<PAGE>
[North American Funds Logo] REPORT TO
SHAREHOLDERS
Senior Floating Rate Fund
North American Funds(R) Annual Report December 31, 1998
Audited
Financial
Statements
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
President's Message
- --------------------------------------------------------------------------------
February 15, 1999
Dear Shareholder:
This past year turned out to be a true test for the senior loan market. And, we
are pleased to report that senior loans passed with high marks.
During 1998, the stock market exhibited sharp volatility, setting new highs
early in the year and then declining in the third quarter due to economic,
political, and financial worries. The stock market bounced back in the fourth
quarter as consumer spending remained robust and interest rates remained at
historically low levels.
During this turbulent period, the senior loan market, in contrast, offered
relative stability and attractive returns to investors. In fact, during the
third quarter, senior loans were one of only a few asset classes to provide
positive total returns. We are pleased to report that the North American Senior
Floating Rate Fund's net asset value fluctuated just pennies from its inception
through year-end 1998.
On balance, our outlook for 1999 remains positive. Capital continues to flow
into the loan market and the new issue calendar, which had been light in January
has started to build nicely. The higher LIBOR spreads experienced in late 1998
will likely narrow somewhat, however, overall returns should remain attractive
and credit quality should remain high.
As always, we will continue to strive for strong results. Thank you for
investing with us. We appreciate your continued commitment to the North American
Senior Floating Rate Fund. If you have questions regarding your investment,
please call your investment advisor or our customer service team at
800-872-8037.
Sincerely,
/s/ Bradford K. Gallagher
Bradford K. Gallagher
President, North American Funds
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Portfolio Manager Commentary
- --------------------------------------------------------------------------------
Investment Objective: Provide a high level of current income consistent with
the preservation of capital through investment primarily
in senior secured floating rate loans and other senior
secured floating rate debt obligations.
Subadvisor: CypressTree Investment Management Company, Inc.
Portfolio Manager: Peter Merrill
Inception Date: August 31, 1998
[Graph of Change in Value of $10,000 Investment and Comparative Index]
--------------------------------------------------------------------
Performance Table
-----------------
Total Return
Periods Ending 12/31/98 Since Inception
---------------
DLJ Leveraged Loan Index* -0.90%
Senior Floating Rate Fund Class B (NAV) 1.85%
Senior Floating Rate Fund Class B (net of CDSC)** -1.15%
Senior Floating Rate Fund Class C (NAV) 1.85%
Senior Floating Rate Fund Class B (net of CDSC)*** 0.85%
* Returns for the index begin on the month-end closest to the actual
inception date of the Fund.
** The returns reflect the applicable sliding Contingent Deferred Sales
Charge of 3%, 2.5%, 2%, 1%.
*** The returns reflect the applicable Contingent Deferred Sales Charge of 1%.
ii
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Portfolio Manager Commentary
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
----------------------------
As of 12/31/98, the North American Senior Floating Rate Fund's 30-day SEC yield
was an impressive 7.39% for Class B shares and 7.41% for Class C shares. The
Fund's share price was $9.98 having fluctuated just pennies since its launch at
$10.00 per share in August. From inception through 12/31/98, the Fund
outperformed the benchmark DLJ Leverage Loan Index, as indicated in the chart
above. The Fund was well diversified with investments in 23 companies
representing 16 different industries.
During the fourth quarter the loan market came under significant pressure as
investors sat on the sidelines waiting for the market to exhibit positive
momentum. In the new issue market, average yields increased 0.75% to 1%, and
average upfront fees rose by 0.25% to 0.50% in order to attract adequate
investor demand. Loan structures also became more conservative during the
fourth quarter with most transactions carrying strong BB credit ratings and
considerably lower leverage. The secondary market traded down 2%-3% in October
in response to significantly higher new issue pricing and selling pressure
created by hedge funds and other investors who needed to raise cash. By late
November the loan market began to develop a more positive tone, as the flow of
funds into the market increased, and several high profile transactions such as
Scotts and Travel Centers were well received.
The North American Senior Floating Rate Fund was launched in late August in the
midst of this turmoil and remained largely in cash until the market began to
stabilize later in the fourth quarter. As a result, we were able to avoid the
market sell off and share price declines that impacted many portfolios during
the period. Further, we were able to take advantage of several attractively
priced new issues that came to market late in the fourth quarter as well as a
number of investments that were available in the secondary market at significant
discounts.
* * * * * * * * * * * * *
North American Senior Floating Rate Fund, Inc. shares are not deposits or
obligations of, or guaranteed by, any bank or financial institution. Mutual
fund shares are not insured by the FDIC or any other agency and are subject to
investment risk, including the possible loss of principal. The investment
return and principal value of an investment in the Fund will fluctuate with
market conditions so that shares, when redeemed, may be worth more or less than
the original cost. Past performance is no guarantee of future results, and
there is no guarantee the Fund will achieve its objective.
Average annual total returns are historical and include changes in share price,
reinvestment of dividends and capital gains.
The 30-day SEC Yield is computed by using a standardized formula that represents
the theoretical net investment income per share earned over the 30-day period
noted, expressed as an annualized percentage of the maximum offering price of
shares on that date.
iii
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of North American Senior Floating
Rate Fund, Inc:
We have audited the accompanying statement of assets and liabilities of
North American Senior Floating Rate Fund, Inc. ("the Fund"), including the
portfolio of investments, as of December 31, 1998, and the related statements of
operations, cash flows, and changes in net assets and the financial highlights
for the period from commencement of operations, August 31, 1998, through
December 31, 1998. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian and selling or agent banks, where replies were
not received from selling or agent banks, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
North American Senior Floating Rate Fund, Inc. as of December 31, 1998, the
results of its operations, its cash flows, the changes in its net assets, and
the financial highlights for the period from the commencement of operations,
August 31, 1998, through December 31, 1998, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 24, 1999
1
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Industry Description Type Date Par Value
- -------- ----------- ---- -------- --- -----
<S> <C> <C> <C> <C> <C>
LOANS - 74.3%
Automobile - 2.6%
Environmental Systems Products BTL - B 9/30/05 $ 250,000 $ 249,688
Federal Mogul Corporation BTL - C 9/30/06 250,000 249,883
-----------
499,571
Broadcasting - 2.6%
Capstar Broadcasting BTL - B 5/31/05 500,000 492,500
Chemicals, Plastics and Rubber - 5.3%
The Scotts Company BTL - B 6/30/06 509,202 511,434
The Scotts Company BTL - C 6/30/07 490,798 492,025
-----------
1,003,459
Containers, Packaging and Glass - 3.9%
Jefferson Smurfitt Corp. BTL - B 3/31/06 750,000 746,845
Consumer Durable - 3.9%
Sealy Corporation BTL - B 2/15/04 189,130 188,332
Sealy Corporation BTL - C 2/15/05 136,222 135,647
Sealy Corporation BTL - D 2/15/06 174,078 173,344
Simmons Co. BTL - B 10/29/05 71,429 71,429
Simmons Co. BTL - C 10/29/06 178,571 178,571
-----------
747,323
Consumer Non-durable - 2.6%
Doane Pet Care Company BTL - B 9/30/05 240,323 239,722
Doane Pet Care Company BTL - C 9/30/06 259,677 258,947
-----------
498,669
Diversified/Conglomerate Manufacturing - 6.5%
Alliance Laundry Systems BTL - A 5/05/05 1,000,000 991,683
SPX Corporation BTL - B 9/30/06 249,375 250,115
-----------
1,241,798
Environmental Services - 2.6%
Safety Kleen BTL - B 4/03/05 250,000 249,656
Safety Kleen BTL - C 4/03/06 250,000 249,656
-----------
499,312
Healthcare - 10.6%
Alliance Imaging, Inc. BTL - C 9/30/04 250,000 248,750
King Pharmaceuticals, Inc. BTL - B 2/18/06 750,000 751,992
Stryker Corporation BTL - B 2/04/05 666,321 668,299
Stryker Corporation BTL - C 2/04/06 333,679 335,035
-----------
2,004,076
Leisure and Amusement - 5.2%
Regal Cinemas BTL - B 5/27/05 1,000,000 1,000,000
Mining & Metals - 1.3%
Neenah Foundry Company BTL - B 6/30/05 250,000 250,313
Oil & Gas - 5.2%
Travel Centers of America BTL - B 3/27/05 998,423 1,000,607
Real Estate - 1.1%
Atrium Companies, Inc. BTL - B 6/30/05 95,679 94,842
Atrium Companies, Inc. BTL - C 6/30/06 109,460 108,502
-----------
203,344
Telecommunications - 7.9%
Davel Communications, Inc. BTL - B 6/23/05 500,000 499,063
Superior TeleCom, Inc. BTL - B 1/27/05 1,000,000 1,003,505
-----------
1,502,568
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Portfolio Of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Maturity
Industry Description Type Date Par Value
- -------- ----------- ---- ---- --- -----
Textiles and Leather - 7.8%
Advanced Glassfiber Yarn BTL - C 9/30/05 $ 500,000 $ 500,000
Pillowtex Corp. BTL - B 12/31/04 998,607 995,174
-----------
1,495,174
Transportation - 5.2%
American Commercial Lines BTL - B 6/30/06 175,692 175,363
American Commercial Lines BTL - C 6/30/07 824,308 822,762
-----------
998,125
TOTAL LOANS (Cost $14,200,974) $14,183,684
-----------
SHORT-TERM INVESTMENTS - 23.1% Shares
------
SSGA Money Market Fund (Cost $4,402,891) 4,402,891 $ 4,402,891
-----------
TOTAL INVESTMENTS - 97.4% (Cost $18,603,865*) $18,586,575
-----------
OTHER ASSETS AND LIABILITIES, NET - 2.6% 498,346
-----------
NET ASSETS - 100.0% $19,084,921
===========
</TABLE>
* The cost for Federal Income Tax purposes is the same.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statement Of Assets And Liabilities - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
-------
<S> <C>
Investments in loans and securities, at value (Identified
cost, $18,603,865.) (See accompanying Portfolio of Investments)........... $18,586,575
Cash........................................................................ 21,809
Receivables:
Investments sold.......................................................... 3,595
Fund shares sold.......................................................... 695,161
Interest receivable on bank loans......................................... 79,363
Facility fees............................................................. 7,500
Prepaid expenses............................................................ 56,053
Other assets................................................................ 333
Total assets............................................................ $19,450,389
-------------
LIABILITIES:
------------
Payables:
Accrued expenses.......................................................... 56,053
Fund shares redeemed...................................................... 235,085
Deferred facility fee....................................................... 74,330
Total liabilities....................................................... 365,468
-------------
NET ASSETS.................................................................. $19,084,921
=============
NET ASSETS CONSIST OF:
----------------------
Accumulated net realized gains (losses) .................................. $ 6,250
Unrealized appreciation (depreciation) on investments..................... (17,290)
Capital shares at par value of $.01 (Note 3).............................. 19,120
Additional paid-in capital................................................ 19,076,841
-------------
Net assets.............................................................. $19,084,921
=============
NET ASSET VALUES:
-----------------
Class B Shares
Net assets at value....................................................... $ 4,825,955
Shares outstanding........................................................ 483,486
Net Asset Value, offering and redemption price per share.................... $9.98
=============
Class C Shares
Net assets at value....................................................... $14,258,966
Shares outstanding........................................................ 1,428,479
Net Asset Value, offering and redemption price per share.................... $9.98
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statement of Operations
- --------------------------------------------------------------------------------
For the period from
August 31, 1998*
through
December 31, 1998
-------------------
INVESTMENT INCOME:
-----------------
Interest..................................................... $ 186,082
Facility and other fee income................................ 1,351
------------
Total income ............................................ 187,433
------------
EXPENSES:
--------
Investment adviser fee (Note 5).............................. 26,085
Distribution fee for Class B (Note 7)........................ 5,482
Distribution fee for Class C (Note 7)........................ 17,534
Transfer agent fee........................................... 7,383
Audit and legal fees......................................... 6,668
Accounting and administration fees (Note 5).................. 12,275
Directors fees and expenses.................................. 10,668
Printing expenses............................................ 24,488
Miscellaneous................................................ 12,141
------------
Expenses before reimbursement by investment adviser......... 122,724
Reimbursement of expenses by investment adviser (Note 5)..... (122,724)
------------
Net expenses............................................. 0
------------
Net investment income.................................... 187,433
------------
REALIZED AND UNREALIZED GAIN/(LOSS):
------------------------------------
Net realized gain on investment transactions................. 6,250
Unrealized (depreciation) on investments..................... (17,290)
------------
Net realized and unrealized loss......................... (11,040)
------------
Net increase in net assets resulting from operations........... $ 176,393
============
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Period From
August 31, 1998*
through
December 31, 1998
--------------------
Increase/(Decrease) in Net Assets from:
<S> <C>
OPERATIONS:
-----------
Net investment income......................................................... $ 187,433
Net realized gain (loss) on investment transactions........................... 6,250
Change in unrealized appreciation on investments.............................. (17,290)
--------------
Net increase in net assets resulting from operations............................ 176,393
DISTRIBUTIONS FROM:
-------------------
Net investment income, Class B.................................................. (45,215)
Net investment income, Class C.................................................. (142,218)
Increase in net assets from capital share transactions (Note 3)................. 18,995,961
--------------
Increase in net assets.......................................................... 18,984,921
Net assets at beginning of period............................................... 100,000
--------------
Net assets at end of period..................................................... $19,084,921
==============
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period From
August 31, 1998*
through
December 31, 1998
-------------------
Increase/(Decrease) in Cash
---------------------------
<S> <C>
Cash Flows From (Used for) Operating Activities:
Purchase of loans...................................................... ($14,750,000)
Interest and facility fees received.................................... 160,913
Purchase of short-term securities, net................................. (4,389,237)
Proceeds from loans sold............................................... 551,681
Net Cash used for operating activities.................................. (18,426,643)
----------------
Cash Flows From (Used for) Financing Activities:
Proceeds from shares sold.............................................. 18,871,043
Payments for shares redeemed........................................... (466,290)
Cash dividends paid (not including reinvested dividends of $131,132)... (56,301)
Net Cash from financing activities...................................... 18,348,452
----------------
Net Decrease in Cash.................................................... (78,191)
Cash at beginning of period............................................ 100,000
Cash at end of period.................................................. $ 21,809
================
Reconciliation of Net Increase in Net Assets from Operations to Net
-------------------------------------------------------------------
Cash used for Operating Activities
----------------------------------
Net increase in net assets from operations.............................. $ 176,393
Increase in interest and facility fee receivable........................ (86,863)
Increase in receivable for investments sold ............................ (3,595)
Increase in other assets ............................................... (333)
Increase in deferred facility fees...................................... 74,330
Net increase in investments............................................. (18,586,575)
Net cash used for operating activities................................... ($18,426,643)
================
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Financial Highlights (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
August 31, 1998 *
through
December 31, 1998
----------------------------
Class B Class C
--------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 10.00
--------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.20 0.20
Net realized and unrealized gain on investments (0.02) (0.02)
--------- ---------
Total from investment operations 0.18 0.18
--------- ---------
Distributions
Dividends from net investment income (0.20) (0.20)
- -----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.98 $ 9.98
- -----------------------------------------------------------------------------------------------
Total Return 1.89% + 1.89% +
===============================================================================================
Ratios/Supplemental Data
Net assets, end of period (000's) $4,826 $14,259
Ratio of total expenses to average net assets 0.00% # 0.00% #
Ratio of net investment income to average net assets 6.11% # 6.11% #
Portfolio turnover rate 18% + 18% +
Expense ratio before expense reimbursement by adviser 4.02% # 4.01% #
- -----------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
+ Not annualized
# Annualized
The accompanying notes are an integral part of the financial statements.
8
<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 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.
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 and 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 Fund's investments in loan interests ("Loans") are
valued in accordance with guidelines established by the Board of Directors.
Under the Fund's current guidelines, Loans for which an active secondary market
exists to a reliable degree in CIMCO's opinion and for which CIMCO can obtain at
least two quotations from banks or dealers in Loans will be valued by
calculating the mean of the last available bid and asked prices in the market
for such Loans, and then using the mean of those two means. If only one quote
for a particular Loan is available, the Loan will be valued on the basis of the
mean of the last available bid and asked prices in the market. Loans for which
an active secondary market does not exist to a reliable degree in CIMCO's
opinion will be valued at fair value, which is intended to approximate market
value. In valuing a Loan at fair value, CIMCO will consider, among other
factors, (a) the creditworthiness of the Borrower and any Intermediate
Participants, (b) the terms of the Loan, (c) recent prices in the market for
similar Loans, if any, and (d) recent prices in the market for instruments of
similar quality, rate, period until next interest rate reset and maturity.
Other portfolio securities may be valued on the basis of prices furnished by one
or more pricing services that determine prices for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. In certain circumstances, other
portfolio securities are valued at the last sale price on the exchange that is
the primary market for such securities, or the last quoted bid price for those
securities for which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. Obligations
purchased with remaining maturities of 60 days or less are valued at amortized
cost unless this method is determined not to produce fair valuation. Repurchase
agreements and investments in money market funds are valued at cost plus accrued
interest. Securities for which there exist no price quotations or valuations
and all other assets are valued at fair value as determined in good faith by or
on behalf of the Board of Directors of the Fund.
Federal Income Taxes. It is the Fund's policy to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, as amended,
and to distribute all of its taxable income and any net realized gain on
investments to its shareholders each year. Accordingly, no federal income tax
provision is required.
Distributions of Income and Gains. Distributions of net investment income are
declared as a dividend to shareholders of record as of the close of business
each day and are paid monthly. The Fund distributes realized net capital gains,
if any, at least annually, after offset by any capital loss carryovers.
9
<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 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 December 31,
1998, the Fund made three Repurchase Offers, and actually redeemed the amounts
shown in the table below. In no case was a monthly Repurchase Offer
oversubscribed.
<TABLE>
<CAPTION>
Amount Tendered
---------------------------
Shares Capital
----------- ------------
<S> <C> <C>
October 21,114 $210,925
November 18,316 182,795
December 30,834 307,655
</TABLE>
4. PURCHASES AND SALES OF SECURITIES. During the period ended December 31,
1998, the Fund's cost of purchases of Loans and proceeds from Loan sales were
$14,750,000 and $555,276, respectively. Unrealized appreciation/depreciation in
the value of those investments at December 31, 1998 for federal income tax
purposes were as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 15,527
Gross unrealized depreciation (32,817)
Net unrealized depreciation $(17,290)
---------------
</TABLE>
10
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. INVESTMENT ADVISORY AGREEMENT. The Fund maintains an Investment Advisory
Agreement with CAM ("Adviser"), who is responsible for managing the corporate
and business affairs of the Fund, and selects, contracts with and compensates
the subadviser to manage the Fund's assets. As compensation for its services
the Adviser receives from the Fund an annual fee equal to the following
percentage of average daily gross assets: 0.85% for the first $1 billion of
average daily gross assets; 0.80% for average daily gross assets between $1
billion and $2 billion; and 0.75% for average daily gross assets of more than $2
billion. For purposes of computing the advisory fee, average daily gross assets
are determined by deducting from total assets of the Fund all liabilities except
the principal amount of any indebtedness from money borrowed, including debt
securities issued by the Fund.
CAM has retained CIMCO to serve as the Fund's subadviser to manage the
investment and reinvestment of the Fund's assets. As compensation for its
services as subadviser, CIMCO receives from CAM an annual fee paid monthly equal
to the following percentage of average daily gross assets: 0.45% for the first
$1 billion of average daily gross assets; 0.40% for average daily gross assets
between $1 billion and $2 billion; and 0.35% for average daily gross assets of
more than $2 billion. Average daily gross assets are computed as described
above. The fee paid to CIMCO is not an additional charge to the Fund or its
shareholders.
CAM, 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 December 31, 1998, CFD , as the Fund's distributor,
received $4,081 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 December 31, 1998, the Adviser waived all
fees, and reimbursed all expenses of the Fund.
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. On September 15, 1998, the Fund entered into an agreement
with Fleet National Bank that provides a $20,000,000 Line of Credit to the Fund
that may be used for cash overdraft protection. The Fund pays a commitment fee
of $20,000 annually, and interest is charged on any borrowed amounts at the
currently effective Federal Funds Rate plus .55%. This Line of Credit was not
used during the period ended December 31, 1998.
11
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<TABLE>
<CAPTION>
<S> <C>
Trustees Adviser
Bradford K. Gallagher, Chairman CypressTree Asset Management Corporation, Inc.
William F. Achtmeyer 125 High Street
William F. Devin Boston, MA 02110
Kenneth J. Lavery
Transfer and Dividend Agent
State Street Bank and Trust Company
Officers P.O. Box 8505
Bradford K. Gallagher, President Boston, MA 02266-8505
Joseph T. Grause, Jr.,
Vice President and Treasurer Independent Accountants
John I. Fitzgerald, Secretary Deloitte & Touche LLP
125 Summer Street
Distributor Boston, MA 02110
CypressTree Funds Distributors, Inc.
286 Congress Street North American Funds Shareholder Service
Boston, MA 02210 286 Congress Street
Boston, MA 02210
800-872-8037
</TABLE>
<PAGE>
0299:90417
