<PAGE>
CYPRESSTREE
[CYPRESSTREE GRAPHIC]
Senior
Floating Rate
Fund
Annual Report
December 31, 1998
Audited Financial Statements [CYPRESSTREE LOGO]
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
President's Message
- --------------------------------------------------------------------------------
February 22, 1999
Dear Shareholder:
This past year turned out to be a true test for the senior loan market. And, we
are pleased to report that senior loans passed with high marks.
During 1998, the stock market exhibited sharp volatility, setting new highs
early in the year and declining in the third quarter due to economic, political,
and financial worries. The stock market bounced back in the fourth quarter as
consumer spending remained robust and interest rates remained at historically
low levels.
During this turbulent period, the senior loan market, in contrast, offered
relative stability and attractive returns to investors. In fact, during the
third quarter, senior loans were one of only a few asset classes to provide
positive total returns. We are pleased to report that the CypressTree Senior
Floating Rate Fund's net asset value fluctuated just pennies from its inception
through year-end 1998.
On balance, our outlook for 1999 remains positive. Capital continues to flow
into the loan market, and the new issue calendar, which had been light in
January has started to build nicely. The higher LIBOR spreads experienced in
late 1998 will likely narrow somewhat; however, overall returns should remain
attractive and credit quality should remain high.
As always, we will continue to strive for exceptional results. Thank you for
investing with us. We appreciate your continued commitment to the CypressTree
Senior Floating Rate Fund. If you have questions regarding your investment,
please call your investment advisor or our customer service team at 800-876-
5957.
Sincerely,
/s/ Bradford K. Gallagher
Bradford K. Gallagher
President, CypressTree Senior Floating Rate Fund
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio Manager's Commentary
- -------------------------------------------------------------------------------
Investment Objective: Provide a high level of current income consistent with
the preservation of capital through investment primarily
in senior secured floating rate loans and other senior
secured floating rate debt obligations.
Subadvisor: CypressTree Investment Management Company, Inc.
Portfolio Manager: Jeffrey S. Garner
Inception Date: April 6, 1998
Change in Value of $10,000 Investment and Comparative
Index
[Graph of Change in Value of $10,000 Investment and Comparative Index]
30-Day SEC Yield
-----------------
[Graph of 30-Day SEC Yield]
Performance Table
-----------------
<TABLE>
<CAPTION> Total Return
Since Inception
Periods Ending 12/31/98 ---------------
<S> <C>
DLJ Leveraged Loan Index* 2.05%
Senior Floating Rate Fund 4.81%
* Returns for the index begin on the month-end closest to the actual inception date of the Fund.
** Because period less than one year, return shown is the cumulative return since inception.
</TABLE>
ii
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio Manager's Commentary
- -------------------------------------------------------------------------------
Portfolio Manager Commentary
----------------------------
As of 12/31/98, the CypressTree Senior Floating Rate Fund's 30-day SEC yield was
an impressive 7.85%, and the Fund's share price was $9.93 having fluctuated just
pennies since its launch at $10.00 per share in April. From inception through
12/31/98, the Fund outperformed the benchmark DLJ Leverage Loan Index, as
indicated in the chart above. The Fund was well diversified with investments in
24 companies representing 16 different industries.
In 1998, the senior loan market experienced record loan volume of over $200
billion driven by a continued strong economy and an unprecedented flow of funds
into the market. During the first three-quarters of the year, strong loan
demand drove bid levels for many names above par and exerted significant
pressure on new issue pricing. However, as deepening political, economic and
financial concerns began to roil the financial markets late in the third
quarter, senior loans came under significant pressure as investors sat on the
sidelines waiting for the market to regain its positive momentum. In the new
issue market, average yields increased by 0.75% to 1%, and average upfront fees
rose by 0.25% to 0.50% in order to attract adequate investor demand. Loan
structures also became more conservative during the fourth quarter with most
transactions carrying strong BB credit ratings and considerably lower leverage.
The secondary market traded down 2%-3% in October in response to significantly
higher new issue pricing and selling pressure created by hedge funds and other
investors who needed to raise cash. By late November the loan market began to
develop a more positive tone, as the flow of funds into the market increased,
and several high profile transactions such as Scotts and Travel Centers were
well received.
Since the launch of the CypressTree Senior Floating Rate Fund in April, we have
endeavored to minimize performance volatility by focusing on those investments
which offer both superior credit quality and strong liquidity. Further, we were
able to take advantage of several attractively priced new issues that came to
market late in the fourth quarter as well as a number of investments that were
available in the secondary market at significant discounts.
* * * * * * *
CypressTree Senior Floating Rate Fund shares are not deposits or obligations of,
or guaranteed by, any bank or financial institution. Mutual fund shares are not
insured by the FDIC or any other agency and are subject to investment risk,
including the possible loss of principal. The investment return and principal
value of an investment in the Fund will fluctuate with market conditions so that
shares, when redeemed, may be worth more or less than the original cost. Past
performance is no guarantee of future results, and there is no guarantee the
Fund will achieve its objective.
Average annual total returns are historical and include changes in share price,
reinvestment of dividends and capital gains.
The 30-day SEC Yield is computed by using a standardized formula that represents
the theoretical net investment income per share earned over the 30-day period
noted, expressed as an annualized percentage of the maximum offering price of
shares on that date.
iii
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of CypresTree Senior Floating Rate
Fund, Inc:
We have audited the accompanying statement of assets and liabilities of
CypressTree Senior Floating Rate Fund, Inc. ("the Fund"), including the
portfolio of investments, as of December 31, 1998, and the related statements of
operations, cash flows, and changes in net assets and the financial highlights
for the period from commencement of operations, April 6, 1998, through
December 31, 1998. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian and selling or agent banks, where replies were
not received from selling or agent banks, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
CypressTree Senior Floating Rate Fund, Inc. as of December 31, 1998, the results
of its operations, its cash flows, the changes in its net assets, and the
financial highlights for the period from the commencement of operations, April
6, 1998, through December 31, 1998, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 24, 1999
1
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio of Investments - December 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- -------- ----------- ---- -------- -------- -----------
<S> <C> <C> <C> <C>
LOANS - 92.5%
Automobile - 10.6%
Collins and Aikman BTL - B 6/30/05 $250,000 $ 249,063
Environmental Systems Products BTL - B 9/30/05 250,000 249,687
Federal Mogul Corporation BTL - C 9/30/06 300,000 299,859
----------
798,609
Broadcasting - 3.3%
Emmis Communication Corp BTL - B 2/28/07 250,000 249,427
Chemicals, Plastics and Rubber - 6.5%
General Chemical Group BTL - B 6/15/06 248,750 245,796
Hexcel Corporation BTL - B 8/25/05 250,000 246,875
----------
492,671
Containers, Packaging and Glass - 6.6%
Huntsman Packing Corp BTL - B 6/30/06 247,500 245,077
Jefferson Smurfitt Corp. BTL - B 3/31/06 250,000 248,948
----------
494,025
Consumer Durable - 3.3%
Sealy Corporation BTL - B 2/15/04 94,565 94,166
Sealy Corporation BTL - C 2/15/05 68,111 67,824
Sealy Corporation BTL - D 2/15/06 87,039 86,672
----------
248,662
Consumer Non-durable - 3.3%
Amscan Holdings, Inc BTL 12/31/04 249,372 246,878
Diversified/Conglomerate Manufacturing - 16.5%
Alliance Laundry Systems BTL - A 5/05/05 750,000 743,763
CII Carbon, LLC BTL 6/30/08 248,750 247,429
SPX Corporation BTL - B 9/30/06 249,375 250,115
----------
1,241,307
Electronics - 3.3%
Dynamic Details, Inc BTL - B 4/22/05 250,000 249,375
Healthcare - 6.6%
Alliance Imaging, Inc. BTL - C 9/30/04 250,000 248,750
Stryker Corporation BTL - B 2/04/05 166,580 167,075
Stryker Corporation BTL - C 2/04/06 83,420 83,759
----------
499,584
Leisure and Amusement - 8.3%
Regal Cinemas BTL - B 5/27/06 247,930 245,838
Regal Cinemas BTL - C 5/27/07 132,353 131,195
United Artists Theatres BTL - C 4/21/07 150,000 147,262
United Artists Theatres BTL - C 4/21/06 99,250 97,439
----------
621,734
Machinery - 8.3%
Thermadyne Manufacturing LLC BTL - B 5/22/05 311,719 310,939
Thermadyne Manufacturing LLC BTL - C 5/22/06 311,719 310,939
----------
621,878
Mining & Metals - 3.3%
Neenah Foundry Company BTL - B 6/30/05 250,000 250,312
Oil & Gas - 3.3%
Travel Centers of America BTL - B 3/27/05 250,000 250,547
Printing, Publishing and Broadcasting - 3.3%
Capstar Broadcasting BTL - B 5/31/05 248,750 247,118
</TABLE>
2
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- -------- ----------- ------- -------- -------- ----------
<S> <C> <C> <C> <C>
Real Estate - 2.7%
Atrium Companies, Inc. BTL - B 6/30/05 $ 95,679 $ 94,842
Atrium Companies, Inc. BTL - C 6/30/06 109,460 108,502
----------
203,344
Transportation - 3.3%
American Commercial Lines BTL - B 6/30/06 105,696 105,498
American Commercial Lines BTL - C 6/30/07 144,018 143,748
---------
249,246
TOTAL LOANS (Cost $7,000,035*) $6,964,717
----------
SHORT-TERM INVESTMENTS - 12.5%
SSGA Money Market Fund (Cost $939,797) 939,797 $ 939,797
----------
TOTAL INVESTMENTS - 105.0% (Cost $7,939,832*) $7,904,514
----------
OTHER ASSETS AND LIABILITIES, NET - (5.0%) (376,207)
----------
NET ASSETS - 100.0% $7,528,307
==========
</TABLE>
* The cost for Federal Income Tax purposes is the same.
The accompanying notes are an integral part of the financial statements
3
<PAGE>
<TABLE>
<CAPTION>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement Of Assets And Liabilities - December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
ASSETS:
-------
<S> <C>
Investments in loans and securities, at value. (Identified
cost, $7,939,832.) (See accompanying Portfolio of Investments)..................................... $7,904,514
Cash................................................................................................ 31,225
Receivables:
Investments sold................................................................................ 2,625
Fund shares sold................................................................................ 65,527
Interest receivable on bank loans............................................................... 80,982
Unamortized organization costs...................................................................... 212,500
----------
Total assets............................................................................ 8,297,373
----------
LIABILITIES:
------------
Payables:
Organization costs.............................................................................. 212,500
Fund shares redeemed............................................................................ 537,641
Dividends ...................................................................................... 35
Deferred facility fee............................................................................... 18,890
----------
Total liabilities....................................................................... 769,066
----------
NET ASSETS.......................................................................................... $7,528,307
==========
NET ASSETS CONSIST OF:
----------------------
Accumulated net realized gains (losses) ........................................................ ($17,088)
Unrealized appreciation (depreciation) on investments........................................... (35,318)
Capital shares at par value of $.01 (Note 3).................................................... 7,582
Additional paid-in capital...................................................................... 7,573,131
----------
Net assets............................................................................. $7,528,307
==========
Net Asset Value, Offering and Redemption Price per Share ...................................... $9.93
==========
($7,528,307 / 758,187 shares outstanding)
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period from
April 6, 1998*
through
December 31, 1998
-------------------
INVESTMENT INCOME:
------------------
<S> <C>
Interest...................................................................... $ 256,245
Facility and other fee income................................................. 2,237
------------
Total income ....................................................... 258,482
------------
EXPENSES:
---------
Investment adviser fee (Note 5).............................................. 29,296
Transfer agent fee........................................................... 10,049
Audit and legal fees......................................................... 15,000
Accounting and administration fees (Note 5).................................. 13,787
Directors fees and expenses.................................................. 24,000
Amortization of organization expenses........................................ 37,500
Miscellaneous................................................................ 17,546
------------
Expenses before reimbursement by investment adviser......................... 147,178
Reimbursement of expenses by investment adviser (Note 6)..................... (147,178)
------------
Net expenses....................................................... 0
------------
Net investment income............................................. 258,482
------------
REALIZED AND UNREALIZED GAIN/(LOSS):
------------------------------------
Net realized (loss) on investment transactions............................... (17,088)
Unrealized (depreciation) on investments..................................... (35,318)
------------
Net realized and unrealized loss................................... (52,406)
------------
Net increase in net assets resulting from operations......................... $ 206,076
============
</TABLE>
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement Of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Period
From April 6, 1998*
through
December 31, 1998
---------------------
Increase/(Decrease) in Net Assets from:
OPERATIONS:
-----------
<S> <C>
Net investment income $ 258,482
Net realized gain (loss) on investment transactions.................. (17,088)
Change in unrealized appreciation on investments (35,318)
--------------
Net increase in net assets resulting from operations................... 206,076
DISTRIBUTIONS FROM :
--------------------
Net investment income................................................ (258,482)
Increase in net assets from capital share transactions (Note 3)........ 7,480,713
--------------
Increase in net assets................................................. 7,428,307
Net assets at beginning of period...................................... 100,000
--------------
Net assets at end of period............................................ $7,528,307
==============
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement Of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Period
From April 6, 1998*
through
December 31, 1998
--------------------
Increase/(Decrease) in Cash
- ---------------------------
Cash Flows From (Used for) Operating Activities:
<S><C> <C>
Purchase of loans....................................................... ($7,875,000)
Interest and facility fees received..................................... 194,692
Purchase of short-term securities, net.................................. (938,099)
Proceeds from loans sold................................................ 855,252
Net Cash used for operating activities...................................... (7,763,155)
----------------
Cash Flows From (Used for) Financing Activities:
Proceeds from shares sold............................................... 9,476,374
Payments for shares redeemed............................................ (1,697,764)
Cash dividends paid (not including reinvested dividends of $174,217).... (84,230)
----------------
Net Cash from financing activities.......................................... 7,694,380
----------------
Net Decrease in Cash (68,775)
Cash at beginning of period............................................. 100,000
Cash at end of period................................................... $ 31,225
================
Reconciliation of Net Increase in Net Assets from Operations to Net
- -------------------------------------------------------------------
Cash used for Operating Activities
- ----------------------------------
Net increase in net assets from operations.............................. $ 206,076
Increase in interest receivable......................................... (80,982)
Increase in receivable for investments sold............................. (2,625)
Increase in deferred facility fees...................................... 18,890
Net increase in investments............................................. (7,904,514)
Net cash used for operating activities.................................. ($7,763,155)
================
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Financial Highlights (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
April 6, 1998*
through
December 31,
1998
----------------
<S> <C>
Net Asset Value, Beginning of Period $10.00
- --------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.53
Net realized and unrealized gain on investments (0.07)
---------------
Total from investment operations 0.46
---------------
Distributions
Dividends from net investment income (0.53)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.93
- --------------------------------------------------------------------------------------------
Total Return 4.81%+
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (000's) $7,528
Ratio of total expenses to average net assets 0.00%#
Ratio of net investment income to average net assets 7.50%#
Portfolio turnover rate 20%+
Expense ratio before expense reimbursement by adviser 4.27%#
</TABLE>
* Commencement of Operations
+ Not annualized
# Annualized
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- -------------------------------------------------------------------------------
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. 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.
CypressTree Asset Management Corporation, Inc. ("CAM"), a wholly-owned
subsidiary of CypressTree Investments, Inc., ("CypressTree") 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 Fund's 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 CIMCO's opinion and for which CIMCO 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 CIMCO's
opinion will be valued at fair value, which is intended to approximate market
value. In valuing a Loan at fair value, CIMCO 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 and investments in money market funds 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. The Fund distributes realized net capital gains,
if any, at least annually, after offset by any capital loss carryovers. The Fund
has a capital loss carryover of $17,088 which expires in 2005.
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 at least 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.
Deferred Organization Expenses. Costs incurred by the Fund in connection with
its organization are being amortized on a straight-line basis over 5 years.
9
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 2, continued
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, the Fund may periodically make reclassifications among
certain capital accounts without impacting net asset value.
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 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 of portfolio assets are
recognized on the trade date using the specific identification method.
3. CAPITAL SHARES. The Fund has 1,000,000,000 of $.01 par value shares
authorized that may be issued. Share activity for the period ended December 31,
1998 was as follows:
Shares Capital
-------------- ---------------
Sold............................ 955,779 $ 9,541,901
Reinvestment of distributions... 17,493 174,217
Redeemed........................ (225,085) (2,235,405)
-------------- ---------------
Net increase/(decrease).... 748,187 $ 7,480,713
============== ===============
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 (usually 10%) of outstanding shares at net asset value.
Shareholders will be sent a Notification of Repurchase Offer seven to fourteen
days before each monthly repurchase offer. During the period ended December 31,
1998, the Fund made eight Repurchase Offers, and actually redeemed the amounts
shown in the table below. In no case was a monthly Repurchase Offer
oversubscribed.
Amount Tendered
----------------------------
Shares Capital
----------- -------------
May 500 $ 5,010
June 0 0
July 11,379 114,135
August 7,939 79,552
September 17,858 177,683
October 71,098 705,296
November 62,102 615,436
December 54,209 538,293
4. PURCHASES AND SALES OF SECURITIES. During the period ended December 31, 1998,
the Fund's cost of purchases of Loans and proceeds from Loan sales were
$7,875,000 and $857,877, respectively. Unrealized appreciation/depreciation in
the value of those investments at December 31, 1998 for federal income tax
purposes were as follows:
Gross unrealized appreciation $ 2,434
Gross unrealized depreciation (37,752)
----------
Net unrealized appreciation $ (35,318)
----------
10
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. INVESTMENT ADVISORY AGREEMENT. The Fund maintains an Investment Advisory
Agreement with CAM ("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 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 CIMCO is not an additional charge to the Fund or its
shareholders.
CAM, the Fund's Administrator under an Administration Agreement, 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 equal to 0.40%
of average daily gross assets of the Fund. Average daily gross assets are
computed as described above.
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
Fund's distribution fees) for expenses incurred in excess of 1.25% (expense
limitation). For the period ended December 31, 1998, the Adviser waived all
fees, and reimbursed all expenses of the Fund.
7. DIRECTOR COMPENSATON. The Fund pays each Director 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 Directors meeting attended, $250 for each telephone meeting
attended, and an annual retainer of $3,000.
8. LINE OF CREDIT. On September 15, 1998, the Fund entered into an agreement
with Fleet National Bank that provides a $20,000,000 Line of Credit to the Fund
that may be used for cash overdraft protection. The Fund pays a commitment fee
of $20,000 annually, and interest is charged on any borrowed amounts at the
currently effective Federal Funds Rate plus .55%. This Line of Credit was not
used during the period ended December 31, 1998.
11
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<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 LLP
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
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0299-10053
