<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 2000, as amended September 12, 2000.
CypressTree Senior Floating Rate Fund, Inc.
286 Congress Street
Boston, Massachusetts 02210
617-368-3535
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, 2000 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,
American General Funds Distributors, Inc. at (800)860-5575.
<PAGE>
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TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
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<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
Other Information ......................................................... 13
</TABLE>
<PAGE>
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THE FUND
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CypressTree Senior Floating Rate Fund, Inc. (the "Fund") is a 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 286 Congress Street, Boston,
Massachusetts 02210. Capitalized terms used in this Statement of Additional
Information and not otherwise defined herein have the meanings given them in the
Fund's Prospectus.
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INVESTMENT RESTRICTIONS AND FUNDAMENTAL POLICIES
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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.
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REPURCHASE OFFER FUNDAMENTAL POLICY
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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>
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MANAGEMENT
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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. AGAM, CypressTree, or Cypress by virtue of
their affiliation with any one or more of the Fund, AGAM, CypressTree, or
Cypress, are indicated by an asterisk (*) ("Interested Persons").
Directors and Officers of the Fund
<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
-------------------------- -------- ------------------------- --------------------------
<S> <C> <C> <C>
Alice T. Kane* 1948 Director; President President of American
286 Congress Street
Boston, MA 02210 General Fund Group
(1999-Present); Formerly,
Executive Vice President,
American General Investment
Management, L.P. (1998-1999);
Formerly Executive Vice
President, (1994-1998)
and General Counsel
(1986-1995) New York Life
Insurance Company;
Chair, MainStay Mutual Funds
(1994-1998); President of other
investment companies advised
by The Variable Annuity Life
Insurance Company
William F. Devin 1938 Director Member, Board of Governors,
286 Congress Street
Boston, MA 02210 Boston Stock Exchange (1/85-
Present); Director,
CypressTree Senior Floating
Rate Fund (7/97-Present);
Trustee, North American Funds
(10/97-Present); Retired
Executive Vice President,
Fidelity Capital Markets,
a division of National
Financial Services Corporation
in Boston
Kenneth J. Lavery 1949 Director Vice President, Massachusetts
286 Congress Street
Boston, MA 02210 Capital Resource Company
(5/82-Present); Director,
CypressTree Senior
Floating Rate Fund, Inc.
(7/97-Present); Trustee, North
American Funds (10/97-Present);
Director, North American
Senior Floating Rate Fund,
Inc. (2/98-Present)
John N. Packs* 1955 Vice President and Director of Research,
286 Congress Street
Boston, MA 02210 Assistant Treasurer AGAM (2000-Present);
Vice President, Cypress
Holding Company
(11/95-3/00); prior to
11/95, Investment
Professional, Allmerica
Financial Services
Dr. Judith L. Craven 1945 Director Retired Administrator; Formerly
286 Congress Street
Boston, MA 02210 President, United Way of the Texas Gulf
Coast (1992-1998); Director, Houston
Branch, Federal Reserve Bank of Dallas
(1992-Present), Compaq Computer
Corporation (1998-Present), Luby's Inc.
(journalism, TV and radio)
(1993-Present) and Sysco Corporation
(marketing and distribution of food)
(1996-Present). Formerly, Board
Member, Sisters of Charity of the
Incarnate Word (1996-1999).
Dr. Timothy J. Ebner 1949 Director Professor and Head, Department of
286 Congress Street
Boston, MA 02210 Neuroscience and Visscher Chair of
Physiology (1998-Present), Director,
Graduate Program in Neuroscience,
University of Minnesota (1991-1999).
Formerly, Consultant to EMPI, Inc.
(1994-1995) and Medtronic Inc.
(manufacturers of medical products)
(1997-1998).
Judge Gustavo E. Gonzales, Jr. 1940 Director Municipal Court Judge, Dallas, Texas
286 Congress Street
Boston, MA 02210 (1995-Present); Director, Downtown
Dallas YMCA Board (1996-Present);
Director, Dallas Easter Seals Society
(1997-Present). Formerly, private
attorney (litigation) (1980-1995).
Ben H. Love 1930 Director Retired. Formerly, Director,
286 Congress Street
Boston, MA 02210 Mid-American (waste products)
(1993-1997). Formerly, Chief
Executive, Boy Scouts of America
(1985-1993).
Dr. John E. Maupin, Jr. 1946 Director President, Meharry Medical College,
286 Congress Street
Boston, MA 02210 Nashville, Tennessee (1994-Present);
Nashville Advisory Board Member, First
American National Bank (1996-Present);
Director, Monarch Dental Corporation
(1997-Present), LifePoint Hospitals,
Inc. (1998-Present).
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
------------------------ -------- --------------------------------------------------------
<S> <C> <C> <C>
Joseph T. Grause, Jr.* 1952 Vice President and President, AGAM (3/00-
286 Congress Street Director
Boston, MA 02210 President); Executive Vice
President Cypress Holding
Company, Inc. (1995-3/00);
Senior Vice President,
Sales and Marketing,
The Shareholder Services
Group, a subsidiary of
First Data Corporation
(1993-1995).
Thomas J. Brown* 1946 Treasurer Chief Financial Officer
286 Congress Street
Boston, MA 02210 and Vice President and Administrative Officer
AGAM (2000-Present);
Principal, Cypress
Holding Company (7/97-3/00);
Assistant Treasurer,
North American
Senior Floating Rate
Fund, Inc. (8/98-present);
Consultant to financial
services industry (1995-
7/97); Executive Vice
President, Boston
Company Advisors (8/94-
10/95);
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
----------------------- --------- ------------------------------------------------------------
<S> <C> <C> <C>
John I. Fitzgerald* 1948 Secretary Counsel, AGAM (3/00-Present);
286 Congress Street
Boston, MA 02210 and Vice Counsel, Distributors (3/00-Present); Counsel
President Cypress Holding Co. Inc. (4/97-3/00);
Executive Vice President-Legal Affairs.
Boston Stock Exchange (6/93-3/97)
* Director who is an "interested person", as defined in the 1940 Act.
</TABLE>
Messrs. Grause, Lavery and Devin and Ms. Kane are members of the Investment
and Pricing Committee of the Board of Directors. The Investment and 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, and provides an overview to the full Board of CypressTree's
activities as subadviser.
The Fund, AGAM and CypressTree have adopted codes of ethics under Rule
17j-1 of the 1940 Act. Subject to reporting and other requirements, these codes
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund. These codes can be
reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-800-942-8090. These codes are also available on
the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
Copies may be obtained, after paying a duplicating fee, by electronic request at
the following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 year ended December 31, 1999, the Directors earned
the following compensation in their capacities as Directors:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
COMPENSATION TABLE
------------------------------------------------------------------------------------------------------
(1) (2) (3)
Name of Person, Position Aggregate Compensation From Total compensation From the Trust
Fund and Fund Complex Paid to the
Directors
------------------------------------------------------------------------------------------------------
<S> <C> <C>
William F. Devin $6,800 $19,800
Director
------------------------------------------------------------------------------------------------------
Kenneth J. Lavery $6,800 $19,800
Director
------------------------------------------------------------------------------------------------------
Alice T. Kane2 N/A N/A
Director
------------------------------------------------------------------------------------------------------
Dr. Judith L. Craven2 N/A N/A
Director
------------------------------------------------------------------------------------------------------
Dr. Timothy J. Ebner2 N/A N/A
Director
------------------------------------------------------------------------------------------------------
Judge Gustavo E. Gonzalez2 N/A N/A
Director
------------------------------------------------------------------------------------------------------
Ben H. Love2 N/A N/A
Director
------------------------------------------------------------------------------------------------------
Dr. John E. Maupin2 N/A N/A
Director
------------------------------------------------------------------------------------------------------
Joseph T. Grause, Jr.2 N/A N/A
Director
------------------------------------------------------------------------------------------------------
</TABLE>
------------
1 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 AGAM. See "Advisory, Administration and Distribution
Services."
2 Elected Director on June 1, 2000.
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>
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ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES
--------------------------------------------------------------------------------
AGAM is the Fund's investment adviser and administrator under an investment
advisory agreement ("Advisory Agreement") and an administration agreement (the
"Administration Agreement") between AGAM and the Fund. AGAM is a Delaware
corporation founded in 1996, and is a general investment advisory firm. The
Directors of AGAM are Alice T. Kane, Joseph T. Grause, Kent E. Barrett and John
E. Graf. AGAM is an affiliate of American General Corporation. Members of the
American General Corporation group of companies (the "American General Financial
Group") operate in each of the 50 states, the District of Columbia and Canada
and collectively engage in all forms of financial services. The American General
Financial Group has approximately $115 billion in assets and over $6 billion
stockholders' equity. Its address is 2929 Allen Parkway, Houston, Texas 77019.
CypressTree serves as the Fund's subadviser under an investment subadvisory
agreement (the "Subadvisory Agreement") between AGAM and CypressTree. The
acquisition contains conditions on the continuation of CypressTree as the Fund's
subadviser. 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 $3.0
billion assets under management. The directors of CypressTree are Bradford K.
Gallagher and J. Christopher Clifford.
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%), Berkshire Fund IV L.P., an investment
partnership (approximately 66.5%), Joseph T. Grause (approximately 7.8%) and
John N. Packs (approximately 1.3%). The remaining stock of Cypress is owned by
current and former Cypress employees.
In October 1997, AGAM 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 23
different portfolios. The North American Funds currently have approximately $1.9
billion in assets. AGAM serves as investment adviser to the North American
Funds.
AGAM also serves as investment adviser to a closed-end fund with $301
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 AGAM 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 AGAM, 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.
In connection with the Acquisition, the Board approved an Interim Advisory
Agreement between AGAM and the Fund to permit AGAM to continue to serve as the
Fund's Investment Adviser. Under the 1940 Act, however, AGAM could only continue
to serve as the investment adviser for the Fund beyond an interim period of 150
days if the shareholders of the Fund approved a new advisory agreement. At its
February 27 and March 14, 2000 meetings, the Board also approved, and
recommended shareholder approval of, a new investment advisory agreement between
AGAM and the Fund. By its own terms, the subadvisory agreement between AGAM and
CypressTree also terminated upon the closing of the Acquisition. Beginning March
10, 2000, CypressTree served as the subadviser pursuant to an interim
subadvisory agreement with the Fund approved by the Board at its February 27 and
March 10, 2000 meetings. Under the 1940 Act, CypressTree could only continue to
serve as subadviser for an interim period of 150 days if shareholders of the
Fund approved a new subadvisory agreement. At its February 27 and March 10, 2000
meetings, the Board also approved and recommended shareholder approval of a new
subadvisory agreement between AGAM and CypressTree.
Shareholders of the Fund voted to approve the Advisory and Subadvisory
Agreements at the shareholder meeting on June 1, 2000. These agreements may be
continued from year to year after June 1, 2002 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 AGAM (or CypressTree in the case
of the subadvisory agreement) 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 and Subadvisory Agreements will terminate automatically in
the event of their assignment. The Administration Agreement may be continued
from year to year after March 10, 2002, 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 AGAM 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 AGAM 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 AGAM or CypressTree, as applicable, AGAM or CypressTree, as
applicable, will not be liable to the Fund for any loss incurred.
AGAM will receive fees under the Advisory Agreement and the Administration
Agreement. For a description of the compensation that the Fund pays AGAM under
the Advisory Agreement and Administration Agreement, see the Fund's current
Prospectus. For the fiscal years ended December 31, 1999 and December 31, 1998,
the Fund incurred $348,679 and $29,296 under the Advisory Agreement,
respectively and $164,208 and $13,787 under the Administration Agreement,
respectively. After expense reimbursements by AGAM, the Fund's payments under
the Advisory and Administration Agreements was $0 in 1998 and $80,814 in
1999.
AGAM 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 AGAM 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 AGAM at any time on
thirty (30) days' written notice.
--------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
--------------------------------------------------------------------------------
Subject to policies established by the Board of Directors of the Fund and
oversight by AGAM, 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.
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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.
AGAM, 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 AGAM 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.
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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.
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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 AGAM 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.
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TAXES
--------------------------------------------------------------------------------
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisers with regard to the federal tax
consequences of the purchase, ownership, or disposition of fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.
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 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 timely 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. To avoid application of the excise tax, the Fund
intends to distribute its income in accordance with the calendar year
requirements.
A distribution will be treated as paid on December 31 of a calendar year if
it is declared by the Fund in October, November or December of that year with a
record date in such a month and paid by the Fund during January of the following
year. Such a distribution will be taxable to shareholders in the calendar year
in which the distribution is declared, rather than the calendar year in which it
is received.
Distributions
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations,
may, subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
The excess of net long-term capital gains over net short-term capital
losses realized, distributed and properly designated by the Fund, whether paid
in cash or reinvested in Fund shares, will generally be taxable to shareholders
as long-term gain, regardless of how long a shareholder has held Fund shares.
Net capital gains from assets held for one year or less will be taxed as
ordinary income.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
Dispositions
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 risk 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.
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.
Backup Withholding
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid (other than
exempt-interest dividends), capital gain distributions, and redemption proceeds
to shareholders if (1) the shareholder fails to furnish the Fund with the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Other Taxation
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders may
be subject to U.S. tax rules that differ significantly from those summarized
above, including the likelihood that ordinary income dividends to them would be
subject to withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if
applicable).
Fund Investments
Market Discount. If the Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount".
Original Issue Discount. Certain debt securities acquired by the Fund may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
Constructive Sales. Under certain circumstances, the Fund may recognize
gain from a constructive sale of an "appreciated financial position" it holds
if it enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
Section 988 Gains or Losses. Gains or losses attributable to fluctuations
in exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
Swaps
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.
Foreign Withholding Taxes
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>
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PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The Fund's current yield for the one month period ending on June 30, 2000
was 8.32%. The Fund's effective yield for the same period was 8.40%.
The total investment return for the year ending December 31, 1999 was
7.12%. The net asset value of one share of the Fund on June 30, 2000 was
$9.76.
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 AGAM, 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 non-interested directors
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.
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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 fiscal year ended December
31, 1999, including the auditor's report, are set forth in the December 31, 1999
Annual Report and are incorporated herein by reference. Copies of the Fund's
Annual Report are available without charge by contacting the Fund's Distributor
American General Funds Distributors Inc. at 286 Congress Street Boston,
Massachsetts 02210, at (800) 872-8037.
11
<PAGE>
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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).
12
<PAGE>
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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 a 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.
13
<PAGE>
CypressTree Senior Floating Rate Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000, as amended September 12, 2000
INVESTMENT ADVISER
American General Asset Management Corp.
286 Congress Street
Boston, Massachusetts 02210
INVESTMENT SUBADVISER
CypressTree Investment Management Company, Inc.
125 High Street
Boston, Massachusetts 02110
ADMINISTRATOR
American General Asset Management Corp.
286 Congress Street
Boston, Massachusetts 02210
DISTRIBUTOR
American General Funds Distributors, Inc.
286 Congress Street
Boston, Massachusetts 02210
14
