CYPRESSTREE SENIOR FLOATING RATE FUND INC /MD/, N-2, 1999-11-17

CYPRESSTREE SENIOR FLOATING RATE FUND INC /MD/
N-2, 1999-11-17

Previous: CONDOR TECHNOLOGY SOLUTIONS INC, 10-Q, 1999-11-17

Next: IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP, 8-K, 1999-11-17

<PAGE>

As filed with the Securities and Exchange Commission on November 17, 1999

1933 ACT FILE NO. 333_____
1940 ACT FILE NO. 811-8309
--------------------------

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
----------------------
FORM N-2
(Check appropriate box or boxes)

REGISTRATION STATEMENT
Under

THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO.___ [_]
POST-EFFECTIVE AMENDMENT NO.___ [_]
AND/OR
REGISTRATION STATEMENT
Under
THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 6 [X]

CypressTree Senior Floating Rate Fund, Inc.
------------------------------------------
(Exact name of registrant as specified in Charter)

125 High Street
Boston, Massachusetts 02110
---------------------------
(Address of Principal Executive Officers)

Registrant's telephone number, including area code (617) 946-0600
-----------------------------------------------------------------

Bradford K. Gallagher
President
CypressTree Senior Floating Rate Fund, Inc.
125 High Street
Boston, Massachusetts 02110
---------------------------
(Name and Address of agent for service)

Copies to:
Ruth S. Epstein, Esquire
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401

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]

It is proposed that this filing will become effective:

[_] when declared effective pursuant to section 8 (c)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a) of Rule 486

[_] This post-effective amendment designates a new effective date for a
previously filed registration statement.
[_] This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration
statement for the same offering is________.

This registration incorporates a combined prospectus pursuant to Rule 429,
which relates to an earlier registration statement filed by the Registrant
on March 26, 1998 (See File No. 333-32529). This prospectus will also be
used in connection with sales of securities registered by the Registrant
under that registration statement. This registration statement and the
registration statement amended hereby will be collectively referred to as
the "Registration Statement."

CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
Proposed* Proposed*
Maximum Max Amount of
Amount Offering Price Aggr Offering Registration
Title of Securities Being Registered Being Registered Per Share* Price* Fee
<S> <C> <C> <C> <C>
Common Stock 10,000,000 9.93 $ 99,300,000 $ 27,605.40
---------- ------------ ------------ -----------
</TABLE>

*Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, based on net asset value per share
as of November 10, 1999.

**The amount of the registration fee does not include $4,525.81 which has been
previously paid to the Commission relating to shares previously registered (see
File No. 333-32529) and unsold as of November 10, 1999.

<PAGE>

November 17, 1999

SUPPLEMENT TO PROSPECTUS FOR
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Dated May 1, 1999

Effective November 17, 1999, the CypressTree Senior Floating Rate Fund,
Inc. ("the Fund") has registered an additional 10,000,000 shares of its common
stock, to be sold in the Fund's continuous offering of its shares. Please read
this supplement in connection with the Fund's Prospectus dated May 1, 1999.

The following table replaces the table appearing on page one of the Prospectus:

<TABLE>
<CAPTION>
PRICE TO PROCEEDS TO
PUBLIC(1) SALES LOAD(2) FUND(3)
--------- ------------- -------
<S> <C> <C> <C>
Per Share $ 9.93 None $ 9.93

Total 109,230,000 None 109,230,000
</TABLE>

(1) The shares are offered on a best efforts basis at a price equal to net
asset value, which as of November 10, 1999 is $9.93 per share.

(2) CypressTree Funds Distributors, Inc. will pay all distribution costs
from its own assets.

(3) Assuming the sale of shares registered hereby and shares previously
registered but unsold as of November 10, 1999, at a price of $9.93 per
share, and exclusion of approximately $250,000 organization and
initial expenses payable by the Fund. These expenses will be amortized
over the five year period beginning April 6, 1998, the date the Fund
commenced operations, and charged against the Fund's income. Expenses
of registering additional shares of the Fund, in the amount of
approximately $104,105.40, are charged against the Fund's income on an
ongoing basis, subject to expense reimbursements.

The following information updates the table on page 22 of the Prospectus:

As of November 10, 1999, 8,465,825.94 shares of the Fund's common stock were
issued and outstanding.

<PAGE>

November 17, 1999

SUPPLEMENT TO PROSPECTUS FOR
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Dated May 1, 1999

The following unaudited financial information for the six month period
ending June 30, 1999 should be read in connection with the financial highlights
appearing at page five of the Fund's Prospectus dated May 1, 1999.

<TABLE>
<CAPTION>
Six
Months
ended
6/30/99
Unaudited
---------

NET ASSET VALUE, BEGINNING OF PERIOD $ 9.93
- -----------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT OPERATIONS:
Net investment income 0.34
Net realized and unrealized gain on investments 0.04
-------
Total from investment operations 0.38
-------

Distributions
Dividends from net investment income (0.34)
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.97
- -----------------------------------------------------------------------------------------------
Total Return 3.19 %+
- -----------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (000's) $33.425
- -----------------------------------------------------------------------------------------------
Ratio of total expenses to average net assets 0.34 %#
- -----------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 6.63 %#
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 18 %+
- -----------------------------------------------------------------------------------------------
Expense ratio before expense reimbursement by adviser 2.49 %#
- -----------------------------------------------------------------------------------------------
</TABLE>

*Commencement of Operations
+Not annualized
#Annualized
<PAGE>

[CYPRESS TREE INVESTMENTS LOGO]

CypressTree Senior Floating Rate Fund, Inc.
- --------------------------------------------------------------------------------

The CypressTree Senior Floating Rate Fund (the "Fund"), a recently
organized closed-end investment company, seeks 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 a sales 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, which we
generally expect will be 10%. See "Repurchase Offers" on page 13.

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 10. The Fund may
borrow, primarily in connection with the Fund's monthly Repurchase Offers for
its shares. See "Repurchase Offers" on page 13 and "Borrowing by the Fund" on
page 12.

No market presently exists for the Fund's shares and we do not currently
anticipate that a secondary market will develop for the Fund's shares. Fund
shares may not 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 you
should know before investing; you should read and retain it for future
reference. The Fund has filed a Statement of Additional Information dated May
1, 1999 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 or its Distributor,
CypressTree Funds Distributors, Inc., at 286 Congress Street, Boston,
Massachusetts 02210 ((800) 860-5575). 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, we
expect will 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 Pricing Date.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IN A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==========================================================================
PRICE TO PROCEEDS TO
PUBLIC(1) SALES LOAD(2) FUND(3)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 9.97 None $ 9.97
- --------------------------------------------------------------------------
Total $ 82,040,413 None $ 82,040,413
==========================================================================
</TABLE>

- --------------

(1) The shares are offered on a best efforts basis at a price equal to net
asset value, which as of April 19, 1999 was $9.97 per share.

(2) CypressTree Funds Distributors, Inc. will pay all distribution costs from
its own assets.

(3) Assuming the sale of shares currently registered but unsold as of March 31,
1999 at a price of $9.97, per share, and exclusion of approximately $250,000
organizational and initial offering expenses payable by the Fund. These
expenses will be amortized over the five year period beginning April 6,
1998, the date the Fund commenced investment operations and charged against
the Fund's income.

CypressTree Funds Distributors, Inc.

PROSPECTUS DATED MAY 1, 1999
<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Fund Expenses......................................................... 3
Summary............................................................... 4
The Fund.............................................................. 6
Investment Objective.................................................. 6
Use of Proceeds....................................................... 6
Investment Policies................................................... 6
Investments........................................................... 6
Risk Factors.......................................................... 10
Repurchase Offers..................................................... 13
Management of the Fund................................................ 15
Valuing Fund Shares................................................... 17
Performance Information............................................... 18
How to Buy Fund Shares................................................ 18
Shareholder Services.................................................. 19
Distributions......................................................... 20
Taxes................................................................. 20
Description of Shares................................................. 22
Reports to Shareholders............................................... 23
Year 2000............................................................. 23
Table of Contents of the Statement of Additional Information.......... 24
</TABLE>

2
<PAGE>

- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------

The following table and Example are designed to help you understand the
direct and indirect expenses associated with investing in the Fund. Because the
Fund does not yet have an operating history for a full fiscal year, this
information is based on estimated amounts for the fiscal year ending December
31, 1999 after expense reimbursement.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------
<S> <C>
Sales Load (as a percentage of offering price).......... None
Dividend Reinvestment Fees.............................. None
ANNUAL FUND EXPENSES
(as a percentage of average net assets attributable to common shares)*
- ------------------------------------------------------------------------
Management Fee.......................................... 0.85%**
Interest Payments on Borrowed Funds..................... 0.00%
Other Expenses (including administration fee of .40%**)
(after reimbursement)................................... 0.40%***
Service Fee............................................. None
Early Withdrawal Charge................................. None
Total Annual Expenses................................... 1.25%
</TABLE>

*See "Management of the Fund" for additional information.

**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).

***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 1.25%
of average daily gross assets (gross assets are total assets minus all
liabilities except debt). Absent such reimbursement, estimated expenses as a
percentage of average net assets would be: management fee of 0.85%, interest
payments on borrowed funds of 0.00%, administration fee of 0.40%, service fee of
0.00%, and other expenses of 0.30%; and total annual expenses of 1.55%. This
agreement may be terminated by CAM at any time after December 31, 1999 on thirty
(30) days' written notice.

<TABLE>
<CAPTION>
EXAMPLE
- -------------------------------------------------------------------------------------------------

1 YEAR 3 YEARS 5 YEARS 10 YEARS

------- ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming 5% annual
return........................................... $ 13 $ 40 $ 71 $ 160
</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.

The Example should not be considered a representation of future expenses
because future expenses may be greater or less than those shown.

3
<PAGE>

- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------

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 6.

The Loans

The Loans 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 that CypressTree has established.

Under normal market conditions, the Fund will invest at least 80% of its
total assets in Loans. The Fund may hold up to 20% of its total assets in cash,
investment grade short-term debt and medium term obligations, and unsecured
senior floating rate loans. See "Investment Policies" on page 6.

Repurchase Offers

The Fund is a closed-end investment company and, as such, does not redeem
its shares. We do not anticipate 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 we generally expect will 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, we
expect will 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 13.

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 15.

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 $3.5 billion in assets under
management. See "Management of the Fund--Portfolio Management."

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
recently organized entity, the Fund has a limited 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, your ability to liquidate your investment will be subject to
the limits on monthly Repurchase Offers. See "Risk Factors" on page 10.

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 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.

4
<PAGE>

Distributions

How to Buy Fund Shares

You may purchase shares directly by check or by wire by mailing a
completed application to the Fund's Transfer Agent or through Authorized
Intermediaries. You may be charged a fee if you effect transactions through a
broker or agent. An initial investment in the Fund must be at least $5,000, and
additional investments must be at least $500. There is a $500 minimum initial
and $500 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 18.

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. You should read this
Summary in conjunction with the more detailed information included elsewhere.

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

This table summarizes the Fund's financial history. The information has
been audited by Deloitte & Touche LLP, the Fund's independent auditors. The
audit report covering the period shown appears in the Statement of Additional
Information.

<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

5
<PAGE>

- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------

The Fund is a recently 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. This prospectus will
sometimes refer to the Fund as "we".

- --------------------------------------------------------------------------------
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 in accordance with the
Fund's investment objective and policies. 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 CypressTree's judgment,
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. CypressTree's
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 would result in the Fund having less than 80% of its
assets in fully secured Loans.

6
<PAGE>

The Loans typically will have a stated term of five to nine years.
However, because the Loans 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 monitoring the Borrower's performance under the Loan
Agreement and is obligated to use only the same care it would use in the
management of its own property. Upon an event of default, the Agent typically
will act to enforce the Loan Agreement after instruction from lenders holding a
majority of the Loan. 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.

If 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 an appropriate regulator or court determines that assets held by the Agent
for the benefit of the Fund are 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

7
<PAGE>

relationship 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 the entity selling the
Participation. 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 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 fund
additional amounts under the terms of the 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.

8
<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, amendment
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 and 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

The Fund may hold up to 20% of its total assets 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 to the
Statement of Additional Information. 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.

9
<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
CypressTree's judgment, 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. 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 sustantially the same investment objective, policies and
restrictions as the Fund, which could allow creation of a "master/feeder"
structure.

- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------

Because the Fund's assets will include primarily floating rate loans and other
short-term instruments, CypressTree expects that the Fund's net asset value will
be relatively stable during normal market conditions. It is also likely that the
value of the portfolio will fluctuate less with changes in interest rates than a
portfolio that includes fixed-rate debt.

There are, of course, a number of factors that could cause a decline in the
Fund's net asset value, including loan default, changes in creditworthiness, or
a sudden and dramatic increase in interest rates. At the same time, a sudden and
extreme decline in interest rates could result in an increase in the Fund's net
asset value.

Because this is a recently organized entity, the Fund has a limited 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. One of the most significant risks to investing in Loans is credit risk,
the risk that the Borrower will not pay interest or repay principal in a timely
manner. The Fund's receipt of principal and interest also depends on the
creditworthiness of Agents and Intermediate Participants. If payments are late
or do not occur at all, the dividends paid to investors and the net asset value
of the Fund may fall.

Loans made in connection with recapitalizations, acquisitions, leveraged buy-
outs, and refinancings may involve more credit risks than other Loans in which
the Fund invests, including the possibility of default on the Loan or bankruptcy
of the Borrower. This type of Loan may be more volatile and less liquid than
other Loans. We expect the Fund's Loans will be primarily this type of Loan.

The Fund will generally invest in Loans that are most senior in a Borrower's
capitalization structure. These Loans require repayment ahead of other
obligations if credit restructuring occurs. Still, many of these Borrowers may
also have non-investment grade subordinated debt that they may find difficult to
repay if economic conditions deteriorate. If this occurs, the Borrower may be
perceived as less creditworthy, may have difficulties obtaining financing to
cover short-term cash flow needs, and may even be forced into bankruptcy or
other forms of credit restructuring.

"Bridge" loans provide Borrowers with temporary financing until other assets
are sold, or longer term financing is arranged. The Fund may invest directly in
these types of Loans, or may invest in Loans of Borrowers that have obtained
bridge loans from other parties. Bridge loans are subject to the risk that the
Borrower may not find permanent financing to replace the bridge loan. This could
damage the Borrower's perceived creditworthiness.

10
<PAGE>

Collateral Impairment

Collateral impairment is the risk that the value of the collateral for a loan
will fall. The Fund expects to invest in collateralized loans, loans secured by
other things of value the Borrower owns.

Loans are secured unless:

(a) The value of the collateral declines below the amount of the Loan, or

(b) The Fund's security interest in the collateral is invalidated for any
reason by a court, or

(c) The collateral is no longer required under the terms of the Loan Agreement
as the creditworthiness of the Borrower improves.

There is no guarantee that the sale of collateral would allow Borrowers to
meet their obligations should they become unable to repay principal or interest,
or that the collateral could be sold quickly and easily.

The value of the collateral will be set using several criteria:

. The Borrower's financial statements

. An independent appraisal

. The market value of the collateral

. Other customary techniques chosen by CypressTree

Collateral is valued generally with the understanding that the Borrower is an
ongoing concern. As a result, the value of the collateral may exceed its
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

(d) Security interests in shares of stock of subsidiaries or affiliates,
and

(e) Assets of shareholders of the Borrower, if the Borrower is a private
company.

If the collateral is 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.

Any type of decline in the value of collateral could cause the Loan to become
undercollateralized or unsecured. In this case, there is usually no requirement
to pledge more collateral.

If a Borrower becomes involved in bankruptcy proceedings, a court may decide
that the Loan does not require repayment through the sale of collateral and may
even determine that other obligations be repaid first. Other things could occur,
including errors in paperwork, which could invalidate the Fund's security
interest in Loan collateral. If this occurs, the Fund is unlikely to recover the
full amount of the principal and interest due on the Loan.

Loans may be unsecured for brief periods if a Borrower's principal asset is
the stock of a related company which may not legally be pledged, until this
stock can be pledged or is exchanged for other assets.

Investments in Lower Quality Securities

The Fund may invest all or nearly all of its assets in Loans or other
securities that are rated below investment grade by Moody's Investors Service,
similarly 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.
Moody's considers debt rated Baa by Moody's to have speculative characteristics.
Moody's considers debt rated Ba or B by Moody's to be predominantly speculative
regarding the issuer's ability to pay interest and repay principal. Moody's also
uses the numerical modifiers 1, 2 and 3 to indicate where in the generic rating
classification a particular security ranks, with 1 being the highest and 3 the
lowest.

These ratings of debt securities represent the rating agency's opinion
regarding their quality, they are not a guarantee of quality. Rating agencies
try to evaluate the safety of principal and interest payments, they do not take
into consideration the risks of fluctuations in market value. Because rating
agencies may not change ratings quickly in response to company changes, an
issuer's current financial condition may be better or worse than a rating
indicates.

11
<PAGE>

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. They
are generally more vulnerable to economic downturns or developments affecting
the Borrower. CypressTree does not expect to invest in any securities rated
lower than B3 at the time of investment. See "Appendix A to the Statement of
Additional Information--"Description of Ratings" for a full description of
Moody's long-term debt ratings. In the event of a downgrade or decrease in the
rating of a Loan, CypressTree will consider whether to sell that Loan.

Typically, the market values of lower-quality loans change in response to
company changes more than higher quality loans. Higher quality loans react
primarily to fluctuations in the general level of interest rates. Also,
lower-quality debt securities tend to be more sensitive to economic conditions
and generally have more volatile prices than higher-quality securities.

Non-Diversification and Industry Concentration

The Fund is classified as a "non-diversified" investment company within the
meaning of the 1940 Act. This means that the only limits on the amount the Fund
may invest in a single issue are 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.
The Fund plans to invest no more than 10% of its assets in Loans of any one
Borrower.

When the Fund chooses to invest a high percentage of its assets in the
obligations of just a few issuers, the value of the Fund's investments can react
more significantly to any one event than the value of a fund that is more
diversified.

The Fund may acquire Loans made to Borrowers in any industry. The Fund will
not concentrate its investments in any one industry. However, because the Fund
may buy loans through intermediaries who may be legally considered issuers, the
Fund may be deemed concentrated in the financial services industry. Because this
is so, the Fund is subject to certain risks. Some of the risks related to
financial services include regulatory controls and legislative changes that may
limit lending or make it riskier or less profitable, and general financial and
economic conditions. See "Investment Restrictions" in the Statement of
Additional Information.

Illiquid Instruments

Not all Loans are easy to sell because of legal and contractual restrictions.
Although Loans are traded among certain financial institutions, some of the
Loans that the Fund buys are not as liquid, or saleable, as typical investment
grade debt and may be considered illiquid. It may be more difficult to sell
Loans where the creditworthiness of the Borrower has changed, or is thought to
have changed. Reselling loans may also become more difficult with market changes
or other concerns about Borrowers' ability to repay loans in general.

This illiquidity may affect the Fund's ability to maintain its net asset value
if Loans must be sold. Over time, the liquidity of Loans should improve.

SEC rules and Board of Directors procedures require the Fund to maintain
enough liquidity to make its monthly Repurchase Offers, generally expected to be
10% of outstanding shares, but there are no other liquidity restrictions. See
"Repurchase Offers."

Borrowing By The Fund

The Fund may borrow money in amounts up to 33-1/3% of the value of its total
assets to finance Repurchase Offers, for temporary, extraordinary or emergency
purposes. Although it currently does not intend to, the Fund also may issue one
or more series of preferred shares or borrow money to finance additional
investments but only when it believes that the return will exceed the costs of
this strategy. If costs do exceed returns, the return realized by the Fund's
shareholders will be adversely affected. While borrowing and issuing a class of
preferred stock having priority over the Fund's common shares create an
opportunity for greater income per common share, it also involves increased
exposure to losses. These risks may be reduced through borrowing and preferred
stock with floating rates of interest. Borrowing may also limit the Fund's
freedom to pay dividends or engage in other activities.

The Fund may establish an unsecured, discretionary credit facility (the
"Facility") to partially finance Repurchases. The Facility would allow the Fund
to borrow up to $100,000,000 or 33-1/3% of the Fund's total assets, whichever is
less, on an unsecured, uncommitted basis. This Facility will have a floating
interest rate, such as LIBOR, to be selected at the Fund's option.

Under the 1940 Act, the Fund may only borrow money provided that right after
borrowing, the Fund has assets that equal 300% of the total outstanding
principal balance of indebtedness. Also, the 1940 Act requires that the fund may
only declare dividends or distributions or purchase capital stock provided that
right after doing so, the Fund has assets that equal 300% of total principal
balance of debt.

12
<PAGE>

If the Fund cannot make distributions as a result of these requirements the
Fund may no longer qualify as a regulated investment company and could be
required to pay additional taxes. The Fund may also be forced to sell
investments on unfavorable terms if market fluctuations or other factors reduce
the required asset below what is required.

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) Can be redeemed, called or repaid by the Fund by the next Repurchase
Request Date without penalty or premium, if that is necessary to allow the
Fund to repurchase shares as required by the Board of Directors and the
1940 Act.

Limited Availability of Loans

Investment in Loans that meet the Fund's standards may be subject to limited
availability. There is risk that the Fund may not be able to invest 80% or more
of its total assets in Loans.

- --------------------------------------------------------------------------------
REPURCHASE OFFERS
- --------------------------------------------------------------------------------

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"). Because the Fund is a closed-end fund, you will not be able to redeem
your 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, we expect 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"). We expect that the Repurchase
Amount generally will be 10%, but it 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 you 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.

13
<PAGE>

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, we expect 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 you may obtain daily net asset
value by calling 800-860-5575.

The Fund does not presently intend to deduct any repurchase fees from this
amount. 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. 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.

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
outstanding, and shareholders tender 11%, the Fund could determine to repurchase
the extra 1% of shares 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. However, the Fund may determine to alter these pro rata
allocation procedures in two situations:

(a) the Fund may accept all shares tendered by persons who own in the
aggregate not more than a specified number of shares (which number will
not exceed 100 shares) before prorating shares tendered by others; or

(b) the Fund may accept by lot shares tendered by shareholders who tender all
shares held by them and who, when tendering, elect to have either all or
none (or at least a minimum amount or none) accepted; however, the Fund
first must accept all shares tendered by shareholders who do not make this
election.

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 Request 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 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 Pricing 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

14
<PAGE>

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;

(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.

Change of Notice and Monthly Board Meeting Requirements

Currently, the Fund's Board of Directors meets once each month to determine
the amount of the Repurchase Offer, and shareholders receive a notice before
each Repurchase Offer under rules of the Securities and Exchange Commission. The
Fund expects to request approval from the Securities and Exchange Commission to
hold its Board meetings and provide notice to its shareholders on a quarterly
basis. If such approval is granted, then the Board would meet once each quarter
to determine the amount of the next three Repurchase Offers, and you would
receive one notice for those three Repurchase Offers.

- --------------------------------------------------------------------------------
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.

15
<PAGE>

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 also
serves as investment adviser to an open-end series fund with 15 separate
investment portfolios managed by ten different subadvisers, with approximately
$1.0 billion in aggregate assets.

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 1.25% of average daily
gross assets. This agreement may be terminated by CAM at any time after December
31, 1998 on thirty (30) days' written notice.

CypressTree has been retained by CAM as the subadviser to the Fund to manage
the investment and reinvestment of the Fund's assets. CypressTree was founded in
1996 as the nation's first independent investment advisory firm specializing in
the loan asset class and currently has $3.5 billion 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
gross 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 Management

Jeffrey S. Garner, age 42, has been employed as CypressTree's Chief Investment
Officer since 1996. 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").

Timothy M. Barns, age 41, is the Fund's portfolio manager. Mr. Barns has been
employed at CypressTree as a portfolio manager and investment analyst since
March 1998 and became the Fund's portfolio manager in March 1999. Mr. Barns was
a founding member of BankBoston's Leveraged Finance Group where he managed a
$2.5 billion senior loan portfolio. He has prior experience in leveraged loan
origination and the distressed loan workout departments at both BankBoston and
European American Bank.

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

16
<PAGE>

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. For purposes of computing the
administration fee, average daily gross assets are determined by deducting from
total assets of the Fund, all liabilities 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 Distributor under its Distribution Agreement. See "Advisory,
Administration and Distribution Services" in the Statement of Additional
Information.

- --------------------------------------------------------------------------------
VALUING FUND SHARES
- --------------------------------------------------------------------------------

The Fund values its shares once on each day the New York Stock Exchange
("NYSE") is open for trading as of the 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 (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 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 price 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 (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

17
<PAGE>

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 12 and adding 1.
The resulting quotient is then taken to the 12th 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 of loan funds 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 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.

- --------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------

The Fund engages in a continuous public offering of its shares at net
asset value without an initial sales charge. Shares may be purchased directly,
through Distributors, or from certain financial services firms that have sales
agreements with Distributors ("Authorized Intermediaries"). Investors may be
charged a fee if they effect transactions through a broker or agent. The Fund
does not currently intend to list its shares on any national securities
exchange or inter-dealer quotation system. Shares of the Fund also are
available for purchase by retirement plans and trusts created under the Uniform
Gifts to Minors Act.

An initial investment in the Fund must be at least $5,000. Once an account
has been established, the shareholder may make additional investments of $500
or more at any time. There is a $500 minimum initial and $500 additional
investment requirement for purchases in connection with tax-sheltered
retirement accounts. The Fund reserves the right to waive any of these minimum
investment requirements. See "Shareholder Services."

18
<PAGE>

From time to time the Fund may suspend the continuous offering of its
shares in response to market conditions 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.

Investors may purchase shares directly by check or by wire. Investors
should complete a Fund Application and mail it to the Fund's Transfer Agent,
State Street Bank & Trust Company. The Transfer Agent's address is Post Office
Box 8360, Boston, Massachusetts 02266-8360. Investors purchasing shares by
check should include a check or money order payable in U.S. dollars, drawn on a
U.S. bank, and made payable to CypressTree Senior Floating Rate Fund, Inc. The
Fund will not accept cash, credit cards, third party checks, or credit card
checks. The Fund reserves the right to cancel any purchase for which a check
does not clear.

Investors also may purchase shares of the Fund by wire. If the Fund is
unable to debit the predesignated bank account on the day of purchase, the Fund
may make additional attempts or may cancel the purchase.

If a purchase is cancelled for any reason, the investor will be
responsible for any losses or fees imposed by its bank and losses that may be
incurred as a result of any decline in the value of the cancelled purchase.

- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------

The Fund offers the following optional services, at no extra charge. Any
of these services may be discontinued without penalty at any time. Investors
may obtain further information and an application for these services from
Authorized Intermediaries or from CypressTree Funds Distributors. The cost of
administering these services is borne by the Fund as an expense to all
shareholders.

Dividend Reinvestment Plan

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 Dividend Reinvestment Plan (the "Plan"),
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 Plan agent (the "Plan Agent"). There will be no charge to
participants for reinvesting dividends or other distributions. The Fund will
pay the Plan 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 Plan.
Similarly, a shareholder may be unable to transfer his or her account to
certain broker-dealers and continue to participate in the Plan. Investors who
own shares registered in street name should contact the broker or nominee for
details concerning participation in the Plan.

The Plan Agent will maintain all participant accounts in the Plan and
furnish written confirmations of all transactions in the accounts, including
information needed for personal and tax records. The Plan Agent may hold shares
in the participants' account in non-certificated form in the name of the Plan
Agent or the Plan Agent's nominee, and each shareholder's proxy will include
those shares purchased pursuant to the Plan. Participants in the Plan may
withdraw from the Plan on written notice to the Plan 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 Plan
Agent will administer the Plan 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 Plan.

All registered holders of shares (other than brokers and nominees) will be
mailed information regarding the Plan, including a form with which they may
elect to terminate participation in the Plan and receive further dividends and
other distributions in cash. An election to terminate participation in the Plan
must be made in writing to the Plan Agent and should include the shareholder's
name and address as they appear on the account registration. An

19
<PAGE>

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 Plan 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
Plan Agent at Post Office Box 8360, Boston, Massachusetts 02266-8360. 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 Plan 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 Plan Agent reserve the right to terminate the Plan as
applied to any dividend or other distribution paid subsequent to notice of the
termination sent to the participants in the Plan at least 30 days before the
record date for the distribution. The Plan also may be amended by the Fund or
the Plan 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 Plan. Shareholders should direct
all correspondence regarding the Plan to the Plan Agent, at Post Office Box
8360, Boston, Massachusetts 02266-8360.

The receipt of dividends and other distributions in shares under the Plan
will not relieve participants of any income tax (including withholding taxes)
that may be payable with respect to the distributions. See "Taxes."

Automatic Investment Plan

Shareholders may purchase shares of the Fund through the Fund's Automatic
Investment Plan. Once the $5,000 minimum investment has been made ($500 for
purchases in connection with tax-sheltered retirement accounts), shareholders
may make automatic cash investments of $500 or more each month or quarter from
the shareholder's bank account.

Tax-Sheltered Retirement Accounts

Shares of the Fund are available for purchase in connection with pension
and profit sharing plans, individual retirement account plans, and 403(b)
retirement plans. Detailed information concerning these plans and copies of the
plans are available from Distributors. This information should be read
carefully and consultation with an attorney or tax adviser may be advisable.
This information sets forth the service fee charged for retirement plans and
describes the federal income tax consequences of establishing a plan. Under
each tax-sheltered retirement account, all distributions will be automatically
reinvested in additional shares of the Fund.

- --------------------------------------------------------------------------------
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

20
<PAGE>

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 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 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.

21
<PAGE>

- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------

The Fund is a corporation organized under Maryland law. The Fund was
incorporated on July 16, 1997. The Fund's Board of Directors is responsible for
the overall management and supervision of its affairs.

The Fund currently has one class of shares of common stock, par value
$0.01 per share, of which 1,000,000,000 shares have been authorized. Each such
share has equal voting, dividend, distribution and liquidation rights.
Fractional shares may be voted in proportion to the amount of the Fund's net
asset value that they represent. Shares have no preemptive or conversion rights
and are freely transferable. When issued and outstanding, the shares are fully
paid and nonassessable by the Fund. Although there is no current intent to do
so, the Board of Directors has the ability to classify and reclassify unissued
shares, and could authorize issuance of a new class of shares pursuant to this
authority, consistent with the requirements of the 1940 Act. Shares of the Fund
will be issued in uncertificated form.

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.

The following table sets forth information for the only class of the
Fund's authorized securities, as of March 31, 1999:

<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>
Common Stock........... 1,000,000,000 shares None 1,771,261
</TABLE>

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 each
class, voting separately, 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 each class of the Fund's shares of capital stock outstanding and entitled to
vote on the matter, voting separately, 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.

22
<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 each
class of the Fund's shares of capital stock outstanding and entitled to vote on
the matter, voting separately, 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, voting together as a single
class, 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 which, in the case of annual
reports will be 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.

- --------------------------------------------------------------------------------
YEAR 2000
- --------------------------------------------------------------------------------

Year 2000 computer problems involve the inability of some computer systems
to properly process date-related information in respect to the end of this
century. While this problem could have a negative effect on the Fund, the
adviser is working to avoid this problem and obtain assurances from the
subadviser and other service providers that they are adequately addressing any
possible year 2000 problems. This year 2000 problem could also have a negative
effect on issuers whose securities are owned by the Fund, potentially
decreasing the value of such securities.

23
<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund........................................................ 1
Investment Restrictions and Fundamental Policies................ 1
Repurchase Offer Fundamental Policy............................. 2
Management...................................................... 3
Advisory, Administration and Distribution Services.............. 6
Portfolio Transactions.......................................... 7
Custodian....................................................... 8
Transfer Agent.................................................. 8
Liquidity Requirements.......................................... 8
Taxes........................................................... 9
Performance Information......................................... 10
Indemnification................................................. 10
Auditors and Financial Statements............................... 11
Statement of Assets and Liabilities--December 31, 1998.......... 12
Statement of Operations......................................... 13
Statement of Changes in Net Assets.............................. 14
Statement of Cash Flows......................................... 15
Portfolio of Investments........................................ 16
Notes to Financial Statements................................... 18
Independent Auditor's Report.................................... 21
Other Information............................................... 22
</TABLE>

24
<PAGE>

CypressTree Senior Floating Rate Fund

PROSPECTUS

May 1, 1999

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

25
<PAGE>

0599-10009
<PAGE>

STATEMENT OF
ADDITIONAL INFORMATION

November 17, 1999

CypressTree 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 CypressTree Senior Floating Rate Fund, Inc. (the "Fund") dated
May 1, 1999 as supplemented November 17, 1999 and as further 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. at
800-872-8037.

<PAGE>

<TABLE>
<S> <C>
The Fund .................................................................. 1
Investment Restrictions and Fundamental Policies .......................... 1
Repurchase Offer Fundamental Policy ....................................... 2
Management ................................................................ 3
Advisory, Administration and Distribution Services ........................ 6
Portfolio Transactions .................................................... 7
Custodian ................................................................. 8
Transfer Agent ............................................................ 8
Liquidity Requirements .................................................... 8
Taxes ..................................................................... 9
Performance Information ................................................... 10
Indemnification ........................................................... 10
Auditors and Financial Statements ......................................... 11
Statement of Assets and Liabilities--December 31, 1998 .................... 12
Statement of Operations ................................................... 13
Statement of Changes in Net Assets ........................................ 14
Statement of Cash Flows ................................................... 15
Portfolio of Investments .................................................. 16
Notes to Financial Statements ............................................. 19
Independent Auditor's Report .............................................. 22
Other Information ......................................................... 23
</TABLE>
<PAGE>

- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------

CypressTree Senior Floating Rate Fund, Inc. (the "Fund") is a recently
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 herein 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: (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. 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 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.

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 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.

2
<PAGE>

- --------------------------------------------------------------------------------
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").

Directors and Officers of the Fund

<TABLE>
<CAPTION>
Name and Address Year of
Business Background Birth Position Held
- -------------------------- -------- ------------------------- -------------------
<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, CypressTree
Investments, Inc. (12/96-
present); President,
CypressTree Investment
Management Co. (8/96-
present); President,
CypressTree Funds
Distributors, Inc. (3/97-
present); President,
Director, North American
Senior Floating Rate
Fund, Inc. (8/98-present);
President, Trustee,
North American Funds;
(10/97-present)
President, Allmerica Financial
Services (4/90-9/95);
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); Trustee, North
Boston, MA 02109 American Funds (10/97-
present); Director, North
American Senior
Floating Rate Fund, Inc.
(8/98-present);
Director, Bain & Company
(9/77-6/96)

William F. Devin 1938 Director Member, Board of
Governors, Boston Stock
125 High Street Exchange (1/85-
present); Director, North
Boston, MA 02110 American Senior
Floating Rate Fund, Inc.
(8/98-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, North
Boston, MA 02116 American Senior
Floating Rate Fund, Inc.
(8/98-present);
Trustee, North American Funds
(10/97-present)

Jeffrey S. Garner* 1956 Executive Vice President; Vice President,
Cypress Holding Company
125 High Street Chief Investment Officer (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,
North American Senior
Floating Rate Fund, Inc.
(8/98-present); Vice
President, Eaton Vance
Management (1/88-7/96)
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
Name and Address Year of
Business Background Birth Position Held
- ------------------------ -------- --------------------------------------------------------
<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 02210 (10/97-present);
Executive Vice President, North
American Senior
Floating Rate Fund, Inc.
(8/98-present); Senior
Vice President, Sales &
Marketing, First Data
Investor Services Group
(5/93-11/95); Senior
Vice President, Fidelity
Investments (6/76-
5/93)

Peter K. Merrill* 1961 Vice President Vice President,
CypressTree Investment
125 High Street Management Co. (6/97-
present); Vice President,
Boston, MA 02110 Portfolio Manager,
North American Senior
Floating Rate Fund,
Inc. (8/98-present);
Managing director,
BankBoston Corp.
(7/88-5/97)

Philip C. Robbins* 1967 Vice President Vice President,
CypressTree Investment
125 High Street Management Co. (9/96-
present); Vice President,
Boston, MA 02110 North American Senior
Floating Rate Fund, Inc.
(8/98-present);
Associate, Eaton Vance
Management (9/91-8/96)

Arthur S. Loring* 1947 Director Managing Director,
Cypress Holding Company
125 High Street (1998-present);
Director, North American Senior
Boston, MA 02110 Floating Rate Fund,
Inc. (8/98-present); Senior
Vice President and
General Counsel, FMR Corp.
(7/72-12/97);
Secretary, Fidelity Family of
Funds (7/83-12/97)

Timothy M. Barns* 1957 Vice President; Portfolio Vice President,
CypressTree Investment
125 High Street Manager Management Company,
Inc. (3/98-present); Vice
Boston, MA 02110 President, North
American Senior Floating Rate
Fund, Inc. (8/98-
present); Managing Director,
BankBoston Corp.
(1988-2/98)

Thomas J. Brown* 1946 Assistant Treasurer Principal, Cypress
Holding Company (7/97-
286 Congress Street present); Assistant
Treasurer, North American
Boston, MA 02210 Senior Floating Rate
Fund, Inc. (8/98-present);
Consultant (10/95-
6/97); Executive Vice
President, Boston
Company Advisors (8/94-
10/95); Executive Vice
President/Chief Financial
Officer, Freedom
Capital Management
(6/81-8/94)

Paul F. Foley* 1963 Treasurer Vice President,
Cypress Holding Company
125 High Street (7/96-present);
Treasurer, North American Senior
Boston, MA 02110 Floating Rate Fund,
Inc. (8/98-present);
Financial Analyst.
Fleet Financial Group
(6/95-7/96); Financial
Analyst, Allmerica
Financial Services
(4/87-6/95)
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
- ----------------------- --------- ------------------------------------------------------
<S> <C> <C> <C>
John I. Fitzgerald* 1948 Secretary Secretary and Counsel, Cypress
Holding
125 High Street Company (4/97-present); Secretary,
North
Boston, MA 02110 American Senior Floating Rate Fund,
Inc. (8/98-
present); Secretary, North American
Funds (10/97-
present); Executive Vice President-
Legal Affairs.
Boston Stock Exchange (6/93-3/97)
</TABLE>

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 sales 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 to December 31,
1998, the Directors earned the following compensation in their capacities as
Directors:

TOTAL COMPENSATION
AGGREGATE FROM FUND AND FUND
COMPENSATION COMPLEX PAID TO
NAME FROM FUND DIRECTORS*
- ---------------------- ---------------- ---------------------------

Bradford K. Gallagher $ 0 $ 0
William F. Achtmeyer $6,400 $18,600
William F. Devin $7,200 $19,800
Kenneth J. Lavery $7,200 $19,800
Arthur S. Loring $ 0 $ 0

- ------------

*Includes compensation for service as director of the Fund, as trustee of the
North American Funds, and as director of another closed-end investment company
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.

Principal Shareholders of Securities

None

5
<PAGE>

- --------------------------------------------------------------------------------
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.

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 $3.5 billion 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 15.6%) and Berkshire
Fund IV L.P., an investment partnership (approximately 66.5%). 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-ended investment company offering shares in 15
different portfolios. The North American Funds currently have approximately $1.1
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 $68 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 December 15, 2000. The Advisory Agreement may
be continued from year to year after December 15, 2000 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 December 15, 2000 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 December 15, 2000 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 or 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,

6
<PAGE>

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. For the fiscal year ended December 31, 1998, the Fund incurred
$29,296 under the Advisory Agreement, all of which was waived by CAM.

CAM has agreed to reimburse the Fund's expenses to the extent necessary so
that total annualized Fund expenses do not exceed 1.25% of average daily gross
assets. If CAM had not agreed to reimburse these expenses, estimated Fund
expenses as a percentage of average daily net assets would be: management fee of
0.85%, interest payments on borrowed funds of 0.00%, administration fee of
0.40%, service fee of 0.00%, and other expenses of 0.30%; and total annual
expenses of 1.55%. This agreement may be terminated by CAM at any time after
December 31, 1999 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 its 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

7
<PAGE>

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.

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 custodian 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 Payment
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.

8
<PAGE>

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.

- --------------------------------------------------------------------------------
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; and (b) 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.

9
<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

The Fund's current yield for the one month period ending on June 30,
1999 was 6.79%. The Fund's effective yield for the same period was 6.23%.

The total investment return for the year ending June 30, 1999 was
5.07%. The net asset value of one share of the Fund on June 30, 1999 was $9.97.

The Fund may advertise total return either on a cumulative or annualized
basis.

Current yield, effective yield, total investment return and net asset value
will fluctuate from time to time and are not necessarily representative of
future results. When redeemed shares may be worth more or less than their
original cost.

The Fund may also 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.

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 malfeasance, 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

10
<PAGE>

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 auditors' address is 200 Berkeley Street, Boston,
Massachusetts 02116.

The Fund's audited financial statements for the period April 6, 1998 to
December 31, 1998, including the auditor's report, are set forth below. The
financial statements and notes thereto contained in the semi-annual report
(filed on Form N-30D with the Commission) of the Fund for the semi-annual period
ended June 30, 1999, which are unaudited, are hereby incorporated into this
Statement of Additional Information by reference.

11
<PAGE>

CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement of Asset and Liabilities -- December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
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 [divided by] 758,187 shares outstanding)
</TABLE>

The accompanying notes are an integral part of the financial statements.

12
<PAGE>

CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement of Operations
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the period from
April 6, 1998*
through
December 31, 1998
-------------------
<S> <C>
INVESTMENT INCOME:
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.

13
<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
-----------------
<S> <C>
Increase/(Decrease) in Net Assets from:
OPERATIONS:
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
===========
</TABLE>

* Commencement of Operations.

The accompanying notes are an integral part of the financial statements.

14
<PAGE>

CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement of Cash Flows
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the period from
April 6, 1998*
through
December 31, 1998
-------------------
<S> <C>
Increase/(Decrease) in Cash
Cash Flows From (Used for) Operating Activities:
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.

15
<PAGE>

CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio of Investments -- December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Industry/Description Type Maturity 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
</TABLE>

The accompanying notes are an integral part of the financial statements.

16
<PAGE>

CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio of Investments -- December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Industry/Description Type Maturity Date Par Value
- --------------------------------------- -------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
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
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.

17
<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 (00'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.

18
<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.

19
<PAGE>

CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements -- (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:

<TABLE>
<CAPTION>
Shares Capital
---------- -------------
<S> <C> <C>
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
======== ===========
</TABLE>

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.

<TABLE>
<CAPTION>
Amount Tendered
----------------------
Shares Capital
-------- -----------
<S> <C> <C>
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
</TABLE>

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:

<TABLE>
<S> <C>
Gross unrealized appreciation ......... $ 2,434
Gross unrealized depreciation ......... (37,752)
---------
Net unrealized appreciation ........... $ (35,318)
=========
</TABLE>

20
<PAGE>

CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements -- (Continued)
- --------------------------------------------------------------------------------

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.

21
<PAGE>

Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of CypressTree Senior Floating Rate
Fund, Inc:

We have audited the accompanying statements of assets and liabilities of
CypressTree Senior Floating Rate Fund, Inc ("the Fund"), including the
portfolios 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 audits.

We conducted our audit of these financial statements 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

22
<PAGE>

- --------------------------------------------------------------------------------
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).

23
<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 an 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 category.

24
<PAGE>

CypressTree Senior Floating Rate Fund, Inc.

STATEMENT OF ADDITIONAL INFORMATION
November 17, 1999

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

25
<PAGE>

- --------------------------------------------------------------------------------
PART C
- --------------------------------------------------------------------------------

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) FINANCIAL STATEMENTS:

INCLUDED IN PART A: Financial Highlights.

INCLUDED IN PART B: (i) Portfolio of Investments, December 31, 1998
(ii) Statement of Assets and Liabilities, December
31, 1998
(iii) Statement of Operation - for the period April 6,
1998 through December 31, 1998
(iv) Statement of Changes in Net Assets - for the
period April 6, 1998 through December 31, 1998
(v) Statement of Cash Flows - for the period April 6,
1998 through December 31, 1998
(vi) Notes to Financial Statements
(vii) Portfolio of Investments, June 30, 1999
(viii) Statement of Assets and Liabilities, June 30
1999
(ix) Statement of Operations - for the period January
1, 1999 through June 30, 1999
(x) Statement of Changes in Net Assets - for the
period January 1, 1999 through June 30, 1999
(xi) Statement of Cash Flows - for the period January
1, 1999 through June 30, 1999
(xii) Notes to Financial Statements

(2) EXHIBITS:

(a)(1) Amended and Restated 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 (filed herewith)

(m) Not applicable
(n) Consent of Independent Auditors (filed herewith)
(o) Not applicable
(p) Investment Letter*
(q) Model Retirement Plan*
(r) Financial Data Schedule (Not Applicable)
(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****

*Filed as an exhibit to Pre-Effective Amendment No. 3 to Registration Statement
on Form N-2 of Registrant, filed March 26, 1998 File No. 333-32529 incorporated
herein by reference.
**Filed as an exhibit to Pre-Effective Amendment No. 1 to Registration Statement
on Form N-2 of Registrant, filed December 24, 1997 File No. 333-32529
incorporated herein by reference.
***Filed as an exhibit to Registration Statement on Form N-2 of Registrant,
filed July 31, 1997 File No. 333-32529 incorporated herein by reference.
-------------
**** Filed as an exhibit to Post-Effective Amendment No. 2 to Registration
Statement on Form N-2 of Registrant, filed April 30, 1999 File No. 333-32529
incorporated herein by reference.

ITEM 25. MARKETING ARRANGEMENTS

Not Applicable.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<PAGE>

The following table sets forth the estimated expenses incurred in
connection with the offerings of Registrant:

Registration fees ........................................ $ 27,605.40
National Association of Securities Dealers, Inc. fees..... $ 10,000
Printing and engraving expenses .......................... $ 5,000
Fees and expenses of qualification under state securities
laws (excluding fees of counsel) ........................ $ 45,000
Accounting fees and expenses ............................. $ 1,500
Legal fees and expenses .................................. $ 15,000

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None
<PAGE>

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

TITLE OF CLASS NUMBER OF RECORD HOLDERS AS OF November 8, 1999

Common Stock 1,035

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, officers,
employees and agents, and persons who are serving or have served at the Fund's
request in similar capacities for other entities 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 amend ed, 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, State Street Bank & Trust Company,
with the exception of certain corporate documents and portfolio 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.
<PAGE>

ITEM 32. MANAGEMENT SERVICES

None.
<PAGE>

ITEM 33. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) (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.

(2) 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 certifies that this Registration Statement
meets all of the requirements for effectiveness under paragraph (b) of Rule 486
and 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 10th day of November, 1999.

CypressTree 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, November 10, 1999
- -------------------------------------
Bradford K. Gallagher Chief Executive Officer

/s/ William F. Devin* November 10, 1999
- ------------------------------------- Director
William F. Devin

/s/ William F. Achtmeyer* November 10, 1999
- ------------------------------------- Director
William F. Achtmeyer

/s/ Kenneth J. Lavery* November 10, 1999
- ------------------------------------- Director
Kenneth J. Lavery

/s/ Arthur S. Loring** November 10, 1999
- ------------------------------------- Director
Arthur S. Loring

/s/ Paul F. Foley Principal Financial and November 10, 1999
- -------------------------------------
Paul F. Foley Accounting Officer
</TABLE>

*BY /s/ John I. Fitzgerald, Attorney-in-Fact (pursuant to Power of Attorney
----------------------
filed as an exhibit to Registration Statement on Form N-2, filed July 31,
1997, File No. 333-32529.

**BY /s/ John I. Fitzgerald, Attorney-in-Fact (pursuant to Power of Attorney
----------------------
filed as an exhibit to Post-Effective Amendment No. 2 to Registration
Statement on Form N-2, filed April 30, 1999), File No. 333-32529.

<PAGE>

DECHERT PRICE & RHOADS
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
(202) 261-3400 (Telephone)
(202) 261-3333 (Facsimile)

November 16, 1999

CypressTree Senior Floating Rate Fund, Inc.
125 High Street
Boston, Massachusetts 02110

Ladies and Gentlemen:

This opinion is being furnished to you in connection with a public offering
by CypressTree Senior Floating Rate Funds, Inc., a Maryland corporation (the
"Company"), of 10,000,000 shares of common stock, $0.01 par value per share, of
the Company ("Common Stock") (the "Shares"), pursuant to a registration
statement, filed by the Company on Form N-2 under the Securities Act of 1933
with the Securities and Exchange Commission (the "Commission") (the
"Registration Statement").

We have acted as counsel to the Company in connection with the offer and
sale of the Shares. We have examined signed copies of the Registration
Statement, and the exhibits thereto, all as filed with the Commission. We also
have examined and relied on copies of minutes of meetings of the Board of
Directors of the Company.

Based on the foregoing, it is our opinion that the Shares to be issued and
sold by the company pursuant to the Registration Statement have been duly
authorized and, upon issuance in accordance with the terms set forth in the
Registration Statement and on receipt of the consideration specified therein,
will be validly issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as part of the Registration
Statement.

It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.

Very truly yours,

/s/ Dechert Price and Rhoads

<PAGE>

Exhibit 99-2N

CONSENT OF INDEPENDENT AUDITORS

We consent to the inclusion in this Registration Statement on Form N-2 of
CypressTree Senior Floating Rate Fund, Inc. (Investment Company Act file No.
811-8309) of our report dated February 24, 1999 relating to CypressTree Senior
Floating Rate Fund, Inc., which is included in the Statement of Additional
Information, which is part of such Registration Statement.

We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and the heading "Auditors and Financial
Statements" in the Statement of Additional Information both of which are a part
of the Registration Statement.

/s/ DELOITTE & TOUCHE LLP

November 16, 1999
Boston, Massachusetts