<PAGE>
[LOGO OF NORTH AMERICAN FUNDS REPORT TO
APPEARS HERE] SHAREHOLDERS
Senior Floating Rate Fund
- --------------------------------------------------------------------------------
North American Funds Semi-Annual Report June 30, 1999
- --------------------------------------------------------------------------------
Unaudited
Financial
Statements
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
President's Message
- --------------------------------------------------------------------------------
August 6, 1999
Dear Shareholder:
During the first six months of 1999, the fixed-income markets were volatile, as
investors became concerned that the strong economy might generate a pickup in
inflation. Even though inflation remained at a moderate level, interest rates
rose throughout the period. The yield on the bellwether 30-year Treasury Bond
reached 6-1/8% up from 5% at the beginning of the year. As interest rates rose,
prices of fixed-income investments declined. By the end of June interest rates
were at their highest levels and Treasury prices at their lowest levels since
1997. After weeks of speculation, the Federal Reserve Board took a "preemptive
strike" against inflation and raised short-term interest rates 1/4% on June 30.
We are pleased to report that in this environment the performance of senior
loans outpaced that of Treasury securities and corporate bonds, both of which
produced negative returns over the six-month period. As of June 3O, 1999, the
Senior Floating Rate Fund's 30-day SEC yield was 6.71%. In comparison, LIBOR
(London InterBank Offered Rate), the benchmark, was 5.37%. The Fund's total
return for the January through June 1999 period was 3.82%, based on a change in
net asset value from $9.98 to $10.01. Without the Advisor's subsidization of a
portion of the operating expenses, the stated yield would have been 4.63% and
the total return would have been lower.
The rebound in the senior loan market, which began late in 1998, continued
during the first six months of 1999. Capital flows into the market were strong,
pushing bid levels higher for better-rated investments. However, lower quality
investments continued to lag the market. While new issue volume was slow at the
beginning of the year, it picked up significantly in the second quarter. The
Fund took advantage of the more plentiful supply and added several new
investments to the portfolio, including Packaging Corporation of America, a
leading paper and packaging company, Dade Behring, the number one supplier of
blood testing equipment and services, and RCN Corp., a leading
telecommunications company. The Fund's investments were diversified among a
number of industries and economic sectors. Telecommunications, broadcasting,
food and tobacco, automobile, health, education and childcare are just some of
the areas in which the Fund took additional positions.
Our outlook for the second half of 1999 is positive. While there is weakness in
some market sectors, most notably health care and cyclicals, the fundamentals in
these areas remain solid. The senior loan market continues to be strong, with
large, liquid, well-structured, well-rated investments generating the strongest
performance. Smaller, less liquid, aggressively structured investments are
lagging. This is mainly a holdover from the fourth quarter of 1998. Going
forward, however, we believe that senior loans should remain attractive relative
to other asset classes, as investors seek more defensive investments.
At North American Funds 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-
800-872-8037, 9 AM to 6 PM eastern time. You can also obtain information about
your account from our 24-hour automated shareholder line at 800-872-2251. We
also encourage you to visit our web site at www.northamericanfunds.com where you
--------------------------
can obtain information about all of the investment offerings in the North
American Family of Funds.
Sincerely,
/s/ Bradford K. Gallagher
Bradford K. Gallagher
President, North American Funds
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - June 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Maturity
Industry Description Type Date Par Value
- -------- ----------- ---- ---- --- -----
<S> <C> <C> <C> <C> <C>
LOANS - 65.8 %
Aerospace & Defense - 1.1%
K&F Industries Inc BTL-B 10/15/05 $498,883 $499,662
United Defense Corp BTL-C 10/06/05 517,461 513,157
United Defense Corp BTL-B 10/06/06 131,188 130,097
-------
1,142,916
Automobile - 8.2%
Accuride Corp BTL-C 01/21/07 1,250,000 1,255,078
American Axle & Manufacturing BTL-B 04/30/06 1,000,000 1,001,295
Collins & Aikman Corp BTL-C 12/31/05 1,125,000 1,249,609
Dura Automotive Systems Inc BTL-B 03/31/06 1,000,000 1,004,175
Environmental Systems Products Holdings Inc BTL-B 09/30/05 248,750 250,149
Exide Corp BTL-B 03/18/05 998,483 995,206
Federal Mogul Corp BTL-B 02/24/05 1,000,000 1,002,418
J.L. French Automotive Castings Inc BTL-B 10/21/06 789,474 792,681
Venture Holdings Trust BTL-B 04/01/05 1,000,000 1,002,500
---------
8,553,111
Beverage, Food & Tobacco - 2.3%
B&G Foods Inc BTL-B 03/31/06 1,000,000 1,007,500
Doane Pet Care Company BTL-B 12/31/05 239,121 239,631
Doane Pet Care Company BTL-C 12/31/06 258,380 258,931
Shoney's Inc BTL-B 04/30/02 975,958 941,800
---------
2,447,862
Broadcasting - 5.0%
Benedek Broadcasting Corp BTL-B 11/20/07 1,000,000 1,000,000
Capstar Radio Broadcasting Partners BTL-A 11/30/04 500,000 499,062
Capstar Radio Broadcasting Partners BTL-B 05/31/05 748,111 749,113
ComCorp Broadcasting Inc BTL-B 06/30/07 250,000 249,688
Emmis Communications Corp BTL-B 02/28/07 1,000,000 1,002,500
Muzak LLC BTL-B 12/31/06 1,000,000 1,003,333
Telemundo Group Inc BTL-B 02/28/06 500,000 496,875
White Knight Broadcasting Inc BTL-B 06/30/07 250,000 249,688
---------
5,250,259
Buildings & Real Estate - 1.1%
Atrium Companies Inc BTL-B 06/30/05 75,586 75,350
Atrium Companies Inc BTL-C 06/30/06 108,302 107,964
Prison Realty Corp BTL-B 01/01/03 997,500 999,059
---------
1,182,373
Cargo Tansport - 1.0%
American Commercial Lines LLC BTL-B 6/30/06 175,032 175,618
American Commercial Lines LLC BTL-C 6/30/07 821,674 824,085
---------
999,703
Chemicals, Plastics and Rubber- 1.9%
Lyondell Petrochemical Co BTL-B 06/30/05 997,864 1,000,193
Scotts Company BTL-B 06/30/06 508,293 512,904
Scotts Company BTL-C 06/30/07 489,775 494,218
---------
2,007,315
Containers, Packaging and Glass -3.7%
Graham Packaging Co BTL-C2 03/31/07 746,251 746,996
Jefferson Smurfit BTL-B 03/31/06 746,250 748,818
Packaging Corporation of America BTL-B 04/12/07 703,512 709,338
Packaging Corporation of America BTL-C 04/12/08 703,512 709,449
RIC/Riverwood International BTL-B 02/28/04 1,000,000 1,004,018
---------
3,918,619
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- -------- ----------- ---- ---- --- -----
<S> <C> <C> <C> <C> <C>
Diversified/Conglomerate Manufacturing - 4.1%
Dade Behring Inc BTL-B 06/30/06 $500,000 $502,500
Dade Behring Inc BTL-C 06/30/07 500,000 502,500
General Cable Corporation BTL-B 05/27/07 1,000,000 1,003,875
GenTek Inc BTL-B 04/30/07 1,000,000 1,002,500
Goodman Manufacturing Co LP BTL-B 09/30/05 1,000,000 998,281
SPX Corp BTL-B 09/30/06 248,125 249,779
-------
4,259,435
Ecological - 0.5%
Safety Kleen BTL-B 03/10/05 248,744 249,928
Safety Kleen BTL-C 03/10/06 248,744 250,052
-------
499,980
Finance - 1.4%
Bridge Information Systems Inc BTL-B 5/29/05 1,500,000 1,503,281
Grocery - 1.9%
New World Pasta Company BTL-B 06/28/06 744,800 749,610
Pantry Inc BTL-B 01/31/06 249,375 250,622
Pathmark Stores Inc BTL-B 10/31/99 998,881 1,000,299
---------
2,000,531
Healthcare, Education & Childcare - 2.6%
Alliance Imaging Inc BTL-C 12/31/04 248,750 247,506
Alliance Imaging Inc BTL-D 06/30/05 750,000 750,469
King Pharmaceuticals Inc BTL-B 12/22/06 746,250 750,525
Stryker Corp BTL-B 12/04/05 662,989 665,941
Stryker Corp BTL-C 12/04/06 332,011 333,489
-------
2,747,930
Home & Office Furniture, Housewares & Durable Consumer Products - 0.2%
Simmons Co BTL-B 10/29/05 71,224 71,403
Simmons Co BTL-C 10/29/06 178,125 178,570
-------
249,973
Hotels, Motels, Inns & Gaming - 3.3%
Felcor Lodging Trust BTL-B 03/31/04 1,000,000 1,003,125
Starwood Hotels & Resorts Trust Bridge 02/23/03 1,500,000 1,501,913
Wyndham International Inc BTL-B 06/30/06 1,000,000 1,000,000
---------
3,505,038
Insurance - 0.9%
Willis Corroon Group plc BTL-B 11/19/06 522,308 523,940
Willis Corroon Group plc BTL-C 11/19/07 223,846 225,245
Willis Corroon Group plc BTL-D 05/19/08 223,846 225,245
-------
974,430
Leisure and Amusement - 3.8%
American Media Inc BTL-B 04/01/07 1,000,000 1,004,375
Premier Parks Inc BTL-B 10/31/01 997,984 997,984
R.H. Donnelley Corp BTL-B 12/05/05 373,940 373,356
R.H. Donnelley Corp BTL-C 12/05/06 621,034 620,064
Regal Cinemas Inc BTL-B 05/27/06 1,000,000 998,912
-------
3,994,691
Mining & Metals - 3.6%
Ispat Inland Inc Hybrid 7/16/05 498,741 495,779
Ispat Inland Inc Hybrid 2 7/16/06 498,741 495,779
Neenah Corp BTL-B 9/30/05 1,244,948 1,248,061
Peabody Holding Company Inc BTL-B 6/30/06 1,500,000 1,502,500
---------
3,742,119
Oil & Gas - 1.0%
Travel Centers of America BTL-B 3/27/05 996,845 1,002,141
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - June, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Maturity
Industry Description Type Date Par Value
- -------- ----------- ---- ---- --- -----
<S> <C> <C> <C> <C> <C>
Personal & Nondurable Consumer Products - 2.4%
Globe Manufacturing Co BTL-B 07/31/06 $1,000,000 $998,750
Sealy Corp BTL-B 12/15/04 188,673 189,008
Sealy Corp BTL-C 12/15/05 135,918 136,159
Sealy Corp BTL-D 12/15/06 173,698 174,006
United Industries Corp BTL-B 01/20/06 997,500 1,002,176
---------
2,500,099
Personal, Food & Misc Services - 1.2%
Alliance Laundry Systems LLC BTL-B 06/30/05 1,250,000 1,250,781
Retail Stores - 1.2%
Central Tractor Farm & Country BTL-B 04/30/06 1,250,000 1,254,688
Telecomminications - 11.0%
American Cellular Wireless Corp BTL-B 12/31/06 500,000 500,709
American Cellular Wireless Corp BTL-C 06/30/07 500,000 500,709
Bresnan Telecommunications Co LLC BTL-B 01/29/08 500,000 502,500
Charter Communications Operating LLc BTL-B 03/17/08 1,000,000 1,003,188
Davel Communications Inc BTL-B 06/23/05 500,000 489,063
Dobson Communications Corp BTL-B 03/23/07 500,000 502,503
Dobson Communications Corp BTL-C 12/23/07 500,000 503,133
Microcell Telecommunications Inc BTL-B 03/01/06 1,000,000 1,000,000
Nextel Communications BTL-B 09/30/06 1,000,000 1,002,812
RCN Corp BTL-B 06/30/07 1.500,000 1,507,119
SpectraSite Communications Inc BTL-B 06/30/06 1,000,000 1,005,625
Superior TeleCom Inc BTL-B 11/27/05 983,399 989,815
Tritel Inc BTL-B 12/31/07 1,000,000 1,002,646
TWFanch-one Co BTL-B 12/31/07 1,000,000 1,002,825
----------
11,512,647
Textiles & Leather - 2.4%
Advanced Glassfiber Yarns LLC BTL-B 09/30/05 476,250 477,441
Pillowtex Corp BTL-B 12/31/04 993,584 993,597
Polymer Group BTL-B 12/20/05 995,200 1,000,177
---------
2,471,215
TOTAL LOANS (Cost $68,823,800) $68,971,137
-----------
SHORT-TERM INVESTMENTS - 32.9%
American Express Co., 5.25% 07/06/99 $5,000,000 $5,001,460
Ford Motor Credit Co., 4.7443% 07/01/99 18,000,000 18,016,605
SSGA Money Market Fund 11,526,596 11,560,561
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $34,578,626) $34,578,626
-----------
TOTAL INVESTMENTS - 998.7% (Cost $103,402,426*) $103,549,763
------------
OTHER ASSETS AND LIABILITIES, NET - 1.3% 1,353,592
---------
NET ASSETS - 100.0% $104,903,355
============
</TABLE>
* The cost for Federal Income Tax purposess is the same.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND INC.
Statement of Assets and Liabilities - June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
- -------
<S> <C>
Investment in loans and securities, at value (identified
cost, $103,402,426.) (See accompanying Portfolio of Investments)........... $103,549,763
Cash......................................................................... 47,534
Receivables:
Investments sold........................................................ 58,915
Fund shares sold........................................................ 1,120,700
Interest receivables on bank loans....................................... 555,483
Facility fees........................................................... 2,500
From investment adviser................................................. 254,823
Prepaid expenses............................................................. 14,302
------------
Total assets........................................................ $105,604,020
------------
LIABILITIES:
- ------------
Payables:
Fund dividends.......................................................... 506,289
Accrued expenses........................................................ 50,300
Deferred facility fee........................................................ 144,076
------------
Total liabilities................................................... 700,655
------------
NET ASSETS................................................................... $104,903,355
------------
NET ASSETS CONSIST OF:
- ----------------------
Accumulated net realized gains (losses)................................. $30,768
Unrealized appreciation (depreciation) on investments................... 147,337
Capital shares at par value of $.01 (Note 3)............................ 1,047,252
Additional paid-in capital.............................................. 103,677,998
------------
Net assets.......................................................... $104,903,355
------------
NET ASSETS VALUES:
- ------------------
Class B Shares
Net assets at value......................................................... $21,615,501
Shares outstanding.......................................................... 2,157,773
Net Asset Value, offering and redemption price per share...................... $10.02
------------
Class C Shares
Net assets at value......................................................... $83,287,854
Shares outstanding.......................................................... 8,314,230
Net Asset Value, offering and redemption price per share..................... $10.02
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statement of Operations
- --------------------------------------------------------------------------------
For the Six Months
ended
June 30, 1999
------------------
INVESTMENT INCOME:
- -----------------
Interest................................................... $1,917,526
Facility and other fee income.............................. 18,265
----------
Total income............................................. 1,935,791
----------
EXPENSES:
- --------
Investment adviser fee (Note 5)............................ 237,448
Distribution fee for Class B (Note 7)...................... 34,750
Distribution fee for Class C (Note 7)...................... 157,415
Custody fee................................................ 16,069
Transfer agent fee......................................... 11,525
Audit and legal fees....................................... 9,693
Accounting and administration fees (Note 5)................ 112,293
Directors fees and expenses................................ 15,234
Registration and filling fees.............................. 78,934
Miscellaneous.............................................. 29,741
----------
Expenses before reimbursement by investment adviser........ 703,111
Reimbursement of expenses by investment adviser (Note 5)... (604,564)
----------
Net expenses........................................... 98,547
----------
Net investment income.................................. 1,837,244
----------
REALIZED AND UNREALIZED GAIN/(LOSS):
- -----------------------------------
Net realized gain on investment transactions............... 24,518
Unrealized (depreciation) on investments................... 164,627
----------
Net realized and unrealized loss....................... 189,145
----------
Net increase in net assets resulting from operations......... $2,026,389
==========
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statements Of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period From
For the Six Months August 31, 1998*
ended through
June 30, 1999 December 31, 1998
------------------ -------------------
<S> <C> <C>
Increase/(Decrease) in Net Assets from:
OPERATIONS:
- -----------
Net investment income................................................. $1,837,244 $187,433
Net realized gain (loss) on investment transactions................... 24,518 6,250
Change in unrealized appreciation on investments...................... 164,627 (17,290)
------------------ -------------------
Net increase in net assets resulting from operations.................... 2,026,389 176,393
DISTRIBUTIONS FROM:
- ------------------
Net investment income, Class B........................................ (467,116) (45,215)
Net investment income, Class C........................................ (1,370,128) (142,218)
Increase in net assets from capital share transactions (Note 3)......... 85,629,289 18,995,961
------------------ -------------------
Increase in net assets.................................................. 85,818,434 18,984,921
Net assets at beginning of period....................................... 19,084,921 100,000
------------------ -------------------
Net assets at end of period............................................. $104,903,355 $19,084,921
================== ===================
</TABLE>
* Commencement of Operations
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND,INC.
Statement of Cash Flows
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION> For the Six Months
ended
June 30,1999
----------------------
<S> <C>
Increase/(Decrease)in Cash
- --------------------------
Cash Flows From (Used for)Operating Activities:
Purchase of loans ................................................ (58,764,987)
Interest and facility fees received............................... 1,533,063
Purchase of short-term securities,net............................. (30,175,735)
Proceeds from loans sold.......................................... 4,113,046
Operating expenses paid........................................... (317,372)
---------------
Net Cash used for operating activities............................. (83,611,985)
---------------
Cash Flows From (Used for) Financing Activities:
Proceeds from shares sold......................................... 85,861,854
Payments for shares redeemed...................................... (1,767,240)
Cash dividends paid (not including reinvested dividends
of $874,049)................................................... (456,904)
---------------
Net Cash from financing activities.................................. (83,637,710)
---------------
Net Increase in Cash 25,725
Cash at beginning of period....................................... 21,809
-------------
Cash at end of period ........................................... 47,534
-------------
Reconciliation of Net Increase in Net Assets from Operations to Net
- ---------------------------------------------------------------------
Cash used for Operating Activities
- ----------------------------------
Net increase in net assets from operations ....................... 2,026,389
Increase in interest and facility fees receivable................. (471,120)
Increase in receivable for investments sold....................... (55,320)
Decrease in prepaid expenses and other assets..................... 42,084
Increase in deferred facility fees................................ 69,746
Increase in net accrued expenses.................................. (260,576)
Net increase in investments....................................... (84,963,188)
--------------
Net cash used for operating activities........................... (83,611,985)
--------------
</TABLE>
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Financial Highlights (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------
Period from
Six Months 8/31/98*
ended through
6/30/99 12/31/98
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.98 $10.00
- ---------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.34 0.20
Net realized and unrealized gain on investments 0.04 (0.02)
--------------------------------
Total from investment operations 0.38 0.18
--------------------------------
Distributions
Dividends from net investment income (0.34) (0.20)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.02 $9.98
- ---------------------------------------------------------------------------------------------------------
Total Return 3.82% 1.89%+
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $21,616 $4,826
- ---------------------------------------------------------------------------------------------------------
Ratio of total expenses to average net assets 0.23%# 0.00%#
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 6.66%# 6.11%#
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 1%+ 18%+
- ---------------------------------------------------------------------------------------------------------
Expense ratio before expense reimbursement by adviser 2.53% 4.02%#
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Class C
--------------------------------
Period from
Six Months 8/31/98*
ended through
6/30/99 12/31/98
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.98 $10.00
- ---------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.34 0.20
Net realized and unrealized gain on investments 0.04 (0.02)
--------------------------------
Total from investment operations 0.38 0.18
--------------------------------
Distributions
Dividends from net investment income (0.34) (0.02)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.02 $9.98
- ---------------------------------------------------------------------------------------------------------
Total Return 3.82% 1.89%+
- ---------------------------------------------------------------------------------------------------------
Ratio/Supplemental Data
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $83,288 $14,259
- ---------------------------------------------------------------------------------------------------------
Ratio of total expenses to average net assets 0.23% 0.00%#
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 6.45% 6.11%#
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 1% 18%+
- ---------------------------------------------------------------------------------------------------------
Expense ratio before expense reimbursement by adviser 2.52% 4.01%#
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
+ Not annualized
# Annualized
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE FUND. The North American Senior Floating Rate Fund, Inc.
(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 Funds 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.
The Fund may offer three classes of shares. Class B shares are sold to the
public at net asset value and are subject to an Early Withdrawal Charge which
declines from 3% in the first year after purchase to zero after the fourth year.
Class C shares are sold to the public at net asset value arid are subject to an
Early Withdrawal Charge of 1% in the first year after purchase. Class A shares
are not currently offered, and are available only upon the conversion of Class B
and C shares after being held by the shareholders for eight and ten years,
respectively. The share classes also differ in their respective distribution and
certain other class-specific expenses. Investment income, realized and
unrealized capital gains and losses and common expenses of the Fund are
allocated pro-rata to each class based on the average daily net assets of each
class. Dividends are declared separately for each class. All classes have equal
rights to assets and voting privileges.
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 Funds 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) recant 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 secunties 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 Intemal 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 lax
provision is required.
Distributions of Income and Gains. Distributions of net investment income are
declared as a dividend to shareholders of record as of the close of business
each day and are paid monthly. The Fund distributes realized net capital gains,
if any, at least annually, after offset by any capital loss carryovers.
10
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 2, continued
Repurchase Agreements. The Fund may enter into repurchase agreements. When the
Fund enters into a repurchase agreement through its custodian, it receives
delivery of the underlying securities, the amount of which at the time of
purchase and each subsequent business day is required to be maintained at such a
level that the market value is equal to at least 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.
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 in three different classes. Share activity for the
period ended June 30, 1999 was as follows:
<TABLE>
<CAPTION>
Class B Class C
--------------------------- ---------------------------
Shares Capital Shares Capital
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold................................ 1,687,873 $16,877,214 6,937,981 $69,410,179
Reinvestment of distributions....... 13,376 133,805 73,998 740,246
Redeemed............................ (26,962) (269,696) (126,228) (1,262,459)
----------- ------------ ----------- ------------
Net increase/(decrease)........... 1,674,287 $16,741,323 6,885,751 $68,887,966
=========== ============ =========== ============
</TABLE>
Share activity for the period ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
Class B Class C
--------------------------- ---------------------------
Shares Capital Shares Capital
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold................................ 471,473 $4,708,001 1,487,617 $14,858,203
Reinvestment of distributions....... 2,013 20,087 11,126 111,045
Redeemed............................ -- -- (70,264) (701,375)
----------- ------------ ----------- ------------
Net increase/(decrease)........... 473,486 $4,728,088 1,428,479 $14,267,873
=========== ============ =========== ============
</TABLE>
In order to provide shareholders with liquidity and the ability to receive net
asset value on a disposition of shares, the Fund will make monthly offers to
repurchase a percentage (usually 10%) of outstanding shares at net asset value.
Shareholders will be sent a Notification of Repurchase Offer seven to fourteen
days before each monthly repurchase offer. During the period ended June 30,
1999, the Fund made six Repurchase Offers, and actually redeemed the amounts
shown in the table below. In no case was a monthly Repurchase Offer
oversubscribed.
Amount Tendered
-------------------------
Shares Capital
---------- ------------
February 32,787 $327,548
March 51,367 513,560
April 34,449 344,825
May 30,510 305,414
June 4,076 40,808
11
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES. During the period ended June 30, 1999, the
Fund's cost of purchases of Loans and proceeds from Loan sales were $58,764,987
and $4,113,046, respectively. Unrealized appreciation and depreciation in the
value of those investments at June 30, 1999 for federal income tax purposes were
as follows:
Gross unrealized appreciation $ 167,724
Gross unrealized depreciation (20,387)
------------
Net unrealized depreciation $ 147,337
============
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, as 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.
For the period ended June 30, 1999, CFO as the Fund's distributor, received
$15,425 in Early Withdrawal Charges on redemptions from the Fund.
6. EXPENSE REIMBURSEMENT. Pursuant to the Investment Advisory Agreement, the
Adviser will reduce the advisory fee or if necessary reimburse each class of the
Fund (excluding taxes, portfolio brokerage commissions, interest, certain
litigation and indemnification expenses, extraordinary expenses and all of the
Fund's distribution fees) for expenses incurred in excess of 1.40% (expense
limitation). For the period ended June 30, 1999, the Adviser waived fees in the
amount of $237,448, and reimbursed $367,116 of the Fund's expenses.
7. DISTRIBUTION PLAN, The Fund has adopted Distribution Plans ("Plans")
applicable to Class B and C shares to use the assets attributable to that class
of shares of the Fund to finance certain activities relating to the distribution
of shares to investors. The Plans are compensation plans providing for the
payment of a fixed percentage of .75% of average net assets to finance
distribution expenses.
8. DIRECTOR COMPENSATON. The Fund pays each Director who is not an employee or a
director of the Adviser or its affiliates a fee of $750 plus travel expenses for
each Board of Directors meeting attended, $250 for each telephone meeting and an
annual retainer of $3,000.
9, LINE OF CREDIT. The Fund has an agreement with Fleet National Bank that
provides a $20,000,000 Line of Credit to the Fund that may be used for cash
overdraft protection. The Fund pays a commitment fee of 520,000 annually, and
interest is charged on any borrowed amounts at the currently effective Federal
Funds Rate plus .55%. This Line of Credit was not used during the period ended
June 30, 1999.
12
<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.,
Vice President and Treasurer
John I. Fitzgerald, Secretary
Distributor
CypressTree Funds Distributors, Inc.
286 Congress Street
Boston, MA 02210
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
North American Funds Shareholder Service
286 Congress Street
Boston, MA 02210
800-872-8037
<PAGE>
0799:90417
