<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MARCH 17, 2000, AS AMENDED SEPTEMBER 12, 2000
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
286 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210
617-368-3535
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF NORTH AMERICAN SENIOR FLOATING RATE FUND,
INC. (THE "FUND") DATED MARCH 17, 2000, AS SUPPLEMENTED FROM TIME TO TIME. IN
ADDITION, THE FINANCIAL STATEMENTS FROM THE FUND'S DECEMBER 31, 1999 ANNUAL
REPORT ARE INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT OF ADDITIONAL
INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS. COPIES OF THE
PROSPECTUS AND ANNUAL REPORT MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING THE
FUND'S DISTRIBUTOR, AMERICAN GENERAL FUNDS DISTRIBUTORS, INC., 286 CONGRESS
STREET, BOSTON, MASSACHUSETTS 02210, AT (800) 872-8037.
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
The Fund.................................................................... 2
Investment Restrictions and Fundamental Policies............................ 2
Repurchase Offer Fundamental Policy......................................... 3
Management.................................................................. 3
Advisory, Administration and Distribution Services.......................... 6
Portfolio Transactions...................................................... 7
Custodian................................................................... 8
Transfer Agent.............................................................. 9
Liquidity Requirements...................................................... 9
Taxes....................................................................... 9
Performance Information..................................................... 12
Indemnification............................................................. 13
Other Information........................................................... 14
</TABLE>
1
<PAGE>
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THE FUND
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North American Senior Floating Rate Fund, Inc. (the "Fund") is a closed-end,
non-diversified management investment company that continuously offers its
shares to the public. The Fund will conduct monthly repurchase offers for its
shares. The Fund's principal office is located at 286 Congress Street, Boston,
Massachusetts 02210. Capitalized terms used in this Statement of Additional
Information and not otherwise defined herein have the meanings given them in
the Fund's Prospectus.
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INVESTMENT RESTRICTIONS AND FUNDAMENTAL POLICIES
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The following fundamental policies cannot be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities. In
accordance with the requirements of the 1940 Act a "majority of the Fund's
outstanding voting securities" means the lesser of either: (1) the vote of 67
percent or more of the voting securities present at the annual or a special
meeting of the Fund's shareholders, if the holders of more than 50 percent of
the Fund's outstanding voting securities are present or represented by proxy;
or (b) the vote of more than 50 percent of the Fund's outstanding voting
securities. The Fund may not:
(a) Borrow money or issue senior securities, except as permitted by the
1940 Act;
(b) Invest more than 25% of the Fund's total assets (taken at current
value) in the securities of Borrowers and other issuers having their
principal business activities in the same industry (the electric, gas,
water and telephone utility industries being treated as separate
industries for the purpose of this restriction); provided that (i)
there is no limitation on purchasing securities the issuer of which is
deemed to be in the financial institutions industry, which includes
commercial banks, thrift institutions, insurance companies and finance
companies and (ii) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities;
(c) Make loans to other persons, except that the Fund may (i) acquire
Loans, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objective and
policies, (ii) enter into repurchase agreements, and (iii) lend its
portfolio securities;
(d) Underwrite securities issued by other persons, except insofar as it may
be deemed technically to be an underwriter under the Securities Act of
1933 in selling or disposing of an investment;
(e) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The purchase of Loans, securities or other investment
assets with the proceeds of a permitted borrowing or securities
offering will not be deemed to be the purchase of securities on margin;
(f) Purchase or sell real estate, although it may purchase and sell
securities secured by interests in real estate and securities of
issuers that invest or deal in real estate; provided that the Fund
reserves the freedom of action to hold and to sell real estate acquired
as a result of the ownership of securities; or
(g) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities. Physical commodities do not include
futures contracts with respect to securities, securities indices or
other financial instruments.
The Fund has adopted the following nonfundamental investment policies which
may be changed by the Fund's Board of Directors without shareholder approval.
As a matter of nonfundamental policy, the Fund may not:
(a) make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund either owns an equal
amount of such securities or owns securities convertible into or
exchangeable for, without payment of any further consideration,
securities of the same issuer as, and equal in amount to, the
securities sold short, and in any event only to the extent that no more
than 5% of its net assets are committed to short sales;
(b) purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development
programs;
2
<PAGE>
(c) invest more than 10% of its total assets (taken at current value) in the
securities of issuers that, together with any predecessors, have a record of
less than three years continuous operation, except U.S. Government securities,
securities of issuers that are rated at least "A" by at least one nationally
recognized statistical rating organization, municipal obligations and
obligations issued or guaranteed by any foreign government or its agencies or
instrumentalities; or
(d) invest more than 10% of its total assets in Loans of any single
Borrower.
For the purpose of fundamental policies (a) and (e) and nonfundamental
investment policy (a), the Fund's arrangements (including escrow, margin and
collateral arrangements) with respect to transactions in all types of options
and futures contract transactions shall not be considered to be (a) a
borrowing of money or the issuance of securities (including senior securities)
by the Fund, (b) a pledge of the Fund's assets, (c) the purchase of a security
on margin, or (d) a short sale or position.
The Fund has no present intention of engaging in options or futures
transactions, or in short sales, or of issuing preferred shares.
For the purpose of fundamental policy (b), the Fund will consider all
relevant factors in determining who is the issuer of the Loan, including the
Borrower's credit quality, the amount and quality of the collateral, the terms
of the Loan Agreement and other relevant agreements (including inter-creditor
agreements), the degree to which the credit of an interpositioned person was
deemed material to the decision to purchase the Loan, the interest rate
environment, and general economic conditions applicable to the Borrower and an
interpositioned person.
Notwithstanding the Fund's investment policies and restrictions, the Fund
may invest all or part of its investable assets in a management investment
company with substantially the same investment objective, policies and
restrictions as the Fund. This could allow creation of a "master/feeder"
structure in the future.
If a percentage restriction on investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
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REPURCHASE OFFER FUNDAMENTAL POLICY
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The Board of Directors has adopted a resolution setting forth the Fund's
fundamental policy that it will conduct monthly Repurchase Offers (the
"Repurchase Offer Fundamental Policy").
The Repurchase Offer Fundamental Policy sets the interval between each
Repurchase Offer at one month and provides that the Fund shall conduct a
Repurchase Offer each month (unless suspended or postponed in accordance with
regulatory requirements). The Repurchase Request Date will be on the last
business day of the month. The Repurchase Offer Fundamental Policy also
provides that the Pricing Date shall occur not later than three business days
after the Repurchase Request Date.
The Repurchase Offer Fundamental Policy only may be changed by a majority
vote of the Fund's outstanding voting securities. In accordance with the
requirements of the 1940 Act, a "majority of the Fund's outstanding voting
securities" means the lesser of either: (a) the vote of 67 percent or more of
the voting securities present at the annual or a special meeting of the Fund's
shareholders, if the holders of more than 50 percent of the Fund's outstanding
voting securities are present or represented by proxy; or (b) the vote of more
than 50 percent of the Fund's outstanding voting securities.
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MANAGEMENT
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The Fund's Directors and officers and their business backgrounds are listed
below. Those Directors and officers who, as defined in the 1940 Act, are
"interested persons" of the Fund, AGAM, CIMCO, or Cypress by virtue of their
affiliation with any one or more of the Fund, AGAM, CIMCO, or Cypress, are
indicated by an asterisk (*) ("Interested Persons").
3
<PAGE>
Directors and Officers of the Fund
<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
---------------- ------- ---------------- -----------------------------
<S> <C> <C> <C>
Alice T. Kane* 1948 Director; President of American General
286 Congress Street President Fund Group (1999-Present);
Boston, MA 02210 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.
William F. Devin 1938 Director Member, Board of Governors,
286 Congress Street Boston Stock Exchange (1/85-
Boston, MA 02210 present); Director,
CypressTree Senior Floating
Rate Fund, Inc. (7/97-
present); Trustee, North
American Funds; Executive
Vice President, Fidelity
Capital Markets Co. (12/66-
12/96)
Kenneth J. Lavery 1949 Director Vice President, Massachusetts
286 Congress Street Capital Resource Company
Boston, MA 02110 (5/82-present); Director,
CypressTree Senior Floating
Rate Fund, Inc. (7/97-
present); Trustee, North
American Funds (10/97-
present)
Thomas J. Brown* 1946 Treasurer Chief Financial Officer and
286 Congress Street and Vice Chief Administrative Officer,
Boston, MA 02210 President AGAM (3/00-present)
Principal, Cypress Holding
Company (7/97-3/00);
Assistant Treasurer,
CypressTree Senior Floating
Rate Fund, Inc. (7/97-
present); Consultant (10/95-
6/97); Executive Vice
President, Boston Company
Advisors (8/94-10/95);
Executive Vice President;
Chief Financial Officer,
Freedom Capital Management
(6/81-8/94).
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Year of
Name and Address Birth Position Held Business Background
---------------- ------- ---------------- --------------------------------
<S> <C> <C> <C>
John I. Fitzgerald* 1948 Vice President Secretary and Counsel, AGAM and
286 Congress Street and Secretary AGFD and Secretary and Counsel,
Boston, MA 02210 Cypress Holding Company (4/97-
present); Secretary, CypressTree
Senior Floating Rate Fund, Inc.
(7/97-present); Secretary, North
American Funds (10/97-present);
Executive Vice President-Legal
Affairs, Boston Stock Exchange
(6/93-3/97)
Dr. Judith L. Craven 1945 Director Retired Administrator; Formerly
286 Congress Street President, United Way of the Texas Gulf
Boston, MA 02210 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).
Dr. Timothy J. Ebner 1949 Director Professor and Head, Department of
286 Congress Street Neuroscience and Visscher Chair of
Boston, MA 02210 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).
Judge Gustavo E. Gonzales, Jr. 1940 Director Municipal Court Judge, Dallas, Texas
286 Congress Street (1995-Present); Director, Downtown
Boston, MA 02210 Dallas YMCA Board (1996-Present);
Director, Dallas Easter Seals Society
(1997-Present). Formerly, private
attorney (litigation) (1980-1995).
Ben H. Love 1930 Director Retired. Formerly, Director,
286 Congress Street Mid-American (waste products)
Boston, MA 02210 (1993-1997). Formerly, Chief
Executive, Boy Scouts of America
(1985-1993).
Dr. John E. Maupin, Jr. 1946 Director President, Meharry Medical College,
286 Congress Street Nashville, Tennessee (1994-Present);
Boston, MA 02210 Nashville Advisory Board Member, First
American National Bank (1996-Present);
Director, Monarch Dental Corporation
(1997-Present), LifePoint Hospitals,
Inc. (1998-Present).
Joseph T. Grause, Jr.* 1952 Director and President, AGAM (March, 2000-Present);
286 Congress Street Vice President Executive Vice President of Cypress
Boston, MA 02210 Holding Company, Inc. (November, 1995
to March, 2000); Senior Vice President
of Sales and Marketing, The Shareholder
Services Group, a subsidiary of First
Data Corporation (May, 1993 to November,
1995).
</TABLE>
Messrs. Grause, Lavery and Devin and Ms. Kane are members of the Investment
and Pricing Committee of the Board of Directors. The Investment and Pricing
Committee is responsible for the valuation and revaluation, between meetings of
the Board, of investments for which market quotations or sale prices are not
readily available, and provides an overview to the full Board of CIMCO's
activities as subadviser. The Fund, AGAM and CIMCO have adopted codes of ethics
under Rule 17j-1 of the 1940 Act. Subject to reporting and other requirements,
these codes permit personnel subject to the codes to invest in securities,
including securities that may be purchased or held by the Fund. These codes can
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-800-942-8090. These codes are also available on
the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
Copies may be obtained, after paying a duplicating fee, by electronic request at
the following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
Executive Compensation
The Fund pays the fees and expenses of those Directors who are not
Interested Persons (the "noninterested Directors"). The Directors who are
Interested Persons receive no compensation from the Fund. Noninterested
Directors receive $750 per quarter for each quarter during which the Director
serves, plus $750 for each meeting attended in person and $200 for each
telephone meeting. For the year ended December 31, 1999, the Directors earned
the following compensation in their capacities as Directors:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMPENSATION TABLE
-------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
Name of Person, Position Aggregate Compensation From Fund Total Compensation From the Trust
and Fund Complex Paid to the
Directors1
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William F. Devin $6,800 $19,800
Director
-------------------------------------------------------------------------------------------------------------------
Kenneth J. Lavery $6,800 $19,800
Director
-------------------------------------------------------------------------------------------------------------------
Alice T. Kane2 N/A N/A
Director
-------------------------------------------------------------------------------------------------------------------
Dr. Judith L. Craven2 N/A N/A
Director
-------------------------------------------------------------------------------------------------------------------
Dr. Timothy J. Ebner2 N/A N/A
Director
-------------------------------------------------------------------------------------------------------------------
Judge Gustavo E. Gonzalez2 N/A N/A
Director
-------------------------------------------------------------------------------------------------------------------
Ben H. Love2 N/A N/A
Director
-------------------------------------------------------------------------------------------------------------------
Dr. John E. Maupin2 N/A N/A
Director
-------------------------------------------------------------------------------------------------------------------
Joseph T. Grause, Jr.2 N/A N/A
Director
-------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Includes compensation for service as director of the Fund, as trustee of
the North American Funds, and as director of another closed-end fund also
advised by AGAM. See "Advisory, Administration and Distribution Services."
Election of Directors
2 Elected Director on June 1, 2000.
As permitted by Maryland law, there normally will be no meetings of Fund
shareholders for the purpose of electing Directors in any year in which no
such election is required under the 1940 Act. Under the 1940 Act, an annual
meeting to elect Directors only is required when less than a majority of the
Directors holding office have been elected by shareholders. If a meeting is
required, the Directors then in office will call a shareholders'
5
<PAGE>
meeting for the election of Directors. If no meeting is required, the
Directors will continue to hold office and may appoint successor Directors.
The shares of the Fund do not provide for cumulative voting. As a result, the
holders of more than 50% of the shares voting for the election of Directors
can elect 100% of the Directors and, in this event, the holders of the
remaining less than 50% of the shares voting on the matter will not be able to
elect any Directors.
Under the Fund's Articles of Incorporation, no person may serve as a
Director if shareholders holding seventy-five percent (75%) of shares entitled
to vote on the matter have removed him or her from office.
Principal Shareholders of Securities
To the Fund's knowledge, as of September 1, 2000, no person owned of record
five percent or more of any class of the Fund's outstanding equity securities.
None of the officers or directors owns any shares of the Fund.
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ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES
-------------------------------------------------------------------------------
AGAM is the Fund's investment adviser and administrator under an investment
advisory agreement ("Advisory Agreement") and an administration agreement (the
"Administration Agreement") between AGAM and the Fund. AGAM is a Delaware
corporation founded in 1996, and is a general investment advisory firm. The
Directors of AGAM are Alice T. Kane, John F. Graf, Joseph T. Grause, Jr. and
Kent E. Barrett. Members of the American General Corporation Group of companies
(the "American General Financial Group") operate in each of the 50 states, the
District of Columbia and Canada and collectively engage in all forms of
financial services. The American General Financial Group has approximately $115
billion in assets and over $16 billion stockholders' equity. Its address is 2929
Allen Parkway, Houston, Texas 77019.
CIMCO serves as the Fund's subadviser under an investment subadvisory
agreement (the "Subadvisory Agreement") between AGAM and CIMCO. The acquisition
described in the Prospectus contains conditions on the continuation of CIMCO as
the Fund's Subadviser. CIMCO is a Delaware corporation founded in August, 1996,
and is engaged in the business of providing investment advisory and other
services to institutional, offshore, and other clients with respect to
portfolios consisting primarily of Loans. Currently, CIMCO has approximately
$3.0 billion assets under management. The directors of CIMCO are Bradford K.
Gallagher and J. Christopher Clifford.
CIMCO is a wholly-owned subsidiary of Cypress Holding Company ("Cypress").
Cypress is a Delaware corporation founded in 1995, and is an integrated
investment management firm. The Directors of Cypress are Bradford K. Gallagher
and J. Christopher Clifford. The largest shareholders of Cypress are Mr.
Gallagher (approximately 15.6%) and Berkshire Fund IV L.P., an investment
partnership (approximately 66.5%). The remaining stock of Cypress is owned by
Cypress employees.
In October 1997, AGAM and other certain affiliates of Cypress acquired from
NASL Financial Services, Inc. ("NASL Financial") that portion of NASL
Financial's business related to acting as investment adviser and distributor
of the North American Funds, an open-end investment company offering shares in
15 different portfolios. The North American Funds currently have approximately
$1.9 billion in assets. AGAM serves as investment adviser to the North American
Funds.
AGAM also serves as investment adviser to a closed-end fund with $79 million
in assets, and CIMCO serves as investment subadviser to that fund.
The Fund will be responsible for all of its costs and expenses not expressly
stated to be payable by AGAM under the Advisory Agreement and the
Administration Agreement by CIMCO under the Subadvisory Agreement, or by
Distributors under its Distribution Agreement. These costs and expenses may
include (without limitation): expenses of acquiring, holding and disposing of
securities and other investments, including brokerage commissions; shareholder
servicing expenses; investment advisory and administration fees; custody and
transfer agency fees and expenses, including those incurred for determining
net asset value and keeping accounting books and records; expenses of pricing
and valuation services; expenses of conducting repurchase offers; fees and
expenses of registering under the securities laws, and other governmental
fees; expenses of reports to shareholders and investors, proxy statements and
other expenses of shareholders' or investors' meetings; compensation and
expenses of Directors not affiliated with AGAM, CIMCO or Cypress; interest,
taxes and corporate fees; legal and accounting expenses; printing and mailing
expenses; insurance premiums; expenses incurred in connection with litigation
in which the Fund is a party and any legal obligation to indemnify its
officers and Directors with respect to litigation; membership dues in
investment company organizations; communications equipment expenses; and any
nonrecurring or extraordinary expenses.
The Advisory Agreement and Subadvisory Agreement were approved by shareholders
at a special meeting on June 1, 2000 and each will remain in effect until June
1, 2002, The Advisory Agreement may be continued from year to year after June 1,
2002 so long as the continuance is approved at least annually (a) by the vote of
a majority of the Fund's Directors who are not "interested persons" of the Fund
or AGAM cast in person at a meeting specifically called for the purpose
6
<PAGE>
of voting on such approval and (b) by the vote of a majority of the Board of
Directors or by the vote of a majority of the outstanding Fund shares. The
Advisory Agreement will terminate automatically in the event of its assignment.
The Subadvisory Agreement may be continued from year to year after June 1, 2002
so long as the continuance is approved at least annually (a) by the vote of a
majority of the Fund's Directors who are not "interested persons" of the Fund or
CIMCO cast in person at a meeting specifically called for the purpose of voting
on such approval; and (b) by the vote of a majority of the Board of Directors or
by the vote of a majority of the outstanding Fund shares. The Subadvisory
Agreement will terminate automatically in the event of its assignment. The
Administration Agreement was approved by the Directors on March 10, 2000 for a
two-year term and may be continued from year to year after March 10, 2002 so
long as the continuance is approved annually (a) by the vote of a majority of
the Fund's Directors who are not "interested persons" of the Fund or AGAM cast
in person at a meeting specifically called for the purpose of voting on such
approval; and (b) by the vote of a majority of the Board of Directors or by the
vote of a majority of the outstanding Fund shares. Each agreement may be
terminated at any time without penalty on sixty (60) days' notice by the
Directors or AGAM or CIMCO, as applicable, or by the vote of the majority of the
outstanding Fund shares. Each agreement provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties to the Fund on the part of CIMCO, AGAM or CIMCO as
applicable, will not be liable to the Fund for any loss incurred.
AGAM will receive fees under the Advisory Agreement and the Administration
Agreement. For a description of the compensation that the Fund pays AGAM under
the Advisory Agreement and Administration Agreement, see the Fund's current
Prospectus. For the fiscal years ended December 31, 1999 and 1998, the Fund
paid CAM $899,365 and $26,085 respectively, under the Advisors Agreement.
AGAM has agreed to reimburse the Fund's expenses to the extent necessary so
that total annualized Fund expenses do not exceed 1.40% of average daily gross
assets for Class A shares and Class B shares and 1.35% of average daily gross
assets for Class C shares. If AGAM had not agreed to reimburse these expenses,
estimated Fund expenses for Class B and Class C shares would be: management
fee of 0.85%, interest payments on borrowed funds of 0.00%, administration fee
of 0.40%, service fee of 0.25%, distribution fee of 0.50%, and other expenses
of 0.25%; and total annual expenses of 2.25%. Absent this reimbursement, total
Fund operating expenses for Class A shares would be: management fee of 0.85%;
interest payment on borrowed funds of 0.00%; administration fee of 0.40%;
service fee of 0.25%; distribution fee of 0.00% and other expenses of 0.25%;
and total annual expenses of 1.75%. This agreement may be terminated by AGAM at
any time after on thirty (30) days' written notice.
-------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
-------------------------------------------------------------------------------
Subject to policies established by the Board of Directors of the Fund and
oversight by AGAM, CIMCO is primarily responsible for the execution of the
Fund's portfolio transactions. In executing such transactions, CIMCO seeks to
obtain the best results for the Fund, taking into account such factors as
price (including the applicable fee, commission or spread), size of order,
difficulty of execution and operational facilities of the firm involved, and
the firm's risk in positioning a block of securities. While CIMCO generally
seeks reasonably competitive fee or commission rates, the Fund does not
necessarily pay the lowest commission or spread available.
The Fund will purchase Loans in individually negotiated transactions with
commercial banks, thrifts, insurance companies, finance companies and other
financial institutions. In determining whether to purchase Loans from these
financial institutions, CIMCO may consider, among other factors, the financial
strength, professional ability, level of service and research capability of
the institution. While financial institutions generally are not required to
repurchase Loans which they have sold, they may act as principal or on an
agency basis in connection with the Fund's disposition of Loans. The Fund has
no obligation to deal with any bank, broker or dealer in execution of
transactions in portfolio securities.
Other securities in which the Fund may invest are traded primarily in the
over-the-counter markets, and the Fund intends to deal directly with the
dealers who make markets in the securities involved, except in those
circumstances where better prices and execution are available elsewhere. These
dealers attempt to profit from transactions by buying at the bid price and
selling at the higher asked price in the market for the obligations (the
difference between the bid and asked price customarily is referred to as the
"spread"). The Fund also may purchase fixed-income and other securities from
underwriters, the cost of which may include fees and concessions to the
underwriters.
It is not anticipated that the Fund will pay significant brokerage
commissions. However, on occasion it may be necessary or desirable to purchase
or sell a security through a broker on an agency basis, in which case the
7
<PAGE>
Fund will incur a brokerage commission. In executing all transactions, CIMCO
seeks to obtain the best results for the Fund. For the period from the start
of business to the date of this Statement of Additional Information, the Fund
has paid no brokerage commissions.
Consistent with the interests of the Fund, CIMCO may select brokers to
execute the Fund's portfolio transactions on the basis of the research and
brokerage services they provide to CIMCO for its use in managing the Fund and
CIMCO's other advisory accounts. Such services may include (a) furnishing
analyses, reports and information concerning issuers, industries, securities,
geographic regions, economic factors and trends, portfolio strategy, and
performance of accounts; and (b) effecting securities transactions and
performing functions incidental to those securities transactions (such as
clearance and settlement). Research and brokerage services received from such
brokers are in addition to, and not in lieu of, the services required to be
performed by CIMCO under the Subadvisory Agreement. A commission paid to such
brokers may be higher than that which another qualified broker would have
charged for effecting the same transaction, provided that CIMCO determines in
good faith that such commission is reasonable in relation to the value of the
services, in terms either of that particular transaction or the overall
responsibility of CIMCO to the Fund and its other clients. In reaching this
determination, CIMCO will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of the
compensation should be related to those services. The receipt of this research
will not reduce CIMCO's normal independent research activities. However, it
enables CIMCO to avoid the additional expenses that could be incurred if CIMCO
tried to develop comparable information through its own efforts.
The Fund will not purchase securities from its affiliates in principal
transactions.
CIMCO is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance in
the distribution of shares of the Fund or shares of other Cypress funds to the
extent permitted by law.
CIMCO may allocate brokerage transactions to broker-dealers that have
entered into arrangements with CIMCO under which the broker-dealer allocates a
portion of the commission paid by each fund toward payment of the fund's
expenses, such as transfer agent fees or custodian fees. However, the
transaction quality must be comparable to those of other qualified broker-
dealers.
The frequency of portfolio purchases and sales (known as the "turnover
rate") will vary from year to year. It is anticipated that the Fund's turnover
rate will be between 50% and 100%. The Fund's portfolio turnover rate is not
expected to exceed 100%, but may vary greatly from year to year and will not
be a limiting factor when CIMCO deems portfolio changes appropriate. Although
the Fund generally does not intend to trade for short-term profits, the
securities held by the Fund will be sold whenever CIMCO believes it is
appropriate to do so, without regard to the length of time a particular
security may have been held. Higher portfolio turnover involves corresponding
greater brokerage commissions and other transaction costs that the Fund will
bear directly.
If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by CIMCO are considered at or about
the same time, transactions in these securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all
by CIMCO, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure would have
a detrimental effect on the price or volume of the security so far as the Fund
is concerned. In other cases it is possible that the ability to participate in
volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
-------------------------------------------------------------------------------
CUSTODIAN
-------------------------------------------------------------------------------
State Street Bank & Trust Company (the "Custodian"), acts as custodian for
the Fund. Its principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. The Custodian has custody of all the Fund's assets,
maintains the Fund's general ledger, and computes the daily net asset value of
Fund shares. The Custodian attends to details in connection with the sale,
exchange, substitution, transfer or other dealings with the Fund's
investments, receives and disburses all funds, and performs various other
ministerial duties on receipt of proper instructions from the Fund. The
custody fees are competitive within the industry.
AGAM, CIMCO and their affiliates and their officers and employees from time
to time have transactions with various banks, including the Fund's Custodian.
It is the opinion of CAM and CIMCO that the terms and conditions of these
transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund and these banks.
8
<PAGE>
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TRANSFER AGENT
-------------------------------------------------------------------------------
State Street Bank & Trust Company serves as transfer and dividend paying
agent and as registrar. Its principal business address is Post Office Box
8360, Boston, Massachusetts 02266-8360.
--------------------------------------------------------------------------------
LIQUIDITY REQUIREMENTS
--------------------------------------------------------------------------------
From the time that the Fund sends a Notification to shareholders until the
Pricing Date, the Fund will maintain a percentage of the Fund's assets equal
to at least 100 percent of the Repurchase Offer Amount either in: (a) assets
that can be sold or disposed of in the ordinary course of business at
approximately the price at which the Fund has valued the investment within a
period equal to the period between the Repurchase Request Date and the next
Repurchase Request Deadline; or (b) assets that mature by the next Repurchase
Payment Deadline.
In the event that the Fund's assets fail to comply with the requirements in
the preceding paragraph, the Board shall cause the Fund to take such action as
the Board deems appropriate to ensure compliance.
In supervising the Fund's operations and the actions of CAM and CIMCO, the
Board has adopted written procedures (the "Liquidity Procedures") reasonably
designed, taking into account current market conditions and the Fund's
investment objectives, to ensure that the Fund's assets are sufficiently
liquid so that the Fund can comply with the Repurchase Offer Fundamental
Policy and with the liquidity requirements described above.
From time to time, the Board reviews the Fund's portfolio composition and
makes and approves such changes to the Liquidity Procedures as the Board deems
necessary.
--------------------------------------------------------------------------------
TAXES
--------------------------------------------------------------------------------
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in
light of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisers with
regard to the federal tax consequences of the purchase, ownership, or
disposition of fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
For a discussion of federal tax issues affecting shareholders in the Fund
please see "Taxes" in the Prospectus.
The Fund intends to qualify for the special tax treatment afforded regulated
investment companies ("RICs") under Subchapter M of the Code. To qualify for
that treatment, the Fund must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting
generally of net ordinary investment income, net short-term capital gains, and
net gains from certain foreign currency transactions) and must meet several
additional requirements. Among these requirements are the following: (a) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of securities, and certain other related income; and
(b) the Fund must diversify its investments so that at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
are represented by cash and cash items, U.S. Government securities, securities
of other regulated investment companies and other securities limited in
respect of any one issuer to not more than 5% of the value of the Fund's total
assets and not more than 10% of that issuer's voting securities, and (ii) not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities and securities of other regulated
investment companies) of any one issuer, or of two or more issuers controlled
by the Fund and engaged in the same, similar or related trades or businesses.
Provided that the Fund satisfies the above requirements, it will not be
subject to federal income tax on that part of its investment company taxable
income and the excess of net long-term capital gain over net short-term
capital loss that it distributes to shareholders.
9
<PAGE>
The Fund will be subject to a nondeductible 4% federal excise tax to the
extent that it does not timely distribute during each calendar year 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gain net income, determined, in general, on an October 31 year end, plus
certain undistributed amounts from previous years. The Fund will be subject to
the excise tax only on the amount by which it does not meet the foregoing
distribution requirements. To avoid application of the excise tax, the Fund
intends to distribute its income in accordance with the calendar year
requirements.
A distribution will be treated as paid on December 31 of a calendar year if
it is declared by the Fund in October, November or December of that year with
a record date in such a month and paid by the Fund during January of the
following year. Such a distribution will be taxable to shareholders in the
calendar year in which the distribution is declared, rather than the calendar
year in which it is received.
Distributions
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
The excess of net long-term capital gains over net short-term capital losses
realized, distributed and properly designated by the Fund, whether paid in
cash or reinvested in Fund shares, will generally be taxable to shareholders
as long-term gain, regardless of how long a shareholder has held Fund shares.
Net capital gains from assets held for one year or less will be taxed as
ordinary income.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors
should be careful to consider the tax implications of buying shares of the
Fund just prior to a distribution. The price of shares purchased at this time
will include the amount of the forthcoming distribution, but the distribution
will generally be taxable to the shareholder.
Dispositions
A holder of Fund shares who, pursuant to a Repurchase Offer, tenders all of
his or her Fund shares (and is not considered to own any other Fund shares
pursuant to attribution rules contained in the Code) may realize a taxable
gain or loss depending upon the shareholder's basis in the shares. Such gain
or loss realized on the disposition of shares (whether pursuant to a
Repurchase Offer or in connection with a sale or other taxable disposition of
shares in a secondary market) generally will be treated as long-term capital
gain or loss if the shares have been held as a capital asset for more than one
year and as short-term capital gain or loss if held as a capital asset for one
year or less. If Fund shares are sold at a loss after being held for six
months or less, the loss will be treated as long-term--instead of short-term--
capital loss to the extent of any capital gain distributions received on those
shares. All or a portion of any loss realized on a sale or exchange of shares
of the Fund will be disallowed if the shareholder acquires other Fund shares
within 30 days before or after the disposition. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss.
Different tax consequences may apply to tendering shareholders other than
fully-tendering shareholders described in the previous paragraph and to non-
tendering shareholders in connection with a Repurchase Offer. For example, if
a shareholder tenders fewer than all shares owned by or attributed to him or
her, the proceeds received could be treated as a taxable dividend, a return of
capital, or capital gain depending on the portion of shares tendered, the
Fund's earnings and profits, and the shareholder's basis in the tendered
shares. Moreover, when a shareholder tenders fewer than all shares owned
pursuant to a Repurchase Offer, there is a risk that non-tendering
shareholders may be considered to have received a deemed distribution that is
taxable to them in whole or in part. Shareholders may wish to consult their
tax advisors.
If, within 90 days after purchasing Fund shares with a sales charge, a
shareholder exchanges the shares and acquires new shares at a reduced (or
without any) sales charge pursuant to a right acquired with the original
shares, then the shareholder may not take the original sales charge into
account in determining the shareholder's gain or loss on the disposition of
the shares. Gain or loss will generally be determined by excluding all or a
10
<PAGE>
portion of the sales charge from the shareholder's tax basis in the exchanged
shares, and the amount excluded will be treated as an amount paid for the new
shares.
Not later than 60 days after the close of the calendar year, the Fund will
provide its shareholders with a written notice designating the amounts of any
ordinary income dividends or capital gain dividends. If the Fund pays a
dividend in January that was declared in the previous October, November or
December to shareholders of record on a specified date in one of those months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the earlier year in which
the dividend was declared.
Backup Withholding
The Fund generally will be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividends paid (other than exempt-interest
dividends), capital gain distributions, and redemption proceeds to
shareholders if (1) the shareholder fails to furnish the Fund with the
shareholder's correct taxpayer identification number or social security
number, (2) the IRS notifies the shareholder or the Fund that the shareholder
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Other Taxation
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders
may be subject to U.S. tax rules that differ significantly from those
summarized above, including the likelihood that ordinary income dividends to
them would be subject to withholding of U.S. tax at a rate of 30% (or a lower
treaty rate, if applicable).
Fund Investments
Market Discount. If the Fund purchases a debt security at a price lower than
the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount
of market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required
to allocate that principal payment first to the portion of the market discount
on the debt security that has accrued but has not previously been includable
in income. In general, the amount of market discount that must be included for
each period is equal to the lesser of (i) the amount of market discount
accruing during such period (plus any accrued market discount for prior
periods not previously taken into account) or (ii) the amount of the principal
payment with respect to such period. Generally, market discount accrues on a
daily basis for each day the debt security is held by the Fund at a constant
rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary interest income (not
capital gain) to the extent of the "accrued market discount".
Original Issue Discount. Certain debt securities acquired by the Fund may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security
in a given year generally is treated for federal income tax purposes as
interest and, therefore, such income would be subject to the distribution
requirements applicable to regulated investment companies. Some debt
securities may be purchased by the Fund at a discount that exceeds the
original issue discount on such debt securities, if any. This additional
discount represents market discount for federal income tax purposes (see
above).
Constructive Sales. Under certain circumstances, the Fund may recognize gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated
position. In that event, the Fund would be treated as if it had sold and
immediately repurchased the property and would be taxed on any gain (but not
loss) from the constructive sale. The character of gain from a constructive
sale would depend upon the Fund's holding period in the property. Loss from a
constructive sale would be recognized when the property was subsequently
disposed of, and its character would depend on the Fund's holding period and
the application of various loss
11
<PAGE>
deferral provisions of the Code. Constructive sale treatment does not apply to
transactions closed in the 90-day period ending with the 30th day after the
close of the taxable year, if certain conditions are met.
Section 988 Gains or Losses. Gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain
or loss. These gains and losses, referred to under the Code as "section 988"
gains or losses, increase or decrease the amount of the Fund's investment
company taxable income available to be distributed to its shareholders as
ordinary income. If section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
dividend distributions, or distributions made before the losses were realized
would be recharacterized as a return of capital to shareholders, rather than
as an ordinary dividend, reducing each shareholder's basis in his or her Fund
shares.
Swaps
The federal income tax rules governing the taxation of interest rate swaps
are not entirely clear and may require the Fund to treat payments received
under such arrangements as ordinary income and to amortize payments under
certain circumstances. The Fund will limit its activity in this regard in
order to enable it to maintain its qualification as a RIC.
Foreign Withholding Taxes
The Fund may be subject to foreign withholding or other taxes with respect
to income on certain loans to foreign Borrowers. Tax conventions between
certain countries and the United States may reduce or eliminate these foreign
taxes. However, to the extent that foreign taxes are imposed, the taxes would
reduce the yield on the Loans. Because not more than 50% of the value of the
Fund's total assets at the close of any taxable year will consist of Loans to
foreign borrowers, the Fund will not be eligible to pass through to
shareholders their proportionate share of foreign taxes paid by the Fund, with
the result that shareholders will not be entitled to take any foreign tax
credits or deductions for foreign taxes paid by the Fund. However, the Fund
may deduct foreign taxes in calculating its distributable income.
-------------------------------------------------------------------------------
PERFORMANCE INFORMATION
-------------------------------------------------------------------------------
The Fund's current yield for the one month period ending on June 30, 2000 was
8.03% for Class B shares and 8.03% for Class C shares. The Fund's effective
yield for the same period was 7.95% for Class B shares and 7.95% for Class C
shares.
The total investment return for the year ending December 31, 1999 was 7.13%
for Class B shares and 7.12% for Class C shares. On June 30, 2000, the net
asset value of one Class B share was $9.83 and the net asset value for one
Class C share was $9.83.
The calculation for yields and total investment return do not reflect the
imposition of any early withdrawal charges.
The Fund may advertise total return either on a cumulative or annualized
basis.
The Fund may provide information about AGAM, CIMCO, their affiliates and
other related funds in sales material or advertisements provided to investors
or prospective investors. Sales material or advertisements also may provide
information on the use of investment professionals by investors. For further
information, see "Performance Information" in the Fund's Prospectus.
Past performance is not indicative of future results. Investment return and
principal value will fluctuate. When redeemed, shares may be worth more or
less than their original cost.
12
<PAGE>
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INDEMNIFICATION
-------------------------------------------------------------------------------
Under the Fund's By-Laws, each officer and director of the Fund will be
indemnified by the Fund to the full extent permitted under the General Laws of
the State of Maryland, except that such indemnity will not protect any such
person against any liability to the Fund or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an officer or
director seeking indemnification was not liable on the merits or guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, the decision by the Fund to
indemnify such person must be based upon the reasonable determination of
independent legal counsel or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section 2(a)(19)
of the Investment Company Act of 1940, as amended, nor parties to the
proceeding ("non-party independent directors"), after review of the facts,
that such officer or director is not guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or on a plea of nolo contendere or its equivalent,
will not, of itself, create a presumption that any liability or expense arose
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties of the director's or officer's office.
Each officer and director of the Fund claiming indemnification will be
entitled to advances from the Fund for payment of the reasonable expenses
incurred by him or her in connection with proceedings to which he or she is a
party in the manner and to the full extent permitted under the General Laws of
the State of Maryland; provided, however, that the person seeking
indemnification will provide to the Fund a written affirmation of his or her
good faith belief that the standard of conduct necessary for indemnification
by the Fund has been met and a written undertaking to repay any such advance,
if it should ultimately be determined that the standard of conduct has not
been met, and provided further that at least one of the following additional
conditions is met: (a) the person seeking indemnification will provide a
security in form and amount acceptable to the Fund for his or her undertaking;
(b) the Fund is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, will determine, based on a review of facts
readily available to the Fund at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
The Fund may indemnify, make advances or purchase insurance to the extent
provided in its By-Laws on behalf of an employee or agent who is not an
officer or director of the Fund.
The indemnification provided by the Fund's By-Laws is not exclusive of any
rights to which those seeking indemnification may be entitled under any law,
agreement, vote of shareholders, or otherwise. The Fund's By-Laws do not
authorize indemnification inconsistent with the 1940 Act or the Securities Act
of 1933. Any indemnification provided by the Fund's By-Laws will continue as
to a person who has ceased to be a director, officer, or employee, and will
inure to the benefit of that person's heirs, executors and administrators. In
addition, no amendment, modification or repeal of the indemnification
provisions of the By-Laws will adversely affect any right or protection of an
indemnitee that exists at the time of the amendment, modification or repeal.
-------------------------------------------------------------------------------
AUDITORS AND FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
Deloitte & Touche LLP are the independent accountants for the Fund,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission. The auditors' address is 200 Berkeley Street, Boston,
Massachusetts 02116.
The Fund's audited financial statements for the fiscal year ended December
31, 1999 including the auditors' report, are set forth in the December 31,
1999 Annual Report which are incorporated herein by reference. Copies of the
Fund's Annual Report are available without charge by contacting the Fund's
Distributor, American General Funds Distributors, Inc., 286 Congress Street,
Boston Massachusetts 02210, at (800) 872-8037.
13
<PAGE>
-------------------------------------------------------------------------------
OTHER INFORMATION
-------------------------------------------------------------------------------
The Fund's Prospectus and Statement of Additional Information do not contain
all of the information set forth in the Registration Statement that the Fund
has filed with the Securities and Exchange Commission. The complete
Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by its rules and regulations.
The complete Registration Statement also is available on the Commission's
website (http:\\www.sec.gov).
-------------------------------------------------------------------------------
APPENDIX A--DESCRIPTION OF RATINGS
-------------------------------------------------------------------------------
Moody's Long-Term Debt Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together, with an Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper- medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its long-term debt ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic category.
14
<PAGE>
North American Senior Floating Rate Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
March 17, 2000, as amended September 12, 2000
INVESTMENT ADVISER
American General Asset Management Corp.
286 Congress Street
Boston, Massachusetts 02210
INVESTMENT SUBADVISER
CypressTree Investment Management Company, Inc.
125 High Street
Boston, Massachusetts 02110
ADMINISTRATOR
American General Asset Management Corp.
286 Congress Street
Boston, Massachusetts 02210
DISTRIBUTOR
American General Funds Distributors, Inc.
286 Congress Street
Boston, Massachusetts 02210
15
