SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) [ ]
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
American General Series Portfolio
Company 2
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(Name of Registrants as Specified in Their Charters)
American General Series Portfolio
Company 2
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(Name of Persons Filing Proxy Statement)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary material
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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MAY 2000
IMPORTANT NEWS
FOR SHAREHOLDERS OF AMERICAN GENERAL
SERIES PORTFOLIO COMPANY 2
We encourage you to read the attached proxy statement in full; however, the
following questions and answers represent some typical concerns that
shareholders might have regarding this proxy.
Q: WHY IS AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2 ("AGSPC2")
SENDING ME THIS PROXY?
Mutual funds are required to obtain shareholders' votes for certain types of
changes. As a shareholder, you have a right to vote on major policy decisions,
such as those included here.
Q: WHAT ARE THE ISSUES CONTAINED IN THIS PROXY?
The proposals represented here are outlined in the summary at the beginning of
the proxy statement.
Q: HOW WILL THE PROPOSALS AFFECT ME AS A FUND SHAREHOLDER?
The conversion of your fund into a series of a Massachusetts business trust and
the approval of new investment advisory and sub-advisory agreements will
integrate your fund into the North American family of funds. Recently, American
General Corporation ("American General") acquired the investment adviser and
certain other affiliates of that family of funds. See Part I of the proxy
statement for more information.
The increase in the Rule 12b-1 fee for the Class A shares of certain of the
funds is intended to enhance the distribution and servicing of the Class A
shares and will integrate the applicable funds into the North America
distribution network.
Q: WHY IS AGSPC2 PROPOSING THIS CHANGE?
The funds of AGSPC2 are advised by subsidiaries of American General. American
General acquired all the outstanding shares of CypressTree Asset Management,
Corporation Inc., investment adviser to the North American Funds and renamed
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such investment adviser American General Asset Management Corp. ("AGAM"). Other
investment advisory subsidiaries of American General are The Variable Annuity
Life Insurance Company ("VALIC") which is the current investment adviser to the
AGSPC2 funds and American General Investment Management, L.P. ("AGIM"), the
investment sub-adviser to certain AGSPC2 funds. The shareholders of the other
funds of AGSPC2 are also being asked to approve the reorganization of their
funds into the North American Funds. The proposals represent some final steps we
are undertaking to unify the North American and American General fund families.
Shareholders can anticipate the following benefits:
o A comprehensive fund family with a broad range of investment options.
o The elimination of any overlap or gaps in fund offerings.
o Uniformity of privileges associated with each fund, specifically
regarding letters of intent, rights of accumulation and
exchangeability, which will provide flexibility for investors to
exchange their shares into a broad range of investment vehicles as
their objectives change.
o An easily accessible product line for both shareholders and investment
professionals with a line of investment choices from conservative to
aggressive funds.
o Possible economies of scale that could result in cost savings as a
result of your funds becoming part of the larger North American family
of funds, including possible reductions in fund general expenses such
as legal and accounting fees, custody fees and Trustees' fees and
expenses.
o The fund conversions are anticipated to be tax-free events for
shareholders. It is expected that neither shareholders nor the funds
will recognize income, gain or loss in connection with the conversions
provided substantially all of the assets and liabilities of each fund
are transferred to a corresponding North American fund.
Q. WHAT EFFECT WILL THE CONVERSIONS HAVE ON FEES AND EXPENSES?
Please see the discussion under "Description of the Conversions" in the attached
proxy statement for a description of the conversions' effect on fees and
expenses.
Q: WHO WILL BE THE TRUSTEES OF THE FUNDS AFTER THE CONVERSIONS?
The Board of Trustees of the funds will be comprised of nine Trustees including
five current independent Trustees of the AGSPC2 funds and two Trustees who are
affiliated with American General. See Exhibit B of this proxy statement for more
specific information regarding the Trustees.
Q: WHY IS THE AMERICAN GENERAL NAME BEING REPLACED BY NORTH
AMERICAN?
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The name American General Series Portfolio Company 2 is being replaced because
the funds are being converted into corresponding series of the North American
Funds.
Q: WHAT HAPPENS IF ONE OR MORE OF THE FUND CONVERSIONS ARE NOT
APPROVED BY SHAREHOLDERS?
If a fund conversion is not approved by shareholders, the Trustees of the fund
will consider other options, such as having the fund continue as a fund of
AGSPC2 or liquidating the fund. See the disclosure of American General's share
ownership of your fund in Exhibit D of this proxy statement.
Q: HOW DO THE TRUSTEES OF MY FUND RECOMMEND THAT I VOTE?
Your Board of Trustees recommends that you vote FOR each proposal on the
enclosed proxy card.
Q: WHOM DO I CALL FOR MORE INFORMATION OR TO PLACE MY VOTE?
Please call 1-800-877-999-2434 for additional information. You can vote one of
four ways:
Use the enclosed proxy card to record your vote of For, Against or
Abstain for each issue, then return the card in the postpaid envelope
provided.
or
Call 1-877-260-0389 and record your vote by telephone. Please have your
proxy card at hand when you call and enter the 12-digit Control Number
found on the card, then follow the simple instructions.
or
Fax your completed and signed proxy card (both front and back sides) to
our proxy tabulator at 1-212-440-9009.
Q: WHY ARE MULTIPLE CARDS ENCLOSED?
If you own shares of more than one fund, you will receive a proxy card for each
fund whose shares you own. Please sign, date and return or otherwise vote each
proxy card you receive.
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AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
American General Small Cap Index Fund
American General Socially Responsible Fund
American General High Yield Bond Fund
American General Growth Lifestyle Fund
American General Moderate Growth Lifestyle Fund
American General Conservative Growth Lifestyle Fund
American General Municipal Money Market Fund
American General Science & Technology Fund
May 2000
Dear Shareholder:
I am writing to shareholders of the above listed funds of American General
Series Portfolio Company 2 ("AGSPC2") to inform you of a special shareholder
meeting to be held on June 22, 2000. Before that meeting I would like your vote
on the important issues affecting your fund as described in the attached proxy
statement.
The proxy statement includes a proposal relating to the conversion of certain
funds of AGSPC2 into corresponding series of North American Funds, a
Massachusetts business trust. This proposal is intended to integrate the North
American and American General mutual fund families and provide consistency and
increased flexibility throughout the fund family. More specific information
about the proposal is contained in the proxy statement. The conversion into a
series of North American Funds is currently expected to be completed on or about
July 7, 2000.
In addition, you are being asked to approve investment advisory agreements for
all of the Funds with American General Asset Management Corp. ("AGAM") and
investment sub-advisory agreements with American General Investment Management,
L.P. ("AGIM") for the funds other than the Science & Technology Fund (T. Rowe
Price Associates, Inc. will continue to serve as investment sub- adviser for
this fund). AGAM is a newly acquired investment advisory subsidiary of American
General Corporation. Class A shareholders of American General Small Cap Index
Fund, American General Socially Responsible Fund, American General High Yield
Bond Fund, and American General Science & Technology Fund are also being asked
to raise the annual Rule 12b-1 distribution fee from 0.25% to 0.35% of each
fund's average daily net assets.
The Board of Trustees has unanimously approved the proposals and recommends that
you vote FOR each proposal described in these proxy materials.
I realize that this proxy statement will take time to review, but your vote is
very important. Please familiarize yourself with the proposal presented. If you
attend the meeting, you may vote your shares in person. If you do not expect to
attend the meeting, either complete, date, sign and return your proxy card(s) in
the enclosed postage-paid envelope today or call 1-877-260-0389 and record your
vote by telephone. You may also FAX your completed and signed proxy card (both
front and back sides) to Shareholder Communications Corporation at
1-212-440-9009.
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You may receive more than one proxy card if you own shares in more than one
fund. Please sign and return or otherwise vote each card you receive.
Instructions on how to complete the proxy card, vote by telephone or vote via
fax are included immediately after the Notice of Joint Special Meeting of
Shareholders.
If we do not receive your completed proxy card(s) after a few weeks, you may be
contacted by our proxy solicitor, Shareholder Communications Corporation. The
proxy solicitor will remind you to vote your shares. You may call Customer
Service of the American General Fund Group directly at 1-877-999-2434, if you
have any questions about the proxy.
Thank you for your prompt attention to these matters and for participating in
this important process.
Sincerely,
Alice T. Kane
Chairman of the Board and President
American General Series Portfolio
Company 2
o 2929 Allen Parkway o Houston, Texas 77019 o
American General Fund Group is a member of American General Financial Group, the
marketing name for American General Corporation and its subsidiaries. American
General Fund Group is a marketing name for the mutual funds (Class A and Class
B) of AGSPC2.
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AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
2929 Allen Parkway
Houston, Texas 77019
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NOTICE OF JOINT SPECIAL MEETING OF
SHAREHOLDERS To Be Held on June 22,
2000
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NOTICE IS HEREBY GIVEN that a Joint Special Meeting of Shareholders
(the "Meeting") of the American General Small Cap Index Fund, the American
General Socially Responsible Fund, the American General High Yield Bond Fund,
the American General Growth Lifestyle Fund, the American General Moderate Growth
Lifestyle Fund, the American General Conservative Growth Lifestyle Fund, the
American General Municipal Money Market Fund and the American General Science &
Technology Fund, each a series of American General Series Portfolio Company 2
("AGSPC2")(each a "Fund" and together the "Funds"), will be held on June 22,
2000 at 3:00 p.m. Central Time, in Meeting Room 1, Plaza Level, Woodson Tower,
at the offices of The Variable Annuity Life Insurance Company ("VALIC"), 2929
Allen Parkway, Houston, Texas 77019, for the following purposes:
1. To approve or disapprove an Agreement and Plan of Conversion and Termination
(the "Conversion Plan") for each of the Funds providing for the conversion of
each such Fund into a corresponding, newly created series (a "Successor Fund")
of the North American Funds, a Massachusetts business trust, and in connection
therewith, the acquisition by the Successor Fund of all of the assets of each
such Fund in exchange for shares of the Successor Fund, and the assumption by
the Successor Fund of all of the liabilities of the Fund. Each Plan also
provides for the distribution of such shares of the Successor Fund to
shareholders of the Fund in liquidation and subsequent termination of each Fund
(all Funds).
2. To approve or disapprove an investment advisory agreement with American
General Asset Management Corp. ("AGAM"), a newly acquired investment advisory
subsidiary of American General Corporation ("American General"). The terms and
conditions of the investment advisory agreement are similar to the Funds'
investment advisory agreement with VALIC, the Funds' current investment adviser,
except for the dates of execution and termination and that AGAM will serve as
investment adviser in place of VALIC. In addition, the investment advisory fee
under the investment advisory agreement with AGAM will increase in the case of
the High Yield Bond Fund and the Socially Responsible Fund and decrease in the
case of the Municipal Money Market Fund (all Funds).
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3. To approve or disapprove an investment sub-advisory agreement with American
General Investment Management, L.P. ("AGIM"), a subsidiary of American General
(which currently serves as investment sub-adviser to the High Yield Bond Fund
and the Municipal Money Market Fund), as investment sub-adviser to each
Successor Fund (all Funds except Science & Technology Fund).
4. To approve or disapprove an increase in the Rule 12b-1 distribution fee (the
amount each Fund spends annually to compensate its principal underwriter for
shareholder servicing and distribution expenses) applicable to Class A shares of
the Small Cap Index Fund, the Socially Responsible Fund, the High Yield Bond
Fund, and the Science & Technology Fund from 25 basis points (0.25 of 1% of the
average daily net assets attributable to the Funds' Class A shares) to 35 basis
points (0.35 of 1% of the average daily net assets attributable to the Funds'
Class A shares) (Class A and B shareholders of all Funds except Growth Lifestyle
Fund, Moderate Growth Lifestyle Fund and Conservative Growth Lifestyle Fund).
5. To approve or disapprove such other matters as may properly come before
the Meeting or any adjournments thereof.
The close of business on May 12, 2000 has been fixed as the record date for the
determination of shareholders of each Fund entitled to notice of and to vote at
the Meeting or any adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON PLEASE SIGN WITHOUT DELAY
AND RETURN THE ENCLOSED PROXY CARD(S) IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE, OR FOLLOW THE INSTRUCTIONS IMMEDIATELY AFTER THIS NOTICE RELATING TO
TELEPHONE OR FAX VOTING SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY (OR PROXIES) WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
Nori L. Gabert
Secretary
May __, 2000
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INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration on
the proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the registration.
For example:
Registration Valid Signature
Corporate Accounts
(1) ABC Corp. (1) ABC Corp.
(2) ABC Corp. (2) John Doe, Treasurer
(3) ABC Corp. (3) John Doe, Treasurer
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan (4) John Doe, Trustee
Trust Accounts
(1) ABC Trust (1) Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee (2) Jane B. Doe
u/t/d 12/28/78
Custodial or Estate Accounts
(1) John B. Smith, Cust. (1) John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith (2) John B. Smith, Jr., Executor
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INSTRUCTIONS FOR TELEPHONE VOTING
1. Call 1-877-260-0389.
2. Please have your Proxy Card at hand when you call.
3. Enter the twelve-digit "Control No." found on the Proxy Card, then follow
the simple recorded instructions.
INSTRUCTIONS FOR FAX VOTING
1. Complete your Proxy Card.
2. Fax your Proxy Card (both front and back sides) to Shareholder
Communications Corporation at 1-212-440-9009.
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TABLE OF CONTENTS
PAGE
SUMMARY OF PROPOSALS REQUIRING SHAREHOLDER VOTE..............................-2-
PROPOSAL 1 - APPROVE OR DISAPPROVE THE CONVERSION OF EACH FUND INTO
A CORRESPONDING SERIES OF NORTH AMERICAN FUNDS, A MASSACHUSETTS
BUSINESS TRUST (ALL FUNDS) ..................................................-6-
Background...................................................................-6-
Selection of Massachusetts Business Trust Form of Organization...............-7-
Description Of The Conversions...............................................-7-
The Successor Trusts........................................................-15-
Certain Comparative Information About AGSPC2 And The Successor Trust........-16-
Current and Successor Investment Advisory Agreements........................-20-
Federal Income Tax Consequences.............................................-20-
Administration Agreement....................................................-21-
Accounting Services Agreement...............................................-21-
Current and Successor Distribution Arrangements.............................-22-
Custodian of AGSPC2 and the Successor Trust.................................-22-
Names.......................................................................-22-
Certain Votes to be Taken Prior to the Conversions..........................-22-
Investment Objectives and Policies..........................................-22-
Appraisal Rights............................................................-23-
Recommendation Of Trustees..................................................-23-
PROPOSAL 2 - APPROVE OR DISAPPROVE AN INVESTMENT ADVISORY
AGREEMENT WITH AMERICAN GENERAL ASSET MANAGEMENT
(ALL FUNDS) ................................................................-25-
<PAGE>
Information About VALIC.....................................................-25-
Information About AGAM......................................................-26-
Terms of the Current Advisory Agreements....................................-29-
Terms of the AGAM Advisory Agreement........................................-30-
Portfolio Transactions (AGAM)...............................................-33-
Recommendation of Trustees..................................................-34-
Required Vote...............................................................-34-
PROPOSAL 3 - APPROVE OR DISAPPROVE AN INVESTMENT SUB-ADVISORY AGREEMENT WITH
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P. (ALL FUNDS EXCEPT SCIENCE &
TECHNOLOGY
FUND).......................................................................-35-
Information About AGIM......................................................-36-
Comparison of the Current Sub-Advisory Agreement and the New Sub-Advisory
Agreement...................................................................-37-
Portfolio Transactions......................................................-39-
Recommendation of Trustees..................................................-39-
Required Vote...............................................................-40-
PROPOSAL 4 - APPROVE OR DISAPPROVE AN INCREASE IN THE RULE 12b-1 DISTRIBUTION
FEES CHARGED TO CLASS A SHAREHOLDERS OF THE FUNDS FROM 25 TO 35 BASIS POINTS
(CLASS A AND B SHAREHOLDERS OF ALL FUNDS EXCEPT GROWTH LIFESTYLE FUND, MODERATE
GROWTH LIFESTYLE FUND AND
CONSERVATIVE GROWTH LIFESTYLE FUND).......................................-41-
Recommendation of Trustees................................................-42-
Required Vote.............................................................-43-
VOTING INFORMATION CONCERNING THE MEETING.................................-43-
Record date, quorum and method of tabulation..............................-43-
Beneficial ownership......................................................-44-
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Shareholder proposals at future meetings of shareholders..................-45-
Adjournment...............................................................-45-
Annual and Semi-Annual Reports to Shareholders............................-45-
OTHER BUSINESS............................................................-46-
EXHIBIT A..................................................................A-1
EXHIBIT B..................................................................B-1
EXHIBIT C..................................................................C-1
EXHIBIT D..................................................................D-1
EXHIBIT E..................................................................E-1
EXHIBIT F..................................................................F-1
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AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
2929 Allen Parkway
Houston, Texas 77019
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PROXY STATEMENT
Special Joint Meeting of Shareholders
June 22, 2000
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This proxy statement is furnished in connection with the solicitation
by the Board of Trustees of American General Series Portfolio Company 2
("AGSPC2") of shareholders of the following series of AGSPC2: the American
General Small Cap Index Fund, the American General Socially Responsible Fund,
the American General High Yield Bond Fund, the American General Growth Lifestyle
Fund, the American General Moderate Growth Lifestyle Fund, the American General
Conservative Growth Lifestyle Fund, the American General Municipal Money Market
Fund and the American General Science & Technology Fund (each a "Fund," and
together, the "Funds") for the joint special meeting of shareholders to be held
on June 22, 2000, in Meeting Room 1, Plaza Level, Woodson Tower at the offices
of The Variable Annuity Life Insurance Company ("VALIC"), 2929 Allen Parkway,
Houston, Texas 77019, and any adjournments thereof (the "Meeting"). A notice of
the Meeting and a proxy card (or proxy cards if you are a shareholder of more
than one Fund) accompany this proxy statement. Shareholders of record at the
close of business on May 12, 2000 (the "Record Date") are entitled to notice of,
and to vote at, the Meeting. This proxy statement and the accompanying Notice of
Meeting and proxy card(s) are first being mailed to shareholders on or about May
, 2000.
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SUMMARY OF PROPOSALS REQUIRING SHAREHOLDER VOTE
Proposal 1 - Conversion of Each Fund
<TABLE>
<CAPTION>
<S> <C> <C>
Matter Requiring Shareholder Vote Funds For Which Shareholder Vote is Required
--------------------------------- --------------------------------------------
Approval of an Agreement and Plan of All Funds
Conversion and Termination (the
"Conversion Plan") for each Fund
providing for the conversion of the Fund
into a corresponding, newly created series
(each a "Successor Fund") of the North
American Funds, a Massachusetts
business trust, resulting in the acquisition
by the corresponding Successor Fund of
all of the assets of the Fund in exchange
for shares of the Successor Fund, and the
assumption by the Successor Fund of all
of the liabilities of the Fund. Each
Conversion Plan also provides that shares
of the Successor Fund will be distributed
to shareholders of the Fund and the Fund
will then be liquidated and subsequently
terminated. The Trustees recommend that
the shareholders of each Fund approve the
Conversion Plan.
Proposal 2 - Consideration of a New Investment Advisory Agreement With American
General Asset Management Corp.
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Matter Requiring Shareholder Vote Funds For Which Shareholder Vote is Required
--------------------------------- --------------------------------------------
American General Asset Management All Funds
Corp. ("AGAM") formerly named
CypressTree Asset Management
Corporation, Inc., is a newly acquired
investment advisory subsidiary of
American General Corporation ("American
General"). If approved by the
shareholders, AGAM will serve as the
investment adviser to each Successor
Fund. AGAM currently serves as
investment adviser to the other funds in
the North American family of funds. The
terms and conditions of the investment
advisory agreement are similar to the
Funds' investment advisory agreement
with VALIC, the Funds' current investment
adviser, except for the dates of execution
and termination and that AGAM will serve
as investment adviser in place of VALIC.
In addition, the investment advisory fee under the investment advisory agreement
with AGAM will increase in the case of the High Yield Bond Fund and the Socially
Responsible Fund and decrease in the case of the Municipal Money Market Fund.
The Trustees recommend that the shareholders of each Fund approve the investment
advisory agreement with AGAM.
Proposal 3 - Consideration of an Investment Sub-advisory Agreement with American
General Investment Management, L.P.
-3-
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Matter Requiring Shareholder Vote Funds For Which Shareholder Vote is Required
--------------------------------- --------------------------------------------
AGAM has hired American General All Funds except the Science &
Investment Management, L.P. ("AGIM"), Technology Fund
also a subsidiary of American General, to
serve as investment sub-adviser to the
Funds. AGIM already currently serves as
investment sub-adviser to the American
General High Yield Bond Fund and the
American General Municipal Money
Market Fund. Subject to approval of the
shareholders, AGIM will serve as
investment sub-adviser to each of the
Successor Funds, except the Science &
Technology Fund. T. Rowe Price
Associates, Inc. will continue to serve as
investment sub-adviser to the Science &
Technology Fund under an investment
sub-advisory agreement with terms that
are substantially identical to the
investment sub-advisory agreement under
which it currently serves except for its
dates of execution and termination. The
Trustees recommend that the shareholders
of each Fund (except the Science &
Technology Fund) approve an investment
sub-advisory agreement with AGIM.
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Proposal 4 - Approve or Disapprove an Increase in the Rule 12b-1 Distribution
Fee For the Class A Shares of Certain of the Funds
Matter Requiring Shareholder Vote Funds For Which Shareholder Vote is Required
The Class A shares of the Small Cap Index Class A and Class B shareholders of all
Fund, the Socially Responsible Fund, the Funds except Growth Lifestyle Fund,
High Yield Bond Fund and the Science & Moderate Growth Lifestyle Fund and
Technology Fund (the "Rule 12b-1 Funds") Conservative Growth Lifestyle Fund
currently have Distribution Plans adopted
for the Funds' Class A shares pursuant to
Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940
Act"). The Rule 12b-1 Funds' Class A and
Class B shareholders are being asked in
this Proposal to increase the Rule 12b-1
distribution fee (the amount the Funds
spend annually to compensate their
principal underwriter for shareholder
servicing and distribution expenses) for
Class A shares, from 25 basis points (0.25
of 1% of the average daily net assets
attributable to the Funds' Class A shares)
to 35 basis points (0.35 of 1% of the
average daily net assets attributable to the
Rule 12b-1 Funds' Class A shares). The
current principal underwriter of each Rule
12b-1 Fund is American General
Distributors, Inc., a subsidiary of American
General. American General Funds
Distributors, Inc., also a subsidiary of
American General, will become the Funds'
principal underwriter. Although only the
Class A shares' Rule 12b-1 distribution fee
will change, Class B shareholders are also
being asked to approve the increase
because their Class B shares convert to
Class A shares after six years. The
Trustees recommend that the shareholders
of each Rule 12b-1 Fund approve an
increase in the Rule 12b-1 distribution fee
for the Class A shares of the Rule 12b-1
Funds from 25 to 35 basis points.
</TABLE>
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PART I
PROPOSAL 1 - APPROVE OR DISAPPROVE THE CONVERSION
OF EACH FUND INTO A CORRESPONDING SERIES OF
NORTH AMERICAN FUNDS,
A MASSACHUSETTS BUSINESS TRUST
(ALL FUNDS)
At the Meeting, the shareholders of each Fund will be asked to approve
the Agreement and Plan of Conversion and Termination (the "Conversion Plan") for
their Fund. The Plan provides for the conversion (the "Conversion") of each Fund
into a corresponding series (each a "Successor Fund," and together, the
"Successor Funds") of North American Funds, a Massachusetts business trust (the
"Successor Trust"). The Conversions are part of an overall restructuring of the
funds comprising AGSPC2, each of which is currently advised by VALIC, a
subsidiary of American General Corporation ("American General"). American
General Asset Management Corp. (formerly CypressTree Asset Management
Corporation, Inc.) ("AGAM"), serves as investment adviser to the North American
Funds.
Background
On February 25, 2000, American General entered into a Purchase
Agreement (the "Purchase Agreement") with CypressTree Investments, Inc.
("CypressTree")and certain other parties. Pursuant to the Purchase Agreement,
American General acquired substantially all of the assets of CypressTree,
including all of the stock of AGAM and American General Funds Distributors, Inc.
(formerly CypressTree Funds Distributors, Inc.)("AGFD"), the principal
distributor of the North American Funds. American General paid a purchase price
of $16.5 million in cash to CypressTree, $6.75 million of which was placed in
escrow pending a determination of certain adjustments to the purchase price. The
acquisition was consummated on March 10, 2000. As a result, AGAM and AGFD became
direct wholly-owned subsidiaries of American General.
It is proposed that the Funds reorganize into the North American Funds
family of mutual funds. The proposed reorganizations are part of a larger set of
transactions that are intended to improve the retail and certain of the variable
insurance funds in the American General family of funds by providing an improved
selection of portfolio managers with stronger historical performance and fund
products, as well as enhanced distribution, operational and client servicing
support capabilities.
The restructuring into series of the North American Funds will cause
the Funds' governance to be under a Massachusetts business trust rather than its
current
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<PAGE>
governance under a Delaware business trust. The Funds' investment objectives and
policies will not change. As discussed under Proposal 2, AGAM, the newly
acquired investment subsidiary of American General, is proposed to serve as the
investment adviser to each Fund. As discussed in Proposal 3, AGIM is proposed to
serve as the investment sub-adviser to each Fund (other than the Science &
Technology Fund). T. Rowe Price Associates, Inc. ("T. Rowe Price") remains the
investment sub-adviser to the Science & Technology Fund under an investment
sub-advisory agreement with substantially identical terms to those of the
investment sub-advisory agreement pursuant to which T. Rowe Price currently
serves except for the dates of execution and termination. AGFD will become the
principal underwriter of shares of the Funds. By forming a single family of
mutual funds, the overall restructuring generally offers shareholders the
opportunity to pursue the same investment objective in a fund that offers a
greater potential for growth and to maximize the potential for greater
operational efficiencies which could result in possible economies of scale,
including Fund expenses that are sustainable at a lower rate, and opportunities
for greater diversification of investment risk.
Selection of Massachusetts Business Trust Form of Organization
On March 2, 2000, the Board of Trustees of AGSPC2 unanimously approved
reorganizing the Funds as separate series of the North American Funds, a
Massachusetts business trust. Each Fund is currently organized as a series of a
Delaware business trust. The primary reason for reorganizing the funds into
newly created series of a Massachusetts business trust is to facilitate
governance of the Funds under a single set of organizational documents following
American General's acquisition of substantially all of the assets of
CypressTree. As series of a Massachusetts business trust, the Funds would retain
flexibility with respect to corporate governance similar to that of the Delaware
business trust. See "Certain Comparative Information About AGSPC2 and the
Successor Trust."
Description Of The Conversions
The detailed terms and conditions of each Conversion are contained in a
Conversion Plan applicable to each Fund. The information in this proxy statement
with respect to each Conversion Plan is qualified in its entirety by reference
to, and made subject to, the complete text of the form of the Conversion Plan, a
copy of which is attached to this proxy statement as Exhibit A.
It is anticipated that each of the Funds will participate in the
Conversion and that the Conversion, if approved by the shareholders of each
Fund, will be effected contemporaneously as to each Fund. If shareholders of one
or more of the Funds do not approve the Conversion, the Board of Trustees will
consider other options that are in the best interest of that Fund and its
shareholders such as having the Fund continue as
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<PAGE>
currently organized or liquidating the Fund. Any Fund that has received
shareholder approval for the Conversion may nevertheless implement the
Conversion regardless of the results of any other Fund.
If the shareholders of a Fund approve the Conversion and the conditions
of the Conversion are satisfied, all of the assets and liabilities of that Fund
will be transferred to the corresponding Successor Fund and each shareholder of
the Fund will receive shares of the Successor Fund. The shares of the Successor
Fund received in the Conversion will be issued to the corresponding Fund in
consideration of the transfer to the Successor Fund by the Fund of all assets
and liabilities of the Fund. Immediately thereafter, each Fund will liquidate
and distribute the shares of the Successor Fund to its shareholders. Holders of
Class A, Class B, Institutional Class I shares and Institutional Class II shares
will receive Class A, Class B, Institutional Class I and Institutional Class II
shares of the Successor Funds, respectively. The fees and expenses attributable
to each Class of shares (except for the investment advisory fee of certain
classes of shares of the Science & Technology Fund and the High Yield Bond Fund
as described below) generally are similar to the shares of the Successor Fund
received except in the case of Class A shares of the Rule 12b-1 Funds whose
Class A and Class B shareholders are being asked to approve an increase in their
Rule 12b-1 distribution fee from 25 to 35 basis points. See Proposal 4. The fees
and expenses applicable to the various classes of shares are described below. As
a result of the Conversion, each shareholder will receive, in exchange for his
or her Fund shares, shares of the Successor Fund with a total net asset value
equal to the total net asset value of the shareholder's Fund shares immediately
prior to the consummation of the Conversion.
Because the Conversion will be effected at net asset value without the
imposition of a sales charge, the shares acquired by shareholders pursuant to
the proposed Conversion will not be subject to any initial sales charge or
contingent deferred sales charge ("CDSC") as a result of the Conversion.
However, Class B shares acquired as a result of the Conversion would continue to
be subject to a CDSC upon subsequent redemption to the same extent as if
shareholders had continued to hold their shares of the Funds. Accordingly, the
CDSC schedule of Class B shares of the Funds in effect at the time Class B
shares of the Funds were originally purchased will continue to be applicable to
the Class B shares of the Successor Funds received upon consummation of the
Conversions. New purchases of Class B shares of the Successor Funds will be
subject to the CDSC schedule described below under "Class B Shares."
The shares of the Funds and the Successor Funds have similar
characteristics. The following is a summary description of charges and fees for
the Class A, Class B, institutional Class I and Institutional Class II shares
which will be received by shareholders in the Conversion.
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<PAGE>
Class A Shares. Class A shares of the Successor Funds have a maximum
front- end sales charge of up to 5.75%, no CDSC and are generally subject to a
Rule 12b-1 distribution and service fee of up to 0.35%. No initial sales change
will be imposed on Class A New Shares received by shareholders in the
conversion. A CDSC of 1% may be imposed on purchases over $1 million if redeemed
within one year.
Class B Shares. Class B shares of the Successor Funds have no front-end
sales charge. Class B shares of the Successor Funds have a CDSC which decreases
from 5.00% in the first two years that the shares are held, to 4.00% in the
third year, 3.00% in the fourth year, 2.00% in the fifth year, and 1.00% in the
sixth year and 0.00% thereafter. Class B shares of the Successor Funds have a
Rule 12b-1 distribution fee of up to 1.00%. Class B shares of the Successor
Funds generally convert to Class A shares approximately eight years after
purchase. Class B shares of the Successor Funds received in the Conversions will
be subject to the conversion schedule of the Class B shares purchased prior to
the Conversion and will automatically convert to Class A Shares six years after
purchase.
Institutional Class I Shares. Institutional Class I shares of the
Successor Funds are sold without a front-end sales charge or a CDSC and are not
subject to a Rule 12b-1 distribution fee. Institutional Class I shares of the
Successor Funds are subject to a 0.25% administrative services fee.
Institutional Class II Shares. Institutional Class II shares of the
Successor Funds are sold without a front-end sales charge or a CDSC and are not
subject to any Rule 12b- 1 distribution fees.
Following the Conversions, the investment advisory fees for the
Successor Funds of the High Yield Bond Fund and the Socially Responsible Fund
will be higher than those of their corresponding Fund; for the Successor Fund of
the Municipal Money Market Fund, investment advisory fees will be lower; and for
the Science & Technology Fund, the Small Cap Index Fund, the Growth Lifestyle
Fund, the Moderate Growth Lifestyle Fund and the Conservative Growth Lifestyle
Fund, investment advisory fees will not change. See Proposal 2 below.
Except for the expense ratios of Class A of the Science & Technology
Fund and of Class B of the High Yield Bond Fund (which are shown in the tables
below), the gross expense ratios of the Successor Funds after the Conversions
will be lower than the current expense ratios of the Funds. Because the Funds
are currently subject to fee waivers and expense reimbursements that VALIC
believes are unlikely to be sustainable, the Conversions are generally expected
to result in sustainable expense levels that, while higher than the current net
expense levels of the Funds, are lower than the expenses that would have been
borne absent such fee waivers and expense reimbursements.
-9-
<PAGE>
THE FOLLOWING TABLES APPLY TO CLASS A SHARES OF THE SCIENCE & TECHNOLOGY FUND
AND CLASS B SHARES OF THE HIGH YIELD BOND FUND:
The following tables show the current fees and expenses of the Class A
shares of the Science & Technology Fund and of the Class B shares of the High
Yield Bond Fund and the pro forma fees and expenses of the corresponding shares
of the Successor Funds. These tables are provided for these classes of shares of
these Funds and their Successor Funds because overall expenses of the
corresponding Successor Funds are expected to be slightly higher than those of
the Funds because, in the case of the Science & Technology Fund, its Class A
shares currently pay a Rule 12b-1 distribution fee at an annual rate of 0.25% of
average daily net assets while its corresponding Successor Fund pays a Rule
12b-1 distribution fee at an annual rate of 0.35% of daily net assets, and in
the case of the High Yield Bond Fund, the investment advisory fee will increase
from 0.70% to 0.825% of average daily net assets. See Proposals 2 and 4 below.
In the case of the Science & Technology Fund net expenses will be the same for
the corresponding Successor Fund after expense reimbursements as for the Fund
prior to the Conversion.
The amounts for the Class A shares of Science & Technology Fund and for
the Class B shares of the High Yield Bond Fund set forth in the following tables
and examples are based on the expenses of the Funds for the fiscal year ended
October 31, 1999. The pro forma amounts for the Class A and Class B shares of
the Successor Funds are based on what the estimated combined expenses of those
Successor Funds would have been for the fiscal year ended October 31, 1999.
The following tables show for Science & Technology Fund and High Yield
Bond Fund and for the corresponding pro forma Successor Funds, assuming
consummation of the Conversions, the shareholder transaction expenses and annual
fund operating expenses associated with an investment in the Class A and Class B
shares, as applicable, of each Fund. All tables assume reinvestment of dividends
and capital gain distributions. As the following tables suggest and as discussed
above, because the Funds are currently subject to fee waivers and expense
reimbursements that American General believes are unlikely to be sustainable,
the Conversions are generally expected to result in sustainable expense levels
that, while higher than the net expenses of the Funds, are lower than the
expenses that would have been borne absent such fee waivers and expense
reimbursements. Of course, there can be no assurance that the Conversions will
result in expense savings for shareholders.
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<PAGE>
Comparison of Class A Shares of Science & Technology Fund and of
Class B Shares of High Yield Bond Fund With Corresponding
Shares of Successor Funds Pro Forma
FUNDS
<TABLE>
<CAPTION>
<S> <C> <C>
Science & Technology Fund High Yield Bond Fund
Shareholder Class A Class B
------- -------
Transaction Expenses
Maximum Sales Load 5.75% None
Imposed on Purchases
(as a percentage of
offering price)
Contingent Deferred None (1) 5.00% in the first year
Sales Charge (as a declining to 1.00% in the fifth
percentage of original year and 0.00% thereafter
purchase price or
redemption proceeds,
whichever is lower)
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee (3) 0.90% 0.70%
12b-1 Fees 0.25% 1.00%
Other Expenses 1.00% 0.67%
----- ----
Annual Fund 2.15% 2.37%
===== =====
Operating Expenses
Expense (0.70)% (0.37)%
Waiver/Reimbursemen
t
Net Expenses 1.45% 2.00%
-11-
<PAGE>
SUCCESSOR FUNDS
PRO FORMA
Science & Technology High Yield Bond Fund
Shareholder Transaction Fund Class A Class B
------------ -------
Expenses
Maximum Sales Load 5.75% None
Imposed on Purchases (as a
percentage of offering price)
Contingent Deferred Sales None(1) 5.00% in the first two
Charge (as a percentage of years declining to 1.00%
original purchase price or in the sixth year and
redemption proceeds, 0.00% thereafter (2)
whichever is lower)
Annual Fund Operating
Expenses (as a percentage
of average daily net assets)
Management Fee (2) 0.90% 0.83%
12b-1 Fees 0.35% 1.00%
Other Expenses 1.00% 0.58%
----- -----
Annual Fund Operating 2.25% 2.41%
===== =====
Expenses
Expense (0.80)% (0.21)%
Waiver/Reimbursement
Net Expenses 1.45% 2.20%
- -------------------
(1) Purchases of Class A shares of the Funds of $1 million or more are
subject to a CDSC of 1% if redeemed within 1 year and of 0.5% if
redeemed within 2 years. Purchases of Class A shares of the Successor
Funds of $1 million or more are subject to a CDSC of 1% if redeemed
within 1 year.
(2) Holders of Class B Shares of the Successor Fund received in the
Conversion will be subject to the schedule of CDSC's currently
applicable to Class B Shares of High Yield Bond Fund.
(3) After waivers, the investment advisory fee for the Class A shares of
Science & Technology Fund and for Class B Shares of High Yield Bond
Fund was 0.20% and 0.33% respectively. After waivers, the investment
advisory fee for the Class A shares of Science & Technology Fund pro
forma and for Class B shares of High Yield Bond Fund pro forma would
have been 0.10% and 0.62%, respectively.
</TABLE>
-12-
<PAGE>
Examples. The following tables show respectively for the Class A shares
of Science & Technology Fund and for Class B shares of High Yield Bond Fund and
for the Class A shares of Science & Technology Fund pro forma and Class B shares
of High Yield Bond Fund pro forma, assuming consummation of the Conversion,
examples of the cumulative effect of shareholder transaction expenses and annual
fund operating expenses indicated above on a $10,000 investment for the periods
specified, assuming (i) a 5% annual return, and (ii) redemption at the end of
such period. The tables also show the effect if the shares are not redeemed. In
the case of High Yield Bond Fund pro forma, the examples for Class B shares
reflect the CDSC schedule applicable to Class B shares of High Yield Bond Fund.
<TABLE>
<CAPTION>
Science & Technology Fund
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A $714 $1,008 $1,323 $2,215
(assuming redemption at
the end of the period)
Class A $714 $1,008 $1,323 $2,215
(assuming no redemption
at the end of the period)
Science & Technology Fund Pro Forma
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class A (assuming $714 $1,008 $1,323 $2,215
redemption at the end
of the period)
Class A (assuming no $714 $1,008 $1,323 $2,215
redemption at the end
of the period)
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<PAGE>
High Yield Bond Fund
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$718 $956 $ 1,195 $2,332 (1)
Class B
(assuming redemption at
the end of the period)
Class B $203 $628 $1,079 $2,332 (1)
(assuming no redemption
at the end of the period)
High Yield Bond Fund Pro Forma
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class B (assuming $737 $1,015 $1,296 $2,539 (1)
redemption at the
end of the period)
Class B (assuming $223 $688 $1,181 $2,539 (1)
no redemption at
the end of the
period)
</TABLE>
(1) Assumes Conversion to Class A shares after six years.
The purpose of the foregoing examples is to assist shareholders, who
currently hold Class A shares of Science & Technology Fund and/or Class B shares
of High Yield Bond Fund, in understanding the various costs and expenses that an
investor in the Successor Funds as a result of the Conversion would bear
directly or indirectly, as compared with the various direct and indirect
expenses currently borne by a shareholder of Class A shares of Science &
Technology Fund and of Class B shares of High Yield Bond Fund. These examples
should not be considered a representation of past or future expenses or annual
return. Actual expenses may be greater or less than those shown.
If approved by shareholders of a Fund, it is currently contemplated that
the Conversion will become effective as to that Fund on or about July 7, 2000. A
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<PAGE>
Conversion may, however, become effective at another time and date should the
Meeting be adjourned to a later date or should any other condition to the
Conversion not be satisfied at that time. Notwithstanding prior shareholder
approval, the Conversion Plan may be terminated as to any Fund at any time prior
to its implementation by the mutual agreement of the parties thereto.
The Successor Trusts
The Successor Trust was established pursuant to an Agreement and
Declaration of Trust under the laws of the Commonwealth of Massachusetts. The
Successor Trust is organized as a "series company" as that term is used in Rule
18f-2 under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Successor Trust consists of the Successor Funds and other mutual funds of the
same asset class.
It is anticipated that on the date of the Conversions, the Board of
Trustees of the Successor Trust will be comprised of nine Trustees. It is
anticipated that five current Trustees of AGSPC2 who are not "interested
persons" of AGSPC2 or of the Successor Trust and one current Trustee who is such
an "interested person" of both AGSPC2 and of the Successor Trust will be elected
to the Board of the Successor Trust during a special meeting of the Successor
Trust's current shareholders to be held on June 1, 2000. It is anticipated that
the other Trustees will be two current Trustees of the Successor Trust who are
not "interested persons" of the Successor Trust and one person who is an
"interested person" of the Successor Trust. Accordingly, the majority of the
Trustees who will have ultimate responsibility for the oversight and management
of the Successor Funds subsequent to the Conversions, is expected to be the same
as for the Funds of AGSPC2. Information with respect to the Trustees anticipated
to comprise the Board of Trustees of the Successor Trust at the time of the
Conversions is set forth in Exhibit B.
The Successor Trust is authorized to issue its shares divisible into
two or more series of shares as the Board of Trustees deems necessary and
desirable. Each series of shares will be a separate and distinct series of the
Successor Trust. All consideration received for the issue or sale of shares of a
particular series of a Successor Trust, all assets in which such consideration
is invested or reinvested, and all income, earnings and profits and proceeds
derived from such investments will be allocated to that series. The Successor
Trust's Amended and Restated Agreement and Declaration of Trust ("North American
Declaration of Trust") provides that the Board of Trustees of the Successor
Trust may: (i) establish and designate separate and distinct series; (ii) issue
the shares of any series in any number of classes; (iii) fix and determine the
relative rights and preferences as between the shares of the separate series;
and (iv) divide or combine the shares of any series or any class into a greater
or lesser number without thereby changing the proportionate beneficial interest
in the series or class, without any further action by the shareholders of the
Successor Trust.
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<PAGE>
The North American Declaration of Trust provides for shareholder voting
only for the following matters: (a) the election or removal of Trustees as
provided in the North American Declaration of Trust; and (b) with respect to
such additional matters relating to the Successor Trust as may be required by
(i) applicable law, (ii) the North American Declaration of Trust or any by-laws
adopted by the Trustees, or (iii) as the Trustees may consider necessary or
desirable. Certain of the foregoing matters will involve separate votes of one
or more of the affected series (or affected classes of a series) of the
Successor Trust, while others will require a vote of the Successor Trust's
shareholders as a whole. All shares of all series vote in the aggregate for the
election or removal of Trustees of the Successor Trust.
As required by the 1940 Act, shareholders of each series of the
Successor Trust, voting separately, will have the power to vote at special
meetings for, among other things, changes in fundamental investment restrictions
applicable to such series, approval of any new or amended investment advisory
agreement, approval of any new or amended Rule 12b-1 plan and certain other
matters that affect the shareholders of that series. If, at any time, less than
a majority of the Trustees holding office has been elected by the shareholders,
the Trustees then in office will call a shareholders' meeting for the purpose of
electing Trustees of the Successor Trust.
Certain Comparative Information About AGSPC2 And The Successor Trust
As a Massachusetts business trust, the Successor Trust's operations
will be governed by the North American Declaration of Trust and its By-laws (the
"North American By-laws") rather than by the Delaware law and the Agreement and
Declaration of Trust of AGSPC2 (the "AGSPC2 Declaration of Trust"), and its
By-laws (the "AGSPC2 By-laws"), respectively. Each of the Successor Funds and
the Funds is subject to the 1940 Act and regulation by the Securities and
Exchange Commission (the "Commission"). As discussed below, certain of the
differences between AGSPC2 and the Successor Trust derive from provisions of the
North American Declaration of Trust and By-laws. Shareholders entitled to vote
at the meeting may obtain a copy of the North American Declaration of Trust and
By-laws without charge, by calling 1-800- 872-8037, extension 515 and may obtain
a copy of the AGSPC2 Declaration of Trust and By-laws, also without charge, by
calling Customer Service of American General Fund Group at 1-877-999-2434.
Meetings of Shareholders. The AGSPC2 Declaration of Trust provides that
the Trustees may call a meeting of the shareholders. However, if the Trustees
fail to call a meeting after written application by shareholders holding at
least 10% of the shares requesting that a meeting be called for a purpose
requiring shareholder action, shareholders holding at least 10% of the shares
may call the meeting. By contrast, the North American Declaration of Trust gives
the Trustees and shareholders holding at
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<PAGE>
least 25% of the shares then outstanding the right to call a meeting of the
shareholders.
Quorums. The AGSPC2 Declaration of Trust and the AGSPC2 By-laws provide
that a majority of the shares entitled to vote shall be a quorum for the
transaction of business at a shareholders meeting of AGSPC2. The North American
Declaration of Trust provides that 30% of the shares entitled to vote
constitutes a quorum at all meetings of the shareholders. The Declarations of
Trust and the By-laws of both AGSPC2 and North American Funds provide that a
majority of Trustees then in office constitutes a quorum for a meeting of the
Trustees.
Required Vote. Under the North American Declaration of Trust, a
plurality of the shares voted at a meeting at which a quorum is present elects a
Trustee. A majority of the shares voted decides any other questions, except that
a vote of a "majority of the outstanding shares," as defined in the 1940 Act, is
required for purposes of the merger, consolidation or sale of substantially all
of the assets of the Trust, or the amendment of the Declaration of Trust to
adversely affect the rights of certain shareholders. Under the 1940 Act, a vote
of a "majority of the outstanding shares" means (i) 67% or more of the shares
present at a meeting if the holders of more than 50% of the shares are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of the
Trust ("Majority Vote").
Under the AGSPC2 Declaration of Trust, a majority shareholder vote as
defined in the Declaration of Trust decides any question. A majority shareholder
vote generally means all shares represented in person or by proxy and entitled
to vote on such action. In the cases of an amendment to the Declaration of Trust
if the amendment adversely affects the rights of shareholders and the
reorganization or termination of the Trust a majority shareholder vote means a
majority of all shares outstanding and entitled to vote. A plurality is required
for the election of a Trustee.
Trustees. The North American Declaration of Trust requires that the
number of Trustees shall be no less than three, while the AGSPC2 Declaration of
Trust states that the number of Trustees shall be no more than 10 and no less
than the number determined by a written instrument signed by a majority of the
Trustees. Pursuant to the AGSPC2 Declaration of Trust, any Trustee may be
removed by (i) a vote of a majority of the shares cast in person or by proxy at
any meeting called for that purpose, or (ii) a written declaration signed by the
holders of not less than a majority of the shares. The North American
Declaration of Trust provides that a Trustee may be removed with or without
cause at any time by (i) action of two-thirds of the Trustees, or (ii) a vote of
shareholders holding not less than two-thirds of the shares then outstanding,
cast in person or by proxy at any meeting called for the purpose of removal.
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<PAGE>
Vacancies. The North American and AGSPC2 Declarations of Trust contain
substantially similar provisions for the filling of vacancies on the Board of
Trustees. A vacancy on either Board may be filled by a majority of the remaining
Trustees, subject to the requirements of the 1940 Act.
Liability and Indemnification of Trustees. The AGSPC2 Declaration of
Trust provides that AGSPC2 will indemnify Trustees and officers against all
liabilities incurred in connection with any action in which the Trustee or
officer was involved by reason of having been a Trustee or officer of AGSPC2.
However, AGSPC2 will not indemnify any Trustee or officer for a criminal
proceeding or with respect to any matter for which a determination has been made
that the Trustee or officer (i) did not act in good faith, or (ii) acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties of the Trustee or officer. Such a determination will be made by either a
vote of a majority of a quorum of disinterested Trustees or by independent legal
counsel in a written opinion.
The North American Declaration of Trust provides that the Trustees and
officers shall be indemnified against all liabilities incurred while in office
or thereafter by reason of being a Trustee or officer of the North American
Funds except for liabilities concerning acts with respect to which it has been
determined that such person did not act in the best interest of the Trust or
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of such person's duties. A determination of indemnification may be
made by a majority of a quorum of disinterested shareholders or by independent
legal counsel.
Shareholder Liability. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable for the obligations of a Massachusetts business trust.
However, the North American Declaration of Trust disclaims shareholder liability
for acts or obligations of the trust and/or the Successor Funds and requires
that notice of such disclaimer be given in each agreement, undertaking, or
obligation entered into or executed by the North American Funds, the Successor
Funds or the Trustees. The North American Declaration of Trust provides for
indemnification out of Successor Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Successor Fund.
Accordingly, the risk of a shareholder of a Successor Fund incurring financial
loss as a result of as a result of shareholder liability is limited to
circumstances in which the Successor Fund would be unable to meet its
obligations. The likelihood of such a circumstance is considered remote. Unlike
Massachusetts law, the applicable Delaware statute expressly provides for
limited liability of shareholders of Delaware business trusts.
Termination. The AGSPC2 Declaration of Trust allows for the termination of
the Trust at any time by a vote of a majority of the Trustees, subject to the
vote of not
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<PAGE>
less than a majority of the shares outstanding and entitled to vote or by an
instrument in writing without a meeting consented to by the holders of not less
than a majority of such shares. The North American Declaration of Trust provides
that the North American Funds or any of its series may be terminated by a
majority of the Trustees by written notice to the shareholders or by a Majority
Vote of shareholders.
Amendments. The North American Declaration of Trust may be amended by a
majority of the Trustees so long as the amendment does not adversely affect the
rights of any shareholder. An amendment that would adversely affect the rights
of the shareholders may be adopted by a Majority Vote of shareholders. If an
amendment would not affect all of the shareholders of the North American Funds,
such a Majority Vote is only required by the shareholders of any affected
series. The AGSPC2 Declaration of Trust may be amended at any time by a written
instrument signed by a majority of the Trustees or by an officer pursuant to a
vote by a majority of the Trustees so long as the amendment does not adversely
affect the rights of any shareholder. If the amendment would adversely affect
the rights of all of the shareholders, the amendment may be adopted by a vote of
a majority of all of the shares of the Funds outstanding and entitled to vote
and a written instrument signed by a majority of the Trustees or by an officer
pursuant to a vote by a majority of the Trustees. If the amendment would
adversely affect the rights of less than all of the shareholders, it may be
adopted by a vote of the holders of a majority of the shares entitled to vote of
any series so affected. The AGSPC2 Bylaws may be amended by a vote of a majority
of the shareholders or by a vote of a majority of the Trustees. The North
American By-laws may only be amended by a majority of the Trustees.
Capitalization. The North American Declaration of Trust provides that
the beneficial interests in North American Funds are issued as transferable
shares of beneficial interest, $0.001 par value per shares. The Declaration of
Trust permits the Trustees to issue an unlimited number of shares and to divide
such shares into an unlimited number of series or classes thereof, all without
shareholder approval. Each share of a series represents a beneficial interest
only in the assets belonging to that series, and shall not extend to the assets
of any other series or to the assets of the Trust generally. AGSPC2's
Declaration of Trust authorizes the Trust to divide its shares into an unlimited
number of series and empowers the Trustees to classify the shares of any series
into classes of such series. AGSPC2 has the authority to issue an unlimited
number of transferable shares of beneficial interest, $0.01 par value per share.
Right of Inspection. The Declaration of Trust of North American Funds
provides that the records of the Trust shall be open to inspection by
shareholders to the same extent as is permitted stockholders of a Massachusetts
business corporation under the Massachusetts Business Corporation Law. Under
Massachusetts law, the records, stock and transfer books of the Trust shall be
kept at an office of the Trust in the
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<PAGE>
Commonwealth for the inspection of its shareholders. The shareholder will
ordinarily be permitted to examine the general books and accounts when he or she
is seeking information as to the condition of the corporation in good faith and
for the purpose of protecting his or her own rights or defending the interests
of the corporation. The Declaration of Trust of AGSPC2 Funds provides that the
records of the Trust shall be open to inspection by shareholders to the same
extent as is permitted shareholders of a Delaware business corporation under the
Delaware business corporation law. Under Delaware law, any shareholder, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours of business
to inspect for any proper purpose the corporation's stock ledger, a list of
shareholders, and its other books and records, and to make copies or extracts
therefrom.
The foregoing is only a summary of certain of the differences between
the governing instruments and laws generally applicable to AGSPC2 and the
Successor Trust. It is not a complete list of differences. Shareholders should
refer directly to the provisions of the governing instruments and applicable law
for more complete information.
Current and Successor Investment Advisory Agreements
It is proposed that AGAM act as investment adviser to the Successor
Funds under investment advisory agreements that are substantively similar to the
investment advisory agreements currently in place between AGSPC2 on behalf of
the Funds and VALIC, the Funds' current investment adviser, (the "Current
Investment Advisory Agreements") except for, as mentioned above, increases in
the investment advisory fee applicable to the High Yield Bond Fund and the
Socially Responsible Fund and a decrease in the investment advisory fee for the
Municipal Money Market Fund. See Proposal 2 below.
Federal Income Tax Consequences
It is anticipated that the transactions contemplated by the Conversions
will be tax-free. The consummation of each Conversion will be conditioned on
receipt of an opinion from Ropes & Gray, One International Place, Boston,
Massachusetts 02110, counsel to the Successor Funds, to the effect that, on the
basis of the existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), current administrative rules and court decisions, such
Conversion will not give rise to the recognition of gain or loss to the Fund,
the Successor Fund, or shareholders of the Fund pursuant to sections 361, 1032
and 354 of the Code, respectively. Such opinion will be based upon certain
factual certifications made by officers of AGSPC2
-20-
<PAGE>
and the Successor Trust, and will also include certain qualifications and be
based on customary assumptions.
A shareholder's basis for tax purposes in shares of a Successor Fund
after the Conversion will be the same as such shareholder's basis for tax
purposes in the shares of the corresponding Fund immediately before the
Conversion pursuant to Section 358 of the Code. The holding period for the
shares of the Successor Fund received in the Conversion will include a
shareholder's holding period for shares of the Fund (provided that the shares of
the Fund were held as capital assets on the date of the Conversion pursuant to
Section 1223(1) of the Code). Shareholders should consult their own tax advisers
with respect to the specific consequences to them for the Conversions, including
the applicability and effect of state, local and foreign tax consequences of the
proposed transaction.
Administrative Services Agreement
VALIC Retirement Services Company ("VRSCO") and American General
Financial Advisors, Inc. ("AGFA") provide recordkeeping and shareholder services
to retirement and employee benefit plans purchasing Institutional Class I shares
pursuant to an administrative services agreement with AGSPC2. The applicable
Successor Funds would pay fees to VRSCO and AGFA at the same rates as the
corresponding Funds do now. For the fiscal year ended October 31. 1999, the
Funds paid the following fees for these services:
Fund Name Administrative Services Fee
--------- ---------------------------
Socially Responsible Fund $4,044
High Yield Bond Fund $213
The other Funds did not pay an administrative services fee in the
fiscal year ended October 31, 1999.
It is anticipated that no material change will occur in the Funds'
administrative fees or arrangements as a result of the Conversions.
Accounting Services Agreement
VALIC currently provides accounting services and administrative
services to certain of the Funds under an accounting services agreement. For the
fiscal year ended October 31, 1999, the Funds paid VALIC the following fees for
these services:
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<PAGE>
Fund Name Accounting Services Fee
--------- -----------------------
Small Cap Index Fund $1,725
Socially Responsible Fund $1,915
High Yield Bond Fund $18,307
Municipal Money Market Fund $1,645
The Growth Lifestyle, the Moderate Growth Lifestyle and the Conservative Growth
Lifestyle Funds did not pay any fees under the accounting services agreement.
VALIC will not provide these services to the Successor Funds.
Current and Successor Distribution Arrangements
American General Distributors, Inc., located at the same address as AGSPC2,
is the principal distributor for AGSPC2. American General Distributors, Inc. is
a wholly- owned subsidiary of American General.
After the Conversions, AGFD, located at 286 Congress Street, Boston,
Massachusetts 02210, will serve as principal underwriter for the Successor
Funds. AGFD currently serves as distributor to the current series of the
Successor Trust. Except for increased distribution-related and shareholder
servicing-related fees payable by the Class A shares of the Successor Funds, it
is anticipated that no material change will occur in the Funds' distribution
agreement or the Funds' aggregate amount payable under the Funds'
distribution-related and shareholder servicing-related expenses as a result of
the Conversions.
Custodian of AGSPC2 and the Successor Trust
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the custodian of the Funds and will continue as
custodian to the Successor Funds.
Names
At the time of their Conversion into the Successor Funds, the name of
each Fund will change by deletion of "American General." In addition, the name
of the Growth Lifestyle Fund will be changed to the Aggressive Growth Lifestyle
Fund.
Certain Votes to be Taken Prior to the Conversions
-22-
<PAGE>
Prior to the Conversions, AGFD will own a single outstanding share of
each Successor Fund. The purpose of the issuance by each Successor Fund of this
nominal share prior to the effective time of the Conversion is to enable the
Successor Trust to eliminate the need to incur the additional expense by the
Successor Trust of having to hold separate meetings of shareholders of the
Successor Funds in order to comply with certain shareholder approval
requirements of the 1940 Act. AGAM will vote on various organizational matters
including the election of Trustees.
Investment Objectives and Policies
Each Successor Fund will have the same investment objectives and
policies as the corresponding Fund.
Appraisal Rights
Neither the AGSPC2 Declaration of Trust nor Delaware law grants
shareholders of the Funds any rights in the nature of appraisal or dissenters'
rights with respect to any action upon which such shareholders may be entitled
to vote. However, the right of mutual fund shareholders to redeem their shares
is not affected by the proposed Conversions. A shareholder may at any time
redeem his or her shares if he or she does not want to continue as a shareholder
in a Fund if the Conversion is approved. The procedures for the redemption of
shares are set out in each Fund's prospectus and statement of additional
information.
Recommendation Of Trustees
The Board of Trustees of AGSPC2, including all of the Trustees who are
not "interested persons" of AGSPC2 as such term is defined under the 1940 Act
(the "Independent Trustees"), has unanimously determined that each Conversion is
in the best interests of each Fund and its shareholders, and that the interests
of the Fund's shareholders would not be diluted as a result of effecting the
Conversions. At a meeting held on March 1 and March 2, 2000, the Board
unanimously approved each proposed Conversion Plan and recommended its approval
by shareholders. Before reaching their conclusions, the Board conducted an
extensive "due diligence" review and the Independent Trustees were advised by
their special counsel. Among other things, the Trustees received reports
relating to AGAM's ability to manage the Successor Funds, reviewed the ability
of AGAM's affiliates to provide or procure administrative and distribution
services and met with the Chairman and Chief Executive Officer of AGAM. The
Board took into account the fact that American General, the current owners of
AGAM, will be bearing the expenses associated with the Conversions. The Board
also took into account the depth and strength of staffing of
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<PAGE>
investment professionals and administrative personnel at AGAM and the investment
sub-advisers, the portfolio managers of the Successor Funds and the other
service providers to the Successor Funds, as well as AGFD's plans for
distribution of the Funds following the Conversions. The Board also took into
account that existing fee waivers and expense reimbursements for the Funds
(which had substantially reduced net investment advisory expenses) were unlikely
to be sustainable. The proposed Conversions are expected to afford an enhanced
ability for the Successors Funds to achieve asset growth, which in turn could
enable the Funds to remain viable without the current unsustainable levels of
subsidization by American General.
The Board of Trustees also considered the fact that the Massachusetts
business trust would be the form of entity for the Successor Funds and noted
that the Funds would retain flexibility with respect to corporate governance
similar to that of the Delaware business trust. The reorganization of the Funds
into the Successor Trust will facilitate the governance of the Funds under a
single set of organizational documents.
The principal reasons that the Board of Trustees recommends approval of
each Conversion are as follows:
(i) Enhanced distribution network. The combined organization is
expected to have a more effective distribution and distribution support network,
which may result in long term growth potential and economies of scale. The
combined organization is also expected to have improved client servicing and
operational capabilities.
(ii) Sustainable decreases in overall expenses. The Conversions are
expected to result generally in sustainable expense ratios that are lower than
what the expense ratios of the Funds would be absent the fee waivers and expense
reimbursements currently in effect. Of course, there can be no assurance that
the Conversions will result in savings in operating expenses to shareholders.
(iii) Larger, more integrated fund complex. The Conversions will create
a larger, more diverse family of funds with increased potential for lower
expenses resulting from economies of scale that could be realized from
participation in such larger family of funds. The Conversions will also give
shareholders exchange privileges among a wider array of funds.
(iv) Uniform organizational documents. The Conversions of the Funds
into series of the North American Funds will allow all of the Funds to be
governed under a single set of organizational documents following the
Conversions.
Required Vote
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<PAGE>
The affirmative vote of not less than a majority of the shares
outstanding and entitled to vote are required to approve the Conversion. If the
Conversion is not approved by the shareholders of a Fund, the Board of Trustees
will consider other possible courses of action which are in the best interests
of that Fund and its shareholders.
THE BOARD OF TRUSTEES OF AGSPC2, INCLUDING ALL OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT THE SHAREHOLDERS VOTE TO APPROVE PROPOSAL 1.
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<PAGE>
PART II
PROPOSAL 2 - APPROVE OR DISAPPROVE AN
INVESTMENT ADVISORY AGREEMENT WITH
AMERICAN GENERAL ASSET MANAGEMENT
(ALL FUNDS)
Shareholders of each Fund are being asked to approve a change in the
investment adviser to each Fund. Each Successor Fund has investment objectives
and policies identical to each of the corresponding Funds.
As discussed under Proposal 1, American General acquired substantially
all of the stock of AGAM as part of an overall restructuring of the American
General family of funds. The selection of AGAM as investment adviser to the
Successor Funds is part of this larger set of transactions. AGAM would provide
the Funds with an improved selection of portfolio managers with stronger
historical performance and fund products, as well as access to enhanced
distribution operational and client servicing support capabilities. Based on an
analysis of factors described below, the Board of Trustees, including all of the
Independent Trustees, recommends that shareholders approve the execution of a
new investment advisory agreement with AGAM (the "AGAM Advisory Agreement"). At
a meeting on March 2, 2000, the Trustees, including the Independent Trustees,
reviewed the AGAM Advisory Agreement, which contains similar terms and
conditions as the Current Advisory Agreement, except for the dates of execution
and termination and that AGAM will serve as the investment adviser in place of
VALIC. In addition, the investment advisory fee under the AGAM Advisory
Agreement is higher than such fee under the Current Advisory Agreement in the
case of the High Yield Bond Fund and the Socially Responsible Fund and lower in
the case of the Municipal Money Market Fund.
Section 15(c) of the 1940 Act prohibits any person from serving as an
investment adviser to a registered investment company except pursuant to a
written contract that has been approved by shareholders of the investment
company. In order for AGAM to serve as investment adviser to the Successor
Funds, shareholders of each Fund must approve the AGAM Advisory Agreement. If
approved by shareholders, the AGAM Advisory Agreement will become effective on
the date of the Conversion and will have an initial duration of two years and
will continue for successive annual periods thereafter, provided such continence
is approved of least annually by both a majority of all the Trustees and a
majority of the Independent Trustees or by a majority vote of the outstanding
voting shares of the Funds.
Information About VALIC
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<PAGE>
VALIC, an indirect wholly-owned subsidiary of American General, is the
current investment adviser to each Fund. VALIC makes investment decisions for
and is directly responsible for the day-to-day management of the Funds.
The aggregate fees paid to VALIC during each Fund's last fiscal year
are as follows:
<TABLE>
<CAPTION>
Fund Name Advisory Fees
<S> <C> <C>
Small Cap Index Fund $16,062
Socially Responsible Fund $15,928
High Yield Bond Fund $426,557
Municipal Money Market Fund $27,357
Growth Lifestyle Fund $6,889
Moderate Growth Lifestyle Fund $7,247
Conservative Growth Lifestyle Fund $7,049
Information About AGAM
</TABLE>
AGAM has been in the business of investment management since 1996, and
as discussed above, became a wholly-owned subsidiary of American General as a
result of the acquisition by American General on March 10, 2000, of
substantially all of the assets of CypressTree. The principal offices of
American General are located at 2929 Allen Parkway, Houston, Texas 77019.
American General was incorporated as a Texas business corporation on February
26, 1980 as the successor to American General Life Insurance Company (organized
in 1926) as the result of a corporate reorganization completed on July 1, 1980.
Members of the American General group of companies operate in each of the 50
states, the District of Columbia, and Canada and collectively engage in
substantially all forms of financial services.
CypressTree and its affiliates were formed in 1996 to acquire, advise
and distribute mutual funds through broker-dealers and other intermediaries.
AGAM was CypressTree's wholly-owned advisory subsidiary. Pursuant to its
advisory agreement with the Successor Trust, AGAM oversaw the administration of
all aspects of the business and affairs of the Successor Trust, selected,
contracted with and compensated sub-advisers to manage the assets of certain
other funds in the North American family of funds. AGAM has continued to perform
these functions under an
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<PAGE>
interim advisory agreement approved by the Board pursuant to Rule 15a-4 under
the 1940 Act.
AGAM is currently registered with the Commission as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"). AGAM currently serves as the investment adviser to 17 other funds in the
North American family of funds, managing approximately $1.1 billion in assets.
AGAM is located at 286 Congress Street, Boston, Massachusetts 02210. Alice T.
Kane is Chairman and Chief Executive Officer of AGAM, as well as Chairman of the
Board of Trustees and a Trustee and President of the Successor Trust. Ms. Kane's
principal occupation is President of American General Fund Group. Her business
address is 286 Congress Street, Boston, Massachusetts 02210.
The following table lists the names, addresses, and principal
occupations of the principal executive officers and the directors of AGAM:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Position with AGAM Principal Occupation(s)
- ---------------- ------------------ -----------------------
Alice T. Kane Chief Executive Officer See Below.
286 Congress Street and Chairman of the Board
Boston, MA 02210
Joseph T. Grause, Jr. President and Director See Below.
286 Congress Street
Boston, MA 02210
John A. Graf Director President and Director,
2929 Allen Parkway VALIC and American
Houston, TX 77019 General Annuity Insurance
Company, Director,
American General Series
Portfolio Company.
Trustee, American General
Series Portfolio Company
3. Formerly, Vice
Chairman and Chief
Marketing and
Administrative Officer,
Western National
Corporation, Senior Vice
President, Conseco, Inc.
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<PAGE>
Name and Address Position with AGAM Principal Occupation(s)
- ----------------
Kent E. Barrett Director Executive Vice President
2929 Allen Parkway and Director, American
Houston, TX 77019 General Series Portfolio
Company 2. Director,
American General Series
Portfolio Company.
Director, American General
Series Portfolio Company
3. Director, US LIFE
Income Fund, Inc.
Executive Vice President
and Chief Financial
Officer, American General
Retirement Services
(February, 1999-Present).
Formerly, Executive Vice
President and Chief
Financial Officer, American
General Life & Accident
Company.
The following table lists the names of each Trustee and officer of the
Successor Trust who is also an officer or employee of AGAM:
Name Position with the Position with AGAM
Successor Trust
Alice T. Kane Chairman of Board of Chairman and Chief
Trustees, Trustee and Executive Officer;
President Director*
Joseph T. Grause, Jr. Vice President President; Director*
Thomas J. Brown Treasurer and Vice Chief Financial Officer,
President Chief Administrative
Officer, Assistant
Treasurer
John I. Fitzgerald Vice President and Counsel and Assistant
Secretary Secretary
John N. Packs Vice President Director of Research
</TABLE>
* The other directors of AGAM are Kent E. Barrett and John A. Graf, both of whom
are officers of American General.
In the period since November 1, 1998 Ms. Kane has been granted stock
and options to purchase American General stock in connection with her employment
by American General.
Joseph T. Grause, Jr., has entered into an employment agreement having a
term of three years with AGAM in connection with the acquisition or Cypress. As
of the closing date of the acquisition, Mr. Grause owned approximately 7.8% of
the outstanding equity interests of Cypress Holding Company, Inc., the parent of
Cypress ("Cypress Holding").
Each of Thomas J. Brown, Treasurer and Vice President of the Trust,
John I. Fitzgerald, Vice President and Secretary of the Trust, and John N.
Packs, Vice President of the Trust, have entered into a three-year employment
agreement with AGAM in connection with the acquisition of Cypress.
As of the Closing, Mr. Packs owned approximately 1.3% of the
outstanding equity interests of Cypress Holding. As of the closing, Messrs,
Brown and Fitzgerald owned, in the aggregate, less that 1% of the outstanding
equity interests of Cypress Holding.
No Independent Trustee of AGSPC2 was an officer, employee, director or
security holder of AGAM or held any other material direct or indirect interest
in AGAM or in AGAM's parent or affiliates.
Terms of the Current Advisory Agreements
The Current Advisory Agreement which is dated October 7, 1998 and was
approved by the initial shareholder of each Fund provides (1) that it will
continue in effect with respect to each Fund for a period of two years from its
effective date and thereafter from year to year if approved at least annually by
a majority vote of the shares of the Fund or a majority of the Trustees and by a
majority of the Independent Trustees; (2) that it may be terminated as to any
Fund, without penalty, by the Trustees or by the vote of a majority of the
outstanding shares of a Fund, or by VALIC, on not more than 60 days nor less
than 30 days notice; and (3) that it will terminate automatically in the event
of its "assignment" as such term is defined in the 1940 Act.
Terms of the AGAM Advisory Agreement
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<PAGE>
The description of the AGAM Advisory Agreement is qualified entirely by
reference to the actual Investment Advisory Agreement, attached hereto as
Exhibit C.
The material terms of the AGAM Advisory Agreement between the Funds and
AGAM are similar to the Funds' Current Advisory Agreement with VALIC except for
the differences discussed above. The rate of the investment advisory fee to be
paid to AGAM will remain the same as the fee the Funds currently pay to VALIC
(except in the case of the High Yield Bond Fund, the Socially Responsible Fund
and the Municipal Money Market Fund) and the services to be performed by AGAM
are comparable to those currently performed by VALIC. Each Agreement authorizes
AGAM and VALIC to retain investment sub-advisers at their own expense although
management of the Funds' cash is retained by VALIC and will be payable to AGAM
under the proposed AGAM Advisory Agreement. The investment advisory fee payable
to AGAM under the AGAM Advisory Agreement is accrued for each calendar day and
the sum of the daily fee accruals are payable monthly. The investment advisory
fee payable to VALIC under the Current Advisory Agreement is based on the
average monthly net asset value determined by taking the mean average of all the
net asset value determinations on each business day during a calendar month.
The AGAM Advisory Agreement is governed by Massachusetts law and the
Current Advisory Agreement with VALIC is governed by Delaware law. Each
Agreement is subject to regulation under the 1940 Act and regulation by the
Commission.
The AGAM Advisory Agreement provides that AGAM will oversee the
administration of all aspects of the Trust's business and affairs and will
select, contract with, and compensate investment sub-advisers to manage the
investments and determine the composition of the assets of the Funds.
Expenses and Fees
Pursuant to the AGAM Advisory Agreement, the Trust will pay the
investment adviser a monthly fee with respect to each Fund as follows:
-30-
<PAGE>
<TABLE>
<CAPTION>
Fund Investment Management Fee
<S> <C> <C>
Socially Responsible Fund 0.65%
High Yield Bond Fund 0.825% of first $200 million;
0.725% between $200 million and $500 million; and
0.675% on excess over $500 million
Growth Lifestyle Fund 0.10%
Moderate Growth Lifestyle Fund 0.10%
Conservative Growth Lifestyle Fund 0.10%
Municipal Money Market Fund 0.35%
Science & Technology Fund 0.90%
Small Cap Index Fund 0.28% of first $500 million and
0.27% on excess over $500 million
</TABLE>
The monthly fee will be based on each Fund's average monthly net asset value
computed for each Fund. The rate of the investment advisory fee to be paid to
AGAM will remain the same as the fee the Funds currently pay to VALIC except
with respect to the High Yield Bond Fund, the Socially Responsible Fund and the
Municipal Money Market Fund. As indicated above, AGAM will receive an investment
advisory fee of 0.825%, 0.65% and 0.35% for acting as investment adviser to the
High Yield Bond Fund, the Socially Responsible Fund and the Municipal Money
Market Fund respectively. Under the Current Advisory Agreement, VALIC received
0.70%, 0.25% and 0.50% respectively for management of these Funds.
Duration
Pursuant to its terms, the AGAM Advisory Agreement will remain in
effect for two years following the date of its execution, provided that the
Agreement has been approved by shareholders of the Funds. It will continue in
effect thereafter so long as such continuance is specifically approved at least
annually either by the Trustees of the Trust or by the vote of a majority of the
outstanding voting securities of each of the Funds, provided that in either
event such continuance shall also be approved by the vote of a majority of the
Independent Trustees of any party to the Advisory Agreement cast in person at a
meeting called for the purpose of voting on such approval.
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<PAGE>
Expense Reimbursement
As in the Current Advisory Agreement, the AGAM Advisory Agreement
provides that the Trust will pay all expenses of its organization, operations
and business not specifically assumed or agreed to be paid by the investment
adviser as provided in the AGAM Advisory Agreement. The Trust is responsible
for, among other things the expenses of: (1) custody and accounting services;
(2) shareholder servicing; (3) shareholder communications; (4) legal and
accounting fees and expenses; (5) taxes; (6) brokerage and other transaction
expenses; (7) shareholder's and Trustee's meetings; (8) printing of
prospectuses; (9) computing the net asset value per share; and (10) nonrecurring
expenses such as the cost of litigation. The Current Advisory Agreement provides
that the investment adviser would bear the expense discharging its
responsibilities and the Fund would pay, or arrange for others to pay, all its
expenses other than those expressly payable to the investment adviser.
Limitation of Liability of the investment adviser
The AGAM Advisory Agreement does not specifically address the liability
of the investment adviser. Under the Current Advisory Agreement, the investment
adviser shall not be liable to the Fund, or to any shareholder in the Fund, for
any act or omission in rendering services under the Agreement, or for any losses
sustained in the purchase, holding or sale of any portfolio security, so long as
there has been no willful misfeasance, bad faith, negligence, or reckless
disregard of obligations or duties on the part of the investment adviser.
Termination, Assignment
The AGAM Advisory Agreement, may be terminated at any time, by the
Trustees of the Trust, by the vote of a majority of the outstanding voting
securities of the Trust, or with respect to any Fund by the vote of a majority
of the outstanding voting securities of such Fund, on sixty days' written notice
to the investment adviser, or by the investment adviser on sixty days' written
notice to the Trust. The Current Investment Advisory Agreement provides that the
Agreement can be terminated as to any Fund at any time by the Fund's Board of
Trustees, by vote of a majority of that Fund's outstanding voting securities, or
by the investment adviser, on not more than 60 days' nor less than 30 days'
written notice, or upon such shorter notice as may be mutually agreed upon. Both
Agreements automatically terminate in the event of its assignment (as defined in
the 1940 Act).
Portfolio Transactions (AGAM)
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<PAGE>
The execution of portfolio transactions under the AGAM Advisory
Agreement is substantially similar to that of portfolio transactions under the
Current Advisory Agreement. Transactions on stock exchanges and other agency
transactions involve the payment by the Funds of negotiated brokerage
commission. Such commissions vary among different brokers. Also, a particular
broker may charge different commissions according to such factors as the
difficulty and size of the transaction.
When AGAM or an investment sub-adviser places orders for the purchase
and sale of portfolio securities for the Funds, it is anticipated that such
transactions will be affected through a number of brokers and dealers. In so
doing, AGAM or sub-adviser intend to use their best efforts to obtain for each
Fund the most favorable price and execution available, except to the extent they
may be permitted to pay higher brokerage commissions as described below. In
seeking the most favorable price and execution, AGAM or the investment
sub-adviser consider all factors they deem relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of commission, the timing of the transactions taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-dealer involved and the quality of service rendered by
the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical and quotation services from broker-dealers
which execute portfolio transactions for the clients of such advisers.
Consistent with this practice, AGAM or the investment sub-adviser may receive
research, statistical and quotation services from many of the broker-dealers
with which each Fund's portfolio transactions are placed. These services, which
in some instances could also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to AGAM or the investment
sub-adviser in advising its other clients, although not all of these services
are necessarily useful and of value in advising each Fund. The fees paid to AGAM
or sub- adviser are not reduced because AGAM or the sub-adviser receives such
services.
As with VALIC under the Current Advisory Agreement, under the AGAM
Advisory Agreement, AGAM and/or an investment sub-adviser may cause each Fund to
pay a broker-dealer which provides "brokerage and research services" (as defined
by the 1934 Act) to AGAM or sub-adviser an amount of disclosed commission for
effecting a securities transaction for each Fund in excess of the commission
which another broker-dealer would have charge for effecting the same
transactions. The authority of AGAM or the investment sub-adviser to cause each
Fund to pay any such greater commission is subject to such policies as the
Trustees may adopt from time to time.
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<PAGE>
Recommendation of Trustees
The Board of Trustees of AGSPC2, including the Independent Trustees,
has unanimously determined that approval of the AGAM Advisory Agreement by the
shareholders is in the best interest of each Fund and its shareholders. At a
meeting held on March 1 and March 2, 2000, the Board of Trustees reviewed the
AGAM Advisory Agreement and recommended its approval to shareholders. As
discussed under "Recommendation of Trustees" under Proposal 1, the Board of
Trustees performed an extensive review including a review of reports relating to
AGAM's ability to manage the Successor Funds.
The Board of Trustees considered a number of factors including: (1) the
fact that the terms of the AGAM Advisory Agreement and the Current Advisory
Agreement are generally similar except with respect to the investment advisory
fee for certain of the Funds and the dates of execution and termination; (2) the
depth and strength of staffing of investment personnel at AGAM; and (3) AGAM's
plan for distribution of the Funds following the Conversions.
The Board of Trustees recommends that shareholders approve AGAM as the
new investment adviser to the Successor Funds based upon their review of the
investment capabilities of AGAM, AGAM's competence in retaining and monitoring
North American Funds' investment sub-advisers, and in order to standardize all
arrangements resulting from the combination of the American General family of
funds with the North American family of funds.
Because the AGAM Advisory Agreement will be between the Successor Trust
and AGAM, the Board of Trustees of the Successor Trust also reviewed the AGAM
Advisory Agreement and recommended its approval to the initial shareholders of
the Successor Funds. In evaluating the AGAM Advisory Agreement, the Trustees
took into account the possible effects or the acquisition of the assets of
CypressTree AGAM's ability to provide management services to each Fund. After
consideration of the factors also considered by the Board of Trustees of AGSPC 2
and such other factors as the Trustees deemed relevant, the Trustees concluded
that it was appropriate and desirable for AGAM to act as investment adviser to
each Fund. Accordingly, the Trustees unanimously approved the AGAM Advisory
Agreement and recommended its approval to shareholders.
Required Vote
Approval of the AGAM Advisory Agreement with respect to a Fund requires
the Majority Vote of the shareholders of that Fund. If the AGAM Advisory
Agreement is not approved by shareholders of a Fund, the Board of Trustees will
consider other
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<PAGE>
possible courses of action which are in the best interests of the Fund and its
shareholders.
THE BOARD OF TRUSTEES OF AGSPC2, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS
THE SHAREHOLDERS VOTE TO APPROVE PROPOSAL 2.
PROPOSAL 3 - APPROVE OR DISAPPROVE AN
INVESTMENT SUB-ADVISORY AGREEMENT WITH
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P.
(ALL FUNDS EXCEPT SCIENCE & TECHNOLOGY FUND)
Shareholders of each Fund (except the Science & Technology Fund) are
being asked to approve new investment sub-advisory agreements.
AGIM currently serves as investment sub-adviser to the High Yield Bond
Fund and the Municipal Money Market Fund pursuant to an investment sub-advisory
agreement (the "Current Sub-Advisory Agreement"). T. Rowe Price currently serves
as the investment sub-adviser to the Science & Technology Fund and will remain
that Fund's investment sub-adviser after the Conversions pursuant to an
investment sub- advisory agreement with substantially identical terms to the
sub-advisory agreement under which it currently serves except with respect to
its date of execution and termination. Small Cap Index Fund, Growth Lifestyle
Fund, Moderate Growth Lifestyle Fund and Conservative Growth Lifestyle Fund are
not presently served by an investment sub-adviser. It is proposed that AGIM will
become investment sub-adviser to each of the other Funds pursuant to an
investment sub-advisory agreement in the form currently used by the Successor
Trust for the investment sub-advisers retained by AGAM (the "New Sub-Advisory
Agreement"). There will be no increase in investment sub-advisory fees because
under the Current and New Sub-Advisory Agreements, VALIC and AGAM pay the
investment sub-advisers from their own investment management fees.
As discussed in Proposal 2, Section 15(c) of the 1940 Act prohibits a
person from serving as an investment adviser to a registered investment company
except pursuant to a written contract that has been approved by shareholders of
the investment company. AGSPC2 and the Successor Trust have each received
exemptive relief from this provision of the 1940 Act with respect to the
approval of investment sub-advisory arrangements with non-affiliated persons to
the extent that such non- affiliated investment sub-advisers may be replaced
without prior shareholder approval so long as various conditions are satisfied.
However, in the case of "affiliated persons" (as defined in the 1940 Act), the
exemptive relief is not available and shareholder approval must be obtained
pursuant to Section 15(c). Therefore, in order
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<PAGE>
for AGIM, an affiliate of AGAM to serve as investment sub-adviser to the
Successor Funds (except for Science & Technology Fund), each Fund must approve
the New Sub- Advisory Agreement.
Although AGIM currently serves as investment sub-adviser to the High
Yield Bond Fund and the Municipal Money Market Fund, it is necessary to approve
new investment sub-advisory agreements for these Funds as well. The Current Sub-
Advisory Agreement terminates in the event that VALIC no longer serves as
investment adviser.
Information About AGIM
AGIM presently acts as investment sub-adviser to the High Yield Bond
Fund and the Municipal Money Market Fund. AGIM was formed in 1998 as a successor
to the investment management division of American General, and is an indirect
wholly-owned subsidiary of American General. AGIM also provides investment
management and advisory services to pension and profit sharing plans, financial
institutions and other investors. Accounts managed by AGIM and its affiliates
had combined assets, as of January 31, 2000, of approximately $68 billion. AGIM
is located at 2929 Allen Parkway, Houston, Texas 77019.
AGIM is registered as an investment adviser with the SEC under the
Advisers Act. The principal executive officers and directors of AGIM are:
<TABLE>
<CAPTION>
Name and Address Position with AGIM
<S> <C> <C>
Richard W. Scott Director, President and Chief Executive
2929 Allen Parkway Officer
Houston, Texas 77019
Julia S. Tucker Director and Executive Vice President
2929 Allen Parkway
Houston, Texas 77019
Peter V. Tuters Director and Executive Vice President
2929 Allen Parkway
Houston, Texas 77019
Steven Guterman Executive Vice President
2929 Allen Parkway
Houston, Texas 77019
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<PAGE>
Name and Address Position with AGIM
Alice T. Kane* Executive Vice President
2929 Allen Parkway
Houston, Texas 77019
James L. Gleaves Treasurer
2929 Allen Parkway
Houston, Texas 77019
Susan A. Jacobs Secretary
2929 Allen Parkway
Houston, Texas 77019
</TABLE>
*As indicated under Proposal 2, Ms. Kane is also Chairman of the Board of
Trustees, Trustee and President of the Successor Trust and Chairman, Chief
Executive Officer and a Director of AGAM.
AGIM provides investment advisory services to the High Yield Bond Fund,
a series of American General Series Portfolio Company 3. Such fund has a similar
investment objective to the High Yield Bond Fund of AGSPC2. The amount of assets
in the AGSPC3 fund as of March 20, 2000 and the rate of compensation paid to
AGIM is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Annual Portfolio
Management Fee Rate Approximate Net Asset
(is a percentage of (in millions) as of
average daily net assets) March 20, 2000
--------------
High Yield Bond Fund
0.45% on first $200 $6
million
0.35% on next $300
million
0.30% over $500 million
</TABLE>
No Independent Trustee of AGSPC2 is or has been an officer, employee,
director or security holder of AGIM or held any other material direct or
indirect interest in AGIM or in AGIM's parent company or affiliates.
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<PAGE>
Comparison of the Current Sub-Advisory Agreement and the New Sub-Advisory
Agreement
There are no material differences in the terms of the New Sub-Advisory
Agreement and AGIM's Current Sub-Advisory Agreement with High Yield Bond Fund
and Municipal Money Market Fund. The proposed New Sub-Advisory Agreements
provide (1) that they will continue in effect with respect to each Fund for a
period of two years from its effective date and thereafter from year to year if
approved at least annually by a majority vote of the shares of the Fund or a
majority of the Trustees and by a majority of the Independent Trustees; (2) that
it may be terminated as to any Fund, without penalty, by the Trustees or by the
vote of a majority of the outstanding shares of a Fund on sixty days' written
notice to AGAM and AGIM or by AGAM or AGIM on sixty days' written notice to the
Trust and the other party; (3) that it will terminate automatically in the event
of its "assignment" as such term is defined in the 1940 Act; and (4) that it
will terminate in the event the AGAM Advisory Agreement terminates for any
reason.
Terms of the New Sub-Advisory Agreement
The description of the New Sub-Advisory Agreement is qualified entirely
by reference to the actual Investment Sub-Advisory Agreement, attached hereto as
Exhibit D. The terms of the New Sub-Advisory Agreement are substantially the
same as the terms of the Current Sub-Advisory Agreement.
The New Sub-Advisory Agreement provides that the investment
sub-adviser, will manage the investments and determine the composition of the
assets of the Funds in accordance with the Funds' registration statement.
Expenses and Fees
Pursuant to the New Sub-Advisory Agreement, the investment adviser will
pay the investment sub-adviser a monthly fee with respect to each Fund as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Investment Sub-Advisory Fee
Small Cap Index Fund .030% of first $150 million
.020% on the excess over $150 million
Socially Responsible Fund 0.25%
High Yield Bond Fund 0.45% of the first $200 million
0.35% between $200 million and $500 million
0.30% on the excess over $500 million
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<PAGE>
Fund Investment Sub-Advisory Fee
Growth Lifestyle Fund 0.10%
Moderate Growth Lifestyle Fund 0.10%
Conservative Growth Lifestyle Fund 0.10%
Municipal Money Market Fund 0.25% of the first $200 million
0.20% between $200 million and $500 million
0.15% on the excess over $500 million
</TABLE>
The monthly fee will be based on each Fund's average monthly net asset
value computed for each Fund.
Duration
Pursuant to its terms, the New Sub-Advisory Agreement will remain in
effect for two years following the date of its execution, provided that the
Sub-Advisory Agreement has been approved by shareholders of the Fund. It will
continue in effect thereafter so long as such continuance is specifically
approved at least annually either by the Trustees of the Trust or by the vote of
a majority of the outstanding voting securities of each of the Funds, provided
that in either event such continuance shall also be approved by the vote of a
majority of the Independent Trustees of the Trust of any party to the New
Sub-Advisory Agreement cast in person at a meeting called for the purpose of
voting on such approval.
Expense Reimbursement
The New Sub-Advisory Agreement provides that the investment
sub-adviser, at its own expense, will furnish (1) all necessary investment and
management facilities, including salaries of personnel required for it to
execute its duties faithfully, and (2) administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the efficient
conduct of the investment affairs of the Funds (excluding determination of net
asset value and shareholder accounting services).
Limitation of Liability
The New Sub-Advisory Agreement provides that neither the investment
sub- adviser nor any of its employees is liable to the investment adviser or the
Trust for any loss suffered by the investment adviser or Trust resulting from
any error of judgment made in the good faith exercise of the investment
sub-adviser's investment discretion in connection with selecting Fund
investments except for losses resulting from willful
-39-
<PAGE>
misfeasance, bad faith or gross negligence of, or from reckless disregard of,
the duties of the investment sub-adviser or any of its partners or employees.
Termination, Assignment
The New Sub-Advisory Agreement states that the Agreement may be
terminated at any time, without the payment of any penalty, by the Trustees of
the Trust, by the vote of a majority of the outstanding voting securities of the
Trust, or with respect to any Fund by the vote of a majority of the outstanding
voting securities of such Fund, on sixty days' written notice to the investment
adviser and the investment sub-adviser, or by the investment adviser or
investment sub-adviser on sixty days' written notice to the Trust and the other
party. The Agreement automatically terminates, without the payment of any
penalty, in the event of its assignment (as defined in the 1940 Act) or in the
event the AGAM Advisory Agreement terminates for any reason.
Portfolio Transactions
AGIM will have the same duties and responsibilities as under the
Current Sub- Advisory Agreement with AGAM as described under Proposal 1.
Recommendation of Trustees
The Board of Trustees of AGSPC2, including the Independent Trustees,
has unanimously determined that approval of the New Sub-Advisory Agreement by
the shareholders is in the best interest of each Fund and its shareholders. At a
meeting held on March 1 and March 2, 2000, the Board of Trustees reviewed the
New Advisory Agreement with AGIM and recommended its approval to shareholders.
As discussed under "Recommendation of Trustees" under Proposal 1, the Board of
Trustees performed an extensive review which included reports relating to AGIM's
ability to serve as sub-adviser to the Successor Funds.
The Board of Trustees considered a number of factors including: (1) the
nature and quality of services rendered by AGIM; (2) AGIM's performance under
the Current Sub-Advisory Agreement; (3) the performance of other Funds
sub-advised by AGIM; (4) AGIM's investment advisory experience and reputation;
and (4) the depth and strength of staffing of investment personnel at AGIM.
The Board of Trustees of AGSPC2 recommends that shareholders approve
AGIM as the new investment sub-adviser based upon their review of AGIM's
investment capabilities and its competence, and in order to standardize all
arrangements resulting from the combination of the American General family of
funds with the North American family of funds.
-40-
<PAGE>
In its review of the New Sub-Advisory Agreement, the Trustees of the
Successor Trust considered the performance of AGIM in providing services to the
Trust with respect to other North American Funds and the skills and capabilities
of its personnel. The Trustees of the Successor Trust also considered with
respect to the High Yield Bond Fund and Municipal Money Market Fund the fact
that the Previous Sub-Advisory Agreement and the corresponding New Sub-Advisory
Agreements are substantially identical to each other, including the terms
relating to the services to be provided.
In support of its recommendation to engage AGIM as sub-advisers to the
Funds pursuant to the terms of the New Sub-Advisory Agreement, AGAM informed the
Trustees of its belief that appointment of AGIM as sub-adviser to the Funds
would assist the Funds' efforts to achieve their investment objectives. In
evaluating the New Sub-Advisory Agreement, the Trustees received information and
reviewed materials furnished by AGAM and AGIM, including information about
AGIM's personnel, operations and anticipated management of the Funds as well as
possible other sub- advisers for the Funds.
In approving the New Sub-Advisory Agreement, the Trustees evaluated the
experience of the key personnel of AGIM in portfolio management, and the high
quality of services AGIM is expected to provide to the Funds, and gave careful
consideration to all factors deemed to be relevant to the Funds, including, but
not limited to the same factors as set out above in the considerations of the
Trustees of AGSPC 2 and other factors they deemed relevant.
Required Vote
Approval of the New Sub-Advisory Agreement with respect to a Fund
requires the Majority Vote of the shareholders of that Fund. If the New
Sub-Advisory Agreement is not approved by shareholders of a Fund, the Board of
Trustees will consider other possible courses of action which are in the best
interests of the Fund and its shareholders.
THE BOARD OF TRUSTEES OF AGSPC2, INCLUDING ALL OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT THE SHAREHOLDERS VOTE TO APPROVE PROPOSAL 3.
PROPOSAL 4 - APPROVE OR DISAPPROVE
AN INCREASE IN THE RULE 12b-1 DISTRIBUTION FEES
CHARGED TO CLASS A SHAREHOLDERS OF THE FUNDS
FROM 25 TO 35 BASIS POINTS (CLASS A AND B SHAREHOLDERS
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<PAGE>
OF ALL FUNDS EXCEPT GROWTH LIFESTYLE FUND, MODERATE GROWTH
LIFESTYLE FUND AND CONSERVATIVE GROWTH LIFESTYLE FUND)
The Class A shareholder of each of the Funds adopted a Distribution and
Service Plan ("Plan") pursuant to Rule 12b-1 under the 1940 Act on October 7,
1998 (on March 1, 2000 for the Science & Technology Fund). Under the Plan, Class
A shareholders of each Fund pay fees to the Funds' Distributor, currently
American General Distributors, Inc. (the "Distributor"), which serves as
principal underwriter for the Funds' Class A shares. The annual compensation
payable by the Class A shareholders to the Distributor is an amount equal to
0.25 of 1% on an annual basis of the average net assets of Class A shares as
either (1) a "distribution fee" to finance distribution of those shares, or (2)
a "service fee" to finance shareholder servicing by the Distributor, its
affiliated companies and broker-dealers who sell Class A shares. The service fee
is designed to encourage and foster the maintenance of shareholder accounts. The
Plan has been approved by the Funds' Independent Trustees and continues from
year to year provided the Trustees, including a majority of the Independent
Trustees, approve such continuance at least annually. The Plan may be terminated
by a vote of the majority of the Independent Trustees or by a vote of a majority
of the outstanding voting securities of the Fund with respect to each Fund's
Plan. Each Plan may not be amended to increase materially the fees payable under
the Plan without approval of Class A shareholders with respect to their Fund's
Plan.
During the fiscal year ended October 31, 1999, the Funds paid the
following fees for distribution and servicing:
Class A
Distribution
Fund Fees
- ---- ----
Small Cap Index Fund $6,790
Socially Responsible Fund $3,693
High Yield Bond Fund $231
Municipal Money Market Fund $6,983
No distribution fees were paid with respect to the Growth Lifestyle
Fund, the Moderate Growth Lifestyle Fund and the Conservative Growth Lifestyle
Fund. For the fiscal year ended October 31, 1999, AGSPC2 with respect to all of
its fund series paid net commission to the Distributor as follows: $4,746 for
the six months ended April 30, 1999 to VALIC Investment Services Company (the
Funds' previous distributor) and $19,414 for the period May 1, 1999 to October
31, 1999 to the Distributor.
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<PAGE>
The Class A shares of the funds of the Successor Trust currently pay 35
Basis Points under their Rule 12b-1 Plans. The Board of Trustees of AGSPC2 on
behalf of the Rule 12b-1 Funds recommends that each such Fund's Plan be amended
to increase the fee from 25 Basis Points to 35 Basis Points (0.35 of 1% of the
average net assets) on an annual basis and replace the current Distributor with
AGFD, a wholly-owned subsidiary of American General which currently serves as
distributor to the Successor Trust. If the proposed change in the Rule 12b-1
distribution fee were in effect during the Funds' last fiscal years the Rule
12b-1 distribution fees paid would have been as follows:
Fund Class A
Distribution Fees
Small Cap Index Fund $9,709
Socially Responsible Fund $5,161
High Yield Bond Fund $325
Municipal Money Market Fund $9,905
Recommendation of Trustees
The Board of Trustees of AGSPC2, including the Independent Trustees,
has unanimously determined that approval of the New Sub-Advisory Agreement is in
the best interest of each Fund and its shareholders. At a meeting held on March
1 and March 2, 2000, the Board of Trustees unanimously approved the amendment to
the Plan for the Class A shares of the Rule 12b-1 Funds and recommended its
approval to shareholders. As discussed under "Recommendation of Trustees" under
Proposal 1, the Board of Trustees performed an extensive review with respect to
Conversions including the North American Funds' distribution platform.
The Board of Trustees considered a number of factors including the
nature and quality of services rendered by AGFD and the potential for an
enhanced distribution network for Class A shares which may result in long term
growth potential and economies of scale.
The Board of Trustees of AGSPC2 believes the increase in fees may
strengthen and improve the distribution and servicing of the Rule 12b-1 Funds'
Class A shares and will integrate the Rule 12b-1 Funds into the distribution
network of the North American Funds. For these reasons, the Board of Trustees
recommend that the Class A and Class B shareholders of the Rule 12b-1 Funds
approve the amendment to their Plan for the increase of Rule 12b-1 distribution
fee from 25 to 35 basis points.
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<PAGE>
Required Vote
Although only the Class A shares' Rule 12b-1 distribution fee will
change, Class B shareholders are also being asked to approve the increase
because their Class B shares convert to Class A shares after six years.
Approval of the amendment to the Plan with respect to a Fund requires
the Majority Vote of the Class A and Class B shareholders of the Fund. If the
amendment to the Plan is not approved by such classes of shareholders of a Fund,
the Board of Trustees will consider other possible courses of action which are
in the best interests of the Fund and its shareholders.
THE BOARD OF TRUSTEES OF AGSPC2, INCLUDING ALL OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT THE CLASS A AND B SHAREHOLDERS OF EACH FUND VOTE FOR THE
PROPOSAL.
PART III
VOTING INFORMATION CONCERNING THE MEETING
Record date, quorum and method of tabulation
Shareholders of record of each Fund as of the close of business on
April 17, 2000 (the "Record Date") will be entitled to notice of and to vote at
the Meeting or any adjournment thereof. The holders of a majority of the
outstanding shares of each Fund outstanding at the close of business on the
Record Date present in person or represented by proxy will constitute a quorum
for the Meeting with respect to that Fund. Shareholders are entitled to one vote
for each share held, with fractional shares voting proportionally. The number of
shares of each class of each Fund outstanding as of the close of business on May
12, 2000 is set forth in Exhibit E. All shareholders of each Fund vote together
as a single class in connection with the approval or disapproval of Proposals 1,
2 and 3, except that shareholders of the Science &Technology Fund will not vote
on Proposal 3. Class A and Class B shareholders of each Rule 12b-1 Fund only
will vote on Proposal 4. Failure to obtain the necessary vote to approve a
Proposal by one Fund will not prevent that Proposal from being approved by the
other Funds.
Votes cast by proxy or in person at the Meeting will be counted by
persons appointed by AGSPC2 as tellers for the Meeting. The tellers will count
the total number of votes cast "for" approval of each Proposal for purposes of
determining whether sufficient affirmative votes have been cast. The tellers
will count shares represented by proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (1)
instructions have not been received from the beneficial owners or the persons
entitled to vote and (ii) the broker or nominee
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<PAGE>
does not have the discretionary voting power on a particular matter) as shares
that are present and entitled to vote on the matter for purposes of determining
the presence of a quorum. Abstentions and broken non-votes will have not affect
on the outcome of the vote to approve any proposal requiring a vote based on the
percentage of shares actually voted.
Beneficial ownership
Exhibit F contains information about the beneficial ownership by
shareholders of five percent or more of each Fund's outstanding shares, as of
April 17, 2000. On that date, the existing Trustees and officers of AGSPC2,
together as a group, beneficially owned less than one percent of AGSPC2's
outstanding shares and less than one percent of any Fund.
The term "beneficial ownership" is defined under Section 13(d) of the
1934 Act. The information as to beneficial ownership is based on statements
furnished to each Fund by the existing Trustees and officers of AGSPC2 and/or on
records of the Funds' transfer agent.
Solicitation of proxies
Solicitation of proxies by personal interview, mail, fax and telephone
may be made by officers and Trustees of AGSPC2, and the officers and trustees of
the Successor Trust and employees of VALIC, AGAM, AGIM and their affiliates. In
addition, Shareholder Communications Corporation has been retained to assist in
the solicitation of proxies. The costs for solicitation of proxies, like the
other costs associated with the Conversions, will be borne by American General.
Revocation of proxies
Any shareholder granting a proxy has the power to revoke it by mail
(addressed to the Secretary of AGSPC2 at the principal office of AGSPC2 at 2929
Allen Parkway, Houston, Texas 77019) or in person at the Meeting, by executing a
superseding proxy, or by submitting a notice of revocation to the Secretary of
AGSPC2. All properly executed proxies received in time for the Meeting will be
voted as specified in the proxy, or, if no specification is made, FOR the
Proposals.
Shareholder proposals at future meetings of shareholders
The AGSPC2 Declaration of Trust does not provide for annual meetings of
shareholders, and AGSPC2 does not currently intend to hold such a meeting for
shareholders of the Funds in 2000. Shareholder proposals for inclusion in a
proxy statement for any subsequent meeting of a Fund's shareholders must be
received by
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<PAGE>
AGSPC2 a reasonable period of time prior to any such meeting. If the Conversions
are consummated, there will be no annual meetings of the shareholders of the
Successor Funds.
Adjournment
If sufficient votes in favor of any proposal are not received by the
time scheduled for the Meeting, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. Any
adjournment will require the affirmative vote of a plurality of the votes cast
on the question in person or by proxy at the session of the Meeting to be
adjourned. If the Meeting is adjourned only with respect to one Proposal, any
other Proposal may still be acted upon by the shareholders. The persons named as
proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the Proposal. They will vote against any such
adjournment those proxies required to be voted against the Proposal.
Annual and Semi-Annual Reports to Shareholders
AGSPC2 will furnish, without charge, a copy of its most recent annual
report (and most recent semi-annual report succeeding the annual report, if any)
to a shareholder of any Fund upon request. Any such request should be directed
to Customer Service of American General Fund Group at or 1-877-999-2434.
OTHER BUSINESS
The Trustees do not intend to present any other business at the
Meeting. If, however, any other matters are properly brought before the Meeting,
the persons named in the accompany proxy card(s) will vote thereon in accordance
with their judgment.
THE BOARD OF TRUSTEES OF AGSPC2, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMENDS APPROVAL OF EACH PROPOSAL. ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS
TO THE CONTRARY WILL BE VOTED FOR APPROVAL OF THE PROPOSALS.
May , 2000
---------
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<PAGE>
EXHIBIT A
[FORM OF AGREEMENT AND PLAN OF CONVERSION AND TERMINATION]
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION dated _____________
(the "Agreement"), between American General Series Portfolio Company 2, a
Delaware business trust having its principal office at 2929 Allen Parkway,
Houston, Texas 77019 (the "Original Trust") on behalf of its___________ Fund
(the "Original Fund"), one of the Original Trust's series portfolios, and North
American Funds, a Massachusetts business trust having its principal office at
286 Congress Street, Boston, Massachusetts 02210 (the "Successor Trust") on
behalf of its____________ Fund (the "Successor Fund"), one of the Successor
Trust's series portfolios.
WHEREAS, the Board of Trustees of the Original Trust and the Board of
Trustees of the Successor Trust have respectively determined that it is in the
best interests of the Original Fund and the Successor Fund, respectively, that
the assets of the Original Fund be acquired by the Successor Fund pursuant to
this Agreement and in accordance with, respectively, the applicable laws of the
Commonwealth of Massachusetts and the State of Delaware; and
WHEREAS, the parties desire to enter into plans of exchange which would
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"):
NOW THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
1. PLAN OF EXCHANGE.
(a) Subject to the terms and conditions set forth herein, on
the Exchange Date (as defined herein), the Original Fund shall assign, transfer
and convey the assets, including all securities and cash held by the Original
Fund (subject to the liabilities of the Original Fund) to the Successor Fund and
the Successor Fund shall acquire all of the assets of the Original Fund (subject
to the liabilities of the Original Fund) in exchange for full and fractional
shares of beneficial interest of the Successor Fund, $.001 par value per share
(the "Successor Fund Shares"), to be issued by the Successor Trust on behalf of
the Successor Fund, having, in the case of the Successor Fund, an aggregate net
asset value equal to the value of the net assets of the Original Fund acquired.
The value of the assets of the Original Fund and the net asset value per share
of the Successor Fund Shares shall be determined as of the Valuation Date
A-1
<PAGE>
(as defined herein) in accordance with the procedures for determining the value
of the Original Fund's assets set forth in the Successor Fund's Declaration of
Trust and the then-current prospectus and statement of additional information
for the Successor Fund that forms a part of the Successor Fund's Registration
Statement on Form N-1A (the "Registration Statement"). In lieu of delivering
certificates for the Successor Fund Shares, the Successor Trust shall credit the
Successor Fund Shares to the Original Fund's account on the share record books
of the Successor Trust and shall deliver a confirmation thereof to the Original
Fund. The Original Fund shall then deliver written instructions to the Successor
Trust's transfer agent to establish accounts for the shareholders on the share
record books relating to the Original Fund. Holders of [Class A, Class B,
Institutional Class I and Institutional Class II] shares shall receive in the
transaction described above, [Class A, Class B, Institutional Class I and
Institutional Class II shares] respectively. Successor Fund Shares of each such
class shall have the same aggregate net asset value as the aggregate net asset
value of the corresponding class of the Original Fund.
(b) Delivery of the assets of the Original Fund shall be made not later
than the next business day following the Valuation Date (the "Exchange Date").
Assets transferred shall be delivered to State Street Bank and Trust Company,
the Successor Trust's custodian (the "Custodian"), for the account of the
Successor Trust and the Successor Fund, with all securities not in bearer or
book entry form duly endorsed, or accompanied by duly executed separate
assignments or stock powers, in proper form for transfer, with signatures
guaranteed, and with all necessary stock transfer stamps, sufficient to transfer
good and marketable title thereto (including all accrued interest and dividends
and rights pertaining thereto) to the Custodian for the account of the Successor
Trust and the Successor Fund free and clear of all liens, encumbrances, rights,
restrictions and claims. All cash delivered shall be in the form of immediately
available funds payable to the order of the Custodian for the account of the
Successor Trust and the Successor Fund. All assets delivered to the Custodian as
provided herein shall be allocated by the Successor Trust to the Successor Fund.
(c) The Original Fund will pay or cause to be paid to the Successor
Trust any interest received on or after the Exchange Date with respect to assets
transferred from the Original Fund to the Successor Fund hereunder and to the
Successor Trust any distributions, rights or other assets received by the
Original Fund after the Exchange Date as distributions on or with respect to the
securities transferred from the Original Fund to the Successor Fund hereunder
and the Successor Trust shall allocate any such distributions, rights or other
assets to the Successor Fund. All such assets shall be deemed included in assets
transferred to the Successor Fund on the Exchange Date and shall not be
separately valued.
(d) The Valuation Date shall be June 29, 2000, or such earlier or later
date as may be mutually agreed upon by the parties.
A-2
<PAGE>
(e) As soon as practicable after the Exchange Date, the Original Fund
shall distribute all of the Successor Fund Shares received by it among the
shareholders of the Original Fund in proportion to the number of shares each
such shareholder holds in the Original Fund and, upon the effecting of such a
distribution on behalf of the Fund, the Original Fund will dissolve and
terminate. After the Exchange Date, the Original Fund shall not conduct any
business except in connection with its dissolution and termination.
2. THE ORIGINAL TRUST'S REPRESENTATIONS AND WARRANTIES. The
Original Trust represents and warrants to and agrees with the Successor Trust as
follows:
(a) The Original Trust is a business trust duly organized, validly
existing and in good standing under the laws of Delaware and has power to own
all of its properties and assets and, subject to the approval of its
shareholders as contemplated hereby, to carry out this Agreement on behalf of
the Original Fund.
(b) The Original Trust is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company, and such registration has not been revoked or rescinded and is in full
force and effect.
(c) On the Exchange Date, the Original Trust will have full right,
power and authority to sell, assign, transfer and deliver the assets to be
transferred by it hereunder.
(d) The current prospectuses and statement of additional information of
the Original Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act and the rules and regulations of the Securities and Exchange Commission
(the "Commission") thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(e) The Original Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of the Original Trust's Declaration of Trust or
By-Laws or of any material agreement, indenture, instrument, contract, lease, or
other undertaking to which the Original Trust or the Original Fund is a party or
by which it is bound.
(f) Except as otherwise disclosed in writing to and accepted by the
Successor Fund, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened
A-3
<PAGE>
against the Original Trust or the Original Fund or any of its or their
properties or assets, which, if adversely determined, would materially and
adversely affect their financial condition, the conduct of their business, or
the ability of the Original Trust or the Original Fund to carry out the
transactions contemplated by this Agreement. The Original Trust and the Original
Fund know of no facts that might form the basis for the institution of such
proceedings and are not parties to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially and
adversely affects their business or their ability to consummate the transactions
herein contemplated.
(g) At the Exchange Date, there has not been any material adverse
change in the Original Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Original Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Successor Trust. For the purposes of this subparagraph (h), a
decline in the net asset value of the Original Fund shall not constitute a
material adverse change.
(h) At the Exchange Date, all federal and other tax returns and reports
of the Original Fund required by law to have been filed by such dates shall have
been filed, and all federal and other taxes shown due on said returns and
reports shall have been paid, or provision shall have been made for the payment
thereof. To the best of the Original Trust's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(i) For each fiscal year of its operation, the Original Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company and has distributed in each such year all net
investment income and realized capital gains required to so qualify.
(j) All issued and outstanding shares of the Original Fund are, and at
the Exchange Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Original Fund. All of the issued and outstanding
shares of the Original Fund will, at the time of the Exchange Date, be held by
the persons and in the amounts set forth in the records of the transfer agent.
The Original Fund does not have outstanding any options, warrants, or other
rights to subscribe for or purchase any of the Original Fund shares, nor is
there outstanding any security convertible into any of the Original Fund shares.
(k) At the Exchange Date, the Original Trust will have good and
marketable title to the Original Fund's assets to be transferred to the
Successor Fund pursuant to Section 1 and full right, power, and authority to
sell, assign, transfer, and deliver such assets hereunder, and, upon delivery
and payment for such assets, the Successor
A-4
<PAGE>
Trust will acquire good and marketable title thereto, subject to no restrictions
on the full transfer thereof, including such restrictions as might arise under
the 1933 Act, other than as disclosed to the Successor Trust and accepted by the
Successor Trust.
(l) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Original Fund
and, subject to the approval of the shareholders of the Original Trust on behalf
of the Original Fund, this Agreement constitutes a valid and binding obligation
of the Original Trust on behalf of the Original Fund, enforceable in accordance
with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(m) The information furnished by the Original Fund for use in no-action
letters, applications for orders, registration statements, proxy materials, and
other documents that may be necessary in connection with the transactions
contemplated hereby is accurate and complete in all material respects and
complies in all material respects with federal securities and other laws and
regulations thereunder applicable thereto.
3. THE SUCCESSOR TRUST'S REPRESENTATIONS AND WARRANTIES. The Successor Trust
represents and warrants to and agrees with the Original Trust as follows:
(a) The Successor Trust is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has power to carry on its business as it is now being
conducted and to carry out this Agreement on behalf of the Successor Fund.
(b) The Successor Trust is registered as an open-end management
investment company and adopts the Registration Statement of the Original Trust
and the Original Fund, for purposes of the 1933 Act.
(c) At the Exchange Date, the Successor Fund Shares to be issued to the
Original Fund will have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will be fully
paid and non- assessable by the Successor Trust. No Successor Trust or Successor
Fund shareholder will have any preemptive right of subscription or purchase in
respect thereof.
(d) The current prospectuses and statement of additional information of
the Successor Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state
A-5
<PAGE>
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(e) The Successor Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Successor
Trust's Amended and Restated Agreement and Declaration of Trust or By-Laws or of
any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Successor Trust is a party or by which it is bound.
(f) Except as otherwise disclosed in writing to the Original Trust and
accepted by the Original Trust, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Successor Trust or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Successor Trust to carry out the transactions contemplated by
this Agreement. The Successor Trust knows of no facts that might form the basis
for the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(g) The Successor Fund has no known liabilities of a material amount,
contingent or otherwise.
(h) At the Exchange Date, there has not been any material adverse
change in the Successor Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Successor Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Original Trust. For the purposes of this subparagraph (h), a
decline in the net asset value of the Successor Fund shall not constitute a
material adverse change.
(i) At the Exchange Date, all federal and other tax returns and reports
of the Successor Fund required by law then to be filed by such date shall have
been filed, and all federal and other taxes shown due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof. To the best of the Successor Trust's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Successor Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company and has distributed in each such year all net
investment income and realized capital gains required to so qualify.
A-6
<PAGE>
(k) All issued and outstanding Successor Fund Shares are, and at the
Exchange Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The Successor Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Successor Fund
Shares, nor is there outstanding any security convertible into any Successor
Fund Shares.
(l) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Successor Trust,
and this Agreement constitutes a valid and binding obligation of the Successor
Trust enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights and to general equity principles.
(m) The Successor Fund Shares to be issued and delivered to the
Original Trust, for the account of the Original Fund shareholders, pursuant to
the terms of this Agreement will, at the Exchange Date, have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Successor Fund Shares, and will be fully paid and non-assessable.
(n) The information furnished by the Successor Trust for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations applicable thereto.
4. THE SUCCESSOR TRUST'S CONDITIONS PRECEDENT. The obligations
of the Successor Trust hereunder shall be subject to the following conditions:
(a) The Original Trust shall have furnished to the Successor Trust a
statement of the Original Fund's assets, including a list of securities owned by
the Original Fund with their respective tax costs and values determined as
provided in Section 1 hereof, all as of the Exchange Date.
(b) As of the Exchange Date, all representations and warranties of the
Original Trust on behalf of the Original Fund made in this Agreement shall be
true and correct as if made at and as of such date, and the Original Trust on
behalf of the Original Fund shall have complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such date.
(c) The Successor Trust shall have received an opinion of Sullivan &
Worcester LLP, counsel to the Original Trust, in a form satisfactory to the
Successor Fund, and dated as of the Exchange Date, to the effect that;
A-7
<PAGE>
(i) the Original Trust is a Delaware business trust duly formed and is
validly existing under the laws of the State of Delaware and has the power to
own all its properties and to carry on its business as presently conducted;
(ii) this Agreement has been duly authorized, executed and delivered by
the Original Trust on behalf of the Original Fund and, assuming that the
Successor Fund's Prospectus and the Original Fund's Proxy Statement comply with
the 1933 Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by the Successor Trust on behalf of the
Successor Fund, is a valid and binding obligation of the Original Trust and the
Original Fund;
(iii) the Original Trust, on behalf of the Original Fund, has power to
sell, assign, convey, transfer and deliver the assets contemplated hereby and,
upon consummation of the transactions contemplated hereby in accordance with the
terms of this Agreement, the Original Fund will have duly sold, assigned,
conveyed, transferred and delivered such assets to the Successor Fund;
(iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate the
Original Trust's Declaration of Trust or By-laws or any provision of any
agreement known to such counsel to which the Original Trust or the Original Fund
is a party or by which it is bound; and
(v) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is required for
the consummation by the Original Trust on behalf of the Original Fund of the
transactions contemplated hereby, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act and such as may be required under state
securities or blue sky laws.
(d) For the Original Trust, a vote approving this Agreement and the
transactions and exchange contemplated hereby shall have been duly adopted by
the shareholders of the Original Fund.
5. THE ORIGINAL TRUST'S CONDITIONS PRECEDENT. The obligations of
the Original Trust hereunder shall be subject to the following conditions:
(a) that as of the Exchange Date all representations and warranties of
the Successor Trust made in the Agreement shall be true and correct as if made
at and as of such date, and that the Successor Trust shall have complied with
all of the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such date.
A-8
<PAGE>
(b) The Original Trust shall have received an opinion from Ropes &
Gray, counsel to the Successor Trust, in a form satisfactory to the Original
Fund, and dated as of the Exchange Date, to the effect that:
(i) The Successor Trust is a Massachusetts business trust duly
formed and is validly existing under the laws of the Commonwealth of
Massachusetts and has the power to own all its properties and to carry on its
business as presently conducted;
(ii) the Shares to be delivered to the Original Fund as
provided for by this Agreement are duly authorized and upon such delivery will
be validly issued and will be fully paid and, except as described in the
Successor Fund's Prospectus, non- assessable by the Successor Trust and the
Successor Fund and that no shareholder of the Successor Fund has any preemptive
right to subscription or purchase in respect thereof;
(iii) This Agreement has been duly authorized, executed and
delivered by the Successor Trust on behalf of the Successor Fund and, assuming
that the Registration Statement, the Successor Fund's Prospectus and the
Original Fund's Proxy Statement comply with the 1933 Act, the 1934 Act and the
1940 Act and assuming due authorization, execution and delivery of this
Agreement by the Original Trust on behalf of the Original Fund, is a valid and
binding obligation of the Successor Trust and the Successor Fund;
(iv) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, violate the
Successor Trust's Amended and Restated Agreement and Declaration of Trust, as
amended or Bylaws or any provision of any agreement known to such counsel to
which the Successor Trust or the Successor Fund is a party or by which it is
bound; and
(v) no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by the Successor
Trust on behalf of the Successor Fund of the transactions contemplated hereby,
except such as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act and such as may be required under state securities or blue sky laws.
Such opinion shall contain such assumptions and limitations as shall be in the
opinion of Ropes & Gray appropriate to render the opinions expressed therein.
6. THE SUCCESSOR TRUST'S AND THE ORIGINAL TRUST'S CONDITIONS PRECEDENT. The
obligations of both the Successor Trust and the Original Trust hereunder as
to the Successor Fund and the Original Fund respectively, shall be subject
to the following conditions:
A-9
<PAGE>
(a) The receipt of such authority, including "no-action" letters and
orders from the Commission or state securities commissions, as may be necessary
to permit the parties to carry out the transaction contemplated by this
Agreement shall have been received.
(b) The Successor Trust's adoption of the Registration Statement on
Form N- 1A under the 1933 Act shall have become effective, and any
post-effective amendments to such Registration Statement as are determined by
the Trustees of the Successor Trust to be necessary and appropriate, shall have
been filed with the Commission and shall have become effective.
(c) The Commission shall not have issued an unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted nor threatened to institute
any proceeding seeking to enjoin consummation of the reorganization transactions
contemplated hereby under Section 25(c) of the 1940 Act and no other action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency which seeks to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
(d) All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Successor Fund or the Original Fund,
provided that either party hereto may for itself waive any of such conditions.
(e) The parties shall have received an opinion of Ropes & Gray (which
opinion would be based upon certain factual representations and subject to
certain qualifications) addressed to the Successor Fund and the Original Fund
substantially to the effect that, on the basis of the existing provisions of the
Code, current administrative rules and court decisions, for federal income tax
purposes:
(i) The transfer of all of the Original Fund assets in
exchange for the Successor Fund Shares and the assumption by the Successor Fund
of all the liabilities of the Original Fund followed by the distribution of the
Successor Fund Shares to the Original Fund shareholders in dissolution and
liquidation of the Original Fund will constitute a "reorganization" within the
meaning of Section 368(a) of the Code and the Successor Fund and the Original
Fund will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code.
A-10
<PAGE>
(ii) No gain or loss will be recognized by the Successor Fund
upon the receipt of the assets of the Original Fund in exchange for the
Successor Fund Shares and the assumption by the Successor Fund of the
liabilities of the Original Fund.
(iii) No gain or loss will be recognized by the Original Fund
upon the transfer of the Original Fund's assets to the Successor Fund in
exchange for the Successor Fund Shares and the assumption by the Successor Fund
of the liabilities of the Original Fund or upon the distribution of the
Successor Fund Shares by the Original Fund to its shareholders in liquidation.
(iv) No gain or loss will be recognized by the Original Fund
shareholders upon the exchange of their Original Fund shares for the Successor
Fund Shares.
(v) The tax basis for the Successor Fund Shares received by
each Original Fund shareholder pursuant to the transactions contemplated by this
Agreement will be the same as the tax basis of the Original Fund shares
exchanged for the Successor Fund shares, and the holding period of the Successor
Fund Shares to be received by each Original Fund shareholder will include the
period during which the Original Fund shares exchanged therefor were held by
such shareholder (provided the Original Fund shares were held as capital assets
on the date of the transactions contemplated by this Agreement).
(vi) The tax basis of the Original Fund assets acquired by the
Successor Fund will be the same as the tax basis of such assets in the hands of
the Original Fund immediately prior to the transactions contemplated by this
Agreement, and the holding periods of the assets of the Original Fund in the
hands of the Successor Fund will include the period during which those assets
were held by the Original Fund.
Notwithstanding anything herein to the contrary, neither the Successor
Fund nor the Original Fund may waive the conditions set forth in Section 6.
Provided, however, that at any time prior to the Exchange Date, any of
the foregoing conditions in this Section 6 may be waived by the parties if, in
the judgment of the parties, such waiver will not have a material adverse effect
on the benefits intended under the Agreement to the shareholders of the Original
Fund.
7. INDEMNIFICATION. The Successor Trust hereby agrees with the Original
Trust and each Trustee of the Original Trust: (i) to indemnify each Trustee of
the Original Trust against all liabilities and expenses referred to in the
indemnification provisions of the Original Trust's organizational documents, to
the extent provided therein, incurred by any Trustee of the Original Trust; and
(ii) in addition to the indemnification provided in (i) above, to indemnify each
Trustee of the Original Trust
A-11
<PAGE>
against all liabilities and expenses and pay the same as they arise and become
due, without any exception, limitation or requirement of approval by any person,
and without any right to require repayment thereof by any such Trustee (unless
such Trustee has had the same repaid to him or her) based upon any subsequent or
final disposition or findings made in connection therewith or otherwise, if such
action, suit or other proceeding involves such Trustee's participation in
authorizing or permitting or acquiescing in, directly or indirectly, by action
or inaction, the making of any distribution in any manner of all or any assets
of the Original Fund without making provision for the payment of any liabilities
of any kind, fixed or contingent, of the Original Fund, which liabilities were
not actually and consciously personally known to such Trustee to exist at the
time of such Trustee's participation in so authorizing or permitting or
acquiescing in the making of any such distribution.
8. TERMINATION OF AGREEMENT. As to the Original Fund and the
corresponding Successor Fund, this Agreement and the transactions contemplated
hereby may be terminated and abandoned by resolution of the Board of Trustees of
the Original Trust or the Board of Trustees of the Successor Trust, at any time
prior to the Exchange Date (and notwithstanding any vote of the shareholders of
the Original Fund) if circumstances should develop that, in the opinion of
either the Board of Trustees of the Original Trust or the Board of Trustees of
the Successor Trust, make proceeding with this Agreement inadvisable.
As to the Original Fund and the Successor Fund, if this Agreement is
terminated and the exchange contemplated hereby is abandoned pursuant to the
provisions of this Section 8, this Agreement shall become void and have no
effect, without any liability on the part of any party hereto or the Trustees,
officers or shareholders of the Successor Trust or the Trustees, officers or
shareholders of the Original Trust, in respect of this Agreement.
9. WAIVER AND AMENDMENTS. At any time prior to the Exchange Date, any
of the conditions set forth in Section 4 may be waived by the Board of Trustees
of the Successor Trust, and any of the conditions set forth in Section 5 may be
waived by the Board of Trustees of the Original Trust, if, in the judgment of
the waiving party, such waiver will not have a material adverse effect on the
benefits intended under this Agreement to the shareholders of the Original Fund
or the shareholders of the Successor Fund, as the case may be. In addition,
prior to the Exchange Date, any provision of this Agreement may be amended or
modified by the Board of Trustees of the Original Trust and the Board of
Trustees of the Successor Trust in such manner as may be mutually agreed upon in
writing by such Trustees if such amendment or modification would not have a
material adverse effect upon the benefits intended under this Agreement and
would be consistent with the best interests of shareholders.
A-12
<PAGE>
10. NO SURVIVAL OF REPRESENTATIONS. None of the representations and warranties
included or provided for herein shall survive consummation of the
transactions contemplated hereby.
11. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to principles of conflict of laws; provided, however, that the due
authorization, execution and delivery of this Agreement, in the case of the
Original Trust, shall be governed and construed in accordance with the laws of
the State of Delaware without giving effect to principles of conflict of laws.
12. CAPACITY OF TRUSTEES, ETC. With respect to both the Original Trust
and the Successor Trust, the names used herein refer respectively to the Trust
created and, as the case may be, the Trustees, as trustees but not individually
or personally, acting from time to time under organizational documents filed in
Delaware in the case of the Original Trust and Massachusetts, in the case of the
Successor Trust, which are hereby referred to and are also on file at the
principal offices of the Original Trust or, as the case may be, the Successor
Trust. The obligations of the Original Trust or of the Successor Trust entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents of the Original Trust or the Successor Trust, as the case may be, are
made not individually, but in such capacities, and are not binding upon any of
the Trustees, shareholders or representatives of the Original Trust or, as the
case may be, the Successor Trust personally, but bind only the trust property,
and all persons dealing with any Original Fund of the Original Trust or any
Successor Fund of the Successor Trust must look solely to the trust property
belonging to such Original Fund or, as the case may be, Successor Fund for the
enforcement of any claims against the Original Fund or, as the case may be,
Successor Fund.
13. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which, when executed and delivered, shall be deemed to be an original.
A-13
<PAGE>
IN WITNESS WHEREOF, the Original Trust and the Successor Trust have
caused this Agreement and Plan of Conversion and Termination to be executed as
of the date above first written.
[Original Trust on behalf of]
[Original Fund]
ATTEST:_______________________ By:___________________________
Title:
[Successor Trust]
on behalf of
[Successor Fund]
ATTEST:_______________________ By:___________________________
Title:
A-14
<PAGE>
EXHIBIT B
MANAGEMENT OF THE SUCCESSOR TRUSTS
The Successor Trust is supervised by a Board of Trustees that is
responsible for representing the interests of the shareholders. The Trustees
meet periodically throughout the year to oversee the Successor Funds'
activities, reviewing, among other things, each Successor Fund's performance and
its contractual arrangements with various service providers. Each Trustee is
paid a fee for his or her services.
The Successor Trust has an Administration Committee. The Administration
Committee functions as an audit committee, a contract committee and a nominating
committee. It is anticipated that as of the date of the Conversions such
Committee will consist of Messrs. [____________________] each of whom will be an
Independent Trustee.
Set forth below are the anticipated Trustees and officers of the
Successor Trust as of the date of the Conversions and their principal
occupations and affiliations over the last five years. Unless otherwise
indicated, the address for each Trustee and officer is 286 Congress Street,
Boston, Massachusetts 02210.
[Chart to be updated with respect to Trustees' other Trustee and Director
positions specifically with respect to American General funds]
B-1
<PAGE>
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for
Last Five Years
<S> <C> <C> <C>
Dr. Judith L. Craven Trustee Retired Administrator;
Age: 54 Formerly President, United
Way
of
the
Texas
Gulf
Coast
(1992
-
1998);
Director,
Houston
Branch,
Federal
Reserve
Bank
of
Dallas
(1992
-
Present),
Compaq
Computer
Corporation
(1998
-
Present);
Luby's
Inc.
(1998
-
Present),
A.H.
Belo
Corporation
(journalism,
TV
and
radio)
(1993
-
Present)
and
Sysco
Corporation
(marketing
and
distribution
of
food)
(1996
-
Present).
Formerly,
Board
Member,
Sisters
of
Charity
of
the
Incarnate
Word
(1996
-
1999).
William F. Devin Trustee Member of the Board of
Age: 61 Governors of the Boston
Stock Exchange. Retired
Executive Vice President
of Fidelity Capital Markets,
a division of National
Financial Services
Corporation in Boston.
Director, North American
Senior Floating Rate Fund,
Inc. (February, 1998 -
Present) and CypressTree
Senior Floating Rate Fund,
Inc. (July, 1997 -
Present).
B-2
<PAGE>
Name Position with Trust Principal Occupations for
Dr. Timothy J. Ebner Trustee Professor and Head,
Age: 50 Department of
Neuroscience and
Physiology (1998 -
Present); Director,
Graduate Program in
Neuroscience, University
of Minnesota (1991 -
1999). Formerly,
Consultant to EMPI, Inc.
(1994 - 1995) and
Medtronic Inc.
(manufacturers of medical
products) (1997 - 1998).
Joseph T. Grause, Jr.* Trustee and Vice President President, AGAM (March
Age: 47 2000 - Present); Executive
Vice President of Cypress
Holding Company, Inc.
(1995 - March, 2000);
Senior Vice President of
Sales and Marketing, The
Shareholder Services
Group, a subsidiary of
First Data Corporation
(1993 - 1995).
Judge Gustavo E. Trustee Municipal Court Judge,
Gonzales, Jr Dallas, Texas (1995 -
Age: 59 Present); Director,
Downtown
Dallas
YMCA
Board
(1996
-
Present);
Director,
Dallas
Easter
Seals
Society
(1997
-
Present).
Formerly,
private
attorney
(litigation)
(1980
-
1995).
B-3
<PAGE>
Name Position with Trust Principal Occupations for
Alice T. Kane* Chair of the Board of President of American
Age: 52 Trustees and President General Fund Group (1999
-
Present);
Formerly,
Executive
Vice
President,
American
General
Investment
Management,
LP.
(1998
-
1999);
Formerly,
Executive
Vice
President,
(1994
-
1998)
and
General
Counsel
(1986
-
1995)
New
York
Life
Insurance
Company;
Chair,
MainStay
Mutual
Funds
(1994
-
1998).
President
of
other
investment
companies
advised
by
The
Variable
Annuity
Life
Insurance
Company.
Kenneth J. Lavery Trustee Vice President of
Age: 50 Massachusetts Capital
Resource Company.
Director, North American
Senior Floating Rate Fund,
Inc. (February, 1998 -
Present) and CypressTree
Senior Floating Rate Fund,
Inc. (July 1997 - Present).
Ben H. Love Trustee Retired. Formerly,
Age:69 Director, Mid-American
(waste products) (1993 -
1997). Formerly, Chief
Executive, Boy Scouts of
America. (1985 - 1993).
B-4
<PAGE>
Name Position with Trust Principal Occupations for
Dr. John E. Maupin, Jr. Trustee President, Meharry
Age: 53 Medical College, Nashville
Tennessee
(1994
-
Present);
Nashville
Advisory
Board
Member,
First
American
National
Bank
(1996
-
Present);
Director,
Monarch
Dental
Corporation
(1997
-
Present),
LifePoint
Hospitals,
Inc.
(1998
-
Present).
Thomas J. Brown Treasurer Chief Financial Officer and
Age: 53 Chief Administrative
Officer,
AGAM
(March
2000-Present);
Principal
of
Cypress
Holding
Company,
Inc.
(July
1997
-
March
2000);
consultant
to
the
financial
services
industry
(October
1995
-
July
1997);
Executive
Vice
President,
Boston
Company
Advisory
(August
1994
-
October
1995).
John I. Fitzgerald Secretary Counsel, AGAM (April
Age: 52 1997 - Present); Counsel,
AGFD
(April
1997
-
Present);
Prior
to
April
1997,
Executive
Vice
President
--
Legal
Affairs
and
Government
Relations
at
the
Boston
Stock
Exchange.
B-5
<PAGE>
Name Position with Trust Principal Occupations for
John N. Packs Vice President and Director of Research,
Age: 44 Assistant Treasurer AGAM (March 2000 -
Present);
Vice
President,
Cypress
Holding
Company
(November
1995
-
March
2000);
Prior
to
November
1995,
Investment
Professional,
Allmerica
Financial
Services.
</TABLE>
*Is an "interested person" of the Successor Trust (as defined by the 1940 Act)
B-6
<PAGE>
EXHIBIT C
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of June ___, 2000, between American General Asset
Management Corp., a Delaware corporation (the "Adviser"), and American General
Investment Management L.P., a Delaware limited partnership (the "Subadviser").
In con sideration of the mutual covenants contained herein, the parties agree as
follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of North American Funds (the "Trust")
and the terms of this Agreement, to manage the investment and reinvestment of
the assets of the series of the Trust specified in Appendix A to this Agreement
as it shall be amended by the Adviser and the Subadviser from time to time (the
"Funds"). The Subadviser will be an independent contractor and will have no
authority to act for or represent the Trust or Adviser in any way except as
expressly authorized in this Agreement or another writing by the Trust and
Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. Subject always to the direction and control of the Trustees of
the Trust, the Subadviser will manage the investments and
determine the composition of the assets of the Funds in
accordance with the Funds' registration statement, as amended.
In fulfilling its obligations to manage the investments and
reinvestments of the assets of the Funds, the Subadviser will:
i. obtain and evaluate pertinent economic, statistical,
financial and other information affecting the economy
generally and individual companies or industries the
securities of which are included in the Funds or are under
consideration for inclusion in the Funds;
ii. formulate and implement a continuous investment program for
each Fund consistent with the investment objectives and
related investment policies for each such Fund as described
in the Trust's registration statement, as amended;
iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of securities
including the placing of orders for such purchases and
sales;
C-1
<PAGE>
iv. regularly report to the Trustees of the Trust
with respect to the implementation of these investment
programs; provide assistance to the Trust's Custodian
regarding the fair value of securities held by the Funds for
which market quotations are not readily available for purposes
of enabling the Trust's Custodian to calculate net asset
value; and vote proxies in accordance with the Proxy Voting
Policy of the Trust.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of
personnel required for it to execute its duties faithfully,
and (ii) administrative facilities, including bookkeeping,
clerical personnel and equipment necessary for the efficient
conduct of the investment affairs of the Funds (excluding
determination of net asset value and shareholder accounting
services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser
will place all orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if ap plicable. The Subadviser is
directed at all times to seek to execute brokerage transactions
for the Funds in accordance with such policies or practices as
may be established by the Trustees and described in the Trust's
registration statement as amended. The Subadviser may pay a
broker-dealer which provides research and brokerage services a
higher spread or commission for a particular transaction than
otherwise might have been charged by another broker-dealer, if
the Subadviser determines that the higher spread or commission is
reasonable in relation to the value of the brokerage and research
services that such broker-dealer provides, viewed in terms of
either the particular transaction or the Subadviser's overall
responsibilities with respect to accounts managed by the
Subadviser. The Subadviser may use for the benefit of the
Subadviser's other clients, or make available to companies
affiliated with the Subadviser or to its directors for the
benefit of its clients, any such brokerage and research services
that the Subadviser obtains from brokers or dealers.
d. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients of the Subadviser, the Subadviser to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation
to, aggregate the securities to be purchased or sold to attempt to
obtain a more favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the
Subadviser considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to its other clients.
C-2
<PAGE>
The Subadviser will maintain all accounts, books and records with
respect to the Funds as are required of an investment adviser of a
registered investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act") and Investment Advisers Act
of 1940, as amended (the "Investment Advisers Act") and the rules
thereunder.
The Subadviser agrees to observe and comply with Rule 17j-1under the
Investment Company Act and its Code of Ethics (which shall comply in
all material respects with Rule 17j-1, as the same may be amended from
time to time). On a quarterly basis, the Subadviser will either (i)
certify to the Adviser that the Subadviser and its Access Persons have
complied with the Subadviser's Code of Ethics with respect to the Fund
or (ii) identify any material violations which have occurred with
respect to the Fund. In addition, the Subadviser will report at least
annually to the Adviser concerning any other violations of the
Subadviser's Code of Ethics which required significant remedial action
and which were not previously reported.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Fund the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its employees shall be liable to the
Adviser or Trust for any loss suffered by the Adviser or Trust resulting from
any error of judgment made in the good faith exercise of the Subadviser's
investment discretion in connection with selecting Fund investments except for
losses resulting from willful misfeasance, bad faith or gross negligence of, or
from reckless disregard of, the duties of the Subadviser or any of its partners
or employees; and neither the Subadviser nor any of its employees shall be
liable to the Adviser or Trust for any loss suffered by the Adviser or Trust
resulting from any other matters to which this Agreement relates (i.e., those
other matters specified in Sections 2 and 8 of this Agreement), except for
losses resulting from willful misfeasance, bad faith, or gross negligence in the
performance of, or from disregard of, the duties of the Subadviser or any of its
partners or employees.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may enter into arrangements with other persons
affiliated with the Subadviser to better enable it to fulfill its obligations
under this Agreement for the provision of certain personnel and facilities to
the Subadviser.
6. CONFLICTS OF INTEREST
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<PAGE>
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as trustees, officers,
partners or otherwise; that directors, officers, agents and partners of the
Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Certificate of
Incorporation of the Subadviser, respectively, or by specific provision of
applicable law.
7. REGULATION
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Fund on the
later of (i) its execution, and (ii) the date of the meeting of the shareholders
of the Fund, at which meeting this Agreement is approved by the vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Fund. The Agreement will continue in effect for a period
more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees of
the Trust or by a majority of the outstanding voting securities of each of the
Funds, provided that in either event such continuance shall also be approved by
the vote of a majority of the Trustees of the Trust who are not interested
persons (as defined in the Investment Company Act) of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval of the Agreement or of any
continuance of the Agreement shall be effective with respect to any Fund if a
majority of the outstanding voting securities of the series (as defined in Rule
18f-2(h) under the Investment Company Act) of shares of that Fund votes to
approve the Agreement or its continuance, notwithstanding that the Agreement or
its continuance may not have been approved by a majority of the outstanding
voting securities of (a) any other Fund affected by the Agreement or (b) all the
series of the Trust.
If the shareholders of any Fund fail to approve the New Sub-Advisory
Agreement the Subadviser will continue to act as investment subadviser with
respect to such Fund pending the required approval of the Agreement or its
continuance or of any contract with the Subadviser or a different adviser or
subadviser or other definitive action; provided, that the compensation received
by the Subadviser in respect of such Fund during such period is in compliance
with Rule 15a-4 under the Investment Company Act.
C-4
<PAGE>
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Fund by the
vote of a majority of the outstanding voting securities of such Fund, on sixty
days' written notice to the Adviser and the Subadviser, or by the Adviser or
Subadviser on sixty days' written notice to the Trust and the other party. This
agreement will automatically terminate, without the payment of any penalty, in
the event of its assignment (as defined in the Investment Company Act) or in the
event the Advisory Agreement between the Adviser and the Trust terminates for
any reason.
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under the
Investment Advisers Act or under the laws of any jurisdiction in which the
Subadviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, involving the affairs of the Trust; and
c. any change in actual control or management of the Subadviser or the
portfolio manager of any Fund.
10. PROVISION OF CERTAIN INFORMATION BY THE ADVISER
The Adviser shall furnish the Subadviser with copies of the Trust's
Prospectus and Statement of Additional Information, and any reports made by the
Trust to its shareholders, as soon as practicable after such documents become
available. The Adviser shall furnish the Subadviser with any further documents,
materials or information that the Subadviser may reasonably request to enable it
to perform its duties pursuant to this Agreement.
11. SERVICES TO OTHER CLIENTS
The Adviser understand, and has advised the Trust's Board of Trustees,
that the Subadviser now acts, or may in the future act, as an investment adviser
to fiduciary and other managed accounts and as investment adviser or subadviser
to other investment companies. Further, the Adviser understands, and has advised
the Trust's Board of
C-5
<PAGE>
Trustees that the Subadviser and its affiliates may give advice and take action
for its accounts, including investment companies, which differs from advice
given on the timing or nature of action taken for the Fund. The Subadviser is
not obligated to initiate transaction for the Portfolio in any security which
the Subadviser, its principals, affiliates or employees may purchase or sell for
their own accounts or other clients.
12. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of each of the Funds affected by the amendment and by the vote of a
majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
that Fund vote to approve the amendment, notwithstanding that the amendment may
not have been approved by a majority of the outstanding voting securities of (a)
any other Fund affected by the amendment or (b) all the series of the Trust.
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
14. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
15. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
16. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
17. GOVERNING LAW
C-6
<PAGE>
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
18. LIMITATION OF LIABILITY
The Amended and Restated Agreement and Declaration of Trust dated
February 18, 1994, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of The Commonwealth of
Massachusetts, provides that the name "North American Funds" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property, for the satisfaction of any obligation or claim, in connection
with the affairs of the Trust or any portfolio thereof, but only the assets
belonging to the Trust, or to the particular portfolio with which the obligee or
claimant dealt, shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
AMERICAN GENERAL ASSET MANAGEMENT CORP.
by:__________________________________
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P.
by:____________________________
C-7
<PAGE>
APPENDIX A
The Subadviser shall serve as investment subadviser for the following
Funds of the Trust. The Adviser will pay the Subadviser, as full compensation
for all services provided under this Agreement, the fee computed separately for
each such Fund at an annual rate as follows (the "Subadviser Percentage Fee"):
U.S. Government Securities Fund: .225% of the first $200,000,000, .15%
between $200,000,000 and $500,000,000 and .10% on the excess over
$500,000,000 of the average net assets of the Fund.
Municipal Bond Fund: .25% of the first $200,000,000, .20% between
$200,000,000 and $500,000,000 and .15% on the excess over $500,000,000
of the average net assets of the Fund.
Strategic Income Fund: .35% of the first $200,000,000, .25% between
$200,000,000 and $500,000,000 and .20% on the excess over $500,000,000
of the average net assets of the Fund.
Money Market Fund: .075% of the first $500,000,000 and .020% on the
excess over $500,000,000 o f the average net assets of the Fund.
Core Bond Fund: .25% of the first $200,000,000, .20% between
$200,000,000 and $500,000,000 and .15% on the excess over $500,000,000
of the average net assets of the Fund.
High Yield Bond Fund: .450% of the first $200,000,000; .350% between
$200,000,000 and $500,000,000 and .300% on the excess over $500,000,000
of the average net assets of the Fund.
Municipal Money Market Fund: .250% of the first $200,000,000; .200% between
$200,000,000 and $500,000,000 and .150% on the excess over $500,000,000 of
the average net assets of the Fund.
Stock Index Fund: .020% of the first $2 billion and .010% on the excess
over $2 billion of the average net assets of the Fund.
Small Cap Index Fund: .030% of the first $150,000,000 and .020% on the
excess over $150,000,000 of the average net assets of the Fund.
Socially Responsible Fund: .250% of the Fund's average daily assets.
Growth Lifestyle Fund: .100% of the Fund's average daily assets.
C-8
<PAGE>
Moderate Growth Lifestyle Fund: .100% of the Fund's average daily assets.
Conservative Growth Lifestyle Fund: .100% of the Fund's average daily assets.
The Subadviser Percentage Fee for each Fund shall be accrued for each
calendar day and the sum of the daily fee accruals shall be paid monthly to the
Subadviser. The daily fee accruals will be computed by multiplying the fraction
of one over the number of calendar days in the year by the applicable annual
rate described in the preceding paragraph, and multiplying this product by the
net assets of the Fund as determined in ac cordance with the Trust's prospectus
and statement of additional information as of the close of business on the
previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
C-9
<PAGE>
EXHIBIT D
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of June ___, 2000, between American General Asset
Management Corp., a Delaware corporation (the "Adviser"), and American General
Investment Management L.P., a Delaware limited partnership (the "Subadviser").
In con sideration of the mutual covenants contained herein, the parties agree as
follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of North American Funds (the "Trust")
and the terms of this Agreement, to manage the investment and reinvestment of
the assets of the series of the Trust specified in Appendix A to this Agreement
as it shall be amended by the Adviser and the Subadviser from time to time (the
"Funds"). The Subadviser will be an independent contractor and will have no
authority to act for or represent the Trust or Adviser in any way except as
expressly authorized in this Agreement or another writing by the Trust and
Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. Subject always to the direction and control of the Trustees of
the Trust, the Subadviser will manage the investments and
determine the composition of the assets of the Funds in
accordance with the Funds' registration statement, as amended.
In fulfilling its obligations to manage the investments and
reinvestments of the assets of the Funds, the Subadviser will:
i. obtain and evaluate pertinent economic, statistical,
financial and other information affecting the economy
generally and individual companies or industries the
securities of which are included in the Funds or are under
consideration for inclusion in the Funds;
ii. formulate and implement a continuous investment program for
each Fund consistent with the investment objectives and
related investment policies for each such Fund as described
in the Trust's registration statement, as amended;
iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of securities
including the placing of orders for such purchases and
sales;
D-1
<PAGE>
iv. regularly report to the Trustees of the Trust
with respect to the implementation of these investment
programs; provide assistance to the Trust's Custodian
regarding the fair value of securities held by the Funds for
which market quotations are not readily available for purposes
of enabling the Trust's Custodian to calculate net asset
value; and vote proxies in accordance with the Proxy Voting
Policy of the Trust.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of
personnel required for it to execute its duties faithfully,
and (ii) administrative facilities, including bookkeeping,
clerical personnel and equipment necessary for the efficient
conduct of the investment affairs of the Funds (excluding
determination of net asset value and shareholder accounting
services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser
will place all orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if ap plicable. The Subadviser is
directed at all times to seek to execute brokerage transactions
for the Funds in accordance with such policies or practices as
may be established by the Trustees and described in the Trust's
registration statement as amended. The Subadviser may pay a
broker-dealer which provides research and brokerage services a
higher spread or commission for a particular transaction than
otherwise might have been charged by another broker-dealer, if
the Subadviser determines that the higher spread or commission is
reasonable in relation to the value of the brokerage and research
services that such broker-dealer provides, viewed in terms of
either the particular transaction or the Subadviser's overall
responsibilities with respect to accounts managed by the
Subadviser. The Subadviser may use for the benefit of the
Subadviser's other clients, or make available to companies
affiliated with the Subadviser or to its directors for the
benefit of its clients, any such brokerage and research services
that the Subadviser obtains from brokers or dealers.
d. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients of the Subadviser, the Subadviser to the extent permitted
by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be purchased or sold
to attempt to obtain a more favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Subadviser in
the manner the Subadviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its
other clients.
D-2
<PAGE>
The Subadviser will maintain all accounts, books and records with
respect to the Funds as are required of an investment adviser of a
registered investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act") and Investment Advisers Act
of 1940, as amended (the "Investment Advisers Act") and the rules
thereunder.
The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics (which shall comply in
all material respects with Rule 17j-1, as the same may be amended from
time to time). On a quarterly basis, the Subadviser will either (i)
certify to the Adviser that the Subadviser and its Access Persons have
complied with the Subadviser's Code of Ethics with respect to the Fund
or (ii) identify any material violations which have occurred with
respect to the Fund. In addition, the Subadviser will report at least
annually to the Adviser concerning any other violations of the
Subadviser's Code of Ethics which required significant remedial action
and which were not previously reported.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Fund the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its employees shall be liable to the
Adviser or Trust for any loss suffered by the Adviser or Trust resulting from
any error of judgment made in the good faith exercise of the Subadviser's
investment discretion in connection with selecting Fund investments except for
losses resulting from willful misfeasance, bad faith or gross negligence of, or
from reckless disregard of, the duties of the Subadviser or any of its partners
or employees; and neither the Subadviser nor any of its employees shall be
liable to the Adviser or Trust for any loss suffered by the Adviser or Trust
resulting from any other matters to which this Agreement relates (i.e., those
other matters specified in Sections 2 and 8 of this Agreement), except for
losses resulting from willful misfeasance, bad faith, or gross negligence in the
performance of, or from disregard of, the duties of the Subadviser or any of its
partners or employees.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may enter into arrangements with other persons
affiliated with the Subadviser to better enable it to fulfill its obligations
under this Agreement for the provision of certain personnel and facilities to
the Subadviser.
6. CONFLICTS OF INTEREST
D-3
<PAGE>
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as trustees, officers,
partners or otherwise; that directors, officers, agents and partners of the
Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Certificate of
Incorporation of the Subadviser, respectively, or by specific provision of
applicable law.
7. REGULATION
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Fund on the
later of (i) its execution, and (ii) the date of the meeting of the shareholders
of the Fund, at which meeting this Agreement is approved by the vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Fund. The Agreement will continue in effect for a period
more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees of
the Trust or by a majority of the outstanding voting securities of each of the
Funds, provided that in either event such continuance shall also be approved by
the vote of a majority of the Trustees of the Trust who are not interested
persons (as defined in the Investment Company Act) of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval of the Agreement or of any
continuance of the Agreement shall be effective with respect to any Fund if a
majority of the outstanding voting securities of the series (as defined in Rule
18f-2(h) under the Investment Company Act) of shares of that Fund votes to
approve the Agreement or its continuance, notwithstanding that the Agreement or
its continuance may not have been approved by a majority of the outstanding
voting securities of (a) any other Fund affected by the Agreement or (b) all the
series of the Trust.
If the shareholders of any Fund fail to approve the New Sub-Advisory
Agreement the Subadviser will continue to act as investment subadviser with
respect to such Fund pending the required approval of the Agreement or its
continuance or of any contract with the Subadviser or a different adviser or
subadviser or other definitive action; provided, that the compensation received
by the Subadviser in respect of such Fund during such period is in compliance
with Rule 15a-4 under the Investment Company Act.
D-4
<PAGE>
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Fund by the
vote of a majority of the outstanding voting securities of such Fund, on sixty
days' written notice to the Adviser and the Subadviser, or by the Adviser or
Subadviser on sixty days' written notice to the Trust and the other party. This
agreement will automatically terminate, without the payment of any penalty, in
the event of its assignment (as defined in the Investment Company Act) or in the
event the Advisory Agreement between the Adviser and the Trust terminates for
any reason.
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under the
Investment Advisers Act or under the laws of any jurisdiction in which the
Subadviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, involving the affairs of the Trust; and
c. any change in actual control or management of the Subadviser or the
portfolio manager of any Fund.
10. PROVISION OF CERTAIN INFORMATION BY THE ADVISER
The Adviser shall furnish the Subadviser with copies of the Trust's
Prospectus and Statement of Additional Information, and any reports made by the
Trust to its shareholders, as soon as practicable after such documents become
available. The Adviser shall furnish the Subadviser with any further documents,
materials or information that the Subadviser may reasonably request to enable it
to perform its duties pursuant to this Agreement.
11. SERVICES TO OTHER CLIENTS
The Adviser understand, and has advised the Trust's Board of Trustees,
that the Subadviser now acts, or may in the future act, as an investment adviser
to fiduciary and other managed accounts and as investment adviser or subadviser
to other investment companies. Further, the Adviser understands, and has advised
the Trust's Board of
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Trustees that the Subadviser and its affiliates may give advice and take action
for its accounts, including investment companies, which differs from advice
given on the timing or nature of action taken for the Fund. The Subadviser is
not obligated to initiate transaction for the Portfolio in any security which
the Subadviser, its principals, affiliates or employees may purchase or sell for
their own accounts or other clients.
12. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of each of the Funds affected by the amendment and by the vote of a
majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
that Fund vote to approve the amendment, notwithstanding that the amendment may
not have been approved by a majority of the outstanding voting securities of (a)
any other Fund affected by the amendment or (b) all the series of the Trust.
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
14. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
15. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
16. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
17. GOVERNING LAW
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The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
18. LIMITATION OF LIABILITY
The Amended and Restated Agreement and Declaration of Trust dated
February 18, 1994, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of The Commonwealth of
Massachusetts, provides that the name "North American Funds" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property, for the satisfaction of any obligation or claim, in connection
with the affairs of the Trust or any portfolio thereof, but only the assets
belonging to the Trust, or to the particular portfolio with which the obligee or
claimant dealt, shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
AMERICAN GENERAL ASSET MANAGEMENT CORP.
by: __________________________________
AMERICAN GENERAL INVESTMENT
MANAGEMENT, L.P.
by: ____________________________
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APPENDIX A
The Subadviser shall serve as investment subadviser for the following
Funds of the Trust. The Adviser will pay the Subadviser, as full compensation
for all services provided under this Agreement, the fee computed separately for
each such Fund at an annual rate as follows (the "Subadviser Percentage Fee"):
U.S. Government Securities Fund: .225% of the first $200,000,000, .15%
between $200,000,000 and $500,000,000 and .10% on the excess over
$500,000,000 of the average net assets of the Fund.
Municipal Bond Fund: .25% of the first $200,000,000, .20% between
$200,000,000 and $500,000,000 and .15% on the excess over $500,000,000
of the average net assets of the Fund.
Strategic Income Fund: .35% of the first $200,000,000, .25% between
$200,000,000 and $500,000,000 and .20% on the excess over $500,000,000
of the average net assets of the Fund.
Money Market Fund: .075% of the first $500,000,000 and .020% on the
excess over $500,000,000 o f the average net assets of the Fund.
Core Bond Fund: .25% of the first $200,000,000, .20% between
$200,000,000 and $500,000,000 and .15% on the excess over $500,000,000
of the average net assets of the Fund.
High Yield Bond Fund: .450% of the first $200,000,000; .350% between
$200,000,000 and $500,000,000 and .300% on the excess over
$500,000,000 of the average net assets of the Fund.
Municipal Money Market Fund: .250% of the first $200,000,000; .200%
between $200,000,000 and $500,000,000 and .150% on the excess over
$500,000,000 of the average net assets of the Fund.
Stock Index Fund: .020% of the first $2 billion and .010% on the
excess over $2 billion of the average net assets of the Fund.
Small Cap Index Fund: .030% of the first $150,000,000 and .020% on the
excess over $150,000,000 of the average net assets of the Fund.
Socially Responsible Fund: .250% of the Fund's average daily assets.
Growth Lifestyle Fund: .100% of the Fund's average daily assets.
Moderate Growth Lifestyle Fund: .100% of the Fund's average daily
assets.
Conservative Growth Lifestyle Fund: .100% of the Fund's average daily
assets.
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The Subadviser Percentage Fee for each Fund shall be accrued for each
calendar day and the sum of the daily fee accruals shall be paid monthly to the
Subadviser. The daily fee accruals will be computed by multiplying the fraction
of one over the number of calendar days in the year by the applicable annual
rate described in the preceding paragraph, and multiplying this product by the
net assets of the Fund as determined in accordance with the Trust's prospectus
and statement of additional information as of the close of business on the
previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
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EXHIBIT E
NUMBER OF SHARES OF EACH CLASS OF EACH FUND
OUTSTANDING AS OF THE CLOSE OF BUSINESS ON
MAY 12, 2000
American General Series Portfolio Company 2 Funds
Socially Responsible Fund
Class A
Class B
Institutional Class I
High Yield Bond Fund
Class A
Class B
Institutional Class I
Institutional Class II
Growth Lifestyle Fund
Class A
Class B
Institutional Class I
Moderate Growth Lifestyle Fund
Class A
Class B
Institutional Class I
Conservative Growth Lifestyle Fund
Class A
Class B
Institutional Class I
Municipal Money Market Fund
Class A
Class B
Science & Technology Fund
Class A
Class B
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EXHIBIT F
VOTING SECURITIES OF
PRINCIPAL HOLDERS
As of April 17, 2000 (the "Record Date"), the Trustees and Officers of
each Fund owned as a group less than 1% of the outstanding voting securities of
any Fund. As of April 17, 2000, the following shareholders were known to
American General to own beneficially 5% or more of the shares of a Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percent of
Outstanding
Shares of
Name of Fund Name and Address of Record Class Shares Owned Classes
Owner
Small Cap Index
Fund
Socially
Responsible
Fund
High Yield Bond
Fund
Growth Lifestyle
Fund
Moderate
Growth Lifestyle
Fund
Conservative
Growth Lifestyle
Fund
Municipal Money
Market Fund
Science &
Technology Fund
</TABLE>
F-1
<PAGE>
FORM OF PROXY
_____________________FUND
A SERIES OF AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
PROXY SOLICITED BY THE BOARD OF TRUSTEES
FOR SPECIAL MEETING OF SHAREHOLDERS --JUNE 22, 2000
The undersigned hereby appoints Alice T. Kane, Gregory R. Seward, Nori
L. Gabert and Pauletta P. Cohn, and each of them separately, proxies with power
of substitution to each, and hereby authorizes them to represent and to vote, as
designated below, at the Special Meeting (the "Meeting") of Shareholders of the
Fund indicated above to be held in Meeting Room 1 at the offices of The Variable
Annuity Life Insurance Company, Plaza Level, The Woodson Tower, 2919 Allen
Parkway, Houston, Texas 77019 on Thursday June 22, 2000, at 2:00 p.m. (Central
Time) and at any adjournment thereof, all of the shares of the Fund which the
undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH PROPOSAL.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Meeting.
The Trustees recommend a vote FOR the proposals.
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I. Proposal to approve or disapprove the Agreement and Plan of Conversion and
Termination (the "Conversion Plan") for the above-named Fund providing for the
conversion of such Fund into a corresponding series of the North American Funds,
a Massachusetts business trust, and in connection therewith, the acquisition by
the Successor Fund of all of the assets of such Fund in exchange for shares of
the Successor Fund, and the assumption by the Successor Fund of all of the
liabilities of the Fund. The Plan also provide for the distribution of such
shares of the Successor Fund to shareholders of the Fund in liquidation and
subsequent termination of the Fund.
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<PAGE>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
II. Proposal to approve or disapprove an investment advisory agreement with
American General Asset Management Corp. ("AGAM"), a newly acquired investment
advisory subsidiary of American General Corporation. The terms and conditions of
the investment advisory agreement are similar to the Funds' investment advisory
agreement with VALIC, the Funds' current investment adviser, except for the
dates of execution and termination and that AGAM will serve as investment
adviser in place of VALIC. In addition, the investment advisory fee under the
investment advisory agreement with AGAM will increase in the case of the High
Yield Bond Fund and the Socially Responsible Fund and decrease in the case of
the Municipal Money Market Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
III. Proposal to approve or disapprove an investment sub-advisory agreement with
American General Investment Management, L.P. ("AGIM"), a subsidiary of American
General Corporation (which currently serves as investment sub-adviser to High
Yield Bond Fund and Municipal Money Market Fund) as investment sub-adviser to
the Successor Fund (All Funds except Science & Technology Fund).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
IV. Proposal to approve or disapprove an increase of the Rule 12b-1 distribution
fee (the amount each Fund spends annually to compensate its principal
underwriter for shareholder servicing and distribution expenses) applicable to
Class A shares of Small Cap Index Fund, Socially Responsible Fund, High Yield
Bond Fund, and Science & Technology Fund from 25 basis points (0.25 of 1% of the
average daily net assets attributable to the Funds' Class A shares) to 35 basis
points (0.35 of 1% of the average daily net assets attributable to the Funds'
Class A shares) (All Funds except Growth Lifestyle Fund, Moderate Growth
Lifestyle Fund and Conservative Growth Lifestyle Fund).
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ONT HIS PROXY CARD. All joint owners
should sign. When signing as executor, administrator,
attorney, trustee or guardian or as custodian for a
minor, please give full title as such. If a corporation,
name and indicate the signer's office. If a partner,
sign in the partnership name.
------------------------------------------
Signature
------------------------------------------
Signature (if held jointly)
-----------------------------------------
Date
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