a meeting via conference telephone or similar communications
equipment (unless otherwise provided by law) if all persons participating in the
meeting can hear each other at the same time. Participation in a meeting by
these means shall constitute presence in person at the meeting except any
meeting to consider the entry into or renewal of any contract or agreement
pursuant to which any person agrees to serve as investment adviser or principal
underwriter of the Corporation, or any meeting to select
9
<PAGE>
an independent public accountant for the preparation or audit of any of the
Corporation's financial statements.
Section 11. Any action required or permitted to be taken at any meeting of
the Board of Directors or of any Board committee may be taken without a meeting,
if a written consent to such is signed by all members of the Board or of that
committee, as the case may be, and the written consent is filed with the minutes
of proceedings of the Board or committee.
Section 12. The Board of Directors may appoint one of its members to serve
as Chairman of the Board of Directors, and may appoint one or more of its
members to serve as Vice Chairman of the Board of Directors.
Section 13. The Board of Directors may appoint from among its members an
executive committee and other committees composed of two or more directors, and
may delegate to a committee any of the powers of the Board of Directors except
the power to: (a) declare dividends or distributions on stock; (b) recommend to
the shareholders any action requiring shareholder approval; (c) amend the
By-Laws; (d) approve any merger or share exchange that does not require
shareholder approval; or (e) issue stock. In the absence of any Committee
member, the members of that Committee present at any meeting, whether or not
they constitute a quorum, may appoint another member of the Board of Directors
to act in the place of the absent member.
Section 14. Directors may receive such compensation for their services as
may be fixed from time to time by resolution of the Board of Directors, and, in
addition, may be reimbursed for reasonable expenses incurred in connection with
the discharge of
10
<PAGE>
their duties and responsibilities, including, but not limited to, attendance at
regular or special meetings of the Board of Directors or of any Board
committees.
ARTICLE IV
Officers
--------
Section 1. The executive officers of the Corporation shall be chosen by
the Board of Directors. Such officers shall include a President, a Secretary and
a Treasurer. The Board of Directors also in its discretion may appoint Vice
Presidents, Assistant Secretaries, Assistant Treasurers, and other officers,
agents and employees, who shall have such authority and perform such duties as
the board or the executive committee of the Board (if any) may determine. The
Board of Directors may fill any vacancy in any office. Any two offices may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity, if that instrument is required by statute
or these By-Laws to be executed, acknowledged or verified by two or more
officers.
Section 2. The term of office of all officers shall be one (1) year and
until their respective successors are chosen and qualified. Any officer may be
removed from office at any time by the vote of a majority of the entire Board of
Directors on a finding that removal is in the best interests of the Corporation.
Section 3. The officers of the Corporation shall have such powers and
duties as generally pertain to their respective offices as well as such powers
and duties as
11
<PAGE>
may from time to time be conferred by the Board of Directors or its executive
committee, if any.
ARTICLE V
Capital Stock
-------------
Section 1. Shares of stock shall be issued without certificates. At the
time of issuance of shares, the Corporation shall send the shareholder a written
statement identifying: (a) the Corporation as the issuer of the stock; (b) the
shareholder to whom the stock is issued and such shareholder's address and
taxpayer identification number; (c) the class of stock and the number of shares
of stock issued; and (d) the date of such transactions.
Section 2. The stock ledgers of the Corporation, containing the name and
mailing address of the shareholders and the number of shares of each class held
by them respectively, shall be kept at the principal offices of the Corporation
or, if the Corporation employs a transfer agent, at the offices of the transfer
agent of the Corporation.
Section 3. The shares of stock of the Corporation may be freely
transferred, and the Board of Directors may, from time to time, adopt rules and
regulations with reference to the method of transfer of the shares of stock of
the Corporation. Shares of the Corporation shall be transferable on the books of
the Corporation by the holder of record thereof in person or by his or her duly
authorized
12
<PAGE>
attorney or legal representative in conformance with any transfer procedures
prescribed by the Board of Directors. The Corporation shall be entitled to treat
the holder of record of any share of stock as the absolute owner thereof for all
purposes, and accordingly shall not be bound to recognize any legal, equitable
or other claim or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law or the statutes of the State of Maryland.
Section 4. The Board may fix, in advance, a date not more than ninety days
preceding the date fixed for the payment of any dividend or the making of any
distribution or the allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidences of rights or evidence of interests
arising out of any change, conversion or exchange of common stock or other
securities, as the record date for the determination of the stockholders
entitled to receive any such dividend, distribution, allotment, rights or
interests, and in such case only the stockholders of record at the time so fixed
shall be entitled to receive such dividend, distribution, allotment, rights or
interests.
ARTICLE VI
Custody of Assets
-----------------
Section 1. All cash and securities owned by the Corporation shall be held
by one or more of the following entities, in accordance with the 1940 Act and
the rules under the 1940 Act provided such entity is found ready and willing to
act: (a) a bank or trust company of good standing, having capital, surplus and
undivided profits aggregating
13
<PAGE>
not less than five hundred thousand dollars ($500,000); (b) by a company that is
a member of a National Securities Exchange as that term is defined in the
Securities Exchange Act of 1934 (the "1934 Act"); (c) by the Corporation itself;
(d) by a securities depository; or (e) by an Eligible Foreign Custodian, as that
term is defined in the rules under the 1940 Act.
Section 2. On the resignation or inability to serve of its custodian or on
change of custodian, the Corporation shall:
(a) in the case of resignation or inability to serve,
use its best efforts to obtain a qualified successor;
(b) require the cash and securities of the Corporation
to be delivered directly to the successor custodian;
and
(c) in the event that no qualified successor can be
found, submit to the shareholders before permitting
delivery of cash and securities to anyone other than
a qualified successor, the question whether this
Corporation will be dissolved and liquidated or shall
function without a custodian.
However, nothing will prevent the termination of any agreement between the
Corporation and any custodian by the Corporation at the discretion of the Board
of Directors, and any agreement described in this section agreement shall be
terminated on the affirmative vote of the shareholders holding a majority of all
the votes attributable to the capital stock of the Corporation at the time
outstanding and entitled to vote.
14
<PAGE>
ARTICLE VII
General Provisions
------------------
Section 1. Dividends on any class of the stock of the Corporation's stock,
subject to the provisions of the Articles, and applicable law, may be declared
by the Board of Directors at any regular or special meeting or by unanimous
written consent, as provided by these By-Laws.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, thinks proper
as a reserve fund to meet contingencies, or for the equalizing of dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the directors think conducive to the interests of the Corporation,
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 3. All checks, drafts, and orders for the payment of money, notes
and other evidences of indebtedness, issued in the name of the Corporation shall
be signed by such officer or officers as the Board of Directors may from time to
time designate.
Section 4. The Corporation's fiscal year shall be the calendar year unless
otherwise fixed by resolution of the Board of Directors.
Section 5. The corporate seal, if any, shall have inscribed on it the name
of the Corporation, the year of its organization and the words "Corporate Seal,
Maryland." The seal may be used by causing it or a facsimile of it to be
impressed or
15
<PAGE>
affixed or reproduced or otherwise placed on a document. If the Corporation is
required to place its seal to a document, it shall be sufficient to place the
word "(seal)" adjacent to the signature of the person signing the document on
behalf of the Corporation.
Section 6. The Corporation's books and records shall be kept at any
places, in or out of the State of Maryland, as the directors or any officer may
determine; provided, however, that the original or a certified copy of the
By-Laws, including any amendments to them, shall be kept at the Corporation's
office in Boston, Massachusetts. Any person who has been a shareholder of record
for at least six months immediately preceding his or her demand and who, during
that period has held of record at least five percent (5%) of all the outstanding
shares of any class of stock of the Corporation, on written notice of demand,
shall have the right to examine, in person, or by agent or attorney, during
usual business hours, for any proper purpose, the Corporation's books and
records of account and its stock ledger and to make copies or extracts of those
documents, in accordance with Section 2-513 of the Maryland General Corporation
Law.
7. The Corporation's books of account shall be examined by an independent
firm of public accountants, selected and ratified in accordance with the
provisions of the 1940 Act, as of the close of each annual fiscal period of the
Corporation and as of such other times, if any, as may be directed by the Board
of Directors.
16
<PAGE>
ARTICLE VIII
Indemnification
---------------
Section 1. Each officer and director of the Corporation shall be
indemnified by the Corporation to the full extent permitted under the General
Laws of the State of Maryland, except that such indemnity shall not protect any
such person against any liability to the Corporation or any stockholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Corporation to indemnify such person must be based upon the reasonable
determination of independent legal counsel or the vote of a majority of a quorum
of the directors who are neither "interested persons," as defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the
proceeding ("non-party independent directors"), after review of the facts, that
such officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Section 2. 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 willful
17
<PAGE>
misfeasance, bad faith, gross negligence or reckless disregard of the duties of
the director's or officer's office.
Section 3. Each officer and director of the Corporation claiming
indemnification within the scope of this Article VIII shall be entitled to
advances from the Corporation for payment of the reasonable expenses incurred by
him or her in connection with proceedings to which he or she is a party in the
manner and to the full extent permitted under the General Laws of the State of
Maryland; provided, however, that the person seeking indemnification shall
provide to the Corporation a written affirmation of his or her good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his or her undertaking; (b) the
Corporation is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, shall determine, based on a review of facts
readily available to the Corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
Section 4. The Corporation may indemnify, make advances or purchase
insurance to the extent provided in this Article VIII on behalf of an employee
or agent who is not an officer or director of the Corporation.
18
<PAGE>
Section 5. The indemnification provided by this Article VIII shall not be
deemed exclusive of any rights to which those seeking indemnification may be
entitled under any law, agreement, vote of shareholders, or otherwise. Section
6. This Article VIII does not authorize indemnification inconsistent with the
1940 Act or the Securities Act of 1933.
Section 7. Any indemnification provided by this Article shall continue as
to a person who has ceased to be a director, officer, or employee, and shall
inure to the benefit of that person's heirs, executors and administrators. In
addition, no amendment, modification or repeal of this Article shall adversely
affect any right or protection of an indemnitee that exists at the time of the
amendment, modification or repeal.
ARTICLE IX
Amendment
---------
The Board of Directors, by vote of a majority of all of its members, shall
have the power, at any regular meeting or at any special meeting if notice of
the matter is included in the notice of the special meeting, to alter, amend or
repeal any By-Laws of the Corporation and to adopt new By-Laws.
19
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I Offices............................................... 1
ARTICLE II Meetings of Shareholders.............................. 1
ARTICLE III Board of Directors.................................... 6
ARTICLE IV Officers ............................................. 11
ARTICLE V Capital Stock......................................... 12
ARTICLE VI Custody of Assets..................................... 13
ARTICLE VII General Provisions.................................... 15
ARTICLE VIII Indemnification....................................... 17
ARTICLE IX Amendment............................................. 19
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
FORM OF DIVIDEND REINVESTMENT PLAN
1
___________________________ ("Plan Agent") will act as agent for each
shareholder participating in the Dividend Reinvestment Plant (each such
participating shareholder hereinafter referred to as a "Participant" and the
Dividend Reinvestment Plan hereinafter referred to as the "Plan"), and will open
an account for each Participant under the Plan in the same name in which the
Participant's shares of common stock, par value $.001 per share (the "Shares")
of CypressTree Senior Floating Rate Fund, Inc. (the "Fund") are registered. The
Plan will be effective for each such Participant as of the first record date for
an income dividend, net capital gain distribution or distribution due to net
realized gains from foreign currency transactions (each singly hereinafter
referred to as a "Distribution" and collectively as "Distributions"). Each
shareholder in the Fund shall be deemed to be a Participant in the Plan unless
he or she elects not to participate; the terms of paragraph 11 below, regarding
termination, shall apply to such election.
2
Under the Plan, whenever the Board of Directors of the Fund declares a
Distribution payable in cash or Shares at the option of the shareholder, each
Participant will automatically receive his or her Distribution in newly issued
Shares, including fractional Shares, at the net asset value ("NAV") per share at
the close of business on the Distribution payment date, or if such payment date
is not a trading day, at the close of business on the next preceding trading day
("Valuation Date"). The number of Shares to be issued to each Participant by the
Fund will be determined by dividing the amount of the cash value of the
Distribution to which such Participant is entitled (net of any applicable
withholding taxes) by the NAV per Share on such date.
3
For U.S. federal income tax purposes, Shareholders receiving newly issued Shares
pursuant to the Plan will be treated as having received income or capital gains
in an amount equal to the value (determined as of the Valuation Date) of the
Shares received and will have a cost basis equal to such value.
<PAGE>
4
There will be no brokerage charge to Participants for Shares issued directly by
the Fund under the Plan. The Fund will pay the fees of the Plan Agent for
handling the Plan.
5
If banks, brokerage firms, or other nominees hold Shares for a beneficial owner,
the Plan Agent will administer the Plan on the basis of the number of Shares
certified by the nominee as being registered in the nominee's name and held for
the account of the beneficial owner(s) who are participating in the Plan.
6
The Plan Agent may hold Shares acquired pursuant to the Plan in non-certificated
form in the Plan Agent's name or that of the Plan Agent's nominee. The Plan
Agent will forward to each Participant any proxy solicitation material and will
vote any Shares so held for such Participant only in accordance with the proxy
returned by such Participant to the Fund.
7
Each acquisition made for a Participant's account will be confirmed as soon as
practicable, but not later than 60 days after the date thereof. Distribution on
fractional Shares will be credited to a Participant's account. In the event of
termination of a Participant's account under the Plan, the Plan Agent will
adjust for any such undivided fractional interest in cash at the NAV per Share
at the time of termination, less the pro rata expenses of any sale required to
make such an adjustment.
8
For purposes of the Plan, the NAV per Share on a particular date will be as
determined by or on behalf of the Fund.
9
Any stock dividends distributed by the Fund on Shares the Plan Agent holds for a
Participant will be credited to such Participant's account. In the event that
the Fund makes available to its shareholders rights to purchase additional
Shares or other securities, the Shares held for a Participant under the Plan
will be added to other Shares held by such Participant in calculating the number
of rights to be issued to such Participant.
- 2 -
<PAGE>
10
A Participant may terminate his or her account under the Plan at any time by
notifying the Plan Agent in writing. Termination of such account will be
effective only for Distributions declared and having a record date at least ten
days after the date on which such notice is received by the Plan Agent. The Plan
may be terminated by the Plan Agent or the Fund upon notice in writing mailed to
Participants at least 30 days prior to any record date for the payment of any
Distribution by the Fund. Upon any termination, the Plan Agent will without
charge cause to be transferred to such Participant whose participation has
terminated the full Shares held for such Participant under the Plan and a cash
adjustment for any fractional Shares.
11
The terms and conditions of this Plan may be amended or supplemented by the Plan
Agent or the Fund at any time. Participants will be notified in writing at least
30 days prior to the effective date of any such amendments or supplements except
when necessary or appropriate to comply with applicable law or the rules or
policies of the Securities and Exchange Commission or any other regulatory
authority. Any such amendment may include the Plan Agent's appointment of a
successor plan agent under the terms and conditions of this Plan. Upon any such
appointment of any successor plan agent for the purpose of receiving
Distributions, the Fund will be authorized to pay to such successor plan agent
for each Participant's account, all Distributions payable on Shares held in such
Participant's name or under the Plan for retention or application by such
successor plan agent as provided in the terms and conditions of this Plan.
12
The Plan Agent shall at all times in good faith use its best efforts within
reasonable limits to insure the accuracy of all services performed under the
terms and conditions of this Plan and to comply with applicable law, but assumes
no responsibility and will not be liable for loss or damage due to error unless
such error is caused by its negligence, bad faith, or willful misconduct or that
of its employees.
13
The Plan Agent will maintain all Participant accounts and furnish written
confirmations of all transactions, including information needed by Participants
for personal and tax records.
- 3 -
<PAGE>
14
All correspondence concerning the Plan should be directed to
_______________________________________, the Plan Agent for
CypressTree Senior Floating Rate Fund, Inc. at ____________
_____________________________________.
15
These terms and conditions shall be governed by the laws of Massachusetts.
CypressTree Senior Floating Rate
Fund, Inc.
By: ____________________________
______________________________
By: ____________________________
Dated: _______________
- 4 -
DEALER AGREEMENT
This Dealer Agreement (the "Agreement") is dated as of _________________,
1998, between CypressTree Funds Distributors, Inc. ("Distributors"), a Delaware
corporation, and _______________________, ("Selling Dealer"), a _______________
corporation.
Witnesseth
WHEREAS, Distributors acts as the principal underwriter (as that term
is defined in the Investment Company Act of 1940 (the "Act") in the distribution
of shares of common stock, par value $.01 per share (the "Shares") of the
CypressTree Senior Floating Rate Fund, Inc. (the "Fund"), a Maryland corporation
registered as a closed-end management investment company under the Act engaged
in a continuous offering of shares (the "Continuous Offering") registered under
the Securities Act of 1933 (the "Securities Act"); and
WHEREAS, Selling Dealer wishes to participate in the distribution of the
Shares as a dealer for its own account.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in the Agreement, the parties to the Agreement, intending to be
legally bound, agrees as follows:
The Offering
Section 1: Distributors agrees to offer to sell to Selling Dealer, as a
member of a group of selected dealers (the "Selected Dealers Group"), shares of
the Fund under the terms and conditions set forth in the Agreement.
Section 2: In all sales of the Shares to the public, Selling Dealer shall
act as dealer for its own account, and in no transaction shall have any
authority to act as agent for the Fund, for Distributors, or for any other
member of the Selected Dealers Group.
Section 3: Selling Dealer will not forward to Distributors for acceptance
any conditional order for the sale or repurchase of Shares.
Section 4: Selling Dealer shall purchase Shares only through Distributors.
Section 5: Selling Dealer agrees that it will not offer or sell any of the
Shares except under circumstances that will result in compliance with applicable
federal and state securities laws and that in connection with sales and offers
to sell Shares, Selling Dealer will furnish to each person to whom any such sale
or offer is made a copy of the Prospectus (as then amended or supplemented) and
will not (1) furnish to any person any information relating to the Shares of the
Fund which is inconsistent in any respect with the information contained in the
Prospectus (as then amended or supplemented) or (2) cause any advertisement to
be published in any newspaper or posted in any public place without
Distributors' consent and the consent of the Fund. Selling Dealer further agrees
that it will not make a market in the Shares.
1
<PAGE>
Section 6: Selling Dealer shall offer and sell Shares only at the public
offering price, which is the next determined net asset value per share after the
order is received, in accordance with the terms of the then-current Prospectus
of the Fund
Section 7: Selling Dealer will not place orders for any of the Shares
unless Selling Dealer already has received purchase orders for those Shares at
the applicable public offering prices and subject to the terms of the Agreement
and of the Fund's distribution agreement (the "Distribution Agreement"), a copy
of which Distributors has provided to Selling Dealer with this Agreement.
Section 8: Selling Dealer will sell shares only in states where the Shares
may then be legally sold by Selling Dealer and in accordance with the
then-current prospectus, registrations, and permits of the Fund.
Section 9: Upon application, Distributors will inform Selling Dealer as to
the states in which Distributors believes the shares have been qualified for
sale under, or are exempt from the requirements of, the respective securities
laws of such states, but Distributors assumes no responsibility or obligation as
to Selling Dealer's right to sell Shares in any jurisdiction.
Section 10: Selling Dealer represents that it is a member of the National
Association of Securities Dealers, Inc. (the "NASD"). With respect to any sales
in the United States, Distributors and Selling Dealer both agree to abide by the
Rules of Fair Practice of the NASD as in effect from time to time.
Section 11: All orders are subject to acceptance by Distributors or the
Fund in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the Prospectus, as amended from time
to time.
Section 12: Selling Dealer agrees to deliver to each of the purchasers
making purchases from Selling Dealer a copy of the then-current Prospectus at or
prior to the time of offering or sale and agrees to deliver later to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. Selling Dealer further agrees to endeavor to obtain
proxies from such purchasers.
Section 13: Upon request, Distributors will provide additional copies in
reasonable quantities of the Prospectus, annual or interim reports and proxy
solicitation materials of the Fund , any information supplementing the foregoing
items, or any other information Distributors deems necessary or desirable for
use in connection with sales of the Fund.
Section 14: No person is authorized to make any representations concerning
Shares except those contained in the then-current Prospectus of the Fund and in
printed information subsequently issued by Distributors or the Fund as
information supplemental to the Prospectus. In
2
<PAGE>
purchasing shares through Distributors, Selling Dealer will rely solely on the
representations contained in the Prospectus and supplemental information above
mentioned. Selling Dealer may not modify any supplemental materials provided by
Distributors or the Fund without the prior written consent of Distributors. Any
printed information furnished by Distributors to Selling Dealer, other than the
Fund's Prospectus, periodic reports and proxy solicitation material are
Distributors' sole responsibility and not the responsibility of the Fund, and
Selling Dealer agrees that the Fund shall have no liability or responsibility to
Selling Dealer in these respects unless expressly assumed Selling Dealer will
not make use of any advertisement or sales literature that refers to the Fund
unless such material has been approved in writing by Distributors prior to its
first use by Selling Dealer.
Section 15: Payment for shares purchased by Selling Dealer is to be made by
certified or official bank check at the office of _____________________, in New
York clearing-house funds payable to the order of CypressTree Funds
Distributors, Inc. The Fund's transfer agent, State Street Bank & Trust Company
(the "Transfer Agent"), will acknowledge the deposit with it of the shares so
purchased by Selling Dealer. Selling Dealer agrees that as promptly as
practicable after the delivery of Shares, Selling Dealer will issue appropriate
written transfer instructions to the Fund or to the Transfer Agent as to the
purchasers to whom Selling Dealer sold the shares. Selling Dealer will be held
responsible for any loss, including loss of profit, suffered by Distributors or
the Fund resulting from the failure of Selling Dealer to make payment as
specified above.
Section 16: Distributors will pay to Selling Dealer from its own assets,
and not from assets of the Fund, such discounts or commission payments as
specified on Schedule A to this Agreement and in the circumstances set forth in
the then-current prospectus of the Fund.
Section 17: If any Shares sold to Selling Dealer pursuant to this Agreement
are tendered for repurchase within seven business days after the date of the
confirmation of the original purchase by Selling Dealer, Selling Dealer will
forfeit its right to any discount or commission with respect to such Shares.
Distributors will notify Selling Dealer in writing of any such repurchase tender
within ten days from the date on which the tender is delivered to the Fund or
its agent, and Selling Dealer will immediately refund to Distributors any
discount or commission allowed or paid in connection with such sale.
Section 18: Selling Dealer acknowledges that the Fund only may repurchase
Shares through periodic repurchase offers conducted in accordance with
procedures described in the prospectus. Selling Dealer will not make any
representations in connection with repurchase offers other than those contained
in the Fund's then-current prospectus. In the event of such a tender, Selling
Dealer may act as principal for its own account or as agent for its customer.
Selling Dealer agrees to pay its customer not less than the price received from
the Fund or an intermediary of the Fund (including Distributors). If Selling
Dealer acts as agent for its customer, it agrees not to charge the customer more
than a fair commission for handling the transaction. Selling Dealer shall notify
Distributors daily during the pendency of a repurchase offer of the number of
shares tendered by its customers, or by itself acting as principal, for
repurchase. Selling Dealer will be responsible for the receipt of tendered
shares from its customers and forwarding such tenders to the Fund in a timely
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<PAGE>
fashion, according to the terms of the repurchase offer, and shall indemnify and
hold harmless Distributors from any claims relating to a customer's
participation in a repurchase offer or failure to so participate. Selling Dealer
agrees to cooperate reasonably with the Fund, Distributors, or an affiliate of
the Fund or Distributors, in the conduct of repurchase offers.
Section 19: Selling Dealer agrees that it will not sell any shares of the
Fund to any account over which its exercises discretionary authority.
Section 20: The Fund and Distributors each reserve the right in their
discretion, without advance notice, to suspend sales or to withdraw entirely the
offering of the Shares.
Section 21: Selling Dealer appoints the Transfer Agent as its agent to
execute the purchase transactions of shares of the Fund in accordance with the
terms and provisions of any account, program, plan, or service established or
used by Selling Dealer's customers and to confirm each purchase to such
customers on Selling Dealer's behalf. Selling Dealer guarantees the legal
capacity of its customers purchase shares of the Fund and any other person or
entity in whose name Shares are to be registered.
General Provisions
Section 22: Waiver - Failure of any party to insist upon strict compliance
with any of the terms and conditions of this Agreement shall not be construed as
a waiver of any of the terms and conditions, but the same shall remain in full
force and effect. No waiver of any of the provisions of this Agreement shall be
deemed to be, or shall constitute, a waiver of any other provisions, whether or
not similar, nor shall any waiver constitute a continuing waiver.
Section 23: Binding Effect - This Agreement shall be binding on and shall
inure to the benefit of the parties to it and respective successors and assigns,
provided that Selling Dealer may assign this Agreement or any of the rights and
obligations hereunder only with the prior written consent of Cypress.
Section 24: Regulations - All parties agree to observe and comply with the
existing laws, rules and regulations of applicable local, state and federal
regulatory authorities and with those which may be enacted or adopted while this
Agreement is in force regulating the business contemplated hereby in any
jurisdiction in which the business described herein is to be transacted.
Section 25: Disputes - All parties to this Agreement that any dispute
arising hereunder shall be submitted to arbitration held in Boston,
Massachusetts in accordance with the Code of Arbitration Procedure of the NASD,
or similar rules or codes, in effect at the time of submission of any such
dispute.
Section 26: Governing Law - This Agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of Massachusetts.
Section 27: Amendment of Agreement - Cypress reserves the right to amend
this Agreement
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at any time and Selling Dealer agrees that an order to purchase shares of the
Fund placed after notice of any such amendment shall constitute Selling Dealer's
consent to any such amendment.
Section 28: Termination - Each of the parties to this Agreement has the
right to cancel this Agreement with or without cause on notice to the other
party. Each of the parties represents that it is a member in good standing of
the NASD and agrees that termination or suspension of such membership at any
time shall immediately terminate this Agreement.
Section 29: If the Prospectus contains any provisions inconsistent with the
terms of the Agreement, the Prospectus shall control.
Section 30: Distributors shall have full authority to take such action as
it may deem advisable in respect of all matters pertaining to the Continuous
Offering. Distributors shall be under no liability to Selling Dealer except for
lack of good faith and for obligations expressly assumed by Distributors in this
Agreement. Nothing contained in this paragraph is intended to operate as, and
the provisions of this paragraph shall not in any way whatsoever constitute, a
waiver by Selling Dealer of compliance with any provision of the Securities Act,
or of the rules and regulations of the Securities and Exchange Commission issued
under the Securities Act.
Notices - All notices or communications shall be sent to the address shown
below, or to such other address as the party may request by giving written
notice to the other party.
For CypressTree Funds Distributors, Inc.
286 Congress Street
Boston, MA 02210
(800) 860-5575
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<PAGE>
(Selling Dealer)
(Address)
(Telephone #)
Signatures
CypressTree Funds Distributors, Inc.
By:
---------------------------------------
For Selling Dealer:
-----------------------
Address:
-----------------------------------
- -------------------------------------------
By:
-----------------------------------------
Signature
- --------------------------------------------
Name and Title (Please Print)
- --------------------------------------------
Back Office Contact Name & Phone Number
6
CUSTODIAN AGREEMENT
This Agreement between CYPRESSTREE SENIOR FLOATING RATE FUND, a corporation
organized and existing under the laws of Maryland with its principal place of
business at 125 High Street, Boston, Massachusetts 02110 (the "Fund"), and STATE
STREET BANK and TRUST COMPANY, a Massachusetts trust company with its principal
place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the
"Custodian"),
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets,
including securities which the Fund desires to be held in places within the
United States ("domestic securities") and securities it desires to be held
outside the United States ("foreign securities"). The Fund agrees to deliver to
the Custodian all securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by it from time to time, and the cash consideration
received by it for such new or treasury shares of beneficial interest of the
Fund ("Shares") as may be issued or sold from time to time. The Custodian shall
not be responsible for any property of the Fund held or received by the Fund and
not delivered to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in Section 5
hereof), the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote by
the Board of Directors of the Fund (the "Board"), and provided that the
Custodian shall have no more or less responsibility or liability to the Fund on
account of any actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodian for the Fund's foreign securities the foreign banking institutions
and foreign securities depositories designated in Schedules A and B hereto but
only in accordance with the applicable provisions of Sections 3 and 4.
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of the Fund all non-cash property to be held by it in
the United States, including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.8 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury (each, a "U.S. Securities
System") and (b) commercial paper of an issuer for which State Street Bank and
Trust Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian (the
"Direct Paper System") pursuant to Section 2.9.
SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and
deliver domestic securities owned by the Fund held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct Paper
book entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Fund or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to
Section 2.7 or into the name or nominee name of any sub-custodian
appointed pursuant to Section 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
<PAGE>
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with any
loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department of
the Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Fund prior to the receipt of
such collateral;
11) For delivery as security in connection with any borrowing by the Fund
requiring a pledge of assets by the Fund, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Fund;
14) For any other proper purpose, but only upon receipt of Proper
Instructions from the Fund specifying the securities of the Fund to be
delivered, setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such securities shall
be made.
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<PAGE>
SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, unless the
Fund has authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment adviser as
the Fund, or in the name or nominee name of any agent appointed pursuant to
Section 2.7 or in the name or nominee name of any sub-custodian appointed
pursuant to Section 1. All securities accepted by the Custodian on behalf of the
Fund under the terms of this Agreement shall be in "street name" or other good
delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best efforts only
to timely collect income due the Fund on such securities and to notify the Fund
on a best efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of this
Agreement, and shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Fund, other than
cash maintained by the Fund in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"). Funds held by the Custodian for the Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the 1940 Act and that each such bank or
trust company and the funds to be deposited with each such bank or trust company
shall be approved by vote of a majority of the Board. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3,
the Custodian shall collect on a timely basis all income and other payments with
respect to registered domestic securities held hereunder to which the Fund shall
be entitled either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with respect to
bearer domestic securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall credit such
income, as collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for payment
all coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held hereunder.
Income due the Fund on securities loaned pursuant to the provisions of Section
2.2 (10) shall be the responsibility of the Fund. The Custodian will have no
duty or responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which the
Fund is properly entitled.
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<PAGE>
SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities or evidence of title to
such options, futures contracts or options on futures contracts to the
Custodian (or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the 1940 Act
to act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a purchase effected
through a U.S. Securities System, in accordance with the conditions
set forth in Section 2.8 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the conditions
set forth in Section 2.9; (d) in the case of repurchase agreements
entered into between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry crediting
the Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing purchase
by the Fund of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Fund or (e) for transfer to a time deposit account
of the Fund in any bank, whether domestic or foreign; such transfer
may be effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions from the
Fund as defined herein;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, and legal fees, and
operating expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
4) For the payment of any dividends on Shares declared pursuant to the
governing documents of the Fund;
5) For payment of the amount of dividends received in respect of
securities sold short;
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<PAGE>
6) For any other proper corporate purpose, but only upon receipt of
Proper Instructions specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act to act as a custodian, as
its agent to carry out such of the provisions of this Section 2 as the Custodian
may from time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or liabilities
hereunder.
SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The
Custodian may deposit and/or maintain securities owned by the Fund in a clearing
agency registered with the United States Securities and Exchange Commission (the
"SEC") under Section 17A of the Exchange Act , which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as "U.S.
Securities System" in accordance with applicable Federal Reserve Board and SEC
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a U.S. Securities
System provided that such securities are represented in an account of
the Custodian in the U.S. Securities System (the "U.S. Securities
System Account") which account shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a U.S. Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the U.S. Securities System
that such securities have been transferred to the U.S. Securities
System Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of the
Fund. The Custodian shall transfer securities sold for the account of
the Fund upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the U.S.
Securities System Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the U.S. Securities
System of transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian shall
furnish the Fund confirmation of each transfer to or from the account
of the Fund in the form of a written advice or notice and shall
furnish to the Fund copies of daily transaction sheets reflecting each
day's transactions in the U.S. Securities System for the account of
the Fund;
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<PAGE>
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund the initial or annual
certificate, as the case may be, required by Section 14 hereof;
6) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the U.S. Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the U.S. Securities System
or any other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has not
been made whole for any such loss or damage.
SECTION 2.9 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The
Custodian may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in the Direct Paper
System Account, which account shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for the
account of the Fund;
6
<PAGE>
5) The Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system of
internal accounting control as the Fund may reasonably request from
time to time.
SECTION 2.10 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.8 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) for
the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the SEC relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper purposes, but only, in the case
of clause (iv), upon receipt of, in addition to Proper Instructions setting
forth the purpose or purposes of such segregated account and declaring such
purpose(s) to be a proper corporate purpose.
SECTION 2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection with
transfers of securities.
SECTION 2.12 PROXIES. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without indication
of the manner in which such proxies are to be voted, and shall promptly deliver
to the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
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SECTION 2.13 COMMUNICATIONS RELATING TO FUND SECURITIES. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by the Fund
and the maturity of futures contracts purchased or sold by the Fund) received by
the Custodian from issuers of the securities being held for the Fund. With
respect to tender or exchange offers, the Custodian shall transmit promptly to
the Fund all written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Fund desires to take action with
respect to any tender offer, exchange offer or any other similar transaction,
the Fund shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
SECTION 3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER OF THE FUND
SECTION 3.1 DEFINITIONS. The following capitalized terms shall have the
indicated meanings:
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including any Mandatory Securities Depositories operating in the country);
prevailing or developing custody and settlement practices; and laws and
regulations applicable to the safekeeping and recovery of Foreign Assets held in
custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of
Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the U.S. Securities and Exchange Commission (the "SEC")), or a foreign
branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the
requirements of a custodian under Section 17(f) of the 1940 Act, except that the
term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Fund's investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Fund's
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of
Rule 17f-5.
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"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
SECTION 3.2 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The
Fund, by resolution adopted by the Board, hereby delegates to the Custodian,
subject to Section (b) of Rule 17f-5, the responsibilities set forth in this
Section 3 with respect to Foreign Assets held outside the United States, and the
Custodian hereby accepts such delegation, as Foreign Custody Manager of the Fund
SECTION 3.3 COUNTRIES COVERED. The Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A to this Agreement, which list of countries may be amended
from time to time by the Fund with the agreement of the Foreign Custody Manager.
The Foreign Custody Manager shall list on Schedule A the Eligible Foreign
Custodians selected by the Foreign Custody Manager to maintain the Fund's
assets, which list of Eligible Foreign Custodians may be amended from time to
time in the sole discretion of the Foreign Custody Manager. Mandatory Securities
Depositories are listed on Schedule B to this Contract, which Schedule B may be
amended from time to time by the Foreign Custody Manager. The Foreign Custody
Manager will provide amended versions of Schedules A and B in accordance with
Section 3.7 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to
open an account, or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board responsibility as Foreign Custody Manager with
respect to that country and to have accepted such delegation. Following the
receipt of Proper Instructions directing the Foreign Custody Manager to close
the account of the Fund with the Eligible Foreign Custodian selected by the
Foreign Custody Manager in a designated country, the delegation by the Board to
the Custodian as Foreign Custody Manager for that country shall be deemed to
have been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager of the Fund with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
SECTION 3.4 SCOPE OF DELEGATED RESPONSIBILITIES.
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3.4.1. Selection of Eligible Foreign Custodians. Subject to the
provisions of this Section 3, the Foreign Custody Manager may place and maintain
the Foreign Assets in the care of the Eligible Foreign Custodian selected by the
Foreign Custody Manager in each country listed on Schedule A, as amended from
time to time. In performing its delegated responsibilities as Foreign Custody
Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian,
the Foreign Custody Manager shall determine that the Foreign Assets will be
subject to reasonable care, based on the standards applicable to custodians in
the country in which the Foreign Assets will be held by that Eligible Foreign
Custodian, after considering all factors relevant to the safekeeping of such
assets, including, without limitation the factors specified in Rule 17f-5(c)(1).
3.4.2. Contracts With Eligible Foreign Custodians. The Foreign Custody
Manager shall determine that the contract (or the rules or established practices
or procedures in the case of an Eligible Foreign Custodian that is a foreign
securities depository or clearing agency) governing the foreign custody
arrangements with each Eligible Foreign Custodian selected by the Foreign
Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
3.4.3. Monitoring. In each case in which the Foreign Custody Manager
maintains Foreign Assets with an Eligible Foreign Custodian selected by the
Foreign Custody Manager, the Foreign Custody Manager shall establish a system to
monitor (i) the appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian and (ii) the contract governing the custody
arrangements established by the Foreign Custody Manager with the Eligible
Foreign Custodian (or the rules or established practices and procedures in the
case of an Eligible Foreign Custodian selected by the Foreign Custody Manager
which is a foreign securities depository or clearing agency that is not a
Mandatory Securities Depository). In the event the Foreign Custody Manager
determines that the custody arrangements with an Eligible Foreign Custodian it
has selected are no longer appropriate, the Foreign Custody Manager shall notify
the Board in accordance with Section 3.7 hereunder.
SECTION 3.5 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For
purposes of this Section 3, the Board shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and maintaining
the Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of the Fund, and the Board shall be deemed to be monitoring on a
continuing basis such Country Risk to the extent that the Board considers
necessary or appropriate. The Fund and the Custodian each expressly acknowledge
that the Foreign Custody Manager shall not be delegated any responsibilities
under this Section 3 with respect to Mandatory Securities Depositories.
SECTION 3.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE FUND. In
performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.
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SECTION 3.7 REPORTING REQUIREMENTS. The Foreign Custody Manager shall
report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian
and the placement of such Foreign Assets with another Eligible Foreign Custodian
by providing to the Board amended Schedules A or B at the end of the calendar
quarter in which an amendment to either Schedule has occurred. The Foreign
Custody Manager shall make written reports notifying the Board of any other
material change in the foreign custody arrangements of the Fund described in
this Section 3 after the occurrence of the material change.
SECTION 3.8 REPRESENTATIONS WITH RESPECT TO RULE 17f-5. The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined in section
(a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has
determined that it is reasonable for the Board to rely on the Custodian to
perform the responsibilities delegated pursuant to this Agreement to the
Custodian as the Foreign Custody Manager of the Fund.
SECTION 3.9 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN
CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody
Manager of the Fund shall be effective as of the date of execution of this
Agreement and shall remain in effect until terminated at any time, without
penalty, by written notice from the terminating party to the non-terminating
party. Termination will become effective thirty (30) days after receipt by the
non-terminating party of such notice. The provisions of Section 3.3 hereof shall
govern the delegation to and termination of the Custodian as Foreign Custody
Manager of the Fund with respect to designated countries.
SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES
SECTION 4.1 DEFINITIONS. Capitalized terms in this Section 4 shall have the
following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian.
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SECTION 4.2 HOLDING SECURITIES. The Custodian shall identify on its books
as belonging to the Fund the foreign securities held by each Foreign
Sub-Custodian or Foreign Securities System. The Custodian may hold foreign
securities for all of its customers, including the Fund, with any Foreign
Sub-Custodian in an account that is identified as belonging to the Custodian for
the benefit of its customers, provided however, that (i) the records of the
Custodian with respect to foreign securities of the Fund which are maintained in
such account shall identify those securities as belonging to the Fund and (ii),
to the extent permitted and customary in the market in which the account is
maintained, the Custodian shall require that securities so held by the Foreign
Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian
or of other customers of such Foreign Sub-Custodian.
SECTION 4.3 FOREIGN SECURITIES SYSTEMS. Foreign securities shall be
maintained in a Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country pursuant
to the terms of this Agreement.
SECTION 4.4 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.4.1. Delivery of Foreign Securities. The Custodian or a Foreign
Sub-Custodian shall release and deliver foreign securities of the Fund held by
such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon
receipt of Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Fund in
accordance with commercially reasonable market practice in the
country where such foreign securities are held or traded,
including, without limitation: (A) delivery against expectation
of receiving later payment; or (B) in the case of a sale effected
through a Foreign Securities System in accordance with the rules
governing the operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Fund;
(iv) to the issuer thereof or its agent when such foreign securities
are called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name
of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such Foreign
Sub-Custodian) or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market custom;
provided that in any such case the Foreign Sub-Custodian shall
have no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Foreign Sub-Custodian's
own negligence or willful misconduct;
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(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by the
Fund requiring a pledge of assets by the Fund;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the foreign securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such securities
shall be made.
4.4.2. Payment of Fund Monies. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the
respective Foreign Securities System to pay out, monies of the Fund in the
following cases only:
(i) upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, by (A) delivering
money to the seller thereof or to a dealer therefor (or an agent
for such seller or dealer) against expectation of receiving later
delivery of such foreign securities; or (B) in the case of a
purchase effected through a Foreign Securities System, in
accordance with the rules governing the operation of such Foreign
Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Fund;
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(iii) for the payment of any expense or liability of the Fund,
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees under
this Agreement, legal fees, accounting fees, and other operating
expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Fund, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(vii) in connection with the borrowing or lending of foreign
securities; and
(viii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person
or persons to whom such payment is to be made.
4.4.3. Market Conditions. Notwithstanding any provision of this
Agreement to the contrary, settlement and payment for Foreign Assets received
for the account of the Fund and delivery of Foreign Assets maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or processing practices and procedures in the country or
market in which the transaction occurs, including, without limitation,
delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or
an agent for such purchaser or dealer) with the expectation of receiving later
payment for such Foreign Assets from such purchaser or dealer.
The Custodian shall provide to the Board the information with respect
to custody and settlement practices in countries in which the Custodian employs
a Foreign Sub-Custodian, including without limitation information relating to
Foreign Securities Systems, described on Schedule C hereto at the time or times
set forth on such Schedule. The Custodian may revise Schedule C from time to
time, provided that no such revision shall result in the Board being provided
with substantively less information than had been previously provided hereunder.
SECTION 4.5 REGISTRATION OF FOREIGN SECURITIES. The foreign securities
maintained in the custody of a Foreign Custodian (other than bearer securities)
shall be registered in the name of the Fund or in the name of the Custodian or
in the name of any Foreign Sub-Custodian or in the name of any nominee of the
foregoing, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such foreign securities. The Custodian or a
Foreign Sub-Custodian shall not be obligated to accept securities on behalf of
the Fund under the terms of this Agreement unless the form of such securities
and the manner in which they are delivered are in accordance with reasonable
market practice.
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SECTION 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as
belonging to the Fund cash (including cash denominated in foreign currencies)
deposited with the Custodian. Where the Custodian is unable to maintain, or
market practice does not facilitate the maintenance of, cash on the books of the
Custodian, a bank account or bank accounts opened and maintained outside the
United States on behalf of the Fund with a Foreign Sub-Custodian shall be
subject only to draft or order by the Custodian or such Foreign Sub-Custodian,
acting pursuant to the terms of this Agreement to hold cash received by or from
or for the account of the Fund.
SECTION 4.7 COLLECTION OF INCOME. The Custodian shall use reasonable
commercial efforts to collect all income and other payments with respect to the
Foreign Assets held hereunder to which the Fund shall be entitled and shall
credit such income, as collected, to the Fund. In the event that extraordinary
measures are required to collect such income, the Fund and the Custodian shall
consult as to such measures and as to the compensation and expenses of the
Custodian relating to such measures.
SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held
pursuant to this Agreement, the Custodian will use reasonable commercial efforts
to facilitate the exercise of voting and other shareholder rights, subject
always to the laws, regulations and practical constraints that may exist in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.
SECTION 4.9 COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian
shall transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received by the Custodian via the
Foreign Sub-Custodians from issuers of the foreign securities being held for the
account of the Fund. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Fund written information so received by the
Custodian from issuers of the foreign securities whose tender or exchange is
sought or from the party (or its agents) making the tender or exchange offer.
The Custodian shall not be liable for any untimely exercise of any tender,
exchange or other right or power in connection with foreign securities or other
property of the Fund at any time held by it unless (i) the Custodian or the
respective Foreign Sub-Custodian is in actual possession of such foreign
securities or property and (ii) the Custodian receives Proper Instructions with
regard to the exercise of any such right or power, and both (i) and (ii) occur
at least three business days prior to the date on which the Custodian is to take
action to exercise such right or power.
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SECTION 4.10 LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES
SYSTEMS. Each agreement pursuant to which the Custodian employs as a Foreign
Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian
to exercise reasonable care in the performance of its duties and, to the extent
possible, to indemnify, and hold harmless, the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Sub-Custodian's performance of such obligations. At the Fund's
election, it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claims against a Foreign Sub-Custodian as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost, expense,
liability or claim.
SECTION 4.11 TAX LAW. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of the United States or of any
state or political subdivision thereof. It shall be the responsibility of the
Fund to notify the Custodian of the obligations imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of countries other than those
mentioned in the above sentence, including responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of countries for which
the Fund has provided such information.
SECTION 4.12 CONFLICT. If the Custodian is delegated the responsibilities
of Foreign Custody Manager pursuant to the terms of Section 3 hereof, in the
event of any conflict between the provisions of Sections 3 and 4 hereof, the
provisions of Section 3 shall prevail.
SECTION 5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Agreement means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board accompanied by a detailed
description of procedures approved by the Board, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board and the Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets. For purposes of
this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three - party agreement which requires a segregated
asset account in accordance with Section 2.10.
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SECTION 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as
otherwise directed by the Board.
SECTION 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a copy of a resolution of the Board or of an
Executive Committee of the Board so authorized by the Board, signed by an
officer of the Fund and certified by its Secretary or an Assistant Secretary
that the resolution was duly adopted and is in full force and effect (a
"Certified Resolution") as conclusive evidence (a) of the authority of any
person to act in accordance with such resolution or (b) of any determination or
of any action by the Board as described in such resolution, and such resolution
may be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
SECTION 8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board to keep the books of account of the
Fund and/or compute the net asset value per Share of the outstanding Shares or,
if directed in writing to do so by the Fund, shall itself keep such books of
account and/or compute such net asset value per Share. If so directed, the
Custodian shall also calculate daily the net income of the Fund as described in
the Prospectus and shall advise the Fund daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Fund periodically of the division of such net income among its
various components. The calculations of the net asset value per Share and the
daily income of the Fund shall be made at the time or times described from time
to time in the Prospectus.
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SECTION 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the 1940 Act, with particular attention to Section
31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the SEC. The Custodian shall, at
the Fund's request, supply the Fund with a tabulation of securities owned by the
Fund and held by the Custodian and shall, when requested to do so by the Fund
and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
SECTION 10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-2, and Form N-SAR or other annual
reports to the SEC and with respect to any other requirements thereof.
SECTION 11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a U.S. Securities System or a Foreign
Securities System, relating to the services provided by the Custodian under this
Agreement; such reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
SECTION 12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
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SECTION 13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity, genuineness or
sufficiency of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Agreement,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian shall be
without liability to the Fund for any loss, liability, claim or expense
resulting from or caused by anything which is (A) part of Country Risk (as
defined in Section 3 hereof), including without limitation nationalization,
expropriation, currency restrictions, or acts of war, revolution, riots or
terrorism, or (B) part of the "prevailing country risk" of the Fund, as such
term is used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as such
term or other similar terms are now or in the future interpreted by the SEC or
by the staff of the Division of Investment Management thereof.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, work
stoppages, natural disasters, or other similar events or acts; (ii) errors by
the Fund or the Investment Advisor in their instructions to the Custodian
provided such instructions have been in accordance with this Agreement; (iii)
the insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
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The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth
with respect to sub-custodians generally in this Agreement.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund's assets
to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
SECTION 14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.8 hereof in the absence
of receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board has approved the initial use of a particular Securities System,
as required by Rule 17f-4 under the 1940 Act, and that the Custodian shall not
act under Section 2.9 hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board has approved the
initial use of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Agreement in contravention of any applicable
federal or state regulations, or any provision of the Fund's Articles of
Incorporation, and further provided, that the Fund may at any time by action of
its Board (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Agreement in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
20
<PAGE>
Upon termination of the Agreement, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
SECTION 15. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund shall be appointed by the Board, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder and shall transfer to an account of the
successor custodian all of the securities held in a Securities System. If no
such successor custodian shall be appointed, the Custodian shall, in like
manner, upon receipt of a copy of a Certified Resolution, deliver at the office
of the Custodian and transfer such securities, funds and other properties in
accordance with such resolution. In the event that no written order designating
a successor custodian or copy of a Certified Resolution shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the 1940 Act, doing business
in Boston, Massachusetts, or New York, New York, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Agreement, and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the Certified Resolution to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Agreement relating to the duties
and obligations of the Custodian shall remain in full force and effect.
SECTION 16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Agreement, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Fund's Articles of Incorporation. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Agreement.
21
<PAGE>
SECTION 17. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
SECTION 18. PRIOR AGREEMENTS
This Agreement supersedes and terminates, as of the date hereof, all prior
Agreements between the Fund and the Custodian relating to the custody of the
Fund's assets.
SECTION 19. NOTICES.
Any notice, instruction or other instrument required to be given hereunder
may be delivered in person to the offices of the parties as set forth herein
during normal business hours or delivered prepaid registered mail or by telex,
cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.
To the Fund: CYPRESSTREE SENIOR FLOATING RATE FUND
125 High Street
Boston, Massachusetts 02110
Attention: John Fitzgerald
Telephone: 617-210-4515
Telecopy: 617-210-4501
To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive, 2nd Floor East
North Quincy, Massachusetts 02171
Attention: Molly Stone
Telephone: 617-985-5230
Telecopy: 617-537-2711
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the notice
was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.
22
<PAGE>
SECTION 20. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 21. SHAREHOLDER COMMUNICATIONS ELECTION
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name, address,
and share positions.
23
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of March 12, 1998.
CYPRESSTREE SENIOR FLOATING RATE FUND FUND SIGNATURE ATTESTED TO BY:
By: By:
--------------------------------- ----------------------------
Name: Name:
--------------------------------- ----------------------------
Title: Title:
--------------------------------- ----------------------------
STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
By: By:
--------------------------------- -------------------------------
Name: Ronald E. Logue Name: Glenn Ciotti
Title: Executive Vice President Title: VP & Assoc. Counsel
24
[COVINGTON & BURLING LETTERHEAD]
1201 Pennsylvania Avenue, N.W.
Post Office Box 7566
Washington, D.C. 20044-7566
202/662-6000 (telephone)
202/662-6291 (facsimile)
March 12, 1998
CypressTree Senior Floating Rate Fund, Inc.
125 High Street
Boston, Massachusetts 02110
Ladies and Gentlemen:
This opinion is being furnished to you in connection with a public
offering by CypressTree Senior Floating Rate Fund, Inc., a Maryland corporation
(the "Company"), of 10,000,000 shares of common stock, $0.01 par value per
share, of the Company ("Common Stock") (the "Shares"), pursuant to a
registration statement, as amended, filed by the Company on Form N-2 under the
Securities Act of 1933 with the Securities and Exchange Commission (the
"Commission") (registration no. 333-32529, which registration statement is
hereinafter called the "Registration Statement").
We have acted as counsel to the Company in connection with the offer and
sale of the Shares. We have examined signed copies of the Registration
Statement, and the exhibits thereto, all as filed with the Commission. We also
have examined and relied on copies of minutes of meetings of the Board of
Directors of the Company.
Based on the foregoing, it is our opinion that the Shares to be issued and
sold by the Company pursuant to the Registration Statement have been duly
authorized and, upon issuance in accordance with the terms set forth in the
Registration Statement and on receipt of the consideration specified therein,
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement.
<PAGE>
CypressTree Fund
March 26, 1998
Page 2
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ Covington & Burling
COVINGTON & BURLING
EXHIBIT N
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' CONSENT
- --------------------------------------------------------------------------------
We consent to the use in this Pre-Effective Amendment No. 3 to the Registration
Statement on Form N-2 of CypressTree Senior Floating Rate Fund, Inc. (1933 Act
File No. 333-32529) of our report dated March 13, 1998 which is included in the
Statement of Additional Information, which is part of such Registration
Statement.
We also consent to the use of our name under the heading "Auditors and
Financial Statements" in the Statement of Additional Information.
Deloitte & Touche LLP
Boston, Massachusetts
March 13, 1998
CYPRESSTREE ASSET MANAGEMENT CORPORATION, INC.
125 High Street
Boston, Massachusetts 02110
March 23, 1998
CypressTree Senior Floating Rate Fund, Inc.
125 High Street
14th Floor
Boston, Massachusetts 02110
Ladies and Gentlemen:
We propose to acquire 10,000 shares of Common Stock, $10.00 par value per
share (the "Shares") of the CypressTree Senior Floating Rate Fund, Inc. (the
"Fund"), at a purchase price of $10.00 per share, for a total of $100,000. We
will purchase the Shares in a private offering prior to the effectiveness of the
Form N-2 registration statement filed by the Fund under the Securities Act of
1933.
In connection with such purchase, we understand that (i) we, the purchaser,
intend to acquire the Shares for our own account as the sole beneficial owner
thereof and have no present intention of redeeming or reselling the Shares so
acquired; and (ii) in the event any of the initial 10,000 Shares are redeemed or
repurchased during the first five years, the Fund may charge against our
redemption or repurchase proceeds a pro rata portion of any unamortized
organizational expenses that would be borne by such Shares during the balance of
the initial five-year period were they not redeemed or repurchased.
Sincerely,
CypressTree Asset Management Corporation, Inc.
By: /s/ Bradford K. Gallagher
---------------------------------
Name: Bradford K. Gallagher
Title: President
CUSTODIAL AGREEMENT & DISCLOSURE STATEMENT
FOR
TRADITIONAL IRAS & ROTH IRAS
<PAGE>
CypressTree Funds/State Street Bank and Trust Company
Universal IRA Information Kit
INTRODUCTION
<PAGE>
What's New In The World Of IRAs?
An Individual Retirement Account ("IRA") has always provided an
attractive means to save money for the future on a tax-advantaged basis. Recent
changes to Federal tax law have now made the IRA an even more flexible
investment and savings vehicle. Among the new changes is the creation of the
Roth Individual Retirement Account ("Roth IRA"), which will be available for use
after January 1, 1998. Under a Roth IRA, the earnings and interest on an
individual's nondeductible contributions grow without being taxed, and
distributions may be tax-free under certain circumstances. Most taxpayers
(except for those with very high income levels) will be eligible to contribute
to a Roth IRA. A Roth IRA can be used instead of a Regular IRA, to replace an
existing Regular IRA, or complement a Regular IRA you wish to continue
maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to
convert existing IRAs into Roth IRAs. The details on conversion are found in the
description of Roth IRAs in this booklet.
Congress has also made significant changes to Regular IRAs. First,
Congress increased the income levels at which IRA holders who participate in
employer-sponsored retirement plans can make deductible Regular IRA
contributions. Also the rules for deductible contributions by an IRA holder
whose spouse is a participant in an employer-sponsored retirement plan have been
liberalized. Second, the 10% penalty tax for premature withdrawals (before age
59 1/2) will no longer apply in the case of withdrawals to pay certain higher
education expenses or certain first-time homebuyer expenses.
What's in This Kit?
In this Kit you will find detailed information about Roth IRAs and
about the changes that have been made to Regular IRAs. You will also find
everything you need to establish and maintain either a Regular or Roth IRA, or
to convert all or part of an existing Regular IRA to a Roth IRA.
The first section of this Kit contains the instructions and forms you
will need to open a new Regular or Roth IRA, to transfer from another IRA to a
CypressTree Funds IRA, or to convert a Regular IRA to a Roth IRA.
The second section of this Kit contains our Universal IRA Disclosure
Statement. The Disclosure Statement is divided into three parts:
Part One describes the basic rules and benefits which are
specifically applicable to your Regular IRA.
Part Two describes the basic rules and benefits which are
specifically applicable to your Roth IRA.
Part Three describes important rules and information
applicable to all IRAs.
The third section of this Kit contains the Universal IRA Custodial
Agreement. The Custodial Agreement is also divided into three parts:
Part One contains provisions specifically applicable to
Regular IRAs.
Part Two contains provisions specifically applicable to Roth
IRAs.
Part Three contains provisions applicable to all IRAs
(Regular and Roth).
This Universal Individual Retirement Custodial Account Kit contains
information and forms for both Regular IRAs and Roth IRAs. However, you may use
the Adoption Agreement in this Kit to establish only one Regular IRA or one Roth
IRA; separate Adoption Agreements must be completed if you want to establish
multiple (Roth or Regular) IRA accounts.
What's the Difference Between a Regular IRA and a Roth IRA?
2
<PAGE>
With a Regular IRA, an individual can contribute up to $2,000 per year
and may be able to deduct the contribution from taxable income, reducing income
taxes. Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59 1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies.
With a Roth IRA, the contribution limits are essentially the same as
Regular IRAs, but there is no tax deduction for contributions. All dividends and
investment growth in the account are tax-free. Most important with a Roth IRA:
there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Regular IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70 1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
The following chart highlights some of the major differences between a
Regular IRA and a Roth IRA:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Regular Roth
Characteristics IRA IRA
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Individuals (and their Individuals (and their
spouses) who receive spouses) who receive
compensation compensation
Individuals age 70 1/2 and over Individuals age 70 1/2 and over
Eligibility may not contribute may contribute
- ---------------------------------------------------------------------------------------------------------------------
Subject to limitations, No deduction permitted for
Tax Treatment of Contributions contributions are deductible amounts contributed
- ---------------------------------------------------------------------------------------------------------------------
Individuals may generally
contribute up to $2,000 (or
100% of compensation, if less)
Ability to contribute phases
out at income levels of $95,000
Individuals may contribute up to $110,000 (individual
to $2,000 annually (or 100% of taxpayer) and $150,000 to
compensation, if less) $160,000 (married taxpayers)
Deductibility depends on Overall limit for
income level for individuals contributions to all IRAs
who are active participants in (Regular and Roth combined) is
an employer-sponsored $2,000 annually (or 100% of
Contribution Limits retirement plan compensation, if less)
- ---------------------------------------------------------------------------------------------------------------------
Earnings and interest are not Earnings and interest are not
Earnings taxed when received by your IRA taxed when received by your IRA
- ---------------------------------------------------------------------------------------------------------------------
Rollovers from other Roth IRAs
or Regular IRAs only
Amounts rolled over (or
converted) from another Regular
IRA are subject to income tax
in the year rolled over or
Individual may rollover converted
amounts held in Tax on amounts rolled over or
employer-sponsored retirement converted in 1998 is spread
arrangements (401(k), SEP IRA, over four year period
Rollover/Conversions etc.) tax free to Regular IRA (1998-2001)
- ---------------------------------------------------------------------------------------------------------------------
Total (principal + earnings) Not taxable as long as a
taxable as income in year qualified
withdrawn (except for any prior distribution--generally, account
non-deductible contributions) open for 5 years, and age 59 1/2
Minimum withdrawals must begin Minimum withdrawals not
Withdrawals after age 70 1/2 required after age 70 1/2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Is a Roth or a Regular IRA Right For Me?
We cannot act as your legal or tax advisor and so we cannot tell you
which kind of IRA is right for you. The information contained in this Kit is
intended to provide you with the basic information and material you will need if
you decide whether a Regular or Roth IRA is better for you, or if you want to
convert an existing Regular IRA to a Roth IRA. We suggest that you consult with
your accountant, lawyer or other tax advisor, or with a qualified financial
planner, to determine whether you should open a Regular or Roth IRA or convert
any or all of an existing Regular IRA to a Roth IRA. Your tax advisor can also
advise you as to the state tax consequences that may affect whether a Regular or
Roth IRA is right for you.
SEPs and SIMPLEs.
The CypressTree Funds Regular IRA may be used in connection with a simplified
employee pension (SEP) plan maintained by your employer. To establish a Regular
IRA as part of your Employer's SEP plan, complete the Adoption Agreement for a
Regular IRA, indicating in the proper box that the IRA is part of a SEP plan. A
Roth IRA should not be used in connection with a SEP plan.
3
<PAGE>
A Roth IRA may not be used as part of an employer SIMPLE IRA plan. A Regular IRA
may be used, but only after an individual has been participating for two or more
years (for the first two years, only a special SIMPLE IRA may be used). SIMPLE
IRA plans were added by the 1996 tax law to provide an easy and inexpensive way
for small employers to provide retirement benefits for their employees. If you
are interested in a SIMPLE IRA plan at your place of employment, call or write
to the number or address given at the end of the Disclosure Statement portion of
this Kit.
Other Points to Note.
The Disclosure Statement in this Kit provides you with the basic
information that you should know about CypressTree Funds Regular IRAs and Roth
IRAs. The Disclosure Statement provides general information about the governing
rules for these IRAs and the benefits and features offered through each type of
IRA. However, the CypressTree Funds Adoption Agreement and the Custodial
Agreement, are the primary documents controlling the terms and conditions of
your personal CypressTree Funds Regular or Roth IRA, and these shall govern in
the case of any difference with the Disclosure Statement.
You or your when used throughout this Kit refer to the person for whom
the CypressTree Funds Regular or Roth IRA is established. A Roth IRA is either a
CypressTree Funds Roth IRA or any Roth IRA established by any other financial
institution. A Regular IRA is any non-Roth IRA offered by CypressTree Funds or
any other financial institution.
4
<PAGE>
Bank and Trust Company
Universal Individual Retirement Account
Offered by CypressTree Funds
Disclosure Statement
Part One: Description of Regular IRAs
-------------------------------------
SPECIAL NOTE
Part One of the Disclosure Statement describes the rules applicable to
Regular IRAs beginning January 1, 1998. IRAs described in these pages are called
"Regular IRAs" to distinguish them from the new "Roth IRAs" first available
starting in 1998. Roth IRAs are described in Part Two of this Disclosure
Statement.
For Regular IRA contributions for 1997 (including contributions made up
to April 15, 1998 but designated as contributions for 1997), there are different
rules for determining the deductibility of your contribution on your federal tax
return. For contributions for 1997, the "active participant" limits on
deductibility (described below) apply if either spouse is an active participant
in an employer-sponsored plan. Also, the adjusted gross income ("AGI") levels
for partially deductible or nondeductible Regular IRA contributions (described
below) are lower for 1997 ($25,000 for single taxpayers, with no deduction if
your AGI is above $35,000; and $40,000 for married taxpayers filing jointly,
with no deduction if your AGI is above $50,000). Also, the exceptions to the 10%
early withdrawal penalty for withdrawals to pay certain higher education or
first-time homebuyer expenses do not apply to withdrawals in 1997.
This Part One of the Disclosure Statement describes Regular IRAs. It does
not describe Roth IRAs, a new type of IRA available starting in 1998.
Contributions to a Roth IRA are not deductible (regardless of your AGI), but
withdrawals that meet certain requirements are not subject to federal income
tax, so that dividends and investment growth on amounts held in the Roth IRA can
escape federal income tax. Please see Part Two of this Disclosure Statement if
you are interested in learning more about Roth IRAs.
Regular IRAs described in this Disclosure Statement may be used as part
of a simplified employee pension (SEP) plan maintained by your employer. Under a
SEP your employer may make contributions to your Regular IRA, and these
contributions may exceed the normal limits on Regular IRA contributions. This
Disclosure Statement does not describe IRAs established in connection with a
SIMPLE IRA program maintained by your employer. Employers provide special
explanatory materials for accounts established as part of a SIMPLE IRA program.
Regular IRAs may be used in connection with a SIMPLE IRA program, but for the
first two years of participation a special SIMPLE IRA (not a Regular IRA) is
required.
YOUR REGULAR IRA
This Part One contains information about your Regular Individual
Retirement Custodial Account with State Street Bank and Trust Company as
Custodian. A Regular IRA gives you several tax benefits. Earnings on the assets
held in your Regular IRA are not subject to federal income tax until withdrawn
by you. You may be able to deduct all or part of your Regular IRA contribution
on your federal income tax return. State income tax treatment of your Regular
IRA may differ from federal treatment; ask your state tax department or your
personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important
additional information, including information on how to revoke your Regular IRA,
investments and prohibited transactions, fees and expenses, and certain tax
requirements.
ELIGIBILITY
What are the eligibility requirements for a Regular IRA?
You are eligible to establish and contribute to a Regular IRA for a
year if:
- You received compensation (or earned income if you are self employed)
during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
- You did not reach age 702 during the year.
Can I Contribute to a Regular IRA for my Spouse?
For each year before the year when your spouse attains age 702, you can
contribute to a separate Regular IRA for your spouse, regardless of whether your
spouse had any compensation or earned income in that year. This is called a
"spousal IRA." To make a contribution to a Regular IRA for your spouse, you must
file a joint tax return for the year with your spouse. For a spousal IRA, your
spouse must set up a different Regular IRA, separate from yours, to which you
contribute.
CONTRIBUTIONS
When Can I Make Contributions to a Regular IRA?
You may make a contribution to your existing Regular IRA or establish a
new Regular IRA for a taxable year by the due date (not including any
extensions) for your federal income tax return for the year. Usually this is
April 15 of the following year.
7
<PAGE>
How Much Can I Contribute to my Regular IRA?
For each year when you are eligible (see above), you can contribute up
to the lesser of $2,000 or 100% of your compensation (or earned income, if you
are self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
If you and your spouse have spousal Regular IRAs, each spouse may
contribute up to $2,000 to his or her IRA for a year as long as the combined
compensation of both spouses for the year (as shown on your joint income tax
return) is at least $4,000. If the combined compensation of both spouses is less
than $4,000, the spouse with the higher amount of compensation may contribute up
to that spouse's compensation amount, or $2,000 if less. The spouse with the
lower compensation amount may contribute any amount up to that spouse's
compensation plus any excess of the other spouse's compensation over the other
spouse's IRA contribution. However, the maximum contribution to either spouse's
Regular IRA is $2,000 for the year.
If you (or your spouse) establish a new Roth IRA and make contributions
to both your Regular IRA and a Roth IRA, the combined limit on contributions to
both your (or your spouse's) Regular IRA and Roth IRA for a single calendar year
is $2,000.
How Do I Know if my Contribution is Tax Deductible?
The deductibility of your contribution depends upon whether you are an
active participant in any employer-sponsored retirement plan. If you are not an
active participant, the entire contribution to your Regular IRA is deductible.
If you are an active participant in an employer-sponsored plan, your
Regular IRA contribution may still be completely or partly deductible on your
tax return. This depends on the amount of your income (see below).
Similarly, the deductibility of a contribution to a Regular IRA for
your spouse depends upon whether your spouse is an active participant in any
employer-sponsored retirement plan. If your spouse is not an active participant,
the contribution to your spouse's Regular IRA will be deductible. If your spouse
is an active participant, the Regular IRA contribution will be completely,
partly or not deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married
taxpayers, where one spouse is an active participant in an employer-sponsored
retirement plan and the other spouse is not. A contribution to the non-active
participant spouse's Regular IRA will be only partly deductible at an adjusted
gross income level on the joint tax return of $150,000, and the deductibility
will be phased out as described below over the next $10,000 so that there will
be no deduction at all with an adjusted gross income level of $160,000 or
higher.
How do I Determine My or My Spouse's "Active Participant" status?
Your (or your spouse's) Form W-2 should indicate if you (or your
spouse) were an active participant in an employer-sponsored retirement plan for
a year. If you have a question, you should ask your employer or the plan
administrator.
In addition, regardless of income level, your spouse's "active
participant" status will not affect the deductibility of your contributions to
your Regular IRA if you and your spouse file separate tax returns for the
taxable year and you lived apart at all times during the taxable year.
What are the Deduction Restrictions for Active Participants?
If you (or your spouse) are an active participant in an employer plan
during a year, the contribution to your Regular IRA (or your spouse's Regular
IRA) may be completely, partly or not deductible depending upon your filing
status and your amount of adjusted gross income ("AGI"). If AGI is any amount up
to the lower limit, the contribution is deductible. If your AGI falls between
the lower limit and the upper limit, the contribution is partly deductible. If
your AGI falls above the upper limit, the contribution is not deductible.
8
<PAGE>
FOR ACTIVE PARTICIPANTS - 1998
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
If You Are If You Are Then Your Regular
Single Married Filing Jointly IRA Contribution Is
<S> <C> <C> <C>
------------------------------------------------------------------------------------
Up to Up to
Lower Limit Lower Limit Fully
($30,000 for 1998) ($50,000 for 1998) Deductible
------------------------------------------------------------------------------------
Adjusted More than Lower Limit More than Lower Limit
Gross but less than but less than
Income Upper Limit Upper Limit Partly
(AGI) Level ($40,000 for 1998) ($60,000 for 1998) Deductible
------------------------------------------------------------------------------------
Not
Upper Limit or more Upper Limit or more Deductible
------------------------------------------------------------------------------------
</TABLE>
The Lower Limit and the Upper Limit will change for 1999 and later years. The
Lower Limit and Upper Limit for these years are shown in the following table.
Substitute the correct Lower Limit and Upper Limit in the table above to
determine deductibility in any particular year. (Note: if you are married but
filing separate returns, your Lower Limit is always zero and your Upper Limit is
always $10,000).
9
<PAGE>
TABLE OF LOWER AND UPPER LIMITS
- -------------------------------------------------------------------------------
Married
Year Single Filing Jointly
- -------------------------------------------------------------------------------
Lower Limit Upper Limit Lower Limit Upper Limit
- -------------------------------------------------------------------------------
1999 $31,000 $41,000 $51,000 $61,000
2000 $32,000 $42,000 $52,000 $62,000
2001 $33,000 $43,000 $53,000 $63,000
2002 $34,000 $44,000 $54,000 $64,000
2003 $40,000 $50,000 $60,000 $70,000
2004 $45,000 $55,000 $65,000 $75,000
2005 $50,000 $60,000 $70,000 $80,000
2006 $50,000 $60,000 $75,000 $85,000
2007 and $50,000 $60,000 $80,000 $100,000
later
- -------------------------------------------------------------------------------
How do I Calculate my Deduction if I Fall in the "Partly Deductible" Range?
If your AGI falls in the partly deductible range, you must calculate
the portion of your contribution that is deductible. To do this, multiply your
contribution by a fraction. The numerator is the amount by which your AGI
exceeds the lower limit (for 1998: $30,000 if single, or $50,000 if married
filing jointly). The denominator is $10,000 (note that the denominator for
married joint filers is $20,000 starting in 2007). Subtract this from your
contribution and then round down to the nearest $10. The deductible amount is
the greater of the amount calculated or $200 (provided you contributed at least
$200). If your contribution was less than $200, then the entire contribution is
deductible.
For example, assume that you make a $2,000 contribution to your Regular
IRA in 1998, a year in which you are an active participant in your employer's
retirement plan. Also assume that your AGI is $57,555 and you are married,
filing jointly. You would calculate the deductible portion of your contribution
this way:
1. The amount by which your AGI exceeds the lower limit of the
partly - deductible range:
($57,555-$50,000) = $7,555
2. Divide this by $10,000: $ 7,555 = 0.7555
------
$10,000
3. Multiply this by your contribution limit: 0.7555 x $2,000 = $1,511
4. Subtract this from your contribution: ($2,000 - $1,551) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this amount or $200.
Even though part or all of your contribution is not deductible, you may still
contribute to your Regular IRA (and your spouse may contribute to your spouse's
Regular IRA) up to the limit on contributions. When you file your tax return for
the year, you must designate the amount of non-deductible contributions to your
Regular IRA for the year. See IRS Form 8606.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to
all taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
What Happens if I Contribute more than Allowed to my Regular IRA?
The maximum contribution you can make to a Regular IRA generally is
$2,000 or 100% of compensation or earned income, whichever is less. Any amount
contributed to the IRA above the maximum is considered an "excess contribution."
The excess is calculated using your contribution limit, not the deductible
limit. An excess contribution is subject to excise tax of 6% for each year it
remains in the IRA.
10
<PAGE>
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To
do so, you must withdraw the excess and any earnings on the excess before the
due date (including extensions) for filing your federal income tax return for
the year for which you made the excess contribution. A deduction should not be
taken for any excess contribution. Earnings on the amount withdrawn must also be
withdrawn. The earnings must be included in your income for the tax year for
which the contribution was made and may be subject to a 10% premature withdrawal
tax if you have not reached age 592.
What Happens if I Don't Correct the Excess Contribution by the Tax Return Due
Date?
Any excess contribution withdrawn after the tax return due date
(including any extensions) for the year for which the contribution was made will
be subject to the 6% excise tax. There will be an additional 6% excise tax for
each year the excess remains in your account.
Under limited circumstances, you may correct an excess contribution
after tax filing time by withdrawing the excess contribution (leaving the
earnings in the account). This withdrawal will not be includable in income nor
will it be subject to any premature withdrawal penalty if (1) your contributions
to all Regular IRAs do not exceed $2,000 and (2) you did not take a deduction
for the excess amount (or you file an amended return (Form 1040X) which removes
the excess deduction).
How are Excess Contributions Treated if None of the Preceding Rules Apply?
Unless an excess contribution qualifies for the special treatment
outlined above, the excess contribution and any earnings on it withdrawn after
tax filing time will be includable in taxable income and may be subject to a 10%
premature withdrawal penalty. No deduction will be allowed for the excess
contribution for the year in which it is made.
Excess contributions may be corrected in a subsequent year to the
extent that you contribute less than your maximum amount. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years. Also, you may be
able to take an income tax deduction for the amount of excess that was reduced
or eliminated, depending on whether you would be able to take a deduction if you
had instead contributed the same amount.
Are the Earnings on My Regular IRA Funds Taxed?
Any dividends on or growth of the investments held in your Regular IRA
are generally exempt from federal income taxes and will not be taxed until
withdrawn by you, unless the tax exempt status of your Regular IRA is revoked
(this is described in Part Three of this Disclosure Statement).
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's
Retirement Plan into a Regular IRA?
Almost all distributions from employer plans or 403(b) arrangements
(for employees of tax-exempt employers) are eligible for rollover to a Regular
IRA. The main exceptions are
o payments over the lifetime or life expectancy of the
participant (or participant and a designated beneficiary),
o installment payments for a period of 10 years or more,
o required distributions (generally the rules require
distributions starting at age 702 or for certain employees starting at
retirement, if later), and
o payments of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified retirement
plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Regular IRA. This is a called a "direct
rollover." Or, you may receive the distribution and make a regular rollover to
your Regular IRA within 60 days. By making a direct rollover or a regular
rollover, you can defer income taxes on the amount rolled over until you
subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer
contributions and earnings distributed. You may not roll over any after-tax
employee contributions you made to the employer retirement plan. If you are over
age 702 and are required to take minimum distributions under the tax laws, you
may not roll over any amount required to be distributed to you under the minimum
distribution rules. Also, if you are receiving periodic payments over your or
your and your designated beneficiary's life expectancy or for a period of at
least 10 years, you may not roll over these payments. A rollover to a regular
IRA must be completed within 60 days after the distribution from the employer
retirement plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD
20% OF YOUR DISTRIBUTION for federal income taxes UNLESS you elect a direct
rollover. Your plan or 403(b) sponsor is required to provide you with
information about direct and traditional rollovers and withholding taxes before
you receive your distribution and must comply with your directions to make a
direct rollover.
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<PAGE>
The rules governing rollovers are complicated. Be sure to consult your
tax advisor or the IRS if you have a question about rollovers.
Once I Have Rolled Over a Plan Distribution into a Regular IRA, Can I
Subsequently Roll Over into another Employer's Qualified Retirement Plan?
Yes. Part or all of an eligible distribution received from a qualified
plan may be transferred from the Regular IRA holding it to another qualified
plan. However, the IRA must have no assets other than those which were
previously distributed to you from the qualified plan. Specifically, the IRA
cannot contain any contributions by you (or your spouse). Also, the new
qualified plan must accept rollovers. Similar rules apply to Regular IRAs
established with rollovers from 403(b) arrangements.
Can I Make a Traditional Rollover from my Regular IRA to another Regular IRA?
You may make a rollover from one Regular IRA to another Regular IRA you
have or you establish to receive the rollover. Such a rollover must be completed
within 60 days after the withdrawal from your first Regular IRA. After making a
traditional rollover from one Regular IRA to another, you must wait a full year
(365 days) before you can make another such rollover. (However, you can instruct
a Regular IRA custodian to transfer amounts directly to another Regular IRA
custodian; such a direct transfer does not count as a rollover.)
What Happens If I Combine Rollover Contributions With My Normal Contributions In
One IRA?
If you wish to make both a normal annual contribution and a rollover
contribution, you may wish to open two separate Regular IRAs by completing two
Adoption Agreements and two sets of forms. You should consult a tax advisor
before making your annual contribution to the IRA you established with rollover
contributions (or make a rollover contribution to the IRA to which you make your
annual contributions). This is because combining your annual contributions and
rollover contributions originating from an employer plan distribution would
prohibit the future rollover out of the IRA into another qualified plan. If
despite this, you still wish to combine a rollover contribution and the IRA
holding your annual contributions, you should establish the account as a Regular
IRA on the Adoption Agreement (not a Rollover IRA or Direct Rollover IRA) and
make the contributions to that account.
How Do Rollovers Affect my Contribution or Deduction Limits?
Rollover contributions, if properly made, do not count toward the
maximum contribution. Also, rollovers are not deductible and they do not affect
your deduction limits as described above.
What About Converting My Regular IRA to a Roth IRA?
The rules for converting a Regular IRA to a new Roth IRA, or making a
rollover from a Regular IRA to a new Roth IRA, are described in Part Two below.
WITHDRAWALS
When can I make withdrawals from my Regular IRA?
You may withdraw from your Regular IRA at any time. However,
withdrawals before age 592 may be subject to a 10% penalty tax in addition to
regular income taxes (see below).
When must I start making withdrawals?
If you have not withdrawn your entire IRA by the April 1 following the
year in which you reach 702, you must make minimum withdrawals in order to avoid
penalty taxes. The rule allowing certain employees to postpone distributions
from an employer qualified plan until actual retirement (even if this is after
age 702) does not apply to Regular IRAs.
The minimum withdrawal amount is determined by dividing the balance in
your Regular IRA (or IRAs) by your life expectancy or the combined life
expectancy of you and your designated beneficiary. The minimum withdrawal rules
are complex. Consult your tax advisor for assistance.
The penalty tax is 50% of the difference between the minimum withdrawal
amount and your actual withdrawals during a year. The IRS may waive or reduce
the penalty tax if you can show that your failure to make the required minimum
withdrawals was due to reasonable cause and you are taking reasonable steps to
remedy the problem.
How Are Withdrawals From My Regular IRA Taxed?
Amounts withdrawn by you are includable in your gross income in the
taxable year that you receive them, and are taxable as ordinary income. Lump sum
withdrawals from a Regular IRA are not eligible for averaging treatment
currently available to certain lump sum distributions from qualified employer
retirement plans.
Since the purpose of a Regular IRA is to accumulate funds for
retirement, your receipt or use of any portion of your Regular IRA before you
attain age 592 generally will be considered as an early withdrawal and subject
to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
- The distribution was a result of your death or
disability.
- The purpose of the withdrawal is to pay certain higher education
expenses for yourself or your spouse, child, or grandchild. Qualifying
expenses include tuition, fees, books, supplies and equipment required
for attendance at a post-secondary educational institution. Room and
board expenses may qualify if the student is attending at least
half-time.
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<PAGE>
- The withdrawal is used to pay eligible first-time homebuyer expenses.
These are the costs of purchasing, building or rebuilding a principal
residence (including customary settlement, financing or closing costs).
The purchaser may be you, your spouse, or a child, grandchild, parent
or grandparent of you or your spouse. An individual is considered a
"first-time homebuyer" if the individual (or the individual's spouse,
if married) did not have an ownership interest in a principal residence
during the two-year period immediately preceding the acquisition in
question. The withdrawal must be used for eligible expenses within 120
days after the withdrawal. (If there is an unexpected delay, or
cancellation of the home acquisition, a withdrawal may be redeposited
as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
- The distribution is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives
or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments,
the 10% penalty tax may apply. The 10% penalty will not apply if you
make no change in the series of payments until the end of five years or
until you reach age 59 1/2, whichever is later. If you make a change
before then, the penalty will apply. For example, if you begin
receiving payments at age 50 under a withdrawal program providing for
substantially equal payments over your life expectancy, and at age 58
you elect to receive the remaining amount in your Regular IRA in a
lump-sum, the 10% penalty tax will apply to the lump sum and to the
amounts previously paid to you before age 592.
- The distribution does not exceed the amount of your deductible
medical expenses for the year (generally speaking, medical expenses
paid during a year are deductible if they are greater than 72% of your
adjusted gross income for that year).
- The distribution does not exceed the amount you paid for health
insurance coverage for yourself, your spouse and dependents. This
exception applies only if you have been unemployed and received federal
or state unemployment compensation payments for at least 12 weeks; this
exception applies to distributions during the year in which you
received the unemployment compensation and during the following year,
but not to any distributions received after you have been reemployed
for at least 60 days.
How are Nondeductible Contributions Taxed When They are Withdrawn?
A withdrawal of nondeductible contributions (not including earnings)
will be tax-free. However, if you made both deductible and nondeductible
contributions to your Regular IRA, then each distribution will be treated as
partly a return of your nondeductible contributions (not taxable) and partly a
distribution of deductible contributions and earnings (taxable). The nontaxable
amount is the portion of the amount withdrawn which bears the same ratio as your
total nondeductible Regular IRA contributions bear to the total balance of all
your Regular IRAs (including rollover IRAs and SEPs, but not including Roth
IRAs).
For example, assume that you made the following Regular IRA
contributions:
Year Deductible Nondeductible
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
----------- ------
$5,000 $2,000
In addition assume that your Regular IRA has total investment earnings
through 1998 of $1,000. During 1998 you withdraw $500. Your total account
balance as of 12-31-98 is $7,500 as shown below.
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings On IRA $1,000
Less 1998 Withdrawal $ 500
------
Total Account Balance as of 12/31/98 $7,500
To determine the nontaxable portion of your 1998 withdrawal, the total
1998 withdrawal ($500) must be multiplied by a fraction. The numerator of the
fraction is the total of all nondeductible contributions remaining in the
account before the 1998 withdrawal ($2,000). The denominator is the total
account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or
$8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000 x $500 = $ 125
--------------------------- ------
Total Account Balance $8,000
Thus, $125 of the $500 withdrawal in 1998 will not be included in your
taxable income. The remaining $375 will be taxable for 1998. In addition, for
future calculations the remaining nondeductible contribution total will be
$2,000 minus $125, or $1,875.
A loss in your Regular IRA investment may be deductible. You should
consult your tax advisor for further details on the appropriate calculation for
this deduction if applicable.
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<PAGE>
Is there a penalty tax on certain large withdrawals or accumulations in my IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals
from all retirement accounts (including IRAs, 401(k) or other employer
retirement plans, 403(b) arrangements and others) in a year exceeding a
specified amount (initially $150,000 per year). Also, there was a 15% estate tax
penalty on excess accumulations remaining in IRAs and other tax-favored
arrangements upon your death. These 15% penalty taxes have been repealed.
Important: Please see Part Three below which contains important
information applicable to all State Street Bank and Trust Company IRAs.
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<PAGE>
Part Two: Description of Roth IRAs
----------------------------------
SPECIAL NOTE
Part Two of the Disclosure Statement describes the rules generally
applicable to Roth IRAs beginning January 1, 1998.
Roth IRAs are a new kind of IRA available for the first time in 1998.
Contributions to a Roth IRA for 1997 are not permitted. Contributions to a Roth
IRA are not tax-deductible, but withdrawals that meet certain requirements are
not subject to federal income taxes. This makes the dividends on and growth of
the investments held in your Roth IRA tax-free for federal income tax purposes
if the requirements are met.
Regular IRAs, which have existed since 1975, are still available.
Contributions to a Regular IRA may be tax-deductible. Earnings and gains on
amounts while held in a Regular IRA are tax-deferred. Withdrawals are subject to
federal income tax (except for prior after-tax contributions which may be
recovered without additional federal income tax).
This Part Two does not describe Regular IRAs. If you wish to review
information about Regular IRAs, please see Part One of this Disclosure
Statement.
This Disclosure Statement also does not describe IRAs established in
connection with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan
maintained by your employer. Roth IRAs may not be used in connection with a
SIMPLE IRA program or a SEP plan.
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to a
Roth IRA are not deductible, dividends on and growth of the assets held in your
Roth IRA are not subject to federal income tax. Withdrawals by you from your
Roth IRA are excluded from your income for federal income tax purposes if
certain requirements (described below) are met. State income tax treatment of
your Roth IRA may differ from federal treatment; ask your state tax department
or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Roth IRA, investments
and prohibited transactions, fees and expenses and certain tax requirements.
ELIGIBILITY
What are the eligibility requirements for a Roth IRA?
Starting with 1998, you are eligible to establish and contribute to a
Roth IRA for a year if you received compensation (or earned income if you are
self employed) during the year for personal services you rendered. If you
received taxable alimony, this is treated like compensation for IRA purposes.
In contrast to a Regular IRA, with a Roth IRA you may continue making
contributions after you reach age 70 1/2.
Can I Contribute to Roth IRA for my Spouse?
Starting with 1998, if you meet the eligibility requirements you can
not only contribute to your own Roth IRA, but also to a separate Roth IRA for
your spouse out of your compensation or earned income, regardless of whether
your spouse had any compensation or earned income in that year. This is called a
"spousal Roth IRA." To make a contribution to a Roth IRA for your spouse, you
must file a joint tax return for the year with your spouse. For a spousal Roth
IRA, your spouse must set up a different Roth IRA, separate from yours, to which
you contribute.
Of course, if your spouse has compensation or earned income, your
spouse can establish his or her own Roth IRA and make contributions to it in
accordance with the rules and limits described in this Part Two of the
Disclosure Statement.
CONTRIBUTIONS
When Can I Make Contributions to a Roth IRA?
You may make a contribution to your Roth IRA or establish a new Roth
IRA for a taxable year by the due date (not including any extensions) for your
federal income tax return for the year. Usually this is April 15 of the
following year. For example, you will have until April 15, 1999 to establish and
make a contribution to a Roth IRA for 1998.
Caution: Since Roth IRAs are available starting January 1, 1998, you
may not make a contribution by April 15, 1998 to a Roth IRA for 1997.
How Much Can I Contribute to my Roth IRA?
For each year when you are eligible (see above), you can contribute up
to the lesser of $2,000 or 100% of your compensation (or earned income, if you
are self-employed).
Annual contributions may be made only to a Roth IRA annual contribution
account which does not contain converted or transferred funds from a Regular
IRA.
Your Roth IRA limit is reduced by any contributions for the same year
to a Regular IRA. For example, assuming you have at least $2,000 in compensation
or earned income, if you contribute $500 to your Regular IRA for 1998, your
maximum Roth IRA contribution for 1998 will be $1,500.
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<PAGE>
If you and your spouse have spousal Roth IRAs, each spouse may
contribute up to $2,000 to his or her Roth IRA for a year as long as the
combined compensation of both spouses for the year (as shown on your joint
income tax return) is at least $4,000. If the combined compensation of both
spouses is less than $4,000, the spouse with the higher amount of compensation
may contribute up to that spouse's compensation amount, or $2,000 if less. The
spouse with the lower compensation amount may contribute any amount up to that
spouse's compensation plus any excess the other spouse's compensation over the
other spouse's Roth IRA contribution. However, the maximum contribution to
either spouse's Roth IRA is $2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any
contributions for the same calendar year to a Regular IRA maintained by you or
your spouse.
For taxpayers with high income levels, the contribution limits may be
reduced (see below).
Are Contributions to a Roth IRA Tax Deductible?
Contributions to a Roth IRA are not deductible. This is a major
difference between Roth IRAs and Regular IRAs. Contributions to a Regular IRA
may be deductible on your federal income tax return depending on whether or not
you are an active participant in an employer-sponsored plan and on your income
level.
Are the Earnings on my Roth IRA Funds Taxed?
Any dividends on or growth of investments held in your Roth IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Roth IRA is revoked. If the
withdrawal qualifies as a tax-free withdrawal (see below), amounts reflecting
earnings or growth of assets in your Roth IRA will not be subject to federal
income tax.
Which is Better, a Roth IRA or a Regular IRA?
This will depend upon your individual situation. A Roth IRA may be
better if you are an active participant in an employer-sponsored plan and your
adjusted gross income is too high to make a deductible IRA contribution (but not
too high to make a Roth IRA contribution). Also, the benefits of a Roth IRA vs.
a Regular IRA may depend upon a number of other factors including: your current
income tax bracket vs. your expected income tax bracket when you make
withdrawals from your IRA, whether you expect to be able to make nontaxable
withdrawals from your Roth IRA (see below), how long you expect to leave your
contributions in the IRA, how much you expect the IRA to earn in the meantime,
and possible future tax law changes.
Consult a qualified tax or financial advisor for assistance on this
question.
Are there Any Restrictions on Contributions to my Roth IRA?
Taxpayers with very high income levels may not be able to contribute to
a Roth IRA at all, or their contribution may be limited to an amount less than
$2,000. This depends upon your filing status and the amount of your adjusted
gross income (AGI). The following table shows how the contribution limits are
restricted:
ROTH IRA CONTRIBUTION LIMITS
<TABLE>
<CAPTION>
====================================================================================
If You Are If You Are
Single Taxpayer Married Filing Jointly Then You May Make
====================================================================================
<S> <C> <C>
------------------------------------------------------------------------------------
Up to Up to Full
$95,000 $150,000 Contribution
------------------------------------------------------------------------------------
Adjusted
Gross More than $95,000 More than $150,000
Income but less than but less than Reduced Contribution
(AGI) Level $110,000 $160,000 (see explanation below)
------------------------------------------------------------------------------------
$110,000 $160,000
and up and up Zero (No Contribution)
------------------------------------------------------------------------------------
</TABLE>
Note: If you are a married taxpayer filing separately, your maximum
Roth IRA contribution limit phases out over the first $15,000 of adjusted gross
income. If your AGI is $15,000 or more you may not contribute to a Roth IRA for
the year. (Note: Pending legislation in Congress may reduce this number from
$15,000 to $10,000. Consult your tax advisor or the IRS for the latest
developments.)
How do I Calculate my Limit if I Fall in the "Reduced Contribution" Range?
If your AGI falls in the reduced contribution range, you must calculate
your contribution limit. To do this, multiply your normal contribution limit
($2,000 or your compensation if less) by a fraction. The numerator is the amount
by which your AGI exceeds the lower limit of the reduced contribution range
($95,000 if single, or $150,000 if married filing jointly). The denominator is
$15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this
from your normal limit and then round down to the nearest $10. The contribution
limit is the greater of the amount calculated or $200.
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<PAGE>
For example, assume that your AGI for the year is $157,555 and you are
married, filing jointly. You would calculate your Roth IRA contribution limit
this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range:
($157,555-$150,000) = $7,555
2. Divide this by $10,000: $7,555
-------
$10,000 = 0.7555
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit:
($2,000 - $1,551) = $489
5. Round this down to the nearest $10 = $480
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Regular IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Regular IRA.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to
all taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of
Roth IRA contribution limits. First, if you are making a deductible contribution
for the year to a Regular IRA, your AGI is reduced by the amount of the
deduction. Second, if you are converting a Regular IRA to a Roth IRA in a year
(see below), the amount includable in your income as a result of the conversion
is not considered AGI when computing your Roth IRA contribution limit for the
year. (Note: a bill pending in Congress might affect the first rule -- consult
your tax advisor or the IRS for the latest developments.)
What Happens if I Contribute more than Allowed to my Roth IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000
or 100% of compensation or earned income, whichever is less. As noted above,
your maximum is reduced by the amount of any contribution to a Regular IRA for
the same year and may be further reduced if you have high AGI. Any amount
contributed to the Roth IRA above the maximum is considered an "excess
contribution."
An excess contribution is subject to excise tax of 6% for each year it remains
in the Roth IRA.
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To
do so, you must withdraw the excess and any earnings on the excess before the
due date (including extensions) for filing your federal income tax return for
the year for which you made the excess contribution. Earnings on the amount
withdrawn must also be withdrawn. The earnings must be included in your income
for the tax year for which the contribution was made and may be subject to a 10%
premature withdrawal tax if you have not reached age 592 (unless an exception to
the 10% penalty tax applies).
What Happens if I Don't Correct the Excess Contribution by the Tax Return Due
Date?
Any excess contribution withdrawn after the tax return due date
(including any extensions) for the year for which the contribution was made will
be subject to the 6% excise tax. There will be an additional 6% excise tax for
each year the excess remains in your account.
Unless an excess contribution qualifies for the special treatment
outlined above, the excess contribution and any earnings on it withdrawn after
tax filing time will be includable in taxable income and may be subject to a 10%
premature withdrawal penalty.
You may reduce the excess contributions by making a withdrawal equal to
the excess. Earnings need not be withdrawn. To the extent that no earnings are
withdrawn, the withdrawal will not be subject to income taxes or possible
penalties for premature withdrawals before age 59 1/2. Excess contributions may
also be corrected in a subsequent year to the extent that you contribute less
than your Roth IRA contribution limit for the subsequent year. As the prior
excess contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years.
CONVERSION OF EXISTING REGULAR IRA
Can I convert an Existing Regular IRA into a Roth IRA?
Yes, starting in 1998 you can convert an existing Regular IRA into a
Roth IRA if you meet the adjusted gross income (AGI) limits described below.
Conversion may be accomplished either by establishing a Roth IRA and then
transferring the amount in your Regular IRA you wish to convert to the new Roth
IRA. Or, if you want to convert an existing Regular IRA with State Street Bank
as custodian to a Roth IRA, you may give us directions to convert.
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You are eligible to convert a Regular IRA to a Roth IRA if, for the
year of the conversion, your AGI is $100,000 or less. The same limit applies to
married and single taxpayers, and the limit is not indexed to cost-of-living
increases. Married taxpayers are eligible to convert a Regular IRA to a Roth IRA
only if they file a joint income tax return; married taxpayers filing separately
are not eligible to convert.
Note: No contributions other than Roth IRA conversion contributions
made during the same tax year may be deposited in a single Roth IRA conversion
account.
Caution: You should be extremely cautious in converting an existing IRA
into a Roth IRA early in a year if there is any possibility that your AGI for
the year will exceed $100,000. Although a bill pending in Congress would permit
you to transfer amounts back to your Regular IRA if your AGI exceeds $100,000,
under the current rules, if you have already converted during a year and you
turn out to have more than $100,000 of AGI, there may be adverse tax results for
you.
Consult your tax advisor or the IRS for the latest developments.
What are the Tax Results from Converting?
The taxable amount in your Regular IRA you convert to a Roth IRA will
be considered taxable income on your federal income tax return for the year of
the conversion. All amounts in a Regular IRA are taxable except for your prior
non-deductible contributions to the Regular IRA.
If you make the conversion during 1998, the taxable income is spread
over four years. In other words, you would include one quarter of the taxable
amount on your federal income tax return for 1998, 1999, 2000 and 2001.
Should I convert my Regular IRA to a Roth IRA?
Only you can answer this question, in consultation with your tax or
financial advisors. A number of factors, including the following, may be
relevant. Conversion may be advantageous if you expect to leave the converted
funds on deposit in your Roth IRA for at least five years and to be able to
withdraw the funds under circumstances that will not be taxable (see below). The
benefits of converting will also depend on whether you expect to be in the same
tax bracket when you withdraw from your Roth IRA as you are now. Also,
conversion is based upon an assumption that Congress will not change the tax
rules for withdrawals from Roth IRAs in the future, but his cannot be
guaranteed.
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's
Retirement Plan into a Roth IRA?
Distributions from qualified employer-sponsored retirement plans or
403(b) arrangements (for employees of tax-exempt employers) are not eligible for
rollover or direct transfer to a Roth IRA. However, in certain circumstances it
may be possible to make a direct rollover of an eligible distribution to a
Regular IRA and then to convert the Regular IRA to Roth IRA (see above). Consult
your tax or financial advisor for further information on this possibility.
Can I Make a Rollover from my Roth IRA to another Roth IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have
or you establish to receive the rollover. Such a rollover must be completed
within 60 days after the withdrawal from your first Roth IRA. After making a
rollover from one Roth IRA to another, you must wait a full year (365 days)
before you can make another such rollover. (However, you can instruct a Roth IRA
custodian to transfer amounts directly to another Roth IRA custodian; such a
direct transfer does not count as a rollover.)
How Do Rollovers Affect my Roth IRA Contribution Limits?
Rollover contributions, if properly made, do not count toward the
maximum contribution. Also, you may make a rollover from one Roth IRA to another
even during a year when you are not eligible to contribute to a Roth IRA (for
example, because your AGI for that year is too high).
WITHDRAWALS
When can I make withdrawals from my Roth IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal
meets the requirements discussed below, it is tax-free. This means that you pay
no federal income tax even though the withdrawal includes earnings or gains on
your contributions while they were held in your Roth IRA.
When must I start making withdrawals?
There are no rules on when you must start making withdrawals from your
Roth IRA or on minimum required withdrawal amounts for any particular year
during your lifetime. Unlike Regular IRAs, you are not required to start making
withdrawals from a Roth IRA by the April 1 following the year in which you reach
age 70 1/2.
After your death, there are IRS rules on the timing and amount of
distributions. In general, the amount in your Roth IRA must be distributed by
the end of the fifth year after your death. However, distributions to a
designated beneficiary that begin by the end of the year following the year of
your death and that are paid over the life expectancy of the beneficiary satisfy
the rules. Also, if your surviving spouse is your designated beneficiary, the
spouse may defer the start of distributions until you would have reached age 70
1/2 had you lived.
What are the requirements for a tax-free withdrawal?
To be tax-free, a withdrawal from your Roth IRA must meet two
requirements. First, the Roth IRA must have been open for 5 or more years before
the withdrawal. Second, at least one of the following conditions must be
satisfied:
o You are age 59 1/2 or older when you make the withdrawal.
o The withdrawal is made by your beneficiary after you die.
o You are disabled (as defined in IRS rules) when you make the
withdrawal.
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You are using the withdrawal to cover eligible first time
homebuyer expenses. These are the costs of purchasing, building or
rebuilding a principal residence (including customary settlement,
financing or closing costs). The purchaser may be you, your spouse
or a child, grandchild, parent or grandparent of you or your
spouse. An individual is considered a "first-time homebuyer" if
the individual (or the individual's spouse, if married) did not
have an ownership interest in a principal residence during the
two-year period immediately preceding the acquisition in question.
The withdrawal must be used for eligible expenses within 120 days
after the withdrawal (if there is an unexpected delay, or
cancellation of the home acquisition, a withdrawal may be
redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer
expenses of $10,000 per individual.
For a Roth IRA that you set up with amounts rolled over or converted
from a Regular IRA, the 5 year period begins with the year in which the
conversion or rollover was made. (Note: a bill pending in Congress might affect
this rule -- consult your tax advisor or the IRS for the latest developments.)
For a Roth IRA that you started with a normal contribution,
the 5 year period starts with the year for which you make the initial
normal contribution.
How Are Withdrawals From My Roth IRA Taxed if the Tax-Free Requirements are not
Met?
If the qualified withdrawal requirements are not met, a withdrawal
consisting of your own prior contribution amounts to your Roth IRA will not be
considered taxable income in the year you receive it, nor will the 10% penalty
apply. To the extent that the nonqualified withdrawal consists of dividends or
gains while your contributions were held in your Roth IRA, the withdrawal is
includable in your gross income in the taxable year you receive it, and may be
subject to the 10% withdrawal penalty. All amounts withdrawn from your Roth IRA
are considered withdrawals of your contributions until you have withdrawn the
entire amount you have contributed. After that, all amounts withdrawn are
considered taxable withdrawals of dividends and gains.
Note that, for purposes of determining what portion of any distribution
is includable in income, all of your Roth IRA accounts are considered as one
single account. Amounts withdrawn from any one Roth IRA account are deemed to be
withdrawn from contributions first. Since all your Roth IRAs are considered to
be one account for this purpose, withdrawals from Roth IRA accounts are not
considered to be from earnings or interest until an amount equal to all
contributions made to all of an individual's Roth IRA accounts is withdrawn. The
following example illustrates this:
A single individual contributes $1,000 a year to his CypressTree Funds
Roth IRA account and $1,000 a year to the Brand X Roth IRA account over a period
of ten years. At the end of 10 years his account balances are as follows:
Principal
Contributions Earnings
CypressTree Funds
Roth IRA $10,000 $10,000
Brand X Roth IRA $10,000 $10,000
------- -------
Total $20,000 $20,000
At the end of 10 years, this person has $40,000 in both Roth IRA
accounts, of which $20,000 represents his contributions (aggregated) and $20,000
represents his earnings (aggregated). This individual, who is 40, withdraws
$15,000 from his Brand X Roth IRA (not a qualified withdrawal). We look to the
aggregate amount of all principal contributions - in this case $20,000 - to
determine if the withdrawal is from contributions, and thus non-taxable. In this
example, there is no ($0) taxable income as a result of this withdrawal because
the $15,000 withdrawal is less than the total amount of aggregated contributions
($20,000). If this individual then withdrew $15,000 from his CypressTree Funds
Roth IRA, $5,000 would not be taxable (the remaining aggregate contributions)
and $10,000 would be treated as taxable income for the year of the withdrawal,
subject to regular income taxes and the 10% premature withdrawal penalty (unless
an exception applies).
Note: If passed, a bill currently pending in Congress will change the
rules and the results discussed above. Under the proposed legislation, in
general, separate Roth IRAs established for annual contributions and conversions
for separate years are not aggregated as explained above to determine the tax on
withdrawals. See your tax advisor for more information and the latest
developments.
Taxable withdrawals of dividends and gains from a Roth IRA are treated
as ordinary income. Withdrawals of taxable amounts from a Roth IRA are not
eligible for averaging treatment currently available to certain lump sum
distributions from qualified employer-sponsored retirement plans, nor are such
withdrawals eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you
attain age 592 generally will be considered as an early withdrawal and subject
to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the
following exceptions applies:
- The withdrawal was a result of your death or disability.
- The withdrawal is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives
or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments,
the 10% penalty tax will apply. For example, if you begin receiving
payments at age 50 under a withdrawal program providing for
substantially equal payments over your life expectancy, and at age 58
you elect to withdraw the remaining amount in your Roth IRA in a
lump-sum, the 10% penalty tax will apply to the lump sum and to the
amounts previously paid to you before age 592 to the extent they were
includable in your taxable income.
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- The withdrawal is used to pay eligible higher education expenses.
These are expenses for tuition, fees, books, and supplies required to
attend an institution for post-secondary education. Room and board
expenses are also eligible for a student attending at least half-time.
The student may be you, your spouse, or your child or grandchild.
However, expenses that are paid for with a scholarship or other
educational assistance payment are not eligible expenses.
- The withdrawal is used to cover eligible first time homebuyer
expenses (as described above in the discussion of tax-free
withdrawals).
- The withdrawal does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during
a year are deductible if they are greater than 72% of your adjusted
gross income for that year).
- The withdrawal does not exceed the amount you paid for health
insurance coverage for yourself, your spouse and dependents. This
exception applies only if you have been unemployed and received federal
or state unemployment compensation payments for at least 12 weeks; this
exception applies to distributions during the year in which you
received the unemployment compensation and during the following year,
but not to any distributions received after you have been reemployed
for at least 60 days.
What About the 15 percent Penalty Tax?
The rule imposing a 15% penalty tax on very large withdrawals from
tax-favored arrangements (including IRAs, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been repealed. This 15% tax no longer applies.
Important: The discussion of the tax rules for Roth IRAs in this Disclosure
Statement is based upon the best available information. However, Roth IRAs are
new under the tax laws, and the IRS has not issued regulations or rulings on the
operation and tax treatment of Roth IRA accounts. Also, if enacted, legislation
now pending in Congress will change some of the rules. Therefore, you should
consult your tax advisor for the latest developments or for advice about how
maintaining a Roth IRA will affect your personal tax or financial situation.
Also, please see Part Three below which contains important information
applicable to all CypressTree Funds IRAs.
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27
Part Three: Rules for All IRAs (Regular and Roth)
GENERAL INFORMATION
IRA Requirements
All IRAs must meet certain requirements. Contributions generally must
be made in cash. The IRA trustee or custodian must be a bank or other person who
has been approved by the Secretary of the Treasury. Your contributions may not
be invested in life insurance or collectibles or be commingled with other
property except in a common trust or investment fund. Your interest in the
account must be nonforfeitable at all times. You may obtain further information
on IRAs from any district office of the Internal Revenue Service.
May I Revoke My IRA?
You may revoke a newly established Regular or Roth IRA at any time
within seven days after the date on which you receive this Disclosure Statement.
A Regular or Roth IRA established more than seven days after the date of your
receipt of this Disclosure Statement may not be revoked.
To revoke your Regular or Roth IRA, mail or deliver a written notice of
revocation to the Custodian at the address which appears at the end of this
Disclosure Statement. Mailed notice will be deemed given on the date that it is
postmarked (or, if sent by certified or registered mail, on the date of
certification or registration). If you revoke your Regular or Roth IRA within
the seven-day period, you are entitled to a return of the entire amount you
originally contributed into your Regular or Roth IRA, without adjustment for
such items as sales charges, administrative expenses or fluctuations in market
value.
INVESTMENTS
How Are My IRA Contributions Invested?
You control the investment and reinvestment of contributions to your
Regular or Roth IRA. Investments must be in one or more of the Fund(s) available
from time to time as listed in the Adoption Agreement for your Regular or Roth
IRA or in an investment selection form provided with your Adoption Agreement or
from the Fund Distributor or Service Company. You direct the investment of your
IRA by giving your investment instructions to the Distributor or Service Company
for the Fund(s). Since you control the investment of your Regular or Roth IRA,
you are responsible for any losses; neither the Custodian, the Distributor nor
the Service Company has any responsibility for any loss or diminution in value
occasioned by your exercise of investment control. Transactions for your Regular
or Roth IRA will generally be at the applicable public offering price or net
asset value for shares of the Fund(s) involved next established after the
Distributor or the Service Company (whichever may apply) receives proper
investment instructions from you; consult the current prospectus for the Fund(s)
involved for additional information.
Before making any investment, read carefully the current prospectus for
any Fund you are considering as an investment for your Regular IRA or Roth IRA.
The prospectus will contain information about the Fund's investment objectives
and policies, as well as any minimum initial investment or minimum balance
requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Regular or
Roth IRA and because mutual fund shares fluctuate in value, the growth in value
of your Regular or Roth IRA cannot be guaranteed or projected.
Are There Any Restrictions on the Use of my IRA Assets?
The tax-exempt status of your Regular or Roth IRA will be revoked if
you engage in any of the prohibited transactions listed in Section 4975 of the
tax code. Upon such revocation, your Regular or Roth IRA is treated as
distributing its assets to you. The taxable portion of the amount in your IRA
will be subject to income tax (unless, in the case of a Roth IRA, the
requirements for a tax-free withdrawal are satisfied). Also, you may be subject
to a 10% penalty tax on the taxable amount as a premature withdrawal if you have
not yet reached the age of 592.
Any investment in a collectible (for example, rare stamps) by your
Regular or Roth IRA is treated as a withdrawal; the only exception involves
certain types of government-sponsored coins or certain types of precious metal
bullion.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets
in your Regular or Roth IRA. Some examples of prohibited transactions are:
- Direct or indirect sale or exchange of property between you and
your Regular or Roth IRA.
- Transfer of any property from your Regular or Roth IRA to yourself or
from yourself to your Regular or Roth IRA.
Your Regular or Roth IRA could lose its tax exempt status if you use
all or part of your interest in your Regular or Roth IRA as security for a loan
or borrow any money from your Regular or Roth IRA. Any portion of your Regular
or Roth IRA used as security for a loan will be treated as a distribution in the
year in which the money is borrowed. This amount may be taxable and you may also
be subject to the 10% premature withdrawal penalty on the taxable amount.
<PAGE>
FEES AND EXPENSES
Custodian's Fees
The following is a list of the fees charged by the Custodian for
maintaining either a Regular IRA or a Roth IRA.
Account Installation Fee $10.00
Annual Maintenance Fee per mutual fund $10.00
Termination, Rollover, or Transfer of
Account to Successor Custodian $10.00
General Fee Policies
o Fees may be paid by you directly, or the Custodian may deduct them from
your Regular or Roth IRA.
o Fees may be changed upon 30 days written notice to you.
o The full annual maintenance fee will be charged for any calendar year
during which you have a Regular or Roth IRA with us. This fee is not
prorated for periods of less than one full year.
o If provided for in this Disclosure Statement or the Adoption Agreement,
termination fees are charged when your account is closed whether the
funds are distributed to you or transferred to a successor custodian or
trustee.
o The Custodian may charge you for its reasonable expenses for services not
covered by its fee schedule.
Other Charges
o There may be sales or other charges associated with the purchase or
redemption of shares of a Fund in which your Regular IRA or Roth IRA is
invested. Before investing, be sure to read carefully the current
prospectus of any Fund you are considering as an investment for your
Regular IRA or Roth IRA for a description of applicable charges.
TAX MATTERS
What IRA Reports does the Custodian Issue?
The Custodian will report all withdrawals to the IRS and the recipient
on the appropriate form. For reporting purposes, a direct transfer of assets to
a successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account
and the amount of any rollover (including conversions of a Regular IRA to a Roth
IRA) or regular contribution made during a calendar year, as well as the tax
year for which a contribution is made. Unless the Custodian receives an
indication from you to the contrary, it will treat any amount as a contribution
for the tax year in which it is received. It is most important that a
contribution between January and April 15th for the prior year be clearly
designated as such.
What Tax Information Must I Report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which
you made an excess contribution or you take a premature withdrawal that is
subject to the 10% penalty tax, or you withdraw less than the minimum amount
required from your Regular IRA. If your beneficiary fails to make required
minimum withdrawals from your Regular or Roth IRA after your death, your
beneficiary may be subject to an excise tax and be required to file Form 5329.
For Regular IRAs, you must also report each nondeductible contribution
to the IRS by designating it a nondeductible contribution on your tax return.
Use Form 8606. In addition, for any year in which you make a nondeductible
contribution or take a withdrawal, you must include additional information on
your tax return. The information required includes: (1) the amount of your
nondeductible contributions for that year; (2) the amount of withdrawals from
Regular IRAs in that year; (3) the amount by which your total nondeductible
contributions for all the years exceed the total amount of your distributions
previously excluded from gross income; and (4) the total value of all your
Regular IRAs as of the end of the year. If you fail to report any of this
information, the IRS will assume that all your contributions were deductible.
This will result in the taxation of the portion of your withdrawals that should
be treated as a nontaxable return of your nondeductible contributions.
Which Withdrawals Are Subject to Withholding?
Roth IRA
Federal income tax will be withheld at a flat rate of 10% of any
taxable withdrawal from your Roth IRA, unless you elect not to have tax
withheld. Withdrawals from a Roth IRA are not subject to the mandatory 20%
income tax withholding that applies to most distributions from qualified plans
or 403(b) accounts that are not directly rolled over to another plan or IRA.
Regular IRA
Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your Regular IRA, unless you elect not to have tax withheld.
Withdrawals from a Regular IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Regular IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form (or other withdrawal
instructions in a form acceptable to the Custodian), or a transfer authorization
form, to:
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CYPRESSTREE FUNDS
P.O. Box 8360
Boston, MA 02266-8360
Your Regular IRA or Roth IRA with CypressTree Funds will terminate upon
the first to occur of the following:
- The date your properly executed withdrawal form or instructions (as
described above) withdrawing your total Regular IRA or Roth IRA balance
is received and accepted by the Custodian or, if later, the termination
date specified in the withdrawal form.
- The date the Regular IRA or Roth IRA ceases to qualify under the
tax code. This will be deemed a termination.
- The transfer of the Regular IRA or Roth IRA to another
custodian/trustee.
- The rollover of the amounts in the Regular IRA or Roth IRA to
another custodian/trustee.
Any outstanding fees must be received prior to such a termination of
your account.
The amount you receive from your IRA upon termination of the account
will be treated as a withdrawal, and thus the rules relating to Regular IRA or
Roth IRA withdrawals will apply. For example, if the IRA is terminated before
you reach age 592, the 10% early withdrawal penalty may apply to the taxable
amount you receive.
IRA DOCUMENTS
Regular IRA
The terms contained in Articles I to VII of Part One of the State
Street Bank and Trust Company Universal Individual Retirement Custodial Account
document have been promulgated by the IRS in Form 5305-A for use in establishing
a Regular IRA Custodial Account that meets the requirements of Code Section
408(a) for a valid Regular IRA. This IRS approval relates only to the form of
Articles I to VII and is not an approval of the merits of the Regular IRA or of
any investment permitted by the Regular IRA.
Roth IRA
The terms contained in Articles I to VII of Part Two of the State
Street Bank and Trust Company Universal Individual Retirement Account Custodial
Agreement have been promulgated by the IRS in Form 5305-RA for use in
establishing a Roth IRA Custodial Account that meets the requirements of Code
Section 408A for a valid Roth IRA. This IRS approval relates only to the form of
Articles I to VII and is not an approval of the merits of the Roth IRA or of any
investment permitted by the Roth IRA.
Based on our legal advice relating to current tax laws and IRS
meetings, State Street Bank believes that the use of a Universal Individual
Retirement Account Information Kit such as this, containing information and
documents for both a Regular IRA or a Roth IRA, will be acceptable to the IRS.
However, if the IRS makes a ruling, or if Congress enacts legislation, regarding
the use of different documentation, State Street Bank will forward to you new
documentation for your Regular IRA or a Roth IRA (as appropriate) for you to
read and, if necessary, an appropriate new Adoption Agreement to sign. By
adopting a Regular IRA or a Roth IRA using these materials, you acknowledge this
possibility and agree to this procedure if necessary. In all cases, to the
extent permitted State Street Bank will treat your IRA as being opened on the
date your account was opened using the Adoption Agreement in this Kit.
ADDITIONAL INFORMATION
For additional information you may write to the following address or call the
following telephone number.
CYPRESSTREE FUNDS
P.O. Box 8360
Boston, MA 02266-8360
800-860-5575
<PAGE>
State Street Bank and Trust Company Universal Individual Retirement
Account Custodial Agreement Offered by CypressTree Funds
Part One: Provisions applicable to Regular IRAs Provisions
The following provisions of Articles I to VII are in the form promulgated by
the Internal Revenue Service in Form 5305-A for use in establishing an
individual retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c)(but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993 include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5) of the Code).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
Article IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin
to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 702. By that
date, the Depositor may elect, in a manner acceptable to the Custodian, to have
the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of
the beneficiary or beneficiaries, either
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(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the
year of the Depositor's death. If, however, the beneficiary is the
Depositor's surviving spouse, then this distribution is not
required to begin before December 31 of the year in which the
Depositor would have turned age 702.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Depositor's entire interest in the custodial account as of the close
of business on December 31 of the preceding year by the life expectancy of the
Depositor (or the joint life and last survivor expectancy of the Depositor and
the Depositor's designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies.) In the case of distributions under paragraph 3,
determine the initial life expectancy (or joint life and last survivor
expectancy) using the attained ages of the Depositor and designated beneficiary
as of their birthdays in the year the Depositor reaches age 702. In the case of
a distribution in accordance with paragraph 4(b)(ii), determine life expectancy
using the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the Adoption Agreement.
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Part Two: Provisions applicable to Roth IRAs
The following provisions of Articles I to VII are in the form promulgated by
the Internal Revenue Service in Form 5305-RA for use in establishing a Roth
Individual Retirement Custodial Account.
Article I
1. If this Roth IRA is not designated as a Roth Conversion IRA, then,
except in the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum amount of
$2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no
contributions other than IRA Conversion Contributions made during the same tax
year will be accepted.
Article IA
The $2,000 limit described in Article I is gradually reduced to $0
between certain levels of adjusted gross income (AGI). For a single Depositor,
the $2,000 annual contribution is phased out between AGI of $95,000 and
$110,000; for a married Depositor who files jointly, between AGI of $150,000 and
$160,000; and for a married Depositor who files separately, between $0 and
$10,000. In case of a conversion, the Custodian will not accept IRA Conversion
Contributions in a tax year if the Depositor's AGI for that tax year exceeds
$100,000 or if the Depositor is married and files a separate return. Adjusted
gross income is defined in section 408A(c)(3) and does not include IRA
Conversion Contributions.
Article II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles
(within the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and platinum
coins, coins issued under the laws of any state, and certain bullion.
Article IV
1. If the Depositor dies before his or her entire interest is
distributed to him or her and the Depositor's surviving spouse is not the sole
beneficiary, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or (b) Be distributed over the
life expectancy of the designated beneficiary starting no later than
December 31 of the year following the year of the Depositor's death.
If distributions do not begin by the date described in
(b), distribution method (a) will apply.
2. In the case of distribution method 1(b) above, to determine
the minimum annual payment for each year, divide the Depositor's entire
interest in the trust as of the close of business on December 31 of the
preceding year by the life expectancy of the designated
beneficiary using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence and
subtract 1 for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's
date of death, such spouse will then be treated as the Depositor.
Article V
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under sections
408(i) and 408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and under
guidance published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue
Service and the Depositor as prescribed by the Internal Revenue Service.
Article VI
Notwithstanding any other articles which may be added or incorporated,
the provisions of Articles I through IV and this sentence will be controlling.
Any additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
Article VII
This agreement will be amended from time to time to comply with the
provisions of the Code, related regulations, and other published guidance. Other
amendments may be made with the consent of the persons whose signatures appear
below.
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Part Three: Provisions applicable to both Regular IRAs and Roth IRAs
Article VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either event,
Part Three of this State Street Bank and Trust Company Universal Individual
Retirement Account Custodial Agreement and the Adoption Agreement signed by the
Depositor. The Account may be a Regular Individual Retirement Account or a Roth
Individual Retirement Account, as specified by the Depositor. See Section 24
below.
"Custodian" means State Street Bank and Trust Company.
"Fund" means any registered investment company which is advised, sponsored or
distributed by Sponsor; provided, however, that such a mutual fund or registered
investment company must be legally offered for sale in the state of the
Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to serve
as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder to
the Distributor may be performed by the Fund(s) or by an entity that has a
contract to perform management or investment advisory services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform various
administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned hereunder
to the Service Company will be performed by the Distributor (if any) or by an
entity specified in the second preceding paragraph.
"Sponsor" means [insert fund management company or other fund entity that is
making Fund(s) available under this Agreement and has the power to appoint a
successor Custodian.]
2. The Depositor may revoke the Custodial Account established hereunder by
mailing or delivering a written notice of revocation to the Custodian within
seven days after the Depositor receives the Disclosure Statement related to the
Custodial Account. Mailed notice is treated as given to the Custodian on date of
the postmark (or on the date of Post Office certification or registration in the
case of notice sent by certified or registered mail). Upon timely revocation,
the Depositor's initial contribution will be returned, without adjustment for
administrative expenses, commissions or sales charges, fluctuations in market
value or other changes.
The Depositor may certify in the Adoption Agreement that the Depositor
received the Disclosure Statement related to the Custodial Account at least
seven days before the Depositor signed the Adoption Agreement to establish the
Custodial Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be invested and reinvested
in full and fractional shares of one or more Funds. Such investments shall be
made in such proportions and/or in such amounts as Depositor from time to time
in the Adoption Agreement or by other written notice to the Service Company (in
such form as may be acceptable to the Service Company) may direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares of one
or more Funds hereunder to the Funds' transfer agent for execution. However, if
investment directions with respect to the investment of any contribution
hereunder are not received from the Depositor as required or, if received, are
unclear or incomplete in the opinion of the Service Company, the contribution
will be returned to the Depositor, or will be held uninvested (or invested in a
money market fund if available) pending clarification or completion by the
Depositor, in either case without liability for interest or for loss of income
or appreciation. If any other directions or other orders by the Depositor with
respect to the sale or purchase of shares of one or more Funds for the Custodial
Account are unclear or incomplete in the opinion of the Service Company, the
Service Company will refrain from carrying out such investment directions or
from executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum initial
or additional investment or minimum balance rules applicable to a Fund as
described in its prospectus.
All dividends and capital gains or other distributions received on the shares
of any Fund held in the Depositor's Account shall be (unless received in
additional shares) reinvested in full and fractional shares of such Fund (or of
any other Fund offered by the Sponsor, if so directed).
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4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Depositor may at any time
direct the Service Company to exchange all or a specified portion of the shares
of a Fund in the Depositor's Account for shares and fractional shares of one or
more other Funds. The Depositor shall give such directions by written notice
acceptable to the Service Company, and the Service Company will process such
directions as soon as practicable after receipt thereof (subject to the second
paragraph of Section 3 of this Article VIII).
5. Any purchase or redemption of shares of a Fund for or from the Depositor's
Account will be effected at the public offering price or net asset value of such
Fund (as described in the then effective prospectus for such Fund) next
established after the Service Company has transmitted the Depositor's investment
directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or from
the Depositor's Account will be subject to any applicable sales, redemption or
other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Depositor's Custodial Account. Any
account maintained in connection herewith shall be in the name of the Custodian
for the benefit of the Depositor. All assets of the Custodial Account shall be
registered in the name of the Custodian or of a suitable nominee. The books and
records of the Custodian shall show that all such investments are part of the
Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the Account
hereunder will be deemed to satisfy the Custodian's recordkeeping
responsibilities therefor. The Service Company agrees to furnish the Custodian
with any information the Custodian requires to carry out the Custodian's
recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with respect
to the investment and reinvestment of Depositor's Custodial Account, nor shall
such parties be liable for any loss or diminution in value which results from
Depositor's exercise of investment control over his Custodial Account. Depositor
shall have and exercise exclusive responsibility for and control over the
investment of the assets of his Custodial Account, and neither Custodian nor any
other such party shall have any duty to question his directions in that regard
or to advise him regarding the purchase, retention or sale of shares of one or
more Funds for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with respect to
the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment advisor's appointment will be in effect until written
notice to the contrary is received by the Custodian and the Service Company.
While an investment advisor's appointment is in effect, the investment advisor
may issue investment directions or may issue orders for the sale or purchase of
shares of one or more Funds to the Service Company, and the Service Company will
be fully protected in carrying out such investment directions or orders to the
same extent as if they had been given by the Depositor.
The Depositor's appointment of any investment advisor will also be deemed to
be instructions to the Custodian and the Service Company to pay such investment
advisor's fees to the investment advisor from the Custodial Account hereunder
without additional authorization by the Depositor or the Custodian.
9. Distribution of the assets of the Custodial Account shall be made at such
time and in such form as Depositor (or the Beneficiary if Depositor is deceased)
shall elect by written order to the Custodian. Depositor acknowledges that any
distribution of a taxable amount from the Custodial Account (except for
distribution on account of Depositor's disability or death, return of an "excess
contribution" referred to in Code Section 4973, or a "rollover" from this
Custodial Account) made earlier than age 592 may subject Depositor to an
"additional tax on early distributions" under Code Section 72(t) unless an
exception to such additional tax is applicable. For that purpose, Depositor will
be considered disabled if Depositor can prove, as provided in Code Section
72(m)(7), that Depositor is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or be of long-continued and indefinite duration.
It is the responsibility of the Depositor (or the Beneficiary) by appropriate
distribution instructions to the Custodian to insure that any applicable
distribution requirements of Code Section 401(a)(9) and Article IV above are
met. If the Depositor (or Beneficiary) does not direct the Custodian to make
distributions from the Custodial Account by the time that such distributions are
required to commence in accordance with such distribution requirements, the
Custodian (and Service Company) shall assume that the Depositor (or Beneficiary)
is meeting the minimum distribution requirements from another individual
retirement arrangement maintained by the Depositor (or Beneficiary) and the
Custodian and Service Company shall be fully protected in so doing. The
Depositor (or the Depositor's surviving spouse) may elect to comply with the
distribution requirements in Article IV using the recalculation of life
expectancy method, or may elect that the life expectancy of the Depositor and/or
the Depositor's surviving spouse, as applicable, will not be recalculated; any
such election may be in such form as the Depositor (or surviving spouse)
provides (including the calculation of minimum distribution amounts in
accordance with a method that does not provide for recalculation of the life
expectancy of one or both of the Depositor and surviving spouse and instructions
for withdrawals to the Custodian in accordance with such method).
Notwithstanding paragraph 2 of Article IV, unless an election to have life
expectancies recalculated annually is made by the time distributions are
required to begin, life expectancies shall not be recalculated. Neither the
Custodian nor any other party providing services to the Custodial Account
assumes any responsibility for the tax treatment of any distribution from the
Custodial Account; such responsibility rests solely with the person ordering the
distribution.
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10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, Custodian shall be furnished with any and
all applications, certificates, tax waivers, signature guarantees and other
documents (including proof of any legal representative's authority) deemed
necessary or advisable by Custodian, but Custodian shall not be responsible for
complying with any order or instruction which appears on its face to be genuine,
or for refusing to comply if not satisfied it is genuine, and Custodian has no
duty of further inquiry. Any distributions from the Account may be mailed,
first-class postage prepaid, to the last known address of the person who is to
receive such distribution, as shown on the Custodian's records, and such
distribution shall to the extent thereof completely discharge the Custodian's
liability for such payment.
11. (a) The term "Beneficiary" means the person or persons designated as
such by the "designating person" (as defined below) on a form
acceptable to the Custodian for use in connection with the Custodial
Account, signed by the designating person, and filed with the
Custodian. The form may name individuals, trusts, estates, or other
entities as either primary or contingent beneficiaries. However, if
the designation does not effectively dispose of the entire Custodial
Account as of the time distribution is to commence, the term
"Beneficiary" shall then mean the designating person's estate with
respect to the assets of the Custodial Account not disposed of by the
designation form. The form last accepted by the Custodian before such
distribution is to commence, provided it was received by the
Custodian (or deposited in the U.S. Mail or with a reputable delivery
service) during the designating person's lifetime, shall be
controlling and, whether or not fully dispositive of the Custodial
Account, thereupon shall revoke all such forms previously filed by
that person. The term "designating person" means Depositor during
his/her lifetime; after Depositor's death, it also means Depositor's
spouse, but only if the spouse elects to treat the Custodial Account
as the spouse's own Custodial Account in accordance with applicable
provisions of the Code.
(b) When and after distributions from the Custodial Account to
Depositor's Beneficiary commence, all rights and obligations assigned
to Depositor hereunder shall inure to, and be enjoyed and exercised
by, Beneficiary instead of Depositor.
12. (a) The Depositor agrees to provide information to the Custodian at
such time and in such manner as may be necessary for the Custodian to
prepare any reports required under Section 408(i) or Section
408A(d)(3)(E) of the Code and the regulations thereunder or
otherwise.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Depositor at such time and manner
and containing such information as is prescribed by the Internal
Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish to each
other such information relevant to the Custodial Account as may be
required under the Code and any regulations issued or forms adopted
by the Treasury Department thereunder or as may otherwise be
necessary for the administration of the Custodial Account.
(d) The Depositor shall file any reports to the Internal Revenue Service
which are required of him by law (including Form 5329), and neither
the Custodian nor Service Company shall have any duty to advise
Depositor concerning or monitor Depositor's compliance with such
requirement.
13. (a) Depositor retains the right to amend this Custodial Account
document in any respect at any time, effective on a stated date which
shall be at least 60 days after giving written notice of the
amendment (including its exact terms) to Custodian by registered or
certified mail, unless Custodian waives notice as to such amendment.
If the Custodian does not wish to continue serving as such under this
Custodial Account document as so amended, it may resign in accordance
with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right so to
amend, provided (i) the Custodian does not change the investments
available under this Custodial Agreement and (ii) the Custodian
amends in the same manner all agreements comparable to this one,
having the same Custodian, permitting comparable investments, and
under which such power has been delegated to it; this includes the
power to amend retroactively if necessary or appropriate in the
opinion of the Custodian in order to conform this Custodial Account
to pertinent provisions of the Code and other laws or successor
provisions of law, or to obtain a governmental ruling that such
requirements are met, to adopt a prototype or master form of
agreement in substitution for this Agreement, or as otherwise may be
advisable in the opinion of the Custodian. Such an amendment by the
Custodian shall be communicated in writing to Depositor, and
Depositor shall be deemed to have consented thereto unless, within 30
days after such communication to Depositor is mailed, Depositor
either (i) gives Custodian a written order for a complete
distribution or transfer of the Custodial Account, or (ii) removes
the Custodian and appoints a successor under Section 17 below.
Pending the adoption of any amendment necessary or desirable to
conform this Custodial Account document to the requirements of any
amendment to any applicable provision of the Internal Revenue Code or
regulations or rulings thereunder, the Custodian and the Service
Company may operate the Depositor's Custodial Account in accordance
with such requirements to the extent that the Custodian and/or the
Service Company deem necessary to preserve the tax benefits of the
Account.
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(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of Custodian
without its prior written consent.
(d) This Section 13 shall not be construed to restrict the Custodian's
right to substitute fee schedules in the manner provided by Section
16 below, and no such substitution shall be deemed to be an amendment
of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement
is terminated or if, within 30 days (or such longer time as Custodian
may agree) after resignation or removal of Custodian under Section
17, Depositor or Sponsor, as the case may be, has not appointed a
successor which has accepted such appointment. Termination of the
Custodial Account shall be effected by distributing all assets
thereof in a single payment in cash or in kind to Depositor, subject
to Custodian's right to reserve funds as provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial account
document shall have no further force and effect (except for Sections
15(f), 17(b) and (c) hereof which shall survive the termination of
the Custodial Account and this document), and Custodian shall be
relieved from all further liability hereunder or with respect to the
Custodial Account and all assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more
contractors or service providers to carry out any of its functions
and may compensate them from the Custodial Account for expenses
attendant to those functions. In the event of such appointment, all
rights and privileges of the Custodian under this Agreement shall
pass through to such contractors or service providers who shall be
entitled to enforce them as if a named party.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor and for
dealing with or forwarding the same to the transfer agent for the
Fund(s).
(c) The parties do not intend to confer any fiduciary duties on Custodian
or Service Company (or any other party providing services to the
Custodial Account), and none shall be implied. Neither shall be
liable (or assumes any responsibility) for the collection of
contributions, the proper amount, time or tax treatment of any
contribution to the Custodial Account or the propriety of any
contributions under this Agreement, or the purpose, time, amount
(including any minimum distribution amounts), tax treatment or
propriety of any distribution hereunder, which matters are the sole
responsibility of Depositor and Depositor's Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or
after the Custodian's resignation or removal), the Custodian or
Service Company shall file with Depositor a written report or reports
reflecting the transactions effected by it during such period and the
assets of the Custodial Account at its close. Upon the expiration of
60 days after such a report is sent to Depositor (or Beneficiary),
the Custodian or Service Company shall be forever released and
discharged from all liability and accountability to anyone with
respect to transactions shown in or reflected by such report except
with respect to any such acts or transactions as to which Depositor
shall have filed written objections with the Custodian or Service
Company within such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to
Depositor all notices, prospectuses, financial statements and other
reports to shareholders, proxies and proxy soliciting materials
relating to the shares of the Funds(s) credited to the Custodial
Account. No shares shall be voted, and no other action shall be taken
pursuant to such documents, except upon receipt of adequate written
instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company, Distributor,
the Fund(s), Sponsor and Custodian and save them harmless from any
and all liability whatsoever which may arise either (i) in connection
with this Agreement and the matters which it contemplates, except
that which arises directly out of the Service Company's,
Distributor's, Fund's, Sponsor's or Custodian's bad faith, gross
negligence or willful misconduct, (ii) with respect to making or
failing to make any distribution, other than for failure to make
distribution in accordance with an order therefor which is in full
compliance with Section 10, or (iii) actions taken or omitted in good
faith by such parties. Neither Service Company nor Custodian shall be
obligated or expected to commence or defend any legal action or
proceeding in connection with this Agreement or such matters unless
agreed upon by that party and Depositor, and unless fully indemnified
for so doing to that party's satisfaction.
(g) The Custodian and Service Company shall each be responsible solely
for performance of those duties expressly assigned to it in this
Agreement, and neither assumes any responsibility as to duties
assigned to anyone else hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively rely upon and
shall be protected in acting upon any written order from Depositor or
Beneficiary, or any investment advisor appointed under Section 8, or
any other notice, request, consent, certificate or other instrument
or paper believed by it to be genuine and to have been properly
executed, and so long as it acts in good faith, in taking or omitting
to take any other action in reliance thereon. In addition, Custodian
will carry out the requirements of any apparently valid court order
relating to the Custodial Account and will incur no liability or
responsibility for so doing.
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16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the applicable fee
schedule. The fee schedule originally applicable shall be the one
specified in the Adoption Agreement or Disclosure Statement, as
applicable. The Custodian may substitute a different fee schedule at
any time upon 30 days' written notice to Depositor. The Custodian
shall also receive reasonable fees for any services not contemplated
by any applicable fee schedule and either deemed by it to be
necessary or desirable or requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of any
kind whatsoever, including transfer taxes incurred in connection with
the investment or reinvestment of the assets of the Custodial
Account, that may be levied or assessed in respect to such assets,
and all other administrative expenses incurred by the Custodian in
the performance of its duties (including fees for legal services
rendered to it in connection with the Custodial Account) shall be
charged to the Custodial Account. If the Custodian is required to pay
any such amount, the Depositor (or Beneficiary) shall promptly upon
notice thereof reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses charged to
the Custodial Account shall be collected either from the amount of
any contribution or distribution to or from the Account, or (at the
option of the person entitled to collect such amounts) to the extent
possible under the circumstances by the conversion into cash of
sufficient shares of one or more Funds held in the Custodial Account
(without liability for any loss incurred thereby). Notwithstanding
the foregoing, the Custodian or Service Company may make demand upon
the Depositor for payment of the amount of such fees, taxes and other
administrative expenses. Fees which remain outstanding after 60 days
may be subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor or
Sponsor, as the case may be, may remove it from its office hereunder.
Such notice, to be effective, shall designate a successor custodian
and shall be accompanied by the successor's written acceptance. The
Custodian also may at any time resign upon 30 days' prior written
notice to Sponsor, whereupon the Sponsor shall notify the Depositor
(or Beneficiary) and shall appoint a successor to the Custodian. In
connection with its resignation hereunder, the Custodian may, but is
not required to, designate a successor custodian by written notice to
the Sponsor or Depositor (or Beneficiary), and the Sponsor or
Depositor (or Beneficiary) will be deemed to have consented to such
successor unless the Sponsor or Depositor (or Beneficiary) designates
a different successor custodian and provides written notice thereof
together with such a different successor's written acceptance by such
date as the Custodian specifies in its original notice to the Sponsor
or Depositor (or Beneficiary) (provided that the Sponsor or Depositor
(or Beneficiary) will have a minimum of 30 days to designate a
different successor).
(b) The successor custodian shall be a bank, insured credit union, or
other person satisfactory to the Secretary of the Treasury under Code
Section 408(a)(2). Upon receipt by Custodian of written acceptance by
its successor of such successor's appointment, Custodian shall
transfer and pay over to such successor the assets of the Custodial
Account and all records (or copies thereof) of Custodian pertaining
thereto, provided that the successor custodian agrees not to dispose
of any such records without the Custodian's consent. Custodian is
authorized, however, to reserve such sum of money or property as it
may deem advisable for payment of all its fees, compensation, costs,
and expenses, or for payment of any other liabilities constituting a
charge on or against the assets of the Custodial Account or on or
against the Custodian, with any balance of such reserve remaining
after the payment of all such items to be paid over to the successor
custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and sections
thereof shall mean the same as amended from time to time, including successors
to such sections.
19. Except where otherwise specifically required in this Agreement, any notice
from Custodian to any person provided for in this Agreement shall be effective
if sent by first-class mail to such person at that person's last address on the
Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power to
anticipate any part of the Custodial Account or to sell, assign, transfer,
pledge or hypothecate any part thereof. The Custodial Account shall not be
liable for the debts of Depositor or Depositor's Beneficiary or subject to any
seizure, attachment, execution or other legal process in respect thereof except
to the extent required by law. At no time shall it be possible for any part of
the assets of the Custodial Account to be used for or diverted to purposes other
than for the exclusive benefit of the Depositor or his/her Beneficiary except to
the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall be
construed and administered in accordance with the laws of the state where the
principal offices of the Custodian are located. Any action involving the
Custodian brought by any other party must be brought in a state or federal court
in such state.
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If in the Adoption Agreement, Depositor designates that the Custodial
Account is a Regular IRA, this Agreement is intended to qualify under Code
Section 408(a) as an individual retirement Custodial Account and to entitle
Depositor to the retirement savings deduction under Code Section 219 if
available. If in the Adoption Agreement Depositor designates that the Custodial
Account is a Roth IRA, this Agreement is intended to qualify under Code Section
408A as a Roth individual retirement Custodial Account and to entitle Depositor
to the tax-free withdrawal of amounts from the Custodial Account to the extent
permitted in such Code section.
If any provision hereof is subject to more than one interpretation or any
term used herein is subject to more than one construction, such ambiguity shall
be resolved in favor of that interpretation or construction which is consistent
with the intent expressed in whichever of the two preceding sentences is
applicable.
However, the Custodian shall not be responsible for whether or not such
intentions are achieved through use of this Agreement, and Depositor is referred
to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the legal
consequences (including but not limited to federal and state tax matters) of
entering into this Agreement, contributing to the Custodial Account, and
ordering Custodian to make distributions from the Account. Depositor
acknowledges that Custodian and Service Company (and any company associated
therewith) are prohibited by law from rendering such advice.
23. If any provision of any document governing the Custodial Account provides
for notice, instructions or other communications from one party to another in
writing, to the extent provided for in the procedures of the Custodian, Service
Company or another party, any such notice, instructions or other communications
may be given by telephonic, computer, other electronic or other means, and the
requirement for written notice will be deemed satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the Adoption Agreement the Depositor designated the Custodial Account
as a Regular IRA under Code Section 408(a), the provisions of Part One and Part
Three of this Agreement and the provisions of the Adoption Agreement are the
legal documents governing the Depositor's Custodial Account.
(b) If in the Adoption Agreement the Depositor designated the Custodial Account
as a Roth IRA under Code Section 408A, the provisions of Part Two and Part Three
of this Agreement and the provisions of the Adoption Agreement are the legal
documents governing the Depositor's Custodial Account.
(c) In the Adoption Agreement the Depositor must designate the Custodian Account
as either a Roth IRA or a Regular IRA, and a separate account will be
established for such IRA. One Custodial Account may not serve as a Roth IRA and
a Regular IRA (through the use of subaccounts or otherwise).
25. Articles I through VII of Part One of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-A. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-A, the Custodian will amend this Agreement correspondingly.
Articles I through VII of Part Two of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-RA. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-RA, the Custodian will amend this Agreement correspondingly.
The Internal Revenue Service has endorsed the use of documentation
permitting a Depositor to establish either a Regular IRA or Roth IRA (but not
both using a single Adoption Agreement), and this Kit complies with the
requirements of the IRS guidance for such use. If the Internal Revenue Service
subsequently determines that such an approach is not permissible, or that the
use of a "combined" Adoption Agreement does not establish a valid Regular IRA or
a Roth IRA (as the case may be), the Custodian will furnish the Depositor with
replacement documents and the Depositor will if necessary sign such replacement
documents. Depositor acknowledge and agrees to such procedures and to cooperate
with Custodian to preserve the intended tax treatment of the Account.
26. If the Depositor maintains an Individual Retirement Account under Code
section 408(a), Depositor may convert or transfer such other IRA to a Roth IRA
under Code section 408A using the terms of this Agreement and the Adoption
Agreement by completing and executing the Adoption Agreement and giving suitable
directions to the Custodian and the custodian or trustee of such other IRA.
Alternatively, the Depositor may convert or transfer such other IRA to a Roth
IRA by use of a reply card or by telephonic, computer or electronic means in
accordance with procedures adopted by the Custodian or Service Company intended
to meet the requirements of Code section 408A, and the Depositor will be deemed
to have executed the Adoption Agreement and adopted the provisions of this
Agreement and the Adoption Agreement in accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the current
prospectus for each Fund in which his or her Account is invested and the
Individual Retirement Account Disclosure Statement related to the Account. The
Depositor represents under penalties of perjury that his or her Social Security
Number (or other Taxpayer Identification Number) as stated in the Adoption
Agreement is correct.
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