[Federal Register Volume 63, Number 28 (Wednesday, February 11, 1998)]
[Notices]
[Pages 7015-7017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3366]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. 23020; 812-10910]


CypressTree Asset Management Corporation, Inc., CypressTree 
Senior Floating Rate Fund, Inc., CypressTree Investment Management 
Company, and CypressTree Fund Distributors, Inc.; Notice of Application

February 4, 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 sections 6(c) 
and 23(c) of the Act for an exemption from certain provisions of rule 
23c-3 to permit a registered closed-end investment company to make 
repurchase offers on a monthly basis.

FILING DATES: The application was filed on December 23, 1997. 
Applicants have agreed to file an amendment, the substance of which is 
incorporated in this notice, during the notice period.

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 
requests should be received by the SEC by 5:30 p.m. on March 2, 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, MA 02110.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at 
(202) 942-0574, or Nadya B. Roytblat, Assistant Director, 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 fee at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

APPLICANTS: CypressTree Asset Management Corporation, Inc. (``CAM''), 
CypressTree Senior Floating Rate Fund, Inc. (the ``Fund''), CypressTree 
investment Management Company (``CypressTree''), and CyrpressTree Funds 
Distributors, Inc. (``Distributors'').

Applicants' 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 subadvisory 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, 
will distribute the Fund's shares. Applicants request that the order 
apply to any registered closed-end management investment company for 
which CAM or CypressTree or any entity controlling, controlled by, or 
under common control with CAM or CypressTree acts as principal 
underwriter or investment adviser (``Future Fund'').
    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 Fund'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. Applicants propose to organize the Fund as an ``interval fund'' 
as provided in rule 23c-3 under the Act. The Fund will continuously 
offer its shares to the public at net asset value (``NAV'') and will 
provide liquidity to its shareholders by offering to repurchase a 
portion of its shares on a periodic basis. The Fund will make offers to 
repurchase a portion of its common stock at one-month intervals, rather 
than the three, six, or twelve month intervals specified by rule 23c-3. 
The Fund's shares will be offered without any initial or deferred sales 
charges or asset-based distribution fees. Applicants may sponsor Future 
Funds with differing sales charge structures. The Fund's shares will 
not be offered or traded in the secondary market and will not be quoted 
or listed on any exchange.
    4. The Fund will disclose in its prospectus its fundamental policy 
to make monthly offers to repurchase a portion of its securities at 
NAV. The policy will be changeable only by a majority vote of the 
holders of the Fund's outstanding voting securities. Under the 
fundamental policy, the repurchase offer amount will be determined by 
the Fund's board of directors (the ``Board'') prior to each repurchase 
offer. A majority of the Board will consist of disinterested members. 
Applicants agree that, as a condition to the relief requested in the 
application, in any one-month period, the repurchase offer amount will 
not exceed 10% of the Fund's outstanding shares at the time of the 
repurchase request deadline.
    5. The Fund's prospectus will specify the monthly repurchase 
request deadline, which will be the last business day of every month. 
The prospectus will also specify the maximum number of days between 
each repurchase request deadline and the repurchase pricing date. The 
Fund's repurchase pricing date will normally be the same date as the 
repurchase request deadline and pricing will be determined after close 
of business on that date.
    6. The Fund will make payment for the repurchased shares in cash on 
or before the repurchase payment deadline, which will be no later than 
five business days or seven calendar days (whichever period is shorter) 
after the repurchase pricing date. The Fund expects to make payment on 
the first business day following the repurchase pricing date. The Fund 
will make payment for shares repurchased in the previous month's 
repurchase offer at least five business days before sending 
notification of the next repurchase offer.

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The Fund does not expect to deduct any fees from repurchase proceeds.
    7. The Fund will provide shareholders with notification of each 
repurchase offer no less than seven days and no more than fourteen days 
prior to the repurchase request deadline. The notification will include 
all information required by rule 23c-3(b)(4). The Fund will file the 
notification and the Form N-23c-3 with the SEC within 3 business days 
after sending the notification to the Fund's shareholders.
    8. The Fund will not suspend or postpone a repurchase offer except 
pursuant to the vote of a majority of its disinterested directors, and 
only under limited circumstances, as provided in rule 23c-3(b)(i). The 
Fund will not condition a repurchase offer upon tender of any minimum 
amount of shares. In addition, the Fund will comply with the pro rata 
and other allocation requirements of rule 23c-3(b)(5) if shareholders 
tender more than the repurchase offer amount. Further, the Fund will 
permit tenders to be withdrawn or modified at any time until the 
repurchase request deadline but will not permit tenders to be withdrawn 
or modified thereafter.
    9. From the time the Fund sends its notification to shareholders of 
the repurchase offer until the repurchase pricing date, a percentage of 
the Fund's assets equal to at least 100% of the repurchase offer amount 
will consist of: (1) Assets, which may include Loans, that can be sold 
or disposed of in the ordinary course of business at approximately the 
price at which the Fund has valued such investment within a period 
equal to the period between the repurchase request deadline and the 
repurchase payment deadline (seven days); or (2) assets, including 
Loans, that mature by the next repurchase payment deadline. In the 
event the Fund's assets fail to comply with this requirement, the Board 
will cause the Fund to take such action as it deems appropriate to 
ensure compliance.
    10. In compliance with the asset coverage requirements of section 
18 of the Act, any senior security issued by the Fund will either 
mature by the next repurchase pricing date or provide for the Fund's 
ability to call or repay such indebtedness by the next repurchase 
pricing date as necessary to permit the Fund to complete the repurchase 
offer in an amount determined by the Board.
    11. The Fund's Board will adopt written procedures to ensure that 
the Fund's assets are sufficiently liquid so that the Fund can comply 
with its fundamental policy on repurchases and the liquidity 
requirements of rule 23c-3(b)(10)(i). The Board will review the overall 
composition of the portfolio and make and approve such changes to the 
procedures as it deems necessary.

Applicants' Legal Analysis

    1. 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.
    2. Section 23(c) of the Act provides in relevant part that no 
registered closed-end investment company shall purchase any securities 
of any class of which it is the issuer except: (a) on a securities 
exchange or other open market; (b) pursuant to tenders, after 
reasonable opportunity to submit tenders given to all holders of 
securities of the class to be purchased; or (c) under other 
circumstances as the SEC may permit by rules and regulations or orders 
for the protection of investors.
    3. Rule 23c-3 under the Act permits a registered closed-end 
investment company to make repurchase offers of its outstanding shares 
at NAV to shareholders at periodic intervals pursuant to a fundamental 
policy of the investment company. ``Periodic interval'' is defined in 
rule 23c-3(a)(1) as an interval of three, six, or twelve months. An 
interval fund may not suspend or postpone a repurchase offer except by 
vote of the fund's directors/trustees, and then only under limited 
circumstances. Rules 23-3(b)(4) requires that notification of each 
repurchase offer be sent to shareholders no less than 21 days and no 
more than 42 days before the repurchase request deadline. Rule 23c-
3(a)(3) provides that a repurchase offer amount may be between five and 
twenty-five percent of the amount of common stock outstanding on the 
repurchase request deadline.
    4. Applicants request an order pursuant to sections 6(c) and 23(c) 
of the Act exempting them from rule 23c-3(a)(1) to permit the Fund to 
make monthly repurchase offers. Applicants also request an exemption 
from the notice provisions of rule 23c-3(b)(4) to permit the Fund to 
send notification of an exemption of an upcoming repurchase offer to 
shareholders at least seven days but no more than fourteen days in 
advance of the repurchase request deadline. Finally, applicants request 
an exemption from rule 23c-3(a)(3)'s definition of ``repurchase offer 
amount'' that limits repurchase offers to an aggregate of 25% of the 
common stock outstanding in any three-month period.
    5. Applicants contend that monthly repurchase offers are in the 
shareholders' best interests and consistent with the policies 
underlying rule 23c-3. Applicants assert that monthly repurchase offers 
will offer investors a distinct new asset allocation alternative with a 
unique and beneficial risk/return profile. Applicants assert that 
shareholders will be better able to manage their investments and plan 
transactions, because if an investors decides to forego a repurchase 
offer, he or she will only need to wait one month for the next offer. 
Applicants also contend that the Fund's management will be able to 
better manage the Fund's Loan portfolio, because repurchase offers will 
become part of a routine that is expected to provide management with 
predictable liquidity requirements.
    6. Applicants state that their proposal to make monthly repurchase 
offers will not be confusing to investors. Applicants propose to send 
notification of shareholders at least seven days, but no more than 
fourteen days, in advance of a repurchase request deadline. Applicants 
assert that, because the Fund intends to price on the repurchase 
request deadline and pay on the next business day, the entire procedure 
can be completed before the next notification is sent out to 
shareholders; thus avoiding any overlap. Applicants believe that these 
procedures will eliminate any possibility of investor confusion. 
Applicants also state that monthly repurchase offers will be accepted 
as a fundamental feature of the Fund, and the Fund's prospectus will 
provide a clear explanation of the repurchase program.
    7. Applicants assert that maturation of the Loan markets has 
brought depth and enhanced liquidity to these markets. Applicants 
believe that both the primary and secondary markets for Loans have 
experienced sufficient growth in recent years that the Fund will have 
adequate liquidity to support monthly repurchases. Applicants state 
that the volume of trading in the secondary market for Loans has 
increased to $41 billion in 1996 from $15 billion in 1993. Applicants 
also state that there are 44 non-bank institutions that are active in 
the secondary market as compared to only three in 1989. Applicants 
assert that liquidity is also evidenced by the presence of 
approximately 14 dealers offering daily bid/ask quotes. Applicants 
contend that the depth and efficiency of these markets, together with 
the portfolio manager's experience and judgment, will enable the Fund 
to maintain fully liquid assets at levels that

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will meet or exceed the requirements of rule 23c-3.
    8. Applicants submit that for the reasons given above the requested 
relief is necessary and appropriate in the public interest and is 
consistent with the protection of investors and the purpose fairly 
intended by the policy and provisions of the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. The Fund will not make a repurchase offer pursuant to rule 23c-
3(b) for a repurchase offer amount of more than 10% of its outstanding 
shares of common stock in any one-month period. The Fund may repurchase 
additional tendered shares pursuant to rule 23c-3(b)(5) only to the 
extent the aggregate of the percentages of additional shares so 
repurchased does not exceed 2% in any given three-month period.
    2. Payment for repurchased shares will occur at least five business 
days before notification of the next repurchase offer is sent to 
shareholders of the Fund.
    3. The Fund will maintain an investment policy that requires, under 
normal conditions, that at least 65 percent of the value of its total 
assets will be invested in Loans.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3366 Filed 2-10-98; 8:45 am]
BILLING CODE 8010-01-M