[Federal Register Volume 63, Number 137 (Friday, July 17, 1998)]
[Notices]
[Pages 38680-38681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19049]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 23312; 812-10824]
CypressTree Asset Management Corporation, Inc., North American
Floating Income Fund, Inc., CypressTree Investment Management Company,
Inc., and CypressTree Funds Distributors, Inc.; Notice of Application
July 10, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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SUMMARY OF APPLICATION: Applicants request an order under Section 6(c)
granting an exemption from Sections 18(c) and 18(i) of the Act and rule
23c-3 under the Act, and under Section 17(d) of the Act and rule 17d-1
under the Act, to permit certain registered closed-end investment
companies to issue multiple classes of shares, impose distribution and
service fees, and early withdrawal charges. Applicants also request an
amendment to a prior order.
APPLICANTS: CypressTree Asset Management Corporation, Inc. (``CAM''),
North American Senior Floating Rate Fund, Inc. (the ``Fund''), and
CypressTree Investment Management Company (``CypressTree''), and
CypressTree Funds Distributors, Inc. (``Distributors'').
FILING DATES: The application was filed on October 22, 1997. Applicants
have agreed to file an amendment during the notice period, the
substance of which is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
request should be received by the SEC by 5:30 p.m. on August 4, 1998,
and should be accompanied by proof of service on applicants, in the
form of an affidavit, or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification of a hearing by
writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants: 125 High Street, Boston, Massachusetts 02110.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Edward P.
Macdonald, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a few at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicant's Representations
1. The Fund is a closed end management investment company
registered under the Act and organized as a Maryland corporation. CAM,
an investment adviser registered under the Investment Advisers Act of
1940 (``Advisers Act''), will serve as investment adviser to the Fund.
CAM will enter into a sub-advisory agreement with CypressTree, an
investment adviser registered under the Advisers Act, pursuant to which
CypressTree will select the investments made by the Fund. Distributors,
a broker-dealer registered under the Securities Exchange Act of 1934
(the ``Exchange Act''), will distribute the Fund's shares. Applicants
request that the order also apply to any other registered closed-end
management investment company for which CAM or CypressTree or any
entity controlling, controlled by, or under control with CAM or
CypressTree acts as investment adviser, sub-investment adviser,
principal underwriter, or administrator.\1\
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\1\ Any such investment company relying on this relief will do
so in a manner consistent with the terms and conditions of this
application. Applicants represent that each investment company
presently intending to rely on the relief requested in this
application is listed as an applicant.
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2. The Fund's investment objective will be to provide as high a
level of current income as is consistent with the preservation of
capital. The Fund will invest primarily in senior secured floating rate
loans made by commercial banks, investment banks, and finance companies
to commercial and industrial borrowers (``Loans''). Under normal market
conditions, the Fund will invest at least 80% of its total assets in
Loans. Up to 20 percent of the Funds's total assets may be held in
cash, invested in investment grade short-term and medium-term debt
obligations, or invested in unsecured senior floating rate loans
determined by CypressTree to have a credit quality at least equal to
the loans.
3. The Fund will continuously offer its shares to the public at net
asset value (plus a sales load in certain cases as discussed below).
Applicants were granted an order permitting the Fund and certain other
registered closed-end investment companies to make monthly repurchase
offers in reliance on rule 23c-3 under the Act (``Prior Order'').\2\
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\2\ CypressTree Asset Management Corporation et al., Investment
Company Act Release Nos. 23020 (February 4, 1998) and 23055 (March
3, 1998) (order). Applicants request to amend the Prior Order to
extend the relief granted in the Prior Order to any other registered
closed-end investment company for which CAM or CypressTree or any
entity controlling, controlled by or under common control with CAM
or CypressTree acts as administrator or sub-investment adviser.
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4. The Fund expects to offer three classes of shares. Class A
Shares may be subject to a front-end sales charge. Class B Shares and
Class C Shares will be offered without a front-end sales charge, but
Shares accepted for repurchase that have been held for less than a
certain period of time will be subject to early withdrawal charges
(``EWCs'') payable to Distributors.\3\ After ten years, Class B Shares
will automatically convert to
[[Page 38681]]
Class A Shares, and after eight years, Class C Shares will
automatically convert to Class A Shares. Class A, Class B, and Class C
Shares will be subject to an annual service fee of up to .25% of net
assets. Class B and Class C Shares also will be subject to an annual
distribution fee of up to .50% of net assets. Applicants represent that
all of these fees will comply with the requirements of Rule2830(d) of
the NASD Conduct Rules as if the Fund were an open-end investment
company. Applicants also represent that the Fund intends to disclose in
its prospectus the fees, expenses, and other characteristics of each
class of shares offered for sale, as is required for open-end multi-
class funds under Form N1-A.
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\3\ Class B Shares will be subject to EWCs that decline over
time to 0% after the end of the fourth year that a shareholder owns
Class B Shares. Class C Shares will be subject to early withdrawal
charges of 1% during the first year that a shareholder owns Class C
Shares.
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5. All expenses incurred by the Fund will be allocated among the
various classes of shares based on the net assets of the Fund
attributable to each class. Distribution fees, service fees, and
incremental expenses that may be attributable to a particular class of
shares, including transfer agent fees, printing and postage expenses,
state and federal registration fees, administrative fees, legal fees,
will be charged directly to the net assets of a particular class.
Expenses of the Fund allocated to a particular class of shares will be
borne on a pro rata basis by each outstanding share of that class. The
Fund may crate additional classes of shares in the future that may have
different terms from Class B, Class C, and Class A Shares.
6. The Fund may waive the EWCs for certain categories of
shareholders or transactions to be established in the future. With
respect to any waiver of, scheduled variation in, or elimination of the
EWC, the Fund will comply with rule 22d-1 under the Act as if the Fund
were an open-end investment company.
7. The Fund may offer its shareholders an exchange feature under
which shareholders of the Fund may exchange their shares for shares of
the same class of other funds in the North American Group of investment
companies. Any exchange option will comply with rule 11a-3 under the
Act as if the Fund were an open-end investment company subject to that
rule. In complying with rule 11a-3, the Fund will treat the EWCs
imposed on Class B Shares and Class C Shares as if they were contingent
deferred sales charges (``CDSCs'').
Applicants' Legal Analysis
1. Section 18(c) of the Act provides, in relevant part, that a
closed-end investment company may not issue or sell any senior security
if, immediately thereafter, the company has outstanding more than one
class of senior security. Applicants state that the creation of
multiple classes of shares of the Fund may be prohibited by section
18(c).
2. Section 18(i) of the Act provides that each share of stock
issued by a registered management company shall be a voting stock and
have equal voting rights with every other outstanding voting stock.
Applicants state that multiple classes of shares of the Fund may
violate section 18(i) because each class would be entitled to exclusive
voting rights with respect to matters solely related to that class.
3. Rule 23c-3(b)(1) under the Act provides that an interval fund
may deduct from repurchase proceeds only a repurchase fee, not to
exceed two percent of the proceeds, that is reasonably intended to
compensate the fund for expenses directly related to the repurchase.
Applicants state that the imposition of an EWC on shares tendered for
repurchase that have been held for less than a specified period may
violate rule 23c-3(b)(1).
4. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act, if and
to the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
5. Applicants request an exemption under section 6(c) of the Act
from sections 18(c) and 18(i) of the Act and rule 23c-3(b)(1) to permit
multiple classes of shares of the Fund and the imposition of EWCs.
6. Applicants believe that the proposed allocation of expenses and
voting rights among multiple classes in equitable and would not
discriminate against any group of Fund shareholders. Applicants submit
that the proposed arrangements would permit the Fund to facilitate the
distribution of its securities and provide investors with a broader
choice of shareholder services. Applicants assert that their proposal
does not raise the concerns underlying section 18 to any greater degree
than open-end investment companies' multiple class systems that are
permitted by rule 18f-3 under the Act. Applicants state that the Fund
will comply with rule 18f-3 as if it were an open-end fund.
7. Applicants further state that EWCs are functionally similar to
CDSCs that open-end investment companies may charge under rule 6c-10
under the Act. Applicants believe that EWCs may be necessary for
Distributors to recover distribution costs and that EWCs may discourage
shareholders from engaging in frequent trading, a practice that
applicants believe imposes costs on other shareholders. Applicants will
comply with rule 6c-10 under the Act as if the Fund were an open-end
investment company.
8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, acting as
principal, from participating in or effecting any transaction in
connection with any joint enterprise or joint arrangement in which the
investment company participates unless the SEC issues an order
permitting the transaction. In reviewing applications submitted under
section 17(d) and rule 17d-1, the SEC considers whether the
participation of the investment company in a joint enterprise or joint
arrangement is consistent with the provisions, policies, and purposes
of the Act, and to the extent to which the participation is on basis
different from or less advantageous than that of other participants.
9. Rule 17d-3 under the Act provides an exemption from section
17(d) and rule 17d-1 to permit open-end funds to enter into
distribution arrangements pursuant to rule 12b-1. Applicants also
request an order under section 17(d) and rule 17d-1 to permit the Fund
to impose asset-based distribution fees. Applicants have agreed to
comply with rule 12b-1 as if the Fund were an open-end investment
company.
Applicants' Condition
Applicants agree that any order granting the requested relief shall
be subject to the following condition:
1. Applicants will comply with rules 18f-3, 12b-1, 6c-10, and 22d-1
under the Act and NASD Conduct Rule 2830(d), as amended from time to
time, as if those rules apply to closed-end investment companies.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-19049 Filed 7-16-98; 8:45 am]
BILLING CODE 8010-01-M