As filed with the Securities and Exchange Commission on July 20, 1998
1933 ACT FILE NO. 333-49273
1940 ACT FILE NO. 811-8727
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
(Check appropriate box or boxes)
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT
Under
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1
[X]
North American 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) 946-6000
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Bradford K. Gallagher
President
North American 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 offering: As soon as practicable after the
effective date of this Registration Statement.
Copies to:
Ruth S. Epstein, Esquire
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044-7566.
If any of the securities being registered on this Form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [X]
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933
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<TABLE>
<CAPTION>
Amount Maximum Maximum Amount of
Being Offering Price Aggregate Registration
Title of Securities Being Registered Registered Per Unit Offering Price(1) Fee(2)
<S> <C> <C> <C> <C>
Common Stock 100,000 $ 10.00 $1,000,000 $ 303.03
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Previously 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>
North American Senior Floating Rate Fund, Inc.
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 The Fund; Description of Shares;
Repurchase Offers; Investment Objective;
Investment Policies; Investments; Risk
Factors; Multiple Pricing System
9. Management Management of the Fund; Valuing Fund
Shares; How to Buy Fund Shares; Cover
Page
10. Capital Stock, Long-Term Debt, and Description of Shares; Valuing Fund
Other Securities Shares; Management of the Fund; Multiple
Pricing System; Shareholder Services,
Taxes
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 Auditors and Financial Statements
</TABLE>
<PAGE>
Subject to Completion, dated July 20, 1998
North American Senior Floating Rate Fund, Inc.
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The North American 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 an initial sales charge, subject to an Early Withdrawal 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, generally
expected to be 10%. See "Repurchase Offers" on page .
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 . The Fund may
borrow, primarily in connection with the Fund's monthly Repurchase Offers for
its shares. See "Repurchase Offers" on page , and "Borrowing by the Fund" on
page .
No market presently exists for the Fund's shares and it is not currently
anticipated that a secondary market will develop for the Fund's shares. Fund
shares may not be considered to be readily marketable.
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,
its distributor, CypressTree Funds Distributors, Inc., at 286 Congress Street,
Boston, Massachusetts 02210 ((800) 872-8037). 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 Repurchase Request 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 Class B Share $ 10.00 None $ 10.00
- ------------------- ------- --------------- -------
Per Class C Share $ 10.00 None $ 10.00
Total $ None $
=================== ======= =============== =======
</TABLE>
- ------------
(1) The shares are offered on a best efforts basis at a price equal to a net
asset value, which initially is $10.00 per share.
(2) Class B and Class C shares are subject to an Early Withdrawal Charge and
asset-based Distribution and Service Fees.
(3) Assuming the sale of all shares registered hereby, and exclusion of
approximately $ 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.
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.
PROSPECTUS DATED ______, 1998
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Fund Expenses ........................................................ 3
Summary .............................................................. 5
The Fund ............................................................. 7
Investment Objective ................................................. 7
Use of Proceeds ...................................................... 7
Investment Policies .................................................. 7
Investments .......................................................... 7
Risk Factors ......................................................... 11
Repurchase Offers .................................................... 15
Management of the Fund ............................................... 17
Valuing Fund Shares .................................................. 18
Performance Information .............................................. 19
Multiple Pricing System .............................................. 20
How to Buy Fund Shares ............................................... 21
Shareholder Services ................................................. 25
Distributions ........................................................ 27
Taxes ................................................................ 27
Description of Shares ................................................ 28
Reports to Shareholders .............................................. 30
Appendix A--Description of Ratings ................................... 31
Table of Contents of the Statement of Additional Information ......... 32
</TABLE>
<PAGE>
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FUND EXPENSES
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The following table and Example are intended to assist investors in
understanding the direct and indirect expenses applicable to each class of
shares of the Fund. Because the Fund does not yet have an operating history,
this information is based on estimated fees and expenses for the fiscal year
ending December 31, 1998, after expense reimbursement.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class B+ Class C+
- ----------------------------------------------- --------------------- --------------------
<S> <C> <C>
Sales Charge Imposed on Purchases None None
of Shares (as a percentage of offering price)
Sales Charge Imposed on Dividend Reinvestment None None
Early Withdrawal Charges 3% first year 1% first year
(as a percentage of original purchase price 2.5% second year 0% after first year
or repurchase price, whichever is lower) 2% third year
1% fourth year
0% after fourth year
Exchange fee None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets attributable to common shares)(1)
Class B+ Class C+
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(2) 0.85% 0.85%
Interest Payments on Borrowed Funds 0.00% 0.00%
Service Fee 0.25% 0.25%
Distribution Fee (after reimbursement)(3)(4) 0.00% 0.00%
Administration Fee (after reimbursement)(2)(4) 0.00% 0.00%
Other Expenses 0.30% 0.30%
---- ----
Total Fund Operating Expenses (after reimbursement)(4) 1.40% 1.40%
</TABLE>
(1) See "Management of the Fund" for additional information.
(2) 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).
(3) The Fund pays a distribution fee of 0.50% of average daily net assets.
(4) 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
1.40% 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 0.25%, distribution fee
of 0.50%, and other expenses of 0.30%; and total Fund operating expenses of
2.30%. This agreement may be terminated by CAM at any time after December
31, 1999 on thirty (30) days' written notice.
+ The Fund also has Class A Shares, which are not offered to the public. Class
B Shares automatically convert into Class A Shares eight years after
purchase. Class C Shares automatically convert into Class A Shares ten years
after purchase. See "Multiple Pricing System--Conversion Feature." Class A
Shares are not subject to any shareholder transaction expenses. The
estimated annual Fund operating expenses of Class A Shares are: management
fee of 0.85%, interest payments on borrowed funds of 0.00%, administration
fee of 0.40%, service fee of up to 0.25%, and other expenses of 0.30%, and
total annual expenses of 1.40%. This reflects reimbursement of the 0.40%
administration fee pursuant to CAM's agreement to reimburse the Fund's
expenses to the extent necessary so that total annualized Fund expenses do
not exceed 1.40% of average daily gross assets. See note 4, above. Absent
this reimbursement, total Fund operating expenses of Class A shares would be
1.80%.
The amounts set forth under the caption "Shareholder Transaction Expenses" are
the maximum sales charges applicable to purchases of Fund shares. Because a
portion of the service fees payable by each class of shares may be considered
an asset-based sales charge, long-term shareholders in each class of the Fund
may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the National Association of Securities Dealers, Inc.
("NASD"). See "How to Buy Fund Shares."
3
<PAGE>
EXAMPLE
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An investor would pay the following expenses on a $1,000 investment, assuming
a 5% annual return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Class B Shares ......... $45 $67 $82 $179
Class C Shares ......... $25 $47 $82 $179
</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 and repurchase at the end of each period. The
Example assumes that the fee waivers and reimbursements referred to under "Fund
Expenses" are in effect.
The Example should not be considered a representation of past or future
expenses because future expenses may be greater or less than those shown.
Actual expenses may be higher or lower than the amounts shown in the Fee
Table and, consequently, the actual expenses incurred by an investor may be
greater (in the event the expense limitations are removed) or less than the
amounts shown in the Example. Moreover, while the Example assumes a 5% annual
return, performance will vary and may result in a return greater or less than
5%. The Example should not be considered a representation of past or future
expenses because future expenses may be greater or less than those shown.
4
<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 .
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. There is no assurance
that the Fund's objective will be achieved. See "Investment Policies" on page
.
Repurchase Offers
The Fund is a closed-end investment company and, as such, does not redeem
its shares. It is not anticipated that a secondary market for Fund shares will
develop. In order to provide shareholders with liquidity and the ability to
receive net asset value on a disposition of shares, the Fund will conduct
monthly offers to repurchase at net asset value a percentage of its outstanding
shares, 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 .
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 .
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 $ 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
.
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
5
<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
Shares are offered continuously for sale through securities dealers and
banks that have executed an agreement (a "Dealer Agreement") with CypressTree
Funds Distributors, Inc. (the "Distributor"), the distributor of the Fund's
shares. Certain states require that purchases of shares of the Fund be made
only through a broker-dealer registered in the state.
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 .
Classes of Shares
The Fund offers two classes of shares ("Class B" shares and "Class C"
shares) to the general public, with each class having a different sales charge
structure (the "Multiple Pricing System"). Each class has distinct advantages
and disadvantages for different investors, and investors may choose the class
that best suits their circumstances and objectives. See "Multiple Pricing
System."
Class B shares. Class B shares are offered for sale at net asset value
without a front-end sales charge, but are subject to an Early Withdrawal Charge
of 3% during the first year after purchase, and declining to 2.5% after the
first year, 2.0% after the second year, 1.0% after the third year, and 0% after
the fourth year. The applicable percentage is assessed on an amount equal to
the lesser of the original purchase price or the repurchase price of the shares
repurchased. Class B shares are also subject to a service fee of up to 0.25%,
and a distribution fee of up to 0.50% of their respective average annual net
assets.
Class C shares. Class C shares are offered for sale at net asset value
without a front-end sales charge, but are subject to an Early Withdrawal Charge
of 1% during the first year after purchase. The applicable percentage is
assessed on an amount equal to the lesser of the original purchase price or the
repurchase price of shares repurchased. Class C shares are subject to a service
fee of up to 0.25%, and a distribution fee of up to 0.50% of their respective
average annual net assets.
For a discussion of factors to consider in selecting the most beneficial
class of shares for a particular investor, see "Multiple Pricing
System--Factors for Consideration."
Automatic Conversion. The Fund also has Class A Shares, which are not
offered to the public. Class B shares will automatically convert to Class A
Shares of the Fund eight years after purchase. Class C shares will
automatically convert to Class A Shares of the Fund ten years after purchase.
Class A Shares are subject to a service fee of up to 0.25% of average annual
net assets. See "Multiple Pricing System--Conversion Feature."
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.
6
<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
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The Fund will invest net proceeds of this offering, after payment of
organizational and offering expenses by the Fund, in accordance with the Fund's
investment objective and policies within approximately six months after the
commencement of this offering. The precise time frame for these investments
will depend on the availability of Loans and other relevant conditions. Pending
such investment, the Fund will invest the net proceeds of this offering in
investment grade short-term or medium-term debt obligations.
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
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 the judgment of
CypressTree, 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. This 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.
- --------------------------------------------------------------------------------
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 of a Loan would result in the Fund having less than 80%
of its assets in fully secured Loans.
7
<PAGE>
The Loans typically will have a stated term of five to nine years.
However, because the Loans typically amortize principal over their stated life
and are frequently prepaid, their average 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 enforcing the Loan Agreement and is obligated to use
only the same care it would use in the management of its own property. The
Borrower compensates the Agent for these services. This compensation may
include special fees paid on structuring and funding the Loan and other fees
paid on a continuing basis. The typical practice of an Agent or a lender in
relying exclusively or primarily on reports from the Borrower may involve a
risk of fraud by the Borrower.
In the event that an Agent becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate bank
regulatory authority or becomes a debtor in a bankruptcy proceeding, the
Agent's appointment may be terminated, and a successor agent would be
appointed. Assets held by the Agent under the Loan Agreement should remain
available to holders of Loans. However, if assets held by the Agent for the
benefit of the Fund were determined by an appropriate regulatory authority or
court to be subject to the claims of the Agent's general or secured creditors,
the Fund might incur certain costs and delays in realizing payment on a Loan or
suffer a loss of principal and/or interest. Furthermore, in the event of the
Borrower's bankruptcy or insolvency, the Borrower's obligation to repay the
Loan may be subject to certain defenses that the Borrower can assert as a
result of improper conduct by the Agent.
The Fund's investment in a Loan may take the form of a "Participation."
Lenders may sell Loans to third parties called "Participants." Participations
may be acquired from a lender or from other Participants. If the Fund purchases
a Participation either from a lender or a Participant, the Fund will not have
established any direct contractual rela-
8
<PAGE>
tionship with the Borrower. The Fund would be required to rely on the lender or
the Participant that sold the Participation not only for the enforcement of the
Fund's rights against the Borrower but also for the receipt and processing of
payments due to the Fund under the Loan. The Fund is thus subject to the credit
risk of both the Borrower and a Participant. Lenders and Participants
interposed between the Fund and a Borrower are referred to as "Intermediate
Participants."
In the case of Participations, because it may be necessary to assert
through an Intermediate Participant such rights as may exist against the
Borrower in the event the Borrower fails to pay principal and interest when
due, the Fund may be subject to delays, expenses and risks that are greater
than those that would be involved if the Fund could enforce its rights directly
against the Borrower. Moreover, under the terms of a Participation, the Fund
may be regarded as a creditor of the Intermediate Participant (rather than of
the Borrower), so that the Fund also may be subject to the risk that the
Intermediate Participant may become insolvent. The agreement between the buyer
and seller may also limit the rights of the holder of the Loan to vote on
certain changes that may be made to the Loan Agreement, such as waiving a
breach of a covenant. However, in almost all cases, the holder of a Loan will
have the right to vote on certain fundamental issues such as changes in
principal amount, payment dates, and interest rate.
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 or potential
capital appreciation 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 loan
additional funds under the terms of the credit 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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<PAGE>
The Fund may receive and/or pay certain fees in connection with its
activities in buying, selling and holding Loans. These fees are in addition to
interest payments received, and may include facility fees, commitment fees,
commissions and prepayment penalty fees. When the Fund buys a Loan, it may
receive a facility fee, and when it sells a Loan, it may pay a facility fee.
The Fund may receive a commitment fee based on the undrawn portion of the
underlying line of credit portion of a Loan, or, in certain circumstances, the
Fund may receive a prepayment penalty fee on the prepayment of a Loan by a
Borrower. The Fund may also receive other fees, including covenant waiver fees
and covenant modification fees.
From time to time CypressTree or 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 102%
of 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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<PAGE>
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 the judgment of CypressTree, 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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<PAGE>
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
12
<PAGE>
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.
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
13
<PAGE>
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."
Borrowing By The Fund
The Fund may borrow money in amounts up to 331/3% 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
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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"). For this purpose, Class A, Class B, and Class C shares
are considered as a single class. 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 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 800-872-8037.
The Fund does not presently intend to deduct any repurchase fees from this
amount (other than any applicable Early Withdrawal Charge). 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 and will be charged to all
repurchased shares on a pro rata basis. 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.
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Early Withdrawal Charge
Class B Shares are subject to an Early Withdrawal Charge of 3% during the
first year after purchase, and declining to 2.5% after the first year, 2.0%
after the second year, 1.0% after the third year, and 0% after the fourth year.
Class C Shares are subject to an Early Withdrawal Charge of 1% during the first
year after purchase.
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").
For example, if in Month 1 the Fund offers to repurchase 10% of shares
then outstanding, and shareholders tender 11%, the Fund could determine to
repurchase the extra 1% of shares then 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.
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 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
Repurchase 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;
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<PAGE>
(b) for any period during which an emergency exists as a result of which it
is not reasonably practicable for the Fund to dispose of securities it owns
or to determine the value of the Fund's net assets;
(c) for any other periods that the Securities and Exchange Commission
permits by order for the protection of shareholders;
(d) if the shares are listed on a national securities exchange or quoted in
an inter-dealer quotation system of a national securities association
(e.g., Nasdaq) and the Repurchase would cause the shares to lose that
status; or
(e) during any period in which any market on which the shares are
principally traded is closed, or during any period in which trading on the
market is restricted.
Consequences of Repurchase Offers
Although the Board believes that Repurchase Offers generally will be
beneficial to the Fund's shareholders, repurchases will decrease the Fund's
total assets and therefore have the possible effect 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., a leveraged
buyout firm. The address of CAM is 125 High Street, Boston, Massachusetts
02110, and the address of Distributors is 286 Congress Street, Boston,
Massachusetts 02210. CAM serves as investment adviser to the North American
Funds, an open-end series fund with 15 separate investment portfolios managed
by ten different subadvisers, with approximately $1 billion in aggregate
assets. CAM also serves as investment adviser to another recently organized
closed-end fund investing in Loans.
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 1.40% of
average daily gross assets. This agreement may be terminated by CAM at any time
after December 31, 1999 on thirty (30) days' written notice.
17
<PAGE>
CypressTree has been retained by CAM as the subadviser to the Fund to
manage the investment and reinvestment of the Fund's assets. CAM also has
retained CypressTree to serve as investment subadviser to another closed-end
fund investing in Loans with approximately $ million in assets. CypressTree
was founded in 1996 as the nation's first independent investment advisory firm
specializing in the loan asset class and currently has $ 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, 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
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, has been employed as Chief Investment Officer
of CypressTree since 1996, and is an Executive Vice President of the Fund. As
Chief Investment Officer, Mr. Garner is responsible for the overall supervision
of CypressTree's investment management of the Fund. 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").
Peter K. Merrill, age 37, is a Vice President and the Portfolio Manager of
the Fund, and is a Vice President of CypressTree. Mr. Merrill joined
CypressTree in June 1997. Previously, from 1988, Mr. Merrill held a variety of
positions with BankBoston Corporation, specializing in high yield portfolio
management and leveraged bank loans.
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
18
<PAGE>
(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 the opinion of
CypressTree 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.
Loans for which an active secondary market does not exist to a reliable
degree in the opinion of CypressTree 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 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
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<PAGE>
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.
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.
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MULTIPLE PRICING SYSTEM
- --------------------------------------------------------------------------------
The Fund's Multiple Pricing System permits an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
Class B Shares. Class B shares are offered for sale at net asset value
without a front-end sales charge, but are subject to an Early Withdrawal Charge
of 3% during the first year after purchase, and declining to 2.5% after the
first year, 2.0% after the second year, 1.0% after the third year, and 0% after
the fourth year. See "Multiple Pricing System--Early Withdrawal Charge." In
addition, Class B shares are subject to a service fee of up to 0.25%, and a
distribution fee of up to 0.50% of average annual net assets. See "How to Buy
Fund Shares--Class B Shares" and "--Distribution Expenses." Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month in which the shareholder's order to purchase was accepted. See
"Multiple Pricing System --Conversion Feature."
Class C Shares. Class C shares are offered for sale at net asset value
without a front-end sales charge, but are subject to an Early Withdrawal Charge
of 1% during the first year after purchase. See "Multiple Pricing System--Early
Withdrawal Charge." Class C shares are subject to a service fee of up to 0.25%,
and a distribution fee of up to 0.50% of average annual net assets. Class C
shares will automatically convert to Class A shares ten years after the end of
the calendar month in which the shareholder's order to purchase was accepted.
See "Multiple Pricing System--Conversion Feature. The higher ongoing
distribution fees payable by Class C shares as a result of the longer time
period to conversion to Class A shares could cause the Class C shares to have
an overall higher expense ratio and to pay lower dividends than Class B shares.
See "How to Buy Fund Shares--Class C Shares" and "--Distribution Expenses."
Class A Shares. Class A shares are available only upon conversion of Class
B and Class C shares. See "Multiple Pricing System--Conversion Feature." Class
A shares are subject to a service fee of up to 0.25% of average annual net
assets.
Conversion Feature. Class B shares and Class C shares will automatically
convert to Class A shares eight years and ten years, respectively, after the
end of the calendar month in which the shareholder's order to purchase was
accepted and after that date will no longer be subject to the distribution fee.
Conversion will be on the basis of the relative net asset values per share,
without the imposition of any sales charge, fee or other charge. The purpose of
the conversion feature is to relieve the holders of Class B and Class C shares
from most of the burden of distribution-related expenses at such time as the
shares have been outstanding for a duration sufficient for Distributors to have
been substantially compensated for distribution-related expenses incurred in
connection with those shares.
For purposes of the conversion of Class B and Class C shares to Class A
shares, shares purchased through the reinvestment of dividends and
distributions paid on Class B shares or Class C shares, as the case may be, in
a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares or Class C shares in the
shareholder's account (other than those in the sub-account) convert to Class A
shares, a pro rata portion of the Class B shares or Class C shares, as the case
may be, in the sub-account will also convert to Class A shares.
The conversion of Class B and Class C shares to Class A shares is subject
to the continuing availability of an opinion of counsel to the effect that such
conversion will not constitute a taxable event for federal tax purposes. The
conversion of Class B and Class C shares may be suspended if such an opinion is
no longer available. In that event, no further conversions of Class B or Class
C shares would occur, and those shares might continue to be subject
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<PAGE>
to the distribution fee for an indefinite period which may extend beyond the
period ending eight years or ten years, respectively, after the end of the
calendar month in which the shareholder's order to purchase was accepted.
Factors for Consideration. The Fund's Multiple Pricing System is designed
to provide investors with the option of choosing the class of shares best
suited to their individual circumstances and objectives. To assist investors in
evaluating the costs and benefits of purchasing shares of each class, the
information provided above under the captions "Fee Table" and "Example" sets
forth the charges applicable to each class and illustrates an example of a
hypothetical investment in each class of shares of the Fund.
There are several key distinctions among the classes of shares that
investors should understand and evaluate in comparing the options offered by
the Multiple Pricing System. Class C shares are subject to the same ongoing
distribution and service fees as Class B shares but are subject to a lower
Early Withdrawal Charge and an Early Withdrawal Charge for a shorter period of
time (one year as opposed to three years) than Class B shares. Class B shares
convert to Class A shares in a shorter time frame than do Class C shares. Class
A shares are not subject to the distribution fee applicable to Class B and
Class C shares, and, accordingly, may pay correspondingly higher dividends per
share. However, as long as the current fee waivers and reimbursements are in
effect, all classes may have the same aggregate expense ratios.
In light of these distinctions among the classes of shares, investors
should weigh such factors as (a) whether, at the time of purchase, they
anticipate being subject to an Early Withdrawal Charge upon repurchase and (b)
the differential in the relative amounts that would be paid during the
anticipated life of investments (which are made at the same time and in the
same amount) in each class that are attributable to the accumulated
distribution and service fees (and any applicable Early Withdrawal Charge)
payable with respect to Class B or Class C shares before their conversion to
Class A shares. Investors should consult their investment representative for
assistance in evaluating the relative benefits of the different classes of
shares.
The distribution and shareholder service expenses incurred by Distributors
in connection with the sale of shares will be paid from the ongoing
distribution and service fees and from the proceeds of the Early Withdrawal
Charges. Sales personnel of broker-dealers distributing the Fund's shares and
any other persons entitled to receive compensation for selling or servicing the
Fund's shares may receive different compensation for selling or servicing one
class of shares over another. Investors should understand that Early Withdrawal
Charges and ongoing distribution and service fees are all intended to
compensate the Distributor for distribution services. See "How to Buy Fund
Shares--Distribution Expenses."
Dividends paid by the Fund with respect to each class of shares will be
calculated in substantially the same manner at the same time on the same day,
except that distribution and service fees and any other costs specifically
attributable to a particular class of shares will be borne solely by the
applicable class. See "Distributions."
The Directors of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the
Directors of the Fund, pursuant to their fiduciary duties under the 1940 Act
and state laws, will seek to ensure that no such conflict arises.
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HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
Introduction
The Fund offers two classes of shares to the general public, sold without
a front-end sales charge, but subject to an Early Withdrawal Charge. See
"Multiple Pricing System" for a discussion of factors to consider in selecting
which class of shares to purchase.
Shares are offered continuously for sale through securities dealers and
banks that have executed an agreement (a "Dealer Agreement") with CypressTree
Funds Distributors, Inc. ("Distributors"). Certain states require that
purchases of shares of the Fund be made only through a broker-dealer registered
in the state.
The initial purchase of any class of shares must be at least $5,000. The
minimum for subsequent investments is $500. There is a $100 minimum initial and
a $50 subsequent investment requirement for purchases made in connection with
tax-sheltered retirement accounts.
When purchasing shares, investors must specify whether the purchase is for
Class B or Class C shares.
General Methods of Purchasing Shares
1. By Mail. To make an initial account purchase, mail a check made payable
in U.S. dollars to "North American Funds" with a completed New Account
Application (copy enclosed with this Prospectus) to:
21
<PAGE>
North American Funds
P.O. Box 8505
Boston, MA 02266-8505
Third party checks payable to an existing shareholder of the Fund who is a
natural person (as opposed to a corporation or partnership) and endorsed over
to the Fund will be accepted.
To make a purchase of shares to an existing North American Funds account,
please note your account number on the check and forward it with an account
investment slip to the above address.
Note: To establish certain tax deferred retirement plan accounts, such as
IRAs, you will be required to complete a separate application which may be
obtained from Distributors or a securities dealer who has a Dealer Agreement
with Distributors. See "Considerations for Retirement Plan Investors."
2. By Federal Funds Wire. Shares may be purchased by wire transfer. To
obtain instructions for Federal Funds Wire purchases, please contact the
Customer Service Department at (800) 872-8037.
3. Through a Securities Dealer. You may purchase shares by contacting a
securities dealer who has a Dealer Agreement with Distributors.
Orders will be assigned the next closing price after receipt of the order.
Exchange Privileges
Shareholders of the Fund are offered certain exchange privileges with
shares of beneficial interest of the Portfolios of the North American Funds, an
open-end management investment company for which CAM serves as the advisor. A
prospectus describing the North American Funds and the various Portfolios can
be obtained from Distributors.
Exchange of Fund Shares for North American Fund Shares Shareholders of the
Fund whose shares are repurchased in a monthly repurchase offer may exchange
those shares for shares of the same class of certain Portfolios of the North
American Funds. Exchanges will be at relative net asset value, without the
imposition of any front end sales charge.
No early withdrawal charge will be imposed on shares of the Fund making
such an exchange. However, Class B and Class C shareholders will be subject to
a contingent deferred sales charge ("CDSC") on any North American Funds shares
acquired equivalent to the Early Withdrawal Charge on the Fund shares
exchanged. Thus shares of the North American Funds may be subject to a CDSC
upon a subsequent redemption from the North American Funds. The time of
purchase for computing the CDSC period will be deemed the time of the initial
purchase of Fund shares. The CDSC or Early Withdrawal Period will be tolled for
any period of time shares are held in the North American Funds Money Market
Fund.
Exchange of North American Fund Shares for Fund Shares Shareholders of the
North American Funds will have such privilege of exchanging their shares for
shares of the Fund as is described in the North American Funds Prospectus.
Generally, shareholders of a class of the North American Funds may exchange
their shares for shares of the same class of the Fund, at relative net asset
value and without imposition of any front end sales charge. These shareholders
will become subject to the Early Withdrawal Charge on Fund shares equivalent to
the CDSC applicable to the particular class exchanged, and will be deemed to
have purchased Fund shares at the time of the initial purchase of North
American Fund shares. The CDSC or Early Withdrawal Period will be tolled for
any period of time shares are held in the North American Funds Money Market
Fund.
General Information Exchanges are generally regarded as sales for federal
and state income tax purposes and could result in a gain or loss, depending on
the original cost of shares exchanged. If the exchanged shares were acquired
within the previous 90 days, the gain or loss may have to be computed without
regard to any sales charges incurred on the exchanged shares (except to the
extent those sales charges exceed those sales charges waived in connection with
the exchange). See "Taxation." Exchanges are free and unlimited in number and
will occur on the same day as requested with respect to Exchanges into the
Fund, and on the Repurchase Payment Date with respect to Exchanges out of the
Fund. The terms of the foregoing exchange privilege are subject to change and
the privileges may be terminated at any time. The exchange privilege is only
available where the exchange may be legally made.
By mail--an exchange will be honored by written letter request to the Fund
if signed by all registered owners of the account.
By Telephone--all accounts are eligible for the telephone exchange
privilege.
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<PAGE>
Share Price
Class B Shares. Class B shares are offered for sale at net asset value
without a front-end sales charge. Class B shares repurchased within three years
of purchase are subject to an Early Withdrawal Charge at the rates set forth in
the table below. See "How to Buy Fund Shares--Early Withdrawal Charge."
<TABLE>
<S> <C>
First Year ................ 3.0%
Second Year ............... 2.5%
Third Year ................ 2.0%
Fourth Year ............... 1.0%
After Fourth Year ......... 0.0%
</TABLE>
The Early Withdrawal Charge may be waived on certain repurchases of
shares. See "How to Buy Fund Shares--Waiver of Early Withdrawal Charge."
Class C Shares. Class C shares are offered for sale at net asset value
without a front-end sales charge. Class C shares are subject to an Early
Withdrawal Charge of 1% during the first year after purchase. See "How to Buy
Fund Shares--Early Withdrawal Charge."
The Early Withdrawal Charge may be waived on certain repurchases of
shares. See "How to Buy Fund Shares--Waiver of Early Withdrawal Charge."
Early Withdrawal Charge
The Early Withdrawal Charge is assessed on an amount equal to the lesser
of the net asset value at repurchase or the initial purchase price of the
shares being repurchased. Solely for purposes of determining the amount of time
from the purchase of shares until repurchase, all orders accepted during a
month are aggregated and deemed to have been made on the last business day of
that month.
In determining the amount of the Early Withdrawal Charge that may be
applicable to a repurchase, any shares in the shareholder's account that may be
repurchased without charge will be assumed to be repurchased before those
subject to a charge. In addition, if the Early Withdrawal Charge is determined
to be applicable to repurchased shares, it will be assumed that shares held for
the longest duration are repurchased first. No Early Withdrawal Charge is
imposed on (a) amounts representing increases in the net asset value per share;
or (b) shares acquired through reinvestment of income dividends or capital
gains distributions.
Waiver of Early Withdrawal Charge
Qualified Retirement Plans. The Early Withdrawal Charge may be waived in
connection with repurchases from qualified retirement plans (other than
Individual Retirement Accounts ("IRAs")) in the case of (a) death or disability
(as defined in section 72(m)(7) of the Code, as amended from time to time) of
the participant in the retirement plan, (b) required minimum distributions from
the retirement plan due to attainment of age 70-1/2, (c) tax-free return of an
excess contribution to the retirement plan, (d) retirement of the participant
in the retirement plan, (e) a loan from the retirement plan (repayment of a
loan, however, will constitute a new sale for the purposes of assessing Early
Withdrawal Charge), (f) "financial hardship" of the participant in the
retirement plan, as that term is defined in Treasury Regulation
1.401(k)-1(d)(2), as amended from time to time, (g) termination of employment
of the participant in the plan (excluding, however, a partial or other
termination of the retirement plan), and (h) the plan participant obtaining age
59-1/2.
Other Waivers. The Early Withdrawal Charge may be waived in connection
with (a) repurchases made following the death of a shareholder, (b) repurchases
effected pursuant to the Fund's right to liquidate a shareholder's account if
the aggregate net asset value of the shares held in the account is less than
any applicable minimum account size and (c) a tax-free return of an excess
contribution to any retirement plan.
Distribution Expenses
In addition to the Early Withdrawal Charge that may apply on repurchases
of Class B and Class C shares, each class of shares is authorized under the
Distribution Plan applicable to that class of shares (the "Class B Plan" and
the "Class C Plan," and collectively, the "Plans") to use the assets
attributable to that class of shares of the Fund to finance certain activities
relating to the distribution of shares to investors. The Plans are
"compensation" plans providing for the payment of a fixed percentage of average
net assets to finance distribution expenses. The Plans allow for the payment by
each class of shares of the Fund of a monthly distribution and service fee to
Distributors, as principal underwriter for the Fund. Portions of the fees
described below are used to provide payments
23
<PAGE>
to Distributors, to promotional agents, to brokers, dealers or financial
institutions (collectively, "Selling Agents") and to Service Organizations for
ongoing account services to shareholders and are similar to "service fees" as
defined in Rule 2830(b)(9) of the Rules of Fair Practice of the NASD.
Payments under the Plans are used primarily to compensate Distributors for
distribution services provided by it in connection with the offering and sale
of the applicable class of shares, and related expenses incurred, including
payments by Distributors to compensate or reimburse Selling Agents for sales
support services provided and related expenses incurred by Selling Agents.
These services and expenses may include the development, formulation and
implementation of marketing and promotional activities, the preparation,
printing and distribution of prospectuses and reports to recipients other than
existing shareholders, the preparation, printing and distribution of sales
literature, expenditures for support services such as telephone facilities and
expenses and shareholder services as the Fund may reasonably request, provision
to the Fund of such information, analyses and opinions with respect to
marketing and promotional activities as the Fund may, from time to time,
reasonably request, commissions, incentive compensation or other compensation
to, and expenses of, account executive or other employees of Distributors or
Selling Agents, attributable to distribution of sales support activities
respectively, overhead and other office expenses of distributors or Selling
Agents attributable to distribution of sales support activities, respectively,
and any other costs and expenses relating to distribution or sales support
activities. Distributors may pay directly Selling Agents and may provide
directly the distribution services described above.
Distributors currently pays a trail commission to securities dealers with
respect to accounts that those dealers continue to service as follows: Class B
shares - 0% in the first year, 0.10% in the second year, 0.15% in the third
year, and 0.20% in the fourth year and 0.25% annually each year after the
fourth year; and Class C - 0.75% shares annually. Trail commissions commence
the 13th month after purchase. The trail commission payable following
conversion of Class B and Class C shares to Class A shares will be in the
amount of 0.25% annually.
In the case of sales of Class B shares, Distributors will pay each dealer
a fee of 3% of the amount of Class B shares purchased as a commission or
transaction fee. In the case of sales of Class C shares, the Distributor will
pay each securities dealer a fee of 0.75% of the purchase price of Class C
shares purchased through the securities dealer as a commission or transaction
fee.
The distribution and service fees attributable to the Class B and Class C
shares are designed to permit an investor to purchase shares without the
assessment of a front-end sales charge, and, with respect to the Class C
shares, with the assessment of an Early Withdrawal Charge in the first year
only, and at the same time permit Distributors to compensate securities dealers
with respect to those sales.
Distributors is authorized by each Plan to retain any excess of the fees
it receives under the Plan over its payments to selected dealers and its
expenses incurred in connection with providing distribution services. Thus,
payments under a Plan may result in a profit to Distributors. Payments made
under the Plans are subject to quarterly review by the Directors and the Plans
are subject to annual review and approval by the Directors.
In adopting the Plans, the Directors determined that the adoption of the
Plans is in the best interests of the Fund and its shareholders, that there is
a reasonable likelihood that the Plans will benefit the Fund and its
shareholders, and that the Plans are essential to, and an integral part of, the
Fund's program for financing the sale of shares to the public.
Distributors is a broker/dealer registered under the Securities Exchange
Act of 1934, as amended (the "1934 Act") and is a member of the NASD.
Distributors' address is 286 Congress Street, Boston, Massachusetts 02210.
Suspension of Sales
From time to time the Fund may suspend the continuous offering of its
shares in response to market conditions in the securities markets 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.
24
<PAGE>
Considerations for Retirement Plan Investors
Retirement plan investors should be aware of certain features of the Fund
that may affect their decision as to whether the Fund is an appropriate
investment for the retirement plan. Unlike shares of an open-end mutual fund,
Fund shares are not redeemable on each day that the Fund is open for business;
and unlike traditional closed end funds, shares of the Fund do not trade on any
exchange and thus cannot readily be sold. Although the Fund has adopted a
policy of Monthly Repurchase Offers, these Repurchase Offers may not provide
shareholders with the degree of liquidity they desire or may require for tax
purposes. Even during a Repurchase Offer, a shareholder may not be able to have
all of the shares it wishes to tender be repurchased by the Fund. Moreover,
shares repurchased may be subject to the Early Withdrawal Charge.
The features described above could result in a retirement plan paying an
Early Withdrawal Charge and/or not being able to comply with mandatory
distribution requirements. Accordingly, retirement plan investors may wish to
limit the percentage of plan assets, for example, to 10%, that are invested in
the Fund.
The Fund does not monitor retirement plan requirements for any investor.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan or electing to invest in the Fund through a retirement plan.
Your investment representative or advisor can help you make investment
decisions within your plan.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Further information on any of the programs described in the following
sections may be obtained from the Fund and eligible securities dealers. For
additional information, shareholders should contact the Fund or eligible
securities dealers.
Automatic Investment Plan
Shareholders who open an account who wish to make subsequent monthly
investments in the Fund may establish an Automatic Investment Plan as part of
the initial Application or subsequently by submitting an Application. Under
this plan, on or abut the tenth day of each month the Transfer Agent will debit
the shareholder's bank account in the amount specified by the shareholder
(which monthly amount may not be less than $50). The proceeds will be invested
in shares of the specified class of the Fund at the applicable offering price
determined on the date of the debit. Participation in the Automatic Investment
Plan may be discontinued on 30 days' written notice to the Transfer Agent, or
if a debit is not honored.
Transfer of Shares
Shareholders may transfer Fund shares to family members and others at any
time without incurring an Early Withdrawal Charge being imposed at that time.
Shareholders should consult their tax adviser concerning transfers.
Telephone Transactions
Shareholders are permitted to request exchanges and/or repurchases by
telephone. The Fund will not be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. The Fund will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine and may only be liable for any losses due to unauthorized or
fraudulent instructions where it fails to employ its procedures properly.
Upon telephoning a request, shareholders will be asked to provide their
account number, and if not available, their social security number. For the
shareholder's and Fund's protection, all conversations with shareholders will
be tape recorded. All telephone transactions will be followed by a confirmation
statement of the transaction.
Payment for shares repurchased will be made by federal wire or by mail as
specified by the shareholder in the Fund Application. Payment will normally be
sent on the business day following the date of receipt of the request. Payment
by wire to the shareholder's bank account must be in amounts of $1,000 or more.
Although the Fund does not assess a charge for wire transfers, banks may assess
charges for the transaction. Payments by mail may only be sent to an account
address of record and may only be payable to the registered owner(s).
Additional Shareholder Privileges
Certain privileges listed in this section may not be offered by the Fund
if a shareholder holds shares with the Fund in the "street name" of a financial
institution, or if the account is networked through National Securities
Clearing Corporation (NSCC).
25
<PAGE>
Automatic Investment Plan. A shareholder who wishes to make subsequent,
periodic investments in the Fund by electronic funds transfer from a bank
account may establish an Automatic Investment Plan on the shareholder's
account. The bank at which the account is maintained must be a member of the
Automated Clearing House. The frequency with which the investments occur is
specified by the shareholder (monthly, every alternate month, quarterly, etc.)
with the exception that no more than one investment will be processed each
month. On or about the tenth of the month, the Fund will debit the
shareholder's bank account in the specified amount (minimum of $50 per draft)
and the proceeds will be invested at the applicable offering price determined
on the date of the debit.
Automatic Dividend Reinvestment. 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
Automatic Dividend Reinvestment ("ADR") Program (the "Program"), 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 Program agent (the "Program Agent"). There will be no charge to
participants for reinvesting dividends or other distributions. The Fund will
pay the Program Agent's fees for the handling of reinvestment of distributions.
A shareholder whose shares are held by a broker-dealer or nominee that
does not provide a dividend reinvestment service may be required to have his or
her shares registered in his or her own name to participate in the Program.
Similarly, a shareholder may be unable to transfer his or her account to
certain broker-dealers and continue to participate in the Program. Investors
who own shares registered in street name should contact the broker or nominee
for details concerning participation in the Program.
The Program Agent will maintain all participant accounts in the Program
and furnish written confirmations of all transactions in the accounts,
including information needed for personal and tax records. The Program Agent
may hold shares in the participants' account in non-certificated form in the
name of the Program Agent or the Program Agent's nominee, and each
shareholder's proxy will include those shares purchased pursuant to the
Program. Participants in the Program may withdraw from the Program on written
notice to the Program 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
Program Agent will administer the Program 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 Program.
All registered holders of shares (other than brokers and nominees) will be
mailed information regarding the Program, including a form with which they may
elect to terminate participation in the Program and receive further dividends
and other distributions in cash. An election to terminate participation in the
Program must be made in writing to the Program 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 Program 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 Program Agent at . Dividends and other distributions with
respect to shares registered in the name of a broker-dealer or other nominee
(i.e., in "street name") will be reinvested under the Program 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 Program Agent reserve the right to terminate the Program
as applied to any dividend or other distribution paid subsequent to notice of
the termination sent to the participants in the Program at least 30 days before
the record date for the distribution. The Program also may be amended by the
Fund or the Program 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 Program. Shareholders
should direct all correspondence regarding the Program to the Program Agent, at
.
The receipt of dividends and other distributions in shares under the
Program will not relieve participants of any income tax (including withholding
taxes) that may be payable with respect to the distributions. See "Taxes."
How to Obtain Investment Information
1. Confirmation of Share Transactions and Dividend Payments. Share
transactions, other than transactions pursuant to a Systematic Withdrawal Plan,
Automatic Investment Plan, and Systematic Investing Plan, will be confirmed
immediately in the form of an account confirmation statement which will be
mailed to the account address of record.
26
<PAGE>
The Fund will confirm all account activity occurring within a calendar
quarter, including the payment of dividend and capital gain distributions and
transactions made as a result of a Systematic Withdrawal Plan, Automatic
Investment Plan, and Systematic Investing Plan, shortly after the end of each
calendar quarter.
The Fund also reserves the right to confirm, with respect to certain tax
qualified plans and certain group plans, purchases and sales of Fund shares on
a quarterly basis.
A copy of all confirmation statements will be sent to the securities
dealer firm listed on the shareholder's account.
2. Shareholder Inquiries. Shareholders should direct any questions or
requests concerning the Fund or your account by writing to North American
Funds, P.O. Box 8505, Boston, Massachusetts 02266-8505, or by calling the Fund
Customer Service Department at 1-800-872-8037.
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will declare distributions daily and pay distributions monthly.
Substantially all of the Fund's investment income, less Fund expenses, will be
declared daily as a distribution to shareholders of record as recorded by the
Transfer Agent at the time of declaration. Daily distribution crediting will
begin on the day after the Transfer Agent has received funds for the 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.
- --------------------------------------------------------------------------------
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
27
<PAGE>
extent of any capital gain distributions received on those shares. All or a
portion of any loss realized on a sale or exchange of shares of the Fund will
be disallowed if the shareholder acquires other Fund shares within 30 days
before or after the disposition. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Different tax consequences may apply to tendering shareholders other than
fully-tendering shareholders described in the previous paragraph and to
non-tendering shareholders in connection with a Repurchase Offer. For example,
if a shareholder tenders fewer than all shares owned by or attributed to him or
her, the proceeds received could be treated as a taxable dividend, a return of
capital, or capital gain depending on the portion of shares tendered, the
Fund's earnings and profits, and the shareholder's basis in the tendered
shares. Moreover, when a shareholder tenders fewer than all shares owned
pursuant to a Repurchase Offer, there is a remote possibility that
non-tendering shareholders may be considered to have received a deemed
distribution that is taxable to them in whole or in part. Shareholders may wish
to consult their tax advisors prior to tendering.
The Fund must withhold 31% from distributions and repurchase payments, if
any, payable to any individuals and certain other noncorporate shareholders who
have not furnished to the fund a correct taxpayer identification number ("TIN")
or a properly completed claim for exemption on Form W-8 or W-9, or who are
otherwise subject to such "backup withholding." When establishing an account,
an investor must certify under penalties of perjury that the investor's TIN
(generally, his or her social security number) is correct and that the investor
is not otherwise subject to backup withholding.
Nonresident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% (or lower treaty rate) on distributions from ordinary income and from
the excess of net short-term capital gain over net long-term capital loss.
Distributions to such shareholders from the excess of net long-term capital
gain over net short-term capital loss and any amount treated as gain from the
sale or other disposition of shares of the Fund generally will not be subject
to U.S. taxation, provided that the shareholder has certified nonresident alien
status. Different U.S. tax consequences may result if the shareholder is
engaged in a trade or business in the United States or is present in the United
States for specified periods of time during a taxable year. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in the Fund.
The discussion contained in this section is a general and abbreviated
summary of certain federal tax considerations affecting the Fund and its
shareholders, and is not intended as tax advice or to address a shareholder's
particular circumstances. This discussion does not address non-federal tax
consequences, or the special tax rules applicable to certain classes of
investors, such as retirement plans, tax-exempt entities, insurance companies
and financial institutions. For further information, reference should be made
to the pertinent sections of the Code and the regulations promulgated
thereunder, which are subject to change by legislative, judicial, or
administrative action, either 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 March 6, 1998. The Fund's Board of Directors is responsible for
the overall management and supervision of its affairs.
The Fund is authorized to issue 1 billion shares of common stock $0.01 par
value per share. These shares are currently divided into three classes of
shares, designated as Class A, Class B and Class C Shares. All shares of common
stock have equal voting rights (except as described below with respect to
matters specifically affecting a class of shares) and have no preemptive or
conversion rights (other than the automatic conversion rights of Class B and
Class C Shares to convert to Class A shares under the Multiple Pricing System.)
The per-share net asset value of each class of shares is calculated separately
and may differ as between classes as a result of the differences in
distribution and service fees payable by the classes and the allocation of
certain incremental class-specific expenses to the appropriate class to which
such expenses apply.
All shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law,
or where the matter involved affects only one class (for example matters
pertaining to the plan of distribution relating to Class B Shares will only be
voted on by Class B Shares). In accordance with the Fund's Articles of
Incorporation, the Board of Directors may classify and reclassify unissued
shares
28
<PAGE>
and may authorize the creation of additional classes of shares with such
preferences, privileges, limitations and voting and dividend rights as the
board may determine.
Each share of each class of common stock is equal as to earnings, assets
and voting privileges, except as noted above, and each class bears the expenses
related to the distribution of its shares. In the event of liquidation, each
share of common stock of the Fund is entitled to its portion of all the Fund's
assets after all debts and expenses of the Fund have been paid. The Fund's
shares do not have cumulative voting rights for the election of directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of directors is required to be
acted on by shareholders under the Investment Company Act.
The following table sets forth information for each class of the Fund's
authorized securities, as of the date of this Prospectus:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Amount
Outstanding
Amount Held by Exclusive of
Registrant or for its Amount Shown
Title of Class Amount Authorized Account Under (3)
- ---------------- -------------------- ----------------------- -------------
<S> <C> <C> <C>
Class A 400,000,000 shares None None
- ---------------- -------------------- ----------------------- -------------
Class B 300,000,000 shares None 100 Shares
- ---------------- -------------------- ----------------------- -------------
Class C 300,000,000 shares None None
================ ==================== ======================= =============
</TABLE>
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 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 the Fund's shares of capital stock outstanding and entitled to vote on the
matter is required to approve any of the following Fund transactions (the
"Transactions"):
(a) merger, consolidation, or statutory share exchange with or into any
person;
(b) issuance of any Fund securities to any person for cash, securities, or
other property having a fair market value of $1,000,000 or more, except for
issuance or transfers of debt securities, sales of securities in connection
with a public offering, issuance of securities pursuant to a dividend
reinvestment plan, issuance of securities on the exercise of any stock
subscription rights distributed by the Fund, and portfolio transactions
effected in the ordinary course of business;
(c) sale, lease, exchange, mortgage, pledge, transfer, or other disposition
by the Fund of any assets having an aggregate fair market value of
$1,000,000 or more, except for portfolio transactions conducted in the
ordinary course of business;
(d) voluntary liquidation or dissolution of the Fund, or an amendment to
the Fund's Articles of Incorporation to terminate the Fund's existence; or
(e) unless federal law requires a lesser vote, any shareholder proposal as
to specific investment decisions made or to be made with respect to the
Fund's assets as to which shareholder approval is required under Maryland
or federal law.
29
<PAGE>
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 the
Fund's shares of capital stock outstanding and entitled to vote on the matter,
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 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.
30
<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
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
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 the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
31
<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 ................................................. 2
Advisory, Administration and Distribution Services ......... 5
Portfolio Transactions ..................................... 6
Custodian .................................................. 8
Transfer Agent ............................................. 8
Liquidity Requirements ..................................... 8
Taxes ...................................................... 8
Performance Information .................................... 9
Indemnification ............................................ 9
Auditors and Financial Statements .......................... 10
Other Information .......................................... 10
</TABLE>
32
<PAGE>
North American 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
33
<PAGE>
Subject to Completion, dated July 20, 1998
STATEMENT OF
ADDITIONAL INFORMATION
[Date]
North American 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 NORTH AMERICAN 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., 286 CONGRESS STREET, BOSTON,
MASSACHUSETTS 02210, 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund ................................................... 1
Investment Restrictions and Fundamental Policies ........... 1
Repurchase Offer Fundamental Policy ........................ 2
Management ................................................. 2
Advisory, Administration and Distribution Services ......... 5
Portfolio Transactions ..................................... 6
Custodian .................................................. 8
Transfer Agent ............................................. 8
Liquidity Requirements ..................................... 8
Taxes ...................................................... 8
Performance Information .................................... 9
Indemnification ............................................ 9
Auditors and Financial Statements .......................... 10
Other Information .......................................... 10
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
North American 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: (1) 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. The Fund may not:
(a) Borrow money or issue senior securities, except as permitted by the
1940 Act;
(b) Invest more than 25% of the Fund's total assets (taken at current
value) in the securities of Borrowers and other issuers having their
principal business activities in the same industry (the electric, gas,
water and telephone utility industries being treated as separate industries
for the purpose of this restriction); provided that (i) there is no
limitation on purchasing securities the issuer of which is deemed to be in
the financial institutions industry, which includes commercial banks,
thrift institutions, insurance companies and finance companies and (ii)
there is no limitation with respect to obligations issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities;
(c) Make loans to other persons, except that the Fund may (i) acquire
Loans, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objective and
policies, (ii) enter into repurchase agreements, and (iii) lend its
portfolio securities;
(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 on 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.
- --------------------------------------------------------------------------------
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").
2
<PAGE>
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,
Cypress Investments, Inc. (12/96-present);
President, CypressTree Investment Management
Co. (2/97-present); President, CypressTree
Funds Distributors, Inc. (3/97-present);
President, Director, CypressTree Senior Floating
Rate Fund, Inc. (7/97-present); President,
Trustee, North American Funds (10/97-present);
President, Allmerica Financial Services (4/90-9/
85); 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); Director,
Boston, MA 02109 CypressTree Senior Floating Rate Fund, Inc.
(7/97-present); Trustee, North 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); Director, CypressTree
Boston, MA 02108 Senior Floating Rate Fund, Inc. (7/97-present);
Trustee, North 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); Director, CypressTree
Boston, MA 02116 Senior Floating Rate Fund, Inc. (7/97-present);
Trustee, North American Funds
Arthur S. Loring* 1947 Director Managing Director, Cypress Holding Company
125 High Street (1998-present); Senior Vice President and
Boston, MA 02110 General Counsel, FMR Corp. (7/83-12/97);
Secretary, Fidelity Family of Funds (7/83-12/97);
Jeffrey S. Garner* 1956 Executive Vice President Vice President, Cypress Holding Company
125 High Street (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); Executive Vice President,
Portfolio Manager, CypressTree Senior Floating
Rate Fund, Inc. (7/97-present); Vice President,
Eaton Vance Management (1/88-7/96)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
- ------------------------ -------- --------------------------- --------------------------------------------------
<S> <C> <C> <C>
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 02110 (10/97-present); Executive Vice President,
CypressTree Senior Floating Rate Fund, Inc.
(7/97-present); Senior Vice President, First Data
Investor Services Group (5/93-11/95); Senior
Vice President, Fidelity Investments (6/76-5/93)
Peter K. Merrill* 1961 Vice President; Portfolio Vice President, CypressTree Investment
125 High Street Manager Management Co. (6/97-present); Vice President,
Boston, MA 02110 CypressTree Senior Floating Rate Fund, Inc.
(6/97-present); Managing 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 Assistant Vice President, CypressTree Senior
Floating Rate Fund, Inc. (6/97-present);
Associate, Eaton Vance Management (9/91-8/96)
Joseph A. Germain* 1969 Assistant Vice President Associate, CypressTree Investment Management
125 High Street Co. (2/97-present); Assistant Vice President,
Boston, MA 02110 CypressTree Senior Floating Rate Fund, Inc.
(6/97-present); Supervisor, Investors Bank &
Trust Co. (3/94-1/97)
Thomas J. Brown* 1946 Assistant Treasurer Principal, Cypress Holding Company (7/97-
286 Congress Street present); Assistant Treasurer, CypressTree Senior
Boston, MA 02210 Floating Rate Fund, Inc. (7/97-present);
Consultant (10/95-6/97); Executive Vice
President, Boston Company Advisors (8/94-10/
95); Executive Vice President; Chief Financial
Officer, Freedom Management
( 6/81-8/94).
Paul F. Foley* 1963 Treasurer Vice President, Cypress Holding Company
125 High Street (7/96-present); Treasurer, CypressTree Senior
Boston, MA 02110 Floating Rate Fund, Inc. (7/97-present);
Financial Analyst, Fleet Financial Group (6/95-
7/96); Financial Analyst, Allmerica Financial
Services (4/87-6/95)
John I. Fitzgerald* 1948 Secretary Secretary and Counsel, Cypress Holding
125 High Street Company (4/97-present); Secretary, CypressTree
Boston, MA 02110 Senior Floating Rate Fund, Inc. (7/97-present);
Secretary, North 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>
4
<PAGE>
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.
Messrs. Gallagher (Chairman), Loring and Devin are members of the Pricing
Committee of the Board of Directors. The Pricing Committee is responsible for
the valuation and revaluation, between meetings of the Board, of investments
for which market quotations or sale prices are not readily available.
Messrs. Gallagher (Chairman), Devin and Lavery are members of the
Investment Committee of the Board of Directors. The Investment Committee
provides an overview to the full Board of CypressTree's activities as
subadviser.
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, ,
1998, 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 $------ $------
William F. Devin $------ $------
Kenneth J. Lavery $------ $------
Arthur S. Loring $------ $------
</TABLE>
- ------------
* Includes compensation for service as director of the Fund, as trustee of the
North American Funds, and as director of another closed-end fund also advised
by CAM. See "Advisory, Administration and Distribution Services."
Election of Directors
As permitted by Maryland law, there normally will be no meetings of Fund
shareholders for the purpose of electing Directors in any year in which no such
election is required under the 1940 Act. Under the 1940 Act, an annual meeting
to elect Directors only is required when less than a majority of the Directors
holding office have been elected by shareholders. If a meeting is required, the
Directors then in office will call a shareholders' meeting for the election of
Directors. If no meeting is required, the Directors will continue to hold
office and may appoint successor Directors. The shares of the Fund do not
provide for cumulative voting. As a result, the holders of more than 50% 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.
5
<PAGE>
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.
In October 1997, CAM and other certain affiliates of Cypress acquired from
NASL Financial Services, Inc. ("NASL Financial") that portion of NASL
Financial's business related to acting as investment adviser and distributor of
the North American Funds, an open-end investment company offering shares in 15
different portfolios. The North American Funds currently have approximately $1
billion in assets. CAM serves as investment adviser to the North American
Funds.
CAM also serves as investment adviser to a closed-end fund with $
million in assets, and CypressTree serves as investment subadviser to that
fund.
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 extraordinary
expenses.
The Advisory Agreement, Subadvisory Agreement, and Administration
Agreement each will remain in effect until , 199 , The Advisory
Agreement may be continued from year to year after so long as the
continuance is approved at least annually (a) by the vote of a majority of the
Fund's Directors who are not "interested persons" of the Fund or 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 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 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 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. 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.
6
<PAGE>
CAM has agreed to reimburse the Fund's expenses to the extent necessary so
that total annualized Fund expenses do not exceed 1.40% 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 up to 0.25%, distribution
fee of up to 0.50%, and other expenses of 0.30%; and total annual expenses of
2.30%. 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 CypressTree's 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 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.
7
<PAGE>
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 custodial 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 Request
Deadline; or (b) assets that mature by the next Repurchase Payment Deadline.
In the event that the Fund's assets fail to comply with the requirements
in the preceding paragraph, the Board shall cause the Fund to take such action
as the Board deems appropriate to ensure compliance.
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.
8
<PAGE>
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
For a discussion of federal tax issues affecting shareholders in the Fund,
please see "Taxes" in the Prospectus.
The Fund intends to qualify for the special tax treatment afforded
regulated investment companies ("RICs") under Subchapter M of the Internal
Revenue Code (the "Code"). To qualify for that treatment, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net ordinary
investment income, net short-term capital gains, and net gains from certain
foreign currency transactions) and must meet several additional requirements.
Among these requirements are the following: (a) the Fund must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
securities, and certain other related income; (b) the Fund must derive less
than 30% of its gross income each taxable year from the sale or other
disposition of securities or certain other assets held less than three months;
and (c) the Fund must diversify its investments so that at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
are represented by cash and cash items, U.S. Government securities, securities
of other regulated investment companies and other securities limited in respect
of any one issuer to not more than 5% of the value of the Fund's total assets
and not more than 10% of that issuer's voting securities, and (ii) not more
than 25% of the value of its total assets may be invested in securities (other
than U.S. Government securities and securities of other regulated investment
companies) of any one issuer, or of two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses.
Provided that the Fund satisfies the above requirements, it will not be
subject to federal income tax on that part of its investment company taxable
income and the excess of net long-term capital gain over net short-term capital
loss that it distributes to shareholders.
The Fund will be subject to a nondeductible 4% federal excise tax to the
extent that it does not distribute during each calendar year 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gain net income, determined, in general, on an October 31 year end, plus
certain undistributed amounts from previous years. The Fund will be subject to
the excise tax only on the amount by which it does not meet the foregoing
distribution requirements.
The federal income tax rules governing the taxation of interest rate swaps
are not entirely clear and may require the Fund to treat payments received
under such arrangements as ordinary income and to amortize payments under
certain circumstances. The Fund will limit its activity in this regard in order
to enable it to maintain its qualification as a RIC.
Certain Fund investments may bear original issue discount or market
discount for tax purposes. The Fund will be required to include in income each
year a portion of the original issue discount and may elect to include in
income each year a portion of the market discount. The Fund may have to dispose
of investments that it otherwise would have continued to hold in order to
provide cash to satisfy its distribution requirements with respect to such
income.
Gains or losses (a) from the disposition of foreign currencies, (b) on the
disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (c) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest or other receivables or expenses or other liabilities
denominated in a foreign currency and the time it actually collects the
receivables or pays the liabilities generally are treated as ordinary income or
loss. These gains or losses, referred to under the Code as "section 988" gains
or losses, may increase or decrease the amount of investment company taxable
income available to the Fund for distribution to its shareholders.
The Fund may be subject to foreign withholding or other taxes with respect
to income on certain loans to foreign Borrowers. Tax conventions between
certain countries and the United States may reduce or eliminate these foreign
taxes. However, to the extent that foreign taxes are imposed, the taxes would
reduce the yield on the Loans. Because not more than 50% of the value of the
Fund's total assets at the close of any taxable year will consist of Loans to
foreign borrowers, the Fund will not be eligible to pass through to
shareholders their proportionate share of foreign taxes paid by the Fund, with
the result that shareholders will not be entitled to take any foreign tax
credits or deductions for foreign taxes paid by the Fund. However, the Fund may
deduct foreign taxes in calculating its distributable income.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The Fund may provide information about 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.
9
<PAGE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate. When redeemed, shares may be worth more or
less than their original cost.
- --------------------------------------------------------------------------------
INDEMNIFICATION
- --------------------------------------------------------------------------------
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 misfeasance, 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 auditor's address is 125 Summer Street, Boston,
Massachusetts 02110.
[FINANCIAL STATEMENTS TO BE FILED BY AMENDMENT]
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The Fund's Prospectus and Statement of Additional Information do not
contain all of the information set forth in the Registration Statement that the
Fund has filed with the Securities and Exchange Commission. The complete
Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by its rules and regulations. The
complete Registration Statement also is available on the Commission's website
(http://www.sec.gov).
10
<PAGE>
.
North American Senior Floating Rate Fund
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
11
<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) 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*
(l) Opinion and Consent of Counsel**
(m) Not applicable
(n) Consent of Independent Auditors**
</TABLE>
<TABLE>
<S> <C>
(o) Not applicable
(p) Investment Letter**
(q) Form of Model Retirement Plan**
(r) Not Applicable
(s)(1) Distribution Plan--Class A Shares*
(s)(2) Distribution Plan--Class B Shares*
(s)(3) Distribution Plan--Class C Shares*
(s)(4) Multi-class Plan*
(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***
(z)(5) Power of Attorney of Arthur S. Loring*
</TABLE>
*Filed herewith
**To be filed by amendment
***Filed as exhibits (z)(1-4) to Registration Statement on Form N-2 of
Registrant, filed April 3, 1998.
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 ............................................ $ 303.03
National Association of Securities Dealers, Inc. fees ........ *
Printing and engraving expenses .............................. *
Fees and expenses of qualification under state securities
laws (excluding fees of counsel) ........................... *
Accounting fees and expenses ................................. *
Legal fees and expenses ...................................... *
</TABLE>
*To be supplied by amendment
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.
("CyressTree"), 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
<PAGE>
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.
The following is a list of the ownership of interests in CypressTree
Investments as of July __, 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 and
officers, and may indemnify its employees and agents 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, with the exception of certain
corporate documents and portfolio
<PAGE>
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.
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
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
20th day of July, 1998.
North American 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 July 20, 1998
Bradford K. Gallagher
/s/ William F. Devin*
- -------------------------
William F. Devin Director July 20, 1998
/s/ William F. Achtmeyer*
- -------------------------
William F. Achtmeyer Director July 20, 1998
/s/ Kenneth J. Lavery*
- -------------------------
Kenneth J. Lavery Director July 20, 1998
/s/ Arthur S. Loring
- -------------------------
Arthur S. Loring Director July 20, 1998
/s/ Paul F. Foley* Principal Financial and
- ------------------------- Accounting Officer
Paul F. Foley July 20, 1998
</TABLE>
*BY /s/ John I. Fitzgerald, Attorney-in-Fact (pursuant to Power of Attorney
filed as an exhibit to this Registration Statement)
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ----------------------- -------------------------------------- -----
<S> <C> <C>
(b) By-Laws
(e) Form of Dividend Reinvestment Plan
(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
(j) Form of Custodian Agreement
(k) Form of Administration Agreement
(s)(1) Distribution Plan--Class A Shares
(s)(2) Distribution Plan--Class B Shares
(s)(3) Distribution Plan--Class C Shares
(s)(4) Multi-class Plan
(z)(5) Power of Attorney of Arthur S. Loring
</TABLE>
BY-LAWS
OF
NORTH AMERICAN SENIOR
FLOATING RATE FUND, INC.
JUNE 23, 1998
<PAGE>
BY-LAWS
OF
NORTH AMERICAN SENIOR
FLOATING RATE FUND, INC.
MARCH 10, 1998
<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
<PAGE>
March 10, 1998
BY-LAWS
OF
NORTH AMERICAN 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; except that where
the holders of any class of shares are entitled to vote as a separate class
(such class being referred to as a "Separate Class") or where holders of two or
more (but not all) classes of shares are required to vote as a single class
(such classes being referred to as a "Combined Class"), the presence in person
or by proxy of the holders of a majority of the shares of that Separate Class or
Combined Class, as the case may be, entitled to vote thereat shall constitute a
quorum for such vote; 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
3
<PAGE>
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.
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
4
<PAGE>
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, 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.
5
<PAGE>
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
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
6
<PAGE>
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 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
7
<PAGE>
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.
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.
8
<PAGE>
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
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.
9
<PAGE>
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 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;
10
<PAGE>
(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 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.
11
<PAGE>
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 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.
12
<PAGE>
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 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.
13
<PAGE>
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 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.
14
<PAGE>
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.
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
15
<PAGE>
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 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.
16
<PAGE>
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.
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
17
<PAGE>
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 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
18
<PAGE>
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.
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
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
FORM OF DIVIDEND REINVESTMENT PLAN
___________________________ ("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 $.01 per share (the "Shares") of
North American 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.
Under the Plan, whenever the Board of Directors of the Fund declares a
Distribution on a class of shares payable in cash or Shares at the option of the
shareholder, each Participant holding such class of shares will automatically
receive his or her Distribution in newly issued Shares of the same class as to
which the Distribution is payable, including fractional Shares, at the net asset
value ("NAV") per share of such Shares 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 of the relevant class of Shares on such date.
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.
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.
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.
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.
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.
For purposes of the Plan, the NAV per Share on a particular date will be as
determined by or on behalf of the Fund.
<PAGE>
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.
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.
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.
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.
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.
All correspondence concerning the Plan should be directed to
_______________________________________, the Plan Agent for North American
Senior Floating Rate Fund, Inc. at ____________
These terms and conditions shall be governed by the laws of Massachusetts.
North American Senior Floating
Rate
Fund, Inc.
By: ____________________________
----------------------------
By: ____________________________
Dated: _______________
ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") made as of the ___th day of
___________, 199__, between NORTH AMERICAN SENIOR FLOATING RATE FUND, INC., a
Maryland corporation (the "Fund"), and CYPRESSTREE ASSET MANAGEMENT CORPORATION,
INC., a Delaware corporation ("CAM" or the "Adviser").
W I T N E S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission
as a closed-end management investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act");
WHEREAS, the Fund desires to retain the Adviser as investment manager to
furnish certain investment advisory services to the Fund, the and Adviser is
willing to furnish those services;
NOW THEREFORE, the parties agree as follows:
1. APPOINTMENT OF ADVISER
The Fund hereby appoints CAM, subject to the supervision of the Directors
of the Fund and the terms of this Agreement, as the investment adviser for the
Fund. The Adviser accepts such appointment and agrees to render the services and
to assume the obligations set forth in this Agreement commencing on its
effective date. The Adviser will be an independent contractor and will have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent unless expressly authorized in this Agreement or another writing by the
Fund and the Adviser.
2. DUTIES OF THE ADVISER
a. Subject to the general supervision of the Directors of the Fund and the
terms of this Agreement, the Adviser will at its own expense select,
contract with, and compensate an investment subadviser (the "Subadviser")
to manage the investments and determine the composition of the assets of
the Fund; provided, that any contract with the Subadviser (the "Subadvisory
Agreement") will be in compliance with and approved as required by the
Investment Company Act. Subject always to the direction and control of the
Directors of the Fund, the Adviser will monitor compliance of the
Subadviser with the investment objectives and investment policies, as set
forth in the Fund's registration statement as filed with the Securities and
Exchange Commission, and review and
<PAGE>
report to the Directors of the Fund on the performance of the Subadviser.
b. The Adviser will oversee the administration of certain aspects of the
Fund's business and affairs and will furnish to the Fund the following
services:
(1) Office and Other Facilities. The Adviser will furnish to the Fund
office space in the offices of the Adviser or in such other place as
may be agreed upon by the parties to this Agreement from time to time
and such other office facilities, utilities and office equipment as
are necessary for the Fund's operations.
(2) Directors and Officers. The Adviser agrees to permit individuals who
are directors, officers or employees of the Adviser to serve (if duly
elected or appointed) as Directors or officers of the Fund, without
remuneration from or other cost to the Fund.
(3) Other Personnel. The Adviser will furnish to the Fund, at the Fund's
expense, any other personnel necessary for the operations of the Fund.
(4) Reports to Fund. The Adviser will furnish to or place at the disposal
of the Fund such information, reports, valuations, analyses and
opinions as the Fund may, at any time or from time to time, reasonably
request or as the Adviser may deem helpful to the Fund, provided that
the expenses associated with any such materials furnished by the
Adviser at the request of the Fund will be borne by the Fund.
3. EXPENSES ASSUMED BY THE FUND
In addition to paying the advisory fee provided for in Section 5, the Fund
will pay all expenses of its organization, operations and business not
specifically assumed or agreed to be paid by the Adviser as provided in this
Agreement, by the Subadviser as provided in the Subadvisory Agreement, by the
Administrator under an administration agreement, or by the principal underwriter
(the "Distributor") of the Fund's shares, as that term is defined in Section
2(a)(29) of the Investment Company Act, as provided in a distribution agreement.
Without limiting the generality of the foregoing, the Fund, in addition to
certain expenses specifically described in Section 2 above, will pay or arrange
for the payment of the following:
a. Custody and Accounting Services. All expenses of the transfer, receipt,
safekeeping, servicing and accounting for the Fund's cash, securities, and
-2-
<PAGE>
other property, including all charges of depositories, custodians and other
agents, if any;
b. Shareholder Servicing. All expenses of maintaining and servicing
shareholder accounts, including all charges of the Fund's transfer,
shareholder recordkeeping, dividend disbursing, repurchase, and other
agents, if any;
c. Shareholder Communications. All expenses of preparing, setting in type,
printing, and distributing reports, repurchase notifications, and other
communications to shareholders;
d. Shareholder Meetings. All expenses incidental to holding meetings of Fund
shareholders, including the printing of notices and proxy material, and
proxy solicitation;
e. Prospectuses. All expenses of preparing, setting in type, and printing of
annual or more frequent revisions of the Fund's prospectus and statement of
additional information and any supplements to those documents and of
mailing them to shareholders;
f. Pricing. All expenses of computing the net asset value per share for the
Fund, including the cost of any equipment or services used for obtaining
price quotations and valuing its investment portfolio;
g. Communication Equipment. All charges for equipment or services used for
communication between the Adviser or the Fund and the custodian, transfer
agent or any other agent selected by the Fund;
h. Legal and Accounting Fees and Expenses. All charges for services and
expenses of the Fund's legal counsel and independent auditors;
i. Directors and Officers. Except as expressly provided otherwise in paragraph
2.b.(2), all compensation of Directors and officers, all expenses incurred
in connection with the service of Directors and officers, and all expenses
of meetings of the Directors and Committees of Directors;
j. Federal Registration Fees. All fees and expenses of registering and
maintaining the registration of the Fund under the Investment Company Act
and the registration of the Fund's shares under the Securities Act of 1933,
as amended (the "1933 Act"), including all fees and expenses incurred in
connection with the preparation, setting in type, printing and filing of
any registration statement and prospectus under the 1933 Act or the
Investment Company Act, and any amendments or supplements to
-3-
<PAGE>
those documents that may be made from time to time;
k. State Registration Fees. All fees and expenses of qualifying and
maintaining qualification of the Fund and of the Fund's shares for sale
under securities laws of various states or jurisdictions, and of
registration and qualification of the Fund under all other laws applicable
to the Fund or its business activities (including registering the Fund as a
broker-dealer, or any officer of the Fund or any person as agent or
salesman of the Fund in any state);
l. Issue and Repurchase of Fund Shares. All expenses incurred in connection
with the issue, repurchase, and transfer of Fund shares, including the
expense of confirming all share transactions, of preparing and transmitting
certificates for shares of the Fund, and of sending notifications of
repurchase offers to shareholders;
m. Bonding and Insurance. All expenses of bond, liability and other insurance
coverage required by law or regulation or deemed advisable by the Fund's
Directors including, without limitation, such bond, liability and other
insurance expense that may from time to time be allocated to the Fund in a
manner approved by its Directors;
n. Brokerage Commissions. All brokers' commissions and other charges incident
to the purchase, sale, or lending of the Fund's portfolio securities;
o. Taxes. All taxes or governmental fees payable by or with respect to the
Fund to federal, state, or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes, and all expenses incurred
in the preparation of tax returns;
p. Trade Association Fees. All fees, dues, and other expenses incurred in
connection with the Fund's membership in any trade association or other
investment organization; and
q. Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may
arise, including the costs of actions, suits, or proceedings to which the
Fund is, or is threatened to be made, a party and the expenses the Fund may
incur as a result of its legal obligation to provide indemnification to its
Directors, officers, agents and shareholders.
4. COMPENSATION OF ADVISER
a. The Fund will pay the Adviser a fee, computed daily and paid monthly,
-4-
<PAGE>
on or before the last business day of the month, at the following
annualized rate: 0.85% of the Fund's average daily net assets for average
daily net assets up to and including $1 billion; 0.80% of the Fund's
average daily net assets for average daily net assets between $1 billion
and up to and including $2 billion; and 0.75% of the Fund's average daily
net assets for average daily net assets in excess of $2 billion. In
calculating the net assets of the Fund for purposes of this computation,
all liabilities of the Fund will be deducted from gross assets except the
principal amount of any indebtedness for money borrowed, including debt
securities issued by the Fund.
b. If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of such
month or from the beginning of the prorated according to the proportion
which that period bears to the full month in which the effectiveness or
termination occurs.
5. EXPENSE LIMITATION
From time to time, the Adviser may waive all or a portion of its fee
provided for under this Agreement, or agree to reimburse the Fund in order to
limit the Fund's aggregate expenses. The Adviser agrees to be bound by the terms
of any publicly announced waiver of its fee, or any limitation of the Fund's
expenses.
6. NON-EXCLUSIVITY
The services of the Adviser to the Fund are not to be deemed to be
exclusive, and the Adviser will be free to render investment advisory or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that the directors, officers, and
employees of the Adviser are not prohibited from engaging in any other business
activities or from rendering services to any other person, or from serving as
partners, officers, directors, trustees or employees of any other firm or
corporation, including other investment companies.
7. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated with
the Adviser to enable it to fulfill its obligations under this Agreement for the
provision of certain personnel and facilities to the Adviser.
8. CONFLICTS OF INTEREST
-5-
<PAGE>
It is understood that Directors, officers, agents and shareholders of the
Fund are or may be interested in the Adviser as directors, officers,
stockholders, or otherwise; that directors, officers, agents and stockholders of
the Adviser are or may be interested in the Fund as Directors, officers,
shareholders or otherwise; that the Adviser may be interested in the Fund; and
that the existence of any such dual interest will not affect the validity of
this Agreement or of any transactions under this Agreement except as otherwise
provided in the Articles of Incorporation of the Fund and the Articles of
Incorporation of the Adviser, respectively, or by specific provisions of
applicable law.
9. REGULATION
The Adviser will submit to all regulatory and administrative bodies having
jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
10. DURATION AND TERMINATION OF AGREEMENT
This Agreement will become effective on the latest of its execution, the
effective date of the Fund's registration statement under the Securities Act of
1933 or the date on which this Agreement is approved by the vote of a majority
of the outstanding voting securities (as defined in the Investment Company Act)
of the Fund. The Agreement will continue in effect for two years from the date
of its execution and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually either by the Directors
of the Fund or by the vote of a majority of the outstanding voting securities of
the Fund, provided that in either event such continuance will also be approved
by the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the Investment Company Act) of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval.
If the shareholders of the Fund fail to approve the Agreement or any
continuance of the Agreement, the Adviser will continue to act as investment
adviser with respect to the Fund pending the required approval of the Agreement
or its continuance or of a new contract with the Adviser or a different adviser
or other definitive action; provided, that the compensation received by the
Adviser in respect of the Fund such during such period will be no more than its
actual costs incurred in furnishing investment advisory and management services
to such Portfolio or the amount it would have received under the Agreement in
respect of the Fund, whichever is less.
This Agreement may be terminated at any time, without the payment of
-6-
<PAGE>
any penalty, by the Directors of the Fund or by the vote of a majority of
the outstanding voting securities of the Fund, on sixty days' written
notice to the Adviser, or by the Adviser on sixty days' written notice to
the Fund. This Agreement will automatically terminate, without the payment
of any penalty, in the event of its assignment (as defined in the
Investment Company Act).
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Fund in writing of the occurrence of
any of the following events:
a. the Adviser fails to be registered as an investment adviser under the
Investment Advisers Act or under the laws of any jurisdiction in which the
Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement;
b. the Adviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, involving the affairs of the Fund; and
c. the chief executive officer or controlling stockholder of the Adviser or
the portfolio manager of the Fund changes.
12. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by written amendment signed by the parties,
provided that the terms of any material amendment shall be approved (i) by the
vote of a majority of the outstanding voting securities of the Fund and (ii) by
the vote of a majority of the Directors of the Fund who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, if such approval is required by law.
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
14. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and will not constitute a part of this Agreement.
-7-
<PAGE>
15. NOTICES
All notices required to be given pursuant to this Agreement will be
delivered or mailed to the last known business address of the Fund or Adviser in
person or by registered mail or a private mail or delivery service providing the
sender with notice of receipt. Notice will be deemed given on the date delivered
or mailed in accordance with this section.
16. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule, or otherwise, the remainder of this Agreement will not
be affected.
17. GOVERNING LAW
The provisions of this Agreement will be construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of the Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter will control.
18. LIMITATION OF LIABILITY OF ADVISER
Neither the Adviser nor any of its officers, directors, or employees, nor
any person performing executive, administrative, trading, or other functions for
the Fund (at the direction or request of the Adviser) or the Adviser in
connection with the Adviser's discharge of its obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except for loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance of its or
his duties on behalf of the Fund or from reckless disregard by the Adviser or
any such person of the duties of the Adviser under this Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed under seal by their duly authorized officers as of the
date first set forth above.
NORTH AMERICAN SENIOR FLOATING RATE
FUND, INC.
By: ______________________________
CYPRESSTREE ASSET MANAGEMENT
CORPORATION, INC.
By: ______________________________
-9-
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into as of the ___th day of
________, 199__, between CYPRESSTREE ASSET MANAGEMENT CORPORATION, INC. (the
"Adviser"), a Delaware corporation registered under the Investment Advisers Act
of 1940, as amended (the "Advisers Act"), and CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC. (the "Subadviser"), a Delaware corporation also registered under
the Advisers Act.
W I T N E S E T H
WHEREAS, the Adviser, pursuant to an Advisory Agreement with the North
American Senior Floating Rate Fund, Inc., a Maryland Corporation (the "Fund"),
dated as of the ____th day of ____________, 199__ (the "Advisory Agreement"),
has been retained to act as investment adviser for the Fund;
WHEREAS, the Fund is registered with the Securities and Exchange
Commission (the "SEC") as a closed-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser desires to retain the Subadviser to provide a
continuous investment program for the Fund, and the Subadviser is willing to
render those services subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, the parties agree as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT AS SUBADVISER
The Fund desires to employ its capital by investing and reinvesting in
securities of the kind and in accordance with the limitations specified in the
Fund's Prospectus and Statement of Additional Information relating to the Fund
as may be in effect from time to time (collectively, the "Prospectus") and which
are filed with the SEC as part of the Fund's Registration Statement on Form N-2,
as amended from time to time, and in such manner and to such extent as may be
approved by the Board of Directors of the Fund. A copy of the Prospectus has
been provided to the Subadviser. The Adviser retains the Subadviser to act as
investment adviser for and to manage the Fund's Assets subject to the
supervision of the Adviser and the Board of Directors of the Fund and subject to
the terms of this Agreement, and the Subadviser accepts that employment. In this
capacity, the Subadviser will be responsible for the investment management of
the Fund's assets. It is recognized that the Subadviser now acts, and that from
time to time hereafter may act, as investment adviser to one or more other
investment companies and to fiduciary or other managed accounts and that the
Adviser and the Fund have no objection to those activities.
<PAGE>
-2-
2. DUTIES OF THE SUBADVISER
a. Investments. The Subadviser is authorized and directed and agrees, subject
to the stated investment policies and restrictions of the Fund as set forth
in the Prospectus and subject to the directions of the Adviser and the
Fund's Board of Directors, to purchase, hold and sell investments for the
Fund ("Fund Investments") and to monitor on a continuous basis the
performance of such Fund Investments. Subject to the supervision of the
Board of Directors and the Adviser and the terms and conditions of this
Agreement, including without limitation section 2(b), the Subadviser will:
(1) manage the Fund's Assets in accordance with the Fund's investment
objective, policies and limitations as stated in the Prospectus; (2) make
investment decisions for the Fund; (3) place purchase and sale orders for
portfolio transactions for the Fund; and (4) manage otherwise uninvested
Fund cash. In providing these services, the Subadviser will formulate and
implement a continuous program of investment, evaluation and, if
appropriate, sale and reinvestment of the Fund's Assets. The Adviser agrees
to provide to the Subadviser such assistance as may be reasonably requested
by the Subadviser in connection with its activities under this Agreement,
including, without limitation, information concerning the Fund, its funds
available (or to become available) for investment, and generally as to the
condition of the Fund's affairs.
b. Compliance with Applicable Laws and Governing Documents. In the performance
of its duties and obligations under this Agreement, the Subadviser will act
in conformity with the Prospectus and with the instructions and directions
received in writing from the Adviser or the Board of Directors of the Fund
and will comply with the requirements of the 1940 Act, the Advisers Act,
the Internal Revenue Code of 1986, as amended (the "Code") (including the
requirements for qualification as a regulated investment company) and all
other federal and state laws and regulations applicable to its services
under this Agreement.
The Adviser will provide the Subadviser with reasonable advance notice of
any change in the Fund's investment objectives, policies and restrictions
as stated in the Prospectus, and the Subadviser will, in the performance of
its duties and obligations under this Agreement, manage the Fund
Investments consistent with such changes. The Adviser acknowledges and
agrees that the Prospectus will at all times be in compliance with all
disclosure requirements under all applicable federal and state laws and
regulations relating to the Fund, including, without limitation, the 1940
Act and the rules and regulations under this Agreement, and that the
Subadviser will have no liability in connection therewith, except as to the
accuracy of material information furnished in writing by the Subadviser to
the Fund or to the Adviser specifically for inclusion in the Prospectus.
The Subadviser hereby agrees to provide to the Adviser in a timely manner
such information relating to the Subadviser and its relationship to, and
actions for, the Fund as may be required to be contained in the Prospectus.
<PAGE>
-3-
In fulfilling these requirements and its other requirements and obligations
under this Agreement, the Subadviser will be entitled to rely on and act in
accordance with (1) information provided to it by the Fund's administrator,
fund accountant, custodian or other service provider and (2) instructions,
which may be standing instructions, from the Adviser. The Adviser agrees to
provide or cause to be provided to the Subadviser on an ongoing basis upon
request by the Subadviser, such information as is requested by the
Subadviser for the performance of its obligations under this Agreement, and
the Subadviser will not be in breach of any term of this Agreement or be
deemed to have acted negligently if the Adviser fails to provide or cause
to be provided such information and the Subadviser relies on the
information most recently provided to it.
c. Voting of Proxies. The Subadviser will have the power to vote, either in
person or by proxy, all securities in which the Fund may be invested from
time to time, and will not be required to seek instructions from the
Adviser or the Fund.
d. Agent. Subject to any other written instructions of the Adviser or the
Fund, the Subadviser is hereby appointed the Adviser's and the Fund's agent
and attorney-in-fact for the limited purposes of executing account
documentation, agreements, contracts and other documents as the Subadviser
will be requested by brokers, dealers, counterparties and other persons in
connection with its management of the assets of the Fund.
e. Portfolio Transactions. Subject to the approval of the Board of Directors
of the Fund, the Subadviser, in carrying out its duties hereunder, may
cause the Fund to pay a broker-dealer which furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "34 Act"), a higher commission than
that which might be charged by another broker dealer which does not furnish
brokerage or research services or which furnishes brokerage or research
services deemed to be of lesser value, if such commission is deemed
reasonable in relation to the brokerage and research services provided by
the broker-dealer, viewed in terms of either that particular transaction or
the overall responsibilities of the Subadviser with respect to the accounts
as to which it exercises investment discretion (as such term is defined
under Section 3(a)(35) of the 34 Act).
It is recognized that the services provided by such brokers or other
entities may be useful to the Subadviser in connection with the
Subadviser's services to other clients. On occasions when the Subadviser
deems the purchase or sale of a security to be in the best interests of the
Fund as well as other clients of the Subadviser, the Subadviser, to the
extent permitted by applicable laws and regulations, may, but is under no
obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and
efficient execution. In that event, allocation of securities so sold or
purchased, as well as the
<PAGE>
-4-
expenses incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and consistent
with its fiduciary obligations to the Fund and to its other clients over
time. It is recognized that in some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtainable for, or disposed of by, the Fund.
f. Certain Transactions. The Subadviser and any affiliated person of the
Subadviser will not purchase securities or other instruments from or sell
securities or other instruments to the Fund; provided, however, the
Subadviser may purchase securities or other instruments from or sell
securities or other instruments to the Fund if the transaction is
permissible under applicable laws and regulations, including, without
limitation, the 1940 Act and the Advisers Act and the rules and regulations
promulgated under both those acts.
The Subadviser, including its Access Persons (as defined in Rule 17j-1(e)
under the 1940 Act), agrees to observe and comply with Rule 17j-1 and its
Code of Ethics (which will comply in all material respects with Rule 17j-1,
as amended from time to time). On a quarterly basis, the Subadviser will
either (i) certify to the Adviser that the Subadviser and its Access
Persons have complied with the Subadviser's Code of Ethics with respect to
the Fund's assets or (ii) identify any material violations that have
occurred with respect to the Fund's assets. In addition, the Subadviser
will report at least annually to the Adviser concerning any other
violations of the Subadviser's Code of Ethics that required significant
remedial action and that were not previously reported.
g. Books and Records. Pursuant both to the 1940 Act and the Advisers Act and
the rules and regulations promulgated under those acts, the Subadviser will
maintain separate books and records of all matters pertaining to the Fund's
assets. The Fund's books and records will be available to the Adviser at
any time upon reasonable request during normal business hours and will be
available for telecopying without unreasonable delay to the Adviser during
any day that the Fund is open for business.
h. Information Concerning Fund Investments and Subadviser. From time to time
as the Adviser or the Fund may reasonably request (but no less often than
quarterly), the Subadviser will furnish or cause to be furnished the
requesting party reports on portfolio transactions and reports on Fund
Investments held in the portfolio, all in such detail as the Adviser or the
Fund may reasonably request. The Subadviser will also inform the Adviser
promptly of changes in portfolio managers responsible for Subadviser Assets
or of changes in the control of the Subadviser. The Subadviser will be
available to its officers and employees to meet with the Fund's Board of
Directors in person on reasonable notice to review the Fund Investments and
the Subadviser will report to the Board of Directors in writing on the Fund
Investments monthly.
<PAGE>
-5-
i. Custody Arrangements. The Subadviser will on each business day provide the
Adviser and the Fund's custodian such information as the Adviser and the
Fund's custodian may reasonably request relating to all transactions
concerning the Fund Investments including, without limitation,
recommendations, in accordance with policies and procedures established by
the Directors, as to the fair value of securities for which market quotes
are not available.
3. INDEPENDENT CONTRACTOR
In the performance of its duties under this Agreement, the Subadviser
is an independent contractor and unless otherwise expressly provided in this
Agreement or otherwise authorized in writing, will have no authority to act for
or represent the Fund or the Adviser in any way or otherwise be deemed an agent
of the Fund or the Adviser.
4. EXPENSES
During the term of this Agreement, Subadviser will pay all expenses
incurred by it in connection with its activities under this Agreement other than
the cost of securities, commodities and other investments (including brokerage
fees and commissions and other transaction charges, if any) purchased for the
Fund. The Subadviser will not be responsible for any expenses of the operations
of the Fund including, without limitation, brokerage fees and commissions and
other transaction charges, if any. The Subadviser will not be responsible for
the Fund's or the Adviser's expenses.
5. COMPENSATION
a. The Adviser will pay the Subadviser a fee, computed daily and paid monthly
on or before the last business day of the month, at the following
annualized rate: 0.45% of the Fund's average daily net assets for average
daily net assets up to and including $1 billion; 0.40% of the Fund's
average daily net assets for average daily net assets between $1 billion
and up to and including $2 billion; and 0.35% of the Fund's average daily
net assets for average daily net assets in excess of $2 billion. In
calculating the net assets of the Fund, for purposes of this computation,
all liabilities of the Fund will be deducted from gross assets except the
principal amount of any indebtedness for money borrowed, including debt
securities issued by the Fund.
b. If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of such
month or from the beginning of the prorated according to the proportion
which that period bears to the full month in which the effectiveness or
termination occurs.
c. Notwithstanding any other provision of this Agreement, the Subadviser may
from
<PAGE>
-6-
time to time agree not to impose all or a portion of its fee otherwise
payable under this Agreement (in advance of the time such fee or portion of
the fee would otherwise accrue). Any such fee reduction may be discontinued
or modified by the Subadviser at any time.
6. REPRESENTATION AND WARRANTIES OF SUBADVISER
The Subadviser represents and warrants to the Adviser and the Fund as
follows:
a. The Subadviser is registered as an investment adviser under the Advisers
Act;
b. The Subadviser is a corporation duly organized and validly existing under
the laws of the State of Delaware with the power to own and possess its
assets and carry on its business as it is now being conducted;
c. The execution, delivery and performance by the Subadviser of this Agreement
are within the Subadviser's powers and have been duly authorized by its
Board of Directors or shareholders, and no action by or in respect of, or
filing with, any governmental body, agency or official is required on the
part of the Subadviser for the execution, delivery and performance by the
Subadviser of this Agreement, and the execution, delivery and performance
by the Subadviser of this Agreement do not contravene or constitute a
default under (i) any provision of applicable law, rule or regulation, (ii)
the Subadviser's governing instruments, or (iii) any material agreement,
judgment, injunction, order, decree or other instrument binding upon the
Subadviser;
d. The Form ADV of the Subadviser previously provided to the Adviser is a true
and complete copy of the form filed with the SEC and the information
contained therein is accurate and complete in all material respects.
7. REPRESENTATIONS AND WARRANTIES OF ADVISER
The Adviser represents and warrants to the Subadviser as follows:
a. The Adviser is registered as an investment adviser under the Advisers Act;
b. The Adviser is a corporation duly organized and validly existing under the
laws of the State of Delaware with the power to own and possess its assets
and carry on its business as it is now being conducted;
c. The execution, delivery and performance by the Adviser of this Agreement
are within the Adviser's powers and have been duly authorized by its Board
of Directors
<PAGE>
-7-
or shareholders, and no action by or in respect of, or filing with, any
governmental body, agency or official is required on the part of the
Adviser for the execution, delivery and performance by the Adviser of this
Agreement, and the execution, delivery and performance by the Adviser of
this Agreement do not contravene or constitute a default under (i) any
provision of applicable law, rule or regulation, (ii) the Adviser's
governing instruments, or (iii) any material agreement, judgment,
injunction, order, decree or other instrument binding upon the Adviser;
d. The Form ADV of the Adviser previously provided to the Subadviser is a true
and complete copy of the form filed with the SEC and the information
contained therein is accurate and complete in all material respects;
e. The Adviser acknowledges that it has received a copy of the Subadviser's
Form ADV prior to the execution of this Agreement;
f. The Fund is in compliance in all material respects, and during the term of
this Agreement will remain in compliance in all material respects, with all
federal and state laws, rules and regulations applicable to the Fund and
the operation of its business (other than those related to investment
objectives, policies and restrictions over which the Subadviser has
discretion pursuant to the terms hereof), including, without limitation,
applicable disclosure and filing obligations for prospectuses, statements
of additional information, registration statements, periodic reports to
shareholders and regulatory bodies, proxy statements and promotional
materials and advertisements; and
g. The Fund is in compliance in all material respects, and during the term of
this Agreement will remain in compliance in all material respects, with the
terms and conditions of the Prospectus (other than those related to
investment objectives, policies and restrictions over which the Subadviser
has discretion pursuant to the terms hereof), including, without
limitation, provisions relating to the computation of the Fund's net asset
value and those relating to processing purchase, exchange and repurchase
requests.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION
All representations and warranties made by the Subadviser and the
Adviser pursuant to Sections 6 and 7, respectively, will survive for the
duration of this Agreement and the parties to this Agreement will promptly
notify each other in writing upon becoming aware that any of the foregoing
representations and warranties are no longer true.
<PAGE>
-8-
9. LIABILITY
Neither the Subadviser nor any of its officers, directors, or
employees, nor any person performing executive, administrative, trading, or
other functions for the Fund (at the direction or request of the Subadviser) or
the Subadviser in connection with the Subadviser's discharge of its obligations
undertaken or reasonably assumed with respect to this Agreement, shall be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except for loss
resulting from willful misfeasance, bad faith, or gross negligence in the
performance of its or his or her duties on behalf of the Fund or from reckless
disregard by the Subadviser or any such person of the duties of the Subadviser
under this Agreement.
10. DURATION AND TERMINATION
a. This Agreement will become effective on the latest of its execution, the
effective date of the Fund's registration statement under the Securities
Act of 1933 or the date on which this Agreement is approved by the vote of
a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Fund. The Agreement will continue in effect
for two years from the date of its execution, and from year to year
thereafter, but only so long as such continuance is specifically approved
at least annually either by the Directors of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund, provided that in
either event such continuance will also be approved by the vote of a
majority of the Directors of the Fund who are not interested persons (as
defined in the Investment Company Act) of any party to this Agreement cast
in person at a meeting called for the purpose of voting on such approval.
b. If the shareholders of the Fund fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as
subadviser with respect to the Fund pending the required approval of the
Agreement or its continuance or of a new contract with the Subadviser or a
different adviser or other definitive action; provided, that the
compensation received by the Subadviser in respect of the Fund during such
period will be no more than its actual costs incurred in furnishing
investment advisory and management services to the Fund or the amount it
would have received under the Agreement in respect of the Fund, whichever
is less.
c. This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors of the Fund, by the Adviser, or by the vote of a
majority of the outstanding voting securities of the Fund, on sixty days'
written notice to the Subadviser; or by the Subadviser on sixty days'
written notice to the Fund and the Adviser. This Agreement may be
terminated immediately in the event of a material breach of any provision
of this Agreement by the other party to this Agreement. This Agreement will
automatically terminate, without the payment of any penalty, in the
<PAGE>
-9-
event of its assignment (as defined in the Investment Company Act), or on
termination of the Advisory Agreement.
11. REFERENCE TO SUBADVISERS
Neither the Adviser, the Fund nor any affiliated person or agent of the
Adviser or the Fund will make reference to or use the name of "CypressTree
Investment Management Company" or any derivative thereof or logo associated with
that name, except references concerning the identity of and services provided by
the Subadviser to the Fund, which references will not differ in substance from
those included in the Prospectus and this Agreement, in any advertising or
promotional materials without the prior approval of the Subadviser, which
approval will not be unreasonably withheld or delayed.
Upon termination of this Agreement in accordance with Section 10(b)
hereof, the Adviser, the Fund and the Fund and their affiliates will cease to
make such reference or use such name (or derivative or logo).
12. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Fund in writing of the
occurrence of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under the
Investment Advisers Act or under the laws of any jurisdiction in which the
Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, involving the affairs of the Fund; and
c. the chief executive officer or controlling stockholder of the Subadviser or
the portfolio manager of the Fund changes.
13. AMENDMENT
This Agreement may be amended by written amendment signed by the
parties, provided that the terms of any material amendment shall be approved (i)
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) by the vote of a majority of the Directors of the Fund who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is required
by law.
<PAGE>
-10-
14. CONFIDENTIALITY
Subject to the duties of the Subadviser to comply with applicable law,
including any demand of any regulatory or taxing authority having jurisdiction,
the Subadviser will treat as confidential all records and other information
pertaining to the Fund or the Adviser that the Subadviser maintains or receives
as a result of its responsibilities under this Agreement. In addition, subject
to the duties to comply with any applicable law, the Adviser agrees to treat as
confidential any information concerning the Subadviser, including its investment
policies or objectives, that the Adviser receives as the result of its actions
under this Agreement.
15. NOTICE
All notices required to be given pursuant to this Agreement will be
delivered or mailed to the last known business address of the Fund, the Adviser,
or the Subadviser in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice will be deemed given
on the date delivered or mailed in accordance with this section.
16. GOVERNING LAW
The provisions of this Agreement will be construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of the Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter will control.
17. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed an original, all of which will together constitute one and
the same instrument.
18. CERTAIN DEFINITIONS
For the purposes of this Agreement, "interested person,"
"affiliated person", "majority of outstanding voting securities" and
"assignment" have their respective meanings as set forth in the 1940 Act,
subject, however, to such exemptions as may be granted by the SEC.
19. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience
<PAGE>
-11-
of reference only and will not constitute a part of this Agreement.
20. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule, or otherwise, the remainder of this Agreement will not
be affected.
21. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
CYPRESSTREE ASSET MANAGEMENT
CORPORATION, INC.
By: ______________________________________
Joseph T. Grause, Jr.
Vice President
CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.
By: ______________________________________
______________________________________
DISTRIBUTION AGREEMENT
AGREEMENT made as of _________________________ , 1998, by and between North
American Senior Floating Rate Fund (the "Fund"), a Maryland corporation which
intends to engage in business as an closed-end investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
CypressTree Funds Distributors, Inc. (the "Distributor"), a Delaware corporation
registered under the Securities Exchange Act of 1934, as amended, as a
broker-dealer.
1. Appointment of Distributor. The Fund hereby appoints the Distributor as
the principal underwriter and exclusive distributor of shares of Class A, Class
B and Class C of the Fund (the "Shares") and the Distributor hereby accepts that
appointment.
2. Sale of Shares Through Distributor.
-----------------------------------
(a) The Fund hereby grants to the Distributor the exclusive right
to sell, as agent for the Fund not as principal, and to arrange for the sale of
Shares upon the terms herein set forth. The exclusive right hereby granted shall
not apply to Shares issued or transferred or sold: (i) in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund; or (ii)
<PAGE>
pursuant to reinvestment of dividends or capital gains distributions; or (iii)
pursuant to any reinstatement privilege afforded redeeming shareholders. It is
understood that shares may be purchased directly through the Fund's transfer and
dividend disbursing agent in the manner set forth in the Fund's prospectus.
(b) The Distributor, either directly or through a promotional agent
selected and compensated by the Distributor, will devote research, time and
effort to effect sales of Shares through dealers, and will assist those dealers
and their associated persons to the extent and in whatever manner the
Distributor deems appropriate in order to enhance the sale of Shares, but the
Distributor does not undertake to arrange for the sale of any specific number of
Shares. Neither the Distributor nor any selected dealer nor any other person is
authorized by the Fund to give any information or to make any representations,
other than those contained in the registration statement or related prospectus
and statement of additional information and any sales literature specifically
approved by the Fund. The services of the Distributor to the Fund hereunder are
not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.
(c) The Distributor shall have the right, as agent of the Fund, to
order from the Fund the Shares needed, but
2
<PAGE>
not more than the Shares needed (except for reasonable allowances for clerical
errors, delays and errors of transmission and cancellation of orders), to fill
unconditional orders for Shares received by the Distributor from dealers and
investors. The price which shall be paid to the Fund for the Shares so purchased
shall be the net asset value, determined as set forth in Section 2(e) hereof.
(d) The price at which the Distributor or dealer purchasing shares
through the Distributor may sell Shares to the public shall be the public
offering price determined in accordance with the method set forth in the Fund's
prospectus and statement of additional information.
(e) The net asset value of Shares of the Fund shall be determined
by the Fund or any agent of the Fund in accordance with the method set forth in
the prospectus and statement of additional information of the Fund and
guidelines established by the directors of the Fund (the "Directors").
(f) The Fund shall have the right to suspend the sale of its Shares
at times when redemption is suspended pursuant to the conditions referred to in
Section 8 hereof. The Fund shall also have the right to suspend the sale of its
Shares if a banking moratorium shall have been declared by federal or applicable
state authorities, or if there shall have been some other event, which, in the
judgment of the Directors, makes it impracticable or inadvisable to sell the
Shares.
3
<PAGE>
(g) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be advised promptly of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and, upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Shares pursuant to the instructions of the Distributor.
3. Sales Charges.
--------------
(a) For the purposes of this Section 3, "Distribution Fees" shall
mean, collectively, (i) the sales charges payable to the Distributor as set
forth in Section 3(b), below, and (ii) the amounts payable to the Distributor
under the Distribution Plans as set forth in Section 3(c) and "Effective Date"
shall mean the date hereof.
(b) The Distributor shall have the right to receive the sales
charges (including, without limitation, contingent deferred sales charges) in
respect of Shares (i) sold during the term of this Agreement or any continuation
hereof(including Shares into which such Shares convert), (ii) later issued in
connection with the reinvestment of dividends (whether ordinary, capital gain or
tax exempt dividends, or return
4
<PAGE>
of capital) paid in respect of Shares described in clause (i) or this clause
(ii), (iii) later acquired by a holder of Shares described in clause (i) or
clause (ii) upon a free exchange of such Shares for shares of a portfolio of the
North American Funds or (iv) later issued in connection with a reinvestment of
dividends paid in respect of Shares described in clause (iii) (collectively,
"Distributor Shares"),in each case under the circumstances, upon the terms and
conditions and in the amounts set forth in the Fund's prospectus at the time of
the sale.
(c) So long as the Fund's Distribution Plans remain in effect with
respect to assets attributable to Distributor Shares, the Distributor shall have
the right to receive one hundred percent (100%) of the amounts payable under
such Distribution Plans.
(d) The Distributor may transfer its right to receive Distribution
Fees (but not its obligations under this Agreement), and such transfer shall be
effective upon written notice from the Distributor to the Fund. In connection
with the foregoing, the Fund is authorized to pay all or a part of the
Distribution Fees directly to such transferee of the Distributor.
(e) The right of the Distributor to receive Distribution Fees with
respect to Distributor Shares shall survive the termination of this Agreement.
4. Duties of the Fund. The Fund shall:
-----------------------------------
(a) Furnish to the Distributor copies of its
5
<PAGE>
prospectus and statement of additional information, its annual and interim
reports, and other information, financial statements and papers, including one
certified copy of all financial statements prepared for the Fund by independent
public accountants, to the extent reasonably requested by the Distributor for
use in connection with the distribution of Shares of the Fund.
(b) Take, from time to time, any steps necessary to register the
Shares under the Securities Act of 1933 (the "Securities Act"), so that there
will be available for sale as many Shares as the Distributor reasonably may be
expected to sell.
(c) Use its best efforts to qualify and maintain the qualification
of an appropriate number of its Shares for sale under the securities laws of
those states approved by the Distributor and the Fund, and, if necessary or
appropriate in connection therewith, to qualify and maintain the qualification
of the Fund as a broker-dealer in those states; provided that any such
qualification may be terminated or withdrawn by the Fund at any time in its
discretion. The Distributor shall furnish information and other material
relating to its affairs and activities reasonably required by the Fund in
connection with any such qualification(s).
5. Duties of the Distributor. The Distributor shall:
(a) Use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of the Shares of
the Fund and with all
6
<PAGE>
applicable rules and regulations of all regulatory bodies, including the
National Association of Securities Dealers, Inc. (the "NASD").
(b) Use its best efforts to obtain any approval or clearance
required from the NASD or other regulatory authorities with respect to sales
material for the Fund or any of its portfolio series.
6. Selected Dealer Agreements. The Distributor shall:
(a) Have the right to enter into selected dealer agreements with
securities dealers of its choice ("selected dealers") for the sale of Shares.
Shares sold to selected dealers shall be for resale by the selected dealers only
at the public offering price determined as set forth in Section 2(d) hereof. The
standard form of agreement with selected dealers pertaining to sales of the
Shares shall be approved by the Directors.
(b) Offer and sell Shares, within the United States, only to
selected dealers that are members in good standing of the NASD.
(c) Act only as principal and not as agent for the Fund in making
agreements with selected dealers.
7. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund, except
for those expenses assumed by any investment adviser or subadviser of the Fund
or any other party contracting
7
<PAGE>
with the Fund or by the Distributor pursuant to Section 7(b) of this Agreement.
(b) The Distributor shall bear the costs and expenses of: (i) any
payments made to selected dealers; (ii) the printing and distributing of any
copies of prospectuses, statements of additional information and annual and
interim reports to be used in connection with the offering of Shares to selected
dealers or prospective investors pursuant to this Agreement after the same have
been prepared and set in type and copies have been printed and distributed to
regulatory bodies and existing shareholders as deemed necessary; (iii)
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Shares for sale to the public; (iv) any advertising expenses
incurred by the Distributor in connection with the offering; and (v) the
registration or qualification of the Distributor as a broker-dealer under
federal and states laws and of continuing those registrations or qualifications.
8. Repurchase of Shares. Any of the outstanding Shares may be tendered
for repurchase at such times, and the Fund agrees to repurchase the Shares so
tendered in accordance with the applicable provisions set forth in the
prospectus and statement of additional information of the Fund.
8
<PAGE>
9. Indemnification.
----------------
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor, against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of any person
acquiring any Shares, which may be based upon the Securities Act, or on any
other statute or at common law, on the ground that the registration statement or
related prospectus and statement of additional information, as from time to time
amended and supplemented, or an annual or interim report to shareholders of the
Fund, includes an untrue statement of material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless that statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of the Fund in favor of the Distributor and/or its
controlling persons to be deemed to protect the Distributor or any controlling
persons thereof against any liability to the Fund or its security holders to
which the Distributor or any of its controlling persons would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of the
9
<PAGE>
reckless disregard of their obligations and duties under this Agreement; or (ii)
is the Fund to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Distributor or its
controlling persons, unless the Distributor or its controlling persons, as the
case may be, shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Distributor or its controlling
persons (or after the Distributor or its controlling persons shall have received
notice of service on any designated agent), but failure to notify the Fund of
any claim shall not relieve the Fund from any liability which it may have to the
person against whom the action is brought otherwise than on account of the
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense, of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, that defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or the Distributor's controlling
person or persons, defendant or defendants in the suit. In the event the Fund
elects to assume the defense of a suit and retain satisfactory counsel, the
Distributor or its controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Fund does
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not elect to assume the defense of such a suit, it will reimburse the
Distributor or the Distributor's controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Shares.
(b) The Distributor shall indemnity and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section 10, but only
with respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund by or on behalf of the Distributor for
use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to shareholders. In case any action shall be brought against
the Fund or any person so indemnified, in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection (a)
of this Section 10.
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10. Continuation, Amendment or Termination of the Agreement.
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(a) This Agreement shall become effective as of the date first
written above and shall continue in full force and effect from year to year so
long as continuance is approved at least annually (i) by the Directors or by
vote of a majority of the outstanding voting securities of the Fund and (ii) by
vote of a majority of the Directors who are not interested persons of the
Distributor or of the Fund cast in person at a meeting called for the purpose of
voting on such approval, provided, however, that (a) this Agreement may at any
time be terminated without the payment of any penalty either by vote of the
Directors or by vote of a majority of the outstanding voting securities of the
Fund, on sixty (60) days' notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment; and (c) this Agreement may
be terminated by the Distributor on ninety (90) days' written notice to the
Fund.
(b) This Agreement may be amended at any time by mutual consent of
the parties, provided that the consent on the part of the Fund shall have been
approved (i) by the Directors or by vote of a majority of the outstanding voting
securities of the Fund and (ii) by vote of a majority of the Directors who are
not interested persons of the Distributor or of the Fund cast in person at a
meeting called for the purpose of voting on the amendment.
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(c) Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of the other party.
11. Definitions. For the purposes of this Agreement, the terms "vote of
a majority of the outstanding voting securities," "interested person" and
"assignment" shall have the respective meanings specified in the Investment
Company Act.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the day and year first above written.
NORTH AMERICAN SENIOR
FLOATING RATE FUND, INC.
By: _____________________________________
CYPRESSTREE FUNDS DISTRIBUTORS, INC.
By: _____________________________________
14
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.
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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
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<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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<PAGE>
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
CUSTODIAN AGREEMENT
-------------------
Custodian Agreement dated as of June 23, 1998 between NORTH AMERICAN SENIOR
FLOATING RATE FUND, Inc. 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 loans and participation and other interests in loans ("Loans") and
securities (as used herein, the term "securities" shall include Loans) 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 capital stock 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
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THE CUSTODIAN IN THE UNITED STATES
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<PAGE>
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 documents, certificates and other such
instruments including any schedule of payments ("Financing Documents") as are
received by the Custodian, and 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
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<PAGE>
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;
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;
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12) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Securities and 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.
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
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<PAGE>
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
and the Loan Services Addendum attached hereto, the Custodian shall collect on a
timely basis all income and other payments with respect to registered domestic
securities held hereunder and payments with respect to Loans 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.
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
5
<PAGE>
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;
6) For the fulfillment of the Fund's obligations with respect to unfunded
commitments incurred in connection with Loans; or
7) 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,
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<PAGE>
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
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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;
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;
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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;
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
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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.
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 (which term, for this purpose, includes sellers of
Loans) 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 2.14 SERVICES RELATING TO LOANS. The Custodian shall perform
certain additional services with respect to the Fund's Loans as described on the
Loan Services Addendum hereto.
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:
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"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.
"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
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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.
------------------------------------
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).
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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.
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
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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.
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.
----------------------------------------
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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;
(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;
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(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;
(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;
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<PAGE>
(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;
(vi) in connection with the borrowing or lending of foreign securities;
and
(vii) 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
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<PAGE>
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.
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
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prior to the date on which the Custodian is to take action to exercise such
right or power.
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
19
<PAGE>
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. Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Fund complies with any security procedures agreed to
between the Fund and Custodian, including, but not limited to, the security
procedures selected by the Fund on the Loan Services Addendum attached hereto.
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.
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.
20
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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.
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
21
<PAGE>
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.
22
<PAGE>
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
23
<PAGE>
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.
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
24
<PAGE>
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.
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
25
<PAGE>
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.
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
-------
26
<PAGE>
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: NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
125 High Street
Boston, Massachusetts 02110
Attention: John I. Fitzgerald
Telephone: 617-210-4515
Telecopy: 617-210-4501
To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive, JAB4NE
North Quincy, Massachusetts 02171
Attention: Edward J. McKenzie
Telephone: 617-985-1368
Telecopy: 617-471-4806
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.
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.
27
<PAGE>
SECTION 21. DATA ACCESS SERVICES
--------------------
Each of the Fund and the Custodian hereby agree to the provisions of the
Data Access Services Addendum attached hereto.
SECTION 22. 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.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
28
<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 the date of this Agreement.
NORTH AMERICAN SENIOR FLOATING RATE FUND SIGNATURE
ATTESTED TO BY:
FUND, INC.
By: _________________________ By: _____________________________
Name: Joseph T. Grause, Jr. Name: John I. Fitzgerald
Title: Executive Vice President Title: Secretary and Counsel
STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
BY:
By: _________________________ By: _____________________________
Name: Ronald E. Logue Name: Marc L. Parsons
Title: Executive Vice President Title: Associate Counsel
29
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, made as of the ___th day of ___________, 199__,
between NORTH AMERICAN SENIOR FLOATING RATE FUND, INC., a Maryland corporation
(the "Fund"), and CYPRESSTREE ASSET MANAGEMENT CORPORATION, INC., a Delaware
corporation ("CAM").
WHEREAS, the Fund is registered with the Securities and Exchange Commission
as a closed-end management investment company under the Investment Company Act
of 1940, as amended ("1940 Act").
WHEREAS, the Fund desires to retain CAM as administrator to furnish certain
administrative services to the Fund, and CAM is willing to furnish these
services;
NOW THEREFORE, the parties agree as follows:
1. APPOINTMENT
The Fund appoints CAM as administrator of the Fund for the period and on
the terms set forth in this Administration Agreement. CAM accepts this
appointment and agrees to render the services set forth in this Administration
Agreement, for the compensation provided in this Administration Agreement.
2. DUTIES AS ADMINISTRATOR
CAM will perform the following administrative duties, subject to the
supervision of the Fund's Board of Directors ("Board").
a. CAM will authorize expenditures and approve bills for payment on behalf of
the Fund.
b. CAM will provide assistance in connection with meetings of the Directors
and shareholders of the Fund.
c. CAM will provide administrative services in connection with the Fund's
repurchase offers, including arrangement for preparation and dissemination
of notification to shareholders of upcoming repurchase offers, and the
Fund's complying with the procedural and other requirements of Securities
and Exchange Commission Rule 23c-3.
d. CAM will prepare all annual, semi-annual and other reports required to be
sent to Fund shareholders, and arrange for the printing and dissemination
of such reports to shareholders.
<PAGE>
-2-
e. CAM will prepare and arrange for the filing of all reports, forms,
registration statements, and documents required to be filed by the Fund
with the Securities and Exchange Commission ("SEC").
f. CAM will review the provision of services by the Fund's independent
accountants, including but not limited to the preparation by such
accountants of audited financial statements of the Fund and the Fund's
federal, state and local tax returns, and make such reports and
recommendations to the Directors of the Fund concerning the performance of
the independent accountants as the Directors deem appropriate.
g. CAM will arrange for the filing with the appropriate authorities of all
required federal, state and local tax returns.
h. CAM will arrange for the dissemination to shareholders of the Fund's proxy
materials.
i. CAM will review and supervise the valuation of such portfolio investments
and other assets of the Fund as may be designated by the Board (subject to
any guidelines, directions and instructions of the Board) and review and
supervise the calculation of net asset value of the Fund's shares by the
fund accounting agent.
j. CAM will arrange for the preparation of all advertisements and promotional
material relating to the continuous offering of the Fund's shares, and all
communications by the Fund to its shareholders.
k. CAM will arrange for the preparation and filing of all reports, forms and
documents required to be filed by the Fund with state securities
administrators or Blue Sky authorities, or other appropriate state or
federal regulatory authorities.
l. CAM will monitor the Fund's compliance with (1) the 1940 Act and other
federal securities laws and the regulations under any federal securities
laws; (2) state and foreign laws and regulations applicable to the
operation of investment companies; (3) the Fund's investment objectives,
policies and restrictions, and (4) the Code of Ethics and other policies
adopted by the Fund's Board of Directors or by the Fund's investment
adviser or subadviser and applicable to the Fund.
m. CAM will perform calculations in connection with distribution of income and
capital gains by the Fund, prepare and arrange for printing of notices to
shareholders regarding such distributions, and provide the Fund's transfer
and dividend disbursing agent and custodian with such information as is
required for such parties to effect the payment of distributions and to
implement the Fund's dividend reinvestment plan.
n. CAM will negotiate terms and conditions for provision of services from,
maintain liaison with and oversee the various agents and other persons
employed by the Fund
<PAGE>
-3-
(including the Fund's transfer agent, custodian, fund accounting agent,
independent accountants and legal counsel) and assist in the coordination
of their activities on behalf of the Fund. Fees and expenses of such agents
and other persons will be paid by the Fund.
o. CAM will provide customer support services to wholesalers, broker-dealers,
representatives, and shareholders.
p. CAM will establish the accounting policies of the Fund, assist in the
reconciliation of accounting issues that may arise with respect to the
Fund's operations, and consult with the Fund's independent accountants,
legal counsel, and other agents in connection therewith.
q. CAM will not be responsible for providing investment advisory services to
the Fund under this Agreement.
3. FURTHER DUTIES
In all matters relating to the performance of this Administration
Agreement, CAM will act in conformity with the Articles of Incorporation,
By-Laws and Registration Statement of the Fund and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules under the 1940 Act, and all other applicable federal and state laws
and regulations.
4. DELEGATION OF CAM'S DUTIES AS ADMINISTRATOR
With respect to the Fund, CAM may enter into one or more agreements
("Sub-Administration Agreement") with a sub-administrator in which CAM delegates
to a sub-administrator the performance of any or all of the services specified
in Paragraphs 2 and 3 of this Administration Agreement, provided that (i) each
Sub-Administration Agreement imposes on the sub-administrator all the duties and
conditions to which CAM is subject with respect to the delegated services under
Paragraphs 2 and 3 of this Administration Agreement; (ii) each
Sub-Administration Agreement meets all requirements of the 1940 Act and rules
under the 1940 Act; and (iii) CAM will not enter into a Sub-Administration
Agreement unless it is approved by the Directors of the Fund before
implementation.
<PAGE>
-4-
5. SERVICES NOT EXCLUSIVE
The services furnished by CAM under this Administration Agreement are not
to be deemed exclusive and CAM is free to furnish similar services to others so
long as its services under this Administration Agreement are not impaired.
Nothing in this Administration Agreement shall limit or restrict the right of
any director, officer or employee of CAM, who may also be a Director, officer or
employee of the Fund, to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature.
6. EXPENSES
a. During the term of this Administration Agreement, the Fund will bear all
expenses incurred in its operations which are not specifically assumed by
CAM.
b. Expenses borne by the Fund will include but not be limited to the
following: (i) the cost (including brokerage commissions, if any) of
securities purchased or sold by the Fund and any losses incurred in
connection with securities transactions; (ii) fees payable to and expenses
incurred on behalf of the Fund by CAM under this Administration Agreement;
(iii) expenses of organizing the Fund and continuing its existence; (iv)
filing fees and expenses relating to the registration and qualification of
the Fund's shares under federal and/or state securities laws and
registration of the Fund under the Investment Company Act and maintaining
such registrations and qualifications; (v) fees and salaries payable to the
Fund's Directors who are not parties to this Administration Agreement or
interested persons of any party ("Independent Directors"); (vi) all
expenses incurred in connection with the Independent Directors' services,
including travel expenses; (vii) taxes (including any income or franchise
taxes) and governmental fees; (viii) costs of any liability, uncollectible
items of deposit and other insurance and fidelity bonds; (ix) any costs,
expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund for violation of any law; (x) legal,
accounting and auditing expenses, including legal fees of special counsel
for the Independent Directors; (xi) charges of custodians, transfer agents,
pricing agents and other agents; (xii) costs of preparing share
certificates; (xiii) expenses of setting in type, printing, distributing,
and mailing prospectuses and supplements to prospectuses, statements of
additional information, reports, proxy materials and notifications of
repurchase offers to existing shareholders; (xiv) any extraordinary
expenses (including fees and disbursements of counsel, costs of actions,
suits or proceedings to which the Fund is a party and the expenses the Fund
may incur as a result of its legal obligation to provide indemnification to
its officers, Directors, employees and agents) incurred by the Fund; (xv)
fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (xvi) costs of mailing and
tabulating proxies and costs of meetings of shareholders, the Board and any
committees of the Board; (xvii) the cost of investment company literature
and other
<PAGE>
-5-
publications provided by the Fund to its Directors and officers; and
(xviii) costs of mailing, stationery and communications equipment; (xix)
expenses of issue, sale, repurchase and redemption (if any) of shares of
the Fund, including all expenses of repurchase offers; (xx) expenses of
reports to governmental offices and commissions; and (xxi) expenses of
pricing and valuation services employed by the Fund.
c. The payment or assumption by CAM of any expense of the Fund that CAM is not
required by this Administration Agreement to pay or assume will not
obligate CAM to pay or assume the same or any similar expense of the Fund
on any subsequent occasion.
7. COMPENSATION
a. For the services provided under this Administration Agreement, the Fund
will pay to CAM a fee, computed daily and paid monthly, on or before the
last business day of the month, at the annualized rate of 0.40% of the
Fund's average daily net assets. In calculating the net assets of the Fund
for purposes of this computation, all liabilities of the Fund shall be
deducted from gross assets except the principal amount of any indebtedness
for money borrowed including debt securities issued by the Fund.
b. If this Administration Agreement becomes effective or terminates before the
end of any month, the fee for the period from the effective date to the end
of the month or from the beginning of the month to the date of termination,
as the case may be, will be prorated according to the proportion which that
period bears to the full month in which effectiveness or termination
occurs.
c. From time to time, CAM may waive all or a portion of its fees provided for
under this Administration Agreement.
d. On the investment of substantially all of the Fund's assets in another
investment company with substantially the same investment objective,
policies, and restrictions as the Fund, the Fund will pay to CAM a fee,
computed daily and paid monthly, on or before the last business day of the
month, at the annualized rate of 0.40% the average daily net assets of such
other investment company that throughout the month is attributable to the
Fund's interest in the other investment company. In calculating the net
assets of the other investment company for purposes of this computation,
all liabilities of the other investment company will be deducted from gross
assets except the principal amount of any indebtedness for money borrowed
including debt securities issued by the other investment company.
8. LIMITATION OF LIABILITY OF CAM AND INDEMNIFICATION
Neither CAM nor any of its officers, directors, or employees, nor any
person
<PAGE>
-6-
performing executive, administrative, or other functions for the Fund (at
the direction or request of the CAM) or CAM in connection with CAM's
discharge of its obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of
law or any loss suffered by the Fund in connection with the matters to
which this Administration Agreement relates except, for loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of
its or his or her duties on behalf of the Fund or from reckless disregard
by CAM or any such person of the duties of CAM under this Administration
Agreement.
9. DURATION AND TERMINATION
a. This Administration Agreement will become effective on the date first
written above, provided that this Administration Agreement will not take
effect with respect to the Fund unless it has first been approved (i) by a
vote of a majority of the Independent Directors, and (ii) by vote of a
majority of the Fund's outstanding voting securities.
b. Unless sooner terminated as provided in this Administration Agreement, this
Administration Agreement will continue in effect for two years from the
date of execution, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually (i) by a vote
of a majority of the Independent Directors, and (ii) by the Board or by
vote of a majority of the outstanding voting securities of the Fund.
c. Notwithstanding the foregoing, with respect to the Fund this Administration
Agreement may be terminated at any time, without the payment of any
penalty, by the Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund on sixty days' written notice to
CAM, or by CAM at any time, without the payment of any penalty, on sixty
days' written notice to the Fund. This Administration Agreement will
automatically terminate in the event of its assignment.
10. AMENDMENT
This Agreement may be amended by an instrument in writing signed by both
parties provided that no amendment to this Agreement shall be effective until
approved by the vote of a majority of those Directors of the Fund who are not
interested persons of CAM or the Fund.
11. GOVERNING LAW
This Administration Agreement will be construed in accordance
with the laws of the Commonwealth of Massachusetts and the 1940 Act. To the
extent that the applicable laws of the Commonwealth of Massachusetts conflict
with the applicable provisions of the 1940 Act, the latter will control.
<PAGE>
-7-
12. MISCELLANEOUS
a. The captions in this Administration Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions of
this Administration Agreement or otherwise affect their construction or
effect.
b. If any provision of this Administration Agreement is held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Administration Agreement will not be affected.
c. This Administration Agreement will be binding upon and will inure to the
benefit of the parties to this Administration Agreement and their
respective successors.
d. As used in this Administration Agreement, the terms "majority of the
outstanding voting securities," "interested person," "assignment,"
"broker," "dealer," "investment adviser," "prospectus," "sale," "sell" and
"security" have the same meaning as given those terms in the 1940 Act,
subject to any exemption granted by the Commission by any rule, regulation
or order.
e. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Administration Agreement is made less restrictive by a
rule, regulation or order of the Commission, whether of special or general
application, that provision will be deemed to incorporate the effect of the
rule, regulation or order.
<PAGE>
-8-
IN WITNESS WHEREOF, the parties to this Administration Agreement have
caused this instrument to be executed by their officers designated as of the day
and year first above written.
NORTH AMERICAN SENIOR FLOATING
RATE FUND, INC.
------------------------------------
By: Bradford K. Gallagher
President
CYPRESSTREE ASSET
MANAGEMENT CORPORATION, INC.
------------------------------------
By: Joseph T. Grause, Jr.
Vice President
Adopted June 23, 1998
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
DISTRIBUTION PLAN
CLASS A SHARES
This Class A Shares Distribution Plan (the "Plan") is adopted
in accordance with the procedures and principles set forth in Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the "1940 Act"),
by North American Senior Floating Rate Fund, Inc., a Maryland Corporation (the
"Fund"), with respect to the class A shares (the "Class A Shares") of the Fund,
subject to the following terms and conditions:
Section 1. Payments for Distribution Related Services.
-------------------------------------------
The Fund may compensate the distributor of its shares,
CypressTree Funds Distributors, Inc., a Delaware corporation, or any entity that
may in the future act as a distributor for the Fund (the "Distributor") or its
assignees, for activities or expenses incurred in connection with the offering
and sale of Class A Shares of the Fund and related expenses incurred, all as
described in Section 2 below. Payments by the Fund under this Section of the
Plan will be calculated and accrued daily and paid monthly and shall be paid at
the rate of (and not exceeding) 0.25% on an annualized basis of the average
daily net assets attributable to Class A Shares of the Fund. This fee shall be
used to provide payments to securities dealers for ongoing account services to
shareholders of the Fund and shall be deemed to be a "service fee" as defined in
Section 2830 of the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD").
Section 2. Expenses Covered by Plan
------------------------
Payments payable under Section 1 of the Plan are intended to
compensate the Distributor for distribution services provided by it in
connection with the offering and sale of Class A Shares of the Fund, and related
expenses incurred, including payments by the Distributor to compensate or
reimburse brokers, dealers or financial institutions (collectively, "Selling
Agents"), for personal service and/or maintenance of shareholder accounts
provided and related expenses incurred by such Selling Agents. Payments under
Section 1 of the Plan may be made without regard to expenses actually incurred
and the Distributor may retain any excess of the fees it receives pursuant to
this Plan over its expenses incurred in connection with providing the services
described above.
Section 3. Indirect Distribution Expense
-----------------------------
To the extent that any payments made by the Fund to the
Distributor or to the investment adviser to the Fund, including payment of any
administrative and other
<PAGE>
- 2 -
service fees or investment advisory fees, may be deemed to be indirect payment
of distribution expenses for services described herein, those indirect payments
shall be deemed to be authorized by this Plan.
Section 4. Approval by Shareholders
------------------------
The Plan will not take effect, and no fee will be payable in
accordance with Section 1 of the Plan, with respect to the Class A shares of the
Fund until the Plan has been approved by a vote of at least a majority of the
outstanding voting securities of the Class A Shares of the Fund, if such
approval is required pursuant to the Rule. The Plan will be deemed to have been
approved with respect to the Class A Shares of the Fund so long as a majority of
the outstanding voting securities of the Class A Shares of the Fund votes for
the approval of the Plan, notwithstanding that the Plan has not been approved by
a majority of the outstanding voting securities of any other class of shares of
the Fund.
Section 5. Approval by Directors
---------------------
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the full Board of Directors of the
Fund and (b) those Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to it (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on the Plan and the related agreements.
Section 6. Continuance of the Plan/Additional Portfolios
---------------------------------------------
The Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Fund's Board of
Directors in the manner described in Section 5 above.
In the event that the Fund establishes additional investment
portfolios, this Plan shall be effective with respect to the Class A Shares of
such portfolios, provided that the Plan has previously been approved for
continuation and the requisite Shareholder and Director approval has been
obtained in accordance with Sections 4 and 5 of this Plan.
Section 7. Termination
-----------
The Plan may be terminated at any time with respect to the
Class A Shares by a majority vote of the Qualified Directors or by vote of a
majority of the outstanding voting securities of the Class A of the Fund.
<PAGE>
- 3 -
Section 8. Amendments
----------
The Plan may not be amended with respect to the Class A Shares
of the Fund so as to increase materially the amount of the fee described in
Section 1 above with respect to the Class A Shares of the Fund, unless the
amendment is approved by a vote of at least a majority of the outstanding voting
securities of the Class A of the Fund. In addition, no material amendment to the
Plan may be made unless approved by the Fund's Board of Directors in the manner
described in Section 5 above.
Section 9. Selection of Certain Directors
------------------------------
While the Plan is in effect, the selection and nomination of
the Fund's Directors who are not interested persons of the fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 10. Written Reports
---------------
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors, and the Directors will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under the Plan and the purposes for which those
expenditures were made.
Section 11. Preservation of Materials
-------------------------
The Fund will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 10 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
Section 12. Meanings of Certain Terms
-------------------------
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Fund
under the 1940 Act by the Securities and Exchange Commission.
Adopted June 23, 1998
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
DISTRIBUTION PLAN
CLASS B SHARES
This Class B Shares Distribution Plan (the "Plan") is adopted
in accordance with the procedures and principles set forth in Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the "1940 Act"),
by North American Senior Floating Rate Fund, Inc., a Maryland Corporation (the
"Fund"), with respect to the class B shares (the "Class B Shares") of the Fund,
subject to the following terms and conditions:
Section 1. Payments for Distribution Related Services
------------------------------------------
The Fund may compensate the distributor of its shares,
CypressTree Funds Distributors, Inc., a Delaware corporation, or any entity that
may in the future act as a distributor for the Fund (the "Distributor") or its
assignees, for activities or expenses incurred in connection with the offering
and sale of Class B Shares of the Fund and related expenses incurred, all as
described in Section 2 below. Payments by the Fund under this Section of the
Plan will be calculated and accrued daily and paid monthly and shall be paid at
the rate of (and not exceeding) 0.75% on an annualized basis of the average
daily net assets attributable to Class B Shares of the Fund. Of this fee, an
amount equal to (and not exceeding) 0.25% on an annualized basis of the average
daily net assets attributable to Class B Shares of the Fund shall be used to
provide payments to securities dealers for ongoing account services to
shareholders of the Fund and shall be deemed to be a "service fee" as defined in
Section 2830 of the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD").
Section 2. Expenses Covered by Plan
------------------------
Payments payable under Section 1 of the Plan are intended to
compensate the Distributor for distribution services provided by it in
connection with the offering and sale of Class B Shares of the Fund, and related
expenses incurred, including payments by the Distributor to compensate or
reimburse brokers, dealers or financial institutions (collectively, "Selling
Agents"), for sales support services provided and related expenses incurred by
such Selling Agents. Such services and expenses may include, but are not limited
to, the following: (i) the development, formulation and implementation of
marketing and promotional activities, including direct mail promotions and
television, radio, magazine, newspaper and other mass media advertising for
Class B Shares of the Fund; (ii) the preparation, printing and distribution of
prospectuses for Class B Shares of the Fund and reports to recipients other than
existing shareholders; (iii) the preparation, printing and distribution of sales
literature; (iv) expenditures for support services such as
<PAGE>
- 2 -
telephone facilities and expenses and shareholder services as the Fund may
reasonably request; (v) provision to the Fund of such information, analyses and
opinions with respect to marketing and promotional activities pertaining to
Class B Shares of the Fund as the Fund may, from time to time, reasonably
request; (vi) commissions, incentive compensation or other compensation to, and
expenses of, account executives or other employees of the Distributor or Selling
Agents, attributable to distribution or sales support activities, respectively;
(vii) overhead and other office expenses of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; and
(viii) any other costs and expenses relating to distribution or sales support
activities in connection with the offering and sale of Class B shares of the
Fund. In lieu of providing the distribution services described above directly,
the Distributor may retain a Promotional Agent to provide some or all of the
above services. Payments under Section 1 of the Plan may be made without regard
to expenses actually incurred and the Distributor may retain any excess of the
fees it receives pursuant to this Plan over its expenses incurred in connection
with providing the services described above.
Section 3. Indirect Distribution Expense
-----------------------------
To the extent that any payments made by the Fund to the
Distributor or to the investment adviser to the Fund, including payment of any
administrative and other service fees or investment advisory fees, may be deemed
to be indirect payment of distribution expenses, those indirect payments shall
be deemed to be authorized by this Plan.
Section 4. Approval by Shareholders
------------------------
The Plan will not take effect, and no fee will be payable in
accordance with Section 1 of the Plan, with respect to the Class B shares of the
Fund until the Plan has been approved by a vote of at least a majority of the
outstanding voting securities of the Class B Shares of the Fund, if such
approval is required pursuant to the Rule. The Plan will be deemed to have been
approved with respect to the Class B Shares of the Fund so long as a majority of
the outstanding voting securities of the Class B Shares of the Fund votes for
the approval of the Plan, notwithstanding that the Plan has not been approved by
a majority of the outstanding voting securities of any other class of shares of
the Fund.
Section 5. Approval by Directors
---------------------
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the full Board of Directors of the
Fund and (b) those Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to it (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on the Plan and the related agreements.
<PAGE>
- 3 -
Section 6. Continuance of the Plan/Additional Portfolios
---------------------------------------------
The Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Fund's Board of
Directors in the manner described in Section 5 above.
In the event that the Fund establishes additional investment
portfolios, this Plan shall be effective with respect to the Class B Shares of
such portfolios, provided that the Plan has previously been approved for
continuation and the requisite Shareholder and Director approval has been
obtained in accordance with Sections 4 and 5 of this Plan.
Section 7. Termination
-----------
The Plan may be terminated at any time with respect to the
Class B Shares by a majority vote of the Qualified Directors or by vote of a
majority of the outstanding voting securities of the B Class of the Fund.
Section 8. Amendments
----------
The Plan may not be amended with respect to the Class B Shares
of the Fund so as to increase materially the amount of the fee described in
Section 1 above with respect to the Class B Shares of the Fund, unless the
amendment is approved by a vote of at least a majority of the outstanding voting
securities of the B Class of the Fund. In addition, no material amendment to the
Plan may be made unless approved by the Fund's Board of Directors in the manner
described in Section 5 above.
Section 9. Selection of Certain Trustees
-----------------------------
While the Plan is in effect, the selection and nomination of
the Fund's Directors who are not interested persons of the fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 10. Written Reports
---------------
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors, and the Directors will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under the Plan and the purposes for which those
expenditures were made.
<PAGE>
- 4 -
Section 11. Preservation of Materials
-------------------------
The Fund will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 10 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
Section 12. Meanings of Certain Terms
-------------------------
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Fund
under the 1940 Act by the Securities and Exchange Commission.
Adopted June 23, 1998
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
DISTRIBUTION PLAN
CLASS C SHARES
This Class C Shares Distribution Plan (the "Plan") is adopted
in accordance with the procedures and principles set forth in Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the "1940 Act"),
by North American Senior Floating Rate Fund, Inc., a Maryland Corporation (the
"Fund"), with respect to the class C shares (the "Class C Shares") of the Fund,
subject to the following terms and conditions:
Section 1. Payments for Distribution Related Services
------------------------------------------
The Fund may compensate the distributor of its shares,
CypressTree Funds Distributors, Inc., a Delaware corporation, or any entity that
may in the future act as a distributor for the Fund (the "Distributor") or its
assignees, for activities or expenses incurred in connection with the offering
and sale of Class C Shares of the Fund and related expenses incurred, all as
described in Section 2 below. Payments by the Fund under this Section of the
Plan will be calculated and accrued daily and paid monthly and shall be paid at
the rate of (and not exceeding) 0.75% on an annualized basis of the average
daily net assets attributable to Class C Shares of the Fund. Of this fee, an
amount equal to (and not exceeding) 0.25% on an annualized basis of the average
daily net assets attributable to Class C Shares of the Fund shall be used to
provide payments to securities dealers for ongoing account services to
shareholders of the Fund and shall be deemed to be a "service fee" as defined in
Section 2830 of the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD").
Section 2. Expenses Covered by Plan
------------------------
Payments payable under Section 1 of the Plan are intended to
compensate the Distributor for distribution services provided by it in
connection with the offering and sale of Class C Shares of the Fund, and related
expenses incurred, including payments by the Distributor to compensate or
reimburse brokers, dealers or financial institutions (collectively, "Selling
Agents"), for sales support services provided and related expenses incurred by
such Selling Agents. Such services and expenses may include, but are not limited
to, the following: (i) the development, formulation and implementation of
marketing and promotional activities, including direct mail promotions and
television, radio, magazine, newspaper and other mass media advertising for
Class C Shares of the Fund; (ii) the preparation, printing and distribution of
prospectuses for Class C Shares of the Fund and reports to recipients other than
existing shareholders; (iii) the preparation, printing and distribution of sales
literature; (iv) expenditures for support services such as
<PAGE>
- 2 -
telephone facilities and expenses and shareholder services as the Fund may
reasonably request; (v) provision to the Fund of such information, analyses and
opinions with respect to marketing and promotional activities pertaining to
Class C Shares of the Fund as the Fund may, from time to time, reasonably
request; (vi) commissions, incentive compensation or other compensation to, and
expenses of, account executives or other employees of the Distributor or Selling
Agents, attributable to distribution or sales support activities, respectively;
(vii) overhead and other office expenses of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; and
(viii) any other costs and expenses relating to distribution or sales support
activities in connection with the offering and sale of Class C shares of the
Fund. In lieu of providing the distribution services described above directly,
the Distributor may retain a Promotional Agent to provide some or all of the
above services. Payments under Section 1 of the Plan may be made without regard
to expenses actually incurred and the Distributor may retain any excess of the
fees it receives pursuant to this Plan over its expenses incurred in connection
with providing the services described above.
Section 3. Indirect Distribution Expense
-----------------------------
To the extent that any payments made by the Fund to the
Distributor or to the investment adviser to the Fund, including payment of any
administrative and other service fees or investment advisory fees, may be deemed
to be indirect payment of distribution expenses, those indirect payments shall
be deemed to be authorized by this Plan.
Section 4. Approval by Shareholders
------------------------
The Plan will not take effect, and no fee will be payable in
accordance with Section 1 of the Plan, with respect to the Class C shares of the
Fund until the Plan has been approved by a vote of at least a majority of the
outstanding voting securities of the Class C Shares of the Fund, if such
approval is required pursuant to the Rule. The Plan will be deemed to have been
approved with respect to the Class C Shares of the Fund so long as a majority of
the outstanding voting securities of the Class C Shares of the Fund votes for
the approval of the Plan, notwithstanding that the Plan has not been approved by
a majority of the outstanding voting securities of any other class of shares of
the Fund.
Section 5. Approval by Directors
---------------------
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the full Board of Directors of the
Fund and (b) those Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to it (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on the Plan and the related agreements.
<PAGE>
- 3 -
Section 6. Continuance of the Plan/Additional Portfolios
---------------------------------------------
The Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Fund's Board of
Directors in the manner described in Section 5 above.
In the event that the Fund establishes additional investment
portfolios, this Plan shall be effective with respect to the Class C Shares of
such portfolios, provided that the Plan has previously been approved for
continuation and the requisite Shareholder and Director approval has been
obtained in accordance with Sections 4 and 5 of this Plan.
Section 7. Termination
-----------
The Plan may be terminated at any time with respect to the
Class C Shares by a majority vote of the Qualified Directors or by vote of a
majority of the outstanding voting securities of the Class C of the Fund.
Section 8. Amendments
----------
The Plan may not be amended with respect to the Class C Shares
of the Fund so as to increase materially the amount of the fee described in
Section 1 above with respect to the Class C Shares of the Fund, unless the
amendment is approved by a vote of at least a majority of the outstanding voting
securities of the Class C of the Fund. In addition, no material amendment to the
Plan may be made unless approved by the Fund's Board of Directors in the manner
described in Section 5 above.
Section 9. Selection of Certain Directors
------------------------------
While the Plan is in effect, the selection and nomination of
the Fund's Directors who are not interested persons of the fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 10. Written Reports
---------------
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors, and the Directors will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under the Plan and the purposes for which those
expenditures were made.
<PAGE>
- 4 -
Section 11. Preservation of Materials
-------------------------
The Fund will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 10 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
Section 12. Meanings of Certain Terms
-------------------------
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Fund
under the 1940 Act by the Securities and Exchange Commission.
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
MULTICLASS PLAN
June 23, 1998
I. Background
----------
This plan (the "Plan") pertains to the issuance by the North
American Senior Floating Rate Fund (the "Fund") of multiple classes of shares
and is being adopted by the Fund in anticipation of an order of the Securities
and Exchange Commission (the "SEC") granting exemptive relief from certain
provisions of Section 18 of the Investment Company Act of 1940, as amended (the
"1940 Act"). Reference should be made to the Fund's prospectus for further
information about the Fund's multiple class structure.
This plan replaces and supersedes in its entirety the North
American Senior Floating Rate Fund Multiclass Plan, dated March 10, 1988.
II. Creation of Classes
-------------------
The Fund's Articles of Incorporation authorize the Fund to
issue multiple classes of shares, and specifically provide for three classes of
shares, designated "Class A" shares, "Class B" shares and "Class C" shares.
III. Sales Charges
-------------
Class A shares may be offered for sale at net asset value per
share plus a front end sales charge. Certain purchases of Class A shares may
qualify for a waived or reduced front end sales charge. In addition, purchases
of Class A shares above a certain dollar amount may be offered for sale at net
asset value subject to an early withdrawal charge (1% of the dollar amount
subject thereto during the first year after purchase). Class A shares are
offered upon conversion of Class B and Class C shares at net asset value per
share, with no sales charge.
Class B shares may be offered at net asset value per share
without a front end sales charge but are subject to an early withdrawal charge
("EWC") (currently 3% of the dollar amount subject thereto (which is original
purchase price or repurchase price, whichever is lower) during the first year
after purchase, and declining to 2.5% the second year, 2% the third year, 1% the
fourth year, and 0% thereafter).
Class C shares may be sold at net asset value per share
without a front end sales charge but subject to an EWC of 1% of the dollar
amount subject thereto (which is original purchase price or repurchase price,
whichever is lower) on repurchases made within one year of purchase.
<PAGE>
- 2 -
The EWC for each class of shares is assessed in compliance
with the principles of Rule 6c-10 under the 1940 Act.
The sales charges on all classes of shares are subject to
reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as
described in the Fund's prospectus.
IV. Distribution and Service Fees
-----------------------------
According to a distribution plan adopted pursuant to
procedures similar to those applicable under Rule 12b-1 under the 1940 Act
("Rule 12b-1"), Class A shares are subject to a service fee of up to 0.25% of
average daily net assets.
According to a distribution plan adopted pursuant to
procedures similar to those applicable under Rule 12b-1, Class B shares are
subject to a service fee of up to 0.25% of average daily net assets and a
distribution fee of up to 0.50% of average daily net assets.
According to a distribution plan adopted pursuant to
procedures similar to those applicable under Rule 12b-1, Class C shares are
subject to a service fee of up to 0.25% of average daily net assets and a
distribution fee of up to 0.50% of average daily net assets.
V. Exchange and Conversion Features
--------------------------------
Shares of a particular class of the Fund are exchangeable for
shares of portfolios of the North American Funds of the same class as set forth
in the Fund's prospectus. Shareholders of the Fund whose shares are repurchased
in a monthly repurchase offer may exchange those shares for shares of the same
class of certain portfolios of the North American Funds. Exchanges will be at
relative net asset value, without the imposition of any front end sales charge.
No EWC will be imposed on shares of the Fund making such an exchange. However,
Class B and Class C shareholders will be subject to a contingent deferred sales
charge ("CDSC") on any North American Funds shares acquired equivalent to the
EWC on the Fund shares exchanged. The time of purchase for computing the CDSC
periods will be deemed the time of the initial purchase of Fund shares. The CDSC
or Early Withdrawal Period will be tolled for any period of time shares are held
in the North American Funds Money Market Fund.
Shareholders of the North American Funds will have such
privilege of exchanging their shares for shares of the Fund as is described in
the North American Funds Prospectus. Generally, shareholders of a class of the
North American Funds may exchange their shares for shares of the same class of
the Fund, at relative net asset value and without imposition of any front end
sales charge. These shareholders will become subject to an EWC on Fund shares
equivalent to the CDSC applicable to the particular class exchanged, and will
<PAGE>
- 3 -
be deemed to have purchased Fund shares at the time of the initial purchase of
North American Fund shares. The CDSC or Early Withdrawal Period will be tolled
for any period of time shares are held in the North American Funds Money Market
Fund.
Class B shares are convertible into Class A Shares as follows:
On the eighth anniversary of the first business day of the month following the
month in which Class B Common Stock shares were purchased by a stockholder, such
Class B Common Stock shares (as well as a pro rata portion of any Class B Common
Stock shares purchased through the reinvestment of dividends and other
distributions paid in respect of all Class B Common Stock shares held by such
stockholder) shall automatically convert, based upon relative net asset value,
to Class A Common Stock shares without the imposition of any salesload, fee or
other charge; provided, however, that such conversion shall be subject to the
continuing availability of an opinion of counsel to the effect that the
conversion of the Class B Common Stock shares does not constitute a taxable
event under federal income tax law. The Board of Directors, in its sole
discretion, may suspend the conversion of Class B Common Stock shares if such
opinion is no longer available. Upon conversion, these shares will no longer be
subject to the service and distribution fee of Class B shares.
Class C shares are convertible into Class A shares as follows:
On the tenth anniversary of the first business day of the month following the
month in which Class C Common Stock shares were purchased by a stockholder, such
Class C Common Stock shares (as well as a pro rata portion of any Class C Common
Stock shares purchased through the reinvestment of dividends and other
distributions paid in respect of all Class C Common Stock shares held by such
stockholder) shall automatically convert, based upon relative net asset value,
to Class A shares without the imposition of any salesload, fee or other charge;
provided, however, that such conversion shall be subject to the continuing
availability of an opinion of counsel to the effect that the conversion of the
Class C Common Stock shares does not constitute a taxable event under federal
income tax law. The Board of Directors, in its sole discretion, any suspend the
conversion of Class C Common Stock shares if such opinion is no longer
available. Upon conversion, these shares will no longer be subject to the
service and distribution fee of Class C shares.
There are no automatic conversion features for Class A shares.
VI. Allocation of Expenses
----------------------
Expenses of the Fund are borne by the various classes of the
Fund on the basis of relative net assets. The fees identified as "class
expenses" (see below) are to be allocated to each class based on actual expenses
incurred, to the extent that such expenses can properly be so allocated. To the
extent that such expenses cannot be properly allocated, such expenses are to be
borne by all classes on the basis of relative net assets.
<PAGE>
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The following are "class expenses":
(i) transfer and shareholder servicing agent fees and
shareholder servicing costs;
(ii) printing and postage expenses related to preparing and
distributing to the shareholders of a specific class materials such as
shareholder reports, prospectuses and proxies;
(iii) Blue Sky and SEC registration fees incurred by a class;
(iv) professional fees relating solely to such class;
(v) Directors' fees, including independent counsel fees,
relating to one class; and
(vi) shareholder meeting expenses for meetings of a particular
class.
VI. Voting Rights
-------------
All shares of the Fund have equal voting rights and will be
voted in the aggregate, and not by class, except where voting by class is
required by law or where the matter involved affects only one class.
VII. Amendments
----------
No material amendment to this Plan may be made unless it is
first approved by a majority of both (a) the full Board of Directors of the Fund
and (b) those Directors who are not interested persons of the Fund, as that term
is defined in the 1940 Act.
LIMITED POWER OF ATTORNEY
WITH RESPECT TO NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Know all men by these presents that Arthur S. Loring, whose
signature appears below, hereby constitutes and appoints Jeffrey S. Garner and
John I. Fitzgerald, and each of them, his attorney-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for North American Senior Floating Rate Fund,
Inc., and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
/s/ Arthur S. Loring
--------------------
Arthur S. Loring
Director
North American Senior Floating Rate Fund, Inc.
July 13, 1998
