<PAGE>
[LOGO OF NORTH AMERICAN FUNDS]
REPORT TO
SHAREHOLDERS
Senior Floating Rate Fund
- --------------------------------------------------------------------------------
NORTH AMERICAN FUNDS(R) ANNUAL REPORT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Audited
Financial
Statements
<PAGE>
NORTH AMERICAN 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 North American Senior
Floating Rate Fund's Class B shares returned 7.13%, and its Class C shares
returned 7.12%. 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 six cents during 1999, beginning and ending the year with an
NAV of $9.98 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 108 issuers in 27 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 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 Standard 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.
- --------------------------
Thank you for your continued support of the North American Funds. We look
forward to serving your investment needs in the year ahead.
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
Change in Value of $10,000 Investment and Comparative Index
-----------------------------------------------------------
[GRAPH]
Fund at NAV DLJ Leveraged Loan Index
Sep-98 $10,045 $9,960
Oct-98 $10,084 $9,889
Nov-98 $10,112 $9,962
Dec-98 $10,185 $10,058
Jan-99 $10,259 $10,102
Feb-99 $10,311 $10,075
Mar-99 $10,380 $10,140
Apr-99 $10,446 $10,223
May-99 $10,506 $10,361
Jun-99 $10,574 $10,449
Jul-99 $10,625 $10,518
Aug-99 $10,669 $10,465
Sep-99 $10,719 $10,447
Oct-99 $10,771 $10,433
Nov-99 $10,844 $10,499
Dec-99 $10,911 $10,570
Performance Table
-----------------
<TABLE>
<CAPTION>
Average Annual Cumulative
Total Return Total Return
------------------------ --------------
1 Since Since
Periods Ending 12/31/99 Year Inception Inception
---- --------- ---------
<S> <C> <C> <C>
DLJ Leveraged Loan Index* 5.10% 4.24% 5.70%
Senior Floating Rate Fund Class B (NAV) 7.13% 6.75% 9.11%
Senior Floating Rate Fund Class B (net of CDSC)** 4.13% 4.91% 6.61%
Senior Floating Rate Fund Class C (NAV) 7.12% 6.75% 9.11%
Senior Floating Rate Fund Class C (net of CDSC)*** 6.12% 6.75% 9.11%
</TABLE>
* 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%.
i
<PAGE>
Portfolio Manager Commentary
As of 12/31/99, the North American Senior Floating Rate Fund's 30-day SEC yield
was an impressive 7.27% for both the Class B and Class C shares. The Fund
outperformed its Index, the DLJ Leveraged Loan Index, by over 2.00% with net
total returns of 7.13% and 7.12% for the B and C shares, respectively, versus
the Index returns of 5.10%. The Fund's share price was $9.98 having fluctuated
between $10.02 and $9.96 throughout the year. The Fund was well diversified with
investments in 108 issues representing 27 industries.
The Fund benefited from a strong credit profile and had an average credit
quality of Ba3 (Moody's) and BB- (S&P) as of 12/31/99. The Fund also benefited
from little exposure to the troubled healthcare sector and ended the year with
its top three sector weightings being Printing, Publishing & Broadcasting
(8.29%), Telecommunications (8.27%) and Automobile (7.28%). The three top
individual issues were AMFM (1.83%), Dade Behing (1.82%) and RIC/Riverwood
International (1.68%).
Looking to the year ahead, we see two trends that will affect senior loans.
First, we expect continued economic growth which may precipitate further
interest rate increases by the Federal Reserve. While interest rates may
continue to rise, we believe these increases will not have a negative impact on
the earnings and debt service capability of the companies in which the Fund has
invested. Second, we expect a continued high level of merger and acquisition
activity which should help to firm loan prices and present new investment
opportunities. In this environment, we will continue to emphasize credit
selection and risk management in choosing loans for the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * *
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.
ii
<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, 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 August 31, 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 theses
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 North
American 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 August 31, 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
2
<PAGE>
NORTH AMERICAN 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 - 77.9%
Aerospace & Defense -- 1.7%
K&F Industries Inc BTL-B 10/15/05 $2,199,039 $2,195,604
United Defense Corp BTL-B 10/06/05 703,522 698,026
United Defense Corp BTL-C 10/06/06 688,063 682,688
-------
3,576,318
Automobile -- 7.1%
Accuride Corp BTL-C 01/21/07 1,225,000 1,221,555
ACX Technologies Inc Bridge 08/02/00 937,500 938,711
American Axle & Manufacturing BTL-B 04/30/06 1,750,000 1,746,819
Collins & Aikman Corp BTL-C 12/31/05 1,485,000 1,478,040
CSK Auto Inc BTL-B-2 10/31/03 1,000,000 995,000
Dura Automotive Systems Inc BTL-B 03/31/06 1,000,000 1,001,458
Environmental Systems Products
Holdings Inc BTL-B 09/30/05 247,500 239,456
Exide Corp BTL-B 03/18/05 1,487,855 1,480,416
Federal Mogul Corp BTL-B 12/18/07 1,000,000 999,241
J.L. French Automotive Castings Inc BTL-B 10/21/06 789,474 791,118
Polypore Inc BTL-B 12/31/06 1,000,000 1,005,000
Tenneco Automotive BTL-B 10/15/07 1,000,000 1,006,250
Tenneco Automotive BTL-C 04/15/08 1,000,000 1,006,250
Venture Holdings Trust BTL-B 04/01/05 995,000 996,555
-------
14,905,869
Beverages, Food & Tobacco -- 2.5%
Aurora Foods Inc BTL-A 06/30/05 1,176,345 1,174,875
Aurora Foods Inc BTL-B 09/30/06 1,793,251 1,798,482
B&G Foods Inc BTL-B 03/31/06 1,000,000 998,125
Doane Pet Care Company BTL-B 09/30/05 237,919 238,216
Doane Pet Care Company BTL-C 09/30/06 257,080 257,401
Shoney's Inc BTL-B 04/30/02 862,955 830,594
-------
5,297,693
Broadcasting -- 2.1%
Benedek Broadcasting Corp BTL-B 11/20/07 1,000,000 999,583
Emmis Communications Corp BTL-B 02/28/07 1,750,000 1,750,656
Muzak LLC BTL-B 12/31/06 1,250,000 1,252,344
Telemundo Group Inc BTL-B 02/28/06 500,000 496,250
-------
4,498,833
Buildings & Real Estate -- 3.8%
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 2,245,951 2,217,876
Pebble Beach Co BTL-B 07/30/06 1,597,091 1,602,748
Prison Realty Corp BTL 12/31/02 990,000 983,504
Tapco International Corporation BTL-B 06/23/07 1,246,875 1,246,096
Tapco International Corporation BTL-C 06/23/08 748,125 747,657
-------
7,983,108
Chemicals, Plastics & Rubber -- 3.1%
Hexcel Corp BTL-B 09/14/05 1,123,978 1,114,846
Huntsman ICI Chemicals LLC BTL-B 06/30/07 1,166,667 1,172,500
Huntsman ICI Chemicals LLC BTL-C 06/30/08 1,166,667 1,172,500
Lyondell Petrochemical Co BTL-B 06/30/05 1,449,667 1,465,561
Lyondell Petrochemical Co BTL-E 06/30/06 543,997 556,431
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NORTH AMERICAN 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 -- 3.1% -- continued
Scotts Company BTL-B 06/30/06 $506,475 $508,867
Scotts Company BTL-C 06/30/07 487,729 490,032
-------
6,480,737
Containers, Packaging & Glass -- 4.4%
Graham Packaging Co BTL-B 01/31/06 710,846 710,465
Graham Packaging Co BTL-C 1 01/31/07 588,986 588,342
Graham Packaging Co BTL-C 2 01/31/07 1,185,075 1,183,890
Jefferson Smurfit BTL-B 03/31/06 95,834 96,053
Packaging Corporation of America BTL-B 04/12/07 482,851 485,470
Packaging Corporation of America BTL-C 04/12/08 482,851 485,470
RIC/Riverwood International BTL-A 02/28/03 1,500,000 1,494,875
RIC/Riverwood International BTL-B 02/28/04 1,529,809 1,533,893
RIC/Riverwood International BTL-C 08/28/04 405,183 406,357
Stone Container BTL-D 10/01/03 2,243,524 2,250,404
---------
9,235,219
Diversified & Conglomerate Manufacturing -- 4.6%
Alliance Laundry Systems LLC BTL-B 06/30/05 750,000 747,656
General Cable Corporation BTL-B 5/207/07 1,565,703 1,566,356
GenTek Inc BTL-B 04/30/07 995,001 997,489
Goodman Manufacturing Co LP BTL-B 07/31/05 994,975 985,337
Mueller Group Inc BTL-B 8/16/06 1,371,559 1,376,988
Mueller Group Inc BTL-C 8/16/07 1,371,250 1,376,677
SPX Corp BTL-B 09/30/06 692,708 695,998
Terex Corporation BTL-C 03/06/06 1,999,999 2,004,687
---------
9,751,188
Diversified & Conglomerate Service -- 1.8%
infoUSA Inc BTL-B 06/30/06 1,500,000 1,496,250
United Rentals Inc BTL-B 06/30/05 1,250,000 1,243,750
United Rentals Inc BTL-C 06/30/06 1,000,000 997,188
-------
3,737,188
Ecological -- 4.0%
Allied Waste Industries BTL-B 07/21/06 1,363,637 1,331,289
Allied Waste Industries BTL-C 07/21/07 1,636,366 1,597,548
Intern'l Technology Corp BTL-B 06/11/06 1,732,383 1,728,052
Laidlaw Environmental Services BTL-A 04/03/04 336,460 334,595
Laidlaw Environmental Services BTL-B 04/03/05 1,244,956 1,248,458
Laidlaw Environmental Services BTL-C 04/03/06 1,244,956 1,248,458
Stericycle Inc BTL-B 11/10/06 1,000,000 1,004,375
---------
8,492,775
Electronics -- 2.9%
Intersil Corp BTL-B 06/30/05 1,500,000 1,506,250
Knowles Electronics BTL-B 01/29/07 2,250,000 2,249,298
Semiconductor Components Industries LLC BTL-B 08/04/06 722,222 722,899
Semiconductor Components Industries LLC BTL-C 08/04/07 777,778 778,508
Viasystems Group Inc BTL-B 06/30/06 999,141 884,240
-------
6,141,195
Farming & Agriculture -- 0.6%
Central Tractor Farm & Country BTL-B 04/30/06 1,243,750 1,241,030
---------
Finance -- 0.7%
Bridge Information Systems Inc BTL-B 05/29/05 1,492,500 1,417,875
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NORTH AMERICAN 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>
Grocery -- 1.6%
Pantry Inc BTL-B 01/31/06 $498,106 $499,248
Pantry Inc BTL-C 01/31/06 500,000 501,563
Pathmark Stores Inc BTL-B 12/15/01 2,495,802 2,341,810
---------
3,342,621
Healthcare, Education & Childcare -- 4.4%
Dade Behring Inc BTL-B 06/30/06 1,867,495 1,872,942
Dade Behring Inc BTL-C 06/30/07 1,867,495 1,872,942
Hanger Orthopedic Group BTL-B 01/01/08 1,500,000 1,507,188
King Pharmaceuticals Inc BTL-B 12/22/06 1,739,981 1,744,512
Quest Diagnostics Inc Bridge 08/16/01 953,488 950,211
Quest Diagnostics Inc BTL-B 08/16/06 260,000 260,650
Quest Diagnostics Inc BTL-C 08/16/07 240,000 240,600
Stryker Corp BTL-B 12/04/05 594,603 596,461
Stryker Corp BTL-C 12/04/06 276,715 277,580
-------
9,323,086
Home & Office Furnituring, Housewares & Durable Consumer Products -- 1.1%
Shop Vac Corp BTL-B 06/30/07 2,000,000 2,001,876
Simmons Co BTL-B 10/29/05 71,224 71,105
Simmons Co BTL-C 10/29/06 178,125 177,828
-------
2,250,809
Hotels, Motels, Inns & Gaming -- 2.0%
Felcor Lodging Trust BTL-B 03/31/04 1,000,000 995,000
Starwood Hotels & Resorts Trust Tranche Two 02/23/03 1,250,000 1,250,000
Wyndham International Inc BTL-B 06/30/06 2,000,000 1,962,500
---------
4,207,500
Insurance -- 0.5%
Willis Corroon Group plc BTL-B 11/19/06 522,308 522,960
Willis Corroon Group plc BTL-C 11/19/07 223,846 224,336
Willis Corroon Group plc BTL-D 05/19/08 223,846 224,336
-------
971,632
Leisure, Amusement, Motion Picture, Entertainment -- 0.9%
Premier Parks Inc BTL-B 09/30/05 1,000,000 1,005,804
Regal Cinemas Inc BTL-B 5/27/06 1,000,000 957,500
-------
1,963,304
Mining, Steel, Iron & Nonprecious Metals -- 3.4%
Ispat Inland Inc Hybrid TL 07/16/05 1,494,956 1,480,006
Ispat Inland Inc Hybrid TL 2 07/16/06 1,494,956 1,480,006
Neenah Corp BTL-B 09/30/05 2,240,373 2,234,773
Peabody Holding Company Inc BTL-B 06/30/06 2,000,000 1,997,916
---------
7,192,701
Oil & Gas -- 0.5%
TravelCenters of America Inc BTL-B 03/27/05 992,114 996,661
-------
Personal & Nondurable Consumer Products -- 2.7%
Buhrmann NV US BTL-B 10/26/07 3,000,000 3,015,311
Sealy Corp BTL-B 12/15/04 660,917 661,606
Sealy Corp BTL-C 12/15/05 476,202 476,698
Sealy Corp BTL-D 12/15/06 608,599 609,170
United Industries Corp BTL-B 01/20/06 990,000 988,144
-------
5,750,929
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NORTH AMERICAN 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>
Printing, Publishing & Broadcasting -- 8.1%
American Media Inc BTL-B 04/01/07 $2,500,000 $2,506,770
AMFM Inc BTL-A 11/19/01 3,750,000 3,738,282
Big Flower Press Inc BTL-B 12/07/08 1,000,000 996,250
Classic Cable Inc BTL-B 01/31/08 2,000,000 2,001,750
Hollinger Intern'l Publishing BTL-B 12/31/04 2,250,000 2,262,656
Journal Register Co BTL-B 09/06/06 1,500,000 1,490,625
Lamar Advertising Company BTL-B 08/01/06 1,000,000 1,002,656
Merrill Corp BTL-B 11/23/07 2,000,000 2,007,500
R.H. Donnelley Corp BTL-B 12/05/05 372,052 370,928
R.H. Donnelley Corp BTL-C 12/05/06 617,897 616,030
-------
16,993,447
Rail and Shipping -- 1.2%
Gemini Air Cargo Inc BTL-A 8/12/05 2,500,000 2,505,625
---------
Telecommunications -- 8.0%
American Cellular Wireless Corp BTL-B 12/31/06 496,250 495,896
American Cellular Wireless Corp BTL-C 12/31/07 496,250 495,896
Bresnan Telecommunications Co LLC BTL-B 01/29/08 500,000 500,844
Charter Communications Holding Co LLC BTL-B 11/05/08 250,000 250,063
Charter Communications Holding Co LLC BTL-B 03/17/08 1,500,000 1,502,813
CommNet Cellular Inc BTL-B 09/30/06 394,789 395,335
CommNet Cellular Inc BTL-C 04/01/07 381,952 382,515
CommNet Cellular Inc BTL-D 10/01/07 1,222,955 1,224,429
Davel Communications Inc BTL-B 06/23/05 496,666 454,449
Dobson Communications Corp BTL-B 03/23/07 489,032 490,499
Dobson Communications Corp BTL-C 12/23/07 500,000 501,979
Microcell Telecommunications Inc BTL-B 03/01/06 1,000,000 997,813
Nextel Communications BTL-B 06/30/08 1,250,000 1,265,688
Nextel Communications BTL-C 12/31/08 1,250,000 1,265,838
RCN Corp BTL-B 06/03/07 1,500,000 1,508,148
SpectraSite Communications Inc BTL-B 06/30/06 1,000,000 1,003,281
Superior TeleCom Inc BTL-B 11/27/05 977,747 970,414
Tritel Inc BTL-B 12/31/07 3,250,000 3,259,648
---------
16,965,548
Textiles & Leather -- 3.3%
Advanced Glassfiber Yarns LLC BTL-B 09/30/05 414,002 406,757
Globe Manufacturing Co BTL-B 07/15/06 1,250,000 1,137,500
Pillowtex Corp BTL-B 12/31/04 988,563 864,993
Polymer Group BTL-B 12/20/05 2,235,023 2,236,420
St John Knits Inc BTL-B 07/31/07 1,420,740 1,392,325
Synthetic Industries Inc BTL-B 12/14/07 1,000,000 1,002,188
---------
7,040,183
Transportation -- 0.9%
American Commercial Lines LLC BTL-B 06/30/06 621,636 615,549
American Commercial Lines LLC BTL-C 06/30/07 1,363,166 1,349,818
---------
1,965,367
TOTAL LOANS (Cost $164,663,552) $164,228,441
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NORTH AMERICAN 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>
SHORT-TERM INVESTMENTS - 18.9%
American Express Co., 5.30% $27,019,042 $27,019,042
SSGA Money Market Fund 12,883,538 12,883,539
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $39,902,581) $39,902,581
-----------
TOTAL INVESTMENTS -- 96.9% (Cost $204,566,133) $204,131,022
------------
OTHER ASSETS AND LIABILITIES, NET - 3.1% $6,629,522
----------
NET ASSETS - 100.0% $210,760,544
============
</TABLE>
* The cost for Federal Income Tax purposes is the same.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statement of Operations
- --------------------------------------------------------------------------------
ASSETS:
-------
Investments in loans and securities, at value (Identified
cost, $204,566,133.) (See accompanying Portfolio of
Investments).............................................. $204,131,022
Cash...................................................... 281,088
Receivables:
Investments sold.................................. 3,710,896
Fund shares sold.................................. 1,462,533
Interest receivable on bank loans................. 1,551,653
From investment adviser........................... 154,735
------------
Total assets............................... 211,291,927
------------
LIABILITIES:
------------
Payables:
Fund shares repurchased........................... 3,022
Fund dividends.................................... 350,327
Accrued expenses.................................. 178,034
============
Total liabilities.......................... 531,383
------------
NET ASSETS................................................ $210,760,544
============
NET ASSETS CONSIST OF:
----------------------
Accumulated net realized gains.................... $50,134
Unrealized depreciation on investments............ (435,111)
Capital shares at par value of $.01 (Note 3)...... 211,270
Additional paid-in capital........................ 210,934,251
------------
Net assets................................. $210,760,544
============
NET ASSET VALUES:
-----------------
Class B Shares
Net assets at value.................................... $37,438,528
Shares outstanding..................................... 3,752,947
Net Asset Value, offering and redemption price per share.. $9.98
============
Class C Shares
Net assets at value.................................... $173,322,016
Shares outstanding..................................... 17,374,008
Net Asset Value, offering and redemption price per share.. $9.98
============
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statement of Operations
- --------------------------------------------------------------------------------
For the Year
ended
December 31, 1999
-----------------
INVESTMENT INCOME:
-----------------
Interest............................................... $8,013,224
Facility and other fee income.......................... 78,834
----------
Total income...................................... 8,092,058
----------
EXPENSES:
---------
Investment adviser fee (Note 5)........................ 899,365
Distribution fee for Class B (Note 7).................. 163,851
Distribution fee for Class C (Note 7).................. 629,705
Custody fee............................................ 43,442
Transfer agent fee..................................... 30,451
Audit and legal fees................................... 18,392
Accounting and administration fees (Note 5)............ 424,881
Directors' fees and expenses........................... 27,478
Registration and filing fees........................... 75,000
Miscellaneous.......................................... 80,679
----------
Expenses before waiver of fees and reimbursement
of expenses by investment adviser................. 2,393,244
Waiver of fees and reimbursement of expenses
by investment adviser (Note 5).................... (1,573,530)
----------
Net expenses............................ 819,714
==========
Net investment income.................. 7,272,344
==========
REALIZED AND UNREALIZED GAIN/(LOSS):
------------------------------------
Net realized gain on investment transactions........... 43,884
Unrealized (depreciation) on investments............... (417,821)
==========
Net realized and unrealized loss........ (373,937)
----------
Net increase in net assets resulting from operations........ $6,898,407
==========
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Period From
For the Year August 31, 1998*
ended through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Increase/(Decrease) in Net Assets from:
OPERATIONS:
-----------
Net investment income........................................... $ 7,272,344 $ 187,433
Net realized gain on investment transactions.................... 43,884 6,250
Change in unrealized depreciation on investments................ (417,821) (17,290)
------------ ------------
Net increase in net assets resulting from operations............... 6,898,407 176,393
DISTRIBUTIONS FROM:
-------------------
Net investment income, Class B.................................. (1,508,735) (45,215)
Net investment income, Class C.................................. (5,763,609) (142,218)
------------ ------------
Total distributions.......................................... (7,272,334) (187,433)
Increase in net assets from capital share transactions (Note 3)... 192,049,560 18,995,961
------------ ------------
Increase in net assets............................................. 191,675,623 18,984,921
Net assets at beginning of period.................................. 19,084,921 100,000
------------ ------------
Net assets at end of period........................................ $210,760,544 $19,084,921
============ ============
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Statements 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................................................ ($174,334,198)
Interest and facility fees received.............................. 6,590,481
Purchase of short-term securities, net........................... (35,499,690)
Proceeds from loans sold......................................... 20,174,015
Operating expenses paid.......................................... (796,415)
-------------
Net Cash used for operating activities.............................. (183,865,807)
-------------
Cash Flows From (Used for) Financing Activities:
Proceeds from shares sold........................................ 202,441,752
Payments for shares redeemed..................................... (16,397,142)
Cash dividends paid (not including reinvested dividends of
$5,002,493) (1,919,524)
-------------
Net Cash from financing activities.................................. 184,125,086
-------------
Net Increase in Cash 259,279
Cash at beginning of period...................................... 21,809
-------------
Cash at end of period............................................ $281,088
=============
Reconciliation of Net Increase in Net Assets from Operations to
---------------------------------------------------------------
Net Cash used for Operating Activities
--------------------------------------
Net increase in net assets from operations....................... $6,898,407
Increase in interest and facility fees receivable................ (1,464,790)
Increase in payable for investments purchased.................... 3,022
Increase in receivable for investments sold...................... (3,707,301)
Decrease in prepaid expenses and other assets.................... 56,386
Decrease in deferred facility fees............................... (74,330)
Increase in net accrued expenses................................. (32,754)
Net increase in investments...................................... (185,544,447)
-------------
Net cash used for operating activities.............................. ($183,865,807)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Financial Highlights (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
---------------------------
Period
from
Year 8/31/98*
ended through
12/31/99 12/31/98
----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.98 $10.00
----------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.69 0.20)
Net realized and unrealized gain on investments 0.00 (0.02)
---------------------------
Total from investment operations 0.69 0.18
---------------------------
Distributions
Dividends from net investment income (0.69) (0.20)
----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.98 $9.98
----------------------------------------------------------------------------------------------
Total Return 7.13% 1.89%+
==============================================================================================
Ratios/Supplemental Data
Net assets, end of period (000's) $37,439 $4,826
Ratio of net expenses to average net assets 0.70% 0.00%#
Ratio of net investment income to average net assets 6.87% 6.11%#
Portfolio turnover rate 30% 18%+
Expense ratio before waiver of fees and reimbursement of
expenses by adviser 2.29% 4.02%#
Net investment income before waiver of fees and
reimbursement of expenses by adviser 5.28% 2.09%#
</TABLE>
<TABLE>
<CAPTION>
Class C
---------------------------
Period from
Year 8/31/98*
ended through
12/31/99 12/31/98
----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.98 $10.00
----------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.69 0.20
Net realized and unrealized gain on investments 0.00 (0.02)
---------------------------
Total from investment operations 0.69 0.18)
---------------------------
Distributions
Dividends from net investment income (0.69) (0.20)
----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.98 $9.98
----------------------------------------------------------------------------------------------
Total Return 7.12% 1.89%+
==============================================================================================
Ratios/Supplemental Data
Net assets, end of period (000's) $173,322 $14,259
Ratio of net expenses to average net assets 0.79% 0.00%#
Ratio of net investment income to average net assets 6.82% 6.11%#
Portfolio turnover rate 30% 18%+
Expense ratio before waiver of fees and reimbursement of
expenses by adviser 2.25% 4.01%#
Net investment income before waiver of fees and
reimbursement of expenses by adviser 5.36% 2.10%#
* Commencement of Operations
+ Not annualized
# Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<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.
13
<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
year ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Class B Class C
-------------------------- ----------------------------
Shares Capital Shares Capital
----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold............................. 3,459,562 $34,573,208) 16,873,222 $168,635,916
Reinvestment of distributions.... 68,860 687,863 431,932 4,314,630
Redeemed......................... (258,961) (2,584,552) (1,359,625) (13,577,505)
----------- -------------- ------------ ---------------
Net increase/(decrease)..... 3,269,461 $32,676,519) 15,945,529 $159,373,041)
=========== ============== ============ ===============
</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 year ended December 31,
1999, the Fund made twelve Repurchase Offers, and actually redeemed the amounts
shown in the table below. In no case was a monthly Repurchase Offer
oversubscribed.
14
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 3, continued
<TABLE>
<CAPTION>
Amount Tendered Amount Tendered
------------------------------ ----------------------------
Shares Capital Shares Capital
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
January -- -- July 63,630 $637,562
February 32,787 $327,548 August 181,124 1,813,053
March 51,367 513,560 September 132,412 1,322,798
April 34,449 344,825 October 168,482 1,681,420
May 30,510 305,414 November 460,548 4,592,249
June 4,076 40,808 December 459,201 4,582,820
</TABLE>
4. PURCHASES AND SALES OF SECURITIES. During the year ended December 31, 1999,
the Fund's cost of purchases of Loans and proceeds from Loan sales were
$174,337,220 and $23,885,311, respectively. Unrealized appreciation and
depreciation in the value of those investments at December 31, 1999 for federal
income tax purposes were as follows:
Gross unrealized appreciation $ 436,092
Gross unrealized depreciation (871,203)
-----------
Net unrealized depreciation ($435,111)
===========
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 year ended December 31, 1999, CFD , as the Fund's distributor, received
$87,751 in Early Withdrawal Charges on redemptions from the Fund.
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 $32,083,135.
15
<PAGE>
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. EXPENSE REIMBURSEMENT. Pursuant to the Investment Advisory Agreement, the
Adviser will reduced the advisory fee and reimbursed 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 year ended December 31, 1999, the Adviser waived fees in
the amount of $899,365, and reimbursed $674,165 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 COMPENSATION. 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
and an annual retainer of $3,000.
16
<PAGE>
Trustees
Bradford K. Gallagher, Chairman
William F. Achtmeyer
William F. Devin
Kenneth J. Lavery
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>
0200:90417
