<PAGE>
CYPRESSTREE
Senior
Floating Rate
Fund
Annual Report
December 31, 1999
Audited Financial Statements
[LOGO OF CYPRESSTREE INVESTMENTS]
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
President's Message
- --------------------------------------------------------------------------------
February 18, 2000
Dear Shareholder:
We are pleased to report, that despite a difficult year in the bond market, 1999
proved to be a good year for senior loans. Strong economic growth, a low
unemployment rate and higher commodity prices gave rise to fears of accelerating
inflation fueled by the Federal Reserve Board which raised the federal funds
rate three times--each time by 0.25%. At the end of 1999, the yield on the
bellwether 30-year Treasury bond reached 6.48%, up from 5% at the beginning of
the year. As yields rose, bond prices declined. By contrast, because the
interest rates on senior loans adjust regularly (unlike bonds), loan funds have
historically been able to maintain a relatively stable share price--regardless
of interest rate fluctuations. This relative stability, coupled with favorable
credit characteristics resulted in performance that outpaced most other
traditional fixed-income securities, many of which generated negative returns
for the year.
For the twelve-month period ended December 31, 1999, the CypressTree Senior
Floating Rate Fund returned 7.16%. In comparison, the Fund's benchmark, the DLJ
Leveraged Loan Index returned 5.10% for the same period. The Fund's net asset
value (NAV) fluctuated by only five cents during 1999, beginning and ending the
year with an NAV of $9.93 while consistently utilizing an independent valuation
methodology. A strong credit profile and little exposure to the troubled
healthcare sector were the key contributors to the Fund's positive performance.
At year-end, the Fund's assets were diversified among 97 issuers in 26
industries.
The concerns that held back the performance of the fixed-income markets during
1999 are likely to persist in 2000. Economic growth shows no signs of slowing,
employment rates remain high and the Federal Reserve Board has already raised
the federal funds rate another 0.25%. Nevertheless, we are optimistic about the
potential for senior loans in the months ahead. While interest rates may
continue to rise, we believe their relatively small incremental increases will
not be dramatic enough to have a negative impact on the earnings and debt
service capacity of the companies in which the Fund invests. As we move into
2000, we expect the level of merger and acquisition activity to rise, resulting
in firmer loan prices and attractive new investment opportunities.
We believe that volatility across the financial markets will be at above-average
levels during 2000. Therefore, an investment strategy that continues to
emphasize credit selection and risk management will play a crucial role in the
performance of the senior loans we add to the Fund. In the year ahead, we are
confident that investors will continue to view senior loan funds as attractive
defensive investments.
At CypressTree we are committed to being available whenever you need us. If you
have any questions about your investment, recent market activity or investing in
general, please call our dedicated shareholder services team at 1-800-860-5575,
9 AM to 6 PM Eastern Standard time. We also encourage you to visit our web site
at www.cypresstreeinvestments.com.
Thank you for your continued support of the CypressTree Senior Floating Rate
Fund. We look forward to serving your investment needs in the year ahead.
Sincerely,
/s/ Bradford K. Gallagher
Bradford K. Gallagher
President, CypressTree Senior Floating Rate Fund
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of CypressTree Senior Floating Rate
Fund, Inc:
We have audited the accompanying statement of assets and liabilities of
CypressTree Senior Floating Rate Fund, Inc ("the Fund"), including the portfolio
of investments, as of December 31, 1999, and the related statements of
operations and cash flows for the year then ended, the statements of changes in
net assets and the financial highlights for the period from April 6, 1998
(commencement of operations) through December 31, 1998, and for year ended
December 31, 1999. 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 audits 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, 1999, 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
audits provide 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, 1999, the results
of its operations and its cash flows for the year then ended, the changes in its
net assets and the financial highlights for the period from April 6, 1998
(commencement of operations) through December 31, 1998, and for the year ended
December 31, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 22, 1999
1
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- --------------- --------------------------------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
LOANS - 78.5%
Aerospace & Defense - 1.6%
K&F Industries Inc BTL-B 10/15/05 $ 906,104 $ 904,689
United Defense Corp BTL-B 10/06/05 202,755 201,171
United Defense Corp BTL-C 10/06/06 313,978 311,525
-----------
1,417,385
Automobile - 6.4%
ACX Technologies Inc Bridge 08/02/00 703,125 704,033
American Axle & Manufacturing BTL-B 04/30/06 750,000 748,637
Collins & Aikman Corp BTL-B 06/30/05 242,000 240,109
Collins & Aikman Corp BTL-C 12/31/05 247,500 246,340
CSK Auto Inc BTL-B-2 10/31/03 1,000,000 995,000
Dura Automotive Systems Inc BTL-B 03/31/06 500,000 500,729
Environmental Systems Products BTL-B 09/30/05 247,500 239,456
Holdings Inc
Exide Corp BTL-B 03/18/05 248,227 246,986
Federal Mogul Corp BTL-B 12/18/07 500,000 499,621
J.L. French Automotive Castings Inc BTL-B 10/21/06 394,737 395,559
Tenneco Automotive BTL-B 10/15/07 500,000 503,125
Tenneco Automotive BTL-C 04/15/08 500,000 503,125
-----------
5,822,720
Beverages, Food & Tobacco - 1.9%
Aurora Foods Inc BTL-A 06/30/05 147,043 146,859
Aurora Foods Inc BTL-B 09/30/06 1,099,156 1,102,362
B&G Foods Inc BTL-B 03/31/06 500,000 499,063
-----------
1,748,284
Broadcasting - 2.5%
Benedek Broadcasting Corp BTL-B 11/20/07 500,000 499,792
Emmis Communications Corp BTL-B 02/28/07 1,000,000 1,000,375
Muzak LLC BTL-B 12/31/06 500,000 500,938
Telemundo Group Inc BTL-B 02/28/06 250,000 248,125
-----------
2,249,230
Buildings & Real Estate - 3.3%
Atrium Companies Inc BTL-B 06/30/05 75,268 75,080
Atrium Companies Inc BTL-C 06/30/06 107,917 107,647
ClubCorp Inc BTL-B 03/24/07 1,000,000 1,002,500
Dal-Tile Intern'l BTL-B 12/31/03 250,000 246,875
Pebble Beach Co BTL-B 07/30/06 598,909 601,030
Prison Realty Corp BTL 12/31/02 247,500 245,876
Tapco International Corporation BTL-B 06/23/07 467,578 467,286
Tapco International Corporation BTL-C 06/23/08 280,547 280,372
-----------
3,026,666
Chemicals, Plastics & Rubber - 3.2%
Hexcel Corp BTL-B 09/14/05 768,781 762,535
Huntsman ICI Chemicals LLC BTL-B 06/30/07 416,667 418,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- --------------- --------------------------------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Chemicals, Plastics & Rubber - continued
Huntsman ICI Chemicals LLC BTL-C 06/30/08 $ 416,667 $ 418,750
Huntsman Packaging Corp BTL-B 06/30/06 245,000 243,804
Lyondell Petrochemical Co BTL-B 06/30/05 453,749 458,724
Lyondell Petrochemical Co BTL-E 06/30/06 543,997 556,431
-----------
2,858,994
Containers, Packaging & Glass - 5.1%
Graham Packaging Co BTL-B 01/31/06 262,863 262,722
Graham Packaging Co BTL-C 1 01/31/07 217,800 217,562
Graham Packaging Co BTL-C 2 01/31/07 513,716 513,202
Jefferson Smurfit BTL-B 03/31/06 31,945 32,018
Packaging Corporation of America BTL-B 04/12/07 281,663 283,191
Packaging Corporation of America BTL-C 04/12/08 281,663 283,191
RIC/Riverwood International BTL-A 02/28/03 1,000,000 996,583
RIC/Riverwood International BTL-B 02/28/04 356,544 357,496
RIC/Riverwood International BTL-C 08/28/04 643,455 645,320
Stone Container BTL-D 10/01/03 996,762 999,819
-----------
4,591,104
Diversified & Conglomerate Manufacturing - 7.8%
Alliance Laundry Systems LLC BTL-B 06/30/05 250,000 249,219
CII Carbon LLC Hybrid TL 06/30/08 211,467 211,203
General Cable Corporation BTL-B 05/27/07 671,015 671,295
GenTek Inc BTL-B 04/30/07 248,751 249,373
Goodman Manufacturing Co LP BTL-B 07/31/05 248,743 246,333
Mueller Group Inc BTL-B 08/16/06 622,498 624,962
Mueller Group Inc BTL-C 08/16/07 622,498 624,962
SPX Corp BTL-B 09/30/06 692,708 695,998
Terex Corporation BTL-C 03/06/06 750,001 751,759
infoUSA Inc BTL-B 06/30/06 1,000,000 997,500
United Rentals Inc BTL-B 06/30/05 1,000,000 995,000
United Rentals Inc BTL-C 06/30/06 750,000 747,891
-----------
7,065,495
Ecological - 4.9%
Allied Waste Industries BTL-B 07/21/06 340,909 332,822
Allied Waste Industries BTL-C 07/21/07 409,091 399,386
Internationall Technology Corp BTL-B 06/11/06 1,484,900 1,481,187
Laidlaw Environmental Services BTL-A 04/03/04 240,327 238,995
Laidlaw Environmental Services BTL-B 04/03/05 498,734 500,137
Laidlaw Environmental Services BTL-C 04/03/06 498,734 500,137
Stericycle Inc BTL-B 11/10/06 1,000,000 1,004,375
-----------
4,457,039
Electronics - 3.8%
Dynamic Details Inc. BTL-B 04/22/05 248,500 244,928
Intersil Corp BTL-B 06/30/05 1,000,000 1,004,167
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- --------------- --------------------------------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Electronics -- continued
Knowles Electronics BTL-B 01/29/07 $ 1,000,000 $ 999,688
Semiconductor Components Industries LLC BTL-B 08/04/06 361,111 361,450
Semiconductor Components Industries LLC BTL-C 08/04/07 388,889 389,254
Viasystems Group Inc BTL-B 06/30/06 499,570 442,119
-----------
3,441,606
Finance - 0.5%
Bridge Information Systems Inc BTL-B 05/29/05 497,500 472,625
-----------
Grocery- 1.0%
Pathmark Stores Inc BTL-B 12/15/01 999,159 937,511
-----------
Healthcare, Education & Childcare - 4.3%
Dade Behring Inc BTL-B 06/30/06 622,187 624,002
Dade Behring Inc BTL-C 06/30/07 622,187 624,002
Hanger Orthopedic Group BTL-B 01/01/08 500,000 502,396
King Pharmaceuticals Inc BTL-B 12/22/06 982,519 985,077
Quest Diagnostics Inc Bridge 08/16/01 953,488 950,211
Stryker Corp BTL-B 12/04/05 148,651 149,116
Stryker Corp BTL-C 12/04/06 69,179 69,395
-----------
3,904,199
Home & Office Furniture, Housewares & Durable Consumer Products - 1.3%
Felcor Lodging Trust BTL-B 03/31/04 500,000 497,500
Shop Vac Corp BTL-B 06/30/07 625,000 625,586
-----------
1,123,086
Hotels, Motels, Inns & Gaming - 1.9%
Tranche
Starwood Hotels & Resorts Trust Two Loan 02/23/03 1,000,000 1,000,000
Wyndham International Inc BTL-B 06/30/06 750,000 735,938
-----------
1,735,938
Insurance - 0.5%
Willis Corroon Group plc BTL-B 11/19/06 261,154 261,480
Willis Corroon Group plc BTL-C 11/19/07 111,923 112,168
Willis Corroon Group plc BTL-D 05/19/08 111,923 112,168
-----------
485,816
Leisure, Amusement, Motion Picture, Entertainment - 1.2%
Premier Parks Inc BTL-B 09/30/05 500,000 502,902
Regal Cinemas Inc BTL-B 05/27/06 247,930 237,393
Regal Cinemas Inc BTL-C 05/27/07 131,029 125,460
United Artists Theatre Co BTL-B 04/21/06 97,842 72,525
United Artists Theatre Co BTL-C 04/21/07 146,763 108,788
-----------
1,047,068
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- --------------- --------------------------------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Machinery - 0.6%
Thermadyne Holdings Corp BTL-B 05/22/05 $ 308,593 $ 293,639
Thermadyne Holdings Corp BTL-C 05/22/06 308,593 293,639
-----------
587,278
Mining, Steel, Iron & Nonprecious Metals - 3.0%
Ispat Inland Inc Hybrid TL 07/16/05 498,108 493,127
Ispat Inland Inc Hybrid TL2 07/16/06 498,108 493,127
Neenah Corp BTL-B 09/30/05 999,564 997,065
Peabody Holding Company Inc BTL-B 06/30/06 750,000 749,219
-----------
2,732,538
Oil & Gas - 0.3%
TravelCenters of America Inc BTL-B 03/27/05 248,028 249,165
-----------
Personal & Nondurable Consumer Products - 3.8%
- ----------------------------------------------
Amscan Holdings Inc Hybrid TL 12/31/04 246,231 227,764
Buhrmann NV US BTL-B 10/26/07 1,500,000 1,507,655
Sealy Corp BTL-B 12/15/04 566,808 567,399
Sealy Corp BTL-C 12/15/05 408,395 408,821
Sealy Corp BTL-D 12/15/06 521,940 522,430
United Industries Corp BTL-B 01/20/06 247,500 247,036
-----------
3,481,105
Printing, Publishing & Broadcasting - 8.3%
American Media Inc BTL-B 04/01/07 1,000,000 1,002,708
AMFM Inc BTL-A 11/19/01 1,750,000 1,744,531
Classic Cable Inc BTL-B 01/31/08 750,000 750,656
Hollinger International Publishing BTL-B 12/31/04 1,000,000 1,005,625
Journal Register Co BTL-B 09/06/06 750,000 745,313
Lamar Advertising Company BTL-B 08/01/06 750,000 751,992
Merrill Corp BTL-B 11/23/07 1,000,000 1,003,750
R.H. Donnelley Corp BTL-B 12/05/05 186,026 185,464
R.H. Donnelley Corp BTL-C 12/05/06 308,949 308,016
-----------
7,498,055
Rail and Shipping-1.1%
Gemini Air Cargo Inc BTL-A 08/12/05 1,000,000 1,002,250
-----------
Telecommunications-6.6%
American Cellular Wireless Corp BTL-B 12/31/06 249,372 249,194
American Cellular Wireless Corp BTL-C 12/31/07 249,372 249,194
Charter Communications Holding Co LLC BTL-B 11/05/08 250,000 250,063
Charter Communications Holding Co LLC BTL-B 03/17/08 1,000,000 1,001,875
Comm Net Cellular Inc BTL-B 09/30/06 98,697 98,834
Comm Net Cellular Inc BTL-C 04/01/07 95,488 95,629
Comm Net Cellular Inc BTL-D 10/01/07 305,739 306,106
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- --------------- --------------------------------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Dobson Communications Corp BTL-B 03/23/07 244,516 245,250
Telecommunications - continued
Dobson Communications Corp BTL-C 12/23/07 $ 250,000 $ 250,990
Nextel Communications BTL-B 06/30/08 500,000 506,335
Nextel Communications BTL-C 12/31/08 500,000 506,275
RCN Corp BTL-B 06/03/07 500,000 502,716
Tritel Inc BTL-B 12/31/07 1,750,000 1,755,195
-----------
6,017,656
Textiles &Leather-2.6%
Globe Manufacturing Co BTL-B 07/15/06 750,000 682,500
Polymer Group BTL-B 12/20/05 995,714 996,336
St John Knits Inc BTL-B 07/31/07 710,370 696,163
-----------
2,374,999
Transportation-1.0%
American Commercial Lines LLC BTL-B 06/30/06 373,024 369,371
American Commercial Lines LLC BTL-C 06/30/07 508,206 503,230
-----------
872,601
TOTAL LOANS (Cost $71,437,506) $71,200,413
-----------
SHORT-TERM INVESTMENTS-17.4%
American ExpressCo.,5.30% 01/03/00 $12,008,464 $12,008,463
SSGA Money Market Fund 3,787,969 3,787,968
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $15,796,433) $15,796,431
-----------
TOTAL INVESTMENTS-95.9%--(Cost $87,233,939)* $86,996,844
-----------
OTHER ASSETS AND LIABILITIES, NET--4.1% $ 3,694,668
-----------
NET ASSETS--100.0% $90,691,512
===========
</TABLE>
*The cost for Federal Income Tax purposes is the same.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Statement of Assets and Liabilities - December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
-------
Investments in loans and securities, at value. (Identified cost, $87,233,939.)
(See accompanying Portfolio of Investments)...................................................... $86,996,844
Cash............................................................................................. 1,644,152
Receivables:
Investments sold............................................................................... 295,075
Fund shares sold............................................................................... 1,075,417
Interest on bank loans......................................................................... 616,718
From investment adviser........................................................................ 20,589
Unamortized organization costs................................................................... 162,500
-----------
Total assets................................................................................. 90,811,295
-----------
LIABILITIES:
------------
Payables:
Fund shares redeemed........................................................................... 102
Dividends ..................................................................................... 102,818
Accrued expenses............................................................................... 16,863
-----------
Total liabilities............................................................................ 119,783
-----------
NET ASSETS...................................................................................... $90,691,512
===========
NET ASSETS CONSIST OF:
----------------------
Accumulated net realized gains (losses)........................................................ ($10,745)
Unrealized appreciation (depreciation) on investments.......................................... (237,095)
Capital shares at par value of $.01 (Note 3)................................................... 91,352
Additional paid-in capital..................................................................... 90,848,000
-----------
Net assets....................................................................................... $90,691,512
===========
Net Asset Value, Offering and Redemption Price per Share......................................... $9.93
($90,691,512 (divided by) 9,135,228 shares outstanding) ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year
ended
December 31, 1999
-----------------
INVESTMENT INCOME:
------------------
<S> <C>
Interest.................................................................................. $3,075,362
Facility and other fee income............................................................. 41,638
----------
Total income............................................................................ 3,117,000
----------
EXPENSES:
---------
Investment adviser fee (Note 5)........................................................... 348,679
Custody fee............................................................................... 45,812
Transfer agent fee........................................................................ 14,400
Audit and legal fees...................................................................... 16,383
Accounting and administration fees (Note 5)............................................... 164,208
Directors fees and expenses............................................................... 27,478
Amortization of organization expenses..................................................... 50,000
Registration and filing fees.............................................................. 43,001
Miscellaneous............................................................................. 20,622
----------
Expenses before reimbursement by investment adviser...................................... 730,583
Reimbursement of expenses by investment adviser (Note 6).................................. (432,073)
----------
Net expenses............................................................................ 298,510
----------
Net investment income.................................................................. 2,818,490
----------
REALIZED AND UNREALIZED GAIN/(LOSS):
------------------------------------
Net realized (loss) on investment transactions.............................................. 6,343
Unrealized (depreciation) on investments.................................................... (201,777)
----------
Net realized and unrealized loss............................................................ (195,434)
----------
Net increase in net assets resulting from operations........................................ $2,623,056
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Period From
Year April 6, 1998*
ended through
December 31, 1999 December 31, 1998
----------------- -------------------
<S> <C> <C>
Increase/(Decrease) in Net Assets from:
OPERATIONS:
-----------
Net investment income............................................... $ 2,818,490 $ 258,482
Net realized gain/(loss) on investment transactions................. 6,343 (17,088)
Change in unrealized depreciation on investments.................... (201,777) (35,318)
------------ ------------
Net increase in net assets resulting from operations.................. 2,623,056 206,076
DISTRIBUTIONS FROM :
--------------------
Net investment income............................................... (2,818,490) (258,482)
Increase in net assets from capital share transactions (Note 3)...... 83,358,639 7,480,713
------------ ------------
Increase in net assets................................................ 83,163,205 7,428,307
Net assets at beginning of period..................................... 7,528,307 100,000
------------ ------------
Net assets at end of period........................................... $90,691,512 $7,528,307
============ ============
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year
ended
December 31, 1999
-----------------
<S> <C>
Increase/(Decrease) in Cash
---------------------------
Cash Flows From (Used for) Operating Activities:
Purchase of loans....................................................... ($72,715,025)
Interest and facility fees received..................................... 2,562,374
Purchase of short-term securities, net.................................. (14,856,634)
Proceeds from loans sold................................................ 7,985,102
Operating expenses paid................................................. (458,390)
-------------
Net Cash used for operating activities.................................. (77,482,573)
-------------
Cash Flows From (Used for) Financing Activities:
Proceeds from shares sold............................................... 98,371,005
Payments for shares redeemed............................................ (18,789,834)
Cash dividends paid (not including reinvested dividends of $2,230,039).. (485,671)
-------------
Net Cash from financing activities........................................ 79,095,500
-------------
Net increase in Cash 1,612,927
Cash at beginning of period............................................... 31,225
Cash at end of
period.................................................................... $ 1,644,152
=============
Reconciliation of Net Increase in Net Assets from Operations to Net
-------------------------------------------------------------------
Cash used for Operating Activities
----------------------------------
Net increase in net assets from
operations............................................................. $ 2,623,056
Increase in interest and facility fees receivable.................... (535,736)
Increase in receivable for investments sold.......................... (292,450)
Increase in deferred facility fees................................... (18,890)
Decrease in unamortized organization costs........................... 50,000
Decrease in net accrued expenses..................................... (216,223)
Net increase in investments.......................................... (79,092,330)
Net cash used for operating activities............................... ($77,482,573)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Financial Highlights (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Year 4/6/98*
ended through
12/31/99 12/31/98
---------- --------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 9.93 $10.00
---------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.69 0.53
Net realized and unrealized gain on investments 0.00 (0.07)
-------------------------
Total from investment operations 0.69 0.46
-------------------------
Distributions
Dividends from net investment income (0.69) (0.53)
---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.93 $ 9.93
---------------------------------------------------------------------------------------
Total Return 7.16% 4.81%+
=======================================================================================
Ratios/Supplemental Data
---------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 90,692 $ 7,528
---------------------------------------------------------------------------------------
Ratio of net expenses to average net assets 0.72% 0.00%#
---------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 6.81% 7.50%#
---------------------------------------------------------------------------------------
Portfolio turnover rate 28% 20%+
---------------------------------------------------------------------------------------
Expense ratio before fee waiver by adviser 1.77% 4.27%#
---------------------------------------------------------------------------------------
Net investment income before fee waiver by adviser 5.77% 3.74%#
---------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
+ Not annualized
# Annualized
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Financial Highlights (For a Share Outstanding Throughout the Period)
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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.
Capital Loss Carryforwards. At December 31, 1999, the Fund has $10,745 in
capital loss carryforwards available to offset future recognized gains. This
carryforward amount expires in 2006.
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 $10,745 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
12
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CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
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Note 2, continued
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.
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 year ended December 31,
1999 was as follows:
<TABLE>
<CAPTION>
Shares Capital
------------- --------------
<S> <C> <C>
Sold..................................... 9,988,918 $ 99,380,895
Reinvestment of distributions............ 224,287 2,230,039
Redeemed................................. (1,836,164) (18,252,295)
------------- --------------
Net increase/(decrease)................ 8,377,041 $ 83,358,639
============= ==============
</TABLE>
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 year ended December 31,
1999, the Fund made 12 Repurchase Offers, and actually redeemed the amounts
shown in the table below. In no case was a monthly Repurchase Offer
oversubscribed.
13
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CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
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Note 3, continued
<TABLE>
<CAPTION>
Amount Tendered Amount Tendered
-------------------------------- ----------------------------------
Shares Capital Shares Capital
--------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
January -- -- July 50,703 $ 505,514
February 35,282 $350,943 August 130,556 1,301,646
March 49,600 494,508 September 157,947 1,571,194
April 56,439 562,695 October 209,479 2,082,116
May 18,041 400,736 November 259,937 2,581,176
June 40,194 179,870 December 827,986 8,221,897
</TABLE>
4. PURCHASES AND SALES OF SECURITIES. During the period ended December 31,
1999, the Fund's cost of purchases of Loans and proceeds from Loan sales were
$72,715,025 and $8,277,552, respectively. Unrealized appreciation and
depreciation in the value of those investments at December 31, 1999 for federal
income tax purposes were as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 195,358
Gross unrealized depreciation (432,453)
---------------
Net unrealized appreciation ($237,095)
===============
</TABLE>
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.
During the year ended December 31, 1999 the Fund engaged in purchase and sale
transactions with other investment vehicles managed by CIMCO. These purchase
and sale transactions complied with Rule 17a-7 under the Investment Company Act
of 1940, and amounted to $14,934,476.
6. EXPENSE REIMBURSEMENT -- Pursuant to the Investment Advisory Agreement, the
Adviser reduced the advisory fee and reimbursed 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 year ended December 31, 1999, the Adviser waived fees of
$348,679, and reimbursed expenses of $83,394.
14
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CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
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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, $200 for each telephone meeting
attended, and an annual retainer of $3,000.
15
<PAGE>
Directors
Bradford K. Gallagher, Chairman
William F. Achtmeyer
William F. Devin
Kenneth J. Lavery
Arthur S. Loring
Officers
Bradford K. Gallagher, President
Joseph T. Grause, Jr.,
Executive Vice President
John I. Fitzgerald, Secretary
Distributor
CypressTree Funds Distributors, Inc.
286 Congress Street
Boston, MA 02210
CypressTree Funds Shareholder Services
286 Congress Street
Boston, MA 02210
800-860-5575
Adviser
CypressTree Asset Management Corporation, Inc.
125 High Street
Boston, MA 02110
Transfer and Dividend Agent
State Street Bank and Trust Company
P.O. Box 8505
Boston, MA 02266-8505
Independent Accountants
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
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0200-10053
