<PAGE>
CYPRESS TREE
- ---------------------------------------------------
SENIOR
FLOATING RATE
- ---------------------------------------------------
[PICTURE APPEARS HERE]
F U N D
SEMI-ANNUAL REPORT
JUNE 30, 1998
UNAUDITED FINANCIAL STATEMENTS [LOGO OF CYPRESS TREE INVESTMENTS
APPEARS HERE]
<PAGE>
September 1, 1998
Dear Shareholder,
At CypressTree Investments, we are committed to providing our shareholders with
unique products managed by exceptional investment professionals. To this end, we
are pleased to welcome you as a valued member of the CypressTree family, and as
an investor in the CypressTree Senior Boating Rate Fund.
After a strong first quarter, the stock market has been experiencing increased
volatilty over the past months. Asia's economic problems, coupled with
disappointing corporate earnings have contributed to investor uncertainty. This
instability has created a desire in the minds of some investors to pursue a more
defensive strategy, and to try to protect the gains they've seen in their stock
portfolios over the past several years. This trend is evidenced by the increased
inflows into certain fixed-income investments since the volatilty began.
We believe that the CypressTree Senior Floating Rate Fund offers an excellent
defensive investment alternative to help weather these uncertain times. Because
the interest rates on senior loans reset regularly to maintain a fixed spread
over prevailing market rates such as LIBOR (London InterBank Offered Rate), the
net asset values of senior loan funds have historically remained relatively
stable, regardless of market shifts or interest rate changes.
PORTFOLIO REVIEW
In its first six months, the Fund has built a strong portfolio of fourteen
holdings covering nine industry sectors. As we continue to build assets, the
Fund will continue to follow CypressTree's proven securities selection process
of screening, analyzing, selecting and constructing a varied and well-
diversified portfolio offering investors the opportunity for high current income
and relative price stability.
The Fund's largest industry concentrations were machinery and leisure and
amusement. United Artists and Capstar Broadcasting are representative of the
loans we've purchased for the Fund and reflect many of the characteristics we
value in selecting investments for the Fund. United Artists is one of the
largest motion picture theater chains in the United States with significant
market share in all major markets in which it operates. We selected this company
because of its attractive theater properties, geographic diversity, favorable
industry dynamics, large market shares, and attractive pricing. Capstar
Broadcasting is the largest radio broadcaster in this country, operating in
approximately seventy-five mid-sized markets throughout the United States. We
selected this company because of its stable and diverse revenue base, attractive
markets and favorable loan structure and pricing.
FUND PERFORMANCE
We are happy to report, that as of June 30th, the Fund's SEC yield was 7.64% vs.
a LIBOR rate of 5.69%. The Fund's net asset value has remained relatively
stable throughout the three months since inception. The Fund's total
investment return was 1.89% (inception through 6/30/98), based on a change in
net asset value from $10.00 to $10.04, assuming reinvestment of income
dividends. Without the Advisor's subsidization of operating expenses, the stated
yield would have been 6.39% and the total return would have been lower.
<PAGE>
OUTLOOK
In general, we continue to favor mature, stable companies. We will look for
loans originating from large cap companies because we feel that these loans are
more liquid and that the companies are able to weather unstable competitive,
economic or business environments. We will also look for companies with
longterm, stable operating performances and those operating in mature
industries. Finally, loans that represent a relatively small percentage of a
company's total capital structure are highly desirable.
The outlook for the Fund in the coming months is positive and we will continue
to strive for exceptional results. Thank you for investing with us. We
appreciate your continued commitment to the Cypress Tree Senior Floating Rate
Fund. If you have questions regarding your investment, please call your
investment representative or our customer service department at 800-876-5957.
Sincerely,
/s/ Jeffrey S. Gamer
/s/ Bradford K. Gallagher --------------------------------------
- ------------------------------ Jeffrey S. Gamer
Bradford K. Gallagher Portfolio Manager
President, North American Funds CypressTree Senior Floating Rate Fund
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
INDEX TO SEMI-ANNUAL REPORT
JUNE 30, 1998
- --------------------------------------------------------------------------------
PAGE
----
Portfolio of Investments............................................ 1
Statement of Assets and Liabilities................................. 2
Statement of Operations............................................. 3
Statements of Changes in Net Assets.................................. 4
Statements of Cash Flows............................................. 5
Financial Highlights................................................ 6
Notes to Financial Statements....................................... 7
ii
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CYPRESSTREE SENIOR FLOATING RATE FUND
Portfolio Of Investments - June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- -------- ----------- ---- -------- --- -----
<S> <C> <C> <C> <C> <C>
LOANS - 83.3%
Automobile - 7.2%
Colling and Alkman BTL - B 6/30/05 $250,000 $251,211
Beverage, Food & Tobacco - 7.3%
Favorite Brands International, BTL - B 5/01/05 250,000 250,664
Inc.
Chemicals, Plastics and Rubber - 7.2%
General Chemical Group BTL - B 6/15/06 250,000 250,703
Containers, Packaging and Glass - 7.2%
Huntsman Packing Corp BTL - B 6/30/06 250,000 250,781
Diversified/Conglomerate Manufacturing - 7.3%
Alliance Laundry Systems BTL - A 5/05/05 250,000 251,563
Leisure and Amusement - 14.5%
Regal Cinemas BTL - B 6/27/06 117,647 118,055
Regal Cinemas BTL - B 6/27/06 132,353 132,902
United Artists Theatres BTL - C 4/21/07 150,000 150,235
United Artists Theatres BTL - C 4/21/06 100,000 100,097
-----------
Total 501,289
Machinery - 18.1%
Thermadyne Manufacturing LLC BTL - B 5/22/05 312,500 314,160
Thermadyne Manufacturing LLC BTL - C 5/22/06 312,500 314,160
-----------
Total 628,320
Printing, Publishing and Broadcasting - 7.3%
Capstar Broadcasting BTL - B 5/31/05 250,000 251,211
Transportation - 7.2%
American Communication Lines BTL 6/30/06 105,828 105,828
American Communication Lines BTL 6/30/07 114,172 114,172
-----------
Total 220,000
TOTAL LOANS (Cost $2,875,000) $2,884,653
------------
REPURCHASE AGREEMENT - 16.7%
Repurchase Agreement with State Street Bank & $579,000
Trust Company dated 6/30/98 at 5%, to be
repurchased at $579,080 on 7/01/98,
collateralized by $405,000 U.S. Treasury
Bonds, 9.875% due 11/15/15 (valued at
$598,660, including interest) $579,000
------------
TOTAL INVESTMENTS (Cost $3,454,000) $3,463,653
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Statement Of Assets And Liabilities - June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
- -------
Investments in loans and securities, at value (including a
repurchase agreement of $579,000)(Identified cost,
$3,454,000, See accompanying Portfolio of
Investments) .......................................... $3,463,653
Cash ....................................................... 10
Receivables:
Fund shares sold ................................... 15,000
Interest receivable on bank loans .................. 17,609
Interest on short-term investments ................. 80
Facility fees ...................................... 500
Unamortized organization costs ............................. 237,500
----------
Total assets ................................ 3,734,352
----------
LIABILITIES:
- ------------
Payables:
Organization costs ................................. 237,500
Dividends .......................................... 18,947
Deferred facility fee ...................................... 2,716
----------
Total liabilities ........................... 259,163
----------
NET ASSETS ................................................. $3,475,189
==========
NET ASSETS CONSIST OF:
- ----------------------
Unrealized appreciation (depreciation)
on investments ............................... $ 9,653
Capital shares at par value of $.001 (Note 3) ...... 3,461
Additional paid-in capital ......................... 3,462,075
----------
Net assets .................................. $3,475,189
==========
Net asset Value, Offering and Redemption Price per Share: $ 10.04
==========
($3,475,189 / 346,142 shares outstanding)
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
For the period from
April 6, 1998*
through
June 30, 1998
-------------------
INVESTMENT INCOME:
- ------------------
Interest ............................................... $ 30,145
--------
EXPENSES:
- ---------
Investment adviser fee (Note 5) ........................ 3,676
Transfer agent fee ..................................... 2,661
Audit and legal fees ................................... 5,000
Trustees fees and expenses ............................. 10,000
Amortization of organization expenses .................. 12,500
Miscellaneous .......................................... 1,414
--------
Expenses before reimbursement by investment adviser ... 35,251
Reimbursement of expenses by investment adviser (Note 5) (35,251)
--------
Net expenses ............................ 0
--------
Net investment income .................. 30,145
--------
REALIZED AND UNREALIZED GAIN/(LOSS):
- ------------------------------------
Change in unrealized appreciation (depreciation) on
loans ............................................... 9,653
--------
Net realized and unrealized gain ........ 9,653
--------
Net increase in net assets resulting from operations ........ $ 39,798
========
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Statement Of Changes in Net Assets (Unaudited)
- --------------------------------------------------------------------------------
For The
Period From
April 6, 1998*
through
June 30, 1998
---------------
Increase/(Decrease) in Net Assets from:
OPERATIONS:
- ----------
Net investment income .................................... $30,145
Change in unrealized appreciation ........................ 9,653
-----------
Net increase in net assets resulting from operations ........ 39,798
DISTRIBUTIONS FROM:
- ------------------
Net investment income .................................... (30,145)
Increase in net assets from capital share transactions (Note 3) 3,365,536
-----------
Increase in net assets ...................................... 3,375,189
Net assets at beginning of period ........................... 100,000
-----------
Net assets at end of period ................................. $3,475,189
===========
Undistributed net investment income (loss) .................. $0
-----------
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Statement Of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
For The Period
From April 6,
1998*
through
June 30, 1998
---------------
Increase/(Decrease) in Cash
Cash Flows From (Used for) Operating Activities:
Purchase of loans ............................................. ($2,875,000)
Interest and facility fees received ........................... 15,172
Purchase of short-term securities ............................. (579,000)
-----------
Net Cash used for operating activities ........................ (3,438,828)
-----------
Cash Flows From (Used for) Financing Activities:
Proceeds from shares sold .................................. 3,347,505
Payments for shares redeemed ............................... (5,010)
Cash dividends paid (not including reinvested dividends of
$7,541).................................................... (3,657)
-----------
Net Cash from financing activities ............................ 3,338,838
-----------
Net Decrease in Cash .......................................... (99,990)
Cash at beginning of Period ................................... 100,000
-----------
Cash at end of period ......................................... 10
-----------
Reconciliation of Net Increase in Net Assets from Operations to
Net Cash used for Operating Activities
Net increase in net assets from operations .................... 39,798
Increase in interest receivable ............................... (17,689)
Increase in deferred facility fees ............................ 2,716
Net increase in investments ................................... (3,463,653)
-----------
Net cash used for operating activities ........................ ($3,438,828)
-----------
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Financial Highlights (For a Share Outstanding Throughout the Period)
- -------------------------------------------------------------------------------
Period from
April 6, 1998 *
through
June 30, 1998
---------------
Net Asset Value, Beginning of Period $ 10.00
- ----------------------------------------------------------------------
Investment Operations:
Net investment income 0.15
Net realized and unrealized gain on investments 0.04
---------
Total from investment operations 0.19
---------
Distributions
Dividends from net investment income (0.15)
- ----------------------------------------------------------------------
Net Asset Value, End of Period $ 10.04
- ----------------------------------------------------------------------
Total Return 1.89%+
- ----------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (000's) $ 3,475
- ----------------------------------------------------------------------
Ratio of total expenses to average net assets 0.00%#
- ----------------------------------------------------------------------
Ratio of net investment income to average net assets 6.97%#
- ----------------------------------------------------------------------
Portfolio turnover rate 0%+
- ----------------------------------------------------------------------
Expense ratio before expense reimbursement by adviser 8.15%#
- ----------------------------------------------------------------------
* Commencement of Operations
+ Not annualized
# Annualized
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE FUND. The CypressTree Senior Floating Rate Fund (the
"Fund") is a non-diversified closed-end, management investment company. The Fund
is organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended.
CypressTree Asset Management Corporation, Inc. ("CAM"), a wholly-owned
subsidiary of CypressTree Investments, Inc., serves as investment adviser and
principal underwriter for the Fund. CypressTree Investment Management Company,
Inc., (CIMCO) serves as the Fund's subadviser. CypressTree Funds Distributors,
Inc. ("CFD"), also a wholly-owned subsidiary of CypressTree, serves as
distributor for the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES. The policies described below are followed
when preparing the Funds' financial statements. These policies are in accordance
with generally accepted accounting principles ("GAAP").
Security Valuation. The Fund's investments in loan interests ("Loans") are
valued in accordance with guidelines established by the Board of Directors.
Under the Fund's current guidelines, Loans for which an active secondary market
exists to a reliable degree in CypressTree's opinion and for which CypressTree
can obtain at least two quotations from banks or dealers in Loans will be valued
by calculating the mean of the last available bid and asked prices in the market
for such Loans, and then using the mean of those two means. If only one quote
for a particular Loan is available, the Loan will be valued on the basis of the
mean of the last available bid and asked prices in the market. Loans for which
an active secondary market does not exist to a reliable degree in CypressTree's
opinion will be valued at fair value, which is intended to approximate market
value. In valuing a Loan at fair value, CypressTree will consider, among other
factors, (a) the creditworthiness of the Borrower and any Intermediate
Participants, (b) the terms of the Loan, (c) recent prices in the market for
similar Loans, if any, and (d) recent prices in the market for instruments of
similar quality, rate, period until next interest rate reset and maturity. Other
portfolio securities 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. Obligations
purchased with remaining maturities of 60 days or less are valued at amortized
cost unless this method is determined not to produce fair valuation. Repurchase
agreements are valued at cost plus accrued interest. 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.
Federal Income Taxes. It is the Fund's policy to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, as amended,
and to distribute all of its taxable income and any net realized gain on
investments to its shareholders each year. Accordingly, no federal income tax
provision is required.
Distributions of Income and Gains. Distributions of net investment income are
declared as a dividend to shareholders of record as of the close of business
each day and are paid monthly.
Repurchase Agreements. The Fund may enter into repurchase agreements. When the
Fund enters into a repurchase agreement through its custodian, it receives
delivery of the underlying securities, the amount of which at the time of
purchase and each subsequent business day is required to be maintained at such a
level that the market value is equal to 102% of the resale price, and the Fund
will take constructive receipt of all securities underlying the repurchase
agreements until such agreements expire. If the seller defaults, the Fund would
suffer a loss to the extent that proceeds from the sale of underlying securities
were less than the repurchase price.
Capital Accounts. The Fund reports the accumulated undistributed net investment
income (loss) and accumulated undistributed net realized gain (loss) accounts on
a basis approximating amounts available for future tax distributions (or to
offset future taxable realized gains when a capital loss carryforward is
available). Accordingly, each portfolio of the Fund may periodically make
reclassifications among certain capital accounts without impacting the net asset
value.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization are being amortized on a straight-line basis over 5 years.
7
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 2, continued
Estimates - Preparing the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported for the reporting period and as of
the end of the reporting period. Actual results could differ from those
estimates.
Income - Interest income from loans is recorded on the accrual basis at the
then-current interest rate, while all other interest income is determined on the
basis of interest accrued, adjusted for amortization of premium or discount.
Facility fees received are recognized as income over the stated life of the
loan. Other income, including amendment fees, commitment fees, letter of credit
fees, etc., are recorded as income when received or contractually due to the
Fund.
Gains/Losses - Gains or losses realized on the sale or portfolio assets are
recognized on the trade date using the specific identification method.
3. CAPITAL SHARES. Share activity for the period ended June 30, 1998 was as
follows:
Shares Capital
------------- --------------
Sold............................ 345,839 $3,462,505
Reinvestment of distributions... 802 8,041
Redeemed........................ (499) (5,010)
------------- --------------
Net increase/(decrease)...... 346,142 $3,465,536
============= ==============
4. PURCHASES AND SALES OF SECURITIES. During the period ended June 30, 1998, the
Fund's cost of purchases of Loans was $2,875,000. There were no sales during the
period. The cost of and unrealized appreciation/depreciation in the value of the
investments owned at June 30, 1998 for federal income tax purposes were as
follows:
Aggregate Cost $3,454,000
-------------------
Gross unrealized appreciation $ 9,653
Gross unrealized depreciation 0
-------------------
Net unrealized appreciation $ 9,653
-------------------
5. INVESTMENT ADVISORY AGREEMENT. - The Fund maintains an Investment Advisory
Agreement with CAM "The Adviser"), who is responsible for managing the corporate
and business affairs of the Fund, and selects, contracts with and compensates
the subadviser to manage the Fund's assets. As compensation for its services the
Adviser receives from the Fund an annual fee paid monthly equal to the following
percentage of average daily gross assets: 0.85% for the first $1 billion of
average daily gross assets; 0.80% for average daily gross assets 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 retained CIMCO to serve as the Fund's subadviser to manage the
investment and reinvestment of the Fund's assets. As compensation for its
services as subadviser, CIMCO receives from CAM an annual fee paid monthly equal
to the following percentage of average daily gross assets: 0.45% for the first
$1 billion of average daily gross assets; 0.40% for average daily gross assets
between $1 billion and $2 billion; and 0.35% for average daily gross assets of
more than $2 billion. Average daily gross assets are computed as described
above. The fee paid to CypressTree is not an additional charge to the Fund or
its shareholders.
CAM acts as the Fund's Administrator under an Administration Agreement, and is
responsible for managing the Fund's business affairs, subject to supervision by
the Fund's Board of Directors. For its services, CAM receives an annual fee paid
monthly equal to 0.40% annually of average daily gross assets of the Fund.
Average daily gross assets are computed as described above.
8
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
6. EXPENSE REIMBURSEMENT -- Pursuant to the Investment Advisory Agreement, the
Adviser will reduce the advisory fee or if necessary reimburse each portfolio of
the Fund (excluding taxes, portfolio brokerage commissions, interest, certain
litigation and indemnification expenses, extraordinary expenses and all of the
portfolio's distribution fees) for expenses incurred in excess of 1.25%.
(Expense limitation) For the period ended June 30, 1998, the Adviser waived all
fees, and reimbursed all expenses of the Fund.
7. DIRECTOR COMPENSATION. The Fund pays each Trustee who is not an employee or a
director of the Adviser or its affiliates a fee of $750 plus travel expenses for
each Board of Trustees meeting attended and an annual retainer of $3,000.
9
<PAGE>
<TABLE>
<S> <C>
DIRECTORS ADVISER
Bradford K. Gallagher, Chairman CypressTree Asset Management Corporation, Inc.
William F. Achtmeyer 125 High Street
William F. Devin Boston, MA 02110
Kenneth J. Lavery
Arthur S. Loring TRANSFER AND DIVIDEND AGENT
State Street Bank and Trust Company
OFFICERS P.O. Box 8505
Bradford K. Gallagher, President Boston, MA 02266-8505
Joseph T. Grause, Jr.,
Executive Vice President INDEPENDENT ACCOUNTANTS
John I. Fitzgerald, Secretary Deloitte & Touche
125 Summer Street
DISTRIBUTOR Boston, MA 02110-1617
CypressTree Funds Distributors, Inc.
286 Congress Street
Boston, MA 02210
CYPRESSTREE FUNDS SHAREHOLDER SERVICES
286 Congress Street
Boston, MA 02210
800-860-5575
</TABLE>
<PAGE>
0998-10046
