<PAGE>
REGISTRATION NO. 33-27958/811-5797
As Filed with the Securities and Exchange Commission
on February 23, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
--
PRE-EFFECTIVE AMENDMENT NO. __ / /
--
POST-EFFECTIVE AMENDMENT NO. 22 /X/
--
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
--
AMENDMENT NO. 24 /X/
--
NORTH AMERICAN FUNDS
(Exact Name of Registrant as Specified in Charter)
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6004
(Address of Principal Executive Offices)
John D. DesPrez III, President
North American Funds
116 Huntington Avenue
Boston, Massachusetts 02116
(Agent for Service)
--------------------
Copy to:
Sarah E. Cogan, Esq. James D. Gallagher
Simpson Thacher & Bartlett General Counsel
425 Lexington Avenue North American Security
New York, New York 10017 Life Insurance Company
116 Huntington Avenue
Boston, MA 02116
It is proposed that this filing will become effective February 28, 1996
pursuant to paragraph (b) of Rule 485
Registrant has heretofore registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 and filed its Rule 24f-2
Notice for the fiscal year ended October 31, 1995 on December 26, 1995.
<PAGE>
NORTH AMERICAN FUNDS
CROSS REFERENCE TO ITEMS
REQUIRED BY RULE 404(a)
<TABLE>
<CAPTION>
N-1A Item of Part A Caption in Prospectus
- ------------------- ---------------------
<S> <C>
1. Cover Page
2. Summary
3. Financial Highlights; General
Information - Performance Information
4. General Information - Organization of
the Fund; Investment Portfolios; Risk
Factors
5. Management of the Fund; General
Information-Custodian and Transfer and
Dividend Disbursing Agent
5A. Not Applicable
6. Multiple Pricing System; General
Information-Dividends and
Distributions; General
Information-Taxes; Shareholder
Services-Shareholder Inquiries
7. Multiple Pricing System; Shareholder
Services; Purchase of Shares
8. Multiple Pricing System; Shareholder
Services-Redemption of Shares, and
General Methods of Redeeming Shares;
Purchase of Shares
9. Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-1A Item of Part B Caption in Part B
- ------------------- -----------------
<S> <C>
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Policies; Investment
Practices and Related Risks; Investment
Restrictions; Portfolio Turnover
14. Management of the Fund
15. Financial Statements
16. Investment Management Arrangements;
Distribution Plan
17. Portfolio Brokerage
18. General
19. Determination of Net Asset Value
20. Taxes
21. Not Applicable
22. Performance Data
23. Financial Statements
</TABLE>
<PAGE>
NORTH AMERICAN FUNDS
116 Huntington Avenue, Boston, Massachusetts 02116
(800) 872-8037
North American Funds (the "Fund") is an open-end, diversified management
investment company (mutual fund) providing a range of investment options through
thirteen separate investment portfolios (the "Portfolios"), each of which has a
specific investment objective. This Prospectus relates to the following
portfolios of the Fund:
The SMALL/MID CAP FUND seeks long-term capital appreciation by investing at
least 65% of its assets in companies that at the time of purchase have total
market capitalization between $500 million and $5 billion.
The INTERNATIONAL SMALL CAP FUND seeks long-term capital appreciation by
investing primarily in securities issued by foreign companies which have total
market capitalization or annual revenue of $1 billion or less.
The GROWTH EQUITY FUND seeks long-term growth of capital by investing at least
65% of its assets in common stocks of well-established, high-quality growth
companies.
The GLOBAL GROWTH FUND seeks long-term capital appreciation, by investing
primarily in a global portfolio of equity securities and securities convertible
into or exercisable for equity securities.
The VALUE EQUITY FUND (formerly, the "Growth Fund") seeks long-term growth of
capital by investing primarily in common stocks and securities convertible into
or carrying the right to buy common stocks.
The GROWTH AND INCOME FUND seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of United States issuers which the Subadviser
believes are of high quality.
The INTERNATIONAL GROWTH AND INCOME FUND seeks to provide long-term growth of
capital and income by investing in a portfolio of securities of foreign issuers.
The ASSET ALLOCATION FUND seeks the highest total return consistent with a
moderate level of risk tolerance. This Portfolio attempts to limit the decline
in portfolio value in very adverse market conditions to 10% over any twelve
month period. The Asset Allocation Fund will invest in a combination of equity,
fixed-income and money market securities. The Subadviser retains absolute
discretion to determine the amount of the Portfolio's assets invested in each
category of securities at all times. There can be no assurance that the 10%
limit on the decline in portfolio value will not be exceeded.
The STRATEGIC INCOME FUND seeks a high level of total return consistent with
preservation of capital by giving its Subadviser broad discretion to deploy the
Portfolio's assets among certain segments of the fixed-income market as the
Subadviser believes will best contribute to achievement of the Portfolio's
investment objective.
The INVESTMENT QUALITY BOND FUND seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. Up to 20% of
the Portfolio's assets may be invested in debt securities rated below investment
grade.
The U.S. GOVERNMENT SECURITIES FUND seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity by
investing in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
The NATIONAL MUNICIPAL BOND FUND seeks to achieve a high level of current
income which is exempt from regular federal income taxes, consistent with the
preservation of capital, by investing primarily in a portfolio of municipal
obligations. The Portfolio will not invest in municipal obligations that are
rated below investment grade at the time of purchase.
The MONEY MARKET FUND seeks maximum current income consistent with
preservation of principal and liquidity as is available from investing only in
high quality, U.S. dollar denominated money market instruments with maturities
of 397 days or less.
THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS INVESTMENT
OBJECTIVE AND EACH OF THE PORTFOLIOS MAY EMPLOY CERTAIN INVESTMENT PRACTICES
WHICH INVOLVE SPECIAL RISK CONSIDERATIONS. SEE ALSO THE DISCUSSION OF "RISK
FACTORS" IN THIS PROSPECTUS. IN PURSUING THEIR INVESTMENT OBJECTIVES, THE
STRATEGIC INCOME FUND RESERVES THE RIGHT TO INVEST WITHOUT LIMITATION, AND THE
INVESTMENT QUALITY BOND FUND MAY INVEST UP TO 20% OF ITS ASSETS, IN HIGH
YEILD/HIGH RISK SECURITIES, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS
TYPE INVOLVE COMPARATIVELY GREATER RISKS, INCLUDING PRICE VOLATILITY AND RISK OF
DEFAULT IN THE PAYMENT OF INTEREST AND PRINCIPAL, THAN HIGHER-QUALITY
SECURITIES. ALTHOUGH THE STRATEGIC INCOME FUND'S SUBADVISER HAS THE ABILITY TO
INVEST UP TO 100% OF THE PORTFOLIO'S ASSETS IN LOWER-RATED SECURITIES, THE
PORTFOLIO'S SUBADVISER DOES NOT ANTICIPATE INVESTING IN EXCESS OF 75% OF THE
PORTFOLIO'S ASSETS IN SUCH SECURITIES. PURCHASERS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THE STRATEGIC INCOME FUND. SEE "RISK
FACTORS -- HIGH YIELD/HIGH RISK SECURITIES." AN INVESTMENT IN THE MONEY MARKET
FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE
NO ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. SHARES OF THE FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before making an investment decision.
Investors are encouraged to read this Prospectus and to retain it for future
reference. Additional information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by writing the Fund at the above address or calling (800) 872-8037 and
requesting the "Statement of Additional Information for North American Funds",
dated the date of this Prospectus (hereinafter "Statement of Additional
Information"). The Statement of Additional Information is incorporated by
reference into this Prospectus.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 28, 1996.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY................................................................ 1
The Fund............................................................. 1
Classes of Shares.................................................... 1
Fee Table and Example................................................ 3
FINANCIAL HIGHLIGHTS................................................... 8
MULTIPLE PRICING SYSTEM................................................ 22
INVESTMENT PORTFOLIOS.................................................. 24
Small/Mid Cap Fund................................................... 24
International Small Cap Fund......................................... 25
Growth Equity Fund................................................... 26
Global Growth Fund................................................... 26
Value Equity Fund (formerly, the Growth Fund)........................ 28
Growth and Income Fund............................................... 28
International Growth and Income Fund................................. 29
Asset Allocation Fund................................................ 30
Strategic Income Fund................................................ 31
Investment Quality Bond Fund......................................... 33
U.S. Government Securities Fund...................................... 34
National Municipal Bond Fund......................................... 35
Money Market Fund.................................................... 38
RISK FACTORS........................................................... 39
Investment Restrictions Generally.................................... 39
High Yield/High Risk Securities...................................... 39
Foreign Securities................................................... 41
Warrants............................................................. 42
Lending Portfolio Securities......................................... 42
When-Issued Securities ("Forward Commitments")....................... 43
Hedging And Other Strategic Transactions............................. 43
Illiquid Securities.................................................. 44
Repurchase Agreements and Reverse Repurchase Agreements.............. 44
Morgage Dollar Rolls................................................. 44
MANAGEMENT OF THE FUND................................................. 45
Advisory Arrangements................................................ 45
Subadvisory Arrangements............................................. 46
Fund Expenses........................................................ 51
GENERAL INFORMATION.................................................... 51
Net Asset Value...................................................... 51
Dividends and Distributions.......................................... 52
Taxes................................................................ 52
National Municipal Bond Funds - Taxation............................. 53
Performance Information.............................................. 53
Organization of the Fund............................................. 55
Custodian and Transfer and Dividend
Disbursing Agents.................................................. 55
Independent Accountants.............................................. 55
PURCHASE OF SHARES..................................................... 56
Introduction......................................................... 56
General Methods of Purchasing Shares................................. 56
Share Price.......................................................... 57
Class A Shares....................................................... 57
Class B Shares....................................................... 59
Class C Shares....................................................... 59
Contingent Deferred Sales Charge..................................... 59
Waiver of CDSC....................................................... 60
Other Dealer Compensation............................................ 60
Distribution Expenses................................................ 60
SHAREHOLDER SERVICES................................................... 62
Automatic Investment Plan............................................ 62
Exchange Privilege................................................... 62
Transfer of Shares................................................... 63
Redemption of Shares................................................. 63
General Methods of Redeeming Shares.................................. 63
Reinstatement Privilege.............................................. 63
Minimum Account Balance.............................................. 63
Redemption In Kind................................................... 64
Additional Shareholder Privileges...................................... 64
Automatic Investment Plan............................................ 64
Automatic Dividend Diversification (ADD)............................. 64
Systematic Investing................................................. 64
Systematic Withdrawal Plan........................................... 64
Checkwriting......................................................... 64
Telephone Transactions............................................... 65
Certificates......................................................... 65
How to Obtain Information on Your Investment......................... 65
APPENDIX I............................................................. A-1
APPENDIX II............................................................ A-4
</TABLE>
<PAGE>
SUMMARY
THE FUND
The Fund is an open-end, diversified, management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on September 28, 1988.
NASL Financial Services, Inc. ("NASL Financial" or, in its capacity as
the Fund's investment adviser, the "Adviser") serves as the investment adviser
and distributor for the Fund. NASL Financial is a wholly-owned subsidiary of
the Fund's sponsor, North American Security Life Insurance Company, based in
Boston, Massachusetts, the ultimate controlling parent of which is The
Manufacturers Life Insurance Company ("Manulife"), a Canadian mutual life
insurance company based in Toronto, Canada.
NASL Financial provides certain expense guarantees and administrative
services to the Fund and its shareholders pursuant to an investment advisory
contract (the "Advisory Agreement"). In addition, it contracts with and
compensates seven investment subadvisers which provide portfolio management
services to the Fund (the "Subadviser(s)"): Fred Alger Management, Inc.
("Alger"), Founders Asset Management, Inc. ("Founders"), Oechsle International
Advisors, L.P. ("Oechsle International"), Goldman Sachs Asset Management
("GSAM"), Wellington Management Company ("Wellington Management"), J.P. Morgan
Investment Management, Inc. ("J.P. Morgan") and Salomon Brothers Asset
Management Inc ("SBAM"). See "MANAGEMENT OF THE FUND." The Subadvisers provide
investment management services to the various Portfolios of the Fund as shown in
the following table.
SUBADVISER PORTFOLIO(S)
Alger Small/Mid Cap Fund
Founders International Small Cap Fund
Growth Equity Fund
Oechsle International Global Growth Fund
GSAM Value Equity Fund (formerly, the "Growth Fund")
Asset Allocation Fund
Wellington Management Growth and Income Fund
Investment Quality Bond Fund
Money Market Fund
J.P. Morgan International Growth and Income Fund
SBAM Strategic Income Fund
U.S. Government Securities Fund
National Municipal Bond Fund
NASL Financial also serves as the distributor of the Fund's shares and
in that role has entered into an exclusive promotional agent agreement with Wood
Logan Associates, Inc. ("Wood Logan") to provide marketing services in
connection with the sales of Fund's shares. See "PURCHASE OF SHARES --
Distribution Expenses."
Each Portfolio has a stated specific investment objective, as set
forth on the cover of this Prospectus and described below. See "INVESTMENT
PORTFOLIOS." There can be no assurance that any Portfolio will attain its
investment objective. The Fund's annual report to shareholders, which is
available without charge upon request, contains a discussion of Fund
performance.
In addition to the risks inherent in any investment in securities,
certain Portfolios of the Fund are subject to particular risks associated with
investing in high yield securities, investing in foreign securities, investing
in warrants, lending portfolio securities, investing in when-issued securities
and engaging in various hedging and other strategic transactions (also referred
to as "derivative transactions"). See "RISK FACTORS."
CLASSES OF SHARES
As of April 1, 1994, the Fund began offering three classes of shares
in each Portfolio ("Class A" shares, "Class B" shares and "Class C" shares) to
the general public with each class having a different sales charge structure and
expense level (the "Multiple Pricing System").
<PAGE>
Each class has distinct advantages and disadvantages for different investors,
and investors may choose the class that best suits their circumstances and
objectives. See "MULTIPLE PRICING SYSTEM."
CLASS A SHARES. Purchases of Class A shares of less than $1 million
are offered for sale at net asset value per share plus a front end sales charge
of up to 4.75% (with the exception of Class A shares of the Money Market Fund,
which are offered without such a charge). Purchases of Class A shares of $1
million or more made on or after May 1, 1995 are offered for sale at net asset
value without a front end sales charge but subject to a contingent deferred
sales charge ("CDSC") of 1% of the dollar amount subject thereto during the
first year after purchase. The applicable percentage is assessed on an amount
equal to the lesser of the original purchase price or the redemption price of
the shares redeemed. In addition, Class A shares are subject to a distribution
fee of up to .10% of their respective average annual net assets and a service
fee of up to .25% of their respective average annual net assets (with the
exception of Class A shares of the Money Market Fund, which bear no such fees,
and Class A shares of the National Municipal Bond Fund, which are subject to a
service fee of up to .15% of Class A average annual net assets and are not
subject to any distribution fee).
CLASS B SHARES. Class B shares are offered for sale for purchases of
$250,000 or less. Class B shares are offered for sale at net asset value
without a front end sales charge but are subject to a CDSC of 5% of the dollar
amount subject thereto during the first and second year after purchase, and
declining by 1% each year thereafter to 0% after the sixth year. The applicable
percentage is assessed on an amount equal to the lesser of the original purchase
price or the redemption price of the shares redeemed. Class B shares are also
subject to a distribution fee of up to .75% of their respective average annual
net assets and a service fee of up to .25% of their respective average annual
net assets (with the exception of Class B shares of the Money Market Fund, which
bear no such fees). Class B shares will automatically convert to Class A shares
of the same Portfolio six years after purchase.
CLASS C SHARES. Class C shares are offered for sale for purchases of
less than $1 million, at net asset value without a front end sales charge .
Class C shares purchased on or after May 1, 1995, are subject to a CDSC of 1% of
the dollar amount subject thereto during the first year after purchase. Shares
purchased prior to May 1, 1995 are not subject to any CDSC upon redemption. The
applicable percentage is assessed on an amount equal to the lesser of the
original purchase price or the redemption price of shares redeemed. Class C
shares are subject to a distribution fee of up to .75% of their respective
average annual net assets and a service fee of up to .25% of their respective
average annual net assets (with the exception of Class C shares of the Money
Market Fund, which bear no such fees). Class C shares will automatically
convert to Class A shares of the same Portfolio ten years after purchase.
The Fund implemented the Multiple Pricing System by reclassifying the
then existing shares of each Portfolio as shares of a particular class of each
such Portfolio. This reclassification was effected in such a manner so that the
shares of each Portfolio outstanding at April 1, 1994 would be subject to
identical distribution and service fees both before and after the
reclassification. Specifically, all outstanding shares of the Strategic Income,
Investment Quality Bond, U.S. Government Securities, National Municipal Bond,
and Money Market Funds were reclassified as Class A shares of each such
Portfolio, and all outstanding shares of the Global Growth, Value Equity, Growth
and Income and Asset Allocation Funds were reclassified as Class C shares of
each such Portfolio.
For a discussion of factors to consider in selecting the most
beneficial class of shares for a particular investor, see "MULTIPLE PRICING
SYSTEM--Factors for Consideration."
2
<PAGE>
FEE TABLE AND EXAMPLE
The following tables are intended to assist investors in understanding
the expenses applicable to each class of shares of each Portfolio:
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases of shares
(as a percentage of offering price)
<S> <C> <C> <C>
All Portfolios except Money Market Fund............ 4.75%* None None
Money Market Fund.................................. None None None
Sales charge imposed on dividend reinvestment
All Portfolios..................................... None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption price, whichever is lower)
All Portfolios except Money Market Fund............ 1% first year**5% first year 1% first year***
................................................... 0% after 5% second year 0% after first year
................................................... first year 4% third year
................................................... 3% fourth year
................................................... 2% fifth year
................................................... 1% sixth year, and
................................................... 0% after sixth year
Money Market Fund.................................. None None None
Exchange Fee......................................... None None None
</TABLE>
*See schedule of sales charge breakpoints under "Purchases of Shares - Class A
Shares."
**For purchases of $1 million or more made on or after May 1, 1995.
***For purchases made on or after May 1, 1995.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets after fee
waivers and expense reimbursements in certain cases)
<TABLE>
<CAPTION>
PORTFOLIO CLASS A CLASS B CLASS C
<S> <C> <C> <C>
SMALL/MID CAP
Management fees.................... 0.925% 0.925% 0.925%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.675% 2.325% 2.325%
INTERNATIONAL SMALL CAP
Management fees.................... 1.050% 1.050% 1.050%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.900% 2.550% 2.550%
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
GROWTH EQUITY
Management fees.................... 0.900% 0.900% 0.900%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.650% 2.300% 2.300%
GLOBAL GROWTH
Management fees.................... 0.900% 0.900% 0.900%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.750% 2.400% 2.400%
VALUE EQUITY (FORMERLY,
THE "GROWTH FUND")
Management fees.................... 0.725% 0.725% 0.725%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.340% 1.990% 1.990%
GROWTH AND INCOME
Management fees.................... 0.725% 0.725% 0.725%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.340% 1.990% 1.990%
INTERNATIONAL GROWTH AND INCOME
Management fees.................... 0.900% 0.900% 0.900%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.750% 2.400% 2.400%
ASSET ALLOCATION
Management fees.................... 0.725% 0.725% 0.725%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.340% 1.990% 1.990%
STRATEGIC INCOME.....................
Management fees.................... 0.750% 0.750% 0.750%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.500% 2.150% 2.150%
INVESTMENT QUALITY BOND..............
Management fees.................... 0.600% 0.600% 0.600%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.250% 1.900% 1.900%
U.S. GOVERNMENT SECURITIES...........
Management fees.................... 0.600% 0.600% 0.600%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.250% 1.900% 1.900%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
NATIONAL MUNICIPAL BOND
Management fees.................... 0.600% 0.600% 0.600%
Rule 12b-1 fees.................... 0.150% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.240% 0.240% 0.240%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 0.990% 1.840% 1.840%
MONEY MARKET
Management fees.................... 0.200% 0.200% 0.200%
Rule 12b-1 fees.................... 0.000% 0.000% 0.000%
Other expenses*(after fee waiver).. 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses*.....
(after fee waiver)................. 0.500% 0.500% 0.500%
</TABLE>
*Amounts listed under "Other expenses" and "Total fund operating expenses"
in the table above for each class of all Portfolios (except the Small/Mid Cap,
the International Small Cap and the Growth Equity Funds) are based on the
application of expense limitations applicable during the current fiscal year.
See "Advisory Arrangements" below. Amounts listed under "Other expenses" and
"Total fund operating expenses" for the Small/Mid Cap, the International Small
Cap and the Growth Equity Funds are based on estimates for current fiscal year
expenses. To the extent that actual expenses are lower than the expense
limitations, "Other expenses" may vary as between classes of a Portfolio as a
result of certain class-specific incremental expenses being allocated to a
particular class of shares.
The amounts set forth under the caption "Shareholder Transaction Expenses"
are the maximum sales charges applicable to purchases of Fund shares. Because a
portion of the 12b-1 fees payable by each class of shares is considered an asset
based sales charge by the National Association of Securities Dealers, Inc.
("NASD"), long-term shareholders in each class of each Portfolio (other than the
Money Market Fund) may pay more than the economic equivalent of the maximum
front end sales charges permitted by the NASD. See "PURCHASE OF SHARES -- Class
A Shares -- Reduced Sales Charges" in this Prospectus.
The fees and expenses listed under the caption "Annual Fund Operating
Expenses" are described in this Prospectus under the captions "MANAGEMENT OF THE
FUND" and "PURCHASE OF SHARES -- Distribution Expenses." The Advisory Agreement
and Distribution Plans operate to limit Total Fund Operating Expenses to the
amounts listed in the fee table. Such contractual expense limits shall remain
in effect unless the Adviser notifies the Fund (with 30 days notice) that it
will not continue the limits. See "MANAGEMENT OF THE FUND -- Advisory
Agreement." Total Fund Operating Expenses for the year ended October 31, 1995,
absent reimbursement or waiver are set forth below under "Financial Highlights."
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period, with the exception of the lines marked "Class B No redemption" in which
case it is assumed that no redemption is made at the end of each time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS
<S> <C> <C>
SMALL/MID CAP
Class A Shares $64 $ 98
Class B Shares $74 $113
Class B No redemption $24 $ 73
Class C Shares $34 $ 73
Class C No redemption $24 $ 73
INTERNATIONAL SMALL CAP
Class A Shares $66 $104
Class B Shares $76 $119
Class B No redemption $26 $ 79
Class C Shares $36 $ 79
Class C No redemption $26 $ 79
GROWTH EQUITY FUND
Class A Shares $63 $ 97
Class B Shares $73 $112
Class B No redemption $23 $ 72
Class C Shares $33 $ 72
Class C No redemption $23 $ 72
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
GLOBAL GROWTH
Class A Shares $64 $100 $138 $244
Class B Shares $74 $115 $148 $243*
Class B No redemption $24 $ 75 $128 $243*
Class C Shares $34 $ 75 $128 $274
Class C No redemption $24 $ 75 $128 $274
VALUE EQUITY (FORMERLY,
THE "GROWTH FUND")
Class A Shares $60 $ 88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $ 62 $107 $200*
Class C Shares $30 $ 62 $107 $232
Class C No redemption $20 $ 62 $107 $232
GROWTH AND INCOME
Class A Shares $60 $ 88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $ 62 $107 $200*
Class C Shares $30 $ 62 $107 $232
Class C No redemption $20 $ 62 $107 $232
INTERNATIONAL GROWTH AND INCOME
Class A Shares $64 $100 $138 $244
Class B Shares $74 $115 $148 $243
Class B No redemption $24 $ 75 $128 $243
Class C Shares $34 $ 75 $128 $274
Class C No redemption $24 $ 75 $128 $274
ASSET ALLOCATION
Class A Shares $60 $ 88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $ 62 $107 $200*
Class C Shares $30 $ 62 $107 $232
Class C No redemption $20 $ 62 $107 $232
STRATEGIC INCOME
Class A Shares $62 $ 93 $125 $218
Class B Shares $72 $107 $135 $217*
Class B No redemption $22 $ 67 $115 $217*
Class C Shares $32 $ 67 $115 $248
Class C No redemption $22 $ 67 $115 $248
INVESTMENT QUALITY BOND
Class A Shares $60 $ 85 $113 $191
Class B Shares $69 $100 $123 $190*
Class B No redemption $19 $ 60 $103 $190*
Class C Shares $29 $ 60 $103 $222
Class C No redemption $19 $ 60 $103 $222
U.S. GOVERNMENT SECURITIES
Class A Shares $60 $ 85 $113 $191
Class B Shares $69 $100 $123 $190*
Class B No redemption $19 $ 60 $103 $190*
Class C Shares $29 $ 60 $103 $222
Class C No redemption $19 $ 60 $103 $222
NATIONAL MUNICIPAL BOND
Class A Shares $57 $ 78 $100 $163
Class B Shares $69 $ 98 $120 $173*
Class B No redemption $19 $ 58 $100 $173*
Class C Shares $29 $ 58 $100 $216
Class C No redemption $19 $ 58 $100 $216
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
MONEY MARKET
Class A Shares $ 5 $ 16 $ 28 $ 63
Class B Shares $ 5 $ 16 $ 28 $ 63
Class C Shares $ 5 $ 16 $ 28 $ 63
</TABLE>
* Reflects the conversion to Class A shares six years after purchase; therefore
years seven through ten reflect Class A expenses.
The foregoing Fee Table and Example are intended to assist investors in
understanding the various costs and expenses that investors in the Fund bear
directly and indirectly. The examples for the Small/Mid Cap, International
Small Cap and Growth Equity Funds do not include 5 and 10 year figures because
they are newly formed Portfolios. ACTUAL EXPENSES FOR ALL THE PORTFOLIOS MAY BE
HIGHER OR LOWER THAN THE AMOUNTS SHOWN IN THE FEE TABLE AND, CONSEQUENTLY, THE
ACTUAL EXPENSES INCURRED BY AN INVESTOR MAY BE GREATER (IN THE EVENT THE EXPENSE
LIMITATIONS ARE REMOVED) OR LESS THAN THE AMOUNTS SHOWN IN THE EXAMPLE.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE PERFORMANCE OF EACH
PORTFOLIO WILL VARY AND MAY RESULT IN A RETURN GREATER OR LESS THAN 5%.
* * * * *
The information in the foregoing summary is qualified in its entirety
by the more detailed information appearing elsewhere in this Prospectus and in
the Statement of Additional Information.
Information about the performance of each Portfolio is contained in
the Fund's annual report to shareholders which may be obtained without charge.
7
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL GROWTH FUND
-------------------------------------------------------------------------------------------------
YEAR 04/01/94* YEAR 04/01/94* YEAR YEAR
ENDED TO ENDED TO ENDED ENDED YEARS ENDED OCTOBER, 31
10/31/95 10/31/94 10/31/95** 10/31/94 10/31/95** 10/31/94 ---------------------------
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C 1993 1992 1991
-------- --------- ---------- --------- ---------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 14.82 $ 14.13 $ 14.79 $ 14.13 $ 14.79 $ 13.74 $ 10.33 $ 10.76 $ 10.12
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income
(loss) (B).................. -- (0.01) (0.09) (0.03) (0.09) (0.10) (0.01) (0.02) 0.25
Net realized and unrealized
gain (loss) on securities... (0.54) 0.70 (0.53) 0.69 (0.53) 1.15 3.43 (0.37) 0.63
------- ------- ------- ------- ------- -------- ------- ------- ------
Total from investment
operations....... (0.54) 0.69 (0.62) 0.66 (0.62) 1.05 3.42 (0.39) 0.88
Less distributions
- ------------------
Dividends from net
investment income........... -- -- -- -- -- -- (0.01) -- (0.24)
Distributions from capital
gains....................... (0.44) -- (0.44) -- (0.44) -- -- -- --
Distributions from capital... -- -- -- -- -- -- -- (0.04) --
------- ------- ------- ------- ------- -------- ------- ------- ------
Total distributions...... (0.44) -- (0.44) -- (0.44) -- (0.01) (0.04) (0.24)
------- ------- ------- ------- ------- -------- ------- ------- ------
Net asset value, end of
period...................... $ 13.84 $ 14.82 $ 13.73 $ 14.79 $ 13.73 $ 14.79 $ 13.74 $ 10.33 $10.76
======= ======= ======= ======= ======= ======== ======= ======= ======
Total return............. (3.52%) 9.16%(D) (4.09%) 8.94%(D) (4.09%) 8.94% 33.06% (3.57%) 8.80%
Net assets, end of period
(000's)..................... $23,894 $18,152 $23,317 $13,903 $83,340 $101,443 $63,503 $14,291 $8,828
Ratio of operating expenses
to average net assets (C).. 1.75% 1.75%(A) 2.40% 2.40%(A) 2.40% 2.40% 2.40% 2.52% 1.47%
Ratio of net investment
income (loss) to average net
assets.................... 0.03% (0.12%)(A) (0.61%) (0.77%)(A) (0.64%) (0.91%) (0.40%) (0.27%) 1.41%
Portfolio turnover rate...... 57% 54% 57% 54% 57% 54% 57% 69% 70%
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.02 and $0.02 per share for the
Global Growth Fund - Classes A and B respectively, for the year ended
October 31, 1995 and $0.01 and $0.01 per share for the Global Growth Fund -
Classes A and B respectively, for the period April 1, 1994 to October 31,
1994, and $0.02, $0.01, $0.02, $0.02 and $0.05 per share for the Global
Growth Fund - Class C for the years ended 1995, 1994, 1993, 1992 and 1991,
respectively.
(C) The ratio of operating expenses, before reimbursement from adviser, was
1.92% and 2.58% for the Global Growth Fund - Classes A and B respectively,
for the year ended October 31, 1995 and 1.97% and 2.71% for the Global
Growth Fund - Classes A and B respectively, for the period April 1, 1994 to
October 31, 1994, and 2.53%, 2.52%, 2.72%, 2.78% and 4.37% for the Global
Growth Fund - Class C for the years ended 1995, 1994, 1993, 1992 and 1991,
respectively.
(D) Historical total returns for Classes A and B shares are one year performance
returns which include Class C performance prior to April 1, 1994.
8
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND
-------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95** 10/31/94 10/31/95** 10/31/94
CLASS A CLASS A CLASS B CLASS B
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... 14.78 $ 14.59 14.77 $14.59
Income (loss) from investment operations
- ----------------------------------------
Net investment income (loss) (B)........ 0.12 0.02 0.02 (0.02)
Net realized and unrealized gain
on securities......................... 1.83 0.17 1.84 0.20
------- ------- ------- ------
Total from investment
operations.................. 1.95 0.19 1.86 0.18
Less distributions
- ------------------
Distributions from capital gains........ (0.79) --- (0.79) ---
------- ------- ------- ------
Net asset value, end of period.......... $ 15.94 $ 14.78 $ 15.84 $14.77
======= ======= ======= ======
Total return.................. 14.22% 4.82%(D) 13.58% 4.75%(D)
Net assets, end of period (000's)....... $22,026 $16,326 $19,874 $5,054
Ratio of operating expenses to average
net assets (C)........................ 1.34% 1.34%(A) 1.99% 1.99%(A)
Ratio of net investment income (loss) to
average net assets.................... 0.79% 0.13%(A) 0.13% (0.52%)(A)
Portfolio turnover rate................. 54% 39% 54% 39%
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.04 and $0.05 per share for the
Growth Fund - Classes A and B respectively, for the year ended October 31,
1995 and $0.06 and $0.03 per share for the Growth Fund - Classes A and B
respectively, for the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement by adviser, was 1.62%
and 2.32% for the Growth Fund - Classes A and B respectively, for the year
ended October 31, 1995 and 1.79% and 2.82% for the Growth Fund - Classes A
and B respectively, for the period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes A and B shares are one year performance
returns which include Class C performance prior to April 1, 1994.
9
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND - CLASS C
---------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 08/28/89*
-------------------------------------------------------------------------------------- TO
1995** 1994 1993 1992 1991 1990 10/31/89
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $ 14.77 $ 14.21 $ 12.05 $ 10.70 $ 8.22 $ 11.19 $ 12.25
of period...................
Income (loss) from
- ------------------
investment operations
- ----------------------
Net investment income (loss) 0.02 (0.07) 0.01 (0.01) 0.02 0.05 0.01
(B).........................
Net realized and unrealized
gain (loss) on securities... 1.84 0.74 2.15 1.37 2.54 (2.39) (1.07)
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations....... 1.86 0.67 2.16 1.36 2.56 (2.34) (1.06)
Less distributions
- ------------------
Dividends from net
investment income........... - (0.03) - - (0.03) (0.05) -
Distributions from capital
gains....................... (0.79) (0.08) - - - (0.58) -
Distributions from capital... - - - (0.01) (0.05) - -
------- ------- ------- ------- ------- ------- -------
Total distributions (0.79) (0.11) - (0.01) (0.08) (0.63) -
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 15.84 $ 14.77 $ 14.21 $ 12.05 $ 10.70 $ 8.22 $ 11.19
======= ======= ======= ======= ======= ======= =======
Total return....... 13.58% 4.75% 17.93% 12.75% 31.32% (22.16%) (8.65%)
Net assets, end of period
(000's)..................... $83,719 $71,219 $64,223 $24,291 $15,354 $19,370 $30,627
Ratio of operating expenses to
average net assets (C)....... 1.99% 1.99% 1.99% 2.47% 2.97% 2.85% 2.57%(A)
Ratio of net investment income
(loss) to average net assets. 0.15% (0.49%) 0.27% (0.15%) 0.27% 0.43% 0.37%(A)
Portfolio turnover rate...... 54% 39% 40% 91% 37% 58% 65%(A)
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.04, $0.04, $0.02,
$0.05 and $0.01 per share for the Growth Fund - Class C for the years ended
1995, 1994, 1993, 1992 and 1991, respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 2.23%, 2.29%, 2.35%, 3.00% and 3.12% for the Growth Fund -
Class C for the years ended 1995, 1994, 1993, 1992 and 1991, respectively.
10
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
--------------------------------------------------------------------------------------------------
YEAR 04/01/94* YEAR 05/01/94* YEAR YEAR YEARS ENDED 05/01/91*
ENDED TO ENDED TO ENDED ENDED OCTOBER 31, TO
10/31/95** 10/31/94 10/31/95** 10/31/94 10/31/95 10/31/94
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C l993 1992 10/31/91
---------- -------- ---------- --------- --------- -------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.............. $ 13.09 $12.29 $ 13.08 $12.29 $ 13.08 $ 12.71 $ 11.21 $ 10.51 $10.00
Income from investment
operations
- -----------
Net investment income (B). 0.26 0.12 0.16 0.10 0.18 0.15 0.14 0.18 0.11
Net realized and unrealized
gain on securities........ 1.90 0.76 1.94 0.77 1.90 0.46 1.48 0.70 0.47
------ ------ ------ ------ ------- ------ ------- ------ ------
Total from investment
operations........... 2.16 0.88 2.10 0.87 2.08 0.61 1.62 0.88 0.58
Less distributions
- ------------------
Dividends from net
investment income........ (0.23) (0.08) (0.19) (0.08) (0.15) (0.13) (0.12) (0.18) (0.07)
Distributions from capital
gains................... (0.30) -- (0.30) -- (0.30) (0.11) -- -- --
------ ------ ------ ------ ------- ------ ------- ------ ------
Total distributions (0.53) (0.08) (0.49) (0.08) (0.45) (0.24) (0.12) (0.18) (0.07)
------ ------ ------ ------ ------ ------ ------- ------ ------
Net asset value, end of
period.............. $14.72 $13.09 $14.69 $13.08 $14.71 $13.08 $12.71 $11.21 $10.51
====== ====== ====== ====== ====== ====== ======= ====== ======
Total return....... 17.28% 5.06%(D) 16.73% 4.98%(D) 16.56% 4.85% 14.57% 8.42% 5.88%
Net assets, end of
period (000's)..... $12,180 $8,134 $19,052 $3,885 $63,154 $46,078 $37,483 $10,821 $2,090
Ratio of operating
expenses to average
net assets (C)...... 1.34% 1.34%(A) 1.99% 1.99%(A) 1.99% 1.99% 1.99% 1.94% 1.85%(A)
Ratio of net investment
income to average net
assets................ 1.91% 1.72%(A) 1.14% 1.07%(A) 1.26% 1.11% 1.12% 1.51% 2.05%(A)
Portfolio turnover
rate................. 40% 45% 40% 45% 40% 45% 37% 48% 111%(A)
</TABLE>
_______________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.05 and $0.05 per share for the
Growth and Income Fund - Classes A and B respectively, for the year ended
October 31, 1995 and $0.05 and $0.12 per share for the Growth and Income
Fund - Classes A and B respectively, for the period April 1, 1994 to October
31, 1994. After expense reimbursement and waiver by adviser of $0.04,
$0.05, $0.06, $0.15 and $0.37 per share for the Growth and Income Fund -
Class C for the years ended 1995, 1994, 1993 and 1992 and the period May 1,
1991 (commencement of operations) to October 31, 1991, respectively.
(C) The ratio of operating expenses, before reimbursement adviser, was 1.69% and
2.33% for the Growth and Income Fund - Classes A and B respectively, for the
year ended October 31, 1995, and 2.08% and 3.12% for the Growth and Income
Fund - Classes A and B respectively, for the period April 1, 1994 to October
31, 1994. The ratio of operating expenses, before reimbursement and waiver
by adviser, was 2.26%, 2.38%, 2.46%, 3.18% and 10.69% for the Growth and
Income Fund - Class C for the years ended 1995, 1994, 1993 and 1992 and the
period May 1, 1991 (commencement of operations) to October 31, 1991,
respectively.
(D) Historical total returns for Classes A and B shares are one year performance
returns which include Class C performance prior to April 1, 1994.
11
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND INCOME FUND
------------------------------------------------------
01/09/95* 01/09/95* 01/09/95*
TO TO TO
10/31/95** 10/31/95** 10/31/95**
CLASS A CLASS B CLASS C
------------------ ---------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $10.00 $10.00 $10.00
Income from investment operations:
- ---------------------------------
Net investment income (B)............... 0.06 0.01 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions........................... 0.08 0.12 0.12
------ ----- ------
Total from investment
operations.................. 0.14 0.13 0.13
Less distributions
- ------------------
Dividends from net investment income.... (0.03) (0.03) (0.03)
------ ----- ------
Net asset value, end of period.......... $10.11 $10.10 $10.10
====== ====== ======
Total return.................. 1.37% 1.28% 1.28%
Net assets, end of period (000's)....... $6,897 $8,421 $6,324
Ratio of operating expenses to
average net assets (C)................ 1.75%(A) 2.40%(A) 2.40%(A)
Ratio of net investment income to
average net assets.................... 0.70%(A) 0.15%(A) 0.13%(A)
Portfolio turnover rate................. 69%(A) 69%(A) 69%(A)
</TABLE>
_____________________________
* Commencement of operations.
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.04, $0.04 and $0.04 per share
for the International Growth and Income Fund - Classes A, B and C
respectively, for the period January 9, 1995 (commencement of operations)
to October 31, 1995.
(C) The ratio of operating expenses, before reimbursement from adviser, was
2.18%, 2.93% and 2.93% for the International Growth and Income Fund,
Classes A, B and C respectively, for the period January 9, 1995
(commencement of operations) to October 31, 1995.
12
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
-------------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95** 10/31/94 10/31/95** 10/31/94
CLASS A CLASS A CLASS B CLASS B
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $11.13 $11.06 $11.12 $11.06
Income (loss) from investment operations
- ----------------------------------------
Net investment income (B)............... 0.38 0.17 0.30 0.12
Net realized and unrealized gain
(loss) on securities.................. 1.35 (0.10) 1.36 (0.06)
------ ------ ------ ------
Total from investment
operations.................. 1.73 0.07 1.66 0.06
Less distributions
- ------------------
Dividends from net investment income.... (0.32) - (0.28) -
Distributions from capital gains........ (0.52) - (0.52) -
------ ------ ------ ------
Total distributions........... (0.84) - (0.80) -
------ ------ ------ ------
Net asset value, end of period.......... $12.02 $11.13 $11.98 $11.12
====== ====== ====== ======
Total return.................. 16.95% 0.76%(D) 16.31% 0.67%(D)
Net assets, end of period (000's)....... $10,033 $7,830 $9,875 $4,760
Ratio of operating expenses to average
net assets (C)........................ 1.34% 1.34%(A) 1.99% 1.99%(A)
Ratio of net investment income to
average net assets..................... 3.39% 2.72%(A) 2.69% 2.07%(A)
Portfolio turnover rate................. 226% 246% 226% 246%
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.04 and $0.04 for the Asset
Allocation Fund - Classes A and B respectively, for the year ended October
31, 1995 and $0.03 and $0.04 for the Asset Allocation Fund - Classes A and
B respectively, for the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement from adviser, was
1.69% and 2.37% for the Asset Allocation Fund - Classes A and B
respectively, for the year ended October 31, 1995 and 1.86% and 2.73% for
the Asset Allocation Fund - Classes A and B respectively, for the period
April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes A and B shares are one year
performance returns which include Class C performance prior to April 1,
1994.
13
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND - CLASS C (D)
--------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 08/28/89*
-------------------------------------------------------------- TO
1995** 1994 1993 1992 1991 1990 10/31/89
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $ 11.12 $ 11.52 $ 10.20 $ 9.76 $ 8.12 $ 9.84 $ 10.17
of period...................
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.31 0.22 0.21 0.20 0.27 0.32 0.05
Net realized and unrealized
gain (loss) on securities... 1.35 (0.15) 1.30 0.87 1.70 (1.66) (0.38)
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations....... 1.66 0.07 1.51 1.07 1.97 (1.34) (0.33)
Less distributions
- ------------------
Dividends from net
investment income........... (0.24) (0.18) (0.09) (0.19) (0.33) (0.26) ---
Distributions from capital
gains....................... (0.52) (0.29) (0.10) (0.44) --- --- ---
Distributions from capital... --- --- --- --- --- (0.12) ---
------- ------- ------- ------- ------- ------- -------
Total distributions (0.76) (0.47) (0.19) (0.63) (0.33) (0.38) ---
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 12.02 $ 11.12 $ 11.52 $ 10.20 $ 9.76 $ 8.12 $ 9.84
======= ======= ======= ======= ======= ======= =======
Total return....... 16.25% 0.67% 15.02% 11.25% 24.53% (13.97%) (3.24%)
Net assets, end of period
(000's)..................... $80,626 $86,902 $96,105 $48,160 $30,724 $34,713 $43,915
Ratio of operating expenses
to average net assets (C)... 1.99% 1.99% 1.99% 2.40% 2.88% 2.63% 2.13%(A)
Ratio of net investment
income to average
net assets.................. 2.76% 1.93% 1.96% 1.93% 2.77% 3.34% 3.09%(A)
Portfolio turnover rate...... 226% 246% 196% 171% 84% 73% 84%(A)
</TABLE>
_____________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.03, $0.04, $0.03 and
$0.04 for the Asset Allocation Fund - Class C for the years ended 1995,
1994, 1993 and 1992, respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 2.24%, 2.22%, 2.28% and 2.89% for the Asset Allocation Fund -
Class C for the years ended 1995, 1994, 1993 and 1992, respectively.
(D) On July 10, 1992, the Aggressive Fund and Conservative Fund portfolios of
the old Asset Allocation Funds were liquidated and shares were exchanged for
shares of the new Asset Allocation Fund. The new Asset Allocation Fund is
comprised of the Moderate Fund portfolio of the old Asset Allocation Fund
(the accounting "survivor") and the assets of the former Aggressive and
Conservative portfolios of the old Asset Allocation Funds. For purposes of
presenting financial highlights - selected per share data and ratios, only
the historical results of the old Moderate Fund have been presented since it
is considered the accounting survivor of the merger because the investment
objective of the new Asset Allocation Fund is substantially the same as that
of the old Moderate Fund. At the date of the merger, 3,567,198 shares of
the old Moderate Fund with a per share value of $8.11 were decreased to
2,891,572 shares with a per share value of $10.00, similar to a reverse
stock split, and re-named as shares of the new Asset Allocation Fund. The
historical per share data presented above has been adjusted as though a
reverse stock split had occurred at the beginning of the earliest period
presented which results in fewer shares outstanding at a correspondingly
higher net asset value per share.
14
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
--------------------------------------------------------------------------------
YEAR 11/01/93* YEAR 04/01/94* YEAR 04/01/94*
ENDED TO ENDED TO ENDED TO
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 8.90 $ 10.00 $ 8.90 $ 9.31 $ 8.90 $ 9.31
Income (loss) from
investment operations
- ----------------------
Net investment income (B).... 0.78 0.65 0.73 0.38 0.73 0.38
Net realized and unrealized
gain (loss)
on securities.............. 0.18 (1.10) 0.17 (0.41) 0.17 (0.41)
------- ------- ------- ------- ------- ------
Total from investment
operations....... 0.96 (0.45) 0.90 (0.03) 0.90 (0.03)
Less distributions
- ------------------
Dividends from net
investment income........... (0.79) (0.65) (0.73) (0.38) (0.73) (0.38)
------- ------- ------- ------- ------- ------
Net asset value, end of
period...................... $ 9.07 $ 8.90 $ 9.07 $ 8.90 $ 9.07 $ 8.90
======= ======= ======= ======= ======= =======
Total return......... 11.43% (3.79%) 10.72% (4.18%)(D) 10.72% (4.20%)(D)
Net assets, end of period
(000's)..................... $10,041 $ 15,507 $20,672 $ 5,440 $14,273 $ 8,439
Ratio of operating expenses
to average net assets (C).... 1.07% 0.41% 1.95% 1.00%(A) 1.95% 1.00%(A)
Ratio of net investment
income to average net assets.. 9.08% 8.26% 8.10% 8.59%(A) 8.25% 8.59%(A)
Portfolio turnover rate...... 180% 136% 180% 136% 180% 136%
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.05 and $0.04 per
share for the Strategic Income Fund - Class A for the years ended October
31, 1995 and 1994, and $0.04 and $0.05 for the Strategic Income Fund -
Classes B and C respectively, for the year ended October 31, 1995 and $0.05
and $0.04 for the Strategic Income Fund - Classes B and C respectively, for
the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 1.69% and 0.96% for the Strategic Income Fund - Class A for the
years ended October 31, 1995 and 1994. The ratio of operating expenses,
before reimbursement and waiver from adviser, was 2.38% and 2.37% for the
Strategic Income Fund - Classes B and C respectively, for the year ended
October 31, 1995 and 2.04% and 1.96% for the Strategic Income Fund - Classes
B and C respectively, for the period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year performance
returns which include Class A performance prior to April 1, 1994.
15
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND FUND
-------------------------------------------------------------------------------------------------
YEAR YEAR YEAR 04/01/94* YEAR 04/01/94* YEARS ENDED
ENDED ENDED ENDED TO ENDED TO OCTOBER, 31 05/01/91*
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94 ----------------- TO
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C 1993 1992 10/31/91
-------- -------- -------- --------- -------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 9.74 $ 11.16 $ 9.74 $10.21 $ 9.74 $10.21 $ 10.56 $10.26 $10.00
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.68 0.60 0.61 0.33 0.61 0.33 0.66 0.82 0.40
Net realized and unrealized
gain (loss) on securities... 0.82 (1.37) 0.82 (0.51) 0.82 (0.51) 0.64 0.27 0.30
------- ------- ------ ------ ------ ------ ------- ------ ------
Total from
investment
operations....... 1.50 (0.77) 1.43 (0.18) 1.43 (0.18) 1.30 1.09 0.70
Less distributions
- ------------------
Dividends from net
investment income........... (0.68) (0.56) (0.62) (0.29) (0.62) (0.29) (0.64) (0.7) (0.40)
Distributions from capital
gains....................... -- (0.09) -- -- -- -- (0.06) -- --
Distributions from capital... -- -- -- -- -- -- -- -- (0.04)
------- ------- ------ ------ ------ ------ ------- ------ -----
Total distributions (0.68) (0.65) (0.62) (0.29) (0.62) (0.29) (0.70) (0.79) (0.44)
------- ------- ------ ------ ------ ------ ------- ------ -----
Net asset value, end of
period...................... $ 10.56 $ 9.74 $10.55 $ 9.74 $10.55 $ 9.74 $ 11.16 $10.56 $10.26
======= ======= ====== ====== ====== ====== ======= ====== ======
Total return....... 15.91% (7.08%) 15.12% (7.34%)(D) 15.12% (7.34%)(D) 12.66% 11.00% 7.21%
Net assets, end of period
(000's)..................... $10,345 $11,150 $3,472 $ 489 $7,206 $2,406 $14,674 $6,773 $2,713
Ratio of operating expenses
to average net assets (C)... 1.25% 1.25% 1.90% 1.90%(A) 1.90% 1.90%(A) 0.98% 0.00% 0.00%(A)
Ratio of net investment
income to average
net assets.................. 6.72% 5.86% 5.95% 5.70%(A) 6.00% 5.70%(A) 5.82% 7.76% 7.08%(A)
Portfolio turnover rate...... 132% 186% 132% 186% 132% 186% 41% 44% 39%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.05, $0.06, $0.07,
$0.27 and $0.19 per share for the Investment Quality Bond Fund - Class A for
the years ended 1995, 1994, 1993 and 1992 and the period May 1, 1991
(commencement of operations) to October 31, 1991, respectively. After
expense reimbursement by adviser of $0.08 and $0.06 per share for the
Investment Quality Bond Fund - Classes B and C respectively, for the year
ended October 31, 1995 and $0.19 and $0.07 per share for the Investment
Quality Bond Fund - Classes B and C respectively, for the period April 1,
1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 1.73%, 1.74%, 1.57%, 2.56% and 3.37% for the Investment Quality
Bond Fund - Class A for the years ended 1995, 1994, 1993 and 1992 and the
period May 1, 1991 (commencement of operations) to October 31, 1991,
respectively. The ratio of operating expenses, before reimbursement by
adviser, was 2.69% and 2.50% for the Investment Quality Bond Fund - Classes
B and C respectively, for the year ended October 31, 1995 and 4.88% and
3.05% for the Investment Quality Bond Fund - Classes B and C respectively,
for the period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year performance
returns which include Class A performance prior to April 1, 1994.
16
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND - CLASS A
-----------------------------------------------------------------------------
YEARS ENDED OCTOBER 31,
-----------------------------------------------------------------------------
08/28/89*
TO
1995 1994 1993 1992 1991 1990 10/31/89
------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $ 9.45 $ 10.35 $ 10.04 $ 9.89 $ 9.47 $ 9.74 $ 9.73
of period...................
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.63 0.53 0.51 0.74 0.84 0.75 0.15
Net realized and unrealized
gain (loss) on securities... 0.57 (0.74) 0.34 0.13 0.42 (0.20) 0.01
------- -------- -------- -------- ------- ------- -------
Total from
investment
operations....... 1.20 (0.21) 0.85 0.87 1.26 0.55 0.16
Less distributions
- ------------------
Dividends from net (0.67) (0.50) (0.50) (0.72) (0.84) (0.75) (0.15)
investment income...........
Distributions from capital ---- (0.19) (0.04) ---- ---- ---- ----
gains.......................
Distributions from capital... ---- ---- ---- ---- ---- (0.07) ----
------- -------- -------- -------- ------- ------- -------
Total distributions (0.67) (0.69) (0.54) (0.72) (0.84) (0.82) (0.15)
------- -------- -------- -------- ------- ------- -------
Net asset value, end of $ 9.98 $ 9.45 $ 10.35 $ 10.04 $ 9.89 $ 9.47 $ 9.74
period...................... ======= ======== ======== ======== ======= ======= =======
Total return....... 13.15% (2.13%) 8.64% 9.15% 13.86% 5.90% 1.66%
Net assets, end of period $81,179 $100,622 $163,296 $118,543 $45,662 $43,299 $56,069
(000's).....................
Ratio of operating expenses
to average net assets (C)... 1.25% 1.25% 1.07% 0.24% 0.68% 2.28% 2.18%(A)
Ratio of net investment
income to average
net assets.................. 6.54% 5.39% 4.97% 7.21% 8.65% 7.89% 8.54%(A)
Portfolio turnover rate...... 469% 279% 208% 108% 195% 71% 93%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.02, $0.02, $0.04,
$0.19, $0.18 and $0.03 per share for the U.S. Government Securities Fund -
Class A for the years ended 1995, 1994, 1993, 1992, 1991 and 1990,
respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 1.45%, 1.47%, 1.42%, 2.13%, 2.61% and 2.57% for the years ended
1995, 1994, 1993, 1992, 1991 and 1990, respectively.
17
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
--------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95 10/31/94 10/31/95 10/31/94
CLASS B CLASS B CLASS C CLASS C
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $9.45 $9.77 $9.45 $9.77
Income (loss) from investment operations
- ----------------------------------------
Net investment income (B)............... 0.56 0.29 0.56 0.26
Net realized and unrealized gain (loss)
on securities......................... 0.58 (0.35) 0.58 (0.32)
----- ----- ----- -----
Total from investment
operations.................. 1.14 (0.06) 1.14 (0.06)
Less distributions
- ------------------
Dividends from net investment income.... (0.61) (0.26) (0.61) (0.26)
----- ----- ----- -----
Total distributions........... (0.61) (0.26) (0.61) (0.26)
----- ----- ----- -----
Net asset value, end of period.......... $9.98 $9.45 9.98 $9.45
===== ===== ===== =====
Total return.................. 12.45% (2.44%)(D) 12.45% (2.44%)(D)
Net assets, end of period (000's)....... $13,993 $2,746 20,186 $10,766
Ratio of operating expenses to average
net assets (C)........................ 1.90% 1.90%(A) 1.90% 1.90%(A)
Ratio of net investment income to
average net assets..................... 5.53% 5.06%(A) 5.74% 5.06%(A)
Portfolio turnover rate................. 469% 279% 469% 279%
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement by adviser of $0.04 and $0.03 per share for the
U.S. Government Securities Fund - Classes B and C respectively, for the
year ended October 31, 1995 and $0.08 and $0.03 per share for the U.S.
Government Securities Fund - Classes B and C respectively, for the period
April 1, 1994 to October 31, 1994 .
(C) The ratio of operating expenses, before reimbursement from adviser, was
2.28% and 2.15% for the U.S. Government Securities Fund - Classes B and C
respectively, for the year ended October 31, 1995 and 3.40% and 2.44% for
the U.S. Government Securities Fund - Classes B and C respectively, for the
period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year
performance returns which include Class A performance prior to April 1,
1994.
18
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND FUND
---------------------------------------------------------------------------------
YEAR YEAR YEAR 04/01/94* YEAR 04/01/94*
ENDED ENDED ENDED TO ENDED TO 07/6/93*
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94 TO
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C 10/31/93
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 8.82 $10.25 $ 8.81 $ 9.30 $ 8.81 $ 9.30 $10.00
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.51 0.51 0.43 0.25 0.43 0.25 0.17
Net realized and unrealized
gain (loss) on securities... 0.80 (1.43) 0.81 (0.49) 0.81 (0.49) 0.24
------ ------ ------ ------ ------ ------- ------
Total from
investment
operations....... 1.31 (0.92) 1.24 (0.24) 1.24 (0.24) 0.41
Less distributions
- ------------------
Dividends from net
investment income........... (0.51) (0.51) (0.43) (0.25) (0.43) (0.25) (0.16)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period...................... $ 9.62 $ 8.82 $ 9.62 $ 8.81 $ 9.62 $ 8.81 $10.25
====== ====== ====== ====== ====== ====== ======
Total return....... 15.26% (9.24%) 14.42% (9.71%)(D) 14.42% (9.71%)(D) 4.17%
Net assets, end of period
(000's)..................... $7,618 $7,663 $5,876 $2,036 $6,834 $1,911 $9,131
Ratio of operating expenses
to average net assets (C)... 0.80% 0.57% 1.70% 1.24%(A) 1.70% 1.24%(A) 0.23%(A)
Ratio of net investment
income to average
net assets.................. 5.55% 5.28% 4.59% 4.62%(A) 4.53% 4.62%(A) 4.86%(A)
Portfolio turnover rate...... 44% 6% 44% 6% 44% 6% 150%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.05, $0.07 and $0.03
per share for the National Municipal Bond Fund - Class A for the years ended
1995 and 1994 and the period July 6, 1993 (commencement of operations) to
October 31, 1993, respectively. After expense reimbursement and waiver by
adviser of $0.07 and $0.09 per share for the National Municipal Bond Fund -
Classes B and C respectively, for the year ended October 31, 1995 and $0.09
and $0.09 per share for the National Municipal Bond Fund - Classes B and C
respectively, for the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement and waiver by adviser,
was 1.34%, 1.26% and 1.10% for the National Municipal Bond Fund - Class A
for the years ended 1995 and 1994 and the period July 6, 1993 (commencement
of operations) to October 31, 1993, respectively. The ratio of operating
expenses, before reimbursement and waiver by adviser, was 2.41% and 2.63%
for the National Municipal Bond Fund - Classes B and C respectively, for the
year ended October 31, 1995 and 2.81% and 2.78% for the National Municipal
Bond Fund - Classes B and C respectively, for the period April 1, 1994 to
October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year performance
returns which include Class A performance prior to April 1, 1994.
19
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND -- CLASS A
---------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 08/28/89*
-------------------------------------------------------------------- TO
1995 1994 1993 1992 1991 1990 10/31/89
------- ------ ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
- ----------------------
operations
----------
Net investment income (B)... 0.05 0.03 0.03 0.04 0.06 0.06 0.01
Less distributions
Dividends from net
investment income......... (0.05) (0.03) (0.03) (0.04) (0.06) (0.06) (0.01)
------- ------ ------- ------ ------ ------ ------
Net asset value, end of
period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ======= ====== ====== ====== ======
Total return.......... 5.60% 3.48% 2.80% 3.69% 6.22% 5.76% 0.53%
Net assets, end of period
(000's).................. $11,379 $8,499 $18,109 $2,244 $3,421 $4,526 $7,781
Ratio of operating expenses
to average net assets (C). 0.50% 0.50% 0.50% 0.50% 1.00% 2.45% 1.96%(A)
Ratio of net investment
income to average net
assets.................... 5.45% 3.40% 2.75% 3.77% 6.01% 5.52% 6.59%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.004, $0.0044,
$0.0084, $0.0211, $0.0270 and $0.0002 per share for the Money Market Fund-
Class A for the years ended 1995, 1994, 1993, 1992, 1991 and 1990,
respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 0.96%, 0.95%, 1.32%, 2.71%, 2.68% and 2.47% for the Money
Market Fund - Class A for the years ended 1995, 1994, 1993, 1992, 1991 and
1990, respectively.
20
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET FUND
-------------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95 10/31/94 10/31/95 10/31/94
CLASS B CLASS B CLASS C CLASS C
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
- ---------------------------------
Net investment income (B)............... 0.05 0.02 0.05 0.02
Less distributions
- ------------------
Dividends from net investment income.... (0.05) (0.02) (0.05) (0.02)
------- ------- ------- -------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return.................. 5.60% 3.48%(D) 5.60% 3.48%(D)
Net assets, end of period (000's)....... $1,564 $ 312 $9,394 $12,170
Ratio of operating expenses to average
net assets (C)........................ 0.50% 0.50%(A) 0.50% 0.50%(A)
Ratio of net investment income to
average net assets.................... 5.52% 3.96%(A) 5.46% 3.96%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement by adviser of $0.009 and $0.005 per share for
the Money Market Fund - Classes B and C respectively, for the year ended
October 31, 1995 and $0.0228 and $0.0037 per share for the Money Market
Fund - Classes B and C respectively, for the period April 1, 1994 to
October 31, 1994.
(C) The ratio of operating expenses, before reimbursement from adviser, was
1.41% and 0.95% for the Money Market Fund - Classes B and C respectively,
for the year ended October 31, 1995 and 4.83% and 1.18% for the Money
Market Fund - Classes B and C respectively, for the period April 1, 1994 to
October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year
performance returns which include Class A performance prior to April 1,
1994.
21
<PAGE>
MULTIPLE PRICING SYSTEM
The Fund's Multiple Pricing System permits an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Purchases of Class A shares of less than $1million
are offered for sale at net asset value per share plus a front end sales charge
of up to 4.75% payable at the time of purchase (with the exception of Class A
shares of the Money Market Fund, which are offered without such a charge).
Purchases of Class A shares of $1 million or more made on or after May 1, 1995
are offered for sale at net asset value without a front end sales charge but are
subject to a contingent deferred sales charge ("CDSC") of 1% of the dollar
amount subject thereto during the first year after purchase. See "MULTIPLE
PRICING SYSTEM-Contingent Deferred Sales Charge." In addition, Class A shares
are subject to a distribution fee of up to .10% of their respective average
annual net assets and a service fee of up to .25% of their respective average
annual net assets (with the exception of Class A shares of the Money Market
Fund, which bear no such fees, and Class A shares of the National Municipal Bond
Fund, which are subject to a service fee of up to .15% of Class A average annual
net assets and are not subject to any distribution fee). Certain purchases of
Class A shares qualify for reduced front end sales charges. See "PURCHASE OF
SHARES -- Class A Shares -- Reduced Sales Charges" and "-- Distribution
Expenses."
CLASS B SHARES. Class B shares are offered for sale for purchases of
$250,000 or less. Class B shares are offered for sale at net asset value
without a front end sales charge, but are subject to a CDSC of 5% of the dollar
amount subject thereto during the first and second year after purchase, and
declining by 1% each year thereafter to 0% after the sixth year. See "MULTIPLE
PRICING SYSTEM- Contingent Deferred Sales Charge." In addition, Class B shares
are subject to a distribution fee of up to .75% of their respective average
annual net assets and a service fee of up to .25% of their respective average
annual net assets (with the exception of Class B shares of the Money Market
Fund, which bear no such fees). The Class B shares enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment is
made. The higher ongoing distribution and service fees paid by Class B shares
will cause such shares to have a higher expense ratio and to pay lower dividends
than Class A shares. See "PURCHASE OF SHARES -- Class B Shares" and "--
Distribution Expenses." Class B shares will automatically convert to Class A
shares six years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "MULTIPLE PRICING SYSTEM -- Conversion
Feature."
CLASS C SHARES. Class C shares are offered for purchases of less than
$1 million, at net asset value without a front end sales charge. Class C shares
purchased on or after May 1, 1995 are subject to a CDSC of 1% of the dollar
amount subject thereto during the first year after purchase. Shares purchased
prior to May 1, 1995 are not subject to any CDSC upon redemption. See "MULTIPLE
CLASS PRICING SYSTEM-Contingent Deferred Sales Charge." Class C shares are
subject to a distribution fee of up to .75% of their respective average annual
net assets and a service fee of up to .25% of their respective average annual
net assets (with the exception of Class C shares of the Money Market Fund, which
bear no such fees). Class C shares, like Class B shares, enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment is
made. The higher ongoing distribution and service fees paid by Class C shares
will cause such shares to have a higher expense ratio and to pay lower dividends
than Class A shares. See "PURCHASE OF SHARES -- Class C Shares" and "--
Distribution Expenses." Class C shares will automatically convert to Class A
shares ten years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "MULTIPLE PRICING SYSTEM -- Conversion
Feature."
CONTINGENT DEFERRED SALES CHARGE. Purchases of $1 million or more of
Class A shares made on or after May 1, 1995 are subject to a CDSC of 1% if
redeemed within one year of purchase; purchases of Class B shares are subject to
a CDSC of 5% during the first and second year after purchase declining by 1%
each year thereafter to 0% after the sixth year; and Class C shares purchased on
or after May 1, 1995 are subject to a CDSC of 1% if redeemed within one year of
purchase. The applicable percentage is assessed on an amount equal to the
lesser of the original purchase price or the redemption price of the shares
redeemed. The CDSC is not applicable with respect to redemption of shares of
the Money Market Fund which were initially purchased as such and which were
never exchanged for shares of the same class of another Portfolio. However, in
the case of shares of the Money Market Fund which were obtained through an
exchange, such shares are subject to any applicable CDSC due at redemption.
Similarly, shares initially purchased as shares of the Money Market Fund which
are subsequently exchanged for shares of the same class of other Portfolios will
be subject to any applicable CDSC due at redemption. See "SHAREHOLDER SERVICES
- -- Exchange Privilege."
CONVERSION FEATURE. Class B shares and Class C shares will
automatically convert to Class A shares six years and ten years, respectively,
after the end of the calendar month in which the shareholder's order to purchase
was accepted and will thereafter no longer be subject to the higher distribution
and service fees. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales charge, fee or other
charge. The purpose of the conversion feature is to relieve the holders of
Class B shares and Class C shares from most of the burden of distribution-
related expenses at such time as when the shares have been outstanding for a
duration sufficient for the Fund's distributor, NASL Financial Services, Inc.
(in such capacity, the "Distributor"), to have been substantially compensated
for distribution-related expenses incurred in connection with Class B shares or
Class C shares, as the case may be. Accordingly, Class B and Class C shares of
the Money Market Fund do not convert to Class A shares of the Money Market Fund
at any time, as shares of all classes of the Money Market Fund do not bear any
distribution or service fees. In addition, because Class B and Class C shares
of the Money Market Fund are not subject to any distribution or service fees,
the applicable conversion period is tolled for any period
22
<PAGE>
of time in which Class B or Class C shares are held in that Portfolio. For
example, if Class B shares of a Portfolio other than the Money Market Fund are
exchanged for Class B shares of the Money Market Fund two years after purchase
and are subsequently exchanged one year later for Class B shares of a Portfolio
other than the Money Market Fund, the one year of ownership in the Money Market
Fund does not count in the determination of the time of conversion to Class A
shares.
For purposes of the conversion of Class B and Class C shares to Class
A shares, shares purchased through the reinvestment of dividends and
distributions paid on Class B shares or Class C shares, as the case may be, in a
shareholder's Fund account will be considered to be held in a separate sub-
account. Each time any Class B shares or Class C shares in the shareholder's
Fund account (other than those in the sub-account) convert to Class A shares, a
pro rata portion of the Class B shares or Class C shares, as the case may be, in
the sub-account will also convert to Class A shares.
The conversion of Class B shares to Class A shares and the conversion
of Class C shares to Class A shares are both subject to the continuing
availability of a ruling of the Internal Revenue Service that payment of
different dividends on Class A shares and Class B shares, and on Class A shares
and Class C shares, does not result in the Portfolios' dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing availability of an
opinion of counsel to the effect that the conversion of shares does not
constitute a taxable event under Federal income tax law. The conversion of
Class B shares and Class C shares may be suspended if such an opinion is no
longer available. In that event, no further conversions of Class B shares or
Class C shares would occur, and those shares might continue to be subject to
higher distribution and service fees for an indefinite period which may extend
beyond the period ending six years or ten years, respectively, after the end of
the calendar month in which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. The Fund's Multiple Pricing System is
designed to provide investors with the option of choosing the class of shares
which is best suited to their individual circumstances and objectives. The
different sales charges, distribution and service fees and conversion features
applicable to each class, as outlined above, should all be taken into
consideration by investors in making the determination of which alternative is
best suited for them. To assist investors in evaluating the costs and benefits
of purchasing shares of each class, the information provided above under the
caption "Fee Table and Example" sets forth the charges applicable to each class
of shares and illustrates an example of a hypothetical investment in each class
of shares of each Portfolio.
There are several key distinctions among the classes of shares that
investors should understand and evaluate in comparing the options presented by
the Multiple Pricing System. Class A shares are subject to lower distribution
and service fees than are Class B and Class C shares, and, accordingly, pay
correspondingly higher dividends per share. However, because for purchases of
less than $1 million of Class A shares a front end sales charge is deducted at
the time of purchase, investors purchasing Class A shares do not have all of
their funds invested initially and, therefore, initially own fewer shares than
they would own if they had invested the identical sum in Class B shares or Class
C shares instead. In addition, Class C shares are subject to the same ongoing
distribution and service fees as Class B shares but are subject to a CDSC for a
shorter period of time (one year as opposed to six years) than Class B shares.
However, Class B shares convert to Class A shares, and lower ongoing
distribution and service fees, in a shorter time frame than do Class C shares.
In light of these distinctions among the classes of shares, investors
should weigh such factors as (i) whether they qualify for a reduced front end
sales load for a purchase of Class A shares; (ii) whether, at the time of
purchase, they anticipate being subject to a CDSC upon redemption if they
purchase Class A shares (purchases of $1 million or more), Class B shares or
Class C shares; (iii) the differential in the relative amounts that would be
paid during the anticipated life of investments (which are made at the same time
and in the same amount) in each class which are attributable to (a) the front
end sales charge (for purchases of less than $1 million) and any applicable CDSC
(for purchases of $1 million or more) and accumulated distribution and service
fees payable with respect to Class A shares and (b) the accumulated distribution
and service fees (and any applicable CDSC) payable with respect to Class B
shares or Class C shares prior to their conversion to Class A shares; and (iv)
to what extent the differential referred to above might be offset by the higher
yield of Class A shares. Investors should also weigh these considerations
against the fact that the higher continued distribution and service fees
associated with Class B shares and Class C shares will be offset to the extent
any return is realized on the additional funds initially invested and that there
can be no assurance as to the return, if any, which will be realized on such
additional funds. Class A shares are, in general, the most beneficial for the
investor who qualifies for reduced front end sales charges, as described herein
under "PURCHASE OF SHARES -- Class A Shares." For this reason, Class B shares
are not offered for purchases in excess of $250,000 and Class C shares are not
offered for purchases of $1 million or more. Investors should consult their
investment representative for assistance in evaluating the relative benefits of
the different classes of shares.
The distribution and shareholder service expenses incurred by the
Distributor in connection with the sale of shares will be paid, in the case of
Class A shares (purchases of less than $1 million), from the proceeds of front
end sales charges and ongoing distribution and service fees and in the case of
Class A shares (purchases of $1 million or more), Class B shares and Class C
shares, from the proceeds of CDSCs and ongoing distribution and service fees.
Sales personnel of broker-dealers distributing the Fund's shares and any other
persons entitled to receive compensation for selling or servicing the Fund's
shares may receive different compensation for selling or servicing one
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class of shares over another. INVESTORS SHOULD UNDERSTAND THAT FRONT END SALES
CHARGES, CDSCS AND ONGOING DISTRIBUTION AND SERVICE FEES ARE ALL INTENDED TO
COMPENSATE THE DISTRIBUTOR FOR DISTRIBUTION SERVICES. See "PURCHASE OF SHARES --
Distribution Expenses."
Dividends paid by the Fund with respect to each class of shares will
be calculated in substantially the same manner at the same time on the same day,
except that distribution and service fees and any other costs specifically
attributable to a particular class of shares will be borne solely by the
applicable class. See "GENERAL INFORMATION -- Dividends and Distributions."
Shares of the Fund may be exchanged for shares of the same class of any other
Portfolio, but not for shares of other classes of any Portfolio. See
"SHAREHOLDER SERVICES -- Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the
Trustees of the Fund, pursuant to their fiduciary duties under the Investment
Company Act of 1940 (the "1940 Act") and state laws, will seek to ensure that no
such conflict arises.
INVESTMENT PORTFOLIOS
Each Portfolio has a stated investment objective which it pursues
through separate investment policies. The differences in objectives and
policies among the Portfolios can be expected to affect the return of each
Portfolio and the degree of market and financial risk to which each Portfolio is
subject.
The investment objective of each Portfolio represent fundamental
policies of each such Portfolio and may not be changed without the approval of
the holders of a majority of the outstanding shares of the Portfolio. Except
for certain investment restrictions, the policies by which a Portfolio seeks to
achieve its investment objectives may be changed by the Trustees of the Fund
without the approval of the shareholders.
The following is a description of the investment objective and
policies of each Portfolio. More complete descriptions of the money market
instruments in which each Portfolio may invest and of the options, futures and
currency transactions that certain Portfolios may engage in are set forth in the
Statement of Additional Information. With regard to fixed income securities
there is an inverse relationship between changes in the direction of interest
rates and the market value of the securities. A more complete description of
the debt security ratings used by the Fund assigned by Moody's Investors
Service, Inc. ("Moody's"), Standard and Poor's Ratings Group ("Standard &
Poor's" or "S&P") or Fitch Investors Service, Inc. ("Fitch") is included in
Appendix I to this Prospectus.
SMALL/MID CAP FUND
The investment objective of the Small/Mid Cap Fund is to seek long
term capital appreciation. Alger manages the Small/Mid Cap Fund and will pursue
this objective by investing at least 65% of the Portfolio's total assets (except
during temporary defensive periods) in small/mid cap equity securities. As used
in this Prospectus small/mid cap equity securities are equity securities of
companies that, at the time of purchase, have "total market capitalization" --
present market value per share multiplied by the total number of shares
outstanding -- between $500 million and $5 billion. The Portfolio may invest up
to 35% of its total assets in equity securities of companies that, at the time
of purchase, have total market capitalization of $5 billion or greater and in
excess of that amount (up to 100% of its assets ) during temporary defensive
periods.
The Small/Mid Cap Fund seeks to achieve its investment objective by
investing in equity securities, such as common or preferred stocks, or
securities convertible into or exchangeable for equity securities, including
warrants and rights. The Portfolio will invest primarily in companies whose
securities are traded on domestic stock exchanges or in the over-the-counter
market.
The Small/Mid Cap Fund may invest a significant portion of its assets
in the securities of small companies. Small companies are those which are still
in the developing stages of their life cycles and will attempt to achieve rapid
growth in both sales and earnings. Investments in small companies involve
greater risk than is customarily associated with more established companies.
These companies often have sales and earnings growth rates which exceed those of
large companies. Such growth rates may be reflected in more rapid share price
appreciation. However, smaller companies often have limited operating
histories, product lines, markets or financial resources, and they may be
dependent upon one-person management. These companies may be subject to intense
competition from larger entities, and the securities of such companies may have
limited marketability and may be subject to more abrupt or erratic movements in
price than securities of larger companies or the market averages in general.
Therefore, the net asset values of the Small/Mid Cap Fund may fluctuate more
widely than the popular market averages. Accordingly, an investment in the
portfolio may not be appropriate for all investors.
In order to afford the Portfolio the flexibility to take advantage of
new opportunities for investments in accordance with its investment objectives,
it may hold up to 15% of its net assets (up to 100% of their assets during
temporary defensive periods) in money market instruments, bank and thrift
obligations, obligations issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities, foreign bank obligations and obligations of
foreign branches of domestic banks, variable rate master demand notes and
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repurchase agreements. When the Portfolio is in a defensive position, the
opportunity to achieve capital growth will be limited, and, to the extent that
this assessment of market conditions is incorrect, the Portfolio will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of its investments and may not achieve its investment
objective.
Foreign Securities. The Portfolio may invest up to 20% of its total
assets in foreign securities and will be subject to certain risks as a result of
these investments. These risks are described under the caption "RISK FACTORS --
Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION -Taxes" in this Prospectus. The Portfolio may also purchase
American Depository Receipts ("ADRs") or U.S. dollar-denominated securities of
foreign issuers that are not included in the 20% foreign securities limitation.
See "RISK FACTORS - Foreign Securities" in this Prospectus for a description of
ADRs.
Use of Hedging and Other Strategic Transactions. The Small/Mid Cap
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions".
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
INTERNATIONAL SMALL CAP FUND
The investment objective of the International Small Cap Fund is to
seek long-term capital appreciation. Founders manages the International Small
Cap Fund and will pursue this objective by investing primarily in securities
issued by foreign companies which have total market capitalizations (present
market value per share multiplied by the total number of shares outstanding) or
annual revenues of $1 billion or less. These securities may represent companies
in both established and emerging economies throughout the world.
At least 65% of the Portfolio's total assets will normally be invested
in foreign securities representing a minimum of three countries (other than the
United States). The Portfolio may invest in larger foreign companies or in U.S.
based companies if, in Founders' opinion, they represent better prospects for
appreciation.
The International Small Cap Fund may invest a significant portion of
its assets in the securities of small companies. Small companies are those
which are still in the developing stages of their life cycles and are attempting
to achieve rapid growth in both sales and earnings. Investments in small
companies involve greater risk than is customarily associated with more
established companies. These companies often have sales and earnings growth
rates which exceed those of large companies. Such growth rates may be reflected
in more rapid share price appreciation. However, smaller companies often have
limited operating histories, product lines, markets or financial resources, and
they may be dependent upon one-person management. These companies may be
subject to intense competition from larger entities, and the securities of such
companies may have limited marketability and may be subject to more abrupt or
erratic movements in price than securities of larger companies or the market
averages in general. Therefore, the net asset values of the International Small
Cap Fund may fluctuate more widely than the popular market averages.
Accordingly, an investment in the Portfolio may not be appropriate for all
investors.
The International Small Cap Fund will invest primarily in equity
securities but may also invest in convertible securities, preferred stocks,
bonds, debentures and other corporate obligations when Founders believes that
these investments offer opportunities for capital appreciation. Current income
will not be a substantial factor in the selection of these securities. The
portfolio will only invest in bonds, debentures and corporate obligations--other
than convertible securities and preferred stock--rated investment-grade (BBB or
higher by Moody's or Baa or higher by S&P) at the time of purchase or, if
unrated, of comparable quality in the opinion of Founders. Convertible
securities and preferred stocks purchased by the Portfolio may be rated in
medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB or
lower by S&P) but will not be rated lower than B. The Portfolio may also invest
in unrated convertible securities and preferred stocks in instances in which
Founders believes that the financial condition of the issuer or the protection
afforded by the terms of the securities limits risk to a level similar to that
of securities rated in categories no lower than B. The Portfolio is not
required to dispose of debt securities whose ratings are down-graded below these
ratings subsequent to the Portfolio's purchase of the securities. See "RISK
FACTORS - High Yield/High Risk Securities." A description of the ratings used
by Moody's and S & P is set forth in Appendix I to the Prospectus.
The International Small Cap Fund may invest temporarily in the
following securities if Founders determines that it is appropriate for purposes
of enhancing liquidity or preserving capital in light of prevailing market or
economic conditions: cash, cash equivalents, U.S. government obligations,
commercial paper, bank obligations, repurchase agreements, and negotiable U.S.
dollar-denominated obligations of domestic and foreign branches of U.S.
depository institutions, U.S. branches of foreign depository institutions, and
foreign depository institutions. When the Portfolio is in a defensive position,
the opportunity to achieve capital growth will be limited, and, to the exent
that this assessment of market conditions is incorrect, the Portfolio will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of equity investments and may not achieve its investment
objective.
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Foreign Securities. The Portfolio may invest up to 100% of its total
assets in foreign securities and will be subject to special risks as a result of
these investments. These risks are described under the caption "RISK FACTORS --
Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION -- Taxes" in this Prospectus.
Foreign investments of the International Small Cap Fund may include
securities issued by companies located in countries not considered to be major
industrialized nations. Such countries are subject to more economic, political
and business risk than major industrialized nations, and the securities they
issue and of issuers located in such countries are expected to be more volatile
and more uncertain as to payments of interest and principal. The secondary
market for such securities is expected to be less liquid than for securities of
major industrialized nations. Such countries may include (but are not limited
to) Argentina, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Czech
Republic, Ecuador, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Ireland,
Israel, Jordan, Malaysia, Mexico, New Zealand, Nigeria, North Korea, Pakistan,
Paraguay, Peru, Philippines, Poland, Portugal, Singapore, Slovak Republic. South
Africa, South Korea, Spain, Sri Lanka, Taiwan, Thailand, Turkey, Uruaguay,
Venezuela, Vietnam and the countries of the former Soviet Union. Investments of
the Portfolio may include securities created through the Brady Plan, a program
under which heavily indebted countries have restructured their bank debt into
bonds. See "OTHER INSTRUMENTS -- High Yield Foreign Sovereign Debt Securities"
in the Statement of Additional Information.
Use of Hedging and Other Strategic Transactions. The International
Small Cap Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.
GROWTH EQUITY FUND
The investment objective of the Growth Equity Fund is to seek long-
term growth of capital. Founders manages the Growth Equity Fund and will pursue
this objective by investing, under normal market conditions, at least 65% of its
assets in common stocks of well-established, high-quality growth companies that
Founders believes have the potential to increase earnings faster than the rest
of the market. These companies tend to have strong performance records, solid
market positions and reasonable financial strength, and have continuous
operating records of three years or more
The Growth Equity Fund may invest in convertible securities, preferred
stocks, bonds, debentures and other corporate obligations when Founders believes
that these investments offer opportunities for capital appreciation. Current
income will not be a substantial factor in the selection of these securities.
The Portfolio will only invest in bonds, debentures and corporate obligations --
other than convertible securities and preferred stock -- rated investment-grade
(BBB or higher by Moody's and Baa or higher by S&P) or, if unrated, of
comparable quality in the opinion of Founders at the time of purchase.
Convertible securities and preferred stocks purchased by the Portfolio may be
rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's
and BB or lower by S&P) but will not be rated lower than B. The Portfolio may
also invest in unrated convertible securities and preferred stocks in instances
in which Founders believes that the financial condition of the issuer or the
protection afforded by the terms of the securities limits risk to a level
similar to that of securities rated in categories no lower than B. The
Portfolio is not required to dispose of debt securities whose ratings are down-
graded below these ratings subsequent to the Portfolio's purchase of the
securities. See "Risk Factors -- High Yield/High Risk Securities."
The Growth Equity Fund may invest temporarily in the following
securities if Founders determines that it is appropriate for purposes of
enhancing liquidity or preserving capital in light of prevailing market or
economic conditions: cash, cash equivalents, U.S. government obligations,
commercial paper, bank obligations, repurchase agreements, and negotiable U.S.
dollar-denominated obligations of domestic and foreign branches of U.S.
depository institutions, U.S. branches of foreign depository institutions, and
foreign depository institutions. When the Portfolio is in a defensive position,
the opportunity to achieve capital growth will be limited, and, to the extent
that this assessment of market conditions is incorrect, the Portfolio will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of equity investments and may not achieve its investment
objective.
Foreign Securities. The Portfolio may invest up to 20% of its total
assets in foreign securities and will be subject to certain risks as a result of
these investments. These risks are described under the caption "RISK FACTORS --
Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION -- Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions. The Growth Equity
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
GLOBAL GROWTH FUND
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The investment objective of the Global Growth Fund is long term
capital appreciation. Oechsle International manages the Global Growth Fund and
will pursue this objective by investing the assets of the Global Growth Fund
primarily in a global portfolio of equity securities and securities convertible
into or exercisable for equity securities.
Under normal circumstances, at least 80% of the assets of the Global
Growth Fund will be invested in a global portfolio of equity securities and
securities convertible into or exercisable for equity securities. There is no
limitation on the percentage of the Global Growth Fund's assets that may be
invested in any one country, although the Global Growth Fund will maintain an
exposure to the equity markets in at least three countries under normal
circumstances (one of which may be the United States). When Oechsle
International sees selected opportunities for long-term capital appreciation in
the fixed-income markets, up to 20% of the assets of the Global Growth Fund may
be invested in fixed-income securities. Such opportunities may include
situations where there is expected to be a substantial decline in interest rates
in a particular country or when a substantial strengthening of a country's
currency relative to the U.S. dollar is anticipated, but the equity markets in
such country appear unattractive. The Portfolio may also, under normal
circumstances, maintain a reserve of cash equivalents pending the selection of
appropriate investments and to meet redemption requests. Cash reserves are
generally held in short-term U.S. Government instruments, although non-U.S.
Government securities may be held for this purpose from time to time.
When Oechsle International foresees unusual market risks, the Global
Growth Fund may temporarily take a defensive position to attempt to preserve the
value of the Portfolio's assets and to reduce portfolio volatility by investing
substantially all of such assets in fixed-income securities or cash and cash
equivalents. Similarly, if Oechsle International foresees unusual market risks
in the international markets, the Global Growth Fund may take a temporary
defensive position by investing substantially all of its assets in U.S.
securities. In either case, during periods when the Global Growth Fund adopts a
defensive position, it may not achieve its objective of long-term capital
appreciation.
Oechsle International seeks to achieve the Global Growth Fund's
investment objective of long-term capital appreciation by selecting equity
investments based on a two-pronged approach of (i) choosing a limited group of
countries with strong and stable national financial markets with total market
capitalization in excess of $5 billion, and (ii) identifying a select group of
companies in such countries with attractive investment potential and market
capitalization of $200 million or more. The following is a brief description of
the Oechsle International two-pronged investment approach.
Country Selection. The Global Growth Fund will seek long-term capital
appreciation by emphasizing markets identified as attractive. While the Global
Growth Fund is permitted to concentrate its investments in as few as three
countries, it is Oechsle International's intention under normal circumstances to
attempt to reduce overall portfolio risk through diversification of investments
across a limited group of national markets. Diversification provides a prudent
method of reducing risk. Opportunities for global investing have broadened in
recent years. For example, in 1980 the U.S. stock market capitalization
represented approximately 70% of the total world stock market capitalization and
by 1990 such share had fallen to approximately 30%.
Investments generally will be limited to companies in countries where
total market capitalization exceeds $5 billion. The Global Growth Fund's focus
will normally be on the largest, most liquid international equity markets
including, but not limited to, the United States, Japan, the United Kingdom, the
Federal Republic of Germany, Canada, France and Italy.
Security Selection. Investments will generally be made in companies
with market capitalizations of at least $200 million. Oechsle International
focuses its research effort on exchange listed U.S. companies and a universe of
approximately 1,000 non-U.S. companies, most of which are included in either the
Morgan Stanley Capital International Europe, Australia and Far East Index or
other major international indices. The Global Growth Fund intends to purchase
and hold securities for long-term capital appreciation and does not expect to
trade for short-term gain.
As stated above, the Global Growth Fund may invest up to 20% of its
assets in fixed-income securities to attempt to take advantage of selected
opportunities in the debt markets for long-term capital appreciation. The types
of fixed-income securities in which the Global Growth Fund may invest are: (i)
debt obligations issued or guaranteed by the U.S. Government or one of its
agencies or political subdivisions; (ii) debt obligations issued or guaranteed
by a foreign sovereign government or one of its agencies or political
subdivisions; (iii) debt obligations issued or guaranteed by supranational
organizations (e.g., the International Bank for Reconstruction and Development
(the "World Bank"), the European Coal and Steel Community, the Asian Development
Bank and the Inter-American Development Bank) that are assigned within the four
highest bond ratings by Moody's or Standard & Poor's or, if not rated, that are
of equivalent investment quality as determined by Oechsle International pursuant
to guidelines established by the Trustees; and (iv) corporate debt securities
assigned within the three highest bond ratings by Moody's or Standard & Poor's
or, if not rated, that are of equivalent investment quality as determined by
Oechsle International pursuant to guidelines established by the Trustees of the
Fund.
While bonds carrying the fourth highest quality rating ("Baa" by
Moody's or "BBB" by Standard & Poor's) are considered as investment grade and
are viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such bonds lack outstanding investment characteristics and have speculative
characteristics. For example, changes in economic conditions or other
circumstances are
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more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. While the Global Growth Fund
will not invest in corporate debt securities rated below "A" by Moody's or
Standard & Poor's or debt obligations of supranational organizations rated below
"Baa" by Moody's or "BBB" by Standard & Poor's, it is not required to dispose of
securities that may be downgraded below such ratings.
The Global Growth Fund will be subject to special risks as a result of
its ability to invest up to 100% of its assets in foreign securities. These
risks are described under the caption "RISK FACTORS -- Foreign Securities" in
this Prospectus. Moreover, substantial investments in foreign securities may
have adverse tax implications as described under "GENERAL INFORMATION -- Taxes"
in this Prospectus. The ability to diversify its investments among the equity
markets in different countries may, however, reduce the overall level of market
risk to the extent it may reduce the Global Growth Fund's exposure to a single
market.
Use of Hedging and Other Strategic Transactions. The Global Growth
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions
(also referred to derivative transactions)." A "derivative" is generally
defined as an instrument whose value is based upon, or derived from, some
underlying index, reference rate (e.g., interest rate or currency exchange rate,
security, commodity or other asset). It is not presently anticipated that any
of these strategies will be used to a significant degree by the Portfolio. The
Statement of Additional Information contains a description of these strategies
and of certain risks associated therewith.
VALUE EQUITY FUND
The Value Equity Fund was known as the "Growth Fund" prior to February 28, 1996.
The investment objective of the Value Equity Fund is long-term growth
of capital. Growth of income may accompany growth of capital. GSAM manages the
Value Equity Fund which will seek to attain its objective by investing under
normal circumstances at least 65% of its total assets in equity securities,
consisting of common or preferred stocks, including options and warrants. The
Value Equity Fund will invest primarily in equity securities that GSAM believes
are undervalued in price and whose worth will eventually be recognized by the
market.
The Value Equity Fund will invest primarily in securities listed on
national securities exchanges and securities traded in the "over-the-counter"
market. Under normal market conditions, the Value Equity Fund may invest up to
35% of its total assets in government securities, short-term debt securities,
money market instruments, cash or investment grade bonds (i.e., rated within the
four highest bond ratings assigned by Moody's or S&P or, if not rated,
determined to be of comparable quality by GSAM). Government securities and
investment grade bonds may include mortgage backed securities, asset backed
securities and municipal securities. See "U.S. Government Securities Fund"
below and "Other Instruments" in the Statement of Additional Information for a
description of these securities. When in GSAM's opinion market or economic
conditions warrant a temporary defensive posture, the Value Equity Fund may
place any portion of its assets in these types of non-equity assets. The lowest
rated category of investment grade bonds have some speculative characteristics
and instruments with such ratings are subject to greater fluctuations in value
than more highly rated instruments as economic conditions change. The Value
Equity Fund is not required to dispose of such instruments in the event they are
downgraded below investment grade.
The Value Equity Fund will be subject to certain risks as a result of
its ability to invest up to 20% of its assets in foreign securities. These
risks are described under the caption "RISK FACTORS -- Foreign Securities" in
this Prospectus. Moreover, substantial investments in foreign securities may
have adverse tax implications as described under "GENERAL INFORMATION -- Taxes"
in this Prospectus.
Use of Hedging and Other Strategic Transactions. The Value Equity
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
GROWTH AND INCOME FUND
The investment objective of the Growth and Income Fund is to provide
long-term growth of capital and income consistent with prudent investment risk.
Wellington Management manages the Growth and Income Fund and seeks to
achieve the Portfolio's objective by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which Wellington Management believes
are of high quality. Wellington Management believes that high quality is
evidenced by a leadership position within an industry, a strong or improving
balance sheet, relatively high return on equity, steady or increasing dividend
payout, and strong management skills. The Growth and Income Fund's investments
will primarily emphasize dividend paying stocks of larger companies. The Growth
and Income Fund may also invest in securities convertible into or which carry
the right to buy common stocks, including those convertible securities issued in
the Euromarket; preferred stocks; and marketable debt securities of domestic
issuers and of foreign issuers (payable in U.S. dollars), if such marketable
debt
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securities of domestic issuers and foreign issuers are rated at the time of
purchase "A" or better by Moody's or S&P or, if unrated, deemed to be of
equivalent quality in Wellington Management's judgment. When market or financial
conditions warrant a temporary defensive posture, the Growth and Income Fund
may, in order to reduce risk and achieve attractive total investment return,
invest in securities which are authorized for purchase by the Investment Quality
Bond Fund or the Money Market Fund. The Subadviser expects that under normal
market conditions, the Growth and Income Fund's portfolio will consist primarily
of equity securities.
Investments will be selected on the basis of fundamental analysis to
identify those securities that, in Wellington Management's judgment, provide the
potential for long-term growth of capital and income. Fundamental analysis
involves assessing a company and its business environment, management, balance
sheet, income statement, anticipated earnings and dividends and other related
measures of value. When selecting securities of issuers domiciled outside of
the United States, Wellington Management will also monitor and evaluate the
economic and political climate and the principal securities markets of the
country in which each company is located.
The Growth and Income Fund will invest primarily in securities listed
on national securities exchanges, but from time to time it may also purchase
securities traded in the "over-the-counter" market.
The Growth and Income Fund will be subject to certain risks as a
result of its ability to invest up to 20% of its assets in foreign securities.
These risks are described under the caption "RISK FACTORS -- Foreign Securities"
in this Prospectus. Moreover, substantial investments in foreign securities may
have adverse tax implications as described under "GENERAL INFORMATION -- Taxes"
in this Prospectus.
Use of Hedging and Other Strategic Transactions. The Growth and
Income Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." However, it is not presently anticipated that any of these
strategies will be used to a significant degree by the Portfolio. The Statement
of Additional Information contains a description of these strategies and of
certain risks associated therewith.
INTERNATIONAL GROWTH AND INCOME FUND
The investment objective of the International Growth and Income Fund
is to seek long-term growth of capital and income. The Portfolio is designed
for investors with a long-term investment horizon who want to take advantage of
investment opportunities outside the United States.
J.P. Morgan manages the International Growth and Income Fund and will
seek to achieve the Portfolio's investment objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of foreign
issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and convertible
securities. The Portfolio will focus primarily on the common stock of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. For this
purpose, a developed country is any country included in the MSCI World Index.
The countries currently included in this Index are: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom and the U.S. The Portfolio invests in securities
listed on foreign or domestic securities exchanges and securities traded in
foreign or domestic over-the-counter markets, and may invest in certain
restricted or unlisted securities. See "RISK FACTORS -- Foreign Securities."
Under normal circumstances, the International Growth and Income Fund expects to
invest primarily in equity securities. However, the Portfolio may invest up to
35% of its assets in debt obligations of corporate, sovereign issuers or
supranational organizations rated A or higher by Moody's or S&P, or if unrated,
of equivalent credit quality as determined by the Subadviser. See "Strategic
Income Fund" below for additional information on supranational organizations.
Under normal circumstances, the Portfolio will be invested approximately 85% in
equity securities and 15% in fixed income securities. J.P. Morgan may allocate
the Portfolio's investment in these asset classes in a manner consistent with
the Portfolio's investment objective and current market conditions. Using a
variety of analytical tools, J.P. Morgan assesses the relative attractiveness of
each asset class and determines an optimal allocation between them. Yields on
non-U.S. equity securities tend to be lower than those on equity securities of
U.S. issuers. Therefore, current income from the Portfolio may not be as high
as that available from a portfolio of U.S. equity securities.
In pursuing the International Growth and Income Fund's objective, J.P.
Morgan will actively manage the assets of the Portfolio through country
allocation and stock valuation and selection. Based on fundamental research,
quantitative valuation techniques and experienced judgment, J.P. Morgan uses a
structured decision-making process to allocate the Portfolio primarily across
the developed countries of the world outside the United States. This universe
is typically represented by the Morgan Stanley Europe, Australia and Far East
Index (the "EAFE Index").
Using a dividend discount model and based on analysts' industry
expertise, securities within each country are ranked within industry sectors
according to their relative value. Based on this valuation, J.P. Morgan selects
the securities which appear the most attractive for the Portfolio. J.P. Morgan
believes that under normal market conditions, industrial sector weightings
generally will be similar to those of the EAFE index.
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Finally, J.P. Morgan actively manages currency exposure, in
conjunction with country and stock allocation, in an attempt to protect and
possibly enhance the International Growth and Income Fund's market value.
Through the use of forward foreign currency exchange contracts, J.P. Morgan will
adjust the Portfolio's foreign currency weightings to reduce its exposure to
currencies that the Subadviser deems unattractive and, in certain circumstances,
increase exposure to currencies deemed attractive, as market conditions warrant,
based on fundamental research, technical factors and the judgment of a team of
experienced currency managers.
The International Growth and Income Fund intends to manage its
portfolio actively in pursuit of its investment objective. The Portfolio does
not expect to trade in securities for short-term profits; however, when
circumstances warrant, securities may be sold without regard to the length of
time held. See "GENERAL INFORMATION -- Taxes." To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs.
The International Growth and Income Fund may also invest in securities
on a when-issued or delayed delivery basis, enter into repurchase and reverse
repurchase agreements, loan its portfolio securities and purchase certain
privately placed securities. See "RISK FACTORS."
The International Growth and Income Fund may make money market
investments pending other investments or settlement or for liquidity purposes.
In addition, when J.P. Morgan believes that investing for defensive purposes is
appropriate, such as during periods of unusual or unfavorable market or
economics conditions, up to 100% of the Portfolio's assets may be temporarily
invested in money market instruments. The money market investments permitted
for the Portfolio include obligations of the U.S. Government and its agencies
and instrumentalities, other debt securities, commercial paper, bank obligations
and repurchase agreements, as described below under "Money Market Fund."
The International Growth and Income Fund will be subject to special
risks as a result of its ability to invest up to 100% of its assets in foreign
securities. These risks are described under the caption "RISK FACTORS --
Foreign Securities" in this Prospectus. The ability to diversify its
investments among the equity markets of different countries may, however, reduce
the overall level of market risk to the extent it may reduce the Portfolio's
exposure to a single market. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION -- Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions. The International
Growth and Income Fund is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions". With the exception of currency transactions, however,
it is not presently anticipated that any of these strategies will be used to a
significant degree by the Portfolio. The Statement of Additional Information
contains a description of these strategies and of certain risks associated
therewith.
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to obtain the
highest total return consistent with a moderate level of risk tolerance. The
Asset Allocation Fund is designed for:
* The investor who wants to maximize total return potential, but lacks
the time, temperament or expertise to do so effectively;
* The investor who does not want to monitor the financial markets in
order to make periodic exchanges among Portfolios;
* The investor who wants the opportunity to improve on the return of
an income-oriented investment program, but wants to take advantage of the risk
management features of the Asset Allocation Fund; and
* Retirement program fiduciaries who have a responsibility to limit
risk in a meaningful way, while seeking the highest potential total return.
The Asset Allocation Fund may invest in a combination of equity,
fixed-income and money market securities. GSAM manages the Asset Allocation
Fund and the amount of the Portfolio's assets invested in each category of
securities is dependent upon GSAM's judgment as to what percentage of the
Portfolio's assets in each category will contribute to the limitation of risk
and the achievement of its investment objective. GSAM reserves complete
discretion to determine the allocations among the categories of securities.
GSAM attempts to limit the maximum amount of decline in value the
Portfolio incurs under very adverse market conditions to a moderate level of
risk tolerance, defined as a 10% decline over a twelve month period. Very
adverse market conditions are defined as a substantial increase in long-term
interest rates accompanied by a similarly substantial decline in one or more
commonly-followed stock market indices over a twelve month period. Of course,
GSAM cannot predict with certainty when very adverse market conditions will
arise. Consequently, GSAM must manage the Asset Allocation Fund under all market
conditions with a view toward limiting risk and Portfolio decline should very
adverse market conditions arise. GSAM will invest the Asset Allocation Fund's
assets to attempt to give the Portfolio a
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substantial participation in favorable equity and bond markets, although the
expected total return will not necessarily exceed the best returns available
from either of those markets. When market conditions deteriorate (and the
probability of very adverse market conditions rises), GSAM will give greater
emphasis to fixed-income securities and money market instruments in an effort to
limit overall declines in portfolio value. There can be no assurance that actual
declines in portfolio value will not exceed the 10% limitation set forth above.
The types and characteristics of equity securities to be purchased by
the Asset Allocation Fund are set forth above in the discussion of investment
objectives and policies for the Value Equity Fund; the types and characteristics
of the fixed-income securities to be purchased are set forth below in the
discussion of the investment objective and policies for the Investment Quality
Bond and U.S. Government Securities Funds (the Asset Allocation Fund is not,
however, authorized to invest in non-investment grade securities as is the
Investment Quality Bond Fund); and the types and characteristics of the money
market securities to be purchased are set forth below in the discussion of the
investment objective and policies of the Money Market Fund. In addition to these
securities, the Asset Allocation Fund may also invest in municipal obligations.
See "National Municipal Bond Fund" below for a description of these securities.
Potential investors should review the discussions therein when considering an
investment in shares of the Asset Allocation Fund.
The Asset Allocation Fund will be subject to certain risks as a result
of its ability to invest up to 20% of its assets in foreign securities. These
risks are described under the caption "RISK FACTORS -- Foreign Securities" in
this Prospectus. Moreover, substantial investments in foreign securities may
have adverse tax implications as described under "GENERAL INFORMATION -- Taxes"
in this Prospectus.
Use of Hedging and Other Strategic Transactions. The Asset Allocation
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
STRATEGIC INCOME FUND
The investment objective of the Strategic Income Fund is to seek a
high level of total return consistent with preservation of capital.
The Strategic Income Fund seeks to achieve its objective by giving its
Subadviser, SBAM, broad discretion to deploy the Strategic Income Fund's assets
among certain segments of the fixed-income market as SBAM believes will best
contribute to the achievement of the Portfolio's objective. At any point in
time, SBAM will deploy the Portfolio's assets based on SBAM's analysis of
current economic and market conditions and the relative risks and opportunities
present in the following market segments: U.S. Government obligations,
investment grade domestic corporate debt, high yield corporate debt securities,
mortgage-backed securities and investment grade and high yield international
debt securities. SBAM is an affiliate of Salomon Brothers Inc ("SBI"), and in
making investment decisions is able to draw on the research and market expertise
of SBI with respect to fixed-income securities. In addition, SBAM has entered
into a subadvisory consulting agreement with its London based affiliate, Salomon
Brothers Asset Management Limited ("SBAM Limited") pursuant to which SBAM
Limited will provide certain advisory services to SBAM relating to currency
transactions and investments in non-dollar denominated debt securities for the
benefit of the Portfolio.
In pursuing the Strategic Income Fund's investment objective, the
Portfolio reserves the right to invest without limitation in lower-rated
securities, commonly known as "junk bonds." (i.e., rated "B" or below by
Moody's (Moody's lowest rating is C, See Appendix I.) or "BB" or below by
S&P(S&P lowest rating is D, see Appendix I.), or if unrated, of comparable
quality as determined by SBAM). No minimum rating standard is required for a
purchase by the Portfolio. Investments of this type involve comparatively
greater risks, including price volatility and risk of default in the payment of
interest and principal, than higher-quality securities. Although the
Portfolio's Subadviser has the ability to invest up to 100% of the Portfolio's
assets in lower-rated securities, the Portfolio's Subadviser does not anticipate
investing in excess of 75% of the Portfolio's assets in such securities.
Purchasers should carefully assess the risks associated with an investment in
this Portfolio. See "RISK FACTORS -- High Yield/High Risk Securities."
SBAM will determine the amount of assets to be allocated to each type
of security in which it invests based on its assessment of the maximum level of
total return that can be achieved from a portfolio which is invested in these
securities without incurring undue risks to principal value. In making this
determination, SBAM will rely in part on quantitative analytical techniques that
measure relative risks and opportunities of each type of security based on
current and historical economic, market, political and technical data for each
type of security, as well as on its own assessment of economic and market
conditions both on a global and local (country) basis. In performing
quantitative analysis, SBAM will employ prepayment analysis and option adjusted
spread technology to evaluate mortgage securities, mean variance optimization
models to evaluate international debt securities, and total rate of return
analysis to measure relative risks and opportunities in other fixed-income
markets. Economic factors considered will include current and projected levels
of growth and inflation, balance of payment status and monetary policy. The
allocation of assets to international debt securities will further be influenced
by current and expected currency relationships and political and sovereign
factors. The Portfolio's assets may not always be allocated to the highest
yielding securities if SBAM feels that such investments would impair the
Portfolio's ability to preserve shareholder capital. SBAM will continuously
review this allocation of assets and make such adjustments as it deems
appropriate. The Portfolio does not plan to establish a minimum or a maximum
percentage of the assets which it will invest in any particular type of fixed-
income security.
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In addition, SBAM will have discretion to select the range of
maturities of the various fixed-income securities in which the Portfolio
invests. Such maturities may vary substantially from time to time depending on
economic and market conditions.
The types and characteristics of the U.S. Government obligations,
mortgage-backed securities, investment grade corporate debt securities and
investment grade international debt securities to be purchased by the Portfolio
are set forth in the discussion of investment objectives and policies for the
Investment Quality Bond and U.S. Government Securities Funds, and in the section
entitled "OTHER INSTRUMENTS" in the Statement of Additional Information; and the
types and characteristics of the money market securities to be purchased are set
forth in the discussion of investment objectives and policies of the Money
Market Fund. Potential investors should review the discussion therein in
considering an investment in shares of the Strategic Income Fund. As described
below, the Strategic Income Fund may also invest in high yield domestic and
foreign debt securities.
The Strategic Income Fund may also invest in debt obligations issued
or guaranteed by a foreign sovereign government or one of its agencies or
political subdivisions and debt obligations issued or guaranteed by
supranational organizations. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the "World Bank"), the European Coal and Steel
Community, the Asian Development Bank and the Inter-American Development Bank.
Such supranational issued instruments may be denominated in multi-national
currency units.
The Strategic Income Fund currently intends to invest substantially
all of its assets in fixed-income securities. In order to maintain liquidity,
however, the Strategic Income Fund may invest up to 20% of its assets in high-
quality short-term money market instruments. If at some future date, in the
opinion of SBAM, adverse conditions prevail in the market for fixed-income
securities, the Strategic Income Fund for temporary defensive purposes may
invest its assets without limit in high-quality short-term money market
instruments.
As discussed above, the Strategic Income Fund may invest in U.S.
dollar-denominated securities issued by domestic issuers that are rated below
investment grade or, if unrated, determined by SBAM to be of comparable quality.
Although SBAM does not anticipate investing in excess of 75% of the Strategic
Income Fund's assets in domestic and developing country debt securities that are
rated below investment grade, the Strategic Income Fund may invest a greater
percentage in such securities when, in the opinion of SBAM, the yield available
from such securities outweighs their additional risks. By investing a portion
of the Strategic Income Fund's assets in securities rated below investment
grade, as well as through investments in mortgage securities and international
debt securities, as described below, SBAM expects to provide investors with a
higher yield than a high-quality domestic corporate bond fund while at the same
time presenting less risk than a fund that invests principally in securities
rated below investment grade. Certain of the debt securities in which the
Strategic Income Fund may invest may have, or be considered comparable to
securities having, the lowest ratings for non-subordinated debt instruments
assigned by Moody's or S&P (i.e., rated C by Moody's or CCC or lower by S&P).
See "RISK FACTORS -- High Yield/High Risk Securities -- General."
In light of the risks associated with high yield corporate and
sovereign debt securities, SBAM will take various factors into consideration in
evaluating the creditworthiness of an issuer. For corporate debt securities,
these will typically include the issuer's financial resources, its sensitivity
to economic conditions and trends, the operating history of the issuer, and the
experience and track record of the issuer's management. For sovereign debt
instruments, these will typically include the economic and political conditions
within the issuer's country, the issuer's overall and external debt levels and
debt service ratios, the issuer's access to capital markets and other sources of
funding, and the issuer's debt service payment history. SBAM will also review
the ratings, if any, assigned to the security by any recognized rating agencies,
although SBAM's judgment as to the quality of a debt security may differ from
that suggested by the rating published by a rating service. The Strategic
Income Fund's ability to achieve its investment objective may be more dependent
on SBAM's credit analysis than would be the case if it invested in higher
quality debt securities. A description of the ratings used by Moody's and S&P
is set forth in Appendix I to this Prospectus.
The high yield sovereign debt securities in which the Strategic Income
Fund may invest are U.S. dollar-denominated and non-dollar-denominated debt
securities, including Brady Bonds, that are issued or guaranteed by governments
or governmental entities of developing and emerging countries. SBAM expects
that these countries will consist primarily of those which have issued or have
announced plans to issue Brady Bonds, but the Portfolio is not limited to
investing in the debt of such countries. Brady Bonds are debt securities issued
under the framework of the Brady Plan, an initiative announced by former U.S.
Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations
to restructure their outstanding external indebtedness. SBAM anticipates that
the Portfolio's initial investments in sovereign debt will be concentrated in
Latin American countries, including Mexico and Central and South American and
Caribbean countries. SBAM expects to take advantage of additional opportunities
for investment in the debt of North African countries, such as Nigeria and
Morocco, Eastern European countries, such as Poland and Hungary, and Southeast
Asian countries, such as the Philippines. Sovereign governments may include
national, provincial, state, municipal or other foreign governments with taxing
authority. Governmental entities may include the agencies and instrumentalities
of such governments, as well as state-owned enterprises. For a more detailed
discussion on high yield sovereign debt securities, see "OTHER INSTRUMENTS -- 5.
High Yield/High Risk Foreign Sovereign Debt Securities" in the Statement of
Additional Information.
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The Strategic Income Fund will be subject to special risks as a result
of its ability to invest up to 100% of its assets in foreign securities. These
risks are described under the captions "RISK FACTORS -- High Yield/High Risk
Securities" and "RISK FACTORS -- Foreign Securities" in this Prospectus.
Moreover, substantial investments in foreign securities may have adverse tax
implications as described under "GENERAL INFORMATION -- Taxes" in this
Prospectus. The ability to spread its investments among the fixed-income markets
in a number of different countries may, however, reduce the overall level of
market risk to the extent it may reduce the Strategic Income Fund's exposure to
a single market.
Use of Hedging and Other Strategic Transactions. The Strategic Income
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
With the exception of currency transactions, however, it is not presently
anticipated that any of these strategies will be used to a significant degree by
the Portfolio. The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.
INVESTMENT QUALITY BOND FUND
The investment objective of the Investment Quality Bond Fund is to
provide a high level of current income consistent with the maintenance of
principal and liquidity.
Wellington Management manages the Investment Quality Bond Fund and
seeks to achieve its objective by investing primarily in a diversified portfolio
of investment grade corporate bonds and U.S. Government bonds with intermediate
to longer term maturities. Investment management will emphasize sector
analysis, which focuses on relative value and yield spreads among security types
and among quality, issuer, and industry sectors, call protection and credit
research. Credit research on corporate bonds is based on both quantitative and
qualitative criteria established by Wellington Management, such as an issuer's
industry, operating and financial profiles, business strategy, management
quality, and projected financial and business conditions. Wellington Management
will attempt to maintain a high, steady and possibly growing income stream.
At least 65% of the Investment Quality Bond Fund's assets will be
invested in the following types of bonds:
* marketable debt securities of domestic issuers and of foreign
issuers (payable in U.S. dollars) rated at the time of purchase "A" or
better by Moody's or S&P or, if unrated, of comparable quality as
determined by Wellington Management; and
* securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities, including
mortgage-backed securities (described below under U.S. Government
Securities Fund).
The balance of the Investment Quality Bond Fund's investments may
include: domestic and foreign debt securities rated below "A" by Moody's and S&P
(and unrated securities of comparable quality as determined by Wellington
Management), preferred stocks, convertible securities (including those issued in
the Euromarket) and securities carrying warrants to purchase equity securities,
privately placed debt securities, asset-backed securities and privately issued
mortgage securities. The Portfolio may also invest in cash or cash equivalent
securities which are authorized for purchase by the Money Market Fund. At least
65% of the Investment Quality Bond Fund's assets will be invested in bonds and
debentures .
In pursuing its investment objective, the Investment Quality Bond Fund
may invest up to 20% of its assets in domestic and foreign high yield corporate
and government debt securities, commonly known as "junk bonds" (i.e., rated "B"
or below by Moody's (Moody's lowest rating is "C", See Appendix I) or "BB" or
below by S&P (S&P's lowest rating is "D", See Appendix I), or if unrated, of
comparable quality as determined by Wellington Management). No minimum rating
standard is required for a purchase by the Portfolio. The high yield sovereign
debt securities in which the Portfolio will invest are described above under
"Strategic Income Fund." Domestic and foreign high yield debt securities involve
comparatively greater risks, including price volatility and risk of default in
the payment of interest and principal, than higher-quality securities. See "RISK
FACTORS -- High Yield/High Risk Securities."
The Investment Quality Bond Fund may also invest in debt securities
carrying the fourth highest quality rating ("Baa" by Moody's or "BBB" by S&P)
and unrated securities of comparable quality as determined by Wellington
Management. While such securities are considered investment grade and are
viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. While the Investment Quality Bond Fund may only invest up to 20% of its
assets in bonds rated below "Baa" by Moody's or "BBB" by S&P (or, if unrated, of
comparable quality as determined by Wellington Management) at the time of
investment, it is not required to dispose of downgraded bonds that cause the
Investment Quality Bond Fund to exceed this 20% maximum.
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The Investment Quality Bond Fund will be subject to certain risks as a
result of its ability to invest up to 20% of its assets in foreign securities.
These risks are described under the caption "RISK FACTORS -- Foreign Securities"
in this Prospectus. Moreover, substantial investments in foreign securities may
have adverse tax implications as described under "GENERAL INFORMATION -- Taxes"
in this Prospectus. The Investment Quality Bond Fund may also invest in forward
commitments and warrants. See "RISK FACTORS -- Warrants" and "-- When-Issued
Securities ("Forward Commitments")."
Use of Hedging and Other Strategic Transactions. The Investment
Quality Bond Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities Fund is to
obtain a high level of current income consistent with preservation of capital
and maintenance of liquidity. SBAM manages the U.S. Government Securities Fund
and seeks to attain its objective by investing under normal circumstances 100%
of its assets in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The
securities in which the U.S. Government Securities Fund may invest are:
(1) mortgage-backed securities guaranteed by the Government National
Mortgage Association ("GNMA"), popularly known as "Ginnie Maes," that are
supported by the full faith and credit of the U.S. Government and which are the
"modified pass-through" type of mortgage-backed security ("GNMA Certificates").
Such securities entitle the holder to receive all interest and principal
payments due whether or not payments are actually made on the underlying
mortgages;
(2) U.S. Treasury obligations;
(3) obligations issued or guaranteed by agencies or instrumentalities
of the U.S. Government which are backed by their own credit and may not be
backed by the full faith and credit of the U.S. Government;
(4) mortgage-backed securities guaranteed by agencies or
instrumentalities of the U.S. Government which are supported by their own credit
but not the full faith and credit of the U.S. Government, such as the Federal
Home Loan Mortgage Corporation and the Federal National Mortgage Association;
and
(5) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage-backed securities serving as collateral are backed
(i) by the credit alone of the U.S. Government agency or instrumentality which
issues or guarantees the mortgage-backed securities, or (ii) by the full faith
and credit of the U.S. Government.
The mortgage-backed securities in which the U.S. Government Securities
Fund invests represent participating interests in pools of residential mortgage
loans which are guaranteed by the U.S. Government, its agencies or
instrumentalities of the U.S. Government. However, the guarantee of these types
of securities runs only to the principal and interest payments and not to the
market value of such securities. In addition, the guarantee only runs to the
portfolio securities held by the U.S. Government Securities Fund and not to the
purchase of shares of the Portfolio.
Mortgage-backed securities are issued by lenders such as mortgage
bankers, commercial banks, and savings and loan associations. Such securities
differ from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semiannually) with principal payments at
maturity or specified call dates. Mortgage-backed securities provide monthly
payments which are, in effect, a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans. Principal prepayments result from the sale of the
underlying property or the refinancing or foreclosure of underlying mortgages.
The yield of mortgage-backed securities is based on the average life
of the underlying pool of mortgage loans, which is computed on the basis of the
maturities of the underlying instruments. The actual life of any particular pool
may be shortened by unscheduled or early payments of principal and interest. The
occurrence of prepayments is affected by a wide range of economic, demographic
and social factors and, accordingly, it is not possible to accurately predict
the average life of a particular pool. For pools of fixed rate 30-year
mortgages, it has been common practice to assume that prepayments will result in
a 12-year average life. The actual prepayment experience of a pool of mortgage
loans may cause the yield realized by the U.S. Government Securities Fund to
differ from the yield calculated on the basis of the average life of the pool.
In addition, if any of these mortgage-backed securities are purchased at a
premium, the premium may be lost in the event of early prepayment which may
result in a loss to the Portfolio.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. Reinvestment by the U.S. Government Securities Fund of scheduled
principal payments and unscheduled prepayments may occur at higher or lower
rates than the original investment, thus affecting the yield of the Portfolio.
Monthly interest payments received
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by the Portfolio have a compounding effect which will increase the yield to
shareholders as compared to debt obligations that pay interest semiannually.
Because of the reinvestment of prepayments of principal at current rates,
mortgage-backed securities may be less effective than Treasury bonds of similar
maturity at maintaining yields during periods of declining interest rates. Also,
although the value of debt securities may increase as interest rates decline,
the value of these pass-through type of securities may not increase as much due
to the prepayment feature.
While the Portfolio seeks a high level of current income, it cannot
invest in instruments such as lower grade corporate obligations which offer
higher yields but are subject to greater risks. The Portfolio will not knowingly
invest in a high risk mortgage security. The term "high risk mortgage security"
is defined generally as any mortgage security that exhibits greater price
volatility than a benchmark security, the Federal National Mortgage Association
current coupon 30-year mortgage-backed pass through security. Shares of the
Portfolio are neither insured nor guaranteed by the U.S. Government, its
agencies or instrumentalities.
In order to make the U.S. Government Securities Fund an eligible
investment for federal credit unions ("FCUs"), federal savings and loan
institutions and national banks, the Portfolio will invest in U.S. Government
securities that are eligible for investment by such institutions without
limitation, and will also generally be managed so as to qualify as an eligible
investment for such institutions. The Portfolio will comply with all investment
limitations applicable to FCUs including (i) the requirement that a FCU may only
purchase collateralized mortgage obligations which would meet the high risk
securities test of Part 703 of the National Credit Union Administration Rules
and Regulations or would be held solely to reduce interest rate risk and (ii)
the requirement that a FCU may not purchase zero coupon securities having
maturities greater than ten years.
Use of Hedging and Other Strategic Transactions. The U.S. Government
Securities Fund is not currently authorized to use any of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." However, such strategies may be used in the future by the
Portfolio. The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
NATIONAL MUNICIPAL BOND FUND
The National Municipal Bond Fund's investment objective is to achieve
a high level of current income which is exempt from regular federal income
taxes, consistent with the preservation of capital, by investing primarily in a
portfolio of municipal obligations. SBAM manages the National Municipal Bond
Fund and as a matter of fundamental policy, the Portfolio will invest under
normal circumstances, at least 80% of its net assets in municipal obligations
the interest on which is exempt from regular federal income tax. A portion of
the Portfolio's dividends paid in respect of its shares may be subject to the
federal alternative minimum tax. For a discussion on taxation of the National
Municipal Bond Fund, see "GENERAL INFORMATION -- National Municipal Bond Fund --
Taxation."
The Portfolio will not invest in municipal obligations that are rated
below investment grade at the time of investment. However, the Portfolio may
retain in its portfolio a municipal obligation whose rating drops below "Baa" or
"BBB" after its acquisition by the Portfolio, if SBAM considers the retention of
such obligation advisable. The Portfolio intends to emphasize investments in
municipal obligations with long-term maturities and expects to maintain an
average portfolio maturity of 20 to 30 years and an average portfolio duration
of 8 to 11 years. The average portfolio maturity and duration, however, may be
shortened from time to time depending on market conditions.
The types of obligations in which the National Municipal Bond Fund may
invest include the following:
MUNICIPAL BONDS
The Portfolio may invest in municipal bonds that are rated at the time
of purchase within the four highest ratings assigned by Moody's, S&P or Fitch,
or determined by SBAM to be of comparable quality. The four highest ratings
currently assigned by Moody's to municipal bonds are "Aaa", "Aa", "A" and "Baa";
the four highest ratings assigned by S&P and Fitch to municipal bonds are "AAA",
"AA", "A" and "BBB". A more complete description of the debt security ratings
used by the Portfolio assigned by Moody's, S&P and Fitch is included in Appendix
I to this Prospectus.
Although municipal obligations rated in the fourth highest rating
category by Moody's (i.e., "Baa") or S&P or Fitch (i.e., "BBB") are considered
investment grade, they may be subject to greater risks than other higher rated
investment grade securities. Municipal obligations rated "Baa" by Moody's, for
example, are considered medium grade obligations that lack outstanding
investment characteristics and have speculative characteristics as well.
Municipal obligations rated "BBB" by S&P and Fitch are regarded as having an
adequate capacity to pay principal and interest.
Municipal bonds are debt obligations that are typically issued to
obtain funds for various public purposes, such as construction of public
facilities (e.g., airports, highways, bridges and schools). Municipal bonds at
the time of issuance are generally long-term securities with maturities of as
much as twenty years or more, but may have remaining maturities of shorter
duration at the time of purchase by the Portfolio.
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MUNICIPAL NOTES
The Fund may invest in municipal notes rated at the time of purchase
"MIG1", "MIG2" (or "VMIG-1" or "VMIG-2", in the case of variable rate demand
notes), "P-2" or better by Moody's, "SP-2", "A-2" or better by S&P, or "F-2" or
better by Fitch, or if not rated, determined by SBAM to be of comparable
quality.
Municipal notes are issued to meet the short-term funding requirements
of local, regional and state governments. Municipal notes generally have
maturities at the time of issuance of three years or less. Municipal notes that
may be purchased by the Portfolio include, but are not limited to:
Tax Anticipation Notes. Tax anticipation notes ("TANs") are sold as
interim financing in anticipation of collection of taxes. An uncertainty in a
municipal issuer's capacity to raise taxes as a result of such factors as a
decline in its tax base or a rise in delinquencies could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Bond Anticipation Notes. Bond anticipation notes ("BANs") are sold as
interim financing in anticipation of a bond sale. The ability of a municipal
issuer to meet its obligations on its BANs is primarily dependent on the
issuer's adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.
Revenue Anticipation Notes. Revenue anticipation notes ("RANs") are
sold as interim financing in anticipation of receipt of other revenues. A
decline in the receipt of certain revenues, such as anticipated revenues from
another level of government, could adversely affect an issuer's ability to meet
its obligations on outstanding RANs.
TANs, BANs and RANs are usually general obligations of the issuer.
MUNICIPAL COMMERCIAL PAPER
The Portfolio may also purchase municipal commercial paper that is
rated at the time of purchase "P-2" or better by Moody's, "A-2" or better by
S&P, or "F-2" or better by Fitch, or if not rated, determined by SBAM to be of
comparable quality.
Municipal commercial paper that may be purchased by the Portfolio
consists of short term obligations of a municipality. Such paper is likely to be
issued to meet seasonal working capital needs of a municipality or as interim
construction financing. Municipal commercial paper, in many cases, is backed by
a letter of credit lending agreement, note repurchase agreement or other credit
facility agreement offered by banks or other institutions.
CHARACTERISTICS OF MUNICIPAL OBLIGATIONS
Municipal obligations are debt obligations issued by or on behalf of
states, cities, municipalities and other public authorities. The two principal
classifications of municipal obligations that may be held by the Portfolio are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of a facility being financed. Revenue
securities may include private activity bonds. Such bonds may be issued by or
on behalf of public authorities to finance various privately operated facilities
and are not payable from the unrestricted revenues of the issuer. As a result,
the credit quality of private activity bonds is frequently related directly to
the credit standing of private corporations or other entities. In addition, the
interest on private activity bonds issued after August 7, 1986 is subject to the
federal alternative minimum tax. The Portfolio will not be restricted with
respect to the proportion of its assets that may be invested in such
obligations. Accordingly, the Portfolio may not be a suitable investment
vehicle for individuals or corporations that are subject to the federal
alternative minimum tax.
The National Municipal Bond Fund's portfolio may also include "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality that created the issuer.
In addition, the Portfolio may invest in municipal lease obligations
("MLOs"). MLOs are not fully backed by the municipality's credit and their
interest may become taxable if the lease is assigned. If the governmental user
does not appropriate sufficient funds for the following year's lease payments,
the lease will terminate, with the possibility of default on the MLO and loss to
the Portfolio. SBAM intends to invest more than 5% of the Portfolio's net
assets in municipal lease obligations and the Trustees of the Fund have
established procedures the Subadviser will use to examine certain factors in
evaluating the liquidity of such obligations. These factors include (i) the
frequency of trades and quotes for the MLO; (ii) the number of dealers willing
to purchase or sell such MLO and the number of other potential
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purchasers; (iii) the willingness of dealers to undertake to make a market in
the MLO; (iv) the nature of the MLO and the nature of the marketplace trades
(e.g., the time needed to dispose of the security and the method of soliciting
----
offers); (v) the nature of the offering of such MLO (e.g., the size of the issue
----
and the number of anticipated holders); (vi) the ability of the MLO to maintain
its marketability throughout the time the instrument is held in the Portfolio;
and (vii) other factors, if any, which SBAM deems relevant to determining the
existence of a trading market for such MLO. The Portfolio also may invest in
resource recovery bonds, which may be general obligations of the issuing
municipality or supported by corporate or bank guarantees. The viability of the
resource recovery project, environmental protection regulations and project
operator tax incentives may affect the value and credit quality of resource
recovery bonds.
OTHER PERMITTED INVESTMENTS
The Portfolio currently intends to invest substantially all of its
assets in obligations the interest on which is exempt from regular federal
income taxes. However, in order to maintain liquidity, the Portfolio may invest
up to 20% of its assets in taxable obligations, including taxable high-quality
short-term money market instruments. The Portfolio may invest in the following
taxable high-quality short-term money market instruments: obligations of the
U.S. Government or its agencies or instrumentalities; commercial paper of
issuers rated, at the time of purchase, "A-2" or better by S&P, "P-2" or better
by Moody's, or "F-2" or better by Fitch or which if unrated, in the opinion of
SBAM, are of comparable quality; certificates of deposit, bankers' acceptances
or time deposits of U.S. banks with total assets of at least $1 billion
(including obligations of foreign branches of such banks) and of the 75 largest
foreign commercial banks in terms of total assets (including domestic branches
of such banks), and repurchase agreements with respect to such obligations.
If at some future date, in the opinion of SBAM, adverse conditions
prevail in the market for obligations the interest on which is exempt from
regular federal income taxes, the Portfolio may invest its assets without limit
in taxable high-quality short-term money market instruments. Dividends paid by
the Portfolio that are attributable to interest derived from taxable money
market instruments will be taxable to investors.
From time to time, the Portfolio may invest more than 25% of its
assets in obligations whose interest payments are from revenues of similar
projects (such as utilities or hospitals) or whose issuers share the same
geographic location. As a result, the Portfolio may be more susceptible to a
single economic, political or regulatory development than would a portfolio of
securities with a greater variety of issuers. These developments include
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Portfolio nor SBAM will review the proceedings relating to the issuance of
municipal obligations or the basis for such opinions.
ADDITIONAL INVESTMENT ACTIVITIES
Floating and Variable Rate Obligations. Certain of the obligations
that the National Municipal Bond Fund may purchase may have a floating or
variable rate of interest. Floating or variable rate obligations bear interest
at rates that are not fixed, but vary with changes in specified market rates or
indices, such as the prime rate, and at specified intervals. Certain of the
floating or variable rate obligations that may be purchased by the Portfolio may
carry a demand feature that would permit the holder to tender them back to the
issuer of the underlying instrument or to a third party at par value prior to
maturity. Such obligations include variable rate demand notes, which are
instruments issued pursuant to an agreement between the issuer and the holder
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate.
Participation Certificates. The instruments that may be purchased by
the Portfolio include participation certificates issued by a bank, insurance
company or other financial institution in obligations owned by such institutions
or affiliated organizations that may otherwise be purchased by the Portfolio. A
participation certificate gives the Portfolio an undivided interest in the
underlying obligations in the proportion that the Portfolio's interest bears to
the total principal amount of such obligations. Certain of such participation
certificates may carry a demand feature that would permit the holder to tender
them back to the issuer or to a third party prior to maturity.
Variable Rate Auction Securities and Inverse Floaters. The National
Municipal Bond Fund may invest in variable rate auction securities and inverse
floaters which are instruments created when an issuer or dealer separates the
principal portion of a long-term, fixed-rate municipal bond into two long-term,
variable-rate instruments. The interest rate on the variable rate auction
portion reflects short-term interest rates, while the interest rate on the
inverse floater portion is typically higher than the rate available on the
original fixed-rate bond. Changes in the interest rate paid on the portion of
the issue relative to short-term interest rates inversely affect the interest
rate paid on the latter portion of the issue. The latter portion therefore is
subject to greater price volatility than the original fixed-rate bond. Since
the market for these instruments is new, the holder of one portion may have
difficulty finding a ready purchaser. Depending on market availability, the two
portions may be recombined to form a fixed-rate municipal bond.
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USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS
The National Municipal Bond Fund is currently authorized to use only
certain of the various investment strategies referred to under "RISK FACTORS --
Hedging and Other Strategic Transactions." Specifically, the Portfolio may
purchase or sell futures contracts on (a) debt securities that are backed by the
full faith and credit of the U.S. Government, such as long-term U.S. Treasury
Bonds and Treasury Notes and (b) municipal bond indices. Currently, at least
one exchange trades futures contracts on an index of long-term municipal bonds,
and the Portfolio reserves the right to conduct futures transactions based on an
index which may be developed in the future to correlate with price movements in
municipal obligations. It is not presently anticipated that any of these
strategies will be used to a significant degree by the Portfolio. The Statement
of Additional Information contains a description of these strategies and of
certain risks associated therewith.
MONEY MARKET FUND
The investment objective of the Money Market Fund is to obtain maximum
current income consistent with preservation of principal and liquidity as is
available from short-term investments. Wellington Management manages the Money
Market Fund and seeks to achieve this objective by investing in high quality,
U.S. dollar-denominated money market instruments of the following types:
(1) obligations issued or guaranteed as to principal or interest by
the U.S. Government, or any agency or authority controlled or supervised by and
acting as an instrumentality of the U.S. Government pursuant to authority
granted by Congress (hereinafter "U.S. Government securities");
(2) certificates of deposit, bank notes, time deposits, Eurodollars,
Yankee obligations and bankers' acceptances of U.S. banks, foreign branches of
U.S. banks, foreign banks and U.S. savings and loan associations which at the
date of investment have capital, surplus and undivided profits as of the date of
their most recent published financial statements in excess of $100,000,000 (or
less than $100,000,000 if the principal amount of such bank obligations is
insured by the Federal Deposit Insurance Corporation or the Savings Association
Insurance Fund);
(3) commercial paper which at the date of investment is rated (or
guaranteed by a company whose commercial paper is rated) within the two highest
rating categories by any nationally recognized statistical rating organization
("NRSRO") (such as "P-1" or "P-2" by Moody's or "A-1" or "A-2" by S&P) or, if
not rated, is issued by a company which Wellington Management, acting pursuant
to guidelines established by the Trustees, has determined to be of minimal
credit risk and comparable quality;
(4) corporate obligations maturing in 397 days or less which at the
date of investment are rated within the two highest rating categories by any
NRSRO (such as "Aa" or higher by Moody's or "AA" or higher by S&P);
(5) short-term obligations issued by state and local governmental
issuers;
(6) obligations of foreign governments, including Canadian and
Provincial Government and Crown Agency Obligations;
(7) securities that have been structured to be eligible money market
instruments such as participation interests in special purpose trusts that meet
the quality and maturity requirements in whole or in part due to arrangements
for credit enhancement or for shortening effective maturity; and
(8) repurchase agreements with respect to any of the foregoing
obligations (without limitation).
Commercial paper may include variable amount master demand notes,
which are obligations that permit investment of fluctuating amounts at varying
rates of interest. Such notes are direct lending arrangements between the Money
Market Fund and the note issuer, and Wellington Management will monitor the
creditworthiness of the issuer and its earning power and cash flow, and will
also consider situations in which all holders of such notes would redeem at the
same time. Variable amount master demand notes are redeemable on demand.
The Money Market Fund will invest only in U.S. dollar-denominated
instruments. All of the Money Market Fund's investments will mature in 397 days
or less and the Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less. By limiting the maturity of its investments, the
Money Market Fund seeks to lessen the changes in the value of its assets caused
by fluctuations in short-term interest rates. Due to the short maturities of
its investments, the Money Market Fund will tend to have a lower yield than, and
the value of its underlying investments will be less volatile than the
investments of, portfolios that invest in longer-term securities. In addition,
the Money Market Fund will invest only in securities the Trustees determine to
present minimal credit risks and which at the time of purchase are "eligible
securities" as defined by Rule 2a-7 under the 1940 Act. Generally, eligible
securities must be rated by a NRSRO in one of the two highest rating categories
for short-term debt obligations or be of comparable quality. The Money Market
Fund also intends to maintain a stable per share net asset value of $1.00,
although there is no assurance that it will be able to do so.
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The Money Market Fund will be subject to certain risks as a result of
its ability to invest up to 20% of its assets in foreign securities. These risks
are described under the caption "RISK FACTORS -- Foreign Securities" in this
Prospectus.
Use of Hedging and Other Strategic Transactions. The Money Market Fund
is not authorized to use any of the various investment strategies referred to
under "RISK FACTORS --Hedging and Other Strategic Transactions."
____________________________
The portfolio turnover rate of each of the Fund's Portfolios may vary
from year to year, as well as within a year. Higher portfolio turnover rates
can result in corresponding increases in portfolio transaction costs for a
Portfolio. See "PORTFOLIO TURNOVER" in the Statement of Additional Information.
The ability of the U.S. Government Securities Fund to provide a high
level of current income and the ability of the Money Market Fund to obtain
maximum current income is restrained because that Portfolio invests
predominantly in U.S. Government bonds; debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and U.S. dollar-denominated money market instruments,
respectively.
RISK FACTORS
INVESTMENT RESTRICTIONS GENERALLY
The Fund is subject to a number of restrictions in pursuing its
investment objectives and policies. Such restrictions generally serve to limit
investment practices that may subject the Fund to investment and market risk.
The following is a brief summary of certain restrictions that may be of interest
to investors. Some of these restrictions are subject to exceptions not stated
here. Such exceptions and a complete list of the investment restrictions
applicable to the individual Portfolios and to the Fund are set forth in the
Statement of Additional Information under the caption "INVESTMENT RESTRICTIONS."
Except for the restrictions specifically identified as fundamental,
all investment restrictions described in this Prospectus and in the Statement of
Additional Information are not fundamental, so that the Trustees of the Fund may
change them without shareholder approval. Fundamental policies may not be
changed without the affirmative vote of a majority of the outstanding voting
securities.
Fundamental policies applicable to all Portfolios include prohibitions
on (i) investing more than 25% of the total assets of any Portfolio in the
securities of issuers having their principal activities in any particular
industry (with exceptions for U.S. Government securities and, with respect to
the Money Market Fund, obligations of domestic branches of U.S. banks, and with
respect to the National Municipal Bond Fund, obligations issued or guaranteed by
any state or territory, and possession of the United States, the District of
Columbia, or any of their authorities, agencies, instrumentalities or political
subdivisions) (for purposes of this restriction, supranational issuers will be
considered to comprise an industry as will each foreign government that issues
securities purchased by a Portfolio); (ii) borrowing money, except for temporary
or emergency purposes (but not for leveraging) and then not in excess of 33 1/3%
of the value of the total assets of the Portfolio at the time the borrowing is
made (as a nonfundamental investment policy a Portfolio will not purchase
additional securities at any time its borrowings exceed 5% of total assets) and
except in connection with reverse repurchase agreements, mortgage dollar rolls
and other similar transactions, and (iii) purchasing securities of any issuer if
the purchase would cause more than 5% of the value of a Portfolio's total assets
to be invested in the securities of any one issuer (excluding U.S. Government
securities and bank obligations) or cause more than 10% of the voting securities
of the issuer to be held by a Portfolio, except that up to 25% of the value of
each Portfolio's total assets (except the Money Market Fund) may be invested
without regard to this restriction.
Restrictions that apply to all Portfolios and that are not fundamental
include prohibitions on (i) knowingly investing more than 10% of the net assets
of any Portfolio in "illiquid" securities (including repurchase agreements
maturing in more than seven days but excluding master demand notes), (ii)
pledging, hypothecating, mortgaging or transferring more than 10% of the total
assets of any Portfolio as security for indebtedness, and (iii) purchasing
securities of other investment companies, other than in connection with a
merger, consolidation or reorganization, if the purchase would cause more than
10% of the value of a Portfolio's total assets to be invested in investment
company securities.
Finally, the Money Market Fund is subject to certain restrictions
required by Rule 2a-7 under the 1940 Act. In order to comply with such
restrictions, the Money Market Fund will, among other things, not purchase the
securities of any issuer if it would cause (i) more than 5% of its total assets
to be invested in the securities of any one issuer (excluding U.S. Government
securities and repurchase agreements fully collateralized by U.S. Government
securities), except as permitted by Rule 2a-7 for certain securities for a
period of up to three business days after purchase, (ii) more than 5% of its
total assets to be invested in "second tier securities," as defined by Rule 2a-
7, or (iii) more than the greater of $1 million or 1% of its total net assets to
be invested in the second tier securities of that issuer.
HIGH YIELD/HIGH RISK SECURITIES
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GENERAL. The Strategic Income Fund may invest without limitation, and
the Investment Quality Bond Fund may invest up to 20% of its assets, in "high
yield" securities (commonly known as "junk bonds"). In addition, the
International Small Cap Fund may invest in Brady Bonds. The International Small
Cap and the Growth Equity Funds may also invest in "high yield" securities to
the extent described above under the description of each portfolio. Securities
rated below investment grade and comparable unrated securities offer yields that
fluctuate over time, but generally are superior to the yields offered by higher
rated securities. However, securities rated below investment grade also involve
greater risks than higher rated securities. Under rating agency guidelines,
medium- and lower-rated securities and comparable unrated securities will likely
have some quality and protective characteristics that are outweighed by large
uncertainties or major risk exposures to adverse conditions. Certain of the
debt securities in which the Strategic Income and Investment Quality Bond Funds
may invest may have, or be considered comparable to securities having, the
lowest ratings for non-subordinated debt instruments assigned by Moody's or S&P
(i.e., rated C by Moody's or CCC or lower by S&P). These securities are
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default, to
be unlikely to have the capacity to pay interest and repay principal when due in
the event of adverse business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal. Such securities
are considered speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations.
Accordingly, it is possible that these types of factors could, in certain
instances, reduce the value of securities held by the Strategic Income and
Investment Quality Bond Funds with a commensurate effect on the value of the
Portfolio's shares. The Strategic Income Fund may invest without limitation in
high yield debt securities, and accordingly, it should not be considered as a
complete investment program for all investors.
Because the Strategic Income and Investment Quality Bond Funds will
invest primarily in fixed-income securities, the net asset value of each
Portfolio's shares can be expected to change as general levels of interest rates
fluctuate, although the market values of securities rated below investment grade
and comparable unrated securities tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities. Except to the extent that
values are affected independently by other factors such as developments relating
to a specific issuer, when interest rates decline, the value of a fixed-income
portfolio can generally be expected to rise. Conversely, when interest rates
rise, the value of a fixed-income portfolio can generally be expected to
decline.
The secondary markets for high yield corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield debt securities are
concentrated in relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield debt securities is generally lower than that for higher-rated
securities and the secondary markets could contract under adverse market or
economic conditions independent of any specific adverse changes in the condition
of a particular issuer. These factors may have an adverse effect on a Fund's
ability to dispose of particular portfolio investments and may limit the ability
of those Portfolios to obtain accurate market quotations for purposes of valuing
securities and calculating net asset value. If a Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult for the Board of Trustees to value such Portfolio's investment
portfolio and the Fund's Trustees may have to use a greater degree of judgment
in making such valuations. Less liquid secondary markets may also affect a
Portfolio's ability to sell securities at their fair value. In addition, each
Portfolio may invest up to 10% of its net assets, measured at the time of
investment, in illiquid securities, which may be more difficult to value and to
sell at fair value. If the secondary markets for high yield debt securities are
affected by adverse economic conditions, the proportion of a Portfolio's assets
invested in illiquid securities may increase.
CORPORATE DEBT SECURITIES. While the market values of securities
rated below investment grade and comparable unrated securities tend to react
less to fluctuations in interest rate levels than do those of higher-rated
securities, the market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, such securities generally
present a higher degree of credit risk. Issuers of these securities are often
highly leveraged and may not have more traditional methods of financing
available to them, so that their ability to service their debt obligations
during an economic downturn or during sustained periods of rising interest rates
may be impaired. The risk of loss due to default by such issuers is
significantly greater than with investment grade securities because such
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. The current economic recession has resulted in
default levels in excess of historic averages.
FOREIGN SOVEREIGN DEBT SECURITIES. Investing in foreign sovereign
debt securities will expose a Fund to the direct or indirect consequences of
political, social or economic changes in the developing and emerging countries
that issue the securities. The ability and willingness of sovereign obligors in
developing and emerging countries or the governmental authorities that control
repayment of their external debt to pay principal and interest on such debt when
due may depend on general economic and political conditions within the relevant
country. Countries such as those in which these Portfolios may invest have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate trade difficulties and extreme
poverty and unemployment. Many of these countries are also characterized by
political uncertainty or instability. Additional factors which may influence
the ability or willingness to service debt include, but are not limited to, a
country's cash flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt service burden to
the economy as a whole, and its government's policy towards the International
Monetary Fund, the World Bank and other international agencies.
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The ability of a foreign sovereign obligor to make timely payments on
its external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars could be
adversely affected. If a foreign sovereign obligor cannot generate sufficient
earnings from foreign trade to service its external debt, it may need to depend
on continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment
on the part of these foreign governments, multilateral organizations and others
to make such disbursements may be conditioned on the government's implementation
of economic reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds, which may further
impair the obligor's ability or willingness to timely service its debts. The
cost of servicing external debt will also generally be adversely affected by
rising international interest rates, because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates.
The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a sovereign obligor
to obtain sufficient foreign exchange to service its external debt.
As a result of the foregoing, a governmental obligor may default on
its obligations. If such an event occurs, the Strategic Income or Investment
Quality Bond Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign sovereign debt
securities to obtain recourse may be subject to the political climate in the
relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
sovereign debt obligations in the event of default under their commercial bank
loan agreements.
Sovereign obligors in developing and emerging countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have
in the past experienced substantial difficulties in servicing their external
debt obligations, which led to defaults on certain obligations and the
restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and obtaining new
credit to finance interest payments. Holders of certain foreign sovereign debt
securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the Brady Bonds and other foreign sovereign debt securities in
which the Portfolios may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely affect a
Portfolio's holdings. Furthermore, certain participants in the secondary market
for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.
In addition to high yield foreign sovereign debt securities, the
Strategic Income and Investment Quality Bond Funds may also invest in investment
grade foreign securities. For a discussion of such securities and their
associated risks, see "Foreign Securities" below.
FOREIGN SECURITIES
Each of the Funds except the U.S. Government Securities and the
National Municipal Bond Fund may invest up to 20% (100% in the case of the
International Small Cap, Global Growth, International Growth and Income and
Strategic Income Funds) of its total assets in securities of foreign issuers.
(In the case of the Small/Mid Cap Fund, ADRs and U.S. dollar denominated
securities are not included in this 20% limitation.) Such foreign securities
may be denominated in foreign currencies, except with respect to the Money
Market Fund which may only invest in U.S. dollar-denominated securities of
foreign issuers. The types of foreign securities in which the Money Market Fund
may invest are set forth above under "INVESTMENT PORTFOLIOS - Money Market
Fund." The U.S. Government Securities and National Municipal Bond Fund may not
invest in foreign securities.
Securities of foreign issuers include obligations of foreign branches
of U.S. banks and of foreign banks, common and preferred stocks, debt securities
issued by foreign governments, corporations and supranational organizations, and
American Depository Receipts, European Depository Receipts and Global Depository
Receipts. ("ADRs", "EDRs" and "GDRs", respectively). ADRs are U.S. dollar-
denominated securities backed by foreign securities deposited in a U.S.
securities depository. ADRs are created for trading in the U.S. markets. The
value of an ADR will fluctuate with the value of the underlying security,
reflect any changes in exchange rates and otherwise involve risks associated
with investing in foreign securities. ADRs in which the Portfolios may invest
may be sponsored or unsponsored. There may be less information available about
foreign issuers of unsponsored ADRs. EDRs and GDRs are receipts evidencing an
arrangement with a non-U.S. bank similar to that for ADRs and are designed for
use in non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in
the same currency as the underlying security. Each of the Portfolios, except
for the Global Growth and
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<PAGE>
Strategic Income Funds, anticipates that its foreign investments will consist
primarily of ADRs that are regularly traded on recognized U.S. exchanges or in
the U.S. "over-the-counter" market.
Foreign securities may be subject to foreign government taxes which
reduce their attractiveness. See "GENERAL INFORMATION -- Taxes." In addition,
investing in securities denominated in foreign currencies and in the securities
of foreign issuers, particularly non-governmental issuers, involves risks which
are not ordinarily associated with investing in domestic issuers. These risks
include political or economic instability in the country involved and the
possibility of imposition of currency controls. Since certain Portfolios may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may affect the value of
investments in the Portfolio and the unrealized appreciation or depreciation of
investments insofar as U.S. investors are concerned. Foreign currency exchange
rates are determined by forces of supply and demand on the foreign exchange
markets. These forces are, in turn, affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. The Portfolios may incur transaction charges in
exchanging foreign currencies.
There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers, including foreign
branches of U.S. banks, are subject to different accounting and reporting
requirements which are generally less extensive than the requirements applicable
to domestic issuers. Foreign stock markets (other than Japan) have
substantially less volume than the U.S. exchanges and securities of foreign
issuers are generally less liquid and more volatile than those of comparable
domestic issuers. These risks are heightened in the case of emerging markets.
There is frequently less governmental regulation of exchanges, broker-dealers
and issuers than in the United States, and brokerage costs may be higher. In
addition, investments in foreign companies may be subject to the possibility of
nationalization, withholding of dividends at the source, expropriation or
confiscatory taxation, currency blockage, political or economic instability or
diplomatic developments that could adversely affect the value of those
investments. Finally, in the event of a default on any foreign obligation, it
may be difficult for the Fund to obtain or to enforce a judgment against the
issuer.
Foreign markets, especially emerging markets, may have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of a Portfolio is uninvested and no return is earned thereon. The
inability of a Portfolio to make intended security purchases due to settlement
could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to a Portfolio due to subsequent declines in values of the
portfolio securities or, if the Portfolio has entered into a contract to sell
the security, possible liability to the purchaser. Certain foreign markets,
especially emerging markets, may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. A Portfolio could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Portfolio of any
restrictions on investments.
In addition to the foreign securities listed above, the Strategic
Income and Investment Quality Bond Funds may also invest in foreign sovereign
debt securities, which involve certain additional risks. See "RISK FACTORS --
High Yield/High Risk Securities -- Foreign Sovereign Debt Securities" above.
WARRANTS
Subject to certain restrictions, each of the Portfolios except the
National Municipal Bond and Money Market Funds may purchase warrants, including
warrants traded independently of the underlying securities. It is a non-
fundamental investment restriction of each Portfolio not to purchase warrants if
as a result that Portfolio would then have more than 10% of its total net assets
invested in warrants, or if more than 5% of the value of the Portfolio's total
net assets would be invested in warrants which are not listed on a recognized
United States or foreign stock exchange, except for warrants included in units
or attached to other securities.
LENDING PORTFOLIO SECURITIES
To attempt to increase its income, each Portfolio may lend its
portfolio securities in amounts up to 33% of its total non-cash assets to
brokers, dealers and other financial institutions, provided such loans are
callable at any time by the Portfolio and are at all times fully secured by
cash, cash equivalents or securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities, marked to market to the value of loaned
securities on a daily basis. As with any extensions of credit, there may be
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Subadvisers to be creditworthy.
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<PAGE>
WHEN-ISSUED SECURITIES ("FORWARD COMMITMENTS")
In order to help ensure the availability of suitable securities, each
of the Portfolios may purchase debt securities on a "when-issued" or on a
"forward delivery" basis, which means that the obligations will be delivered to
the Portfolio at a future date, which may be a month or more after the date of
commitment (referred to as "forward commitments"). It is expected that, under
normal circumstances, a Portfolio purchasing securities on a when-issued or
forward delivery basis will take delivery of the securities, but the Portfolio
may sell the securities before the settlement date, if such action is deemed
advisable. In general, a Portfolio does not pay for the securities or start
earning interest on them until the purchase of the obligation is scheduled to be
settled, but it does, in the meantime, record the transaction and reflect the
value each day of the securities in determining its net asset value. At the
time delivery is made, the value of when-issued or forward delivery securities
may be more or less than the transaction price, and the yields then available in
the market may be higher than those obtained in the transaction. While awaiting
delivery of the obligations purchased on such bases, a Portfolio will establish
a segregated account consisting of cash or liquid high quality debt securities
equal to the amount of the commitments to purchase when-issued or forward
delivery securities. The availability of liquid assets for this purpose and the
effect of asset segregation on a Portfolio's ability to meet its current
obligations, to honor requests for redemption and to have its investment
portfolio managed properly will limit the extent to which the Portfolio may
purchase when-issued or forward delivery securities. Except as may be imposed
by these factors, there is no limit on the percentage of a Portfolio's total
assets that may be committed to such transactions.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
Individual Portfolios may be authorized to use a variety of investment
strategies described below for hedging purposes only, including hedging various
market risks (such as interest rates, currency exchange rates and broad or
specific market movements), and managing the effective maturity or duration of
debt instruments held by the Portfolio. The description in this Prospectus of
each Portfolio indicates which, if any, of these types of transactions may be
used by the Portfolio. Although these strategies are regularly used by some
investment companies and other institutional investors, it is not presently
anticipated that any of these strategies will be used to a significant degree by
any Portfolio unless otherwise specifically indicated in the description of the
Portfolio contained in this Prospectus. Limitations on the portion of a
Portfolio's assets that may be used in connection with the investment strategies
described below are set out in the Statement of Additional Information.
Subject to the constraints described above, an individual Portfolio
may (if and to the extent so authorized) purchase and sell (or write) exchange-
listed and over-the-counter put and call options on securities, index futures
contracts, financial futures contracts and fixed-income indices and other
financial instruments, enter into financial futures contracts, enter into
interest rate transactions, and enter into currency transactions (collectively,
these transactions are referred to in this Prospectus as "Hedging and Other
Strategic Transactions"). Other Strategic Transactions are also referred to as
derivative transactions. A "derivative" is generally defined as an instrument
whose value is based upon, or derived from, some underlying index, reference
rate (e.g. interest rate or currency exchange rate, security, commodity or other
asset). Portfolio's interest rate transactions may take the form of swaps, caps,
floors and collars, and a Portfolio's currency transactions may take the form of
currency forward contracts, currency futures contracts, currency swaps and
options on currencies or currency futures contracts.
Hedging and Other Strategic Transactions may generally be used to
attempt to protect against possible changes in the market value of securities
held or to be purchased by a Portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect a Portfolio's unrealized gains
in the value of its securities, to facilitate the sale of those securities for
investment purposes, to manage the effective maturity or duration of a
Portfolio's securities or to establish a position in the derivatives markets as
a temporary substitute for purchasing or selling particular securities. A
Portfolio may use any or all types of Hedging and Other Strategic Transactions
which it is authorized to use at any time; no particular strategy will dictate
the use of one type of transaction rather than another, as use of any authorized
Hedging and Other Strategic Transaction will be a function of numerous
variables, including market conditions. The ability of a Portfolio to utilize
Hedging and Other Strategic Transactions successfully will depend on, in
addition to the factors described above, the Subadviser's ability to predict
pertinent market movements, which cannot be assured. These skills are different
from those needed to select a Portfolio's securities. None of the Portfolios is
a "commodity pool" (i.e., a pooled investment vehicle which trades in commodity
futures contracts and options thereon and the operator of which is registered
with the Commodity Futures Trading Commission (the "CFTC")). Futures contracts
and options on futures contracts will be purchased, sold or entered into only
for bona fide hedging to the extent permitted by CFTC regulations. The use of
---- ----
certain Hedging and Other Strategic Transactions will require that a Portfolio
segregate cash, liquid high grade debt obligations or other assets to the extent
a Portfolio's obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency. Risks associated with
Hedging and Other Strategic Transactions are described in "HEDGING AND OTHER
STRATEGIC TRANSACTIONS -- Risk Factors" in the Statement of Additional
Information. A detailed discussion of various Hedging and Other Strategic
Transactions, including applicable regulations of the CFTC and the requirement
to segregate assets with respect to these transactions, also appears in the
Statement of Additional Information.
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<PAGE>
ILLIQUID SECURITIES
Each of the Portfolios is precluded from investing in excess of 10% of
its net assets in securities that are not readily marketable. Excluded from the
10% limitation are securities that are restricted as to resale but for which a
ready market is available pursuant to exemption provided by Rule 144A adopted
under the Securities Act of 1933, as amended (the "1933 Act") or other
exemptions from the registration requirements of the 1933 Act. Whether
securities sold pursuant to Rule 144A are readily marketable for purposes of the
Fund's investment restriction is a determination to be made by the Subadvisers,
subject to the Trustees' oversight and for which the Trustees are ultimately
responsible. The Subadvisers will also monitor the liquidity of Rule 144A
securities held by the Portfolios for which they are responsible. To the extent
Rule 144A securities held by a Portfolio should become illiquid because of a
lack of interest on the part of qualified institutional investors, the overall
liquidity of the Portfolio could be adversely affected. In addition, the Money
Market Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the 1933 Act. Section 4(2)
commercial paper is restricted as to the disposition under federal securities
law, and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be made in an
exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Money Market Fund through or with the
assistance of the issuer or investment dealers who make a market in Section 4(2)
commercial paper, thus providing liquidity. The Money Market Fund's subadviser
believes that Section 4(2) commercial paper meets its criteria for liquidity and
is quite liquid. The Money Market Fund intends, therefore, to treat Section
4(2) commercial paper as liquid and not subject to the investment limitation
applicable to illiquid securities. The Money Market Fund's subadviser will
monitor the liquidity of Section 4(2) commercial paper held by the Money Market
Fund, subject to the Trustees' oversight and for which the Trustees are
ultimately responsible.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each of the Fund's Portfolios may enter into repurchase agreements and
reverse repurchase agreements. Repurchase agreements involve the acquisition by
a Portfolio of debt securities subject to an agreement to resell them at an
agreed-upon price. Under a repurchase agreement, at the time the Portfolio
acquires a security, it agrees to resell it to the original seller (a financial
institution or broker/dealer which meets the guidelines established by the
Trustees) and must deliver the security (and/or securities that may be added to
or substituted for it under the repurchase agreement) to the original seller on
an agreed-upon date in the future. The repurchase price is in excess of the
purchase price. The arrangement is in economic effect a loan collateralized by
securities.
The Trustees have adopted procedures that establish certain
creditworthiness, asset and collateralization requirements for the
counterparties to a Portfolio's repurchase agreements. The Trustees will
regularly monitor the use of repurchase agreements and the Subadvisers will,
pursuant to procedures adopted by the Trustees, continuously monitor the amount
of collateral held with respect to a repurchase transaction so that it equals or
exceeds the amount of the obligation.
A Portfolio's risk in a repurchase transaction is limited to the
ability of the seller to pay the agreed-upon sum on the delivery date. In the
event of bankruptcy or other default by the seller, there may be possible delays
and expenses in liquidating the instrument purchased, decline in its value and
loss of interest. Securities subject to repurchase agreements will be valued
every business day and additional collateral will be requested if necessary so
that the value of the collateral is at least equal to the value of the
repurchase obligation, including the interest accrued thereon.
Each Portfolio of the Fund may enter into "reverse" repurchase
agreements. Under a reverse repurchase agreement, a Portfolio may sell a debt
security and agree to repurchase it at an agreed upon time and at an agreed upon
price. The Portfolio retains record ownership of the security and the right to
receive interest and principal payments thereon. At an agreed upon future date,
the Portfolio repurchases the security by remitting the proceeds previously
received, plus interest. The difference between the amount the Portfolio
receives for the security and the amount it pays on repurchase is deemed to be
payment of interest. The Portfolio will maintain in a segregated custodial
account cash, Treasury bills or other U.S. Government securities having an
aggregate value equal to the amount of such commitment to repurchase including
accrued interest, until payment is made. In certain types of agreements, there
is no agreed-upon repurchase date and interest payments are calculated daily,
often based on the prevailing overnight repurchase rate.
MORTGAGE DOLLAR ROLLS
Each Portfolio of the Fund (except the Money Market Fund) may enter
into mortgage dollar rolls. Under a mortgage dollar roll, a Portfolio sells
mortgage-backed securities for delivery in the future (generally within 30 days)
and simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Portfolio forgoes principal and interest paid on the mortgage-backed
securities. A Portfolio is compensated by the difference between the current
sale price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A Portfolio may also be compensated by receipt of a commitment
fee. A Portfolio may only enter into covered rolls. A
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<PAGE>
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash or cash equivalent security position which matures on or before
the forward settlement date of the dollar roll transaction. Dollar roll
transactions involve the risk that the market value of the securities sold by
the Portfolio may decline below the repurchase price of those securities.
MANAGEMENT OF THE FUND
Under Massachusetts law and the Fund's Declaration of Trust and By-
Laws, the business and affairs of the Fund are managed under the direction of
the Trustees.
ADVISORY ARRANGEMENTS
NASL Financial Services, Inc., ("NASL Financial" or, in its capacity
as investment adviser to the Fund, the "Adviser"), a Massachusetts corporation
whose principal offices are located at 116 Huntington Avenue, Boston,
Massachusetts 02116, is the investment adviser to the Fund. NASL Financial is
a wholly-owned subsidiary of North American Security Life Insurance Company
("Security Life"), a Delaware stock life insurance company, the controlling
ultimate parent of which is The Manufacturers Life Insurance Company
("Manulife"), a Canadian mutual life insurance company based in Toronto, Canada.
Prior to January 1, 1996, Security Life was a wholly owned subsidiary of North
American Life Assurance Company ("NAL"), a Canadian mutual life insurance
company. On January 1, 1996 NAL and Manulife merged with the combined company
retaining the name Manulife.
Pursuant to its Advisory Agreement with the Fund (the "Advisory
Agreement"), the Adviser oversees the administration of all aspects of the
business and affairs of the Fund; selects, contracts with and compensates
subadvisers to manage the assets of the Fund's Portfolios; and reimburses the
Fund if the total of certain expenses allocated to any Portfolio exceeds certain
limitations. The Adviser serves as investment adviser to one other investment
company, NASL Series Trust. NASL Series Trust is a mutual fund that serves as
the underlying investment medium for variable annuity contracts issued by
Security Life and its wholly-owned subsidiary, First North American Life
Assurance Company. At January 31, 1996, NASL Series Trust had assets of
approximately $5.3 billion.
Under the terms of the Advisory Agreement, the Adviser selects,
contracts with and compensates subadvisers to manage the investment and
reinvestment of the assets of the Portfolios of the Fund. The Adviser monitors
the compliance of such subadvisers with the investment objectives and related
policies of each Portfolio and reviews the performance of such subadvisers and
reports periodically on such performance to the Trustees.
The Adviser oversees all aspects of the Fund's business and affairs.
In that connection, the Adviser permits its directors, officers and employees to
serve as Trustees or President, Vice President, Treasurer or Secretary of the
Fund, without cost to the Fund. The Adviser also provides certain services, and
the personnel to perform such services, to the Fund for which the Fund
reimburses the Adviser's costs of providing such services and personnel. Such
services include maintaining certain records of the Fund and performing all
administrative, financial, accounting, bookkeeping and recordkeeping functions
of the Fund, except for any of those functions performed by the Fund's custodian
or transfer and shareholder servicing agents. The reimbursement paid by the
Fund to the Adviser for personnel costs include employee compensation and
allocated portions of the Adviser's related personnel expenses of office space,
utilities, office equipment and miscellaneous office expenses.
The Adviser has agreed to reduce a Portfolio's advisory fee, or if
necessary to reimburse the Fund, in order to prevent the expenses of a Portfolio
from exceeding either the most restrictive expense limitation imposed by
applicable state law or a fixed expense limitation contained in the Advisory
Agreement, whichever results in the lowest expenses to the Fund. The fixed
limitation may be terminated by the Adviser at any time on 30 days' written
notice. The most restrictive state law provision limits a Portfolio's annual
expenses, excluding taxes, portfolio brokerage commissions, interest, certain
litigation and indemnification expenses, extraordinary expenses and a portion of
the Portfolio's distribution fees, to 2.5% of the first $30,000,000 of the
average net assets of the Portfolio, 2.0% of the next $70,000,000 and 1.5% of
the remaining average net assets of the Portfolio. The fixed limitation
contained in the Advisory Agreement, and as of the date of this Prospectus the
operative limitation on the Fund's expenses, limits a Portfolio's annual
expenses, excluding taxes, portfolio brokerage commissions, interest, certain
litigation and indemnification expenses, extraordinary expenses and all of the
Portfolio's distribution fees as a percentage of average net assets to 1.325%
for the Small/Mid Cap Fund, 1.55% for the International Small Cap Fund, 1.30%
for the Growth Equity Fund, 1.40% for the Global Growth and the International
Growth and Income Funds, .99% for the Value Equity, Growth and Income and Asset
Allocation Funds, 1.15% for the Strategic Income Fund, .90% for the Investment
Quality Bond and U.S. Government Securities Funds, 0.85% for the National
Municipal Bond Fund and .50% for the Money Market Fund.
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As compensation for its services, the Adviser receives a fee from the
Fund computed separately for each Portfolio. The fee for each Portfolio is
stated as an annual percentage of the current value of the net assets of the
Portfolio. The fee, which is accrued daily and payable monthly, is calculated
for each day by multiplying the fraction of one over the number of calendar days
in the year by the annual percentage prescribed for a Portfolio, and multiplying
this product by the value of the net assets of the Portfolio at the close of
business on the previous business day of the Fund. The following is a schedule
of the management fees each Portfolio currently is obligated to pay the Adviser
under the Advisory Agreement (prior to the application of any fee waivers):
<TABLE>
<CAPTION>
BETWEEN BETWEEN
$ 50,000,000 $200,000,000
FIRST AND AND EXCESS OVER
FUNDS $50,000,000 $200,000,000 $500,000,000 $500,000,000
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap Fund............ .925% .900% .875% .850%
International Small Cap Fund.. 1.05% 1.00% .900% .800%
Growth Equity Fund............ .900% .850% .825% .800%
Global Growth Fund............ .900% .900% .700% .700%
Value Equity Fund............. .725% .675% .625% .550%
Growth and Income Fund........ .725% .675% .625% .550%
International Growth and
Income Fund................ .900% .850% .800% .750%
Asset Allocation Fund......... .725% .675% .625% .550%
Strategic Income Fund......... .750% .700% .650% .600%
Investment Quality Bond Fund.. .600% .600% .525% .475%
U.S. Government
Securities Fund............ .600% .600% .525% .475%
National Municipal Bond Fund.. .600% .600% .600% .600%
Money Market Fund............. .200% .200% .200% .145%
</TABLE>
As of March 16, 1993, August 1, 1994 and November 23, 1992, respectively, the
Value Equity, Growth and Income and Asset Allocation Funds reached sufficient
size to realize a reduction in the fee as a percent of excess net assets. The
fees paid by the Global Growth, International Growth and Income and Strategic
Income Funds are higher than the fees paid by many funds to their advisers, but
are not higher than the fees paid by many funds with similar investment
objectives and policies.
A more comprehensive statement of the terms of the Advisory Agreement
appears in the Statement of Additional Information and this agreement is on file
with and is available from the Commission.
SUBADVISORY ARRANGEMENTS
Investment decisions for the Global Growth Fund are made by its
Subadviser, Oechsle International Advisors, L.P. ("Oechsle International").
Oechsle International, founded in 1986, is a Delaware limited partnership whose
principal offices are located at One International Place, Boston, Massachusetts
02110. Oechsle International, which also has offices in London, England,
Frankfurt, Germany and Tokyo, Japan, as of December 31, 1995, managed
approximately $7.8 billion for institutional and private investors. Oechsle
International is a money manager providing management and advisory services with
respect to all primary international securities markets. Each year Oechsle
International's investment professionals concentrate on 25 different countries,
averaging 600 visits to companies annually.
Steven H. Schaefer has been primarily responsible for the day-to-day
management of the Global Growth Fund since August 1989 and since 1991 Stephen J.
Butters has shared this responsibility. Messrs. Schaefer and Butters are also
portfolio subadvisers to NASL Series Trust's Global Equity Trust.
Mr. Schaefer has been a General Partner and Portfolio Manager at
Oechsle International and Managing Director for the firm's London subsidiary
since 1986.
Mr. Butters works in the U.S. Equity management sector of Oechsle
International. Prior to joining Oechsle International in 1991, Mr. Butters
worked at the Putnam Management Company as Senior Vice President and Portfolio
Manager from 1982 to 1988. He also founded his own firm, Butters Lyons, in 1988
where he provided investment management services to individuals and small
business corporations.
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<PAGE>
Investment decisions for the Value Equity and Asset Allocation Funds
are made by their Subadviser, Goldman Sachs Asset Management ("GSAM"). The main
business address of GSAM is One New York Plaza, New York, New York 10004. GSAM
also has offices in London, Tokyo, Singapore, and Sydney. GSAM is a separate
operating division of Goldman, Sachs & Co. Goldman, Sachs & Co., located at 85
Broad Street, New York, New York 10004, was registered as an investment adviser
in 1981 and together with its affiliates currently acts as an investment
adviser, administrator or distributor to 80 mutual fund portfolios. As of
December 31, 1995, GSAM and its affiliates managed assets of approximately $55.3
billion; with domestic mutual fund assets of approximately $36.8 billion and
offshore mutual fund assets in excess of $2 billion for over 16 thousand
individual and institutional accounts. Goldman, Sachs & Co. was founded in 1869,
has 32 offices worldwide, employs approximately 8,900 individuals and is one of
the leading worldwide investment banking and brokerage organizations and
provides a broad range of financing and investing services both in the U.S. and
abroad. GSAM has access to the resources of Goldman, Sachs & Co. including its
staff of approximately 375 research professionals that cover more than 1,600
companies in over 60 industries.
Mitchell E. Cantor and Paul D. Farrell are primarily responsible for
the day-to-day management of the Value Equity Fund. Mr. Cantor, Jonathan
Beinner, Richard Lucy, Theodore Sotir and Kaysie P. Uniacke are primarily
responsible for the day-to-day management of the Asset Allocation Fund.
Mitchell Cantor is a vice president and senior portfolio manager for
the Value Equity Fund as well as NASL Series Trust's Value Equity Trust. Mr.
Cantor is also a vice president and senior equity portfolio manager for the
Asset Allocation Fund. Mr. Cantor joined Goldman Sachs Asset Management in 1991.
Before joining GSAM, he was a senior partner at Sanford C. Bernstein & Co. where
he served as Research Director for the Investment Management Division. Mr.
Cantor was at Sanford C. Bernstein & Co. from August 1983 to October 1991.
Jonathan Beinner is a vice president and senior fixed income portfolio
manager for the Asset Allocation Fund. Mr. Beinner joined GSAM is 1990 after
working in the training and arbitrage group of Franklin Savings Association
since 1988.
Richard Lucy is a vice president and senior fixed income portfolio
manager for the Asset Allocation Fund. Mr. Lucy joined GSAM in 1992 after
spending nine years managing fixed income assets at Brown Brothers Harriman &
Co.
Paul Farrell is a vice president and senior portfolio manager for the
Value Equity Fund as well as NASL Series Trust's Value Equity Trust. Before
joining GSAM in 1991, Mr. Farrell served as a managing director at Plaza
Investments, the investment subsidiary of GEICO Corp., a major insurance
company, from February 1991 to August 1991. Mr. Farrell was previously employed
in the Investment Research Department at Goldman Sachs from June 1986 to
February 1991. Mr. Farrell is a Certified Financial Analyst as well.
Kaysie Uniacke is a vice president and senior fixed income portfolio
manager for the money market portion of the Asset Allocation Portfolio. Ms.
Uniacke has been with Goldman Sachs since 1983.
Theodore Sotir is a vice president and senior fixed income portfolio
manager for the Asset Allocation Portfolio. Before joining GSAM in 1993, he was
a portfolio manager at Fidelity Management Trust Company from January 1992 to
February 1993. Prior to joining Fidelity, Mr. Sotir worked for Goldman Sachs
for six years and was a vice president in the Mortgage Securities Department.
Wellington Management Company ("Wellington Management"), the
Subadviser to the Growth and Income, Investment Quality Bond and Money Market
Funds, founded in 1933, is a Massachusetts partnership whose principal business
address is 75 State Street, Boston, Massachusetts 02109. Wellington Management
is a professional investment counseling firm which provides investment services
to investment companies, employee benefit plans, endowments, foundations and
other institutions and individuals. As of December 31, 1995, Wellington
Management had investment management authority with respect to approximately
$109.2 billion of assets. The managing partners of Wellington Management are
Robert W. Doran, Duncan M. McFarland, and John R. Ryan.
Matthew E. Megargel, Senior Vice President of Wellington Management,
has served as portfolio manager to the Growth and Income Fund since February
1992. Mr. Megargel also serves as the portfolio manager for NASL Series Trust's
Growth and Income Trust. Mr. Megargel joined Wellington Management in 1983 as a
research analyst and took on additional responsibilities as a portfolio manager
in 1988. In 1991, he became solely a portfolio manager with Wellington
Management.
Thomas L. Pappas, Vice President of Wellington Management, has served
as portfolio manager to the Investment Quality Bond Fund since March 1994. Mr.
Pappas also serves as portfolio manager for NASL Series Trust's Investment
Quality Bond Trust. Mr. Pappas has been a portfolio manager with Wellington
Management since 1987.
John C. Keogh, Senior Vice President of Wellington Management, serves
as portfolio manager to the Money Market Fund. He has served as portfolio
manager to the Money Market Fund since December 1991, when Wellington Management
became sub-adviser to the
47
<PAGE>
Money Market Fund. Mr. Keogh also serves as portfolio manager for NASL Series
Trust's Money Market Trust. Mr. Keogh has been a portfolio manager with
Wellington Management since 1983.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") is the
Subadviser to the International Growth and Income Fund. J.P. Morgan, with
principal offices at 522 Fifth Avenue, New York, New York 10036, is a wholly-
owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan & Co."), a bank
holding company organized under the laws of Delaware which is located at 60 Wall
Street, New York, New York 10260. Through offices in New York City and abroad,
J.P. Morgan & Co., through J.P. Morgan and other subsidiaries, offers a wide
range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional clients
with combined assets under management of approximately $ 179 billion (of which
J.P. Morgan advises over $5 billion) as of December 31, 1995. J.P. Morgan has
managed international securities for institutional investors since 1974. As of
December 31, 1995, the non-U.S. securities under J.P. Morgan's management was
approximately $42 billion. J.P. Morgan provides investment advice and portfolio
management services to the Portfolio. Subject to the supervision of the Fund's
Trustees, J.P. Morgan makes the Portfolio's day-to-day investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Portfolio's investments.
J.P. Morgan uses a sophisticated, disciplined, collaborative process
for managing the Portfolio. The following persons are primarily responsible for
the day-to-day management and implementation of J.P. Morgan's process for the
Portfolio (their business experience for the past 5 years is indicated
parenthetically): Paul A. Quinsee, Vice President (employed by J.P. Morgan since
February 1992, previously Vice President, Citibank), and Gareth A. Fielding,
Assistant Vice President (employed by J.P. Morgan since February 1992,
previously he received his MBA from Imperial College at London University, while
he was a self-employed trader on the London International Financial Futures
Exchange.
Mr. Quinsee is primarily responsible for the day-to-day management of
seventeen other institutional and investment company accounts that invest in
international securities constituting approximately $2.6 billion of assets.
Since July 1994, Mr. Fielding has been responsible for the day-to-day management
(in some cases with another person) of 15 institutional and investment company
portfolios that invest primarily in international fixed income securities,
constituting approximately $1 billion of assets. Mr. Fielding is a specialist
in mortgage and asset-backed securities. Prior to July 1994, Mr. Fielding
traded global fixed income products on J.P. Morgan's London trading desk.
Salomon Brothers Asset Management Inc ("SBAM"), the Subadviser to the
Strategic Income, U.S. Government Securities and National Municipal Bond Funds,
is an indirect, wholly-owned subsidiary of Salomon Brothers Holding Company Inc.
("SBHC"), which is in turn wholly owned by Salomon Inc. The business address of
SBAM, SBHC and Salomon Inc. is 7 World Trade Center, New York, New York 10048.
SBAM was incorporated in 1987 and together with its affiliates in Tokyo,
Frankfurt, London and Hong Kong, provides a full range of fixed income and
equity investment advisory services to individuals and institutional clients
throughout the world, and serves as investment adviser to various investment
companies. As of December 31, 1995, SBAM and its advisory affiliates had
approximately $13.3 billion in assets under management. SBAM has access to
Salomon Brothers Inc's more than 250 economists, mortgage, bond, sovereign, and
equity analysts.
In connection with SBAM's service as subadviser to the Strategic
Income Fund, Salomon Brothers Asset Management Limited ("SBAM Limited"), whose
business address is Victoria Plaza, 111 Buckingham Palace Road, London SW1W OSB,
England, provides certain subadvisory services to SBAM relating to currency
transactions and investments in non-dollar denominated debt securities for the
benefit of the Strategic Income Fund. SBAM Limited is compensated by SBAM at no
additional expense to the Fund. Like SBAM, SBAM Limited is an indirect, wholly-
owned subsidiary of Salomon Brothers Holding Company Inc. SBAM Limited is a
member of the Investment Management Regulatory Organization Limited in the
United Kingdom and is registered as an investment adviser in the United States
pursuant to the Investment Advisers Act of 1940, as amended.
Steven Guterman has been primarily responsible for the day-to-day
management of the mortgage-backed securities and U.S. government securities
portions of the Strategic Income Fund since November 1993 and the U.S.
Government Securities Fund since December 1991. Mr. Guterman is assisted by
Roger Lavan in the management of the two foregoing portfolios. Peter J. Wilby
has been primarily responsible for the day-to-day management of the high yield
and sovereign debt portions of the Strategic Income Fund. David J. Scott is
primarily responsible for the portion of the Strategic Income Fund relating to
currency transactions and investments in non-dollar denominated debt securities.
MaryBeth Whyte is primarily responsible for the day-to-day management of the
National Municipal Bond Fund.
Mr. Guterman joined SBAM in 1990 and is a Managing Director of Salomon
Brothers, Inc. and a Senior Portfolio Manager, responsible for SBAM's investment
company and institutional portfolios which invest primarily mortgage-backed
securities and U.S. government issues. Mr. Guterman also serves as portfolio
manager for two offshore funds that invest in mortgage-backed securities. In
addition, Mr. Guterman serves as portfolio manager for a number of SBAM's
institutional clients. Mr. Guterman joined Salomon Brothers
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<PAGE>
Inc in 1983. He initially worked in the mortgage research group where he became
a Research Director and later traded derivative mortgage-backed securities for
Salomon Brothers Inc.
Mr. Lavan joined SBAM in 1990 and is a Portfolio Manager and
Quantitative Fixed Income Analyst. He is responsible for working with senior
portfolio managers to monitor and analyze market relationships and identify and
implement relative value transactions in SBAM's investment company and
institutional portfolios which invest in mortgage-backed securities and U.S.
Government Securities. Prior to joining SBAM, Mr. Lavan spent four years
analyzing portfolios for Salomon Brothers' Fixed Income Sales Group and Product
Support Divisions.
Mr. Wilby joined SBAM in 1989 and is a Managing Director of Salomon
Brothers, Inc. and a Senior Portfolio Manager responsible for SBAM's investment
company and institutional portfolios which invest in high yield non U. S. and
U.S. corporate debt securities and high yield foreign sovereign debt securities.
Mr. Wilby is the portfolio manager for Global Partners Income Fund Inc., The
Emerging Markets Income Fund Inc, The Emerging Markets Income Fund II Inc., The
Emerging Markets Floating Rate Fund Inc., Salomon Brothers Worldwide Income Fund
Inc, Salomon Brothers High Income Fund Inc, and the foreign sovereign debt
component of Salomon Brothers 2008 Worldwide Dollar Government Term Trust Inc.
From 1984 to 1989, Mr. Wilby was employed by Prudential Capital Management Group
("PCMG"). He served as director of PCMG's credit research unit and as a
corporate and sovereign credit analyst with PCMG. Mr. Wilby later managed high
yield bonds and leveraged equities in the mutual funds and institutional
portfolios of PCMG.
Prior to joining SBAM Limited in April 1994, Mr. Scott worked at J.P.
Morgan Investment Management where he was responsible for global and non-dollar
portfolios. Before joining J.P. Morgan Investment Management, Mr. Scott worked
at Mercury Asset Management where he was responsible for captive insurance
portfolios and products.
Ms. Whyte joined SBAM in July 1994 and is responsible for directing
SBAM investment policy for all municipal portfolios. Prior to joining SBAM, Ms.
Whyte was a Senior Vice President and head of the Municipal Bond Area at
Fiduciary Trust Company International. Her responsibilities included active
managing and advising portfolios with assets of approximately $1.3 billion. Ms.
Whyte was a member of the Fixed Income Investment Policy Committee at Fiduciary.
Ms. Whyte's previous experience includes managing portfolios for high net worth
individuals, mutual funds and pension funds while employed by U.S. Trust
Company, and Bernstein-Macaulay Inc.
Investment decisions for the Small/Mid Cap Fund are made by its
Subadviser, Fred Alger Management, Inc. ("Alger"). Alger, located at 75 Maiden
Lane, New York, New York 10038, has been in the business of providing investment
advisory services since 1964 and as of December 31, 1995 had approximately $4.8
billion under management, including $3.0 billion in mutual fund accounts and $
1.8 billion in other advisory accounts. Alger is wholly owned by Fred Alger &
Company, Incorporated which in turn is wholly owned by Alger Associates, Inc., a
financial services holding company. Fred M. Alger, III and his brother, David D.
Alger, are the majority shareholders of Alger Associates, Inc. and may be deemed
to control that company and its subsidiaries.
David D. Alger, President of Alger Management, is primarily
responsible for the day-to-day management of the Small/Mid Cap Fund. He has been
employed by Alger as Executive Vice President and Director of Research since
1971 and as President since 1995 and he serves as portfolio manager for other
mutual funds and investment accounts managed by Alger Management. Also
participating in the management of the Small/Mid Cap Fund are Ronald Tartaro and
Seilai Khoo. Mr. Tartaro has been employed by Alger Management since 1990 and he
serves as a Senior Vice President. Prior to 1990, he was a member of the
technical staff at AT&T Bell Laboratories. Ms. Khoo has been employed by Alger
Management since 1989 and she serves as a Senior Vice President.
Investment decisions for the International Small Cap Fund and the
Growth Equity Fund are made by its Subadviser, Founders Asset Management, Inc.,
("Founders") located at 2930 East Third Avenue, Denver, Colorado 80206, a
registered investment adviser first established as an asset manager in 1938.
Bjorn K. Borgen, Chief Investment Officer and Chairman of Founders, owns 100% of
the voting stock of Founders. As of December 31, 1995, Founders had
approximately $3 billion under management, including 82.5 billion in mutual fund
accounts and $.5 billion in other advisory accounts.
To facilitate the day-to-day investment management of the
International Small Cap Fund and the Growth Equity Fund, Founders employs a
unique team-and-lead-manager system. The management team is composed of several
members of the Investment Department, including Founders' chief Investment
Officer, lead portfolio managers, assistant portfolio managers, portfolio
traders and research analysts. Team members share responsibility for providing
ideas, information, knowledge and expertise in the management of each of the
portfolios. Each team member has one or more areas of expertise that is applied
to the management of the Portfolios. Daily decisions on portfolio selection for
each portfolio rests with a lead portfolio manager assigned to the portfolio.
Michael W. Gerding, Vice President of Investments, is the lead
portfolio manager for the International Small Cap Fund.. Mr. Gerding is a
chartered financial analyst who has been part of Founders' investment department
for five years. Mr. Gerding is the lead portfolio manager of the International
Small Cap Fund. Prior to joining Founders, Mr. Gerding served as a portfolio
manager and researach analyst with NCNB Texas for several years. Mr. Gerding
earned a BBA in finance and an MBA from Texas Christian University.
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<PAGE>
Edward F. Keely, is a chartered financial analyst who joined founders
in 1989 and is the lead portfolio manager for the Growth Equity Fund. A graduate
of The Colorado College, Mr. Keely holds a bachelor of arts degree in economics.
Under the terms of each of the subadvisory agreements between the
Adviser and a Subadviser (the "Subadvisory Agreements"), the Subadviser assigned
to a Portfolio manages the investment and reinvestment of the assets of such
Portfolio, subject to the supervision of the Trustees. The Subadviser formulates
a continuous investment program for such Portfolio consistent with its
investment objectives and policies outlined in this Prospectus. The Subadviser
implements such programs by purchases and sales of securities and regularly
reports to the Adviser and the Trustees with respect to their implementation.
The factors considered by the Subadvisers in allocating brokerage among
broker/dealers are described in the Statement of Additional Information under
the caption "PORTFOLIO BROKERAGE." Among the factors that may be considered is
the willingness of broker/dealers to sell shares of the Fund.
As compensation for their services, the Subadvisers receive fees from
the Adviser computed separately for each Portfolio. The fee for each Portfolio
is stated as an annual percentage of the current value of the net assets of the
Portfolio. The fee, which is accrued daily and payable monthly, is calculated
for each day by multiplying the fraction of one over the number of calendar days
in the year by the annual percentage prescribed for a Portfolio, and multiplying
this product by the value of the net assets of the Portfolio at the close of
business on the previous business day of the Fund. Once the average net assets
of a Portfolio exceed specified amounts, the fee is reduced with respect to the
excess. Absent any applicable fee waivers, the following is a schedule of the
management fees the Adviser is obligated to pay the Subadvisers for each
Portfolio under the Subadvisory Agreements. THESE FEES ARE PAID OUT OF THE
ADVISORY FEES DESCRIBED ABOVE AND ARE NOT ADDITIONAL CHARGES TO THE PORTFOLIOS
OR THEIR SHAREHOLDERS.
<TABLE>
<CAPTION>
BETWEEN BETWEEN
$ 50,000,000 $200,000,000
FIRST AND AND EXCESS OVER
FUNDS $50,000,000 $200,000,000 $500,000,000 $500,000,000
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap Fund............... .525% .500% .475% .450%
International Small Cap Fund..... .650% .600% .500% .400%
Growth Equity Fund............... .500% .450% .425% .400%
Global Growth Fund............... .550% .550% .400% .400%
Value Equity Fund................ .325% .275% .225% .150%
Growth and Income Fund........... .325% .275% .225% .150%
International Growth
and Income Fund............... .500% .450% .400% .350%
Asset Allocation Fund............ .325% .275% .225% .150%
Strategic Income Fund**.......... .350% .300% .250% .200%
Investment Quality Bond Fund..... .225% .225% .150% .100%
U.S. Government Securities Fund.. .225% .225% .150% .100%
National Municipal Bond Fund..... .250% .250% .250% .250%
Money Market Fund................ .075% .075% .075% .020%
</TABLE>
** In connection with the subadvisory consulting agreement between SBAM and
SBAM Limited, SBAM will pay SBAM Limited, as full compensation for all services
provided under the subadvisory consulting agreement, a portion of its
subadvisory fee, such amount being an amount equal to the fee payable under
SBAM's subadvisory agreement multiplied by portion of the assets of the
Strategic Income Fund that SBAM Limited has been delegated to manage divided by
the current value of the net assets of the Portfolio.
As of March 16, 1993, August 1, 1994 and November 23, 1992,
respectively, the Value Equity, Growth and Income and Asset Allocation Funds
reached sufficient size to realize a reduction in the fee as a percent of excess
net assets.
A more comprehensive statement of the terms of the Subadvisory
Agreements appears in the Statement of Additional Information and these
agreements are on file with and are available from the Commission.
50
<PAGE>
All or a portion of Fund brokerage commissions may be paid to
affiliates of Salomon, J.P. Morgan, Goldman, Alger and Oechsle International.
Information on the amount of these commissions is set forth in the Statement of
Additional Information under "Portfolio Brokerage."
FUND EXPENSES
Subject to the expense limitations discussed above, the Fund is
responsible for the payment of all expenses of its organization, operations and
business, except for those expenses the Adviser has agreed to bear pursuant to
the Advisory Agreement or its Distribution Agreement with the Fund or the
Subadvisers have agreed to pay pursuant to the Subadvisory Agreements. Among the
expenses to be borne by the Fund, in addition to certain expenses incurred by
the Adviser as described above, are the expense of the advisory and distribution
fees; all charges and expenses relating to the transfer, safekeeping, servicing
and accounting for the Fund's property, including charges of depositories,
custodians and other agents; all expenses of maintaining and servicing
shareholder accounts, including charges of the Fund's transfer, dividend
disbursing, shareholder recordkeeping, redemption and other agents; costs of
shareholder reports and other communications to current shareholders; the
expenses of meetings of the Fund's shareholders and the solicitation of
management proxies in connection therewith; all expenses of preparing Fund
Prospectuses and Statements of Additional Information; the expenses of
determining the Portfolios' net asset value per share; the compensation of
Trustees who are not directors, officers or employees of the Adviser and all
expenses of meetings of the Trustees; all charges for services and expenses of
the Fund's legal counsel and independent auditors; all fees and expenses of
registering and qualifying, and maintaining the registration and qualification
of, the Fund and its shares under all federal and state laws applicable to the
Fund and its business activities; all expenses associated with the issue,
transfer and redemption of Fund shares; brokers' and other charges incident to
the purchase, sale or lending of the Fund's securities; taxes and other
governmental fees payable by the Fund; and any nonrecurring expenses including
litigation expenses and any expenses the Fund may incur as a result of its
obligation to indemnify its Trustees, officers and agents. All expenses are
accrued daily and deducted from total income before dividends are paid.
Each Fund's portfolio turnover rate is set forth under the "Financial
Highlights" section of the Prospectus. A high rate of portfolio turnover (in
excess of 100%) generally involves correspondingly greater commission expenses,
which must be borne directly by the Fund.
GENERAL INFORMATION
NET ASSET VALUE
The net asset value of the shares of each class of each Portfolio is
calculated separately and, except as described below, is determined once daily
as of the close of regularly scheduled trading on the New York Stock Exchange
(the "Exchange"), Monday through Friday. Net asset value per share of each class
of each Portfolio (other than the Money Market Fund, as described below) is
calculated by dividing the value of the portion of the Portfolio's securities
and other assets attributable to that class, less the liabilities attributable
to that class, by the number of shares of that class outstanding. No
determination is required on (i) days on which changes in the value of such
Portfolio's securities holdings will not materially affect the current net asset
value of the shares of the Portfolio, (ii) days during which no shares of such
Portfolio are tendered for redemption and no order to purchase or sell such
shares is received by the Fund, or (iii) the following business holidays or the
days on which such holidays are observed by the Exchange: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Generally, trading in non-U.S. securities,
as well as U.S. Government securities and money market instruments, is
substantially completed each day at various times prior to the close of
regularly scheduled trading on the Exchange. The values of such securities used
in computing the net asset value of the shares of a class of a Portfolio are
generally determined as of such times. Occasionally, events which affect the
values of such securities may occur between the times at which they are
generally determined and the close of regularly scheduled trading on the
Exchange and would therefore not be reflected in the computation of a class's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by the Subadvisers under procedures
established and regularly reviewed by the Trustees.
Securities held by each of the Portfolios other than the Money Market
Fund, except for money market instruments with remaining maturities of 60 days
or less, are valued as follows: securities which are traded on stock exchanges
are valued at the last sales price as of the close of the Exchange, or lacking
any sales, at the closing bid prices. Securities traded only in the "over-the-
counter" market are valued at the last bid prices quoted by brokers that make
markets in the securities at the close of trading on the Exchange. Securities
and assets for which market quotations are not readily available or not obtained
from a pricing service are valued at fair value as determined in good faith by
the Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Trustees. If approved by the Trustees, the Fund
may make use of a pricing service or services in determining the net asset value
of the classes of the Portfolios.
The Trustees have authorized the Portfolios to value certain debt
securities by reference to valuations obtained from pricing services which take
into account appropriate factors such as institution-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data in determining valuations of such
securities, without extensive reliance upon quoted prices, since such valuations
are believed by the Trustees to more accurately reflect the fair value of such
securities.
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<PAGE>
All instruments held by the Money Market Fund and money market instruments
with a remaining maturity of 60 days or less held by the other Portfolios are
valued on an amortized cost basis. With respect to each class of shares of the
Money Market Fund, this method of calculation facilitates maintaining a constant
net asset value of $1.00 per share. However, there can be no assurance that the
$1.00 net asset value will be maintained at all times. The Trustees have
determined that the amortized cost method of valuation fairly reflects a market
based net asset value.
DIVIDENDS AND DISTRIBUTIONS
Except for the National Municipal Bond Fund, each Portfolio's dividends
from net investment income together with distributions of short-term capital
gains (collectively "income dividends") are taxable as ordinary income to
shareholders whether paid in additional shares or in cash. Any long-term
capital gains ("capital gains distributions") distributed to shareholders are
treated as such by the shareholders, whether paid in cash or additional shares,
regardless of the length of time a shareholder has owned his or her shares.
Shareholders are provided annually with full information on dividends and
capital gains distributions for tax purposes. Shareholders may not have to pay
state or local taxes on dividends derived from interest on U.S. Government
obligations. Shareholders should consult their tax advisers regarding the
applicability of state and local taxes to dividends and distributions. Each
Portfolio will send shareholders a statement after the end of every calendar
year stating the amount of dividends derived from interest on U.S. Government
obligations.
The Small/Mid Cap, International Small Cap, Growth Equity, Global Growth,
Value Equity, and Asset Allocation Funds declare and pay any income dividends
annually; the Growth and Income and International Growth and Income Funds
declare and pay any income dividends semiannually; and the Strategic Income,
Investment Quality Bond, U.S. Government Securities, National Municipal Bond,
and Money Market Funds declare income dividends daily and pay them monthly. See
"PURCHASE OF SHARES -- General Methods of Purchasing Shares." Each of the
Portfolios, other than the Money Market Fund, declares and pays any capital
gains dividends annually. Generally, income dividends of Portfolios other than
the Strategic Income, Investment Quality Bond, U.S. Government Securities,
National Municipal Bond and Money Market Funds and capital gains dividends of
Portfolios other than the Money Market Fund paid shortly after a purchase of
shares prior to the record date, although in effect a return of capital, will be
subject to income tax.
The maximum distribution and service fees payable by the Class B shares and
Class C shares of each Portfolio (other than the Money Market Fund, which bears
no such fees) are more than the maximum fees payable by each such Portfolio's
Class A shares. In addition, certain incremental expenses which are
specifically allocable to a particular class of shares in a Portfolio are
separately allocated to that class of shares. As a result, the per share
dividend on Class B and Class C shares will generally be lower than the per
share dividend on Class A shares of a Portfolio.
For the convenience of shareholders, all income dividends and capital gains
distributions are paid in full and fractional shares of the same class of a
Portfolio on the payment date unless a shareholder has requested payment in
cash. Shareholders may elect to have dividends and distributions from a class
of a Portfolio invested in shares of the same class of another Portfolio at the
respective net asset value. See SHAREHOLDER SERVICES -- Automatic Dividend
Diversification."
TAXES
It is expected that each Portfolio of the Fund will qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, each Portfolio intends to distribute to shareholders as
dividends or capital gains distributions substantially all of its net investment
income and net realized capital gains, if any. The requirements for
qualification as a regulated investment company may cause a Portfolio to
restrict the degree to which it engages in short-term trading and transactions
in options and futures contracts. Qualification as a regulated investment
company relieves the Fund and each Portfolio of any liability for federal income
taxes to the extent its earnings are distributed in accordance with applicable
provisions of the Code. Each Portfolio will be subject to a 4% nondeductible
excise tax on its taxable income to the extent it does not meet certain
distribution requirements by the end of each calendar year. Each Portfolio
intends to make sufficient distributions to avoid application of this excise
tax.
Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments. Foreign tax withholding from
dividends and interest, if any, is generally from 10% to 35%, although lesser
and greater amounts may be incurred. The investment yield of the Portfolios
investing in foreign securities or currencies will be reduced by these foreign
taxes. Shareholders will bear the cost of any foreign taxes, but may not be able
to claim a foreign tax credit or deduction for these foreign taxes. If a
Portfolio is eligible for and makes an election to allow the shareholders of
that Portfolio to claim a foreign tax credit or deduction for these taxes for
any taxable year, the shareholders will be notified. In addition, Portfolios
investing in securities of passive foreign investment companies may be subject
to U.S. federal income taxes (and interest on such taxes) as a result of such
investments. The investment yield of the Portfolios making such investments will
be reduced by these taxes and interest. Shareholders will bear the cost of these
taxes and interest, but will not be able to claim a deduction for these amounts.
The redemption, sale or exchange of Fund shares (including the exchange of
shares of one Portfolio for shares of another) is a taxable event and may result
in a gain or loss. Gain or loss, if any, recognized on the sale or other
disposition of shares of the Fund will be
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<PAGE>
taxed as capital gain or loss if the shares are capital assets in the
shareholder's hands. Generally, a shareholder's gain or loss will be a long-term
gain or loss if the shares have been held for more than one year. If a
shareholder sells or otherwise disposes of a share of the Fund before holding it
for more than six months, any loss on the sale or other disposition of such
share shall be treated as a long-term capital loss to the extent of any capital
gain dividends received by the shareholder with respect to such share. A loss
realized on a sale or exchange of shares may be disallowed if other shares are
acquired within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are disposed of.
Unless a shareholder of any Portfolio includes his or her taxpayer
identification number (social security number for individuals) in the
Shareholder Application and certifies that he or she is not subject to backup
withholding, the Fund is required to withhold and remit to the U.S. Treasury 31%
of non-exempt distributions and other reportable payments to the shareholder.
NATIONAL MUNICIPAL BOND FUND - TAXATION
The National Municipal Bond Fund intends to qualify and elect to be treated
as a regulated investment company under the Code. The National Municipal Bond
Fund will be subject to federal corporate income tax currently at a 35% rate on
any undistributed income other than tax-exempt income from municipal obligations
and to alternative minimum tax currently at a 20% rate on alternative minimum
taxable income, which includes interest income on certain "private activity"
obligations that is otherwise exempt from tax. The National Municipal Bond Fund
also intends to satisfy conditions under the Code that will enable interest from
municipal obligations, which is exempt from regular federal income taxes in the
hands of each Portfolio, to qualify as "exempt-interest dividends" when
distributed to such Portfolio's shareholders. Under the Code, such dividends
are exempt from regular federal income taxes.
Although exempt-interest dividends paid by the National Municipal Bond Fund
will be excluded by shareholders of the Portfolios from their gross income for
regular federal income tax purposes, under the Code all or a portion of such
dividends may be (i) a preference item for purposes of the alternative minimum
tax, (ii) a component of the "ACE" adjustment for purposes of determining the
amount of corporate alternative minimum tax or (iii) a factor in determining the
extent to which a shareholder's Social Security benefits are taxable. Moreover,
the receipt of exempt-interest dividends from each of the Portfolios may
increase a corporate shareholder's liability for environmental taxes under
Section 59A of the Code and may also affect the federal tax liability of certain
foreign corporations, S Corporations and insurance companies. Furthermore,
under the Code, interest on indebtedness incurred or continued to purchase or
carry portfolio shares, which interest is deemed to relate to exempt-interest
dividends, will not be deductible by shareholders of the Portfolio for federal
income tax purposes.
The National Municipal Bond Fund intends that substantially all dividends
and distributions it pays to its shareholders will be designated as exempt-
interest dividends and as such will be exempt from regular federal income taxes.
However, to the extent each Portfolio earns income from taxable investments or
realizes capital gains, some portion of its dividends and distributions may not
qualify as exempt-interest dividends and may be subject to regular federal
income taxes.
The exemption of exempt-interest dividend income from regular federal
income taxation does not necessarily result in similar exemptions for such
income under the income or other tax laws of state or local taxing authorities.
In general, states exempt from state income tax only that portion of any exempt-
interest dividend that is derived from interest received by a regulated
investment company on its holdings of obligations issued by that state or its
political subdivisions and instrumentalities.
A notice detailing the tax status of dividends and distributions paid by
the National Municipal Bond Fund will be mailed annually to the National
Municipal Bond Fund's shareholders. As part of this notice, the Portfolio will
report to its shareholders the percentage of interest income earned by the
Portfolio during the preceding year on tax-exempt obligations indicating, on a
state-by-state basis, the source of such income.
_______________________
Descriptions of tax consequences set forth in this Prospectus and in the
Statement of Additional Information are intended to be a general guide.
Investors should consult their tax advisers concerning a prospective investment
in the Fund.
PERFORMANCE INFORMATION
From time to time the Fund may advertise certain information about the
performance of all classes of one or more of the Portfolios. Such performance
information may include time periods prior to the establishment of the multi-
class distribution system, as described more fully in the Statement of
Information under the caption "PERFORMANCE INFORMATION." Information about
performance of a class of shares of a Portfolio is not intended to indicate
future performance. The Fund's annual report to shareholders, which is
available without charge upon request, contains further discussions of Fund
performance.
53
<PAGE>
The Fund may advertise the yield and/or total return performance for all
classes of one or more of the Portfolios in accordance with the rules of the
Commission. The National Municipal Bond Fund may also present from time to time
yield, tax-equivalent yield and standardized and nonstandardized total return in
advertisements. When yield is used in sales literature, the total return
figures will also be included. The Commission has issued rules setting forth
the uniform calculation of both yield and total return, but shareholders' actual
experience may be more or less than the figures produced by these formulas.
Each Portfolio may include the total return for all classes of shares in
advertisements or other written material. Each such piece will include at least
the average annual total return quotations for one year, five years, ten years
(if available) and/or from the commencement of operations. Total return is
measured by comparing the value of an investment at the beginning of the
relevant period to the redemption value of the investment at the end of the
period; the calculation assumes the initial investment is made at the current
maximum net offering price, assumes immediate reinvestment of any dividends or
capital gains distributions and adjusts for the current maximum sales charge of
4.75% for Class A shares and the applicable CDSC imposed on a redemption of
Class B shares or Class C shares held for the period indicated. Yield and total
return are calculated separately for each class of a Portfolio.
Each of the Portfolios may advertise yield for all classes, accompanied by
total return. The yield will be computed by dividing the net investment income
per share earned during a recent one month period (after deducting expenses net
of reimbursements applicable to each class) by the maximum offering price
(including the maximum front end sales charge or applicable CDSC) on the last
day of the period, and annualizing the result (assuming compounding of interest)
in order to arrive at annual percentage rate. The National Municipal Bond Fund
may also present from time to time the tax-equivalent yield of all classes. The
tax-equivalent yield is calculated by determining the portion of yield which is
tax-exempt and calculating the equivalent taxable yield and adding to such
amount any fully taxable yield.
The Money Market Fund may advertise yield and effective yield for all
classes. The yield is based upon the income earned by the Portfolio over a
seven-day period and is then annualized, i.e., the income earned in the period
is assumed to be earned every seven days over a 365 day period and is stated as
a percentage of the investment. Effective yield is calculated similarly, but
when annualized the income earned by the investment is assumed to be reinvested
weekly in shares of the same class and thus compounded in the course of a 365
day period. The effective yield will be higher than the yield because of the
compounding effect of this assumed reinvestment.
All performance information may be compared with data published by Lipper
Analytical Services, Inc. or to unmanaged indices of performance, including, but
not limited to, the Dow Jones Industrial Average, Standard & Poor's 500, Value
Line Composite, Lehman Brothers Bond, Government Corporate, Corporate and
Aggregate Indices, Merrill Lynch Government & Agency and Intermediate Agency
Indices, the EAFE Index or the Morgan Stanley Capital International World Index.
In addition, during certain time periods the yield and total return of a class
and/or a Portfolio may be affected by expense waivers and/or expense
reimbursements. When so affected, the yield and total return figures will be
accompanied by a statement regarding such waiver and/or reimbursement. While
performance information may be helpful in evaluating whether a Portfolio may be
fulfilling its objective, past performance should not be regarded as
representative of future results. Yields and net asset values will fluctuate
with market conditions and the value of shares redeemed may be more or less than
their cost. The Money Market Fund operates under procedures designed to
stabilize the net asset value of all classes at $1.00 per share. The Fund will
include performance data for each class of a Portfolio in any advertisement or
information including performance data of such Portfolio. The Fund may also
utilize performance information in hypothetical illustrations provided in
narrative form.
54
<PAGE>
ORGANIZATION OF THE FUND
The Fund was organized as a Massachusetts business trust on September 28,
1988. The Value Equity, U.S. Government Securities and Money Market Funds
commenced operations on August 28, 1989 with the acquisition of substantially
all the assets of the corresponding portfolios of Hidden Strength Funds. The
Global Growth Fund became available to investors on November 7, 1990, and the
Growth and Income and Investment Quality Bond Funds became available to
investors on May 1, 1991. The Asset Allocation Fund became available July 13,
1992, following the combination of the former Conservative, Moderate and
Aggressive Asset Allocation Trusts into the Asset Allocation Fund. The former
asset allocation trusts commenced operations August 28, 1989 with the
acquisition of substantially all the assets of the corresponding portfolios of
Hidden Strength Funds. The National Municipal Bond Fund became available to
investors on June 30, 1993. The Strategic Income Fund became available to
investors on November 30, 1993. The International Growth and Income Fund became
available to investors on January 9, 1995. The Small/Mid Cap, International
Small Cap and Growth Equity Funds became available to investors on March 4,
1996.
All shares of beneficial interest, $.001 par value per share, of each
Portfolio have equal voting rights (except as described below with respect to
matters specifically affecting a class of shares) and have no pre-emptive or
conversion rights. At a meeting of the Board of Trustees held on December 16,
1993, the Trustees, including each Trustee who is not an "interested person," as
such term is defined under the 1940 Act, unanimously approved amendments to the
Fund's Declaration of Trust to permit implementation of the Multiple Pricing
System. Shareholders of the Fund approved these amendments at a special meeting
held on February 18, 1994. The Multiple Pricing System was implemented on April
1, 1994. An order dated February 28, 1994 was issued to the Fund and NASL
Financial by the Commission permitting the issuance and sale of multiple classes
of shares representing interests in the Fund's existing Portfolios. Shares of
each class of a Portfolio represent interests in that Portfolio in proportion to
each share's net asset value. The per share net asset value of each class of
shares in a Portfolio is calculated separately and may differ as between classes
as a result of the differences in distribution and service fees payable by the
classes and the allocation of certain incremental class-specific expenses to the
appropriate class to which such expenses apply.
All shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by series (Portfolio) or class, except where voting by series
or class is required by law or where the matter involved affects only one series
or class (for example, matters pertaining to the plan of distribution relating
to Class A shares will only be voted on by Class A shares). Matters required by
the 1940 Act to be voted upon by each affected series include changes to (i) the
Advisory Agreement, (ii) a Subadvisory Agreement and (iii) fundamental
investment objectives and policies. The Fund is not generally required to hold
annual meetings of shareholders. However, the Trustees may call special meetings
of shareholders for action by shareholder vote as may be requested in writing by
the holders of 25% or more of the outstanding shares of the Fund (10% in the
case of a meeting requested for the purpose of removing a Trustee) or as may be
required by applicable laws. Shareholders seeking to call a meeting for the
purpose of removing a Trustee will be assisted by the Fund in communicating with
other shareholders, provided the shareholders seeking to call a meeting are at
least ten in number, have been shareholders for at least six months and hold in
the aggregate at least one percent of the outstanding shares or shares having a
value of at least $25,000, whichever is less. Also, Trustees may be removed by
action of the holders of two-thirds or more of the outstanding shares of the
Fund. The Trustees are authorized to create additional series and classes of
shares at any time without approval by shareholders.
Under Massachusetts law, shareholders of a business trust may, in certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust pursuant to which the Fund was
organized contains an express disclaimer of shareholder liability for acts or
obligations of each Portfolio of the Fund and requires that notice of such
disclaimer be given in each instrument entered into or executed by the Fund. The
Declaration of Trust also provides for indemnification out of a Portfolio's
property for any shareholder of such Portfolio held personally liable for any of
the Portfolio's obligations. Thus, the risk of a shareholder being personally
liable as a partner for obligations of a Portfolio is limited to the unlikely
circumstance in which the Portfolio itself would be unable to meet its
obligations.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENTS
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, currently acts as Custodian of all the Portfolios'
assets, as well as the bookkeeping, transfer and dividend disbursing agent for
all of the Portfolios of the Fund. State Street has selected various banks and
trust companies in foreign countries to maintain custody of certain foreign
securities. State Street is authorized to use the facilities of the Depository
Trust Company, the Participants Trust Company and the book-entry system of the
Federal Reserve Banks.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109 serves as the Fund's independent accountant. The audited financial
statements of the Fund at October 31, 1995, included in the Statement of
Additional Information and the Financial Highlights for the period from the
commencement of operations through October 31, 1995, included in this Prospectus
have been audited by
55
<PAGE>
Coopers & Lybrand L.L.P. as indicated in their reports in the Statement of
Additional Information and are included therein in reliance upon such reports
and upon the authority of such firm as experts in accounting and auditing.
PURCHASE OF SHARES
INTRODUCTION
The Fund offers three classes of shares in each Portfolio to the general
public. Purchases of Class A shares of less than $1 million are sold with a
front end sales charge. Purchases of Class A shares of $1 million or more made
on or after May 1, 1995 are offered for sale at net asset value without a front
end sales charge but may be subject to a CDSC upon redemption. Class B shares
are sold without a front end sales charge but may be subject to a CDSC upon
redemption. Class C shares are sold without a front end sales charge, but may
be subject to a CDSC upon redemption. Shares of all classes of the Money Market
Fund are sold at net asset value (without the imposition of a front end sales
charge or CDSC). See "MULTIPLE PRICING SYSTEM" for a discussion of factors to
consider in selecting which class of shares to purchase.
Shares are offered continuously for sale through securities dealers and
banks which have executed an agreement (a "Dealer Agreement") with NASL
Financial, the distributor of the Fund's shares (in such capacity, the
"Distributor"). Certain States require that purchases of shares of the Fund be
made only through a broker-dealer registered in the State.
The initial purchase of any class of shares in any Portfolio must be at
least $1,000, with the exception that the initial purchase to a retirement plan
account may be made with a minimum of $50. In addition, an account can be
established with a minimum of $50 if the account will be receiving periodic,
regular investments through programs such as Automatic Investment Plans,
Automatic Dividend Diversification, and Systematic Investing (see "SHAREHOLDER
SERVICES -- Additional Shareholder Privileges" for a description of these
programs). The minimum for subsequent investments is $50.
When purchasing shares of any Portfolio of the Fund, investors must specify
whether the purchase is for Class A, Class B or Class C shares.
GENERAL METHODS OF PURCHASING SHARES
1. By Mail. To make an initial account purchase, mail a check made
payable in U.S. dollars to "North American Funds" with a completed New Account
Application (copy enclosed with this Prospectus) to:
North American Funds
P.O. Box 8505
Boston, MA 02266-8505
Third party checks which are payable to an existing shareholder of the Fund who
is a natural person (as opposed to a corporation or partnership) and endorsed
over to the Fund will be accepted.
To make a purchase of shares to an existing North American Funds account,
please note your account number on the check and forward it with an account
investment slip to the above address.
Note: To establish certain tax deferred retirement plan accounts, such as IRAs,
you will be required to complete a separate application which may be obtained
from the Distributor or a securities dealer who has a Dealer Agreement with the
Distributor.
2. By Federal Funds Wire. Shares may be purchased in any Portfolio by
wire transfer. To obtain instructions for Federal Funds Wire purchases, please
contact the Customer Service Department at (800) 872-8037.
3. Through a Securities Dealer. You may purchase shares by contacting a
securities dealer who has a Dealer Agreement with the Distributor.
Orders for shares of all Portfolios except the Money Market Fund will be
assigned the next closing price after receipt of the order. Orders for the
Money Market Fund will be assigned the next closing price after the payment has
been converted to Federal Funds and dividends will begin to accrue on the
business day after such conversion. While orders for shares of the Strategic
Income, Investment Quality Bond, U.S. Government Securities and National
Municipal Bond Fund are assigned the next closing price after receipt of the
order, dividends will begin to accrue on the business day after the purchase has
been converted into Federal Funds.
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<PAGE>
SHARE PRICE
The public offering price of the Class A shares of each Portfolio is the
net asset value per share (next determined following receipt of an order) plus,
in the case of all Portfolios except the Money Market Fund, a front end sales
charge, if applicable. The share price for Class B shares and Class C shares is
the net asset value per share (next determined following receipt of an order).
CLASS A SHARES
The public offering price for purchases of Class A shares of less than $1
million is the net asset value per share plus a front end sales charge,
expressed as a percentage of the offering price as set forth in the table below.
No front end sales charge is imposed on the purchase of Class A shares of the
Money Market Fund. However, when Class A shares of the Money Market Fund on
which no sales charge has been paid or waived are exchanged for Class A shares
of another Portfolio, the sales charge applicable to purchases of Class A shares
will be assessed at that time. Purchases of Class A shares of $1 million or
more are offered for sale at net asset value subject to a CDSC of 1% of the
dollar amount subject thereto if redeemed within one year of purchase. See
"PURCHASES OF SHARES --Contingent Deferred Sales Charge" below. The CDSC may be
waived on certain redemptions of shares. See "PURCHASES OF SHARES - Waiver of
CDSC."
CLASS A SALES CHARGE TABLE
<TABLE>
<CAPTION>
CONCESSION TO
PERCENTAGE OF BROKER DEALER AS
AMOUNT OF PERCENTAGE OF THE NET AMOUNT A PERCENTAGE OF
PURCHASE PAYMENT THE OFFERING PRICE INVESTED OFFERING PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000...... 4.75% 4.99% 4.00%
$100,000 but less than
$250,000................ 4.00% 4.17% 3.25%
$250,000 but less than
$500,000................ 3.00% 3.09% 2.50%
$500,000 but less than
1 million............... 2.25% 2.30% 1.75%
$1 million or more...... none* none* See below**
</TABLE>
*A contingent deferred sales charge may apply. See "PURCHASES OF SHARES -
Contingent Deferred Sales Charge."
**For purchases of Class A shares of $1 million or more the Distributor will pay
a commission to dealers as follows: 1.00% on sales up to $5 million (0.50% for
sales of the National Municipal Bond Fund), plus 0.50% of the amount in excess
of $5 million; provided, however, that the Distributor may pay a commission on
sales in excess of $5 million of up to 1.00% to certain dealers which, at the
Distributor's invitation, enter into an agreement with the Distributor in which
the dealer agrees to return any commission paid to it on the sale (or a pro rata
portion thereof) if the shareholder redeems his shares within a period of time
after purchase as specified by the Distributor. Purchases of $1 million or more
for each shareholder account will be aggregated over a 12 month period
(commencing from the date of the first such purchase) for purposes of
determining the level of commission to be paid during that period with respect
to such account.
The Distributor may reallow concessions to securities dealers with whom it
has agreements and retain the balance over such concessions, and at times the
Distributor may reallow the entire front end sales charge to such dealers. In
such circumstances, dealers may be deemed to be underwriters under the 1933 Act.
Also, during an initial offering period following the introduction of a new
portfolio, and from time to time thereafter, additional amounts may be paid by
the Distributor or its promotional agent that would result in total dealer
concessions exceeding the offering price.
The Distributor may also pay banks and other financial service firms
("Service Organizations") that provide services for their clients to facilitate
transactions in Class A shares of a Portfolio, a transaction fee up to an amount
equal to the greater of the full applicable front end sales charge or the
"Concession to a Broker Dealer as a Percentage of Offering Price" as shown in
the above table. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. If banking firms
are prohibited from acting in any capacity or providing any of the described
services, management will consider what action, if any, is appropriate. It is
not anticipated that termination of a relationship with a bank would result in
any material adverse consequences to a Portfolio. In addition, State securities
laws may differ from federal laws regarding Service Organizations which may be
required to register under State securities laws as brokers and/or dealers.
57
<PAGE>
REDUCED SALES CHARGES
Investors purchasing Class A shares may be able to benefit from a reduction
or elimination of the front end sales charge through several purchase plans.
Right of Accumulation. For the purposes of determining which sales charge
level in the table above is applicable to a purchase of Class A shares,
investors may combine the total of the value of the shares being purchased with
the amount equal to the current net asset value of the investor's holdings of
shares in all Portfolios of the Fund, including holdings in Class B and Class C
shares, but excluding shares purchased or held in the Money Market Fund. Also,
for purposes of the foregoing calculation, shares (including holdings in Class B
and Class C shares, but excluding shares purchased or held in the Money Market
Fund) beneficially owned by the investor's spouse and the investor's children
under the age of 21 may, upon written notice to the transfer agent, also be
included in the investor's beneficial holdings at the current net asset value to
reach a level specified in the above table. The investor must notify the
transfer agent in writing of all share accounts to be considered in exercising
the right of accumulation described above.
Statement of Intention. For the purposes of determining which sales charge
level in the table above is applicable to a purchase of Class A shares,
investors may also establish a total investment goal in shares of the Fund to be
achieved over a thirteen-month period and may purchase Class A shares during
such period at the applicable reduced front end sales charge. All shares,
including Class B shares and Class C shares (but excluding shares purchased or
held in the Money Market Fund), previously purchased and still beneficially
owned by the investor and his or her spouse and children under the age of 21
may, upon written notice to the transfer agent, also be included at the current
net asset value to reach a level specified in the table above.
Shares totaling 5% of the dollar amount of the Statement of Intention will
be held in escrow by the Transfer Agent in the name of the purchaser. The
effective date of a Statement of Intention may be back-dated up to 90 days, in
order that any investments made during this 90-day period, valued at the
purchaser's cost, can be applied to the fulfillment of the Statement of
Intention goal.
The Statement of Intention does not obligate the investor to purchase, nor
the Fund to sell, the indicated amount. In the event the investment goal is not
achieved within the thirteen-month period, the purchaser is required to pay the
front end sales charge that would otherwise have applied to the purchases of
Class A shares made during this period. If a payment is due under the preceding
sentence, it must be made directly to the Distributor within twenty days of
notification or, if not paid, the Distributor will liquidate sufficient escrowed
shares to obtain such difference. Certain transitional rules apply to
shareholders who had a statement of intention in effect prior to April 1, 1994.
For additional information, shareholders should contact the Fund, Wood Logan or
eligible securities dealers.
Group Purchases. Subject to applicable regulations, reduced front end
sales charges as set forth in the "Class A Sales Charge Schedule" are available
on the purchase of Class A shares when sales are made to a group of individuals
in such a manner as results in a savings of sales expenses. Approval of group
purchase reduced front end sales charge plans is subject to the discretion of
the Distributor.
Certain Qualified Purchasers. No front end sales charge or CDSC is
applicable to any sale of Class A shares to a Trustee or officer of the Fund, or
to the immediate families (i.e., the spouse, children, mother or father) of such
persons, or any full-time employee or registered representative of
broker/dealers having Dealer Agreements with the Distributor ("Selling Broker")
and their immediate families (or any trust, pension, profit sharing or other
benefit plan for the benefit of such persons), or any full-time employee of a
bank, savings and loan, credit union or other financial institution that
utilizes a Selling Broker to clear purchases of Fund shares, and their immediate
families. In addition, no front end sales charge or CDSC is applicable on any
sale to North American Security Life Insurance Company or any of its affiliates,
the Subadvisers or Wood Logan, or to a director, officer, full-time employee or
sales representative of North American Security Life Insurance Company or any of
its affiliates, the Subadvisers or any of their affiliates or of Wood Logan, or
to the immediate families of such persons, or any trust, pension, profit-sharing
or other benefit plan for the benefit of such persons.
No front end sales charge or CDSC on Class A shares is applicable to
continuing purchase payments made in connection with Code Section 401 qualified
plans that were invested in the Fund prior to April 1, 1994.
A qualified retirement plan that is currently a shareholder of the Fund may
make additional purchases of Class A shares at net asset value (i.e., without
the imposition of a front end sales load or CDSC). A commission or transaction
fee of 1.00% will be paid by the Distributor to broker-dealers, banks and other
financial service firms subject to a chargeback to the firm for redemptions made
within one year from the date of purchase.
Class A shares may be purchased at net asset value by certain broker-
dealers and other financial institutions which have entered into an agreement
with the Distributor, which includes a requirement that such shares be sold for
the benefit of clients participating in a "wrap account" or a similar account
program under which such clients pay a fee to such broker-dealer or other
financial institution. Class A shares may also be purchased at net asset value
by registered investment advisers for the benefit of client accounts if the
adviser charges a fee (other than brokerage commissions) for his services.
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<PAGE>
CLASS B SHARES
Class B shares are offered for sale at net asset value, and are offered for
purchases of $250,000 or less. Class B shares which are redeemed within six
years of purchase are subject to a CDSC at the rates set forth in the table
below, charged as a percentage of the dollar amount subject thereto. See
"PURCHASES OF SHARES - Contingent Deferred Sales Charge."
CLASS B CDSC TABLE
<TABLE>
<CAPTION>
CDSC
AS A PERCENTAGE OF
YEAR(S) SINCE PURCHASE ORDER DOLLAR AMOUNT SUBJECT TO CHARGE
- -------------------------------------------------------------------------
<S> <C>
Up to 2 years 5%
2 years or more but less than 3 years 4%
3 years or more but less than 4 years 3%
4 years or more but less than 5 years 2%
5 years or more but less than 6 years 1%
6 or more years 0%
</TABLE>
The CDSC may be waived on certain redemption of shares. See "PURCHASES OF
SHARES - Waiver of CDSC"
CLASS C SHARES
Class C shares are offered for sale at net asset value and are offered for
purchases of less than $1 million. Class C shares are sold without a front end
sales charge. Class C shares purchased on or after May 1, 1995 subject to a
CDSC of 1% of the dollar amount subject thereto during the first year after
purchase. Shares purchased prior to May 1, 1995 are not subject to a CDSC. See
"PURCHASES OF SHARES - Contingent Deferred Sales Charge"
The CDSC may be waived on certain redemptions of shares. See "PURCHASES OF
SHARES - Waiver of CDSC."
CONTINGENT DEFERRED SALES CHARGE
Class A shares (purchases of $1 million or more) and Class C shares
purchased on or after May 1, 1995 which are redeemed within one year of purchase
are subject to a CDSC at the rate of 1% of the dollar amount subject thereto.
Class B shares which are redeemed within six years of purchase are subject to a
CDSC at the rates set forth above under "PURCHASES OF SHARES - Class B Shares."
The CDSC generally is not applicable with respect to redemption of shares of the
Money Market Fund. However, in the case of shares of the Money Market Fund
which were obtained through an exchange of the same class of shares of another
Portfolio, such shares will be subject to any applicable CDSC due at redemption.
Similarly, shares initially purchased as shares of the Money Market Fund which
are subsequently exchanged for the same class of shares of other Portfolios will
be subject to any applicable CDSC due at redemption. See "SHAREHOLDER SERVICES
- - Exchange Privilege." The CDSC is assessed on an amount equal to the lesser of
the net asset value at redemption or the initial purchase price of the shares
being redeemed. Solely for purposes of determining the amount of time from the
purchase of shares until redemption, all orders accepted during a month are
aggregated and deemed to have been made on the last business day of that month.
In determining the amount of the CDSC that may be applicable to a
redemption, any shares in the redeeming shareholder's account that may be
redeemed without charge will be assumed to be redeemed prior to those subject to
a charge. In addition, if the CDSC is determined to be applicable to redeemed
shares, it will be assumed that shares held for the longest duration are
redeemed first. No CDSC is imposed on (i) amounts representing increases in the
net asset value per share; or (ii) shares acquired through reinvestment of
income dividends or capital gains distributions. Because shares of the Money
Market Fund are not subject to any distribution or service fees, the CDSC period
is tolled for any period of time in which shares are held in that Portfolio.
For example, if Class C shares of a Portfolio other than the Money Market Fund
are exchanged for the same class of shares of the Money Market Fund six months
after purchase and are subsequently redeemed one year later, these shares are
subject to a CDSC since the CDSC period is tolled during the period of time the
shares are in the Money Market Fund. Furthermore, when Money Market Fund shares
are exchanged for the same class of shares of any other Portfolio, the CDSC
becomes (or, in the case of Money Market Fund shares which were subject to a
CDSC prior to a previous exchange for Money Market Fund shares, again becomes)
applicable to those shares commencing at the time of exchange. If such shares
are subsequently redeemed, only time of ownership spent in Portfolios other than
the Money Market Fund counts toward determining the applicable CDSC.
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<PAGE>
WAIVER OF CDSC
Systematic Withdrawal Plan. The CDSC on Class A, Class B and Class C
shares may be waived in connection with a Systematic Withdrawal Plan. See
"SHAREHOLDER SERVICES - Systematic Withdrawal Plan." Up to 12% of the value of
an account (i.e., up to 1% per month of the value of the account at the time the
systematic withdrawal is taken) may be withdrawn without the imposition of CDSC.
If distributions (dividends and capital gains) are reinvested into an account
and systematic withdrawals are also taken from the account, the distributions
(which are never assessed a CDSC) will be included in the calculation of the 1%
per month that may be withdrawn without the imposition of a CDSC.
Qualified Retirement Plans. The CDSC on Class A, Class B and Class C
shares may be waived in connection with redemptions from qualified retirement
plans (other than Individual Retirement Accounts ("IRAs")) in the case of (i)
death or disability (as defined in section 72(m)(7) of the Code, as amended from
time to time) of the participant in the retirement plan, (ii) required minimum
distributions from the retirement plan due to attainment of age 70 1/2, (iii)
tax-free return of an excess contribution to the retirement plan, (iv)
retirement of the participant in the retirement plan, (v) a loan from the
retirement plan (repayment of a loan, however, will constitute a new sale for
purposes of assessing the CDSC), (vi) "financial hardship" of the participant in
the retirement plan, as that term is defined in Treasury Regulation 1.401(k)-
1(d)(2), as amended from time to time, (vii) termination of employment of the
participant in the plan (excluding, however, a partial or other termination of
the retirement plan), and (viii) the plan participant obtaining age 59 1/2.
Other Waivers. The CDSC on Class A, Class B and Class C shares may be
waived in connection with (i) redemptions made following the death of a
shareholder, (ii) redemptions effected pursuant to the Fund's right to liquidate
a shareholder's account if the aggregate net asset value of the shares held in
the account is less than the applicable minimum account size and (iii) a tax-
free return of an excess contribution to any retirement plan.
OTHER DEALER COMPENSATION
The Distributor may, either directly or through Wood Logan, from time to
time assist dealers by, among other things, providing sales literature to, and
holding educational programs for the benefit of, dealers' registered
representatives. Participation of registered representatives in such
informational programs may require the sale of minimum dollar amounts of shares
of the Portfolios of the Fund. The Distributor and/or Wood Logan will also
provide additional promotional incentives to dealers in connection with sales of
shares of all classes of the Portfolios of the Fund. These incentives shall
include payment for travel expenses, including lodging (which may be at a luxury
resort), incurred in connection with trips taken by qualifying registered
representatives and members of their families within or outside the United
States. Incentive payments will be provided for out of the front end sales
charges and CDSCs retained by the Distributor, any applicable Distribution Plan
payments or the Distributor's other resources. Other than Distribution Plan
payments, the Fund does not bear distribution expenses. The staff of the SEC
has indicated that dealers who receive more than 90% of the sales charge may be
considered underwriters.
DISTRIBUTION EXPENSES
In addition to the front-end sales charge which may be deducted at the time
of purchase of Class A shares of less than $1 million and the CDSC which may
apply on redemptions of Class A shares (purchases of $1 million or more), Class
B shares, and Class C shares, each class of shares of each Portfolio is
authorized under the Distribution Plan applicable to that class of shares (the
"Class A Plan," the "Class B Plan" and the "Class C Plan," collectively, the
"Plans") adopted pursuant to Rule 12b-1 under the 1940 Act to use the assets
attributable to such class of shares of the Portfolio to finance certain
activities relating to the distribution of shares to investors. The Plans are
"compensation" plans providing for the payment of a fixed percentage of average
net assets to finance distribution expenses. The Plans provide for the payment
by each class of shares of each Portfolio of the Fund, other than the Money
Market Fund, of a monthly distribution and service fee to the Distributor, as
principal underwriter for the Fund. Portions of the fees prescribed below are
used to provide payments to the Distributor, to promotional agents, to brokers,
dealers or financial institutions (collectively, "Selling Agents") and to
Service Organizations for ongoing account services to shareholders and are
deemed to be "service fees" as defined in paragraph (b)(9) of Section 26 of the
Rules of Fair Practice of the NASD.
Under the Class A Plan, Class A shares of each Portfolio (except as
described in the next sentence) are subject to a fee of up to .35% of their
respective average annual net assets, five-sevenths of which (.25%) constitutes
a "service fee." Class A shares of the Money Market Fund bear no such fees and
Class A shares of the National Municipal Bond Fund are subject to a fee of up to
.15% of Class A average annual net assets, the entire amount of which
constitutes a "service fee." Under the Class B Plan, Class B shares of each
Portfolio (with the exception of the Money Market Fund) are subject to a fee of
up to 1.00% of their respective average annual net assets, one-fourth (.25%) of
which constitutes a "service fee." Under the Class C Plan, Class C shares of
each Portfolio (with the exception of the Money Market Fund) are subject to a
fee of up to 1.00% of their respective average annual net assets, one-fourth
(.25%) of which constitutes a "service fee."
Payments under the Plans are used primarily to compensate the Distributor
for distribution services provided by it in connection with the offering and
sale of the applicable class of shares, and related expenses incurred, including
payments by the Distributor to compensate or reimburse Selling Agents for sales
support services provided and related expenses incurred by such Selling Agents.
Such services and expenses may include the development, formulation and
implementation of marketing and promotional activities, the
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preparation, printing and distribution of prospectuses and reports to recipients
other than existing shareholders, the preparation, printing and distribution of
sales literature, expenditures for support services such as telephone facilities
and expenses and shareholder services as the Fund may reasonably request,
provision to the Fund of such information, analyses and opinions with respect to
marketing and promotional activities as the Fund may, from time to time,
reasonably request, commissions, incentive compensation or other compensation
to, and expenses of, account executives or other employees of the Distributor or
Selling Agents, attributable to distribution or sales support activities,
respectively, overhead and other office expenses of the Distributor or Selling
Agents, attributable to distribution or sales support activities, respectively,
and any other costs and expenses relating to distribution or sales support
activities. The Distributor may pay directly Selling Agents and may provide
directly the distribution services described above, or it may arrange for such
payment or the performance of some or all of such services by Wood Logan, the
Fund's exclusive promotional agent, at such level of compensation as may be
agreed to by the Distributor and Wood Logan.
The Distributor currently pays a trail commission to securities dealers,
with respect to accounts that such dealers continue to service for shares sold
after April 1, 1994 as follows: Class A shares - .25% annually, commencing from
the date the purchase order is accepted, for all Portfolios (except the National
Municipal Bond Fund, for which the trail commission is .15%, and the Money
Market Fund, for which no trail commission is paid); Class B shares - .25%
annually, for all Portfolios (except the National Municipal Bond Fund, for which
the trail commission is .15%, and the Money Market Fund, for which no trail
commission is paid); and Class C shares - 1.0% annually, for the Global Growth,
Value Equity, Growth and Income, International Growth and Income, Asset
Allocation and Strategic Bond Funds and .90% annually, for the Investment
Quality Bond, U.S. Government Securities and National Municipal Bond Fund (no
trail commission is paid on the Money Market Fund). The trail commission payable
following conversion of Class B and Class C shares to Class A shares will be in
accordance with the amounts paid for Class A shares. For Class B and Class C
shares sold on or after May 1, 1995, trail commissions commence 13 months after
purchase. For Class B and Class C shares sold prior to May 1, 1995, trail
commissions commence the date the purchase order is accepted. Trail
commissions for shares sold prior to April 1, 1994 will be paid as noted below.
In the case of Class B shares and Class C shares sold on or after May 1,
1995, the Distributor will advance to securities dealers the first year service
fee at a rate equal to 0.25% of the purchase price of such shares and, as
compensation therefor, the Distributor may retain the service fee paid by the
Fund with respect to such shares for the first year after purchase. In the case
of sales of Class B shares, the Distributor will pay each dealer a fee of 4% of
the amount of Class B shares purchased (0.25% is the advancement of the first
year service fee and the remainder is a commission or transaction fee). No
commission or transaction fee is paid for sales of shares of Class B of the
Money Market Fund. In the case of sales of Class C shares, the Distributor will
pay each securities dealer a fee of 1% (0.90% in the case of the Investment
Quality Bond, U.S. Government Securities and National Municipal Bond Fund) of
the purchase price of Class C shares purchased through such securities dealer
(0.25% is the advancement of the first year service fee and the remainder is a
commission or transaction fee). No commission or transaction fee is paid for
sales of shares of Class C of the Money Market Fund.
The Distributor will also pay a trail commission to securities dealers,
with respect to accounts that such dealers continue to service for shares sold
prior to April 1, 1994, as follows: (i) for the Value Equity, Growth and Income,
Global Growth and Asset Allocation Funds, 0.90%, (ii) for the U.S. Government
Securities, Investment Quality Bond and Strategic Income Funds, 0.35% and for
the National Municipal Bond Fund, 0.15%. No trail commission will be paid on
shares of the Money Market Fund. The trail commission above will be paid on
shares purchased prior to April 1, 1994 provided the shares remain in the same
Portfolio. If the shares are exchanged or transferred from the Portfolio at any
time on or after April 1, 1994, then the trail commission for shares sold after
April 1, 1994 as stated above will be paid.
The distribution and service fees attributable to the Class B shares and
the Class C shares are designed to permit an investor to purchase shares without
the assessment of a front end sales charge, and, with respect to the Class C
shares, without the assessment of a CDSC as well, and at the same time permit
the Distributor to compensate securities dealers with respect to sales of such
shares.
The Distributor is authorized by each Plan to retain any excess of the fees
it receives thereunder over its payments to selected dealers or Wood Logan and
its expenses incurred in connection with providing distribution services. Thus,
payments under a Plan may result in a profit to the Distributor. Each Plan also
provides that to the extent that any payments by any class of any Portfolio of
the Fund to the Distributor in its capacity as investment adviser to the Fund,
such as for investment management fees, may be deemed to be an indirect payment
of distribution expenses, those indirect payments are deemed to be authorized by
the Plans. Payments made under the Plans are subject to quarterly review by the
Trustees and the Plans are subject to annual review and approval by the
Trustees.
In adopting the Plans, the Trustees determined that the adoption of the
Plans is in the best interests of the Fund and its shareholders, that there is a
reasonable likelihood that the Plans will benefit the Fund and its shareholders,
and that the Plans are essential to, and an integral part of, the Fund's program
for financing the sale of shares of the various Portfolios of the Fund to the
public.
The Distributor, a wholly-owned subsidiary of North American Security Life
Insurance Company, is a broker/dealer registered under the Securities Exchange
Act of 1934, as amended (the "1934 Act") and is a member of the NASD. The
Distributor's address is the same as that of the Fund and the Distributor also
serves as the investment adviser to the Fund as described above under
"MANAGEMENT
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OF THE FUND." The Distributor has entered into an exclusive promotional agent
agreement with Wood Logan pursuant to which Wood Logan will solicit securities
dealers to sell Fund shares, offer sales training to registered representatives
of such dealers, prepare and distribute certain sales and promotional materials
and otherwise assist in the distribution of Fund shares. For providing such
services, the Distributor will pay Wood Logan such amounts as are agreed to from
time to time pursuant to the promotional agent agreement. Wood Logan, a
broker/dealer registered under the 1934 Act and a member of the NASD, is a
subsidiary of Wood Logan Associates, Inc., a corporation which is a wholly owned
subsidiary of a holding company that is 85% owned by Manulife and approximately
15% owned by principals of Wood Logan Associates. The address of Wood Logan is
1455 East Putnam Avenue, Old Greenwich, Connecticut 06870.
SHAREHOLDER SERVICES
FURTHER INFORMATION ON ANY OF THE PROGRAMS DESCRIBED IN THE FOLLOWING SECTIONS
MAY BE OBTAINED FROM THE FUND, WOOD LOGAN AND ELIGIBLE SECURITIES DEALERS. FOR
ADDITIONAL INFORMATION, SHAREHOLDERS SHOULD CONTACT THE FUND, WOOD LOGAN OR
ELIGIBLE SECURITIES DEALERS.
AUTOMATIC INVESTMENT PLAN
Shareholders who open an account who wish to make subsequent monthly
investments in a Portfolio may establish an Automatic Investment Plan as part of
the initial Application or subsequently by submitting an Application. Under
this plan, on or about the tenth day of each month the Transfer Agent will debit
the shareholder's bank account in the amount specified by the shareholder (which
monthly amount may not be less than $50). The proceeds will be invested in
shares of the specified class of a Portfolio of the Fund at the applicable
offering price determined on the date of the debit. In the event of a full
exchange, this plan will follow into the new Portfolio unless otherwise
specified. Participation in the Automatic Investment Plan may be discontinued
upon 30 days' written notice to the Transfer Agent, or if a debit is not
honored.
EXCHANGE PRIVILEGE
Shares of any Portfolio may be exchanged for shares of the same class of
any other Portfolio with the same account registration at the relative net asset
value per share without the imposition of any front end sales charge or CDSC,
except as described below. Shares of one class may not be exchanged for shares
of any other class of any Portfolio.
Class A Shares - Class A shares of any Portfolio may be exchanged for Class
A shares of any other Portfolio at the relative net asset value per share
without the imposition of a front end sales charge or CDSC which would be due
upon redemption with respect to the shares being exchanged. However, a front
end sales charge will be imposed with respect to Class A shares (purchases of
less than $1 million) which are issued upon an exchange from Class A Money
Market Fund shares and as to which no front end sales charge had been previously
paid or waived. See "SHAREHOLDER SERVICES - Money Market Fund - Assessment of
CDSC."
Class B Shares - Class B shares of any Portfolio may be exchanged for Class
B shares of any other Portfolio, including the Money Market Fund, at the
relative net asset value per share without the imposition at that time of any
CDSC which would be due upon redemption with respect to the shares being
exchanged. See "SHAREHOLDER SERVICES - Money Market Fund - Assessment of CDSC."
Class C Shares - Class C shares of any Portfolio may be exchanged for Class
C shares of any other Portfolio, including the Money Market Fund, at the
relative net asset value per share without the imposition at that time of any
CDSC which would be due upon redemption with respect to the shares being
exchanged. See "SHAREHOLDER SERVICES - Money Market Fund - Assessment of CDSC."
Money Market Fund - Assessment of CDSC - The CDSC period for Class A shares
(purchases of $1 million or more), Class B shares and Class C shares is tolled
for any period of time in which they are held in the Money Market Fund. For
example, if Class C shares of a Portfolio, other than the Money Market Fund, are
exchanged for Class C shares of the Money Market Fund six months after purchase
and are subsequently redeemed one year later, these Class C shares are subject
to a CDSC since the CDSC period is tolled during the period of time the shares
are in the Money Market Fund. Furthermore, when Money Market Fund shares are
exchanged for shares of any other Portfolio, the CDSC becomes (or, in the case
of Money Market Fund shares which were subject to a CDSC prior to a previous
exchange for Money Market Fund shares, again becomes) applicable to those shares
commencing at the time of exchange. If such shares are subsequently redeemed,
only time of ownership spent in Portfolios other than the Money Market Fund
counts toward determining the applicable CDSC.
General Information - Exchanges are regarded as sales for federal and
state income tax purposes and could result in a gain or loss, depending on the
original cost of shares exchanged. If the exchanged shares were acquired within
the previous 90 days, the gain or loss may have to be computed without regard to
any sales charges incurred on the exchanged shares (except to the extent those
sales charges exceed the sales charges waived in connection with the exchange).
See "GENERAL INFORMATION -- Taxes." Exchanges are free and unlimited in number
and will usually occur on the same day as requested. The terms of the foregoing
exchange privilege are subject to change and the privilege may be terminated at
any time. The exchange privilege is only available where the exchange may
legally be made.
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By mail - an exchange will be honored by a written letter of request to the
Fund if signed by all registered owners of the account.
By telephone - All accounts are eligible for the telephone exchange
privilege. See "-- ADDITIONAL SHAREHOLDER PRIVILEGES -- Telephone Exchanges."
TRANSFER OF SHARES
Shareholders may transfer fund shares to family members and others at any
time without incurring a front end sales charge (Class A shares purchases of
less than $1 million) and without a CDSC being imposed at that time (Class A
shares purchases of $1 million or more, Class B shares and Class C shares).
Shareholders should consult their tax adviser concerning such transfers.
REDEMPTION OF SHARES
You may redeem shares of your account in any amount and at any time at the
applicable net asset value next determined after the request for redemption is
received in proper order by the Fund. As described under "PURCHASE OF SHARES,"
redemptions of Class A shares purchases of $1 million or more, Class B shares
and Class C shares may subject to a CDSC. The Fund will normally send the
proceeds from a redemption (less any applicable CDSC) on the next business day,
but if making immediate payment could adversely affect the Fund, it may take up
to seven days for payment to be made. Payment may also be delayed if the shares
to be redeemed were purchased by check and that check has not cleared.
GENERAL METHODS OF REDEEMING SHARES
1. By Mail. You may redeem shares by mail by sending a written request for
the redemption to the Fund. The request will be processed after receipt of all
required documents in proper order: certificates of beneficial interest (if
issued); a stock power signed by all account owners exactly as the account is
registered specifying the number of shares or dollars to be redeemed; and in the
case of a redemption to be paid to a person or address other than the person or
address of record and/or in an amount greater than $50,000, a guarantee of the
stock power signatures(s) without restriction, condition or qualification by an
officer of a commercial bank, Trust Company, Federal savings and loan
institution, member firm of a national securities exchange or NASD member. If
shares are held in the name of a corporation, trust, estate, custodianship,
partnership or pension or profit sharing plan, additional documentation may be
necessary.
2. Through a Securities Dealer. You may sell your shares by contacting a
securities dealer who has a Dealer Agreement with the Distributor. (See
"GENERAL -- Repurchase of Shares" in the Statement of Additional Information for
more details.) The dealer may assess a nominal fee for this service.
REINSTATEMENT PRIVILEGE
With regard to Class A shares (purchases of less than $1 million), you may
reinstate at net asset value any portion of shares which have been previously
redeemed if the redemption occurred within 90 days of the request. With regard
to Class A shares (purchases of $1 million or more), Class B shares and Class C
shares, if an investor redeems these shares and pays a CDSC upon redemption, and
then uses those proceeds to purchase the same class of shares of any Portfolio
within 90 days, the shares purchased will be credited with any CDSC paid in
connection with the prior redemption.
Any gain recognized on a redemption or repurchase is taxable despite the
reinstatement in the Portfolio. Any loss realized as a result of the redemption
or repurchase may not be allowed as a deduction for federal income tax purposes
but may be applied, depending on the amount reinstated, to adjust the cost basis
of the shares acquired upon reinstatement. In addition, if the shares redeemed
or repurchased had been acquired within the 90 days preceding the redemption or
repurchase, the amount of any gain or loss on the redemption or repurchase may
have to be computed without regard to any sales charges incurred on the redeemed
or repurchased shares (except to the extent those sales charges exceed the sales
charges waived in connection with the reinstatement). See "GENERAL INFORMATION
- -- Taxes."
MINIMUM ACCOUNT BALANCE
The Fund reserves the right to involuntarily redeem your account any time
the value of your account falls below $500 as a result of redemption, with the
exception of a retirement plan account and with respect to an account
established with a minimum of $50 pursuant to programs such as Automatic
Investment Plans, Automatic Dividend Diversification, and Systematic Investing.
You will be notified in writing prior to the redemption and be allowed 30 days
to make additional investments before the redemption is processed.
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REDEMPTION IN KIND
The Trustees of the Fund reserve the right to redeem proceeds in whole or
in part by a distribution in kind of marketable securities held by a Portfolio
of the Fund. See "GENERAL -- Redemption in Kind" in the Statement of Additional
Information for more details.
ADDITIONAL SHAREHOLDER PRIVILEGES
CERTAIN PRIVILEGES LISTED IN THIS SECTION MAY NOT BE OFFERED BY THE FUND IF YOU
HOLD SHARES WITH THE FUND IN THE "STREET NAME" OF A FINANCIAL INSTITUTION, OR IF
THE ACCOUNT IS NETWORKED THROUGH NATIONAL SECURITIES CLEARING CORPORATION
(NSCC).
AUTOMATIC INVESTMENT PLAN
If you open an account and wish to make subsequent, periodic investments in
a Portfolio by electronic funds transfer from a bank account, you may establish
an Automatic Investment Plan on your account. The bank at which your account is
maintained must be a member of the Automated Clearing House (ACH). The
frequency with which the investments occur is specified by you (monthly, every
alternate month, quarterly, etc.) with the exception that no more than one
investment will be processed each month. On or about the tenth of the month,
the Fund will debit your bank account in the specified amount (minimum of $50
per draft) and the proceeds will be invested at the applicable offering price
determined on the date of the debit. In the event of a full exchange, this plan
will follow into the new Portfolio unless otherwise specified.
AUTOMATIC DIVIDEND DIVERSIFICATION (ADD)
The ADD program allows you to have all dividends and any other
distributions from a Portfolio automatically used to purchase shares of the same
class of any other Portfolio of the Fund. The receiving account must be in the
same name as your existing account. The purchase of shares to the Portfolio
receiving the cross-investment of the dividends will be using the net asset
value at the close of business of the dividend payable date.
SYSTEMATIC INVESTING
You may request that your shares of any class of the Money Market, U.S.
Government Securities or National Municipal Bond Fund be exchanged monthly for
shares of the same class of up to three other Portfolios. A predetermined
dollar amount of at least $50 per exchange will then occur on or about the 15th
of each month in accordance with the instructions you provided on the initial
account application or on the Systematic Investing application. This Systematic
Investing program is also referred to as "Dollar Cost Averaging."
SYSTEMATIC WITHDRAWAL PLAN
You may establish a plan for redemptions to be made automatically at
monthly, quarterly, semiannual or annual intervals with payments sent directly
to you or to persons designated by you as recipients of the withdrawals. Up to
12% of the value of an account (i.e., up to 1% per month of the value of the
account at the time the Systematic Withdrawal is taken) may be withdrawn without
the imposition of CDSC. See "PURCHASES OF SHARES - Waiver of CDSC." Requests
for this service not made on the initial application require signature
guarantees unless the payments are to be made to you and mailed to the address
of record on your account. You are required to have a minimum account value of
$10,000 per Portfolio in order to establish this plan. Maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares may
be disadvantageous to you because of the sales charges on certain purchases and
redemptions.
The redemptions will occur on or about the 25th day of the month and the
checks will generally be mailed within two days after the redemption occurs. No
redemption will occur if the account balance falls below the amount required to
meet the requested withdrawal amount. This service may be terminated at any
time, and, while no fee is currently charged (although a CDSC may be
applicable), the Distributor reserves the right to initiate a fee of up to $5
per withdrawal upon 30 days' written notice to the shareholder.
CHECKWRITING
Checkwriting is available only to Class A and Class C shareholders of the
U.S. Government Securities, National Municipal Bond and Money Market Funds. You
will be issued a book of blank checks if the request is indicated on the account
application and is accompanied by a correctly completed and endorsed signature
card. The checks may be made payable to the order of anyone in any amount not
less than $250. You should not attempt to close your account by check.
Checks which exceed the value of the account at the time of receipt by the
Fund will not be honored. In addition, the privilege will be invalid when your
account is closed.
When a check is presented for payment, a sufficient number of shares will
be redeemed to cover the amount of the check and any applicable CDSC. If the
amount of the check plus any applicable CDSC is greater than the value of the
shares held in the shareholder's account, the check will be returned unpaid.
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This privilege cannot be used for the redemption of shares held in
certificate form.
TELEPHONE TRANSACTIONS
Shareholders are permitted to request exchanges and/or redemptions by
telephone. The Fund will not be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. The Fund will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine and may only be liable for any losses due to unauthorized or fraudulent
instructions where it fails to employ its procedures properly. Such procedures
include the following. Upon telephoning a request, shareholders will be asked
to provide their account number, and if not available, their social security
number. For the shareholder's and Fund's protection, all conversations with
shareholders will be tape recorded. All telephone transactions will be followed
by a confirmation statement of the transaction.
Telephone Exchanges. You are automatically authorized to effect telephone
exchanges by calling the Fund, unless you elect not to authorize telephone
exchanges in the Application (if you initially elect not to allow telephone
exchanges in the Application, you may request authorization by executing an
appropriate authorization form provided by the Fund upon request.) Exchanges
will only be made if proper account identification is given by the dealer or
shareholder of record. Requests will be processed on the same day as receipt of
the telephone call if the request is made before the close of the regularly
scheduled trading on the Exchange (normally 4:00 p.m. New York time).
This privilege cannot be used for the exchange of shares held in
certificate form.
Telephone Redemptions. You may request the option to redeem shares of any
Portfolio by telephone by completing the "Expedited Telephone Redemptions"
portion of the account application. In order to obtain that day's closing net
asset value on the redemption, the telephone call must be received by the Fund
prior to the close of the regularly scheduled trading on the Exchange (normally
4:00 p.m. New York time).
Payment for shares will be made by federal wire or by mail as specified by
you in the Application. Payment will normally be sent on the business day
following the date of receipt of the request. Payment by wire to your bank
account must be in amounts of $1000 or more. Although the Fund does not assess
a charge for wire transfers, your bank may assess a charge for the transaction.
Payments by mail may only be sent to your account address of record and may only
be payable to the registered owner(s).
This privilege cannot be used for the redemption of shares held in
certificate form.
CERTIFICATES
Although the Fund does not recommend the issuance of certificates, shares
will be issued in certificate form if specifically requested by the shareholder.
HOW TO OBTAIN INFORMATION ON YOUR INVESTMENT
1. Confirmation of Share Transactions and Dividend Payments. Share
transactions in all Portfolios, other than transactions pursuant to a Systematic
Withdrawal Plan, Automatic Investment Plan, and Systematic Investing Plan, will
be confirmed immediately in the form of an account confirmation statement which
will be mailed to the account address of record.
The Fund will confirm all account activity occurring within a calendar
quarter, including the payment of dividend and capital gain distributions and
transactions made as a result of a Systematic Withdrawal Plan, Automatic
Investment Plan, and Systematic Investing Plan, shortly after the end of each
calendar quarter.
The Fund also reserves the right to confirm, with respect to certain tax
qualified plans and certain group plans, purchases and sales of Fund shares on a
quarterly basis. Transactions in shares of the Money Market Fund, other than
those confirmed quarterly as set forth above, will be confirmed monthly.
A copy of all confirmation statements will be sent to the securities dealer
firm listed on your account.
2. Shareholder Inquiries. Please direct any questions or requests that
you may have concerning the Fund or your account by writing to North American
Funds, P.O. Box 8505, Boston, Massachusetts 02266-8505, or by calling the Mutual
Fund Customer Service Department at 1-800-872-8037.
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APPENDIX I
DEBT SECURITY RATINGS
Standard & Poor's Ratings Group ("S&P")
- -------------------------------
Commercial Paper:
A-1 The rating A-1 is the highest rating assigned by S&P to commercial
paper. This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high for issuers
designated "A-1".
Bonds:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB-B-
CCC-CC Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
D Bonds rated D are in default. The D category is used when interest
payments or principal payments are not made on the date due even if
the applicable grace period has not expired. The D rating is also
used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
Moody's Investors Service, Inc. ("Moody's")
- -------------------------------
Commercial Paper:
P-1 The rating P-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated P-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. P-1 repayment capacity will normally be evidenced by the
following characteristics: (1) leading market positions in
established industries; (2) high rates of return on funds employed;
(3) conservative capitalization structures with moderate reliance on
debt and ample asset protection; (4) broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
and (5) well established access to a range of financial markets and
assured sources of alternate liquidity.
P-2 Issuers rated P-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
A-1
<PAGE>
Bonds:
Aaa Bonds which are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge". 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 by Moody's are judged to be of high quality
by all standards. Together with the 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 risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A by Moody's 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 sometime in the future.
Baa Bonds which are rated Baa by Moody's are considered as medium grade
obligations, that is, 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 other good and bad times over the
future. Uncertainty of position characterizes bond in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance and 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.
Ca Bonds which are rated Ca represent obligations which are speculative
in 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" to certain of its rating
classifications. 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 rating category.
Fitch Investors Service, Inc. ("Fitch")
- -----------------------------
Commercial Paper:
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-1+".
F-2 Issues assigned this rating have a satisfactory degree of assurance
for timely payment but the margin of safety is not as great as for
issues assigned "F-1+" or "F-1".
Bonds:
A-2
<PAGE>
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA".
Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-
term debt of these issuers is generally rated "F-1+".
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds, and therefore impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD-DD- Bonds are in default on interest and/or principal payments. Such bonds
and D are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.
ADDITIONAL MOODY'S AND S&P MUNICIPAL BOND RATINGS
MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES
MIG-1/VMIG-1 Notes rated MIG-1/VMIG-1 are of the best quality. There is
present strong protection by established cash flows, superior
liquidity support or broad-based access to the market for
refinancing.
MIG-2/VMIG-2 Notes which are rated MIG-2/VMIG-2 are of high quality. Margins
of protection are ample though not so large as in the preceding
group.
S&P RATINGS OF STATE AND MUNICIPAL NOTES
SP-1 Notes which are rated SP-1 have a very strong or strong capacity
to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2 Notes which are rated SP-2 have a satisfactory capacity to pay
principal and interest.
A-3
<PAGE>
APPENDIX II
STRATEGIC INCOME FUND DEBT RATINGS
The average distribution of investments in corporate and government
bonds by ratings for the fiscal year ended October 31, 1995, calculated monthly
on a dollar-weighted basis, for the Strategic Income Fund, was as follows:
<TABLE>
<CAPTION>
UNRATED BUT
OF COMPARABLE
MOODY'S STANDARD & POOR'S QUALITY PERCENTAGE
- -----------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA 0% 0%
Aa AA 0% 11%
A A 0% 0%
Baa BBB 0% 4%
Ba BB 17% 9%
B B 0% 41%
Caa CCC 0% 0%
Ca CC 0% 0%
C C 0% 2%
D 0% 0%
Unrated as a Group: 17%
U.S. Government Securities* 16%
Total 100%
</TABLE>
The actual distribution of the Strategic Income Fund's corporate and
government bond investments by ratings on any given date will vary. In
addition, the distribution of the Portfolio's investments by ratings as set
forth above should not be considered as representative of the Portfolio's future
portfolio composition.
*Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
A-4
<PAGE>
INVESTMENT QUALITY BOND FUND DEBT RATINGS
The average distribution of investments in corporate and government bonds
by ratings for the fiscal year ended October 31, 1995, calculated monthly on a
dollar-weighted basis, for the Investment Quality Bond Fund, was as follows:
<TABLE>
<CAPTION>
UNRATED BUT
OF COMPARABLE
MOODY'S STANDARD & POOR'S QUALITY PERCENTAGE
- -----------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA 0% 6%
Aa AA 0% 5%
A A 0% 20%
Baa BBB 0% 7%
Ba BB 0% 4%
B B 0% 3%
Caa CCC 0% 0%
Ca CC 0% 0%
C C 0% 0%
D 0% 0%
Unrated as a Group: 0%
U.S. Government Securities* 55%
Total 100%
</TABLE>
The actual distribution of the Investment Quality Bond Fund's corporate and
government bond investments by ratings on any given date will vary. In
addition, the distribution of the Portfolio's investments by ratings as set
forth above should not be considered as representative of the Portfolio's future
portfolio composition.
*Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
A-5
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
NORTH AMERICAN FUNDS
North American Funds (the "Fund") is a professionally managed open-end
investment company that currently has thirteen investment portfolios: the
Small/Mid Cap Fund, the International Small Cap Fund, the Growth Equity Fund,
the Global Growth Fund, the Value Equity Fund (formerly, the Growth Fund), the
Growth and Income Fund, the International Growth and Income Fund, the Asset
Allocation Fund, the Strategic Income Fund, the Investment Quality Bond Fund,
the U.S. Government Securities Fund, the National Municipal Bond Fund and the
Money Market Fund (the "Portfolios"). The investment objective of each Portfolio
is described in the Fund's Prospectus dated February 28, 1996 (the "Prospectus")
under the caption "Investment Portfolios." Each Portfolio currently offers three
classes of shares: "Class A" shares, "Class B" shares and "Class C" shares, all
as described in the Prospectus under the caption "Multiple Pricing System."
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus, which may be obtained from North
American Funds, 116 Huntington Avenue, Boston, Massachusetts, 02116.
The date of this Statement of Additional Information is February 28,1996.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES........................................................ 1
MONEY MARKET INSTRUMENTS................................................... 1
OTHER INSTRUMENTS.......................................................... 3
Mortgage Securities........................................................ 3
Asset-Backed Securities.................................................... 5
Zero Coupon Securities and Pay-in-Kind Bonds............................... 6
High Yield Domestic Corporate Debt Securities.............................. 6
High Yield Foreign Sovereign Debt Securities............................... 7
Municipal Lease Obligations................................................ 7
HEDGING AND OTHER STRATEGIC TRANSACTIONS................................... 7
General Characteristics of Options......................................... 8
General Characteristics of Futures Contracts
and Options on Futures Contracts...................................... 9
Options on Securities Indices and Other
Financial Indices..................................................... 10
Currency Transactions...................................................... 10
Combined Transactions...................................................... 10
Swaps, Caps, Floors and Collars............................................ 11
Eurodollar Instruments..................................................... 11
Municipal Bond Index Futures Contracts..................................... 12
Risk Factors............................................................... 12
Risks of Hedging and Other Strategic
Transactions Outside the United States................................ 12
Use of Segregated and Other Special Accounts............................... 13
Other Limitations.......................................................... 13
Warrant Transactions and Risks............................................. 14
INVESTMENT RESTRICTIONS.................................................... 14
PORTFOLIO TURNOVER......................................................... 16
MANAGEMENT OF THE FUND..................................................... 17
Compensation of Trustees................................................... 18
Principal Holders of Securities............................................ 19
INVESTMENT MANAGEMENT ARRANGEMENTS......................................... 19
Advisory and Subadvisory Agreements........................................ 19
DISTRIBUTION PLANS......................................................... 21
Underwriters............................................................... 24
PORTFOLIO BROKERAGE........................................................ 25
DETERMINATION OF NET ASSET VALUE........................................... 29
PERFORMANCE INFORMATION.................................................... 30
TAXES...................................................................... 35
National Municipal Bond Fund - Taxation Issues............................. 37
SHAREHOLDER SERVICES....................................................... 38
GENERAL.................................................................... 38
Adviser's Rationale for Multi-Manager Fund................................. 38
Fund Shares................................................................ 42
Redemption in Kind......................................................... 42
Repurchase of Shares....................................................... 43
Payment for the Shares Presented........................................... 43
Transfer Agent............................................................. 43
Independent Accountants.................................................... 43
FINANCIAL STATEMENTS....................................................... 44
<PAGE>
INVESTMENT POLICIES
The following discussion supplements the description of the Fund's
Portfolios set forth in the Prospectus under the caption "INVESTMENT
PORTFOLIOS."
MONEY MARKET INSTRUMENTS
The Money Market Fund will be invested in the types of money market
instruments described below. Certain of the instruments listed below may also
be purchased by the other Portfolios in accordance with their investment
policies and all Portfolios may purchase such instruments to invest otherwise
idle cash or for defensive purposes, except that the U.S. Government Securities
Fund may not invest in the instruments described in 2 and 7 below.
1. U.S. Government and Government Agency Obligations. U.S.
Government obligations are debt securities issued or guaranteed as to principal
or interest by the U.S. Treasury. These securities include treasury bills,
notes and bonds. U.S. Government agency obligations are debt securities issued
or guaranteed as to principal or interest by an agency or instrumentality of the
U.S. Government pursuant to authority granted by Congress. U.S. Government
agency obligations include, but are not limited to, the Student Loan Marketing
Association, Federal Home Loan Banks, Federal Intermediate Credit Banks and the
Federal National Mortgage Association. U.S. instrumentality obligations
include, but are not limited to, the Export-Import Bank and Farmers Home
Administration. Some obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported by the right of the issuer to borrow
from the U.S. Treasury or the Federal Reserve Banks, such as those issued by
Federal Intermediate Credit Banks; others, such as those issued by the Federal
National Mortgage Association, are supported by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality.
There are also separately traded interest components of securities issued or
guaranteed by the U.S. Treasury. No assurance can be given that the U.S.
Government will provide financial support to such U.S. Government sponsored
agencies or instrumentalities in the future, since it is not obligated to do so
by law. The foregoing types of instruments are hereafter collectively referred
to as "U.S. Government securities."
2. Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are certificates issued against funds deposited in a bank or a savings
and loan association. They are for a definite period of time and earn a
specified rate of return. Bankers' acceptances are short-term credit
instruments evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer. These instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument upon maturity.
They are primarily used to finance the import, export, transfer or storage of
goods. They are termed "accepted" when a bank guarantees their payment at
maturity.
Fund Portfolios may acquire obligations of foreign banks and foreign
branches of U.S. banks. These obligations are not insured by the Federal
Deposit Insurance Corporation.
3. Commercial Paper. Commercial paper consists of unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is issued in bearer form with maturities generally not
exceeding nine months. Commercial paper obligations may include variable amount
master demand notes. Variable amount master demand notes are obligations that
permit the investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangements between a Portfolio, as lender, and the
borrower. These notes permit daily changes in the amounts borrowed. A
Portfolio has the right to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to decrease the amount, and
the borrower may prepay up to the full amount of the note without penalty.
Because variable amount master demand notes are direct lending arrangements
between the lender and borrower, it is not generally contemplated that such
instruments will be traded, and there is no secondary market for these notes,
although they are redeemable (and thus immediately repayable by the borrower) at
face value, plus accrued interest, at any time. A Portfolio will only invest in
variable amount master demand notes issued by companies which at the date of
investment have an outstanding debt issue rated "Aaa" or "Aa" by Moody's or
"AAA" or "AA" by S&P and which the applicable Subadviser has determined present
minimal risk of loss to the Portfolio. A Subadviser will look generally at the
financial strength of the issuing company as "backing" for the note and not to
any security interest or supplemental source such as a bank letter of credit. A
variable amount master demand note will be valued each day as a Portfolio's net
asset value is determined, which value will generally be equal to the face value
of the note plus accrued interest unless the financial position of the issuer is
such that its ability to repay the note when due is in question.
4. Corporate Obligations. Corporate obligations include bonds and
notes issued by corporations to finance longer-term credit needs than those
supported by commercial paper. While such obligations generally have maturities
of ten years or more, the Money Market Fund will only purchase obligations which
have remaining maturities of thirteen months or less from the date of purchase
and which are rated "AA" or higher by Standard & Poor's or "Aa" or higher by
Moody's.
5. Repurchase Agreements. Repurchase agreements are arrangements
involving the purchase of obligations by a Portfolio and the simultaneous
agreement to resell the same obligations on demand or at a specified future date
and at an agreed upon price.
1
<PAGE>
The majority of repurchase transactions run from day to day and delivery
pursuant to the resale provision typically will occur within one to five
business days of the purchase. A repurchase agreement can be viewed as a loan
made by a Portfolio to the seller of the obligation with such obligation serving
as collateral for the seller's agreement to repay the amount borrowed with
interest. Such transactions afford an opportunity for a Portfolio to earn a
return on cash which is only temporarily available. Repurchase agreements
entered into by the Portfolio will be with banks, brokers or dealers. However, a
Portfolio will enter into a repurchase agreement with a broker or dealer only if
the broker or dealer agrees to deposit additional collateral should the value of
the obligation purchased by the Portfolio decrease below the resale price.
The Trustees have adopted procedures that establish certain
creditworthiness, asset and collateralization requirements for the
counterparties to a Portfolio's repurchase agreements. These procedures limit
the counterparties to repurchase transactions to those financial institutions
which are members of the Federal Reserve System and/or a primary government
securities dealer reporting to the Federal Reserve Bank of New York's Market
Reports Division or a broker/dealer which meet certain creditworthiness criteria
or which report U.S. Government securities positions to the Federal Reserve
Board. However, the Trustees reserve the right to change the criteria used to
select such financial institutions and broker/dealers. The Trustees will
regularly monitor the use of repurchase agreements and the Subadvisers will,
pursuant to procedures adopted by the Trustees, continuously monitor the amount
of collateral held with respect to a repurchase transaction so that it equals or
exceeds the amount of the obligations.
Should an issuer of a repurchase agreement fail to repurchase the
underlying obligation, the losses to the Portfolio, if any, would be the
difference between the repurchase price and the underlying obligation's market
value. A Portfolio might also incur certain costs in liquidating the underlying
obligation. Moreover, if bankruptcy or other insolvency proceedings should be
commenced with respect to the seller, realization upon the underlying obligation
by the Portfolio might be delayed or limited. Generally, repurchase agreements
are of a short duration, often less than one week but on occasion for longer
periods.
6. Warrants, Rights, Preferred Stock and Convertible Securities. Certain of
the portfolios may invest in warrants, rights, preferred stock and convertible
securities to the extent noted in the Prospectus. A warrant is a security,
usually issued together with a bond or preferred stock, that entitles the holder
to buy a proportionate amount of common stock at a specified price, usually
higher than the market price at the time of issuance, for a period of years or
to perpetuity. (For additional information on warrants see "Hedging and Other
Strategic Transactions -- Warrant Transactions and Risks.") In contrast, rights,
which also represent the right to buy common shares, normally have a
subscription price lower than the current market value of the common stock and a
life of two to four weeks. A warrant is usually issued as a sweetener, to
enhance the marketability of the accompanying fixed income securities. Preferred
stock is a class of capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
Convertible securities are securities (usually preferred shares or bonds) that
are exchangeable for a set number of another form of securities (usually common
stock) at a prestated price. The convertible feature is usually designed as a
sweetener to enhance the marketability of the security.
7. Canadian and Provincial Government and Crown Agency Obligations.
Canadian Government obligations are debt securities issued or guaranteed as to
principal or interest by the Government of Canada pursuant to authority granted
by the Parliament of Canada and approved by the Governor in Council, where
necessary. These securities include treasury bills, notes, bonds, debentures
and marketable Government of Canada loans. Canadian Crown agency obligations
are debt securities issued or guaranteed by a Crown corporation, company or
agency ("Crown agencies") pursuant to authority granted by the Parliament of
Canada and approved by the Governor in Council, where necessary. Certain Crown
agencies are by statute agents of Her Majesty in right of Canada, and their
obligations, when properly authorized, constitute direct obligations of the
Government of Canada. Such obligations include, but are not limited to, those
issued or guaranteed by the Export Development Corporation, Farm Credit
Corporation, Federal Business Development Bank and Canada Post Corporation. In
addition, certain Crown agencies which are not by law agents of Her Majesty may
issue obligations which by statute the Governor in Council may authorize the
Minister of Finance to guarantee on behalf of the Government of Canada. Other
Crown agencies which are not by law agents of Her Majesty may issue or guarantee
obligations not entitled to be guaranteed by the Government of Canada. No
assurance can be given that the Government of Canada will support the
obligations of Crown agencies which are not agents of Her Majesty, which it has
not guaranteed, since it is not obligated to do so by law.
Provincial Government obligations are debt securities issued or
guaranteed as to principal or interest by the government of any province of
Canada pursuant to authority granted by the Legislature of any such province and
approved by the Lieutenant Governor in Council of any such province, where
necessary. These securities include treasury bills, notes, bonds and
debentures. Provincial Crown agency obligations are debt securities issued or
guaranteed by a provincial Crown corporation, company or agency ("provincial
Crown agencies") pursuant to authority granted by a provincial Legislature and
approved by the Lieutenant Governor in Council of such province, where
necessary. Certain provincial Crown agencies are by statute agents of Her
Majesty in right of a particular province of Canada, and their obligations, when
properly authorized, constitute direct obligations of such province. Other
provincial Crown agencies which are not by law agents of Her Majesty in right of
a particular province of Canada may issue obligations which by statute the
Lieutenant Governor in Council of such province may guarantee, or may authorize
the Treasurer thereof to guarantee, on behalf of the government of such
province. Finally, other provincial Crown agencies which are not by law
agencies of Her Majesty may issue or guarantee obligations not entitled to be
2
<PAGE>
guaranteed by a provincial government. No assurance can be given that the
government of any province of Canada will support the obligations of provincial
Crown agencies which are not agents of Her Majesty, which it has not guaranteed,
as it is not obligated to do so by law. Provincial Crown agency obligations
described above include, but are not limited to, those issued or guaranteed by a
provincial railway corporation, a provincial hydroelectric or power commission
or authority, a provincial municipal financing corporation or agency and a
provincial telephone commission or authority.
Any Canadian obligation acquired by the Money Market Fund will be
denominated in U.S. dollars.
OTHER INSTRUMENTS
The following provides a more detailed explanation of some of the
other instruments that the Small/Mid Cap, International Small Cap, Growth
Equity, International Growth and Income, Asset Allocation, Strategic Income,
Investment Quality Bond, U.S. Government Securities and National Municipal Bond
Funds may invest in.
1. MORTGAGE SECURITIES
Mortgage securities differ from conventional bonds in that principal is
paid over the life of the securities rather than at maturity. As a result, a
Portfolio receives monthly scheduled payments of principal and interest, and may
receive unscheduled principal payments representing prepayments on the
underlying mortgages. When a Portfolio reinvests the payments and any
unscheduled prepayments of principal it receives, it may receive a rate of
interest which is higher or lower than the rate on the existing mortgage
securities. For this reason, mortgage securities may be less effective than
other types of debt securities as a means of locking in long-term interest
rates.
In addition, because the underlying mortgage loans and assets may be
prepaid at any time, if a Portfolio purchases mortgage securities at a premium,
a prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if a Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected payments will reduce, yield to maturity.
Adjustable rate mortgage securities are similar to the mortgage securities
discussed above, except that unlike fixed rate mortgage securities, adjustable
rate mortgage securities are collateralized by or represent interests in
mortgage loans with variable rates of interest. These variable rates of
interest reset periodically to align themselves with market rates. Most
adjustable rate mortgage securities provide for an initial mortgage rate that is
in effect for a fixed period, typically ranging from three to twelve months.
Thereafter, the mortgage interest rate will reset periodically in accordance
with movements in a specified published interest rate index. The amount of
interest due to an adjustable rate mortgage holder is determined in accordance
with movements in a specified published interest rate index by adding a pre-
determined increment or "margin" to the specified interest rate index. Many
adjustable rate mortgage securities reset their interest rates based on changes
in the one-year, three-year and five-year constant maturity Treasury rates, the
three-month or six-month Treasury Bill rate, the 11th District Federal Home Loan
Bank Cost of Funds, the National Median Cost of Funds, the one-month, three-
month, six-month or one-year London Interbank Offered Rate ("LIBOR") and other
market rates.
A Portfolio will not benefit from increases in interest rates to the extent
that interest rates rise to the point where they cause the current coupon of
adjustable rate mortgages held as investments to exceed any maximum allowable
annual or lifetime reset limits (or "cap rates") for a particular mortgage. In
this event, the value of the mortgage securities in a Portfolio would likely
decrease. Also, the Portfolio's net asset value could vary to the extent that
current yields on adjustable rate mortgage securities are different than market
yields during interim periods between coupon reset dates. During periods of
declining interest rates, income to a Portfolio derived from adjustable rate
mortgages which remain in a mortgage pool will decrease in contrast to the
income on fixed rate mortgages, which will remain constant. Adjustable rate
mortgages also have less potential for appreciation in value as interest rates
decline than do fixed rate investments.
PRIVATELY-ISSUED MORTGAGE SECURITIES. Privately-issued pass through
securities provide for the monthly principal and interest payments made by
individual borrowers to pass through to investors on a corporate basis, and in
privately-issued collateralized mortgage obligations, as further described
below. Privately-issued mortgage securities are issued by private originators
of, or investors in, mortgage loans, including mortgage bankers, commercial
banks, investment banks, savings and loan associations and special purpose
subsidiaries of the foregoing. Since privately-issued mortgage certificates are
not guaranteed by an entity having the credit status of GNMA or FHLMC, such
securities generally are structured with one or more types of credit
enhancement. For a description of the types of credit enhancements that may
accompany privately-issued mortgage securities, see "Asset-Backed Securities--
Types of Credit Support" below. A Portfolio will not limit its investments to
asset-backed securities with credit enhancements.
3
<PAGE>
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs generally are bonds or
certificates issued in multiple classes that are collateralized by or represent
an interest in mortgages. CMOs may be issued by single-purpose, stand-alone
finance subsidiaries or trusts of financial institutions, government agencies,
investment banks or other similar institutions. Each class of CMOs, often
referred to as a "tranche", may be issued with a specific fixed coupon rate
(which may be zero) or a floating coupon rate, and has a stated maturity or
final distribution date. Principal prepayments on the underlying mortgages may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrued on CMOs on a monthly,
quarterly or semiannual basis. The principal of and interest on the underlying
mortgages may be allocated among the several classes of a series of a CMO in
many ways. The general goal sought to be achieved in allocating cash flows on
the underlying mortgages to the various classes of a series of CMOs is to create
tranches on which the expected cash flows have a higher degree of predictability
than the underlying mortgages. As a general matter, the more predictable the
cash flow is on a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgages. The yields on these tranches are
relatively higher than on tranches with more predictable cash flows. Because of
the uncertainty of the cash flows on these tranches, and the sensitivity thereof
to changes in prepayment rates on the underlying mortgages, the market prices of
and yield on these tranches tend to be highly volatile.
CMOs purchased may be:
(1) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. Government;
(2) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and the guarantee is collateralized by
U.S. Government securities; or
(3) securities for which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest is supported
by the credit of an agency or instrumentality of the U.S. Government.
STRIPS. In addition to the U.S. Government securities discussed above,
certain Portfolios may invest in separately traded interest components of
securities issued or guaranteed by the U.S. Treasury. The interest components
of selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the interest components are individually numbered and separately
issued by the U.S. Treasury at the request of depository financial institutions,
which then trade the component parts independently.
STRIPPED MORTGAGE SECURITIES. Stripped mortgage securities are derivative
multiclass mortgage securities. Stripped mortgage securities may be issued by
agencies or instrumentalities of the U.S. Government, or by private issuers,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities have greater volatility than other types of mortgage
securities in which a Portfolio invests. Although stripped mortgage securities
are purchased and sold by institutional investors through several investment
banking firms acting as brokers or dealers, the market for such securities has
not yet been fully developed. Accordingly, stripped mortgage securities are
generally illiquid and to such extent, together with any other illiquid
investments, will not exceed 10% of a Portfolio's net assets.
Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive
all of the interest (the interest-only or "IO" class), while the other class
will receive all of the principal (the principal-only or "PO" class). The yield
to maturity on an IO class is extremely sensitive not only to changes in
prevailing interest rates but also the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a Portfolio's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Portfolio may fail to fully recoup its initial
investment in these securities even if the securities have received the highest
rating by a nationally recognized statistical rating organization.
As interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of the other mortgage securities
described in this Statement of Additional Information, like other debt
instruments, will tend to move in the opposite direction of interest rates.
Accordingly, the Fund believes that investing in IOs, in conjunction with the
other mortgage securities described herein, will contribute to a Portfolio's
relatively stable net asset value.
In addition to the stripped mortgage securities described above, the
Strategic Income Fund may invest in similar securities such as Super POs and
Levered IOs which are more volatile than POs, IOs and IOettes. Risks associated
with instruments such as Super POs are similar in nature to those risks related
to investments in POs. Risks connected with Levered IOs and IOettes are
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similar in nature to those associated with IOs. The Strategic Income Fund may
also invest in other similar instruments developed in the future that are deemed
consistent with the investment objective, policies and restrictions of the
Portfolio.
Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to a Portfolio. See "Taxes -- Pay-
in-kind Bonds, Zero Coupon Bonds and Discount Obligations."
INVERSE FLOATERS. The Strategic Income Fund and the National Municipal
Bond Fund may invest in inverse floaters, which are also derivative mortgage
securities. Inverse floaters may be issued by agencies or instrumentalities of
the U.S. Government, or by private issuers, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Inverse floaters have greater volatility
than other types of mortgage securities in which a Portfolio invests (with the
exception of stripped mortgage securities). Although inverse floaters are
purchased and sold by institutional investors through several investment banking
firms acting as brokers or dealers, the market for such securities has not yet
been fully developed. Accordingly, inverse floaters are generally illiquid and
to such extent, together with any other illiquid investments, will not exceed
10% of a Portfolio's net assets.
Inverse floaters are structured as a class of security that receives
distributions on a pool of mortgage assets and whose yields move in the opposite
direction of short-term interest rates and at an accelerated rate. Such
securities have the effect of providing a degree of investment leverage since
they will generally increase or decrease in value in response to changes in
market interest rates at a rate which is a multiple (typically two) of the rate
at which fixed-rate long-term debt obligations increase or decrease in response
to such changes. As a result, the market values of such securities will
generally be more volatile than the market value of fixed-rate obligations.
2. ASSET-BACKED SECURITIES
The securitization techniques used to develop mortgage securities are also
being applied to a broad range of other assets. Through the use of trusts and
special purpose corporations, automobile and credit card receivables are being
securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO structure.
Generally the issuers of asset-backed bonds, notes or pass-through certificates
are special purpose entities and do not have any significant assets other than
the receivables securing such obligations. In general, the collateral
supporting asset-backed securities is of a shorter maturity than mortgage loans.
As a result, investment in these securities should result in greater price
stability for a Portfolio's shares. Instruments backed by pools of receivables
are similar to mortgage-backed securities in that they are subject to
unscheduled prepayments of principal prior to maturity. When the obligations
are prepaid, a Portfolio must reinvest the prepaid amounts in securities the
yields of which reflect interest rates prevailing at the time. Therefore, a
Portfolio's ability to maintain a portfolio which includes high-yielding asset-
backed securities will be adversely affected to the extent that prepayments of
principal must be reinvested in securities which have lower yields than the
prepaid obligations. Moreover, prepayments of securities purchased at a premium
could result in a realized loss. A Portfolio will only invest in asset-backed
securities rated, at the time of purchase, "AA" or better by S&P or "Aa" or
better by Moody's or which, in the opinion of the applicable Subadviser, are of
comparable quality.
As with mortgage securities, asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties and
use similar credit enhancement techniques. For a description of the types of
credit enhancement that may accompany privately-issued mortgage securities, see
"Types of Credit Support" below. A Portfolio will not limit its investments to
asset-backed securities with credit enhancements. Although asset-backed
securities are not generally traded on a national securities exchange, such
securities are widely traded by brokers and dealers, and to such extent will not
be considered illiquid securities for the purposes of the investment restriction
under "Investment Restrictions" below.
TYPES OF CREDIT SUPPORT. Mortgage securities and asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties. To lessen the effect of failure by obligors on underlying
assets to make payments, such securities may contain elements of credit support.
Such credit support falls into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
pass-through of payments due on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Portfolio will not pay any additional fees
for such credit support, although the existence of credit support may increase
the price of a security.
The ratings of mortgage securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of such
securities could be subject to reduction in the event of deterioration in the
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creditworthiness of the credit enhancement provider even in cases where the
delinquency and loss experience on the underlying pool of assets is better than
expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments sometimes funded from a portion of the
payments on the underlying assets are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such security.
3. ZERO COUPON SECURITIES AND PAY-IN-KIND BONDS
Zero coupon securities and pay-in-kind bonds involve special risk
considerations. Zero coupon securities are debt securities that do not provide
for the payment of cash income but are sold at substantial discounts from their
value at maturity. When a zero coupon security is held to maturity, its entire
return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference
is known at the time of purchase, so that investors holding zero coupon
securities until maturity know at the time of their investment what the return
on their investment will be. Certain zero coupon securities also are sold at
substantial discounts from their maturity value and provide for the commencement
of regular interest payments at a deferred date. The Portfolios also may
purchase pay-in-kind bonds. Pay-in-kind bonds are bonds that pay all or a
portion of their interest in the form of additional debt or equity securities.
The U.S. Government Securities Fund will not invest in zero coupon securities
having maturities of greater than ten years.
Zero coupon securities and pay-in-kind bonds tend to be subject to greater
price fluctuations in response to changes in interest rates than are ordinary
interest-paying debt securities with similar maturities. The value of zero
coupon securities appreciates more during periods of declining interest rates
and depreciates more during periods of rising interest rates.
Zero coupon securities and pay-in-kind bonds may be issued by a wide
variety of corporate and governmental issuers. Although zero coupon securities
and pay-in-kind bonds are generally not traded on a national securities
exchange, such securities are widely traded by brokers and dealers and, to such
extent, will not be considered illiquid for the purposes of the investment
restriction under "Investment Restrictions" below.
Current federal income tax law requires the holder of a zero coupon
security or certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its qualification
as a regulated investment company and avoid liability for federal income and
excise taxes, a Portfolio may be required to distribute income accrued with
respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements. See "TAXES -- Pay-in-kind Bonds, Zero Coupon Bonds
and Discount Obligations" below.
4. HIGH YIELD/HIGH RISK DOMESTIC CORPORATE DEBT SECURITIES
The market for high yield U.S. corporate debt securities (commonly known as
"junk bonds") has undergone significant changes in the past decade. Issuers in
the U.S. high yield market originally consisted primarily of growing small
capitalization companies and larger capitalization companies whose credit
quality had declined from investment grade. During the mid-1980s, participants
in the U.S. high yield market issued high yield securities principally in
connection with leveraged buyouts and other leveraged recapitalizations. In
late 1989 and 1990, the volume of new issues of high yield U.S. corporate debt
declined significantly and liquidity in the market decreased. Since early 1991,
the volume of new issues of high yield U.S. corporate debt securities has
increased substantially and secondary market liquidity has improved. During the
same periods, the U.S. high yield debt market exhibited strong returns, as it
continues to be an attractive market in terms of yield and yield spread over
U.S. Treasury securities. Currently, most new offerings of U.S. high yield
securities are being issued to refinance higher coupon debt and to raise funds
for general corporate purposes.
High yield U.S. corporate debt securities include bonds, debentures, notes
and commercial paper and will generally be unsecured. Most of these debt
securities will bear interest at fixed rates. However, a Portfolio may also
invest in debt securities with variable rates of interest or which involve
equity features, such as contingent interest or participations based on
revenues, sales or profits (i.e., interest or other payments, often in addition
to a fixed rate of return, that are based on the borrower's attainment of
specified levels of revenues, sales or profits and thus enable the holder of the
security to share in the potential success of the venture).
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5. HIGH YIELD/HIGH RISK FOREIGN SOVEREIGN DEBT SECURITIES
The Strategic Income, International Small Cap and Investment Quality Bond
Funds expect that a significant portion of their emerging market governmental
debt obligations will consist of "Brady Bonds." Brady Bonds are debt
securities, generally denominated in U.S. dollars, issued under the framework
of the "Brady Plan," an initiative announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external commercial bank indebtedness. The Brady Plan framework, as
it has developed, contemplates the exchange of external commercial bank debt for
newly issued bonds (Brady Bonds). Brady Bonds may also be issued in respect of
new money being advanced by existing lenders in connection with the debt
restructuring. Investors should recognize that Brady Bonds have been issued
only recently, and accordingly do not have a long payment history. Brady Bonds
issued to date generally have maturities of between 15 and 30 years from the
date of issuance and have traded at a deep discount from their face value. The
Strategic Income, International Small Cap and Investment Quality Bond Funds may
invest in Brady Bonds of emerging market countries that have been issued to
date, as well as those which may be issued in the future. In addition to Brady
Bonds, the Strategic Income, International Small Cap and Investment Quality Bond
Funds may invest in emerging market governmental obligations issued as a result
of debt restructuring agreements outside of the scope of the Brady Plan. A
substantial portion of the Brady Bonds and other sovereign debt securities in
which the Portfolios invest are likely to be acquired at a discount, which
involves certain considerations discussed below under "TAXES -- Pay-in-kind
Bonds, Zero Coupon Bonds and Discount Obligations."
Agreements implemented under the Brady Plan to date are designed to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of such debt which
carry a below-market stated rate of interest (generally known as par bonds),
bonds issued at a discount from the face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases over time and
bonds issued in exchange for the advancement of new money by existing lenders.
Discount bonds issued to date under the framework of the Brady Plan have
generally borne interest computed semiannually at a rate equal to 13/16 of one
percent above the then current six month LIBOR rate. Regardless of the stated
face amount and stated interest rate of the various types of Brady Bonds, the
Strategic Income, International Small Cap and Investment Quality Bond Funds will
purchase Brady Bonds in secondary markets, as described below, in which the
price and yield to the investor reflect market conditions at the time of
purchase. Brady Bonds issued to date have traded at a deep discount from their
face value. Certain sovereign bonds are entitled to "value recovery payments"
in certain circumstances, which in effect constitute supplemental interest
payments but generally are not collateralized. Certain Brady Bonds have been
collateralized as to principal due at maturity (typically 15 to 30 years from
the date of issuance) by U.S. Treasury zero coupon bonds with a maturity equal
to the final maturity of such Brady Bonds, although the collateral is not
available to investors until the final maturity of the Brady Bonds. Collateral
purchases are financed by the International Monetary Fund (the "IMF"), the World
Bank and the debtor nations' reserves. In addition, interest payments on
certain types of Brady Bonds may be collateralized by cash or high-grade
securities in amounts that typically represent between 12 and 18 months of
interest accruals on these instruments with the balance of the interest accruals
being uncollateralized. The Strategic Income, International Small Cap and
Investment Quality Bond Funds may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with the terms of the Brady Bonds. Brady Bonds issued to date are purchased and
sold in secondary markets through U.S. securities dealers and other financial
institutions and are generally maintained through European transnational
securities depositories.
6. MUNICIPAL LEASE OBLIGATIONS
The National Municipal Bond Fund may invest in municipal lease obligations.
Municipal lease obligations are secured by revenues derived from the lease of
property to state and local government units. The underlying leases typically
are renewable annually by the governmental user, although the lease may have a
term longer than one year. If the governmental user does not appropriate
sufficient funds for the following year's lease payments, the lease will
terminate, with the possibility of default on the lease obligations and
significant loss to the Portfolio. In the event of a termination, assignment or
sublease by the governmental user, the interest paid on the municipal lease
obligation could become taxable, depending upon the identity of the succeeding
user.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
As described in the Prospectus under "Hedging and Other Strategic
Transactions", an individual Portfolio may be authorized to use a variety of
investment strategies. These strategies will be used for hedging purposes only,
including hedging various market risks (such as interest rates, currency
exchange rates and broad or specific market movements), and managing the
effective maturity or duration of debt instruments held by the Portfolio, (such
investment strategies and transactions are referred to herein as "Hedging and
Other Strategic Transactions"). The description in the Prospectus of each
Portfolio indicates which, if any, of these types of transactions may be used by
the Portfolio.
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A detailed discussion of Hedging and Other Strategic Transactions follows
below. No Portfolio which is authorized to use any of these investment
strategies will be obligated, however, to pursue any of such strategies and no
Portfolio makes any representation as to the availability of these techniques at
this time or at any time in the future. In addition, a Portfolio's ability to
pursue certain of these strategies may be limited by the Commodity Exchange Act,
as amended, applicable rules and regulations of the Commodity Futures Trading
Commission ("CFTC") thereunder and the federal income tax requirements
applicable to regulated investment companies which are not operated as commodity
pools.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging and Other Strategic
Transactions involving options require segregation of Portfolio assets in
special accounts, as described below under "Use of Segregated and Other Special
Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
A Portfolio's purchase of a put option on a security, for example, might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
of such instrument by giving the Portfolio the right to sell the instrument at
the option exercise price. A call option, upon payment of a premium, gives the
purchaser of the option the right to buy, and the seller the obligation to sell,
the underlying instrument at the exercise price. A Portfolio's purchase of a
call option on a security, financial futures contract, index, currency or other
instrument might be intended to protect the Portfolio against an increase in the
price of the underlying instrument that it intends to purchase in the future by
fixing the price at which it may purchase the instrument. An "American" style
put or call option may be exercised at any time during the option period,
whereas a "European" style put or call option may be exercised only upon
expiration or during a fixed period prior to expiration. Exchange-listed
options are issued by a regulated intermediary such as the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to the options. The discussion below uses the OCC as an example, but is
also applicable to other similar financial intermediaries.
OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or currency, although in
the future, cash settlement may become available. Index options and Eurodollar
instruments (which are described below under "Eurodollar Instruments") are cash
settled for the net amount, if any, by which the option is "in-the-money" (that
is, the amount by which the value of the underlying instrument exceeds, in the
case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Portfolio's ability to close out its position as a purchaser or seller of
an OCC-issued or exchange-listed put or call option is dependent, in part, upon
the liquidity of the particular option market. Among the possible reasons for
the absence of a liquid option market on an exchange are: (1) insufficient
trading interest in certain options, (2) restrictions on transactions imposed by
an exchange, (3) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
including reaching daily price limits, (4) interruption of the normal operations
of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the relevant market for that option on that exchange
would cease to exist, although any such outstanding options on that exchange
would continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent
that the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties (collectively referred to as
"Counterparties" and individually referred to as a "Counterparty") through a
direct bilateral agreement with the Counterparty. In contrast to exchange-
listed options, which generally have standardized terms and performance
mechanics, all of the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guaranties and security, are
determined by negotiation of the parties. It is anticipated that any Portfolio
authorized to use OTC options will generally only enter into OTC options that
have cash settlement provisions, although it will not be required to do so.
Unless the parties provide for it, no central clearing or guaranty function
is involved in an OTC option. As a result, if a Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will
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lose any premium it paid for the option as well as any anticipated benefit of
the transaction. Thus, the Subadviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be met.
A Portfolio will enter into OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers," or broker-dealers, domestic or foreign banks, or other
financial institutions that are deemed creditworthy by the Subadviser. In the
absence of a change in the current position of the staff of the Securities and
Exchange Commission (the "Commission"), OTC options purchased by a Portfolio and
the amount of the Portfolio's obligation pursuant to an OTC option sold by the
Portfolio (the cost of the sell-back plus the in-the-money amount, if any) or
the value of the assets held to cover such options will be deemed illiquid.
If a Portfolio sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments held by the Portfolio or
will increase the Portfolio's income. Similarly, the sale of put options can
also provide Portfolio gains.
If and to the extent authorized to do so, a Portfolio may purchase and sell
call options on securities and on Eurodollar instruments that are traded on U.S.
and foreign securities exchanges and in the OTC markets, and on securities
indices, currencies and futures contracts. All calls sold by a Portfolio must
be "covered," that is, the Portfolio must own the securities subject to the
call, must own an offsetting option on a futures position, or must otherwise
meet the asset segregation requirements described below for so long as the call
is outstanding. Even though a Portfolio will receive the option premium to help
protect it against loss, a call sold by the Portfolio will expose the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Portfolio to hold a security or instrument that it might
otherwise have sold.
Each Portfolio reserves the right to purchase or sell options on
instruments and indices which may be developed in the future to the extent
consistent with applicable law, the Portfolio's investment objective and the
restrictions set forth herein.
If and to the extent authorized to do so, a Portfolio may purchase and sell
put options on securities (whether or not it holds the securities in its
portfolio) and on securities indices, currencies and futures contracts. A
Portfolio will not sell put options if, as a result, more than 50% of the
Portfolio's assets would be required to be segregated to cover its potential
obligations under put options other than those with respect to futures
contracts. In selling put options, a Portfolio faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
If and to the extent authorized to do so, a Portfolio may trade financial
futures contracts or purchase or sell put and call options on those contracts as
a hedge against anticipated interest rate, currency or market changes, for
duration management and for permissible non-hedging purposes. Futures contracts
are generally bought and sold on the commodities exchanges on which they are
listed with payment of initial and variation margin as described below. The
sale of a futures contract creates a firm obligation by a Portfolio, as seller,
to deliver to the buyer the specific type of financial instrument called for in
the contract at a specific future time for a specified price (or, with respect
to certain instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract and obligates the seller to deliver that
position.
A Portfolio's use of financial futures contracts and options thereon will
in all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the CFTC and generally will be entered
into only for bona fide hedging, risk management (including duration
management). Maintaining a futures contract or selling an option on a futures
contract will typically require a Portfolio to deposit with a financial
intermediary, as security for its obligations, an amount of cash or other
specified assets ("initial margin") that initially is from 1% to 10% of the face
amount of the contract (but may be higher in some circumstances). Additional
cash or assets ("variation margin") may be required to be deposited thereafter
daily as the mark-to-market value of the futures contract fluctuates. The
purchase of an option on a financial futures contract involves payment of a
premium for the option without any further obligation on the part of a
Portfolio. If a Portfolio exercises an option on a futures contract it will be
obligated to post initial margin (and potentially variation margin) for the
resulting futures position just as it would for any futures position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction, but no assurance can be given that a position can be
offset prior to settlement or that delivery will occur.
The value of all futures contracts sold by a Portfolio (adjusted for the
historical volatility relationship between such Portfolio and the contracts)
will not exceed the total market value of the Portfolio's securities. The
segregation requirements with respect to futures contracts and options thereon
are described below under "Use of Segregated and Other Special Accounts."
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OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
If and to the extent authorized to do so, a Portfolio may purchase and sell
call and put options on securities indices and other financial indices. In so
doing, the Portfolio can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, options on indices
settle by cash settlement; that is, an option on an index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the index upon which the option is based exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
(except if, in the case of an OTC option, physical delivery is specified). This
amount of cash is equal to the excess of the closing price of the index over the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount. The gain or loss on an option on an index depends
on price movements in the instruments comprising the market, market segment,
industry or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to options
on securities.
CURRENCY TRANSACTIONS
If and to the extent authorized to do so, a Portfolio may engage in
currency transactions with Counterparties to hedge the value of portfolio
securities denominated in particular currencies against fluctuations in relative
value. Currency transactions include currency forward contracts, exchange-
listed currency futures contracts and options thereon, exchange-listed and OTC
options on currencies, and currency swaps. A forward currency contract involves
a privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. A currency swap is an agreement to exchange cash
flows based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below under "Swaps, Caps,
Floors and Collars". A Portfolio may enter into currency transactions only with
Counterparties that are deemed creditworthy by the Subadviser.
A Portfolio's dealings in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps will be limited to hedging and other non-speculative purposes,
including transaction hedging and position hedging. Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of the Portfolio's portfolio securities or the receipt of
income from them. Position hedging is entering into a currency transaction with
respect to portfolio securities positions denominated or generally quoted in
that currency. A Portfolio will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held by the Portfolio
that are denominated or generally quoted in or currently convertible into the
currency, other than with respect to proxy hedging as described below.
A Portfolio may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to increase or decline
in value relative to other currencies to which the Portfolio has or in which the
Portfolio expects to have exposure. To reduce the effect of currency
fluctuations on the value of existing or anticipated holdings of its securities,
a Portfolio may also engage in proxy hedging. Proxy hedging is often used when
the currency to which a Portfolio's holdings is exposed is difficult to hedge
generally or difficult to hedge against the dollar. Proxy hedging entails
entering into a forward contract to sell a currency, the changes in the value of
which are generally considered to be linked to a currency or currencies in which
some or all of a Portfolio's securities are or are expected to be denominated,
and to buy dollars. The amount of the contract would not exceed the market
value of the Portfolio's securities denominated in linked currencies.
Currency transactions are subject to risks different from other portfolio
transactions, as discussed below under "Risk Factors." If a Portfolio enters
into a currency hedging transaction, the Portfolio will comply with the asset
segregation requirements described below under "Use of Segregated and Other
Special Accounts."
COMBINED TRANSACTIONS
If and to the extent authorized to do so, a Portfolio may enter into
multiple transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts), multiple interest rate transactions and any combination of futures,
options, currency and interest rate transactions, instead of a single Hedging
and Other Strategic Transaction, as part of a single or combined strategy when,
in the judgment of the Subadviser, it is in the best interests of the Portfolio
to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
will normally be entered into by a Portfolio based on the Subadviser's judgment
that the combined strategies will reduce risk or otherwise more effectively
achieve the desired portfolio management goal, it is possible that the
combination will instead increase the risks or hinder achievement of the
portfolio management objective.
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SWAPS, CAPS, FLOORS AND COLLARS
A Portfolio may be authorized to enter into interest rate, currency and
index swaps, the purchase or sale of related caps, floors and collars and other
derivatives. A Portfolio will enter into these transactions primarily to seek
to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities a
Portfolio anticipates purchasing at a later date. A Portfolio will use these
transactions for non-speculative purposes and will not sell interest rate caps
or floors if it does not own securities or other instruments providing the
income the Portfolio may be obligated to pay. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). A currency
swap is an agreement to exchange cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap entitles
the purchaser to receive payments on a notional principal amount from the party
selling the cap to the extent that a specified index exceeds a predetermined
interest rate. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor to the extent that a specified index falls below
a predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling the floor to the extent that a specific index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return with a predetermined range of interest
rates or values.
A Portfolio will usually enter into interest rate swaps on a net basis,
that is, the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments.
Inasmuch as these swaps, caps, floors, collars and other similar derivatives are
entered into for good faith hedging or other non-speculative purposes, they do
not constitute senior securities under the Investment Company Act of 1940, as
amended (the "1940 Act"), and, thus, will not be treated as being subject to the
Portfolio's borrowing restrictions. A Portfolio will not enter into any swap,
cap, floor, collar or other derivative transaction unless the Counterparty is
deemed creditworthy by the Subadviser. If a Counterparty defaults, a Portfolio
may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by a Subadviser based
on various factors, including (1) the frequency of trades and quotations, (2)
the number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a Portfolio's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed to be within the 10% restriction on investments in securities that are
not readily marketable.
Each Portfolio will maintain cash and appropriate liquid assets (i.e., high
grade debt securities) in a segregated custodial account to cover its current
obligations under swap agreements. If a Portfolio enters into a swap agreement
on a net basis, it will segregate assets with a daily value at least equal to
the excess, if any, of the Portfolio's accrued obligations under the swap
agreement over the accrued amount the Portfolio is entitled to receive under the
agreement. If a Portfolio enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount of the
Portfolio's accrued obligations under the agreement. See "Use of Segregated and
Other Special Accounts."
EURODOLLAR INSTRUMENTS
If and to the extent authorized to do so, a Portfolio may make investments
in Eurodollar instruments, which are typically dollar-denominated futures
contracts or options on those contracts that are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
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MUNICIPAL BOND INDEX FUTURES CONTRACTS
The National Municipal Bond Fund may enter into municipal bond index
futures contracts. A municipal bond index futures contract is an agreement to
take or make delivery of an amount of cash equal to the difference between the
value of the index at the beginning and at the end of the contract period. The
National Municipal Bond Fund may enter into short municipal bond index futures
contracts in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its respective portfolio that might
otherwise result. When the Portfolio is not fully invested in securities and
anticipates a significant market advance, it may enter into long municipal bond
index futures contracts in order to gain rapid market exposure that may wholly
or partially offset increases in the costs of securities that it intends to
purchase. In a substantial majority of these transactions, the Portfolio will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of securities.
RISK FACTORS
Hedging and Other Strategic Transactions have special risks associated with
them, including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the Subadviser's view as to certain market
movements is incorrect, the risk that the use of the Hedging and Other Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options could result in losses to a Portfolio, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, or cause a Portfolio to hold a security it might otherwise sell.
The use of futures and options transactions entails certain special risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of a
Portfolio could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Portfolio's position. In addition,
futures and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain
markets, a Portfolio might not be able to close out a transaction without
incurring substantial losses. Although a Portfolio's use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time it will tend to
limit any potential gain to a Portfolio that might result from an increase in
value of the position. Finally, the daily variation margin requirements for
futures contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is limited to the cost of the
initial premium.
Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result
in losses to a Portfolio if the currency being hedged fluctuates in value to a
degree or in a direction that is not anticipated. Further, the risk exists that
the perceived linkage between various currencies may not be present or may not
be present during the particular time that a Portfolio is engaging in proxy
hedging. Currency transactions are also subject to risks different from those
of other portfolio transactions. Because currency control is of great
importance to the issuing governments and influences economic planning and
policy, purchases and sales of currency and related instruments can be adversely
affected by government exchange controls, limitations or restrictions on
repatriation of currency, and manipulations or exchange restrictions imposed by
governments. These forms of governmental actions can result in losses to a
Portfolio if it is unable to deliver or receive currency or monies in settlement
of obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures contracts are subject to the same
risks that apply to the use of futures contracts generally. Further, settlement
of a currency futures contract for the purchase of most currencies must occur at
a bank based in the issuing nation. Trading options on currency futures
contracts is relatively new, and the ability to establish and close out
positions on these options is subject to the maintenance of a liquid market that
may not always be available. Currency exchange rates may fluctuate based on
factors extrinsic to that country's economy.
Losses resulting from the use of Hedging and Other Strategic Transactions
will reduce a Portfolio's net asset value, and possibly income, and the losses
can be greater than if Hedging and Other Strategic Transactions had not been
used.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Hedging and Other Strategic
Transactions may not be regulated as rigorously as in the United States, may not
involve a clearing mechanism and related guarantees, and will be subject to the
risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of positions taken as
part of non-U.S. Hedging and Other Strategic Transactions also could be
adversely affected by: (1) other complex foreign political, legal and economic
factors, (2) lesser availability of data on which to make trading decisions than
in the United States, (3) delays in a Portfolio's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (5) lower
trading volume and liquidity.
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USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Use of many Hedging and Other Strategic Transactions by a Portfolio will
require, among other things, that the Portfolio segregate cash, liquid high
grade debt obligations or other assets with its custodian, or a designated sub-
custodian, to the extent the Portfolio's obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
In general, either the full amount of any obligation by a Portfolio to pay or
deliver securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade debt obligations at least
equal to the current amount of the obligation must be segregated with the
custodian or sub-custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. A call option on securities written by a
Portfolio, for example, will require the Portfolio to hold the securities
subject to the call (or securities convertible into the needed securities
without additional consideration) or to segregate liquid high grade debt
obligations sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Portfolio on an index will require the
Portfolio to own portfolio securities that correlate with the index or to
segregate liquid high grade debt obligations equal to the excess of the index
value over the exercise price on a current basis. A put option on securities
written by a Portfolio will require the Portfolio to segregate liquid high grade
debt obligations equal to the exercise price. Except when a Portfolio enters
into a forward contract in connection with the purchase or sale of a security
denominated in a foreign currency or for other non-speculative purposes, which
requires no segregation, a currency contract that obligates the Portfolio to buy
or sell a foreign currency will generally require the Portfolio to hold an
amount of that currency, liquid securities denominated in that currency equal to
a Portfolio's obligations or to segregate liquid high grade debt obligations
equal to the amount of the Portfolio's obligations.
OTC options entered into by a Portfolio, including those on securities,
currency, financial instruments or indices, and OCC-issued and exchange-listed
index options will generally provide for cash settlement, although a Portfolio
will not be required to do so. As a result, when a Portfolio sells these
instruments it will segregate an amount of assets equal to its obligations under
the options. OCC-issued and exchange-listed options sold by a Portfolio other
than those described above generally settle with physical delivery, and the
Portfolio will segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery or with an election of
either physical delivery or cash settlement will be treated the same as other
options settling with physical delivery.
In the case of a futures contract or an option on a futures contract, a
Portfolio must deposit initial margin and, in some instances, daily variation
margin in addition to segregating assets sufficient to meet its obligations to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. These assets may consist of
cash, cash equivalents, liquid high grade debt or equity securities or other
acceptable assets. A Portfolio will accrue the net amount of the excess, if
any, of its obligations relating to swaps over its entitlements with respect to
each swap on a daily basis and will segregate with its custodian, or designated
sub-custodian, an amount of cash or liquid high grade debt obligations having an
aggregate value equal to at least the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to a Portfolio's net
obligation, if any.
Hedging and Other Strategic Transactions may be covered by means other than
those described above when consistent with applicable regulatory policies. A
Portfolio may also enter into offsetting transactions so that its combined
position, coupled with any segregated assets, equals its net outstanding
obligation in related options and Hedging and Other Strategic Transactions. A
Portfolio could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Portfolio. Moreover, instead of segregating assets if it holds a futures
contracts or forward contract, a Portfolio could purchase a put option on the
same futures contract or forward contract with a strike price as high or higher
than the price of the contract held. Other Hedging and Other Strategic
Transactions may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction, no segregation is
required, but if it terminates prior to that time, assets equal to any remaining
obligation would need to be segregated.
OTHER LIMITATIONS
No Portfolio will maintain open short positions in futures contracts, call
options written on futures contracts, and call options written on securities
indices if, in the aggregate, the current market value of the open positions
exceeds the current market value of that portion of its securities portfolio
being hedged by those futures and options plus or minus the unrealized gain or
loss on those open positions, adjusted for the historical volatility
relationship between that portion of the Portfolio and the contracts (e.g., the
----
Beta volatility factor). For purposes of the limitation stated in the
immediately preceding sentence, to the extent the Portfolio has written call
options on specific securities in that portion of its portfolio, the value of
those securities will be deducted from the current market value of that portion
of the securities portfolio. If this limitation should be exceeded at any time,
the Portfolio will take prompt action to close out the appropriate number of
open short positions to bring its open futures and options positions within this
limitation.
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WARRANT TRANSACTIONS AND RISKS
Subject to certain restrictions described under "INVESTMENT RESTRICTIONS"
below, each of the Portfolios (other than the Money Market Fund) may purchase
warrants, including warrants traded independently of the underlying securities.
Such transactions entail certain risks. Warrants may be considered more
speculative than certain other types of investments in that prior to their
exercise they do not entitle a holder to dividends and voting rights with
respect to the securities which may be purchased by the exercise thereof, nor do
they represent any rights in the assets of the issuing company. Also, the value
of the warrant does not necessarily change with the value of the underlying
security. If a warrant expires unexercised, the Portfolio will lose the amount
paid for the warrant and any transaction costs.
The degree to which a Portfolio may utilize Hedging and Other Strategic
Transactions may also be affected by certain provisions of the Code.
INVESTMENT RESTRICTIONS
There are two classes of investment restrictions to which the Fund is
subject in implementing the investment policies of the Portfolios: fundamental
and nonfundamental. Nonfundamental restrictions are subject to change by the
Trustees of the Fund without shareholder approval. Fundamental restrictions may
only be changed by a vote of the lesser of (i) 67% or more of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares.
With respect to the submission of a change in an investment restriction to
the holders of the Fund's outstanding voting securities, the matter shall be
deemed to have been effectively acted upon with respect to a particular
Portfolio if a majority of the outstanding voting securities of the Portfolio
vote for the approval of the matter, notwithstanding (1) that the matter has not
been approved by the holders of a majority of the outstanding voting securities
of any other Portfolio affected by the matter, and (2) that the matter has not
been approved by the vote of a majority of the outstanding voting securities of
the Fund.
All of the restrictions through restriction (8) are fundamental.
Restrictions (9) through (20) are nonfundamental.
Fundamental
The Fund may not issue senior securities, except to the extent that
the borrowing of money in accordance with restriction (3) may constitute the
issuance of a senior security. (For purposes of this restriction, purchasing
securities on a when-issued or delayed delivery basis and engaging in Hedging
and Other Strategic Transactions will not be deemed to constitute the issuance
of a senior security.) In addition, unless a Portfolio is specifically excepted
by the terms of a restriction, each Portfolio will not:
(1) Invest more than 25% of the value of its total assets in
securities of issuers having their principal activities in any particular
industry, excluding U.S. Government securities and, with respect to the Money
Market Fund, obligations of domestic branches of U.S. banks and with respect to
the National Municipal Bond Fund, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or by any state, territory or any
possession of the United States, the District of Columbia, or any of their
authorities, agencies, instrumentalities or political subdivisions, or with
respect to repurchase agreements collateralized by any of such obligations. For
purposes of this restriction, supranational issuers will be considered to
comprise an industry as will each foreign government that issues securities
purchased by a Portfolio.
(2) Purchase the securities of any issuer if the purchase would cause
more than 5% of the value of the Portfolio's total assets to be invested in the
securities of any one issuer (excluding U.S. Government securities) or cause
more than 10% of the voting securities of the issuer to be held by the
Portfolio, except that up to 25% of the value of each Portfolio's total assets
may be invested without regard to these restrictions.
(3) Borrow money except that each Portfolio may borrow (i) for
temporary or emergency purposes (not for leveraging) up to 33 1/3% of the value
of the Portfolio's total assets (including amounts borrowed) less liabilities
(other than borrowings) and (ii) in connection with reverse repurchase
agreements, mortgage dollar rolls and other similar transactions.
(4) Underwrite securities of other issuers except insofar as the Fund
may be considered an underwriter under the Securities Act of 1933 in selling
portfolio securities.
(5) Purchase or sell real estate, except that each Portfolio may
invest in securities issued by companies which invest in real estate or
interests therein and each of the Portfolios other than the Money Market Fund
may invest in mortgages and mortgage-backed securities.
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(6) Purchase or sell commodities or commodity contracts except that each
Portfolio other than the Investment Quality Bond and Money Market Funds may
purchase and sell futures contracts on financial instruments and indices and
options on such futures contracts, and the Small/Mid Cap, International Small
Cap, Growth Equity, Global Growth, Strategic Income and International Growth and
Income Funds may purchase and sell futures contracts on foreign currencies and
options on such futures contracts. The U.S. Government Securities Fund has
elected for the present to not engage in the purchase or sale of commodities or
commodity contracts to the extent permitted by this restriction, but it reserves
the right to engage in such transactions at a future time.
(7) Lend money to other persons except by the purchase of obligations in
which the Portfolio is authorized to invest and by entering into repurchase
agreements. For purposes of this restriction, collateral arrangements with
respect to options, forward currency and futures transactions will not be deemed
to involve the lending of money.
(8) Lend securities in excess of 33% of the value of its total non-cash
assets. For purposes of this restriction, collateral arrangements with respect
to options, forward currency and futures transactions will not be deemed to
involve loans of securities.
Nonfundamental
(9) Knowingly invest more than 10% of the value of its net assets in
securities or other investments not readily marketable, including repurchase
agreements maturing in more than seven days but excluding variable amount master
demand notes.
(10) Purchase any security if as a result the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in securities
of companies (including predecessors) less than three years old.
(11) Sell securities short or purchase securities on margin except that it
may obtain such short-term credits as may be required to clear transactions.
For purposes of this restriction, collateral arrangements with respect to
Hedging and Other Strategic Transactions will not be deemed to involve the use
of margin.
(12) Write or purchase options on securities, financial indices or
currencies except to the extent a Portfolio is specifically authorized to engage
in Hedging and Other Strategic Transactions.
(13) Purchase securities for the purpose of exercising control or
management.
(14) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the Portfolio's total assets to be
invested in investment company securities, provided that (i) no investment will
be made in the securities of any one investment company if immediately after
such investment more than 3% of the outstanding voting securities of such
company would be owned by the Portfolio or more than 5% of the value of the
Portfolio's total assets would be invested in such company and (ii) no
restrictions shall apply to a purchase of investment company securities in
connection with a merger, consolidation or reorganization. For purposes of this
restriction, privately issued collateralized mortgage obligations will not be
treated as investment company securities if issued by "Exemptive Issuers".
Exemptive Issuers are defined as unmanaged, fixed-asset issuers that (a) invest
primarily in mortgage-backed securities, (b) do not issue redeemable securities
as defined in section 2(a)(32) of the 1940 Act, (c) operate under general
exemptive orders exempting them from "all provisions of the Investment Company
Act of 1940," and (d) are not registered or regulated under the 1940 Act as
investment companies.
(15) Pledge, hypothecate, mortgage or transfer (except as provided in
restriction (8) as security for indebtedness) any securities held by the
Portfolio, except in an amount of not more than 10% of the value of the
Portfolio's total assets and then only to secure borrowings permitted by
restrictions (3) and (11). For purposes of this restriction, collateral
arrangements with respect to Hedging and Other Strategic Transactions will not
be deemed to involve a pledge of assets.
(16) Invest in securities of any issuer if, to the knowledge of the
Portfolio, any officer or Trustee of the Fund or officer or director of the
Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer,
and such Trustees, officers and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer.
(17) Purchase interests in oil, gas or other mineral exploration or
development programs or leases, except that it may acquire the securities of
companies engaged in the production or transmission of oil, gas or other
minerals.
(18) Purchase warrants if, as a result, the Portfolio would then have more
than 10% of its total net assets (taken at the lower of cost or current value)
invested in warrants, or if more than 5% of the value of the Portfolio's total
net assets would be invested in warrants which are not listed on a recognized
United States or foreign stock exchange, except for warrants included in units
or attached to other securities.
(19) Purchase securities of foreign issuers, except that (A) each
Portfolio other than the U.S. Government Securities and National Municipal Bond
Fund may invest up to 20% of its total assets in securities of foreign issuers
(in the case of the Small/Mid
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Cap Fund, ADRs and U.S. dollar denominated securities of foreign issuers are not
included in this 20% limit) and (B) this restriction shall not apply to the
International Small Cap, Global Growth, International Growth and Income and
Strategic Income Funds.
(20) Purchase or sell real estate limited partnership interests.
In addition to the above policies, the Money Market Fund is subject to
certain restrictions required by Rule 2a-7 under the 1940 Act. In order to
comply with such restrictions, the Money Market Fund will, among other things,
not purchase the securities of any issuer if it would cause (i) more than 5% of
its total assets to be invested in the securities of any one issuer (excluding
U.S. Government securities and repurchase agreements fully collateralized by
U.S. Government securities), except as permitted by Rule 2a-7 for certain
securities for a period of up to three business days after purchase, (ii) more
than 5% of its total assets to be invested in "second tier securities," as
defined by Rule 2a-7, or (iii) more than the greater of $1 million or 1% of its
total assets to be invested in the second tier securities of that issuer.
For the purposes of the investment limitations applicable to the National
Municipal Bond Fund, the identification of the issuer of a municipal obligation
depends on the terms and conditions of the obligation. If the assets and
revenues of an agency, authority, instrumentality, or other political
subdivision are separate from those of the government creating the subdivision
and the obligation is backed only by the assets and revenues of the subdivision,
such subdivision would be regarded as the sole issuer. Similarly, in the case
of a private activity bond, if the bond is backed only by the assets and
revenues of the non-governmental user, such non-governmental user would be
regarded as the sole issuer. If in either case the creating government or
another entity guarantees an obligation, the guarantee would be considered a
separate security and treated as an issue of such government or entity.
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in the investment's percentage of the value of a
Portfolio's total assets resulting from a change in such values or assets will
not constitute a violation of the percentage restriction, except in the case of
the Money Market Fund where the percentage limitation of restriction (9) must be
met at all times.
PORTFOLIO TURNOVER
The annual rate of portfolio turnover will normally differ for each
Portfolio and may vary from year to year. Portfolio turnover is calculated by
dividing the lesser of purchases or sales of portfolio securities during the
fiscal year by the monthly average of the value of the Portfolio's securities
(excluding from the computation all securities, including options, with
maturities at the time of acquisition of one year or less). A high rate of
portfolio turnover (in excess of 100%) generally involves correspondingly
greater brokerage commission expenses, which must be borne directly by the
Portfolio. No portfolio turnover rate can be calculated for the Money Market
Fund due to the short maturities of the instruments purchased. The Small/Mid
Cap, International Small Cap and Growth Fund have recently been established, and
therefore no historical portfolio turnover rates are shown. The Small/Mid Cap,
International Small Cap and Growth Equity Fund anticipate that their annual
portfolio turnover rates generally will not exceed 120%, 100% and 175%,
respectively. The portfolio turnover rate may vary from year to year, as well
as within a year. The portfolio turnover rates for the other Portfolios of the
Fund for the periods November 1, 1993 to October 31, 1994 and November 1, 1994
to October 31, 1995 were as follows:
<TABLE>
<CAPTION>
11/1/94 11/1/93
TO TO
10/31/95 10/31/94
- ------------------------------------------------------------
<S> <C> <C>
Global Growth.................... 57 % 54%
Value Equity..................... 54 %* 39%
Growth and Income................ 40 % 45%
Asset Allocation................. 226% 246%
Strategic Income................. 180% 136%**
Investment Quality Bond.......... 132 % 95%
U.S. Govt. Securities............ 469% 279%
National Municipal Bond.......... 44% 6%
International Growth and Income.. 69%***
</TABLE>
(A) Annualized
* Growth turnover as of October 31, 1995.
** For the period November 1, 1993 (commencement of operations) to
October 31, 1994.
*** For the period January 9, 1995 (commencement of operations) to
October 31, 1995.
Prior rates of portfolio turnover do not provide an accurate guide as to what
the rate will be in any future year, and prior rates and estimated rates are not
a limiting factor when it is deemed appropriate to purchase or sell securities
for a Portfolio. Each Portfolio of
16
<PAGE>
the Fund intends to comply with the various requirements of the Code so as to
qualify as a "regulated investment company" thereunder. One such requirement is
that a Portfolio must derive less than 30% of its gross income from gains on the
sale or other disposition of stock or securities held for less than three
months. Accordingly, the ability of a particular Portfolio to effect certain
portfolio transactions may be limited.
MANAGEMENT OF THE FUND
The Trustees and officers of the Fund, together with information as to
their principal occupations during the past five years, are listed below:
<TABLE>
<CAPTION>
Name, Address and Age Position with the Fund Principal Occupation
- --------------------------- ----------------------- During Past Five
Years
--------------------------
<S> <C> <C>
Don B. Allen Trustee Senior Lecturer,
136 Knickerbocker Rd. William E. Simon
Pittsford, NY Graduate School of
14534 Business Admin.,
Age: 67 University of
Rochester.
Charles L. Bardelis Trustee President and Chief
297 Dillingham Avenue Executive Officer, Island
Falmouth, MA 02540 Commuter Corporation
Age: 54 (marine transport).
Samuel Hoar Trustee Senior Mediator, Judicial
73 Tremont Street Arbitration Mediation
Boston, MA 02109 Services
Age: 67 "JAMS/Endispute", June 1,
1994 to date; Partner,
Goodwin, Proctor & Hoar,
prior to June 1, 1994.
Brian L. Moore* Chairman of Executive Vice President,
200 Bloor Street the Trustees Canadian Insurance
11th Floor Operations, The
North Tower Manufacturers Life
Toronto, Ontario Insurance Company, Chief
Canada M4W-1E5 Executive Officer and
Age: 51 President, The North
American Group, Oct. 1993
to December 31, 1995
Executive Vice President
and Chief Financial
Officer, September 1988
to Oct. 1993, North
American Life Assurance
Company.
Robert J. Myers Trustee Consulting Actuary
9610 Wire Avenue (self-employed), April
Silver Spring, MD 20901 1983 to date; Chairman,
Age: 82 Commission on Railroad
Retirement Reform
1988-1990.
John D. DesPrez III President and Chief Vice President, Mutual
116 Huntington Avenue Executive Officer Funds, of Manulife,
Boston, MA 02116 January, 1995 to date;
Age: 39 President and Chief
Executive Officer, March
1993 to date, North
American Funds; Vice
President and General
Counsel, January 1991 to
June 1994, North American
Security Life Insurance
Company; Private law
practice 1989-1990.
John G. Vrysen Vice President Vice President, Chief
116 Huntington Avenue Financial Officer, U.S.
Boston, MA 02116 Operations, of Manulife,
Age: 40 January, 1995 to date;
Vice President and
Actuary, January 1986 to
date, North American
Security Life Insurance
Company.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position with the Fund Principal Occupation
- --------------------------- ----------------------- During Past Five
Years
--------------------------
<S> <C> <C>
James D. Gallagher Secretary Vice President, Legal
116 Huntington Avenue Services, of Manulife,
Boston, MA 02116 January, 1995 to date;
Age: 41 Vice President and
General Counsel, June
1994 to date, North
American Security Life
Insurance Company; Vice
President and Associate
General Counsel,
1990-1994, The Prudential
Insurance Company of
America
James Boyle Vice President, Vice President, Chief
116 Huntington Avenue Treasurer and Chief Financial Officer Mutual
Boston, MA 02116 Administrative Officer Funds and Chief
Age: 36 Accounting Officer, of
Manulife, January, 1995
to date; Vice President,
Treasurer and Chief
Administrative Officer,
June 1994 to date, North
American Funds; Corporate
Controller, July 1993 to
June 1994, North American
Security Life Insurance
Company; Mutual Fund
Accounting Executive,
June 1992 to July 1993,
North American Security
Life Insurance Company;
Audit Manager, 1990 to
June 1992, Coopers &
Lybrand.
</TABLE>
* Trustee who is an "interested person", as defined in the 1940 Act.
COMPENSATION OF TRUSTEES
The Fund does not pay any remuneration to its Trustees who are officers or
employees of the Adviser or its affiliates. Trustees not so affiliated receive
an annual retainer of $4,000, a fee of $1, 000 for each meeting of the Trustees
that they attend in person and a fee of $200 for each such meeting conducted by
telephone. Trustees are reimbursed for travel and other out-of-pocket expenses.
The officers listed above are furnished to the Fund pursuant to the Advisory
Agreement described below and receive no compensation from the Fund. These
officers spend only a portion of their time on the affairs of the Fund.
COMPENSATION TABLE
<TABLE>
<CAPTION>
===================================================================================================
NAME OF PERSON, AGGREGATE COMPENSATION FROM TOTAL COMPENSATION FROM FUND
POSITION FUND FOR PRIOR FISCAL YEAR* COMPLEX FOR PRIOR FISCAL YEAR#*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Don B. Allen, Trustee $ 7,250 $ 41,250
- ---------------------------------------------------------------------------------------------------
Charles L. Bardelis, $ 7,250 $ 41,250
Trustee
- ---------------------------------------------------------------------------------------------------
Samuel Hoar, $ 7,250 $ 41,250
Trustee
- ---------------------------------------------------------------------------------------------------
Robert J. Myers, $ 7,250 $ 41,250
Trustee
===================================================================================================
</TABLE>
18
<PAGE>
*Compensation received for services as Trustee.
#Fund Complex includes all portfolios of the Fund as well as all portfolios of
NASL Series Trust of which the Adviser is the investment adviser.
PRINCIPAL HOLDERS OF SECURITIES
As of November 30, 1995 (i) Frontier Trust Company, Trustee FBO Saia Motor
Freight Line Incorporated 401k Plan, Springhouse Corporate Center II, 323
Norristown Road, Ambler, Pennsylvania 192202-2756 owned record 144,324.766
shares ( 7.1% of the outstanding shares) of Investment Quality Bond Fund,
1,526,314.380 shares ( 8.7 % of the outstanding shares) of the Money Market
Fund, (ii) Security Life, 116 Huntington Avenue, Boston, Massachusetts 02116
beneficially owned 401,070.064 shares ( 17.5 % of the outstanding shares) of the
International Growth and Income Fund; and (iii) Nalco Pension Plan for US
Members, Elliot & Page, 120 Adelaide Street West 1120, Toronto, Ontario owned of
record 494,609.628 shares ( 5.2 % of the outstanding shares) of the Global
Growth Fund and (iv) Arlene Moskowitz, Trustee, Calabasas Mental Health
Services, Retirement Fund, 4043 Camamito Meliado, San Diego, CA 92122-51055
owned of record 945,467.170 (5.4% of the outstanding shares) of the Money
Maraket Fund. As of such date, no other shareholder owned of record or, to the
knowledge of the Fund, beneficially owned more than 5% of the outstanding shares
of any Portfolio of the Fund. The officers and Trustees of the Fund as a group
own less than 1% of the outstanding shares of each Portfolio of the Fund.
INVESTMENT MANAGEMENT ARRANGEMENTS
The following information supplements the material appearing in the
Prospectus under the caption "MANAGEMENT OF THE FUND." The principal terms of
the Advisory and Subadvisory Agreements are described in the Prospectus. The
following supplemental discussion of such agreements covers certain legal terms
of such agreements. The Advisory and Subadvisory Agreements discussed below
have been filed with and are available from the Commission.
ADVISORY AND SUBADVISORY AGREEMENTS
The Advisory Agreement, each Subadvisory Agreement (except the
Founders Asset Management, Inc. Subadvisory Agreement and the Fred Alger
Management, Inc. Subadvisory Agreement) and the Salomon Brothers Asset
Management Limited Consulting Agreement were approved by the Trustees on
September 28, 1995 and by the shareholders of the portfolios on December 5,
1995. These approvals occurred in connection with the change of control of NASL
Financial as a result of the merger of North American Life Assurance Company,
the ultimate controlling parent of NASL Financial, with The Manufacturers Life
Insurance Company on January 1, 1996.
On December 15, 1995, the Trustees appointed Fred Alger Management,
Inc. . ("Alger") pursuant to a new Subadvisory Agreement with Alger ("Alger
Subadvisory Agreement") as subadviser to the Small/Mid Cap Fund. The Alger
Subadvisory Agreement, which provides for the management of the newly-
established Small/Mid Cap Fund, was approved by the Trustees, including a
majority of the Trustees who are not parties to the Alger Subadvisory Agreement
or interested persons of any party to such Agreement on December 15, 1995. The
Alger Subadvisory Agreement will be approved by the sole shareholder of the
Small/Mid Cap Fund on March 1, 1996.
On December 15, 1995, the Trustees appointed Founders Asset
Management, Inc. ("Founders") pursuant to a new Subadvisory Agreement with
Founders ("Founders Subadvisory Agreement") as subadviser to the International
Small Cap and the Growth Equity Fund. The Founders Subadvisory Agreement, which
provides for the management of the newly-established International Small Cap and
Growth Equity Fund, was approved by the Trustees, including a majority of the
Trustees who are not parties to the Founders Subadvisory Agreement or interested
persons of any party to such Agreement on December 15, 1995. The Founders
Subadvisory Agreement will be approved by the sole shareholder of the
International Small Cap and Growth Equity Fund on March 1, 1996.
For the periods November 1, 1992 to October 31, 1993, November 1, 1993
to October 31, 1994, and November 1, 1994 to October 31, 1995, the Fund paid
total advisory fees to the Adviser of $2,131,099, $3,483,764 and $ 4,324,695,
respectively. The amounts represented by each of the Portfolios are as follows:
<TABLE>
<CAPTION>
PORTFOLIO 11/1/92 TO 10/31/93 11/1/93 TO 10/31/94 11/1/94 TO 10/31/95
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $256,968 $882,302 $1,185,949
Value Equity $362,202 $556,612 $ 758,694
Growth and Income $167,521 $333,531 $ 521,769
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C>
International Growth and Income N/A N/A ***$102,022
Strategic Income N/A 0* $ 195,046
Investment Quality Bond $ 37,709 $ 89,202 $ 99,260
U.S. Government $773,785 $860,225 $ 661,449
National Municipal Bond $1,819** $ 19,807 $ 68,638
Money Market $ 12,455 $ 38,127 $ 44,306
- ---------------------------------------------------------------------------------------------------
Asset Allocation $518,640 $703,958 $ 687,562
</TABLE>
*For the period November 1, 1993 (commencement of operations) to October 31,
1994.
**For the period July 6, 1993 (commencement of operations) to October 31,
1993.
***For the period January 9, 1995 (commencement of operations) to October 31,
1995.
For information concerning waivers of advisory fees and expense
reimbursements, see note 5 to the financial statements dated October 31, 1995
included in this Statement of Additional Information.
For the same periods, the Adviser paid total subadvisory fees of $927,697,
$1,609,821 and $2,060,667, respectively. The amounts represented by each of
the Portfolios are as follows:
<TABLE>
<CAPTION>
11/1/92 TO 10/31/93 11/1/93 TO 10/31/94 11/1/94 TO 10/31/95
PORTFOLIO
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $157,053 $539,184 $724,749
Value Equity $160,668 $241,581 $323,912
Growth and Income $ 75,095 $148,991 $227,367
International Growth and Income N/A N/A ***$56,679
Strategic Income* N/A $ 0 #$91,022
Investment Quality Bond $ 14,141 $ 33,714 $ 37,223
U.S. Government $290,169 $323,714 $248,043
National Municipal Bond $ 0** $ 9,819 $ 40,125
Money Market $ 4,475 $ 14,296 $ 16,615
- ---------------------------------------------------------------------------------------------------
Asset Allocation $226,096 $298,522 $294,932
</TABLE>
*For the period November 1, 1993 (commencement of operations) to October 31,
1994.
**For the period July 6, 1993 (commencement of operations) to October 31,
1993.
***For the period January 9, 1995 (commencement of operations) to October
31, 1995.
#Of this amount, $ 29,730 was paid by SBAM to Salomon Brothers Asset
Management Limited under the Subadvisory Consulting Agreement.
The Prospectus refers to a subadvisory consulting agreement between SBAM and
Salomon Brothers Asset Management Limited ("SBAM Limited"). Under that
agreement SBAM Limited provides certain investment advisory services to SBAM
relating to currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Strategic Income Fund. SBAM pays SBAM
Limited, as full compensation for all services provided under the subadvisory
consulting agreement, a portion of
20
<PAGE>
its subadvisory fee, such amount being an amount equal to the fee payable under
SBAM's subadvisory agreement multiplied by the current value of the net assets
of the portion of the assets of the Strategic Income Fund that SBAM Limited has
been delegated to manage divided by the current value of the net assets of the
Portfolio. The Fund will not incur any additional expenses in connection with
SBAM Limited's services. SBAM Limited is a wholly owned subsidiary of Salomon
Brothers Europe Limited ("SBEL"). Salomon (International) Finance A G ("SIF")
owns 100% of SBEL's Convertible Redeemable Preference Shares and 36.8% of SBEL's
Ordinary Shares, while the remaining 63.2% of SBEL's Ordinary Shares are owned
by Salomon Brothers Holding Company Inc ("SBH"). SIF is wholly owned by SBH,
which is in turn, a wholly owned subsidiary of Salomon Inc.
The Advisory Agreement and each Subadvisory Agreement, including the SBAM
Limited Consulting Agreement (collectively, the "Agreements") will continue in
effect as to a Portfolio for a period no more than two years from the date of
its execution or the execution of an amendment making the agreement applicable
to that Portfolio only so long as such continuance is specifically approved at
least annually either by the Trustees or by the vote of a majority of the
outstanding voting securities of each of the Portfolios of the Fund, provided
that in either event such continuance shall also be approved by the vote of the
majority of the Trustees who are not interested persons of any party to the
Agreements, cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval of any continuance of any of the
Agreements shall be effective with respect to any Portfolio if a majority of the
outstanding voting securities of the class of capital stock of that Portfolio
vote to approve such continuance, notwithstanding that such continuance may not
have been approved by a majority of the outstanding voting securities of the
Fund.
If the shareholders of any Portfolio fail to approve any continuance of any
Agreement, the Adviser or Subadviser (including SBAM Limited), as applicable,
will continue to act as such with respect to such Portfolio pending the required
approval of the continuance of such Agreement, of a new contract with the
Adviser or Subadviser or different investment adviser or subadviser, or other
definitive action. In the case of the Adviser and Oechsle International, the
compensation received by them in respect of such a Portfolio during such period
will be no more than its actual costs incurred in furnishing investment advisory
and management services to such Portfolio or the amount it would have received
under the Agreement in respect of such Portfolio, whichever is less. In the
case of Wellington Management and SBAM, the compensation received by them in
respect of such a Portfolio during such a period will be no more than that
permitted by Rule 15a-4 under the 1940 Act. In the case of GSAM, the
compensation received by it in respect of such a Portfolio during such period
will be no more than the amount it would have received under the Agreement in
respect of such Portfolio. In the case of J.P. Morgan, the compensation
received by it in respect of such a Portfolio during such a period will be no
more than the amount permitted by Rule 15a-4 under the 1940 Act.
The Agreements may be terminated at any time, without the payment of
penalty, by the Trustees of the Fund or by the vote of a majority of the
outstanding voting securities of the applicable Portfolios of the Fund, with
respect to any Portfolio by the vote of a majority of the outstanding shares of
such Portfolio, or by the Adviser or applicable Subadviser on 60 days' written
notice to the other party or parties to the Agreement and, in the case of the
Subadvisory Agreements, to the Fund. Each of the Agreements will automatically
terminate in the event of its assignment.
The Agreements may be amended by the parties provided that such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of the Fund or applicable Portfolio(s), as the case may be, and by
the vote of a majority of the Trustees of the Fund who are not interested
persons of the Fund, of the Adviser or of the applicable Subadviser or of SBAM
Limited, cast in person at a meeting called for the purpose of voting upon such
approval. The required shareholder approval of any amendment shall be effective
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio vote to approve the amendment, notwithstanding that the
amendment may not be approved by a majority of the outstanding voting securities
of (i) any other Portfolio affected by the amendment or (ii) all the Portfolios
of the Fund.
Each Subadvisory Agreement, except the Oechsle and J.P. Morgan Subadvisory
Agreements and the SBAM Limited Consulting Agreement, provides that the
Subadviser or SBAM Limited will not be liable to the Fund or the Adviser for any
losses resulting from any matters to which the agreement relates other than
losses resulting from the Subadviser's or SBAM Limited's willful misfeasance,
bad faith or gross negligence in the performance of, or from reckless disregard
of, its duties. The Oechsle and J.P. Morgan Subadvisory Agreement each provide
that the subadviser will not be liable to the Fund or NASL Financial for any
losses resulting from any error of judgment made in the good faith exercise of
the Subadviser's investment discretion in connection with selecting investments,
except for losses resulting from willful misfeasance, bad faith or gross
negligence of, or from reckless disregard of, it duties, and that it shall not
be liable for any losses resulting from any other matters except for losses
resulting from willful misfeasance, bad faith or negligence in the performance
of, or from disregard of, its duties.
DISTRIBUTION PLANS
The Fund currently offers three classes of shares in each Portfolio:
"Class A" shares, "Class B" shares and "Class C" shares (the "Multiple Pricing
System"). See "MULTIPLE PRICING SYSTEM" and "HOW TO PURCHASE SHARES" in the
Prospectus.
21
<PAGE>
In addition to the front end sales charge which may be deducted at the
time of purchase of Class A shares and the CDSC which may apply on redemption of
Class B shares, each class of shares of each Portfolio is authorized under the
Distribution Plan applicable to that class of shares (the "Class A Plan," the
"Class B Plan" and the "Class C Plan," collectively, the "Plans") adopted
pursuant to Rule 12b-1 under the 1940 Act to use the assets attributable to such
class of shares of the Portfolio to finance certain activities relating to the
distribution of shares to investors. The Plans are "compensation" plans
providing for the payment of a fixed percentage of average net assets to finance
distribution expenses. The Plans provide for the payment by each class of shares
of each Portfolio of the Fund, other than the Money Market Fund, of a monthly
distribution and service fee to the Distributor, as principal underwriter for
the Fund. Portions of the fees prescribed below are used to provide payments to
the Distributor, to promotional agents, to brokers, dealers or financial
institutions (collectively, "Selling Agents") and to Service Organizations for
ongoing account services to shareholders and are deemed to be "service fees" as
defined in paragraph (b)(9) of Section 26 of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
Under the Class A Plan, Class A shares of each Portfolio (except as
described in the next sentence) are subject to a fee of up to .35% of their
respective average annual net assets, five-sevenths of which (.25%) constitutes
a "service fee." Class A shares of the National Municipal Bond Fund are subject
to a fee of up to .15% of Class A average annual net assets, the entire amount
of which constitutes a "service fee," and Class A shares of the Money Market
Fund bear no such fees. Under the Class B Plan, Class B shares of each Portfolio
(with the exception of the Money Market Fund) are subject to a fee of up to
1.00% of their respective average annual net assets, one-fourth (.25%) of which
constitutes a "service fee." Under the Class C Plan, Class C shares of each
Portfolio (with the exception of the Money Market Fund) are subject to a fee of
up to 1.00% of their respective average annual net assets, one-fourth (.25%) of
which constitutes a "service fee."
Payments under the Plans are used primarily to compensate the
Distributor for distribution services provided by it in connection with the
offering and sale of the applicable class of shares, and related expenses
incurred, including payments by the Distributor to compensate or reimburse
Selling Agents for sales support services provided and related expenses incurred
by such Selling Agents. Such services and expenses may include the development,
formulation and implementation of marketing and promotional activities, the
preparation, printing and distribution of prospectuses and reports to recipients
other than existing shareholders, the preparation, printing and distribution of
sales literature, expenditures for support services such as telephone facilities
and expenses and shareholder services as the Fund may reasonably request,
provision to the Fund of such information, analyses and opinions with respect to
marketing and promotional activities as the Fund may, from time to time,
reasonably request, commissions, incentive compensation or other compensation
to, and expenses of, account executives or other employees of the Distributor or
Selling Agents, attributable to distribution or sales support activities,
respectively, overhead and other office expenses of the Distributor or Selling
Agents, attributable to distribution or sales support activities, respectively,
and any other costs and expenses relating to distribution or sales support
activities. The Distributor may pay directly Selling Agents and may provide
directly the distribution services described above, or it may arrange for such
payment or the performance of some or all of such services by Wood Logan, the
Fund's exclusive promotional agent, at such level of compensation as may be
agreed to by the Distributor and Wood Logan.
The distribution and service fees attributable to the Class B shares
and Class C shares are designed to permit an investor to purchase shares without
the assessment of a front end sales charge, and, with respect to the Class C
shares, without the assessment of a front end sales charge or a CDSC, and at the
same time permit the Distributor to compensate securities dealers with respect
to sales of such shares.
The Distributor is authorized by each Plan to retain any excess of the
fees it receives thereunder over its payments to selected dealers or Wood Logan
and its expenses incurred in connection with providing distribution services.
Thus, payments under a Plan may result in a profit to the Distributor. Each Plan
also provides that to the extent that any payments by any class of any Portfolio
of the Fund to the Distributor in its capacity as investment adviser to the
Fund, such as for investment management fees, may be deemed to be an indirect
payment of distribution expenses, those indirect payments are deemed to be
authorized by the Plans.
In adopting the Plans, the Trustees determined that the adoption of
the Plans is in the best interests of the Fund and its shareholders, that there
is a reasonable likelihood that the Plans will benefit the Fund and its
shareholders, and that the Plans are essential to, and an integral part of, the
Fund's program for financing the sale of shares of the various Portfolios of the
Fund to the public.
The Distributor, a wholly-owned subsidiary of North American Security
Life Insurance Company, is a broker/dealer registered under the Securities
Exchange Act of 1934, as amended ("1934 Act") and a member of the NASD. The
Distributor's address is the same as that of the Fund and the Distributor also
serves as the investment adviser to the Fund as described above under
"MANAGEMENT OF THE FUND." The Distributor has entered into an exclusive
promotional agent agreement with Wood Logan pursuant to which Wood Logan will
solicit securities dealers to sell Fund shares, offer sales training to
registered representatives of such dealers, prepare and distribute certain sales
and promotional materials and otherwise assist in the distribution of Fund
shares. For providing such services, the Distributor will pay Wood Logan such
amounts as are agreed to from time to time pursuant to the
22
<PAGE>
promotional agent agreement. Wood Logan, a broker/dealer registered under the
1934 Act and a member of the NASD, is a subsidiary of Wood Logan Associates,
Inc., a corporation which is a wholly owned subsidiary of a holding company that
is 85% owned by Manulife and approximately 15% owned by principals of Wood
Logan. The address of Wood Logan is 1455 East Putnam Avenue, Old Greenwich,
Connecticut 06870.
Neither a Plan nor any related agreements can take effect until
approved by a majority vote of both all the Trustees and those Trustees who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the operation of a Plan or in any agreements related to it (the
"Qualified Trustees"), cast in person at a meeting called for the purpose of
voting on such Plan and the related agreements. Such approvals of the Plans were
obtained on December 16, 1993. The Plan relating to Class A shares was approved
(i) with respect to the Strategic Income, Investment Quality Bond, U.S.
Government Securities, National Municipal Bond and Money Market Funds, by the
shareholders of each such Portfolio on February 18, 1994, as the initial
shareholders of the Class A shares in each such Portfolio, (ii) with respect to
the Global Growth, Value Equity, Growth Equity and Income and Asset Allocation
Funds, by the Distributor on March 30, 1994 as sole initial shareholder of the
Class A shares of each such Portfolio, (iii) with respect to the International
Growth and Income Fund, by the Distributor on January 4, 1995 as sole initial
shareholder of the Class A shares of such Portfolio and (iv) with respect to the
Small/Mid Cap, Growth Equity and the International Small Cap Funds, by the
Distributor on March 1, 1996 as sole initial shareholder of the Class A
shares of such Portfolios. The Plan relating to Class B shares was approved (i)
with respect to each Portfolio (except the International Growth and Income,
Small/Mid Cap, Growth Equity and International Small Cap Funds) by the
Distributor on March 30, 1994 as sole initial shareholder of the Class B shares
of each such Portfolio, (ii) with respect to the International Growth and Income
Fund, by the Distributor on January 4, 1995 as sole initial shareholder of the
Class B shares of such Portfolio and (iii) with respect to the Small/Mid Cap,
Growth Equity and International Small Cap Funds by the Distributor on March 1,
1996 as sole initial shareholder of the Class B shares of each such Portfolios.
The Plan relating to Class C shares was approved (i) with respect to the Global
Growth, Value Equity, Growth Equity and Income and Asset Allocation Funds, by
the shareholders of each such Portfolio on February 18, 1994, as the initial
shareholders of the Class C shares in each such Portfolio, (ii) with respect to
the Strategic Income, Investment Quality Bond, U.S. Government Securities,
National Municipal Bond and Money Market Funds, by the shareholders of each such
Portfolio on March 30, 1994, as the initial shareholders of the Class C shares
in each such Portfolio, (iii) with respect to the International Growth and
Income Fund, by the Distributor on January 4, 1995 as sole initial shareholder
of the Class C shares of such Portfolio and (iv) with respect to the Small/Mid
Cap, Growth Equity and the International Small Cap Funds, by the Distributor on
March 1, 1996 as sole initial shareholder of the Class C shares of such
Portfolios.
The Plans will continue in effect only so long as their continuance is
specifically approved at least annually by the Trustees in the manner described
above for Trustee approval of the Plans. The Trustees will receive quarterly and
annual statements concerning distribution and shareholder servicing
expenditures. In such statements, only expenditures properly attributable to the
sale or servicing of a particular class of shares will be used to justify any
distribution or servicing fee charged to that class. Expenditures not related to
the sale or servicing of a particular class will not be presented to the
Trustees to justify any fee attributable to that class. The statements,
including the allocations upon which they are based, will be subject to the
review and approval of the Qualified Trustees in the exercise of their fiduciary
duty. Each Plan may be terminated at any time with respect to any one or more
Portfolios by a majority vote of the Qualified Trustees or by vote of a majority
of the outstanding voting securities attributable to Class A, Class B and Class
C shares, as applicable, of such Portfolio or Portfolios. If a Plan is
terminated by the Trustees or is otherwise discontinued with respect to one or
more Portfolios, no further payments would be made by the Fund in respect of the
Class A, Class B and Class C shares, as applicable, of such Portfolio or
Portfolios under that Plan. A Plan may remain in effect with respect to Class A,
Class B, Class C or shares, as applicable, of a Portfolio even if it has been
terminated with respect to the Class A, Class B and Class C shares, as
applicable, of one or more other Portfolios.
A Plan may not be amended with respect to any class of any Portfolio
so as to materially increase the amount of the fees payable thereunder unless
the amendment is approved by a vote of at least a majority of the outstanding
voting securities of such class of such Portfolio. In addition, no material
amendment to a Plan may be made unless approved by the Trustees in the manner
described above for Trustee approval of the Plans.
For the period November 1, 1994 to October 31, 1995 (January 9, 1995
to October 31, 1995, in the case of the International Growth and Income Fund),
the Fund paid distribution and service fees pursuant to the Class A Plan to the
Distributor of $612,357 comprised of $73,632 from the Global Growth Fund,
$67,055 from the Value Equity Fund*, $32,645 from the Growth and Income Fund,
$40,975 from the Strategic Income Fund, $29,493 from the Asset Allocation Fund,
$36,599 from the Investment Quality Bond Fund, $305,276 from the U.S. Government
Securities Fund, $ 15,083 from the International Growth and Income Fund**and
$11,599 from the National Municipal Bond Fund. Of the total, $71,662 was paid by
the Distributor to Wood Logan for providing promotional and shareholder
services. Of this latter amount, approximately 81% was spent for sales
literature and printing prospectuses for other than current shareholders, 6%
represented allocated overhead expenses of Wood Logan and 13% represented
allocated compensation of personnel of Wood Logan. The balance of the fees were,
in accordance with the Class A Plan, retained by the Distributor and used to
fund shareholder servicing, promotional activities and expenses. In addition,
$450,737 of the total distribution fees for Class A were paid to securities
dealers, comprised of $33,908 from the Global Growth Fund, $34,277 from the
Value Equity Fund*, $22,164 from the Growth and Income Fund, $26,174 from the
Strategic Income Fund, $20,724 from the Asset
23
<PAGE>
Allocation Fund, $30,241 from the Investment Quality Bond Fund, $269,681 from
the U.S. Government Securities Fund, $2,444 from the International Growth and
Income Fund**and $11,124 from the National Municipal Bond Fund.
For the period November 1, 1994 to October 31, 1995 (January 9, 1995
to October 31, 1995), the Fund paid distribution and service fees pursuant to
the Class B Plan to the Distributor of $784,557 comprised of $190,546 from the
Global Growth Fund, $116,729 from the Value Equity Fund*, $102,905 from the
Growth and Income Fund, $133,210 from the Strategic Income Fund, $73,078 from
the Asset Allocation Fund, $18,575 from the Investment Quality Bond Fund,
$68,916 from the U.S. Government Securities Fund, $ 38,900 from the
International Growth and Income Fund** and $41,698 from the National Municipal
Bond Fund. Of the total, $0 was paid by the Distributor to Wood Logan for
providing promotional and shareholder services. Of this latter amount,
approximately 81% was spent for sales literature and printing prospectuses for
other than current shareholders, 6% represented allocated overhead expenses of
Wood Logan and 13% represented allocated compensation of personnel of Wood
Logan. The balance of the fees were, in accordance with the Class B Plan,
retained by the Distributor and used to fund shareholder servicing, promotional
activities and expenses. In addition, $166,103 of the total distribution fees
for Class B were paid to securities dealers, comprised of $43,740 from the
Global Growth Fund, $25,606 from the Value Equity Fund*, $21,537 from the Growth
and Income Fund, $29,180 from the Strategic Income Fund, $16,252 from the Asset
Allocation Fund, $3,977 from the Investment Quality Bond Fund, $12,665 from the
U.S. Government Securities Fund, $7,606 from the International Growth and Income
Fund**and $5,540 from the National Municipal Bond Fund.
For the period November 1, 1994 to October 31, 1995 (January 9, 1995
to October 31, 1995), the Fund paid distribution and service fees pursuant to
the Class C Plan to the Distributor of $3,450,140, comprised of $916,825 from
the Global Growth Fund, $778,650 from the Value Equity Fund*, $539,779 from the
Growth and Income Fund, $114,220 from the Strategic Income Fund, $824,231 from
the Asset Allocation Fund, $42,293 from the Investment Quality Bond Fund,
$161,309 from the U.S. Government Securities Fund, $31,365 from the
International Growth and Income Fund** and $41,468 from the National Municipal
Bond Fund. Of the total, $446,724 was paid by the Distributor to Wood Logan for
providing promotional and shareholder services. Of this latter amount,
approximately 81% was spent for sales literature and printing prospectuses for
other than current shareholders, 6% represented allocated overhead expenses of
Wood Logan and 13% represented allocated compensation of personnel of Wood
Logan. The balance of the fees were, in accordance with the Class C Plan,
retained by the Distributor and used to fund shareholder servicing, promotional
activities and expenses. In addition, $3,022,349 of the total distribution fees
for Class C were paid to securities dealers, comprised of $813,227 from the
Global Growth Fund, $691,340 from the Value Equity Fund*, $477,610 from the
Growth and Income Fund, $ 102,660 from the Strategic Income Fund, $726,061 from
the Asset Allocation Fund, $33,949 from the Investment Quality Bond Fund,
$131,477 from the U.S. Government Securities Fund, $21,680 from the
International Growth and Income Fund**and $24,345 from the National Municipal
Bond Fund.
*Please note that all distribution figures for the Value Equity Fund are
calculated upon statistics for the Growth Fund, the prior name of the Value
Equity Fund.
** Please note that distribution figures for the International Growth and Income
Fund are for the period January 9, 1995 (commencement of operations) through
October 31, 1995.
UNDERWRITERS
For the periods November 1, 1992 to October 31, 1993, November 1, 1993
to October 31, 1994, and November 1, 1994 to October 31, 1995, the Distributor
received underwriting commissions of $1,980,080, $1,344,806 and $960,690,
respectively. The amounts were comprised as reflected below, with respect to
shares of the following Portfolios:
<TABLE>
<CAPTION>
PORTFOLIO 11/1/92 TO 11/1/93 TO 11/1/94 TO
10/31/93 10/31/94 10/31/95
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 394,036 $ 413,960 $172,487
Value Equity**** $ 375,981 $ 213,835 $138,334
Growth and Income $ 255,407 $ 102,711 $123,745
International Growth and Income N/A N/A ***$100,890
Strategic Income* N/A $ 206,721 $ 65,693
Investment Quality Bond $ 63,081 $ 33,392 $ 19,367
U.S. Government $ 370,320 $ 155,785 $223,721
National Municipal Bond $21,203** $ 20,201 $ 31,612
Asset Allocation $ 500,052 $ 198,201 $ 84,841
</TABLE>
24
<PAGE>
*For the period November 1, 1993 (commencement of operations) to
October 31, 1994.
**For the period July 6, 1993 (commencement of operations) to
October 31, 1993.
***For the period January 9, 1995 (commencement of operations) to
October 31, 1995.
****Formerly known as the Growth Fund
Of the total underwriting commissions received during the period, $0,
$0 and $0, respectively, was retained by the Distributor. The balance of such
commissions was paid to securities dealers and the promotional agent. During
such periods the Distributor did not receive directly or indirectly from the
Fund any compensation on the redemption or repurchase of Fund shares, brokerage
commissions or other underwriting compensation.
PORTFOLIO BROKERAGE
Pursuant to the Subadvisory Agreements, the Subadvisers are
responsible for placing all orders for the purchase and sale of portfolio
securities of the Fund. The Subadvisers have no formula for the distribution of
the Fund's brokerage business, their intention being to place orders for the
purchase and sale of securities with the primary objective of obtaining the most
favorable overall results for the Fund. The cost of securities transactions for
each Portfolio will consist primarily of brokerage commissions or dealer or
underwriter spreads. Bonds and money market instruments are generally traded on
a net basis and do not normally involve either brokerage commissions or transfer
taxes.
Occasionally, securities may be purchased directly from the issuer.
For securities traded primarily in the over-the-counter market, the Subadvisers
will, where possible, deal directly with dealers who make a market in the
securities unless better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account.
The Subadvisers consider various factors in selecting brokers through
which orders for client accounts are executed. The Subadvisers' primary
consideration is the broker's ability to provide the best execution of the trade
(including both trade price and commission). Assuming equal execution
capabilities, the Subadvisers also take other factors into account.
In determining which brokers provide best execution, the Subadvisers
look primarily to the stock price quoted by the broker, and normally place
orders with the broker through which they can obtain the most favorable price.
If the same price is available from more than one broker, a Subadviser's
judgment as to the following factors may influence the selection of a broker for
a particular trade: the execution, clearance and settlement capabilities of the
brokers under consideration; the nature of the security being traded; the size
of the transaction; the desired timing of the trade; the activity existing and
expected in the market for the particular security; confidentiality; the
financial stability of the brokers under consideration; actual or apparent
operational problems of any broker under consideration; and the negotiated
commission rates available at the time of the trade. The Subadvisers may also
consider the willingness of particular brokers to sell shares of the Fund and
difficulty of execution.
The Subadvisers also consider the nature and extent of research
services provided when they select brokers. Assuming equal execution
capabilities as described above, the Subadvisers may direct commission business
to brokers who provide research services. Such services include, but are not
limited to: analyses and reports concerning economic factors and trends,
industries, specific securities, portfolio strategy, and valuation and
performance of accounts; advice regarding critical factors supporting research
recommendations and special reports or information based on the specific
requests of a Subadviser's portfolio manager/analysts. The Subadvisers may also
from time to time obtain research services prepared by third parties and
provided by brokers in exchange for a predetermined amount of commission
business. These services include portfolio monitoring, analysis and performance
measurement systems, various economic forecasting and research services covering
stocks and bonds, research and trading conferences, and a source of information
as to block trading opportunities. Some third party arrangements are cancelable
at any time while others require notice. Such third party arrangements do not
involve a substantial amount of the Subadvisers' commission business on behalf
of clients.
In accordance with industry practice, commission rates are normally
determined through negotiations with brokers conducted by the Subadvisers'
traders. These negotiations take into account industry norms for particular
transactions, the size and type of trades, the size and expertise of the
brokerage firm involved and the nature of brokerage and research services
provided, including special services in connection with a particular trade.
(Such special services could include, among other things, the
25
<PAGE>
assumption of market risk in connection with a trade or series of trades or the
facilitation of trades in a thin or volatile market.) Commission rates paid by
the Subadvisers in those cases may be higher than those charged by brokers for
execution of similar trades without the provision of research and/or special
services.
No precise monetary value can be assigned to research and special
execution services furnished to the Subadvisers by brokers. The Subadvisers will
review all research services and will determine if the amounts of commissions
directed to brokers are reasonable in relation to the value of the brokerage and
research services provided, viewed in terms of both particular transactions and
the Subadvisers' overall responsibilities with respect to the accounts over
which they exercise investment discretion. Each Subadviser will maintain an
internal allocation procedure to identify those brokers who provide them with
research services and the amount of research services they provide, and will
endeavor to direct sufficient commissions to them to ensure the continued
receipt of such services as the Subadviser believes to be valuable.
Research services furnished by brokers will generally be used in
servicing all of the Portfolios of the Fund advised by a Subadviser, although
not all of such services may be used in connection with any particular Portfolio
that paid commissions to the brokers providing such services.
The Subadvisers' practices in selecting brokers will be reviewed
periodically by the Trustees of the Fund.
The Subadvisers and/or their affiliates currently manage portfolios
and accounts other than those of the Fund. Although investment recommendations
or determinations for the Fund's Portfolios will be made by the Subadvisers
independently from the investment recommendations and determinations made by
them for any other portfolio or account or by the Subadvisers' affiliates for
the portfolios or accounts they manage, investments deemed appropriate for the
Fund's Portfolios by the Subadvisers may also be deemed appropriate by them or
affiliated advisers for other portfolios or accounts, so that the same security
may be purchased or sold at or about the same time for both the Fund's
Portfolios and such other portfolios or accounts. In such circumstances, the
Subadvisers may determine that orders for the purchase or sale of the same
security for the Fund's Portfolios and one or more other portfolios or accounts
should be combined, in which event the transactions will be priced and allocated
in a manner deemed by the Subadvisers to be equitable and in the best interests
of the Fund's Portfolios and such other portfolios or accounts. While in some
instances combined orders could adversely affect the price or volume of a
security, the Subadvisers and the Fund believe that its participation in such
transactions on balance will produce better overall results for the Fund.
For the periods November 1, 1992 to October 31, 1993, November 1, 1993
to October 31, 1994 and November 1, 1994 to October 31, 1995, the Fund paid
brokerage commissions in connection with portfolio transactions of $469,159,
$777,036 and $1,039,631,respectively. The amounts represented by each of the
Portfolios are as follows:
<TABLE>
<CAPTION>
PORTFOLIO 11/1/92 TO 10/31/93 11/1/93 TO 11/1/94 TO 10/31/95
10/31/94
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$217,000 $ 462,441 $509,668
Global Growth
Value Equity**** $137,373 $ 140,638 $211,194
Growth and Income $ 21,681 $ 70,381 $ 97,836
International Growth and Income N/A N/A ***$12,558
Asset Allocation $ 93,105 $ 103,576 $208,375
</TABLE>
*For the period November 1, 1993 (commencement of operations) to
October 31, 1994.
**For the period July 6, 1993 (commencement of operations) to
October 31, 1993.
***For the period January 9, 1995 (commencement of operations) to
October 31, 1995.
****Formerly known as the Growth Fund
Goldman Sachs & Co., ("Goldman"), Salomon Brothers Inc ("Salomon"),
J.P. Morgan Securities Inc. and J.P. Morgan Securities LTD. ("J.P. Morgan
Securities") and Dresden Bank are affiliated brokers of the Fund due to the
positions of GSAM, SBAM, J.P. Morgan and Oechsle International, respectively, as
Subadviser to Fund Portfolios.
Brokerage commissions were paid to Goldman, Sachs & Co. as follows:
--------------------
26
<PAGE>
From November 1, 1992 to October 31, 1993, brokerage commissions were paid to
Goldman, Sachs & Co. as follows:
- --------------------
<TABLE>
<CAPTION>
PORTFOLIO 11/1/92 TO 10/31/93 % OF FUND'S BROKERAGE % OF AGGREGATE $
COMMISSIONS REPRESENTED AMOUNT OF
FOR THE PERIOD TRANSACTION FOR THE
PERIOD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 3,666 2% 2%
Value Equity* $20,374 15% 20%
Growth and Income $ 120 1% 3%
Asset Allocation $11,525 12% 2%
</TABLE>
*Formerly known as the Growth Fund
From November 1, 1993 to October 31, 1994, brokerage commissions were paid to
Goldman, Sachs & Co. as follows:
- --------------------
<TABLE>
<CAPTION>
PORTFOLIO 11/1/93 TO % OF FUND'S BROKERAGE % OF AGGREGATE $
10/31/94 COMMISSIONS MOUNT OF TRANSACTIONS
REPRESENTED FOR THE FOR THE PERIOD
PERIOD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> C>
Value Equity* $10,169 7% 1%
Growth and Income $ 2,502 4% 1%
Asset Allocation $ 9,284 9% 0.12%
Investment Quality $ 0 0% 0.48%
National Municipal Bond $ 0 0% 37%
Money Market $ 0 0% 4%
</TABLE>
*Formerly known as the Growth Fund
From November 1, 1994 to October 31, 1995, brokerage commission were paid to
Goldman, Sachs & Co. as follows:
- --------------------
<TABLE>
<CAPTION>
PORTFOLIO 11/1/94 TO 10/31/95 % OF FUND'S BROKERAGE % OF AGGREGATE $
COMMISSIONS AMOUNT OFTRANSACTIONS
REPRESENTED FOR THE FOR THE PERIOD
PERIOD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 4,137 0.81% 0.67%
Value Equity* $23,638 11.19% 0.27%
Asset Allocation $16,464 7.90% 0.26%
International Growth and $ 1,690 13.46% 1.97%
Income**
Growth and Income $ 4,086 4.18% 0.36%
</TABLE>
*Formerly known as the Growth Fund
**For the period January 9, 1995 (commencement of operations) to
October 31, 1995
27
<PAGE>
From November 1, 1992 to October 31, 1993, brokerage commissions were paid to
Salomon Brothers Inc as follows:
- --------------------
<TABLE>
<CAPTION>
PORTFOLIO 11/1/92 TO 10/31/93 % OF FUND'S BROKERAGE % OF AGGREGATE $
COMMISSION REPRESENTED AMOUNT OF
OR THE PERIOD TRANSACTIONS FOR THE
PERIOD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 2,269 1% 1%
Value Equity* $ 6,609 5% 5%
Growth & Income $ 1,524 7% 6%
Asset Allocation $ 4,061 4% 16%
Money Market $ 0 0% 0%
</TABLE>
*Formerly known as the Growth Fund
From November 1, 1993 to October 31, 1994, brokerage commissions were paid to
Salomon Brothers Inc as follows:
- --------------------
<TABLE>
<CAPTION>
PORTFOLIO 11/1/93 TO 10/31/94 % OF FUND'S BROKERAGE % OF AGGREGATE $
COMMISSIONS REPRESENTED AMOUNT OF
FOR THE PERIOD TRANSACTIONS FOR THE
PERIOD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 2,277 0% 1%
Value Equity* $ 7,181 5% 0.13%
Growth & Income $ 7,908 11% 1%
Asset Allocation $ 7,396 7% 4%
Investment Quality Bond $ 0 0% 1%
U.S. Government $ 0 0% 0.25%
Money Market $ 0 0% 1%
</TABLE>
*Formerly known as the Growth Fund
From November 1, 1994 to October 31, 1995, brokerage commissions were paid to
Salomon Brothers Inc as follows:
- --------------------
<TABLE>
<CAPTION>
PORTFOLIO 11/1/914TO 10/31/95 % OF FUND'S BROKERAGE % OF AGGREGATE $
COMMISSIONS AMOUNT OF TRANSACTIONS
REPRESENTED FOR THE FOR THE PERIOD
PERIOD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 6,414 1.26% 0.86%
Value Equity* $ 8,760 4.15% 0.16%
Growth and Income $10,402 10.63% 0.71%
Asset Allocation $ 8,117 3.90% 2.71%
</TABLE>
*Formerly known as the Growth Fund
28
<PAGE>
From January 1, 1995 to October 31, 1995, brokerage commissions were paid to
J.P.Morgan Securities as follows:
- ---------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO 1/9/95 TO 10/31/95 % OF FUND'S BROKERAGE % OF AGGREGATE $
COMMISSIONS REPRESENTED AMOUNT OF
FOR THE PERIOD TRANSACTIONS FOR THE
PERIOD
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 3,265 0.64% 0.48%
Value Equity* $13,056 6.18% 0.21%
Growth & Income $ 300 0.31% 0.03%
Asset Allocation $13,735 6.59% 0.88%
</TABLE>
*Formerly known as the Growth Fund
From November 1, 1994 to October 31, 1995, there were no brokerage commissions
were paid to Dresden Bank .
------------
DETERMINATION OF NET ASSET VALUE
The following supplements the discussion under the caption "GENERAL
INFORMATION -- Net Asset Value" set forth in the Prospectus. The assets
belonging to each class of shares of a Portfolio will, in each case, be invested
together in a single portfolio. The net asset value of each class will be
determined separately by subtracting the expenses and liabilities allocated to
that class from the assets belonging to that class.
The following provides further information concerning the Fund's use
of the amortized cost method of valuation for certain types of securities.
All instruments held by the Money Market Fund and money market
instruments with a remaining maturity of 60 days or less held by the other
Portfolios will be valued on an amortized cost basis. Under this method of
valuation, the instrument is initially valued at cost (or in the case of
instruments initially valued at market value, at the market value on the day
before its remaining maturity is such that it qualifies for amortized cost
valuation); thereafter, the Fund assumes a constant proportionate amortization
in value until maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price that
would be received upon sale of the instrument.
The Money Market Fund uses the amortized cost valuation method in
reliance upon Rule 2a-7 under the 1940 Act. As required by Rule 2a-7, the Money
Market Fund will maintain a dollar weighted average maturity of 90 days or less.
In addition, the Money Market Fund is permitted to purchase only securities that
the Trustees determine to present minimal credit risks and which are at the time
of purchase "eligible securities," as defined by Rule 2a-7. Generally, eligible
securities must be rated by a nationally recognized statistical rating
organization in one of the two highest rating categories for short-term debt
obligations or be of comparable quality. The Money Market Fund will invest only
in obligations that have remaining maturities of 397 days or less.
The Trustees have established procedures designed to stabilize, to the
extent reasonably possible, the Money Market Fund's price per share (for each
class) as computed for the purposes of sales and redemptions at $1.00. Such
procedures include a directive to the Adviser to establish procedures which will
allow for the monitoring of the propriety of the continued use of amortized cost
valuation to maintain a constant net asset value of $1.00 per share. Such
procedures also include a directive to the Adviser that requires that on
determining net asset value per share based upon available market quotations,
the Money Market Fund shall value weekly (a) all portfolio instruments for which
market quotations are readily available at market, and (b) all portfolio
instruments for which market quotations are not readily available or are not
obtainable from a pricing service, at their fair value as determined in good
faith by the Trustees, although the actual calculations may be made by persons
acting pursuant to the direction of the Trustees. If the fair value of a
security needs to be determined, the Subadviser will provide determinations, in
accordance with procedures and methods established by the Trustees of the Fund,
of the fair value of securities held by the Portfolios for which market
quotations are not readily available for purposes of enabling the Portfolio's
Custodian to calculate net asset value. The Adviser, with the Subadviser's
assistance, periodically (but no less frequently than annually) shall prepare a
written report to the Trustees verifying the accuracy of the pricing system or
estimate. A non-negotiable security which is not treated as an illiquid
security because it may be redeemed with the issuer, subject to a penalty for
early redemption, shall be assigned a value that takes into account the reduced
amount that would be received if it were currently liquidated. In the event
that the deviation from the amortized cost exceeds .50 of 1% or more or a
difference of $.005 per share in net asset value, the Adviser shall promptly
call a special meeting of the Trustees to determine what, if any, action should
be initiated. Where the Trustees believe the extent of any deviation from the
Fund's amortized cost price per share may result in material dilution or other
unfair results to investors or existing shareholders, it shall take such
29
<PAGE>
action as it deems appropriate to eliminate or reduce to the extent reasonably
practical such dilution or unfair results. The actions that may be taken by the
Board include, but are not limited to: (a) redeeming shares in kind; (b) selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity of the Portfolio; (c) withholding or
reducing dividends;(d) utilizing a net asset value per share based on available
market quotations; and (e)investing all cash in instruments with a maturity on
the next business day.
PERFORMANCE INFORMATION
As indicated in the Prospectus, the Fund may advertise its yield
and/or total return performance for all classes of shares of one or more of the
Portfolios, calculated in accordance with the rules of the Commission. Such
performance information may include time periods prior to the implementation of
the Multiple Pricing System on April 1, 1994, and will be calculated as
described below. For purposes of quoting and comparing the performance of the
classes of the Portfolios to that of other mutual funds and to stock or other
relevant indices in advertisements or in reports to shareholders, performance
will be stated in terms of total return and yield. Both "total return" and
"yield" figures are based on historical performance, show the performance of a
hypothetical investment and are not intended to indicate future performance.
Under the rules of the Commission, funds advertising performance must
include total return quotes, "T" below, calculated according to the following
formula:
P(1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the "n" year period (or fractional
portion thereof) at the end of such period.
The average annual total return will be calculated under the foregoing
formula and the time periods used in advertising will be based on rolling
calendar quarters, updated to the last day of the most recent quarter prior to
submission of the advertising for publication, and will cover one, five, and ten
year periods (if available) plus the time period since the effective date of the
Fund's registration statement. When the period since inception for a Portfolio
is less than one year, the total return quoted will be the aggregate return for
the period. In calculating the ending redeemable value, for Class A shares, the
current maximum front end sales charge of 4.75% (as a percentage of the offering
price) is deducted from the initial $1,000 payment, and for Class B shares, the
applicable CDSC imposed on a redemption of shares held for the period is
deducted. The schedule of CDSCs due upon redemption is described under "PURCHASE
OF SHARES -- Class B Shares" in the Prospectus. The formula also assumes that
all dividends and distributions have been reinvested at net asset value as
described in the Prospectus on the reinvestment dates during the period. Total
return, or "T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5 and 10 year periods (or fractional
portions thereof) that would equate the initial amount invested to the ending
redeemable value. Any sales charges that might in the future be made applicable
to reinvestments would be included as would any recurring account charges that
might be imposed by the Fund.
The Fund implemented the Multiple Pricing System by reclassifying the
then existing shares of each Portfolio as shares of a particular class of each
such Portfolio. This reclassification was effected in such a manner so that the
shares of each Portfolio outstanding at April 1, 1994 would be subject to
identical distribution and service fees both before and after the
reclassification. Specifically, all outstanding shares of the Strategic Income,
Investment Quality Bond, U.S. Government Securities, National Municipal Bond and
Money Market Funds were reclassified as Class A shares of each such Portfolio,
and all outstanding shares of the Global Growth, Value Equity, Growth Equity and
Income and Asset Allocation Funds were reclassified as Class C shares of each
such Portfolio.
30
<PAGE>
The figures shown in the table below are, for all classes, restated to
reflect front end sales charges and CDSCs currently payable by each class of
shares under the Multiple Pricing System (as described above), and (for all of
the tables presented below) are based on the distribution and service fees and
other expenses actually paid by each Portfolio for the periods presented, rather
than the distribution and service fees and other expenses currently payable by
each class of shares under the Multiple Pricing System, which in certain cases
are different. Until April 1, 1994, each Portfolio paid distribution and service
fees under the Prior Plan. Under the Prior Plan, (i) the Global Growth, Value
Equity, Growth and Income and Asset Allocation Funds paid the Distributor a
distribution fee at an annual rate of up to .75% of average daily net assets and
a service fee of up to .25% of average daily net assets; (ii) the Strategic
Income, Investment Quality Bond and U.S. Government Securities Funds paid the
Distributor a distribution fee at an annual rate of up to .10% of average daily
net assets and a service fee of up to .25% of average daily net assets; (iii)
the National Municipal Bond Fund paid the Distributor no distribution fee and a
service fee at an annual rate of up to .15% of average daily net assets; and
(iv) the Money Market Fund did not pay any fees. The distribution and service
fees currently payable by each class of shares under the Multiple Pricing System
are described in "DISTRIBUTION PLANS" in this Statement of Additional
Information.
The following tables set forth the average annual total returns for
each class of shares of each Portfolio for certain periods of time ending
October 31, 1995, restated to reflect the effects of the maximum front end sales
charges and any applicable CDSCs payable by an investor under the Multiple
Pricing System:***
CLASS A SHARES
<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Global Growth (-8.11%) N/A 7.00% (11-07-90)
Value Equity 8.79% 14.77% 5.80% (08-28-89)
Growth & Income 11.71% N/A 10.14% (05-01-91)
International Growth N/A N/A (-3.44%)* (01-09-95)
Strategic Income 6.14% N/A 1.05% (11-01-93)
Asset Allocation 11.39% 12.33% 6.66% (08-28-89)
Investment Quality Bond 10.40% N/A 7.35% (05-01-91)
U.S. Government Securities 7.77% 7.33% 7.17% (08-28-89)
National Municipal Bond 9.79% N/A 1.62% (07-06-93)
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Global Growth (-8.88)% N/A 7.58% (11-07-90)
Value Equity 8.58% 15.52% 6.53% (08-28-89)
Growth & Income 11.73% N/A 10.89% (05-01-91)
International Growth N/A N/A (-3.72%)* (01-09-95)
Strategic Income 5.72% N/A 0.55% (11-01-93)
Asset Allocation 11.31% 13.04% 7.40% (08-28-89)
Investment Quality Bond 10.12% N/A 7.95% (05-01-91)
U.S. Government Securities 7.45% 7.88% 7.86% (08-28-89)
National Municipal Bond 9.42% N/A 1.55% (07-06-93)
</TABLE>
31
<PAGE>
CLASS C SHARES
<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Global Growth (-5.05%) N/A 7.88% (11-07-90)
Value Equity 12.58% 15.75% 6.53% (08-28-89)
Growth & Income 15.56% N/A 11.14% (05-01-91)
International Growth N/A N/A 0.28%* (01-09-95)
Strategic Income 9.72% N/A 3.01% (11-01-93)
Asset Allocation 15 .25% 13.27% 7.39% (08-28-89)
Investment Quality Bond 14.12% N/A 8.28% (05-01-91)
U.S. Government Securities 11.45% 8.18% 7.86% (08-28-89)
National Municipal Bond 13.42% N/A 3.23% (07-06-93)
</TABLE>
*Aggregate total returns since inception (January 9, 1995).
As described in the Prospectus under the caption "FEE TABLE AND
EXAMPLE," the Portfolios have been and still are subject to certain fee
reimbursements. Absent such reimbursement, the returns shown above would be
lower.
The performance data quoted represents past performance; investment
returns and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. On July 10, 1992, the former Aggressive, Moderate and Conservative Asset
Allocation Trusts were reorganized into the Asset Allocation Fund. The Asset
Allocation Fund's investment objectives, policies and restrictions are identical
to the old Moderate Asset Allocation Trust. The performance figures shown above
for the Asset Allocation Fund therefore are based on the past performance of the
former Moderate Asset Allocation Trust for the period prior to July 10, 1992.
A Portfolio's yield is a way of showing the rate of income the
Portfolio earns on its investments as a percentage of the Portfolio's share
price. Under the rules of the Commission, yield must be calculated according to
the following formula:
a-b 6
YIELD = 2[(--- + 1) - 1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
Yields for the classes of the Portfolios of the Fund used in advertising are
computed by dividing the class of the Portfolio's interest and dividend income
for a given 30 day period, net of expenses, by the average number of shares
entitled to receive distributions during the period, dividing this figure by the
offering price (including the applicable front end sales charge or CDSC) at the
end of the period and annualizing the result (assuming compounding of income) in
order to arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable to all
stock and bond mutual funds. Dividends from equity investments are treated as if
they were accrued on a daily basis, solely for the purposes of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from the calculation. Income
calculated for the purposes of calculating the Portfolio's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a class of a Portfolio may differ from the
rate of distributions paid over the same period or the rate of income reported
in the Fund's financial statements.
32
<PAGE>
The yields for Classes A, B and C of the Investment Quality Bond Fund for the
thirty day period ended October 31, 1995 were 5.38%, 5.00% and 5.00%,
respectively. The yields for Classes A, B and C of the U.S. Government
Securities Fund for the thirty day period ended October 31, 1995 were 4.68%,
4.27% and 4.27%, respectively. The yields for Classes A, B and C of the
Strategic Income Fund for the thirty day period ended October 31, 1995 were
8.59%, 8.36% and 8.36%, respectively.
Yield quotations for the Investment Quality Bond and U.S. Government
Securities and Strategic Income Funds will reflect the fact that such Portfolios
will have paid no advisory fees during certain periods of their operations.
Therefore, the yield for those Portfolios encompassing the periods during which
no advisory fees were paid will be higher than the yields the Portfolios would
have realized had the suspension of advisory fees not been in effect.
The yields for Classes A, B and C of the National Municipal Bond Fund
for the thirty day period ended October 31, 1995 were 4.83%, 4.22% and 4.22%,
respectively. With respect to the National Municipal Bond Fund, tax-equivalent
yields are computed by dividing that portion of yield that is tax-exempt by one,
minus a stated income tax rate and adding the quotient to that portion, if any,
of the yield that is not tax-exempt.
---
Yields for the Money Market Fund will be computed on the basis of
seven-day periods, and such quotations will be in lieu of total return
quotations for the one, five and ten year periods described above. Yields will
be computed by dividing the net change, exclusive of capital changes, in the
value of a hypothetical account having a balance of one share at the beginning
of the seven-day period by the value of the account at the beginning of the
period and multiplying the return so determined ("base period return") by 365/7.
Effective yields will be computed by compounding the base period return in
accordance with the following formula:
Effective yield = [(Base period return + 1)365/7] - 1
For the seven-day period ended October 31, 1995, yields for Classes A, B and C
of the Money Market Fund were 5.34%, 5.34% and 5.34%, respectively. For the
seven-day period ended October 31, 1995, the effective yields for Classes A, B
and C of the Money Market Fund were 5.34%, 5.34% and 5.34%, respectively.
Yield and total return are calculated separately for each class of
shares of a Portfolio. As discussed above, these calculations adjust for the
different front end sales charges and CDSCs currently payable with respect to
each class, and are based on distribution and service fees and other expenses
actually paid by each Portfolio for the periods presented.
The Fund may also from time to time include in such advertising a
total aggregate return figure or an average annual total return figure that is
not calculated according to the formula set forth above in order to compare
performance more accurately with other measures of investment return. Each class
of a Portfolio may quote an aggregate total return figure in comparing total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Value Line
Composite Index, the Lehman Brothers Bond, Government Corporate, Corporate and
Aggregate Indices, Merrill Lynch Government & Agency Index, Merrill Lynch
Intermediate Agency Index, Morgan Stanley Capital International Europe,
Australia, Far East Index or the Morgan Stanley Capital International World
Index. For such purposes, aggregate total return is calculated for the specified
periods of time by assuming the investment of $1,000 in shares of a class of a
Portfolio and assuming the reinvestment of each dividend or other distribution
at net asset value on the reinvestment date. Percentage increases are determined
by subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. The Fund does not, for these
purposes, deduct from the initial value invested any amount representing front
end sales charges or CDSCs applicable to a class. To calculate its average
annual total return, the aggregate return is then annualized according to the
Commission's formula for total return quotes, outlined above. When the period
since inception is less than one year, the total return quoted will be the
aggregate return for the period. The Fund will, however, disclose the maximum
front end sales charge or CDSC applicable to each class and will also disclose
that the performance data does not reflect sales charges and that the inclusion
of sales charges would reduce the performance quoted. Such alternative total
return information will be given no greater prominence in such advertising than
the information prescribed under Commission rules and all advertisements
containing performance data will include a legend disclosing that such
performance data represent past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The Fund may
also advertise the performance rankings assigned certain Portfolios (or classes
thereof) or their investment subadvisers by various publications and statistical
services, including but not limited to SEI, Lipper Analytical Services, Inc.'s
Mutual Fund Performance Analysis, Intersec Research Survey of Non-U.S. Equity
Fund Returns, Frank Russell International Universe, and any other data which may
be presented from time to time by such analysis as Dow Jones, Morningstar, Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technology,
the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index,
IBC/Donaghue's Average/U.S. Government and Agency, or as they appear in various
publications including but not limited to The Wall Street Journal, Forbes,
Barrons, Fortune, Money Magazine, The New York Times, Financial World and
Financial Services Week.
Calculated in the manner set forth immediately above, the average
annual total returns for each class of each Portfolio for the one and five year
periods ended October 31, 1995 and since inception to October 31, 1995 are as
follows:***
33
<PAGE>
CLASS A SHARES
<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Global Growth (-3.52%) N/A 8.05% (11-07-90)
Value Equity 14.22% 15.89% 6.64% (08-28-89)
Growth & Income 17.28% N/A 11.34% (05-01-91)
International Growth N/A N/A 1.37% (01-09-95)
Strategic Income 11.43% N/A 3.56% (11-01-93)
Asset Allocation 16.95% 13.43% 7.51% (08-28-89)
Investment Quality Bond 15.91% N/A 8.52% (05-01-91)
U.S. Government Securities 13.15% 8.38% 8.02% (08-28-89)
National Municipal Bond 15.26% N/A 3.79% (07-06-93)
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Global Growth (-4.09%) N/A 7.88% (11-07-90)
Value Equity 13.58% 15.75% 6.53% (08-28-89)
Growth & Income 16.73% N/A 11.20% (05-01-91)
International Growth N/A N/A 1.28%* (01-09-95)
Strategic Income 10.72% N/A 3.02% (11-01-93)
Asset Allocation 16.31% 13.29% 7.40% (08-28-89)
Investment Quality Bond 15.12% N/A 8.28% (05-01-91)
U.S. Government Securities 12.45% 8.18% 7.86% (08-28-89)
National Municipal Bond 14.42% N/A 3.23% (07-06-93)
</TABLE>
34
<PAGE>
CLASS C SHARES
<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Global Growth (-4.09%) N/A 7.88% (11-07-90)
Value Equity 13.58% 15.75% 6.53% (08-28-89)
Growth & Income 16.56% N/A 11.14% (05-01-91)
International Growth N/A N/A (-1.28%)* (01-09-95)
Strategic Income 10.72% N/A 3.01% (11-01-93)
Asset Allocation 16.25% 13.27% 7.39% (08-28-89)
Investment Quality Bond 15.12% N/A 8.28% (05-01-91)
U.S. Government Securities 12.45% 8.18% 7.86% (08-28-89)
National Municipal Bond 14.42% N/A 3.23% (07-06-93)
</TABLE>
*Aggregate total returns since inception (January 9, 1995).
As described in the Prospectus under the caption "FEE TABLE AND
EXAMPLE," the Portfolios have been and still are subject to certain fee
reimbursements. Absent such reimbursement, the returns shown above would be
lower.
The Fund may also from time to time include in advertising and sales
literature the following: 1) information regarding its portfolio subadvisers,
such as information regarding a subadviser's specific investment expertise,
client base, assets under management or other relevant information; 2)
quotations about the Fund, its portfolios or its investment subadvisers that
appear in various publications and media; and 3) general discussions of economic
theories, including but not limited to discussions of how demographics and
political trends may effect future financial markets, as well as market or other
relevant information. The Fund will include performance data for each class of
shares of a Portfolio in any advertisement or information including performance
data of such Portfolio.
TAXES
The following information supplements the disclosure contained in the
Prospectus under the heading "Taxes."
Each Portfolio intends to qualify as a regulated investment company (a
"RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and to continue to so qualify. Qualification as a RIC requires, among
other things, that each Portfolio: (a) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stocks or securities; (b) derive less than 30% of its gross income in
each taxable year from the sale or other disposition of any of the following
held for less than three months: (i) stock or securities, (ii) options, futures,
or forward contracts, or (iii) foreign currencies (or foreign currency options,
futures or forward contracts) that are not directly related to its principal
business of investing in stock or securities (or options and futures with
respect to stocks or securities) (the "30% limitation"); and (c) diversify its
holdings so that, at the end of each quarter of each taxable year, (i) at least
50% of the market value of a Portfolio's assets is represented by cash, cash
items, U.S. government securities, securities of other regulated investment
companies and other securities with such other securities limited, in respect of
any issuer, to an amount not greater than 5% of the value of a Portfolio's
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities (other
than U.S. government securities or the securities of other regulated investment
companies) of any one issuer.
In addition, a Portfolio will be subject to a nondeductible 4% excise
tax on the amount by which the aggregate income it distributes in any calendar
year is less than the sum of: (a) 98% of a Portfolio's ordinary income for such
calendar year; (b) 98% of its capital gain net income (the excess of capital
gains over capital losses, both long- and short-term) for the one-year period
ending on October 31 of each year; and (c) 100% of the undistributed ordinary
income and gains from prior years. For this purpose, any income or gains
retained by a Portfolio subject to corporate income tax will be considered to
have been distributed by year-end. Each Portfolio expects to distribute
substantially all of its net income and gain, and, assuming that it does so, it
will not be subject to this excise tax.
Pay-in-kind Bonds, Zero Coupon Bonds and Discount Obligations. Certain
Portfolios may make investments that produce income that is not matched by a
corresponding cash distribution to the Portfolio, such as investments in pay-in-
kind bonds or in
35
<PAGE>
discount obligations such as zero coupon securities, certain sovereign debt
securities and stripped mortgage securities having original issue discount or
market discount (if a Portfolio elects to accrue the market discount on a
current basis with respect to such instruments). Such income would be treated as
income earned by the Portfolio and therefore would be subject to the
distribution requirements of the Code. Because such income may not be matched by
a corresponding cash distribution to the Portfolio, the Portfolio may be
required to borrow money or dispose of other securities to be able to make
distributions to its investors. For example, pursuant to a provision of the Code
governing the treatment of securities such as the stripped mortgage securities
described in this Statement of Additional Information, a principal-only ("PO")
class will be treated as having been issued with original issue discount and,
consequently, will result in income to the Portfolio without a corresponding
distribution of cash to the Portfolio. A portion of the amount received on a PO
class will constitute a return of the Portfolio's investment and as such will
not be income.
Futures and Forward Transactions. Under Section 1256 of the Code, gain
or loss on certain futures contracts and forward contracts ("Section 1256
contracts") will be treated as 60% long-term and 40% short-term capital gain or
loss (hereinafter "blended gain or loss"). In addition, Section 1256 contracts
held by a Portfolio at the end of each taxable year will be required to be
treated as sold at market value on the last day of such taxable year for U.S.
federal income tax purposes and the resulting gain or loss will be treated as
blended gain or loss.
Offsetting positions held by a Portfolio involving certain futures
transactions may be considered to constitute, for federal income tax purposes,
"straddles" which are subject to special rules under the Code. Under these
rules, depending on different elections which may be made by a Portfolio, the
amount, timing and character of gain and loss realized by a Portfolio and its
shareholders may be affected.
The requirements for qualification as a regulated investment company
under the Code may limit a Portfolio's ability to engage in certain transactions
in futures contracts and forward contracts.
Special Rules for Certain Foreign Currency Transactions. Under section
988 of the Code, special rules are provided for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., in a
Portfolio's case, currencies other than the United States dollar). In general,
foreign currency gains or losses from certain forward contracts not traded in
the interbank market and from futures contracts that are not "regulated futures
contracts" will be treated as ordinary income or loss under section 988 of the
Code. In certain circumstances, a Portfolio may elect capital gain or loss
treatment for such transactions. The rules under section 988 of the Code may
also affect the timing of income recognized by a Portfolio.
Investments in Passive Foreign Investment Companies. If a Portfolio
purchases shares in a foreign investment company treated for U.S. federal income
tax purposes as a "passive foreign investment company" (a "PFIC"), a Portfolio
may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if such income is
distributed as a taxable dividend by the Portfolio to its shareholders.
Additional charges in the nature of interest may be imposed on a Portfolio in
respect of deferred taxes arising from such distributions or gains. If a
Portfolio were to invest in a PFIC and elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, a
Portfolio would be required to include in income each year a portion of the
ordinary earnings and net capital gain of the qualified electing fund, even if
not distributed to the Portfolio, and such amounts would be subject to the
distribution requirements described in the Prospectus.
Legislation pending in the U.S. Congress would unify and, in certain
cases, modify the anti-deferral rules contained in various provisions of the
Code, including the provisions dealing with PFICs, related to the taxation of
U.S. shareholders of foreign corporations. In the case of a PFIC, having
"marketable stock," the proposed legislation would permit U.S. shareholders,
such as a Portfolio, to elect to mark-to-market the PFC stock annually. The
proposed legislation generally would treat all PFIC stock owned by a Portfolio
as "marketable stock." Otherwise, U.S. shareholders would be treated
substantially the same as under current law. Special rules applicable to mutual
funds would classify as "marketable stock" all stock in PFCs held by a
Portfolio; however, a Portfolio would not be liable for tax on income from PFCs
that is distributed to its shareholders. It is unclear if or when the proposed
legislation will become law and if it is enacted, the form it will take.
Moreover, on March 31, 1992 the IRS proposed regulations providing a mark-to-
market election for RICs that would have effects similar to the proposed
legislation. These regulations would be effective for taxable years ending after
promulgation of the regulations as final regulations.
Foreign Withholding Taxes. Certain dividends and interest received by
a Portfolio may be subject to foreign withholding taxes. If more than 50% in
value of a Portfolio's total assets at the close of any taxable year consists of
stocks or securities of foreign corporations, the Portfolio may elect to treat
any foreign income taxes paid by it as paid by its shareholders. If eligible,
the Portfolio(s) intend to make this election. If a Portfolio makes this
election, its shareholders will be required to include in income their
respective pro rata portions of foreign income taxes paid by the Portfolio(s)
and, if they itemize their deductions, will be entitled to deduct such
respective pro rata portions in computing their taxable income or,
alternatively, to claim foreign tax credits (subject to the limitations
discussed below). Each year that a Portfolio makes this election, it will report
to its shareholders the amount per share of foreign income taxes it has elected
to have treated as paid by its shareholders.
36
<PAGE>
Generally, a credit for foreign income taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of a
Portfolio's income flows through to its shareholders. A Portfolio's gains from
the sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables, will be treated as
ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income, such as the
portion of dividends received from a Portfolio that qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals. Because
of these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate share of the foreign taxes paid by a Portfolio.
NATIONAL MUNICIPAL BOND - TAXATION ISSUES
Because the National Municipal Bond Fund will primarily invest in
municipal obligations, dividends from these Portfolios will generally be exempt
from regular federal income tax in the hands of shareholders subject to the
possible application of the alternative minimum tax. Federal tax law imposes an
alternative minimum tax with respect to both corporations and individuals based
on certain items of tax preference. Interest on certain municipal obligations,
such as bonds issued to make loans for housing purposes or to private entities
(but not to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount of
a taxpayer's alternative minimum taxable income. To the extent that a Portfolio
receives income from municipal obligations treated as a tax preference item for
purposes of the alternative minimum tax, a portion of the dividends paid by it,
although otherwise exempt from federal income tax, will be taxable to
shareholders to the extent that their tax liability will be determined under the
alternative minimum tax. The Portfolio will annually supply shareholders with a
report indicating the percentage of portfolio income attributable to municipal
obligations subject to the alternative minimum tax. Additionally, taxpayers must
disclose to the Internal Revenue Service on their tax returns the entire amount
of tax-exempt interest (including exempt-interest dividends on shares of the
Portfolio) received or accrued during the year.
In addition, for corporations, the alternative minimum taxable income
is increased by a percentage of the amount by which an alternative measure of
income ("adjusted current earnings", referred to as "ACE") exceeds the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all municipal obligations, and therefore all exempt-interest dividends paid by
the Portfolio, is included in calculating ACE.
Under the Omnibus Budget Reconciliation Act of 1993, all or a portion
of the National Municipal Bond Fund's gain from the sale or redemption of tax-
exempt obligations acquired after April 30, 1993 attributable to market discount
will be treated as ordinary income rather than capital gain. This rule may
increase the amount of ordinary income dividends received by shareholders.
The Superfund Act of 1986 imposes a separate tax on corporations at a
rate of 0.12% of the excess of such corporation's "modified alternative minimum
taxable income" over $2,000,000. A portion of a corporate shareholder's tax-
exempt interest, including exempt-interest dividends from the Portfolio, may be
includable in calculating such shareholder's modified alternative minimum
taxable income.
Taxpayers that may be subject to the alternative minimum tax should
consult their tax advisers before investing in the Portfolio.
Shares of the Portfolio would not be a suitable investment for tax-
exempt institutions and may not be a suitable investment for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts, because such plans and accounts are generally tax-exempt and,
therefore, would not gain any additional benefit from the receipt of exempt-
interest dividends from the Portfolio. Moreover, subsequent distributions of
such dividends to the beneficiaries will be taxable.
In addition, the Portfolio may not be an appropriate investment for
entities that are "substantial users" of facilities financed by private activity
bonds or "related persons" thereof. A "substantial user" is defined under United
States Treasury Regulations to include a non-exempt person who regularly uses a
part of such facilities in his trade or business and, unless such facility, or
part thereof, is constructed, reconstructed or acquired specifically for the
non-exempt person, whose gross revenue derived with respect to the facilities
financed by the issuance of bonds is more than 5% of the total revenue derived
by all users of such facilities. "Related persons" include certain related
natural persons, affiliated corporations, partnerships and their partners and S
Corporations and their shareholders. The foregoing is not a complete statement
of all of the provisions of the Code covering the definitions of "substantial
user" and "related person". For additional information, investors should consult
their tax advisers before investing in the Portfolio.
All or a portion of the exempt-interest dividends received by certain
foreign corporations may be subject to the federal branch profits tax.
Likewise, all or a portion of the exempt-interest dividends may be taxable to
certain Subchapter S Corporations that have Subchapter C earnings and profits
and substantial passive investment income. In addition, the exempt-interest
dividends may reduce the deduction for loss reserves for certain insurance
companies. Such corporations and insurance companies should consult their tax
advisers before investing in the Portfolio. The Code may also require
shareholders that receive exempt-interest
37
<PAGE>
dividends to treat as taxable income a portion of certain otherwise nontaxable
social security and railroad retirement benefit payments.
SHAREHOLDER SERVICES
Systematic Withdrawal Plan. You may establish a plan for redemptions
to be made automatically at monthly, quarterly, semiannual or annual intervals
with payments sent directly to you or to persons designated by you as recipients
of the withdrawals (the "Withdrawal Plan"). Requests for this service not made
on the initial application require signature guarantees unless the payments are
to be made to you and mailed to the address of record on your account. You are
required to have a minimum account value of $10,000 per Portfolio in order to
establish this plan. The Withdrawal Plan provides for monthly or other periodic
checks in any amount not less than $50. Maintenance of a Withdrawal Plan
concurrently with purchases of additional shares may be disadvantageous to you
because of the front end sales charge on certain purchases and the CDSC on
certain redemptions.
The Fund acts as agent for the shareholder in redeeming sufficient
full and fractional shares to provide the amount of the periodic withdrawal
payment. The Withdrawal Plan may be terminated at any time, and, while no fee is
currently charged (although a CDSC may be applicable to certain redemptions that
exceed 12% annually of the value of the account), the Fund reserves the right to
initiate a fee of up to $5 per withdrawal upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield, or
income. If periodic withdrawals continuously exceed reinvested dividends and
capital gains distributions, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and
any gain or loss realized must be recognized for federal income tax purposes.
Withdrawals which are made concurrently with purchases of additional shares are
generally inadvisable because of the front end sales charges and CDSCs which may
be applicable to the purchase of additional shares or to redemptions.
Automatic Investment Plan. A shareholder who wishes to make additional
investments in the Fund on a regular basis may do so by authorizing the Fund on
the Shareholder Application to deduct a fixed amount (not less than $50) each
month from the shareholder's checking account at his or her bank. This amount
will automatically be invested on the same day that the pre-authorized check is
issued. The shareholder will receive a confirmation from the Fund, and the
checking account statement will show the amount charged.
Tax Deferred Retirement Plans. Retirement plans are either available
or expected to be available for use by Individual Retirement Accounts ("IRAs"),
plans under Section 403(b)(7) of the Code, and other retirement plans. Adoption
of such plans should be on advice of legal counsel or a tax adviser. With the
exception of the National Municipal Bond Fund, the Portfolio may be available
for purchase through retirement plans or other programs offering deferral of or
exemption from income taxes, which may produce superior after-tax returns over
time. For example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,099.86 after ten years, assuming
tax was deducted at a 31% rate from the deferred earnings at the end of the ten
year period.
For further information regarding plan administration, custodial fees
and other details, investors should contact their broker or Wood Logan or call
the shareholder inquiry number for the Fund.
GENERAL
ADVISER'S RATIONALE FOR MULTI-MANAGER FUND
Every investment adviser has different strengths and weaknesses.
Finding the right investment adviser is an important part of choosing the right
family of mutual funds. That is why in creating the Fund, the Fund selected
seven companies that are, in the opinion of the Adviser, among the world's most
distinguished asset management firms. Each of these firms has been recognized as
among the finest in the world for their particular investment style or area of
investment expertise. The Adviser believes that together the Portfolios offer
investors a unique opportunity to benefit from some of the industry's finest
investment professionals.
It is well recognized that one of the basic principles of managing
money is diversification. The Fund is designed, in the opinion of the Adviser,
to make it easy for investors to create a sound and diversified investment
program that can help them meet their current and future investment needs. The
Fund is specifically designed to enable investors to allocate their assets
effectively across a spectrum of investment Portfolios representing particular
investment styles or asset classes. As conditions change, investors in the Fund
can easily adjust the allocation of their assets among the Fund's investment
Portfolios.
38
<PAGE>
SMALL/MID CAP FUND. The investment objective of the Small/Mid Cap Fund is to
seek long term capital appreciation. Alger manages the Small/Mid Cap Fund and
will pursue this objective by investing at least 65% of the portfolio's total
assets (except during temporary defensive periods) in small/mid cap equity
securities. As used herein small/mid cap equity securities are equity securities
of companies that, at the time of purchase, have "total market capitalization"
- -- present market value per share multiplied by the total number of shares
outstanding -- between $500 million and $5 billion. The portfolio may invest up
to 35% of its total assets in equity securities of companies that, at the time
of purchase, have total market capitalization of $ 5 billion or greater and in
excess of that amount (up to 100% of its assets ) during temporary defensive
periods.
The Small/Mid Cap Fund seeks to achieve its investment objective by
investing in equity securities, such as common or preferred stocks, or
securities convertible into or exchangeable for equity securities, including
warrants and rights. The Portfolio will invest primarily in companies whose
securities are traded on domestic stock exchanges or in the over-the-counter
market.
INTERNATIONAL SMALL CAP FUND. The investment objective of the International
Small Cap Fund is to seek long term capital appreciation. Founders manages the
International Small Cap Fund and will pursue this objective by investing
primarily in securities issued by foreign companies which have total market
capitalizations (present market value per share multiplied by the total number
of shares outstanding) or annual revenues of $1 billion or less. These
securities may represent companies in both established and emerging economies
throughout the world.
At least 65% of the portfolio's total assets will normally be invested
in foreign securities representing a minimum of three countries (other than the
United States). The portfolio may invest in larger foreign companies or in U.S.
based companies if, in Founders' opinion, they represent better prospects for
appreciation.
The International Small Cap Fund will invest primarily in equity
securities but may also invest in convertible securities, preferred stocks,
bonds, debentures and other corporate obligations when Founders believes that
these investments offer opportunities for capital appreciation. Current income
will not be a substantial factor in the selection of these securities. The
Portfolio will only invest in bonds, debentures and corporate obligations--other
than convertible securities and preferred stock--rated investment-grade (BBB or
higher by Moody's or Baa or higher by S&P) at the time of purchase. or, if
unrated, of comparable quality in the opinion of Founders. Convertible
securities and preferred stocks purchased by the Portfolio may be rated in
medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB or
lower by S&P) but will not be rated lower than B. The Portfolio may also invest
in unrated convertible securities and preferred stocks in instances in which
Founders believes that the financial condition of the issuer or the protection
afforded by the terms of the securities limits risk to a level similar to that
of securities rated in categories no lower than B. The Portfolio is not
required to dispose of debt securities whose ratings are down-graded below these
ratings subsequent to the Portfolio's purchase of the securities.
GROWTH EQUITY FUND. The investment objective of the Growth Equity Fund is to
seek long-term growth of capital. Founders manages the Growth Equity Fund and
will pursue this objective by investing at least 65% of its assets in common
stocks of well-established, high-quality growth companies. These companies tend
to have strong performance records, solid market positions and reasonable
financial strength, and have continuous operating records of three years or
more. The Portfolio may also invest up to 30% of its assets in foreign
securities, with no more than 25% invested in any one foreign country.
The Growth Equity Fund may invest in convertible securities, preferred
stocks, bonds, debentures and other corporate obligations when Founders believes
that these investments offer opportunities for capital appreciation. Current
income will not be a substantial factor in the selection of these securities.
The Portfolio will only invest in bonds, debentures and corporate obligations--
other than convertible securities and preferred stock--rated investment-grade
(BBB or higher by Moody's and Baa or higher by S&P) or, if unrated, of
comparable quality in the opinion of Founders at the time of purchase.
Convertible securities and preferred stocks purchased by the Portfolio may be
rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's
and BB or lower by S&P) but will not be rated lower than B. The Portfolio may
also invest in unrated convertible securities and preferred stocks in instances
in which Founders believes that the financial condition of the issuer or the
protection afforded by the terms of the securities limits risk to a level
similar to that of securities rated in categories no lower than B. The Portfolio
is not required to dispose of debt securities whose ratings are down-graded
below these ratings subsequent to the Portfolio's purchase of the securities.
GLOBAL GROWTH FUND. The Global Growth Fund seeks long-term capital appreciation
by investing primarily in a portfolio of global equity securities convertible
into or exercisable for equity securities. Currently, according to Morgan
Stanley Capital International, approximately two-thirds of the world's equity
investment opportunities are traded in markets outside the United States.
Investing in companies located outside the United States can provide U.S.
investors with advantages and opportunities not available through domestic
investing alone. In addition, a portfolio of U.S. and foreign stocks can
provide diversification that can lessen the risk of poor performance in any
single stock market or economy.
39
<PAGE>
In selecting securities for this Fund, Oechsle International pursues a
strategy of diversification by both countries and companies, concentrating on
markets identified as fundamentally attractive. Research is used to identify
unique opportunities for above average returns that can result from
inefficiencies within the various mature and diverse stock markets throughout
the world. Oechsle International seeks to avoid immature, speculative markets
that generally experience greater volatility than more mature markets.
VALUE EQUITY FUND. The Value Equity Fund seeks long-term growth of capital by
investing primarily in equity securities, including common stocks and securities
convertible into or carrying the right to buy common stocks. Historically, over
the long-term, the U.S. stock market has significantly out-performed other
investments. According to Ibbotson Associates, Inc., for the 69 years ended
December 31, 1994, large company stocks returned on an average annual total
return basis 10.2% , small company stocks returned on an average annual total
return basis 12.2%, compared to 4.8% for long-term government bonds, and stocks
have outperformed bonds in most years. Of course, different periods may show
different results. In addition, stocks generally experience greater price
volatility than investments in fixed income securities.
GSAM's investment approach emphasizes a "bottoms-up" securities
selection discipline that places emphasis on the identification of companies
whose prospects for growth and other financial characteristics, when compared to
the price of their securities, indicates fundamental value and the potential for
significant capital appreciation. In analyzing companies for investment, the
following factors, among others, are considered: strong competitive advantages,
including well-recognized trademarks or established brands; niche business; and
growth oriented companies in more mature market segments, as well as companies
having a significant market position in a fast-growing segment of the economy.
The strategy for selecting investments emphasizes fundamental research using a
team approach with investments made on the basis of a company's strong free cash
flow, return on invested capital, strong balance sheets or substantial interest
coverage, soundness of financial and accounting policies, overall financial and
management strength, and attractive valuations.
GROWTH AND INCOME FUND. The Growth and Income Fund seeks long-term growth of
capital and income consistent with prudent investment risk by investing
primarily in a diversified portfolio of dividend-paying common stocks of U.S.
issuers believed to be of high quality. In selecting investments for this Fund,
Wellington Management emphasizes medium to large capitalization companies
having: leadership position within their industries; solid balance sheets and
low leverage; relatively high return on equity; steady or increasing dividends;
and strong management. The Growth and Income Fund is structured to provide, in
the opinion of the Adviser, an excellent opportunity for investors to
participate in the growth of the U.S. stock market through a conservatively
managed, well-diversified portfolio of stocks. By investing primarily in medium
to large capitalization issuers with above-average dividend yields, the Fund
seeks to reduce the volatility generally experienced by stocks through the
income cushion provided by dividend income. In addition to providing potential
downside protection, over the past 30 years reinvested dividends have accounted
for approximately 70% of the total appreciation of the S&P 500. An important
feature of the Fund is its exposure to convertible securities. The Fund
dedicates a portion of its assets to convertible securities, which, in general,
provide higher yields than common stocks while participating in the stock's
capital appreciation potential.
INTERNATIONAL GROWTH AND INCOME FUND. The International Growth and Income Fund
seeks long-term growth of capital and income. The Portfolio is designed for
investors with a long-term investment horizon who want to diversify their
investments by adding international securities and take advantage of investment
opportunities outside the United States.
J.P. Morgan seeks to achieve its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of foreign
issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and convertible
securities. The Portfolio will focus primarily on the common stock of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. The Portfolio
may also invest in securities of issuers located in emerging markets countries.
The Portfolio invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in certain restricted or unlisted securities. Under normal
circumstances, the International Growth and Income Fund expects to invest
primarily in equity securities. However, the Portfolio may invest up to 35% of
its assets in corporate or sovereign issuers rated A or higher by Moody's or
S&P, or if unrated, of equivalent credit quality as determined by the
Subadviser.
In pursuing the International Growth and Income Fund's objective, J.P.
Morgan will actively manage the assets of the Portfolio through country
allocation and stock valuation and selection. Based on fundamental research,
quantitative valuation techniques and experienced judgment, J.P. Morgan uses a
structured decision-making process to allocate the Portfolio primarily across
the developed countries of the world outside the United States. This universe is
typically represented by the Morgan Stanley Europe, Australia and Far East Index
(the "EAFE Index").
ASSET ALLOCATION FUND. The Asset Allocation Fund seeks to obtain the highest
total return consistent with a moderate level of risk tolerance by investing in
a combination of equity, fixed-income and money market securities. The
percentage of the Fund's assets invested in each category depends on the
judgment of GSAM. GSAM's investment strategy for this Fund seeks to limit
downside
40
<PAGE>
risk by effectively allocating the Fund's assets based on various factors,
including: the relative attractiveness of the various asset classes and
individual securities, GSAM's outlook for the economy, current and anticipated
interest rates, and the rate of inflation. The Fund attempts to limit any
decline in its portfolio value to a maximum of 10% over any 12-month period,
even under very adverse market conditions.
STRATEGIC INCOME FUND. The Strategic Income Fund seeks a high level of total
return consistent with preservation of capital by giving SBAM broad discretion
to deploy the Fund's assets among various segments of the fixed income market.
SBAM may deploy the Fund's assets based on their analysis of current economic
and market conditions and the relative risks and opportunities present in a wide
range of market segments, including: U.S. Government securities; mortgage-backed
securities; high yield corporate bonds; high yield international bonds; and
investment quality corporate and foreign bonds.
SBAM expects that the Fund's investments will emphasize U.S.
Government securities, high yield corporate bonds and high yield international
bonds. SBAM believes that there is a low correlation among these distinct bond
markets and, historically, they have rarely reacted to interest rate changes and
economic conditions at the same time or in the same manner. Diversifying the
portfolio among securities in markets with low correlation is designed to reduce
the risk of owning securities in just one bond market. While there is no
guarantee that this market diversification will produce the results intended,
SBAM believes that it can help to alleviate the risk of investing in less than
investment grade securities.
INVESTMENT QUALITY BOND FUND. The Investment Quality Bond Fund seeks a high
level of current income consistent with the maintenance of principal and
liquidity by investing primarily in a diversified portfolio of investment grade
corporate bonds and U.S. government bonds with intermediate to longer-term
maturities. In the present low interest rate environment, high quality U.S.
Government securities and investment grade corporate bonds can offer an
opportunity for investors to achieve rates of return higher than those available
from short-term investments such as certificates of deposit, savings accounts,
and money market funds. Historically, investors have achieved consistently
higher levels of income from investment grade corporate bonds than U.S. Treasury
securities. Nevertheless, investment grade bonds are subject to greater credit
risk than U.S. Treasury securities. In addition, certificates of deposit and
savings accounts are insured and offer a fixed rate of return and money market
funds seek to provide a stable net asset value. The investment returns and
principal value of the Investment Quality Bond Fund will fluctuate with changes
in market conditions.
This Fund will be invested primarily in investment grade corporate
bonds, mortgage-related bonds and U.S. government bonds with intermediate to
long-term maturities. This Fund may also invest up to 20% of its assets in non-
investment grade fixed income securities. Wellington Management, in managing the
Fund's investments, emphasizes a sector rotation strategy which seeks to
identify relative value among these three major sectors of the fixed income
marketplace.
U.S. GOVERNMENT SECURITIES FUND. The U.S. Government Securities Fund seeks a
high level of current income consistent with preservation of capital and
maintenance of liquidity by investing in securities issued or guaranteed as to
the timely payment of interest or principal by the U.S. government, its agencies
or instrumentalities. The U.S. Government Securities Fund, managed by SBAM, is
designed to provide investors with high current income and a high degree of
credit safety in one fund. To date, the U.S. Government has never defaulted on
or delayed payments of principal or interest on its obligations. In addition,
under normal market conditions, the medium and long-term U.S. Government
securities in which the Fund invests have historically provided higher yields
than short-term securities. Moreover, U.S. Government securities are considered
to be highly liquid.
NATIONAL MUNICIPAL BOND FUND. The National Municipal Bond Fund seeks to achieve
a high level of current income exempt from regular federal income taxes,
consistent with the preservation of capital, by investing primarily in a
portfolio of municipal obligations. A fund that invests in municipal bonds can
provide income free from federal income tax liability, even as taxes rise. In
addition, earnings may grow more quickly when they are permitted to compound
without federal income taxation.
An investor may want to determine which investment, tax-exempt or
taxable, will provide a higher after-tax return. To determine the taxable
equivalent yield, simply divide the yield from the tax-exempt investment by the
sum of (1 minus the investor's marginal tax rate). The tables below are provided
for making this calculation for selected tax-exempt yield and taxable income
levels. These yields are presented for purposes of illustration only and are not
representative of any yield that the Fund may generate. The tables are based
upon the 1996 federal tax rates (in effect as of January 1, 1996).
41
<PAGE>
TAXABLE EQUIVALENT YIELDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SINGLE JOINT MARGINAL A TAX-EXEMPT YIELD OF:
FEDERAL
INCOME TAX 3% 4% 5% 6% 7% 8%
RATE
TAXABLE INCOME**
IS EQUIVALENT TO A TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
under $24,000 under $40,100 15% 3.53, 4.71, 5.88, 7.06, 8.24, 9.41
- ------------------------------------------------------------------------------------------------------------------
$24,000-$58,150 $40,100-$96,900 28% 4.17, 5.56, 6.94, 8.33, 9.72, 11.11
- ------------------------------------------------------------------------------------------------------------------
$58,150-$121,300 $96,900-$147,700 31% 4.35, 5.80, 7.25, 8.70, 10.14, 11.59
- ------------------------------------------------------------------------------------------------------------------
$121,300-$263,750 $147,700-$263,750 36% 4.69, 6.25, 7.81, 9.38, 10.94, 12.50
- ------------------------------------------------------------------------------------------------------------------
over $263,750 over $263,750 39.6% 4.97, 6.62, 8.28, 9.93, 11.59, 13.25
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Certain taxpayers may, to the extent such taxpayers itemize deductions or
claim personal exemptions, be subject to a higher marginal rate. In addition,
the tax rate on net capital gains of individuals may not exceed 28%.
**Taxable Income amounts apply for taxable years beginning in 1996. The amounts
are indexed annually for inflation.
FUND SHARES
The Fund's Declaration of Trust permits its Trustees to issue an
unlimited number of full and fractional shares of beneficial interest and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Fund.
At a meeting of the Board of Trustees held on December 16, 1993, the
Trustees, including each Trustee who is not an "interested person," as such term
is defined under the Investment Company Act of 1940, as amended, unanimously
approved amendments to the Declaration of Trust to permit implementation of the
Multiple Pricing System. Shareholders of the Fund approved these amendments at a
special meeting held February 18, 1994. The Multiple Pricing System was
implemented on April 1, 1994. All shares of the Fund have equal voting rights
and will be voted in the aggregate, and not by series (Portfolio) or class,
except where voting by series or class is required by law or where the matter
involved affects only one series or class (for example, matters pertaining to
the plan of distribution relating to Class A shares will only be voted on by
Class A shares). Matters required by the 1940 Act to be voted upon by each
affected series include changes to (i) the Advisory Agreement, (ii) a
Subadvisory Agreement and (iii) the fundamental investment objectives and
policies.
Shares of each class of a Portfolio represent interests in that
Portfolio in proportion to each share's net asset value. Certain operating
expenses which are specifically allocable to a class of a Portfolio may be so
allocated by the Trustees. Upon the Fund's liquidation, all shareholders of a
class would share pro rata in the net assets of that class available for
distribution to shareholders of the Portfolio, but, as shareholders of such
class of such Portfolio, would not be entitled to share in the distribution of
assets belonging to any other class or Portfolio. As of the date of this
Statement of Additional Information, the Trustees have designated thirteen
Portfolios of the Fund: the Small/Mid Cap Fund, the International Small Cap
Fund, the Growth Equity Fund, the Global Growth Fund, the Value Equity Fund, the
Growth and Income Fund, the International Growth and Income Fund, the Asset
Allocation Fund, the Strategic Income Fund, the Investment Quality Bond Fund,
the U.S. Government Securities Fund, the National Municipal Bond Fund and the
Money Market Fund and three classes of Shares in each Portfolio: Class A, Class
B and Class C shares.
Certificates representing shares are issued only upon written request
to the Fund.
REDEMPTION IN KIND
Although it is each of the Portfolios' present policy to make payment
of redemption proceeds in cash, if the Trustees determine it appropriate,
redemption proceeds may be paid in whole or in part by a distribution in kind of
marketable securities held by that Portfolio subject to the limitation that each
Portfolio is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio during any 90-day period
for any one account. If a redemption in kind is made, a shareholder might be
required to bear transaction costs, including brokerage commissions, to dispose
of such securities. The Fund will endeavor to only distribute securities for
which there is an active trading market.
42
<PAGE>
REPURCHASE OF SHARES
The Distributor is authorized to repurchase Portfolio shares through
certain securities dealers who have entered into dealer agreements with the
Distributor. The offer to repurchase may be suspended by the Distributor at any
time. Dealers may charge for their services in connection with a repurchase, but
neither the Fund nor the Distributor makes any such charge. Repurchase
arrangements differ from redemptions in that the dealer buys the shares as
principal from his customer in lieu of tendering shares to the Fund for
redemption as agent for the customer. The proceeds to the shareholder will be
the net asset value of the shares repurchased as next determined after receipt
of the repurchase order by the dealer. By a repurchase, the customer should be
able to receive the sale proceeds from the dealer more quickly. Shareholders
should contact their dealers for further information as to how to effect a
repurchase and the dealer's charges applicable thereto.
PAYMENT FOR THE SHARES PRESENTED
Payment for shares presented for redemption will be based on the net
asset value of the applicable class of the applicable Portfolio next computed
after a request is received in proper form at the Transfer Agent's office. As
described in the Prospectus under the caption "PURCHASE OF SHARES -- Class B
Shares", certain redemptions of Class A, B and C shares may be subject to a
CDSC, which will be deducted from the redemption proceeds. Payment proceeds will
be mailed within seven days following receipt of all required documents.
However, payment may be postponed or the right of redemption suspended (i) for
any period during which the New York Stock Exchange is closed for other than
customary weekend and holiday closing or during which trading on the New York
Stock Exchange is restricted; (ii) for any period during which an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets; or (iii) for such other periods
as the Commission may by order permit for the protection of shareholders,
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions described in (i) and (ii) exist. Payment of proceeds
may also be delayed if the shares to be redeemed or repurchased were purchased
by check and that check has not cleared (which may be up to 15 days or more).
TRANSFER AGENT
State Street Bank and Trust Company acts as the Fund's transfer agent,
provides shareholder services and acts as dividend disbursing and redemption
agent. Its mailing address is P.O. Box 8505, Boston, Massachusetts 02266-8505.
State Street Bank and Trust Company also serves as the custodian for all
Portfolios of the Fund.
INDEPENDENT ACCOUNTANTS
The Fund's independent accountants, Coopers & Lybrand L.L.P., One Post
Office Square, Boston Massachusetts 02109, examine the Fund's annual financial
statements, assist in the preparation of certain reports to the Commission and
prepare the Fund's tax returns.
43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------
To the Trustees and Shareholders of the North American Funds:
We have audited the accompanying statements of assets and liabilities of North
American Funds (the "Funds") (comprising, respectively, the Global Growth,
Growth, Growth and Income, International Growth and Income, Asset Allocation,
Strategic Income, Investment Quality Bond, U.S. Government Securities, National
Municipal Bond and Money Market Funds) including the portfolio of investments,
as of October 31, 1995, and the related statements of operations, the statements
of changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios comprising the North American Funds as of October 31, 1995 and
the results of their operations, the changes in their net assets and the
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 22, 1995
1
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF ASSETS AND LIABILITIES - OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL GROWTH AND GROWTH AND ASSET
GROWTH GROWTH INCOME INCOME ALLOCATION
FUND FUND FUND FUND FUND
------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at
value* (Includes a repurchase
agreement of $12,472,000 in
the Asset Allocation Fund)
(See accompanying portfolio
of investments)............... $131,095,029 $125,841,142 $95,030,308 $20,525,251 $110,177,967
Receivable for forward foreign
currency contracts to sell
(Notes 2 and 7)............... 25,374,792 -- -- 3,880,853 --
Forward foreign currency
contracts to buy, at value
(Cost: $1,671,545 and
$1,072,065 in the Global
Growth and International
Growth and Income Funds,
respectively)
(Notes 2 and 7)............... 1,684,655 -- -- 1,027,970 --
Cash........................... 190 497 499 723 205
Foreign currency (Cost:
$356,489, $2,269 and $909,044
in the Global Growth, Growth
and Income and International
Growth and Income Funds,
respectively)................. 357,879 -- 1,883 910,685 --
Receivables:
Investments sold............. 575,728 1,515,940 989,252 131,634 9,925,043
Fund shares sold............. 275,666 276,005 566,361 153,779 98,709
Dividends.................... 251,670 157,531 190,224 56,510 63,426
Interest..................... 579 1,727 43,296 38,252 510,766
Foreign tax withholding
reclaim..................... 77,504 -- -- 18,348 --
From adviser (Note 5)........ 103,011 82,643 75,771 52,256 60,664
Deferred organization expenses
(Note 2)...................... -- -- 626 557 --
Other assets................... 23,661 18,951 20,157 7,024 15,240
------------ ------------ ----------- ----------- ------------
Total assets.............. 159,820,364 127,894,436 96,918,377 26,803,842 120,852,020
------------ ------------ ----------- ----------- ------------
LIABILITIES
Forward foreign currency
contracts to sell, at value
(Cost: $25,374,792 and
$3,880,853 in the Global
Growth and International
Growth and Income Funds,
respectively) (Notes 2 and 7). 25,867,812 -- -- 3,462,151 --
Variation margin payable for
open futures contracts........ -- -- -- -- 226
Payables:
Forward foreign currency
contracts to buy (Notes
2 and 7).................... 1,671,545 -- -- 1,072,065 --
Investments purchased........ -- 751,067 2,252,941 440,519 20,130,484
Fund shares redeemed......... 1,490,339 1,375,445 177,474 146,458 68,356
Dividend and interest
withholding tax............. 31,642 -- 1,841 8,654 111
Investment adviser........... 102,526 75,822 55,906 16,236 59,020
Custodian and transfer
agent fees.................. 50,904 27,923 14,997 10,186 18,934
Other accrued expenses....... 54,158 45,208 29,708 5,943 41,046
------------ ------------ ----------- ----------- ------------
Total liabilities......... 29,268,926 2,275,465 2,532,867 5,162,212 20,318,177
------------ ------------ ----------- ----------- ------------
NET ASSETS..................... $130,551,438 $125,618,971 $94,385,510 $21,641,630 $100,533,843
============ ============ =========== =========== ============
Net assets consist of:
Accumulated undistributed
net investment income
(loss) (Note 2)............. $1,556,196 $322,091 $452,599 ($231,087) $2,141,058
Accumulated undistributed
net realized gain (loss)
on investments.............. (3,967,298) 10,211,913 815,808 245,193 6,339,527
Unrealized appreciation
(depreciation) on:
Investments................. 8,150,165 8,991,501 13,364,726 (326,878) 7,919,596
Futures contracts........... -- -- -- -- (4,372)
Foreign currency and
forward foreign currency
contracts.................. (481,889) -- (386) 375,126 --
Capital shares at par value
of $.001 (Note 3)........... 9,495 7,921 6,418 2,142 8,365
Additional paid-in capital... 125,284,769 106,085,545 79,746,345 21,577,134 84,129,669
----------- ------------ ----------- ----------- ------------
Net assets................ $130,551,438 $125,618,971 $94,385,510 $21,641,630 $100,533,843
============ ============ =========== =========== ============
*Investments in securities,
at identified cost (Note 2)... $122,944,864 $116,849,641 $81,665,582 $20,852,129 $102,258,371
============ ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF ASSETS AND LIABILITIES - OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL GROWTH AND GROWTH AND ASSET
GROWTH GROWTH INCOME INCOME ALLOCATION
FUND FUND FUND FUND FUND
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUES
Class A Shares
Net assets at value....... $23,894,330 $22,026,336 $12,179,615 $6,896,648 $10,033,223
Shares outstanding........ 1,726,660 1,381,954 827,682 682,252 834,714
Net asset value and
redemption price per
share..................... $ 13.84 $ 15.94 $ 14.72 $ 10.11 $ 12.02
=========== =========== =========== ========== ===========
Public offering price per share
(100/95.25 of NAV)
On sales of $100,000 or more
the offering price is
reduced................. $ 14.53 $ 16.73 $ 15.45 $ 10.61 $ 12.62
=========== =========== =========== ========== ===========
Class B Shares
Net assets at value....... $23,317,145 $19,874,107 $19,052,023 $8,421,319 $ 9,875,164
Shares outstanding........ 1,698,251 1,254,421 1,297,356 834,017 824,443
Net asset value, offering price
and redemption price
per share................. $ 13.73 $ 15.84 $ 14.69 $ 10.10 $ 11.98
=========== =========== =========== ========== ===========
Class C Shares
Net assets at value....... $83,339,963 $83,718,528 $63,153,873 $6,323,663 $80,625,456
Shares outstanding........ 6,069,937 5,284,502 4,292,794 626,235 6,706,025
Net asset value, offering price
and redemption price
per share................. $ 13.73 $ 15.84 $ 14.71 $ 10.10 $ 12.02
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF ASSETS AND LIABILITIES - OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT U.S. NATIONAL
STRATEGIC QUALITY GOVERNMENT MUNICIPAL MONEY
INCOME BOND SECURITIES BOND MARKET
FUND FUND FUND FUND FUND
------------- -------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value*
(Includes repurchase agreements of
$19,390,000 in the U.S. Government
Securities Fund) (See accompanying
portfolio of investments).............. $48,576,962 $21,104,353 $127,716,824 $20,716,170 $19,629,542
Receivable for forward foreign currency
contracts to sell (Notes 2 and 7)...... $4,535,858 -- -- -- --
Forward foreign currency contracts to buy,
at value (Cost: $1,665,464)
(Notes 2 and 7)........................ $1,673,104 -- -- -- --
Cash..................................... 1,108 211 896 73,291 928
Foreign currency (Cost: $2,171).......... 1,076 -- -- -- --
Receivables:
Investments sold....................... 637,552 -- 9,995 130,592 --
Fund shares sold....................... 334,829 78,641 179,325 85,007 2,796,870
Dividends.............................. 867 -- -- -- --
Interest............................... 810,457 314,957 935,846 323,275 1,175
Foreign tax withholding reclaim........ 968 -- -- -- --
From adviser (Note 5).................. 32,962 14,860 70,041 11,930 16,899
Deferred organization expenses (Note 2).. 7,547 623 -- 6,897 --
Other assets............................. 15,434 10,138 15,236 17,352 13,664
----------- ----------- ------------ ----------- -----------
Total assets........................ 56,628,724 21,523,783 128,928,163 21,364,514 22,459,078
----------- ----------- ------------ ----------- -----------
LIABILITIES
Forward foreign currency contracts to
sell, at value (Cost: $4,535,858)
(Notes 2 and 7)........................ 4,653,168 -- -- -- --
Payables:
Forward foreign currency contracts to
buy (Notes 2 and 7).................. 1,665,464 -- -- -- --
Investments purchased.................. 5,060,376 446,240 13,123,546 974,950 --
Fund shares redeemed................... 85,843 19,618 135,308 8,839 94,811
Dividends.............................. 117,408 15,267 182,964 28,456 5,018
Dividend and interest withholding tax.. 1,257 -- -- -- --
Investment adviser..................... 28,167 10,243 65,369 10,303 4,541
Custodian and transfer agent fees...... 11,576 3,283 13,720 7,194 9,598
Other accrued expenses................. 15,037 6,456 45,161 6,637 7,662
Deferred mortgage dollar roll income..... 3,938 -- 4,194 -- --
----------- ----------- ------------ ----------- -----------
Total liabilities................... 11,642,234 501,107 13,570,262 1,036,379 121,630
----------- ----------- ------------ ----------- -----------
NET ASSETS............................... $44,986,490 $21,022,676 $115,357,901 $20,328,135 $22,337,448
=========== =========== ============ =========== ===========
Net assets consist of:
Accumulated undistributed net investment
income (loss) (Note 2)............... ($35,848) $46,769 ($389,597) ($572) --
Accumulated undistributed net realized
loss on investments.................. (400,335) (681,015) (3,350,703) (472,444) --
Unrealized appreciation
(depreciation) on:
Investments.......................... (636,076) 688,152 1,926,082 397,080 --
Foreign currency and forward foreign
currency contracts................. (109,200) -- -- -- --
Capital shares at par value of $.001
(Note 3)............................. 4,961 1,992 11,555 2,114 $22,338
Additional paid-in capital............. 46,162,988 20,966,778 117,160,564 20,401,957 22,315,110
----------- ----------- ------------ ----------- -----------
Net assets.......................... $44,986,490 $21,022,676 $115,357,901 $20,328,135 $22,337,448
=========== =========== ============ =========== ===========
*Investments in securities, at identified
cost (Note 2)......................... 49,213,038 20,416,201 125,790,742 20,319,090 19,629,542
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF ASSETS AND LIABILITIES - OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT U.S. NATIONAL
STRATEGIC QUALITY GOVERNMENT MUNICIPAL MONEY
INCOME BOND SECURITIES BOND MARKET
FUND FUND FUND FUND FUND
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUES
Class A Shares
Net assets at value....... $10,041,469 $10,344,645 $81,178,946 $7,617,877 $11,378,848
Shares outstanding........ 1,107,567 979,526 8,130,813 791,917 11,378,848
Net asset value and
redemption price
per share............... $ 9.07 $ 10.56 $ 9.98 $ 9.62 $ 1.00
=========== =========== =========== ========== ===========
Public offering price per
share (100/95.25 of NAV)
On sales of $100,000 or
more the offering price
is reduced.......... $ 9.52 $ 11.09 $ 10.48 $ 10.10 $ --
=========== =========== =========== ========== ===========
Class B Shares
Net assets at value....... $20,672,386 $ 3,471,927 $13,992,934 $5,876,506 $ 1,564,104
Shares outstanding........ 2,280,183 328,970 1,402,069 610,972 1,564,104
Net asset value, offering price
and redemption price
per share............... $ 9.07 $ 10.55 $ 9.98 $ 9.62 $ 1.00
=========== =========== =========== ========== ===========
Class C Shares
Net assets at value....... $14,272,635 $ 7,206,104 $20,186,021 $6,833,752 $ 9,394,496
Shares outstanding........ 1,574,343 683,013 2,022,679 710,507 9,394,496
Net asset value, offering price
and redemption price
per share............... $ 9.07 $ 10.55 $ 9.98 $ 9.62 $ 1.00
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH INTERNATIONAL
GLOBAL AND GROWTH AND ASSET
GROWTH GROWTH INCOME INCOME ALLOCATION
FUND FUND FUND FUND * FUND
------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest (net of $1,141 and $1,763
withholding tax in the International
Growth and Income and Asset
Allocation Funds, respectively)...... $ 287,020 $ 771,583 $ 269,878 $ 94,652 $ 3,576,675
Dividends (net of $240,552, $1,726,
$23,496, $29,231 and $740
withholding tax in the Global
Growth, Growth, Growth and Income,
International Growth and Income,
and Asset Allocation Funds,
respectively)........................ 2,054,763 1,548,021 2,111,938 189,092 1,081,735
----------- ----------- ----------- --------- -----------
Total income...................... 2,341,783 2,319,604 2,381,816 283,744 4,658,410
----------- ----------- ----------- --------- -----------
Expenses:
Distribution for Class A.............. 73,621 67,051 32,645 15,082 29,492
Distribution for Class B.............. 190,549 116,728 102,904 38,902 73,080
Distribution for Class C.............. 916,826 778,650 539,778 31,365 824,230
Investment adviser fee (Note 5)....... 1,185,949 758,694 521,769 102,022 687,562
Custodian fees........................ 168,607 51,830 47,815 48,666 64,759
Transfer agent fees................... 356,590 288,609 195,003 30,014 242,272
Accounting/administration............. 193,451 156,770 104,998 15,705 143,001
Audit and legal fees.................. 58,396 51,023 23,180 4,062 50,007
Amortization of deferred organization
expenses (Note 2).................... 6,931 -- 1,259 78 --
Miscellaneous......................... 77,456 49,356 45,462 14,011 51,035
----------- ----------- ----------- --------- -----------
Expenses before reimbursement
by adviser........................... 3,228,376 2,318,711 1,614,813 299,907 2,165,438
Reimbursement of expenses by
adviser (Note 5)..................... 185,804 280,198 210,892 56,027 264,797
----------- ----------- ----------- --------- -----------
Net expenses...................... 3,042,572 2,038,513 1,403,921 243,880 1,900,641
----------- ----------- ----------- --------- -----------
Net investment income (loss)...... (700,789) 281,091 977,895 39,864 2,757,769
----------- ----------- ----------- --------- -----------
Realized and unrealized gain (loss)
on investments, futures and
foreign currency:
Net realized gain (loss) on:
Investment transactions.............. (3,295,215) 10,219,108 716,372 275,761 6,529,806
Futures contracts.................... -- -- -- -- 2,303
Foreign currency transactions and
forward foreign currency contracts.. 1,789,553 -- 102,753 (260,048) --
Change in unrealized appreciation
(depreciation) on:
Investments.......................... (2,565,015) 3,234,064 9,980,846 (326,878) 5,539,360
Futures contracts.................... -- -- -- -- (4,372)
Translation of foreign currency and
forward foreign currency contracts.. (137,518) -- (386) 375,126 --
----------- ----------- ----------- --------- -----------
Net gain (loss) on investments,
futures and foreign currency..... (4,208,195) 13,453,172 10,799,585 63,961 12,067,097
----------- ----------- ----------- --------- -----------
Net increase (decrease) in net assets
resulting from operations............. ($4,908,984) $13,734,263 $11,777,480 $ 103,825 $14,824,866
=========== =========== =========== ========= ===========
</TABLE>
* For the period January 9, 1995 (commencement of
operations) to October 31, 1995.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT U.S. NATIONAL
STRATEGIC QUALITY GOVERNMENT MUNICIPAL MONEY
INCOME BOND SECURITIES BOND MARKET
FUND FUND FUND FUND FUND
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest (net of $1,317,
$344 and $6,288 withholding
tax in the Strategic Income,
Investment Quality Bond and
U.S. Government Securities
Funds, respectively).... $3,538,808 $1,312,109 $ 8,527,776 $1,001,625 $1,320,486
---------- ---------- ----------- ---------- ----------
Expenses:
Distribution for Class A.. 37,384 36,598 305,276 11,600 --
Distribution for Class B.. 133,210 18,574 68,916 41,698 --
Distribution for Class C.. 114,221 42,293 161,281 41,468 --
Investment adviser fee
(Note 5)................. 265,680 99,260 661,449 96,299 44,306
Custodian fees............ 28,763 31,976 70,387 30,698 27,160
Transfer agent fees....... 79,352 47,848 219,441 26,694 71,483
Accounting/administration. 50,078 23,477 160,387 22,863 32,458
Audit and legal fees...... 14,418 8,177 63,444 7,156 11,017
Amortization of deferred
organization expenses
(Note 2)................. 2,515 1,259 -- 2,515 --
Miscellaneous............. 33,293 26,578 54,493 27,995 33,010
---------- ---------- ----------- ---------- ----------
Expenses before waiver
and reimbursement
by adviser............... 758,914 336,040 1,765,074 308,986 219,434
Waiver of expenses and
reimbursement by
adviser (Note 5)........ 180,344 89,606 240,085 109,122 107,839
---------- ---------- ----------- ---------- ----------
Net expenses............ 578,570 246,434 1,524,989 199,864 111,595
---------- ---------- ----------- ---------- ----------
Net investment income... 2,960,238 1,065,675 7,002,787 801,761 1,208,891
---------- ---------- ----------- ---------- ----------
Realized and unrealized gain (loss)
on investments and foreign currency:
Net realized gain (loss) on:
Investment transactions.. 264,926 24,835 2,016,765 (451,322) --
Foreign currency transactions
and forward foreign
currency contracts...... (81,640) -- -- -- --
Change in unrealized appreciation
(depreciation) on:
Investments.............. 919,881 1,318,370 4,354,862 1,830,370 --
Translation of foreign
currency and forward
foreign currency
contracts............... (109,134) -- -- -- --
---------- ---------- ----------- ---------- ----------
Net gain on investments
and foreign currency.. 994,033 1,343,205 6,371,627 1,379,048 --
---------- ---------- ----------- ---------- ----------
Net increase in net assets
resulting from operations... $3,954,271 $2,408,880 $13,374,414 $2,180,809 $1,208,891
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL GROWTH FUND GROWTH FUND
---------------------------- ---------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
10/31/95 10/31/94 10/31/95 10/31/94
------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income
(loss)......................... $ (700,789) $ (848,113) $ 281,091 $ (353,647)
Net realized gain
(loss) on:
Investment
transactions................. (3,295,215) 5,396,829 10,219,108 5,394,478
Foreign currency and
forward foreign
currency contracts........... 1,789,553 (793,391) - -
Change in unrealized
appreciation
(depreciation) on:
Investments................. (2,565,015) 4,393,238 3,234,064 (1,865,268)
Foreign currency and
forward foreign
currency contracts......... (137,518) (346,782) - -
------------ ------------ ------------ -----------
Net increase (decrease) in
net assets resulting from
operations..................... (4,908,984) 7,801,781 13,734,263 3,175,563
Net equalization credits
(charges) (Note 2).............. (34,561) - 21,466 19,535
Distributions to
shareholders from:
Net investment income
Class A....................... - - - -
Class B....................... - - - -
Class C....................... - - - (137,622)
Net realized gains on
investments and foreign
currency transactions
Class A....................... (277,128) - (890,547) -
Class B....................... (2,291,951) - (316,510) -
Class C....................... (1,476,968) (881,357) (3,831,715) (399,699)
Increase in net assets
from capital share
transactions (Note 3).......... 6,043,444 63,074,225 24,302,675 25,718,450
------------ ------------ ------------ -----------
Increase (decrease) in
net assets...................... (2,946,148) 69,994,649 33,019,632 28,376,227
Net assets at beginning
of period....................... 133,497,586 63,502,937 92,599,339 64,223,112
------------ ------------ ------------ -----------
Net assets at end of period...... $130,551,438 $133,497,586 $125,618,971 $92,599,339
============ ============ ============ ===========
Accumulated undistributed
net investment income (loss).... $ 1,556,196 $ (1,092,560) $ 322,091 $ (334,304)
============ ============ ============ ===========
<CAPTION>
INTERNATIONAL
GROWTH AND
GROWTH AND INCOME FUND INCOME FUND
-------------------------- -------------
YEAR YEAR 01/09/95*
ENDED ENDED TO
10/31/95 10/31/94 10/31/95
------------ ----------- --------------
<S> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income
(loss)......................... $ 977,895 $ 519,687 $ 39,864
Net realized gain
(loss) on:
Investment
transactions................. 716,372 1,405,598 275,761
Foreign currency and
forward foreign
currency contracts........... 102,753 - (260,048)
Change in unrealized
appreciation
(depreciation) on:
Investments................. 9,980,846 605,644 (326,878)
Foreign currency and
forward foreign
currency contracts......... (386) - 375,126
----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
operations..................... 11,777,480 2,530,929 103,825
Net equalization credits
(charges) (Note 2).............. 83,756 48,673 -
Distributions to
shareholders from:
Net investment income
Class A....................... (161,680) (17,409) (14,446)
Class B....................... (104,194) (5,573) (14,765)
Class C....................... (570,011) (419,264) (12,260)
Net realized gains on
investments and foreign
currency transactions
Class A....................... (128,810) - -
Class B....................... (109,460) - -
Class C....................... (1,148,241) (353,371) -
Increase in net assets
from capital share
transactions (Note 3).......... 26,649,617 18,830,460 21,579,276
----------- ----------- -----------
Increase (decrease) in
net assets...................... 36,288,457 20,614,445 21,641,630
Net assets at beginning
of period....................... 58,097,053 37,482,608 -
----------- ----------- -----------
Net assets at end of period...... $94,385,510 $58,097,053 $21,641,630
=========== =========== ===========
Accumulated undistributed
net investment income (loss).... $ 452,599 $ 224,303 $ (231,087)
=========== =========== ===========
</TABLE>
- -------------------
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND STRATEGIC INCOME FUND INVESTMENT QUALITY BOND FUND
--------------------------- ------------------------- ----------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................... $ 2,757,769 $ 1,961,624 $ 2,960,238 $ 1,477,142 $ 1,065,675 $ 871,065
Net realized gain (loss) on:
Investment transactions................ 6,529,806 4,389,994 264,926 (672,756) 24,835 (728,382)
Futures contracts...................... 2,303
Foreign currency and forward foreign
currency contracts.................... - - (81,640) (12,035) - -
Change in unrealized appreciation
(depreciation) on:
Investments............................ 5,539,360 (5,721,035) 919,881 (1,555,957) 1,318,370 (1,230,724)
Futures contracts...................... (4,372)
Foreign currency and forward foreign
currency contracts.................... - - (109,134) (66) - -
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............... 14,824,866 630,583 3,954,271 (763,672) 2,408,880 (1,088,041)
Net equalization credits (charges)
(Note 2)................................ (54,967) 51,522 - - 20,893 (6,490)
Distributions to shareholders from:
Net investment income
Class A................................ (235,768) - (974,298) (1,194,801) (701,998) (751,752)
Class B................................ (110,719) - (1,054,898) (127,517) (110,088) (8,359)
Class C................................ (1,850,266) (1,600,382) (930,449) (155,606) (255,000) (41,612)
Net realized gains on investments and
foreign currency transactions
Class A................................ (362,509) - - - - (131,745)
Class B................................ (237,460) - - - - -
Class C................................ (3,967,004) (2,569,588) - - - -
Increase in net assets from capital
share transactions (Note 3)............. (6,965,262) 6,876,195 14,605,227 31,628,233 5,614,479 1,399,668
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets........ 1,040,911 3,388,330 15,599,853 29,386,637 6,977,166 (628,331)
Net assets at beginning of period........ 99,492,932 96,104,602 29,386,637 - 14,045,510 14,673,841
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of period.............. $100,533,843 $99,492,932 $44,986,490 $29,386,637 $21,022,676 $14,045,510
============ =========== =========== =========== =========== ===========
Accumulated undistributed net
investment income (loss)................ $ 2,141,058 $ 1,629,773 $ (35,848) $ (781) $ 46,769 $ 46,444
============ =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NORTH AMERICAN FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT NATIONAL MUNICIPAL
SECURITIES FUND BOND FUND MONEY MARKET FUND
----------------------------- --------------------------- --------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............... $ 7,002,787 $ 7,740,947 $ 801,761 $ 515,870 $ 1,208,891 $ 669,113
Net realized gain (loss) on
investment transactions............ 2,016,765 (5,787,502) (451,322) (10,154) - -
Change in unrealized appreciation
(depreciation) on investments...... 4,354,862 (5,169,920) 1,830,370 (1,558,848) - -
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations........... 13,374,414 (3,216,475) 2,180,809 (1,053,132) 1,208,891 669,113
Net equalization charges (Note 2).... (101,581) (105,052) - - - -
Distributions to shareholders from:
Net investment income
Class A............................ (6,031,782) (7,163,972) (429,394) (455,481) (467,507) (453,322)
Class B............................ (421,002) (31,100) (188,030) (29,972) (88,435) (5,777)
Class C............................ (1,008,460) (163,828) (184,416) (31,225) (652,949) (210,014)
Net realized gains on investments
Class A............................ - (3,172,235) - - - -
Increase in net assets from capital
share transactions (Note 3)......... (4,588,211) (35,309,159) 7,339,594 4,048,362 1,356,401 2,871,867
------------ ------------ ----------- ----------- ----------- -----------
Increase (decrease) in net assets.... 1,223,378 (49,161,821) 8,718,563 2,478,552 1,356,401 2,871,867
Net assets at beginning of period.... 114,134,523 163,296,344 11,609,572 9,131,020 20,981,047 18,109,180
============ ============ =========== =========== =========== ===========
Net assets at end of period.......... $115,357,901 $114,134,523 $20,328,135 $11,609,572 $22,337,448 $20,981,047
============ ============ =========== =========== =========== ===========
Accumulated undistributed net
investment income (loss)............ $ (389,597) $ 432,979 $ (572) $ (721) - -
============ ============ =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL GROWTH FUND
-------------------------------------------------------------------------------------------------
YEAR 04/01/94* YEAR 04/01/94* YEAR YEAR
ENDED TO ENDED TO ENDED ENDED YEARS ENDED OCTOBER, 31
10/31/95 10/31/94 10/31/95** 10/31/94 10/31/95** 10/31/94 ---------------------------
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C 1993 1992 1991
-------- --------- ---------- --------- ---------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 14.82 $ 14.13 $ 14.79 $ 14.13 $ 14.79 $ 13.74 $ 10.33 $ 10.76 $ 10.12
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income
(loss) (B).................. -- (0.01) (0.09) (0.03) (0.09) (0.10) (0.01) (0.02) 0.25
Net realized and unrealized
gain (loss) on securities... (0.54) 0.70 (0.53) 0.69 (0.53) 1.15 3.43 (0.37) 0.63
------- ------- ------- ------- ------- -------- ------- ------- ------
Total from investment
operations....... (0.54) 0.69 (0.62) 0.66 (0.62) 1.05 3.42 (0.39) 0.88
Less distributions
- ------------------
Dividends from net
investment income........... -- -- -- -- -- -- (0.01) -- (0.24)
Distributions from capital
gains....................... (0.44) -- (0.44) -- (0.44) -- -- -- --
Distributions from capital... -- -- -- -- -- -- -- (0.04) --
------- ------- ------- ------- ------- -------- ------- ------- ------
Total distributions...... (0.44) -- (0.44) -- (0.44) -- (0.01) (0.04) (0.24)
------- ------- ------- ------- ------- -------- ------- ------- ------
Net asset value, end of
period...................... $ 13.84 $ 14.82 $ 13.73 $ 14.79 $ 13.73 $ 14.79 $ 13.74 $ 10.33 $10.76
======= ======= ======= ======= ======= ======== ======= ======= ======
Total return............. (3.52%) 9.16%(D) (4.09%) 8.94%(D) (4.09%) 8.94% 33.06% (3.57%) 8.80%
Net assets, end of period
(000's)..................... $23,894 $18,152 $23,317 $13,903 $83,340 $101,443 $63,503 $14,291 $8,828
Ratio of operating expenses
to average net assets (C).. 1.75% 1.75%(A) 2.40% 2.40%(A) 2.40% 2.40% 2.40% 2.52% 1.47%
Ratio of net investment
income (loss) to average net
assets.................... 0.03% (0.12%)(A) (0.61%) (0.77%)(A) (0.64%) (0.91%) (0.40%) (0.27%) 1.41%
Portfolio turnover rate...... 57% 54% 57% 54% 57% 54% 57% 69% 70%
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.02 and $0.02 per share for the
Global Growth Fund - Classes A and B respectively, for the year ended
October 31, 1995 and $0.01 and $0.01 per share for the Global Growth Fund -
Classes A and B respectively, for the period April 1, 1994 to October 31,
1994, and $0.02, $0.01, $0.02, $0.02 and $0.05 per share for the Global
Growth Fund - Class C for the years ended 1995, 1994, 1993, 1992 and 1991,
respectively.
(C) The ratio of operating expenses, before reimbursement from adviser, was
1.92% and 2.58% for the Global Growth Fund - Classes A and B respectively,
for the year ended October 31, 1995 and 1.97% and 2.71% for the Global
Growth Fund - Classes A and B respectively, for the period April 1, 1994 to
October 31, 1994, and 2.53%, 2.52%, 2.72%, 2.78% and 4.37% for the Global
Growth Fund - Class C for the years ended 1995, 1994, 1993, 1992 and 1991,
respectively.
(D) Historical total returns for Classes A and B shares are one year performance
returns which include Class C performance prior to April 1, 1994.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND
-------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95** 10/31/94 10/31/95** 10/31/94
CLASS A CLASS A CLASS B CLASS B
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... 14.78 $ 14.59 14.77 $14.59
Income (loss) from investment operations
- ----------------------------------------
Net investment income (loss) (B)........ 0.12 0.02 0.02 (0.02)
Net realized and unrealized gain
on securities......................... 1.83 0.17 1.84 0.20
------- ------- ------- ------
Total from investment
operations.................. 1.95 0.19 1.86 0.18
Less distributions
- ------------------
Distributions from capital gains........ (0.79) --- (0.79) ---
------- ------- ------- ------
Net asset value, end of period.......... $ 15.94 $ 14.78 $ 15.84 $14.77
======= ======= ======= ======
Total return.................. 14.22% 4.82%(D) 13.58% 4.75%(D)
Net assets, end of period (000's)....... $22,026 $16,326 $19,874 $5,054
Ratio of operating expenses to average
net assets (C)........................ 1.34% 1.34%(A) 1.99% 1.99%(A)
Ratio of net investment income (loss) to
average net assets.................... 0.79% 0.13%(A) 0.13% (0.52%)(A)
Portfolio turnover rate................. 54% 39% 54% 39%
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.04 and $0.05 per share for the
Growth Fund - Classes A and B respectively, for the year ended October 31,
1995 and $0.06 and $0.03 per share for the Growth Fund - Classes A and B
respectively, for the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement by adviser, was 1.62%
and 2.32% for the Growth Fund - Classes A and B respectively, for the year
ended October 31, 1995 and 1.79% and 2.82% for the Growth Fund - Classes A
and B respectively, for the period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes A and B shares are one year performance
returns which include Class C performance prior to April 1, 1994.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND - CLASS C
---------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 08/28/89*
-------------------------------------------------------------------------------------- TO
1995** 1994 1993 1992 1991 1990 10/31/89
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $ 14.77 $ 14.21 $ 12.05 $ 10.70 $ 8.22 $ 11.19 $ 12.25
of period...................
Income (loss) from
- ------------------
investment operations
- ----------------------
Net investment income (loss) 0.02 (0.07) 0.01 (0.01) 0.02 0.05 0.01
(B).........................
Net realized and unrealized
gain (loss) on securities... 1.84 0.74 2.15 1.37 2.54 (2.39) (1.07)
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations....... 1.86 0.67 2.16 1.36 2.56 (2.34) (1.06)
Less distributions
- ------------------
Dividends from net
investment income........... - (0.03) - - (0.03) (0.05) -
Distributions from capital
gains....................... (0.79) (0.08) - - - (0.58) -
Distributions from capital... - - - (0.01) (0.05) - -
------- ------- ------- ------- ------- ------- -------
Total distributions (0.79) (0.11) - (0.01) (0.08) (0.63) -
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 15.84 $ 14.77 $ 14.21 $ 12.05 $ 10.70 $ 8.22 $ 11.19
======= ======= ======= ======= ======= ======= =======
Total return....... 13.58% 4.75% 17.93% 12.75% 31.32% (22.16%) (8.65%)
Net assets, end of period
(000's)..................... $83,719 $71,219 $64,223 $24,291 $15,354 $19,370 $30,627
Ratio of operating expenses to
average net assets (C)....... 1.99% 1.99% 1.99% 2.47% 2.97% 2.85% 2.57%(A)
Ratio of net investment income
(loss) to average net assets. 0.15% (0.49%) 0.27% (0.15%) 0.27% 0.43% 0.37%(A)
Portfolio turnover rate...... 54% 39% 40% 91% 37% 58% 65%(A)
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.04, $0.04, $0.02,
$0.05 and $0.01 per share for the Growth Fund - Class C for the years ended
1995, 1994, 1993, 1992 and 1991, respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 2.23%, 2.29%, 2.35%, 3.00% and 3.12% for the Growth Fund -
Class C for the years ended 1995, 1994, 1993, 1992 and 1991, respectively.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
--------------------------------------------------------------------------------------------------
YEAR 04/01/94* YEAR 05/01/94* YEAR YEAR YEARS ENDED 05/01/91*
ENDED TO ENDED TO ENDED ENDED OCTOBER 31, TO
10/31/95** 10/31/94 10/31/95** 10/31/94 10/31/95 10/31/94
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C l993 1992 10/31/91
---------- -------- ---------- --------- --------- -------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.............. $ 13.09 $12.29 $ 13.08 $12.29 $ 13.08 $ 12.71 $ 11.21 $ 10.51 $10.00
Income from investment
operations
- -----------
Net investment income (B). 0.26 0.12 0.16 0.10 0.18 0.15 0.14 0.18 0.11
Net realized and unrealized
gain on securities........ 1.90 0.76 1.94 0.77 1.90 0.46 1.48 0.70 0.47
------ ------ ------ ------ ------- ------ ------- ------ ------
Total from investment
operations........... 2.16 0.88 2.10 0.87 2.08 0.61 1.62 0.88 0.58
Less distributions
- ------------------
Dividends from net
investment income........ (0.23) (0.08) (0.19) (0.08) (0.15) (0.13) (0.12) (0.18) (0.07)
Distributions from capital
gains................... (0.30) -- (0.30) -- (0.30) (0.11) -- -- --
------ ------ ------ ------ ------- ------ ------- ------ ------
Total distributions (0.53) (0.08) (0.49) (0.08) (0.45) (0.24) (0.12) (0.18) (0.07)
------ ------ ------ ------ ------ ------ ------- ------ ------
Net asset value, end of
period.............. $14.72 $13.09 $14.69 $13.08 $14.71 $13.08 $12.71 $11.21 $10.51
====== ====== ====== ====== ====== ====== ======= ====== ======
Total return....... 17.28% 5.06%(D) 16.73% 4.98%(D) 16.56% 4.85% 14.57% 8.42% 5.88%
Net assets, end of
period (000's)..... $12,180 $8,134 $19,052 $3,885 $63,154 $46,078 $37,483 $10,821 $2,090
Ratio of operating
expenses to average
net assets (C)...... 1.34% 1.34%(A) 1.99% 1.99%(A) 1.99% 1.99% 1.99% 1.94% 1.85%(A)
Ratio of net investment
income to average net
assets................ 1.91% 1.72%(A) 1.14% 1.07%(A) 1.26% 1.11% 1.12% 1.51% 2.05%(A)
Portfolio turnover
rate................. 40% 45% 40% 45% 40% 45% 37% 48% 111%(A)
</TABLE>
_______________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.05 and $0.05 per share for the
Growth and Income Fund - Classes A and B respectively, for the year ended
October 31, 1995 and $0.05 and $0.12 per share for the Growth and Income
Fund - Classes A and B respectively, for the period April 1, 1994 to October
31, 1994. After expense reimbursement and waiver by adviser of $0.04,
$0.05, $0.06, $0.15 and $0.37 per share for the Growth and Income Fund -
Class C for the years ended 1995, 1994, 1993 and 1992 and the period May 1,
1991 (commencement of operations) to October 31, 1991, respectively.
(C) The ratio of operating expenses, before reimbursement adviser, was 1.69% and
2.33% for the Growth and Income Fund - Classes A and B respectively, for the
year ended October 31, 1995, and 2.08% and 3.12% for the Growth and Income
Fund - Classes A and B respectively, for the period April 1, 1994 to October
31, 1994. The ratio of operating expenses, before reimbursement and waiver
by adviser, was 2.26%, 2.38%, 2.46%, 3.18% and 10.69% for the Growth and
Income Fund - Class C for the years ended 1995, 1994, 1993 and 1992 and the
period May 1, 1991 (commencement of operations) to October 31, 1991,
respectively.
(D) Historical total returns for Classes A and B shares are one year performance
returns which include Class C performance prior to April 1, 1994.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND INCOME FUND
------------------------------------------------------
01/09/95* 01/09/95* 01/09/95*
TO TO TO
10/31/95** 10/31/95** 10/31/95**
CLASS A CLASS B CLASS C
------------------ ---------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $10.00 $10.00 $10.00
Income from investment operations:
- ---------------------------------
Net investment income (B)............... 0.06 0.01 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions........................... 0.08 0.12 0.12
------ ----- ------
Total from investment
operations.................. 0.14 0.13 0.13
Less distributions
- ------------------
Dividends from net investment income.... (0.03) (0.03) (0.03)
------ ----- ------
Net asset value, end of period.......... $10.11 $10.10 $10.10
====== ====== ======
Total return.................. 1.37% 1.28% 1.28%
Net assets, end of period (000's)....... $6,897 $8,421 $6,324
Ratio of operating expenses to
average net assets (C)................ 1.75%(A) 2.40%(A) 2.40%(A)
Ratio of net investment income to
average net assets.................... 0.70%(A) 0.15%(A) 0.13%(A)
Portfolio turnover rate................. 69%(A) 69%(A) 69%(A)
</TABLE>
_____________________________
* Commencement of operations.
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.04, $0.04 and $0.04 per share
for the International Growth and Income Fund - Classes A, B and C
respectively, for the period January 9, 1995 (commencement of operations)
to October 31, 1995.
(C) The ratio of operating expenses, before reimbursement from adviser, was
2.18%, 2.93% and 2.93% for the International Growth and Income Fund,
Classes A, B and C respectively, for the period January 9, 1995
(commencement of operations) to October 31, 1995.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
-------------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95** 10/31/94 10/31/95** 10/31/94
CLASS A CLASS A CLASS B CLASS B
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $11.13 $11.06 $11.12 $11.06
Income (loss) from investment operations
- ----------------------------------------
Net investment income (B)............... 0.38 0.17 0.30 0.12
Net realized and unrealized gain
(loss) on securities.................. 1.35 (0.10) 1.36 (0.06)
------ ------ ------ ------
Total from investment
operations.................. 1.73 0.07 1.66 0.06
Less distributions
- ------------------
Dividends from net investment income.... (0.32) - (0.28) -
Distributions from capital gains........ (0.52) - (0.52) -
------ ------ ------ ------
Total distributions........... (0.84) - (0.80) -
------ ------ ------ ------
Net asset value, end of period.......... $12.02 $11.13 $11.98 $11.12
====== ====== ====== ======
Total return.................. 16.95% 0.76%(D) 16.31% 0.67%(D)
Net assets, end of period (000's)....... $10,033 $7,830 $9,875 $4,760
Ratio of operating expenses to average
net assets (C)........................ 1.34% 1.34%(A) 1.99% 1.99%(A)
Ratio of net investment income to
average net assets..................... 3.39% 2.72%(A) 2.69% 2.07%(A)
Portfolio turnover rate................. 226% 246% 226% 246%
</TABLE>
______________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement by adviser of $0.04 and $0.04 for the Asset
Allocation Fund - Classes A and B respectively, for the year ended October
31, 1995 and $0.03 and $0.04 for the Asset Allocation Fund - Classes A and
B respectively, for the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement from adviser, was
1.69% and 2.37% for the Asset Allocation Fund - Classes A and B
respectively, for the year ended October 31, 1995 and 1.86% and 2.73% for
the Asset Allocation Fund - Classes A and B respectively, for the period
April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes A and B shares are one year
performance returns which include Class C performance prior to April 1,
1994.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND - CLASS C (D)
--------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 08/28/89*
-------------------------------------------------------------- TO
1995** 1994 1993 1992 1991 1990 10/31/89
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $ 11.12 $ 11.52 $ 10.20 $ 9.76 $ 8.12 $ 9.84 $ 10.17
of period...................
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.31 0.22 0.21 0.20 0.27 0.32 0.05
Net realized and unrealized
gain (loss) on securities... 1.35 (0.15) 1.30 0.87 1.70 (1.66) (0.38)
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations....... 1.66 0.07 1.51 1.07 1.97 (1.34) (0.33)
Less distributions
- ------------------
Dividends from net
investment income........... (0.24) (0.18) (0.09) (0.19) (0.33) (0.26) ---
Distributions from capital
gains....................... (0.52) (0.29) (0.10) (0.44) --- --- ---
Distributions from capital... --- --- --- --- --- (0.12) ---
------- ------- ------- ------- ------- ------- -------
Total distributions (0.76) (0.47) (0.19) (0.63) (0.33) (0.38) ---
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 12.02 $ 11.12 $ 11.52 $ 10.20 $ 9.76 $ 8.12 $ 9.84
======= ======= ======= ======= ======= ======= =======
Total return....... 16.25% 0.67% 15.02% 11.25% 24.53% (13.97%) (3.24%)
Net assets, end of period
(000's)..................... $80,626 $86,902 $96,105 $48,160 $30,724 $34,713 $43,915
Ratio of operating expenses
to average net assets (C)... 1.99% 1.99% 1.99% 2.40% 2.88% 2.63% 2.13%(A)
Ratio of net investment
income to average
net assets.................. 2.76% 1.93% 1.96% 1.93% 2.77% 3.34% 3.09%(A)
Portfolio turnover rate...... 226% 246% 196% 171% 84% 73% 84%(A)
</TABLE>
_____________________________
* Commencement of operations
** Net investment income per share has been calculated using the average shares
method for fiscal year 1995.
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.03, $0.04, $0.03 and
$0.04 for the Asset Allocation Fund - Class C for the years ended 1995,
1994, 1993 and 1992, respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 2.24%, 2.22%, 2.28% and 2.89% for the Asset Allocation Fund -
Class C for the years ended 1995, 1994, 1993 and 1992, respectively.
(D) On July 10, 1992, the Aggressive Fund and Conservative Fund portfolios of
the old Asset Allocation Funds were liquidated and shares were exchanged for
shares of the new Asset Allocation Fund. The new Asset Allocation Fund is
comprised of the Moderate Fund portfolio of the old Asset Allocation Fund
(the accounting "survivor") and the assets of the former Aggressive and
Conservative portfolios of the old Asset Allocation Funds. For purposes of
presenting financial highlights - selected per share data and ratios, only
the historical results of the old Moderate Fund have been presented since it
is considered the accounting survivor of the merger because the investment
objective of the new Asset Allocation Fund is substantially the same as that
of the old Moderate Fund. At the date of the merger, 3,567,198 shares of
the old Moderate Fund with a per share value of $8.11 were decreased to
2,891,572 shares with a per share value of $10.00, similar to a reverse
stock split, and re-named as shares of the new Asset Allocation Fund. The
historical per share data presented above has been adjusted as though a
reverse stock split had occurred at the beginning of the earliest period
presented which results in fewer shares outstanding at a correspondingly
higher net asset value per share.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
--------------------------------------------------------------------------------
YEAR 11/01/93* YEAR 04/01/94* YEAR 04/01/94*
ENDED TO ENDED TO ENDED TO
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 8.90 $ 10.00 $ 8.90 $ 9.31 $ 8.90 $ 9.31
Income (loss) from
investment operations
- ----------------------
Net investment income (B).... 0.78 0.65 0.73 0.38 0.73 0.38
Net realized and unrealized
gain (loss)
on securities.............. 0.18 (1.10) 0.17 (0.41) 0.17 (0.41)
------- ------- ------- ------- ------- ------
Total from investment
operations....... 0.96 (0.45) 0.90 (0.03) 0.90 (0.03)
Less distributions
- ------------------
Dividends from net
investment income........... (0.79) (0.65) (0.73) (0.38) (0.73) (0.38)
------- ------- ------- ------- ------- ------
Net asset value, end of
period...................... $ 9.07 $ 8.90 $ 9.07 $ 8.90 $ 9.07 $ 8.90
======= ======= ======= ======= ======= =======
Total return......... 11.43% (3.79%) 10.72% (4.18%)(D) 10.72% (4.20%)(D)
Net assets, end of period
(000's)..................... $10,041 $ 15,507 $20,672 $ 5,440 $14,273 $ 8,439
Ratio of operating expenses
to average net assets (C).... 1.07% 0.41% 1.95% 1.00%(A) 1.95% 1.00%(A)
Ratio of net investment
income to average net assets.. 9.08% 8.26% 8.10% 8.59%(A) 8.25% 8.59%(A)
Portfolio turnover rate...... 180% 136% 180% 136% 180% 136%
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.05 and $0.04 per
share for the Strategic Income Fund - Class A for the years ended October
31, 1995 and 1994, and $0.04 and $0.05 for the Strategic Income Fund -
Classes B and C respectively, for the year ended October 31, 1995 and $0.05
and $0.04 for the Strategic Income Fund - Classes B and C respectively, for
the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 1.69% and 0.96% for the Strategic Income Fund - Class A for the
years ended October 31, 1995 and 1994. The ratio of operating expenses,
before reimbursement and waiver from adviser, was 2.38% and 2.37% for the
Strategic Income Fund - Classes B and C respectively, for the year ended
October 31, 1995 and 2.04% and 1.96% for the Strategic Income Fund - Classes
B and C respectively, for the period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year performance
returns which include Class A performance prior to April 1, 1994.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND FUND
-------------------------------------------------------------------------------------------------
YEAR YEAR YEAR 04/01/94* YEAR 04/01/94* YEARS ENDED
ENDED ENDED ENDED TO ENDED TO OCTOBER, 31 05/01/91*
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94 ----------------- TO
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C 1993 1992 10/31/91
-------- -------- -------- --------- -------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 9.74 $ 11.16 $ 9.74 $10.21 $ 9.74 $10.21 $ 10.56 $10.26 $10.00
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.68 0.60 0.61 0.33 0.61 0.33 0.66 0.82 0.40
Net realized and unrealized
gain (loss) on securities... 0.82 (1.37) 0.82 (0.51) 0.82 (0.51) 0.64 0.27 0.30
------- ------- ------ ------ ------ ------ ------- ------ ------
Total from
investment
operations....... 1.50 (0.77) 1.43 (0.18) 1.43 (0.18) 1.30 1.09 0.70
Less distributions
- ------------------
Dividends from net
investment income........... (0.68) (0.56) (0.62) (0.29) (0.62) (0.29) (0.64) (0.7) (0.40)
Distributions from capital
gains....................... -- (0.09) -- -- -- -- (0.06) -- --
Distributions from capital... -- -- -- -- -- -- -- -- (0.04)
------- ------- ------ ------ ------ ------ ------- ------ -----
Total distributions (0.68) (0.65) (0.62) (0.29) (0.62) (0.29) (0.70) (0.79) (0.44)
------- ------- ------ ------ ------ ------ ------- ------ -----
Net asset value, end of
period...................... $ 10.56 $ 9.74 $10.55 $ 9.74 $10.55 $ 9.74 $ 11.16 $10.56 $10.26
======= ======= ====== ====== ====== ====== ======= ====== ======
Total return....... 15.91% (7.08%) 15.12% (7.34%)(D) 15.12% (7.34%)(D) 12.66% 11.00% 7.21%
Net assets, end of period
(000's)..................... $10,345 $11,150 $3,472 $ 489 $7,206 $2,406 $14,674 $6,773 $2,713
Ratio of operating expenses
to average net assets (C)... 1.25% 1.25% 1.90% 1.90%(A) 1.90% 1.90%(A) 0.98% 0.00% 0.00%(A)
Ratio of net investment
income to average
net assets.................. 6.72% 5.86% 5.95% 5.70%(A) 6.00% 5.70%(A) 5.82% 7.76% 7.08%(A)
Portfolio turnover rate...... 132% 186% 132% 186% 132% 186% 41% 44% 39%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.05, $0.06, $0.07,
$0.27 and $0.19 per share for the Investment Quality Bond Fund - Class A for
the years ended 1995, 1994, 1993 and 1992 and the period May 1, 1991
(commencement of operations) to October 31, 1991, respectively. After
expense reimbursement by adviser of $0.08 and $0.06 per share for the
Investment Quality Bond Fund - Classes B and C respectively, for the year
ended October 31, 1995 and $0.19 and $0.07 per share for the Investment
Quality Bond Fund - Classes B and C respectively, for the period April 1,
1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 1.73%, 1.74%, 1.57%, 2.56% and 3.37% for the Investment Quality
Bond Fund - Class A for the years ended 1995, 1994, 1993 and 1992 and the
period May 1, 1991 (commencement of operations) to October 31, 1991,
respectively. The ratio of operating expenses, before reimbursement by
adviser, was 2.69% and 2.50% for the Investment Quality Bond Fund - Classes
B and C respectively, for the year ended October 31, 1995 and 4.88% and
3.05% for the Investment Quality Bond Fund - Classes B and C respectively,
for the period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year performance
returns which include Class A performance prior to April 1, 1994.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND - CLASS A
-----------------------------------------------------------------------------
YEARS ENDED OCTOBER 31,
-----------------------------------------------------------------------------
08/28/89*
TO
1995 1994 1993 1992 1991 1990 10/31/89
------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $ 9.45 $ 10.35 $ 10.04 $ 9.89 $ 9.47 $ 9.74 $ 9.73
of period...................
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.63 0.53 0.51 0.74 0.84 0.75 0.15
Net realized and unrealized
gain (loss) on securities... 0.57 (0.74) 0.34 0.13 0.42 (0.20) 0.01
------- -------- -------- -------- ------- ------- -------
Total from
investment
operations....... 1.20 (0.21) 0.85 0.87 1.26 0.55 0.16
Less distributions
- ------------------
Dividends from net (0.67) (0.50) (0.50) (0.72) (0.84) (0.75) (0.15)
investment income...........
Distributions from capital ---- (0.19) (0.04) ---- ---- ---- ----
gains.......................
Distributions from capital... ---- ---- ---- ---- ---- (0.07) ----
------- -------- -------- -------- ------- ------- -------
Total distributions (0.67) (0.69) (0.54) (0.72) (0.84) (0.82) (0.15)
------- -------- -------- -------- ------- ------- -------
Net asset value, end of $ 9.98 $ 9.45 $ 10.35 $ 10.04 $ 9.89 $ 9.47 $ 9.74
period...................... ======= ======== ======== ======== ======= ======= =======
Total return....... 13.15% (2.13%) 8.64% 9.15% 13.86% 5.90% 1.66%
Net assets, end of period $81,179 $100,622 $163,296 $118,543 $45,662 $43,299 $56,069
(000's).....................
Ratio of operating expenses
to average net assets (C)... 1.25% 1.25% 1.07% 0.24% 0.68% 2.28% 2.18%(A)
Ratio of net investment
income to average
net assets.................. 6.54% 5.39% 4.97% 7.21% 8.65% 7.89% 8.54%(A)
Portfolio turnover rate...... 469% 279% 208% 108% 195% 71% 93%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.02, $0.02, $0.04,
$0.19, $0.18 and $0.03 per share for the U.S. Government Securities Fund -
Class A for the years ended 1995, 1994, 1993, 1992, 1991 and 1990,
respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 1.45%, 1.47%, 1.42%, 2.13%, 2.61% and 2.57% for the years ended
1995, 1994, 1993, 1992, 1991 and 1990, respectively.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
--------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95 10/31/94 10/31/95 10/31/94
CLASS B CLASS B CLASS C CLASS C
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $9.45 $9.77 $9.45 $9.77
Income (loss) from investment operations
- ----------------------------------------
Net investment income (B)............... 0.56 0.29 0.56 0.26
Net realized and unrealized gain (loss)
on securities......................... 0.58 (0.35) 0.58 (0.32)
----- ----- ----- -----
Total from investment
operations.................. 1.14 (0.06) 1.14 (0.06)
Less distributions
- ------------------
Dividends from net investment income.... (0.61) (0.26) (0.61) (0.26)
----- ----- ----- -----
Total distributions........... (0.61) (0.26) (0.61) (0.26)
----- ----- ----- -----
Net asset value, end of period.......... $9.98 $9.45 9.98 $9.45
===== ===== ===== =====
Total return.................. 12.45% (2.44%)(D) 12.45% (2.44%)(D)
Net assets, end of period (000's)....... $13,993 $2,746 20,186 $10,766
Ratio of operating expenses to average
net assets (C)........................ 1.90% 1.90%(A) 1.90% 1.90%(A)
Ratio of net investment income to
average net assets..................... 5.53% 5.06%(A) 5.74% 5.06%(A)
Portfolio turnover rate................. 469% 279% 469% 279%
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement by adviser of $0.04 and $0.03 per share for the
U.S. Government Securities Fund - Classes B and C respectively, for the
year ended October 31, 1995 and $0.08 and $0.03 per share for the U.S.
Government Securities Fund - Classes B and C respectively, for the period
April 1, 1994 to October 31, 1994 .
(C) The ratio of operating expenses, before reimbursement from adviser, was
2.28% and 2.15% for the U.S. Government Securities Fund - Classes B and C
respectively, for the year ended October 31, 1995 and 3.40% and 2.44% for
the U.S. Government Securities Fund - Classes B and C respectively, for the
period April 1, 1994 to October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year
performance returns which include Class A performance prior to April 1,
1994.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND FUND
---------------------------------------------------------------------------------
YEAR YEAR YEAR 04/01/94* YEAR 04/01/94*
ENDED ENDED ENDED TO ENDED TO 07/6/93*
10/31/95 10/31/94 10/31/95 10/31/94 10/31/95 10/31/94 TO
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C 10/31/93
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 8.82 $10.25 $ 8.81 $ 9.30 $ 8.81 $ 9.30 $10.00
Income (loss) from
- ------------------
investment operations
---------------------
Net investment income (B).... 0.51 0.51 0.43 0.25 0.43 0.25 0.17
Net realized and unrealized
gain (loss) on securities... 0.80 (1.43) 0.81 (0.49) 0.81 (0.49) 0.24
------ ------ ------ ------ ------ ------- ------
Total from
investment
operations....... 1.31 (0.92) 1.24 (0.24) 1.24 (0.24) 0.41
Less distributions
- ------------------
Dividends from net
investment income........... (0.51) (0.51) (0.43) (0.25) (0.43) (0.25) (0.16)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period...................... $ 9.62 $ 8.82 $ 9.62 $ 8.81 $ 9.62 $ 8.81 $10.25
====== ====== ====== ====== ====== ====== ======
Total return....... 15.26% (9.24%) 14.42% (9.71%)(D) 14.42% (9.71%)(D) 4.17%
Net assets, end of period
(000's)..................... $7,618 $7,663 $5,876 $2,036 $6,834 $1,911 $9,131
Ratio of operating expenses
to average net assets (C)... 0.80% 0.57% 1.70% 1.24%(A) 1.70% 1.24%(A) 0.23%(A)
Ratio of net investment
income to average
net assets.................. 5.55% 5.28% 4.59% 4.62%(A) 4.53% 4.62%(A) 4.86%(A)
Portfolio turnover rate...... 44% 6% 44% 6% 44% 6% 150%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.05, $0.07 and $0.03
per share for the National Municipal Bond Fund - Class A for the years ended
1995 and 1994 and the period July 6, 1993 (commencement of operations) to
October 31, 1993, respectively. After expense reimbursement and waiver by
adviser of $0.07 and $0.09 per share for the National Municipal Bond Fund -
Classes B and C respectively, for the year ended October 31, 1995 and $0.09
and $0.09 per share for the National Municipal Bond Fund - Classes B and C
respectively, for the period April 1, 1994 to October 31, 1994.
(C) The ratio of operating expenses, before reimbursement and waiver by adviser,
was 1.34%, 1.26% and 1.10% for the National Municipal Bond Fund - Class A
for the years ended 1995 and 1994 and the period July 6, 1993 (commencement
of operations) to October 31, 1993, respectively. The ratio of operating
expenses, before reimbursement and waiver by adviser, was 2.41% and 2.63%
for the National Municipal Bond Fund - Classes B and C respectively, for the
year ended October 31, 1995 and 2.81% and 2.78% for the National Municipal
Bond Fund - Classes B and C respectively, for the period April 1, 1994 to
October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year performance
returns which include Class A performance prior to April 1, 1994.
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND -- CLASS A
---------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 08/28/89*
-------------------------------------------------------------------- TO
1995 1994 1993 1992 1991 1990 10/31/89
------- ------ ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
- ----------------------
operations
----------
Net investment income (B)... 0.05 0.03 0.03 0.04 0.06 0.06 0.01
Less distributions
Dividends from net
investment income......... (0.05) (0.03) (0.03) (0.04) (0.06) (0.06) (0.01)
------- ------ ------- ------ ------ ------ ------
Net asset value, end of
period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ======= ====== ====== ====== ======
Total return.......... 5.60% 3.48% 2.80% 3.69% 6.22% 5.76% 0.53%
Net assets, end of period
(000's).................. $11,379 $8,499 $18,109 $2,244 $3,421 $4,526 $7,781
Ratio of operating expenses
to average net assets (C). 0.50% 0.50% 0.50% 0.50% 1.00% 2.45% 1.96%(A)
Ratio of net investment
income to average net
assets.................... 5.45% 3.40% 2.75% 3.77% 6.01% 5.52% 6.59%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement and waiver by adviser of $0.004, $0.0044,
$0.0084, $0.0211, $0.0270 and $0.0002 per share for the Money Market Fund-
Class A for the years ended 1995, 1994, 1993, 1992, 1991 and 1990,
respectively.
(C) The ratio of operating expenses, before reimbursement and waiver from
adviser, was 0.96%, 0.95%, 1.32%, 2.71%, 2.68% and 2.47% for the Money
Market Fund - Class A for the years ended 1995, 1994, 1993, 1992, 1991 and
1990, respectively.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
NORTH AMERICAN FUNDS
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET FUND
-------------------------------------------------------
YEAR 04/1/94* YEAR 04/1/94*
ENDED TO ENDED TO
10/31/95 10/31/94 10/31/95 10/31/94
CLASS B CLASS B CLASS C CLASS C
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
- ---------------------------------
Net investment income (B)............... 0.05 0.02 0.05 0.02
Less distributions
- ------------------
Dividends from net investment income.... (0.05) (0.02) (0.05) (0.02)
------- ------- ------- -------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return.................. 5.60% 3.48%(D) 5.60% 3.48%(D)
Net assets, end of period (000's)....... $1,564 $ 312 $9,394 $12,170
Ratio of operating expenses to average
net assets (C)........................ 0.50% 0.50%(A) 0.50% 0.50%(A)
Ratio of net investment income to
average net assets.................... 5.52% 3.96%(A) 5.46% 3.96%(A)
</TABLE>
______________________________
* Commencement of operations
(A) Annualized
(B) After expense reimbursement by adviser of $0.009 and $0.005 per share for
the Money Market Fund - Classes B and C respectively, for the year ended
October 31, 1995 and $0.0228 and $0.0037 per share for the Money Market
Fund - Classes B and C respectively, for the period April 1, 1994 to
October 31, 1994.
(C) The ratio of operating expenses, before reimbursement from adviser, was
1.41% and 0.95% for the Money Market Fund - Classes B and C respectively,
for the year ended October 31, 1995 and 4.83% and 1.18% for the Money
Market Fund - Classes B and C respectively, for the period April 1, 1994 to
October 31, 1994.
(D) Historical total returns for Classes B and C shares are one year
performance returns which include Class A performance prior to April 1,
1994.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS - 94.69%
Aluminum - 0.44%
Aluminum Company of America 11,400 $ 581,400
----------
Apparel & Textiles - 0.86%
Albany International Corporation 54,000 1,120,500
----------
Auto Parts - 0.95%
Danaher Corporation 40,000 1,240,000
----------
Automobiles - 2.61%
Daimler-Benz AG 3,524 1,698,660
Fiat, SPA 356,599 1,161,072
Hayes Wheels International,
Incorporated 21,500 564,375
----------
3,424,107
Banking - 4.33%
Bangkok Bank 61,800 638,506
BankAmerica Corporation 8,600 494,500
Hang Seng Bank 168,000 1,406,935
HSBC Holdings 65,500 974,474
Sakura Bank 55,000 532,284
Sumitomo Bank 56,000 990,860
Sumitomo Trust & Banking 55,000 634,440
----------
5,671,999
Broadcasting - 1.52%
Wolters Kluwer 21,940 1,996,821
----------
Building Construction - 0.86%
Fluor Corporation 20,000 1,130,000
----------
Business Services - 3.30%
Eaux (Cie Generale Des) 13,900 1,291,906
Interpublic Group Companies,
Incorporated 23,000 891,250
Secom Company 33,000 2,148,492
----------
4,331,648
Chemicals - 4.17%
The Dow Chemical Company 19,000 1,303,875
Imperial Chemical Industries, PLC, ADR 78,000 953,882
Sekisui Chemical 111,000 1,443,179
Sumitomo Chemical 380,000 1,764,505
----------
5,465,441
Computers & Business Equipment - 1.13%
International Business Machines
Corporation 1,760 171,160
Olivetti & C., SPA* 1,423,600 1,062,788
Tandy Corporation 5,000 246,875
----------
1,480,823
Conglomerates - 4.43%
Berjaya Sports 382,000 796,773
BTR 286,400 1,521,429
Grand Metropolitan 140,500 972,949
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Conglomerates - continued
Hutchison Whampoa 282,000 $ 1,553,759
Renong, BHD 631,000 963,510
-----------
5,808,420
Construction Materials - 1.00%
Maeda Road Construction 73,000 1,305,929
-----------
Construction & Mining Equipment - 0.47%
City Developments 99,000 613,057
-----------
Containers & Glass - 0.77%
Mark IV Industries, Incorporated 51,766 1,009,437
-----------
Domestic Oil - 0.68%
Phillips Petroleum Company 27,800 896,550
-----------
Drugs & Health Care - 5.26%
Astra AB, Free, Class A 105,735 3,885,092
Astra AB, Free, Class B 28,645 1,035,268
Bristol Myers Squibb Company 2,100 160,125
Isolyser, Incorporated* 44,000 786,500
Yamanouchi Pharmaceutical Company 46,000 1,025,270
-----------
6,892,255
Electric Utilities - 0.29%
Companhia Energetica De Sao Paulo* 37,100 379,563
-----------
Electrical Equipment - 2.69%
General Electric Company 27,500 1,739,375
NEC Corporation 135,000 1,781,612
-----------
3,520,987
Electronics - 11.55%
AMP, Incorporated 32,800 1,287,400
Emulex Corporation* 26,400 425,700
Intel Corporation 7,600 531,050
Kyocera Corporation 13,000 1,064,959
Mitsumi Electric 150,000 3,621,878
Rohm Company 51,000 3,096,046
TDK Corporation 58,000 2,988,025
Tokyo Electron 49,000 2,126,790
-----------
15,141,848
Financial Services - 0.51%
Partner Re Holding 25,000 665,625
-----------
Food & Beverages - 1.94%
Fraser & Neave 79,000 933,687
Ohsho Food Service Corporation 22,000 427,978
Universal Foods Corporation 34,600 1,185,050
-----------
2,546,715
Gold - 1.92%
Placer Dome, Incorporated 115,200 2,520,000
-----------
Homebuilders - 1.41%
Yokogawa Bridge Corporation 132,000 1,845,251
-----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Hotels and Restaurants - 1.70%
Equity Inns, Incorporated 24,800 $ 291,400
Hospitality Franchise Systems,
Incorporated* 24,000 1,470,000
Morrison Restaurants, Incorporated 30,250 472,656
----------
2,234,056
Household Appliances - 1.14%
Sharp Corporation 108,000 1,499,194
----------
Industrial Machinery - 6.24%
Ebara Corporation 100,000 1,388,142
Exedy Corporation 61,000 948,140
Keppel Corporation 152,000 1,247,841
Kolbenschmidt AG* 8,586 1,244,348
Mannesmann AG 4,810 1,583,172
Mitsubishi Heavy Industries, Ltd. 230,000 1,773,987
----------
8,185,630
Insurance - 0.63%
Tokio Marine & Fire Insurance Company 81,000 831,419
----------
Leisure Time - 1.22%
Genting, BHD 66,000 568,831
Resorts World, BHD 212,000 1,034,553
----------
1,603,384
Liquor - 1.89%
LVHM Moet Hennessy 12,470 2,481,199
----------
Miscellaneous - 0.14%
New World Infrastructure, Ltd. 158 278
Nippon Hi Pack Company 16,000 111,990
Sari Corporation 5,000 72,829
----------
185,097
Mutual Funds - 1.36%
India Gateway Fund* 17,000 304,980
Indian Opportunities Fund* 34,018 351,403
Korea Equity Fund, Incorporated 64,000 584,000
The R.O.C. Taiwan Fund 56,300 541,888
----------
1,782,271
Non-Ferrous Metals - 3.64%
QNI, Ltd. 1,543,500 2,962,843
Western Mining Corporation Holdings 281,767 1,807,189
----------
4,770,032
Paper - 0.71%
Schmalbach Lubeca AG 4,705 925,892
----------
Petroleum Services - 1.46%
Petronas Gas, BHD* 83,000 280,913
Schlumberger, Ltd. 26,200 1,630,950
----------
1,911,863
Photography - 0.52%
Minolta Camera Company, Ltd.* 140,000 678,821
----------
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Real Estate - 2.79%
Mitsubishi Estate 75,000 $ 799,159
------------
New World Development Company 95,000 369,841
Storage USA, Incorporated 10,000 292,500
Sun Hung Kai Properties 275,000 2,196,315
------------
3,657,815
Retail Grocery - 1.17%
ASDA Group, PLC 426,420 691,036
Hac Kimisawa Company 67,000 838,360
------------
1,529,396
Retail Trade - 5.14%
Big B, Incorporated 50,000 737,500
Friedman's, Incorporated, Class A* 31,000 627,750
Oneida, Ltd. 24,000 396,000
Service Merchandise Company,
Incorporated* 40,000 215,000
Wal-Mart Stores, Incorporated 50,000 1,081,250
Walgreen Company 56,000 1,596,000
Xebio Company 56,000 2,080,258
------------
6,733,758
Steel - 1.14%
Nippon Steel Corporation 450,000 1,491,275
------------
Telecommunication Services - 0.94%
Cable and Wireless, PLC 121,000 790,087
Seibu Electric & Machinery 86,000 445,574
------------
1,235,661
Telephone - 8.68%
British Telecommunications, PLC 254,100 1,510,539
DDI Corporation 300 2,431,204
Nippon Telegraph & Telephone Corporation 306 2,509,741
Stet 406,700 1,151,976
Telefonica De Espana SA 165,360 2,086,391
Telephone & Data Systems, Incorporated 6,500 260,000
Vodafone Group 345,550 1,428,638
------------
11,378,489
Trucking & Freight - 1.09%
Gulfmark International, Incorporated* 2,800 64,400
Yamato Transport 127,000 1,365,658
------------
1,430,058
TOTAL COMMON STOCK
(Cost $115,561,413) $124,133,686
------------
PREFERRED STOCKS - 1.38%
Automobiles - 1.29%
Porsche AG* 3,629 1,688,686
------------
Mutual Funds - 0.09%
India Gateway Fund 20,000 118,800
------------
TOTAL PREFERRED STOCK
(Cost $1,945,508) $ 1,807,486
------------
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
WARRANTS - 0.90%*
Banking - 0.39%
Deutsche Bank AG (Expiration date
06/30/97; strike price DEM 61) 32,340 $ 516,944
----------
Miscellaneous - 0.51%
Volkswagen AG (Expiration date
10/27/98; strike price DEM 221) 8,070 667,913
----------
TOTAL WARRANTS
(Cost $1,468,943) $1,184,857
----------
REPURCHASE AGREEMENT - 3.03%
<CAPTION>
Principal Maturity
Amount Amount
--------- ---------
<S> <C>
$3,969,000 Repurchase Agreement with State
Street Bank & Trust Company dated
10/31/95 at 5.25%, to be repurchased
at $3,969,579 on 11/01/95,
collateralized by $3,820,000 U.S.
Treasury Note, 7.125% due 02/29/00
(valued at $4,053,029, including
interest) $3,969,000
----------
TOTAL INVESTMENTS
(Global Growth Fund) (Cost $122,944,864) $131,095,029
============
Growth Fund
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS - 91.48%
Aerospace - 5.62%
McDonnell Douglas Corporation 43,400 $3,547,950
Northrop Grumman Corporation 61,600 3,526,600
----------
7,074,550
Air Travel - 0.20%
AMR Corporation* 3,900 257,400
----------
Automobiles - 3.50%
Ford Motor Company 126,900 3,648,375
General Motors Corporation 17,400 761,250
----------
4,409,625
Banking - 5.51%
Citicorp 27,600 1,790,550
Nationsbank Corporation 57,500 3,780,625
Shawmut National Corporation 40,100 1,358,387
----------
6,929,562
Broadcasting - 0.37%
Multimedia, Incorporated* 10,500 464,625
----------
Chemicals - 1.60%
Geon Company 80,700 2,007,412
----------
Computers & Business Equipment - 1.45%
Compaq Computer Corporation* 32,800 1,828,600
----------
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Construction & Mining Equipment - 1.72%
Harnischfeger Industries, Incorporated 68,600 $2,160,900
----------
Containers & Glass - 0.10%
Owens-Illinois, Incorporated* 9,900 124,987
----------
Domestic Oil - 3.48%
Mobil Corporation 12,200 1,229,150
Tenneco, Incorporated 71,800 3,150,225
----------
4,379,375
Drugs & Health Care - 5.60%
Columbia/HCA Healthcare Corporation 26,600 1,306,725
Tambrands, Incorporated 21,500 962,125
Tenet Healthcare Corporation* 225,300 4,027,237
U.S. Healthcare, Incorporated 19,500 750,750
----------
7,046,837
Electric Utilities - 0.13%
Long Island Lighting Company 9,800 166,600
----------
Electrical Equipment - 4.72%
Fisher Scientific International,
Incorporated 64,900 2,036,238
Millipore Corporation 110,400 3,905,400
----------
5,941,638
Electronics - 2.61%
Analog Devices, Incorporated* 33,100 1,195,737
National Semiconductor Corporation* 49,100 1,196,813
Varian Associates, Incorporated 17,400 893,925
----------
3,286,475
Financial Services - 8.41%
Federal Home Loan Mortgage
Corporation 15,700 1,087,225
Federal National Mortgage Association 13,100 1,373,863
First USA, Incorporated 65,300 3,003,800
Partner Re Holding 121,400 3,232,275
PennCorporation Financial Group,
Incorporated 53,700 1,282,087
Salomon, Incorporated 16,700 603,288
----------
10,582,538
Forest Products - 3.71%
Georgia Pacific Corporation 56,600 4,669,500
----------
Household Products - 1.05%
Snap-On, Incorporated 31,100 1,317,863
----------
Industrial Machinery - 4.00%
Keystone International, Incorporated 60,000 1,335,000
Pall Corporation 101,400 2,471,625
Silicon Valley Group, Incorporated* 37,800 1,223,775
----------
5,030,400
Insurance - 1.77%
Lincoln National Corporation,
Incorporated 29,700 1,325,363
Integon Corporation 54,790 897,186
----------
2,222,549
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
International Oil - 3.98%
Amoco Corporation 9,100 $ 581,263
Chevron Corporation 10,500 490,875
Exxon Corporation 8,600 656,825
Royal Dutch Petroleum Company 4,900 602,087
Texaco, Incorporated 39,300 2,677,313
------------
5,008,363
Paper - 2.72%
Stone Container Corporation 207,100 3,417,150
------------
Plastics - 1.99%
First Brands Corporation 54,800 2,507,100
------------
Railroads & Equipment - 0.84%
Trinity Industries, Incorporated 35,750 1,059,094
------------
Retail Trade - 8.53%
Charming Shoppes, Incorporated 462,400 1,329,400
Dillard Department Stores, Incorporated 115,300 3,127,512
Musicland Stores, Incorporated* 140,250 911,625
J.C. Penney Company, Incorporated 28,200 1,187,925
Sears, Roebuck and Company 18,500 629,000
Service Merchandise Company,
Incorporated* 257,100 1,381,912
TJX Companies, Incorporated 160,200 2,162,700
------------
10,730,074
Steel - 1.13%
Quanex Corporation 72,200 1,425,950
------------
Telecommunication Services - 4.10%
Tele-Communications, Incorporated* 141,200 2,400,400
Valassis Communications,
Incorporated* 199,200 2,763,900
------------
5,164,300
Telephone - 1.95%
American Telephone & Telegraph
Company 38,400 2,457,600
------------
Tobacco - 5.87%
Philip Morris Companies, Incorporated 43,400 3,667,300
RJR Nabisco Holdings Corporation 44,500 1,368,375
Universal Corporation 111,800 2,347,800
------------
7,383,475
Trucking & Freight - 4.82%
Consolidated Freightways,
Incorporated 181,800 4,226,850
Kirby Corporation* 111,500 1,839,750
------------
6,066,600
TOTAL COMMON STOCKS
(Cost $106,129,641) $115,121,142
------------
</TABLE>
REPURCHASE AGREEMENT - 8.52%
<TABLE>
<CAPTION>
Principal Maturity
Amount Amount
- ------------ ------------
<S> <C>
$10,720,000 Repurchase Agreement with State
Street Bank & Trust Company dated
10/31/95 at 5.80%, to be repurchased at
$10,721,727 on 11/01/95,
collateralized by $8,195,000 U.S.
Treasury Bond, 9.25% due 02/15/16
(valued at $10,937,597,
including interest) $ 10,720,000
------------
TOTAL INVESTMENTS
(Growth Fund) (Cost $116,849,641) $125,841,142
============
</TABLE>
GROWTH & INCOME FUND
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS - 91.11%
Aerospace - 0.93%
Northrop Grumman Corporation 15,500 $ 887,375
----------
Aluminum - 1.26%
Alcan Aluminium, Ltd 37,700 1,192,263
----------
Automobiles - 2.84%
Chrysler Corporation 26,068 1,345,760
Ford Motor Company 47,103 1,354,219
----------
2,699,979
Banking - 4.51%
Citicorp 24,000 1,557,000
J.P. Morgan & Company, Incorporated 21,700 1,673,613
Republic New York Corporation 18,000 1,055,250
----------
4,285,863
Broadcasting - 1.74%
Viacom, Incorporated* 33,000 1,650,000
----------
Business Services - 1.75%
First Data Corporation 15,000 991,875
Nokia Corporation, ADR 12,000 669,000
----------
1,660,875
Chemicals - 3.70%
The Dow Chemical Company 18,000 1,235,250
Morton International, Incorporated 41,000 1,250,500
Zeneca Group, PLC, ADR 18,300 1,031,662
----------
3,517,412
Computers & Business Equipment - 4.45%
DST Systems, Incorporated 2,000 42,000
Hewlett-Packard Company 17,200 1,593,150
International Business Machines
Corporation 16,000 1,556,000
Xerox Corporation 8,000 1,038,000
----------
4,229,150
Construction & Mining Equipment - 1.05%
Foster Wheeler Corporation 26,500 993,750
----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Domestic Oil - 1.93%
Unocal Corporation 70,000 $1,837,500
----------
Drugs & Health Care - 8.06%
Abbott Laboratories 30,000 1,192,500
Bristol-Myers Squibb Company 13,200 1,006,500
Johnson & Johnson 14,000 1,141,000
McKesson Corporation 30,000 1,432,500
Pfizer, Incorporated 32,200 1,847,475
Rhone Poulenc Rorer, Incorporated 22,000 1,036,750
----------
7,656,725
Electric Utilities - 2.64%
DPL, Incorporated 50,000 1,187,500
Pinnacle West Capital Corporation 48,000 1,320,000
----------
2,507,500
Electrical Equipment - 2.59%
General Electric Company 17,000 1,075,250
Hubbell, Incorporated 23,000 1,385,750
----------
2,461,000
Electronics - 1.82%
AMP, Incorporated 44,000 1,727,000
----------
Financial Services - 3.80%
Federal National Mortgage Association 8,900 933,387
Fleet Financial Group, Incorporated 44,000 1,705,000
State Street Boston Corporation 25,000 971,875
----------
3,610,262
Food & Beverages - 3.17%
General Mills,Incorporated 16,800 963,900
PepsiCo, Incorporated 16,000 844,000
Sara Lee Corporation 41,000 1,204,375
----------
3,012,275
ForestProducts - 0.92%
Georgia-Pacific Corporation 10,600 874,500
----------
Household Products - 2.48%
Colgate Palmolive Company 13,000 900,250
Procter & Gamble Company 18,000 1,458,000
----------
2,358,250
Industrial Machinery - 1.92%
Keystone International,Incorporated 35,000 778,750
York International Corporation 24,000 1,050,000
----------
1,828,750
Insurance - 4.47%
Chubb Corporation 19,300 1,734,588
General Re Corporation 11,700 1,695,037
Marsh & McLennan Companies 10,000 818,750
----------
4,248,375
International Oil - 4.79%
Amoco Corporation 25,700 1,641,588
Chevron Corporation 28,000 1,309,000
Exxon Corporation 21,000 1,603,875
----------
4,554,463
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Liquor - 1.38%
Anheuser-Busch Companies,Incorporated 19,900 $1,313,400
----------
Newspapers - 1.61%
Gannett, Incorporated 28,100 1,527,937
----------
Non-Ferrous Metals - 1.04%
Engelhard Corporation 39,825 990,647
----------
Paper - 5.11%
International Paper Company 50,000 1,850,000
Kimberly Clark Corporation 22,000 1,597,750
Minnesota Mining & Manufacturing Company 24,700 1,404,813
----------
4,852,563
Petroleum Services - 1.18%
Dresser Industries,Incorporated 54,000 1,120,500
----------
Photography - 0.49%
Eastman Kodak Company 7,500 469,687
----------
Plastics - 0.45%
Illinois Tool Works, Incorporated 7,400 430,125
----------
Pollution Control - 0.61%
Browning Ferris Industries, Incorporated 20,000 582,500
----------
Publishing - 1.45%
Dun & Bradstreet Corporation 23,000 1,374,250
----------
Real Estate - 1.41%
Post Properties, Incorporated 22,300 669,000
Storage USA, Incorporated 23,000 672,750
----------
1,341,750
Retail Trade - 4.49%
J.C.Penney Company, Incorporated 19,000 800,375
The May Department Stores Company 30,500 1,197,125
Rite Aid Corporation 40,000 1,080,000
Wal-Mart Stores, Incorporated 55,000 1,189,375
----------
4,266,875
Software - 1.81%
Policy Management Systems Corporation* 36,500 1,720,063
----------
Telephone - 8.38%
American Telephone & Telegraph Company 29,000 1,856,000
BCE, Incorporated 37,000 1,244,125
NYNEX Corporation 42,000 1,974,000
U.S. West, Incorporated 34,929 1,663,494
Vodafone Group PLC, ADR 30,000 1,226,250
----------
7,963,869
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Tires And Rubber - 0.88%
The Goodyear Tire and Rubber Company 22,000 $ 836,000
-----------
TOTAL COMMON STOCKS
(Cost $73,466,632) $86,583,433
-----------
PREFERRED STOCKS - 3.13%
Computers & Business Equipment - 1.34%
Ceridian Corporation 13,000 1,267,500
-----------
Drugs & Health Care - 1.18%
Beverly Enterprises, Incorporated 22,000 1,122,000
-----------
Real Estate - 0.61%
Security Capital Pacific 24,500 581,875
-----------
TOTAL PREFERRED STOCKS
(Cost $2,452,277) $ 2,971,375
-----------
<CAPTION>
Principal
Amount Value
--------- -----------
<S> <C> <C>
CONVERTIBLE BONDS - 2.14%
General Instrument Corporation,
5.00% due 06/15/00 $ 800,000 $ 804,000
Noble Affiliates, Incorporated,
4.25% due 01/11/03 1,300,000 1,228,500
-----------
TOTAL CONVERTIBLE BONDS
(Cost $2,303,673) $ 2,032,500
-----------
<CAPTION>
Principal Maturity
Amount Amount
---------- -----------
<S> <C>
REPURCHASE AGREEMENT -3.62%
$3,443,000 Repurchase Agreement with Shearson
Lehman dated 10/31/95 at 5.86%, to
be repurchased at $3,443,560 on 11/01/95,
collateralized by $3,290,000 U.S.
Treasury Note, 7.875% due 01/15/98
(valued at $3,595,073, including
interest) $ 3,443,000
-----------
TOTAL INVESTMENTS
(Growth & Income Fund) (Cost $81,665,582) $95,030,308
===========
International Growth & Income Fund
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS - 86.18%
Agricultural Machinery - 0.25%
Kvaerner 1,300 $ 51,775
-----------
Air Travel - 0.27%
Singapore Airlines 6,000 55,626
-----------
Aluminum - 0.25%
Sankyo Aluminium 10,000 52,104
-----------
Apparel & Textiles - 0.95%
Christian Dior 795 78,035
Kurabo Industries 20,000 68,039
Tomen Corporation 15,000 48,976
-----------
195,050
Auto Parts - 0.54%
Fuji Heavy Industries* 20,000 69,212
Nissan Diesel Motor* 10,000 42,035
-----------
111,247
Automobiles - 2.59%
Daimler Benz AG 110 53,023
Honda Motor Company 8,000 139,205
Mitsubishi Motor 10,000 83,289
Rolls Royce 18,000 43,826
Toyota Motor Company 6,000 111,442
Volkswagen AG 320 100,824
-----------
531,609
Banking - 12.66%
ABN AMRO Holdings N.V. 1,000 42,020
Asahi Bank, Ltd. 10,000 99,712
Barclays 3,000 35,217
Banco Intercontinental Espanol 720 62,411
Banco Popular Espanol SA 320 50,836
Credit Company France 1,100 54,661
Credit Local De France 650 51,454
CS Holdings AG 675 68,969
Dai Ichi Kangyo Bank 11,000 186,031
Daishi Bank 18,000 96,779
Daiwa Bank 23,000 137,152
Deutsche Bank AG 2,200 99,513
Development Bank Singapore 6,000 68,790
Deutsche Pfandbrief & Hypobk 1,340 52,359
Fukui Bank 10,000 47,021
Generale De Banque 230 74,388
Hokkaido Takushoku Bank, Ltd. 20,000 49,660
HSBC Holdings - GBP 4,300 63,973
HSBC Holdings - HKD 7,200 104,763
Hyakugo Bank 4,000 23,188
Industrial Bank Japan 5,000 136,370
Lloyds Bank 5,000 61,541
National Australia Bank, Ltd. 9,200 78,769
Nippon Credit Bank 15,000 58,801
Public Bank, BHD 59,000 104,486
The Royal Bank of Scotland Group 9,000 72,925
Sakura Bank 15,000 145,168
Sanwa Bank 5,000 85,048
Shiga Bank 8,000 46,923
Schweizerische Bankgesellschaft 40 43,337
Schweizerischer Bankverein 260 106,721
Societe Generale 753 86,231
Standard Chartered Bank 7,000 57,439
Yasuda Trust & Banking 10,000 44,675
-----------
2,597,331
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
BROADCASTING - 0.88%
Gakken Company* 7,000 $ 38,663
News Corporation 12,400 62,529
Pearson 4,000 39,747
TV Francaise 380 39,243
---------
180,182
BUILDING CONSTRUCTION - 0.25%
SXL Corporation 5,000 50,345
---------
BUSINESS SERVICES - 1.53%
Chubb Security 6,000 31,541
Eaux Cie Generale 1,018 94,616
Havas 400 27,729
Inchcape, PLC 3,000 14,822
Kawasho Corporation 12,000 42,231
South West Water 4,650 36,832
Toppan Printing Company 5,000 65,986
----------
313,757
CHEMICALS - 4.84%
Air Liquide 331 55,504
Allied Colloids 18,000 37,850
BOC Group 2,000 27,478
Ciba-Geigy AG 210 181,829
Daido Hoxan, Incorporated 8,000 54,353
Hoechst AG 400 105,058
Kumiai Chemical Industry Company 4,000 20,138
Mitsubishi Chemical 12,000 54,431
Mitsubishi Gas Chemical 20,000 87,199
Mitsui Petrochemical Industry 15,000 118,921
Mitsui Toatsu Chemicals 20,000 73,708
Rhone-Poulenc SA, Class A 2,420 52,754
Showa Denko K.K.* 25,000 73,317
Solvay SA 100 50,622
---------
993,162
COMPUTERS & BUSINESS EQUIPMENT - 0.37%
Ricoh Company 7,000 75,272
---------
CONGLOMERATES - 2.66%
Aker AS 2,000 23,446
Asatsu, Incorporated 1,000 34,508
BIC Corporation 300 28,466
BTR 12,000 63,747
CSR, Ltd. 17,500 55,854
Grand Metropolitan 9,000 62,324
Hanson 12,300 37,678
Kanematsu Corporation 20,000 68,234
Preussag AG 125 35,521
Tokai Rika Company 6,000 46,337
Tomkins 10,000 39,447
Tractebel International 135 49,447
U.S. Industries, Incorporated 90 1,350
---------
546,359
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
CONSTRUCTION MATERIALS - 0.84%
Holderbank Financier Glarus AG 45 $36,149
Lafarge 623 41,290
Tarmac 31,000 42,150
Toyo Construction Company 10,000 51,420
---------
171,009
CONSTRUCTION & MINING EQUIPMENT - 0.13%
Daito Trust Construction 3,000 26,394
---------
CONTAINERS & GLASS - 0.72%
Caradon, PLC 11,000 34,435
Central Glass Company* 10,000 31,771
Compagnie De Saint-Gobain 430 51,265
Nippon Sheet Glass 7,000 30,314
---------
147,785
DRUGS & HEALTH CARE - 5.50%
Chugai Pharmaceutical Company 6,000 54,783
Daiichi Pharmaceutical Company 6,000 83,875
Glaxo Wellcome 13,700 184,760
Hafslund Nycomed, Class B 2,500 69,857
Kaken Pharmaceutical 10,000 81,724
Kyowa Hakko Kogyo 3,000 27,831
Lion Corporation 10,000 55,526
Roche Holdings AG 16 116,269
Sandoz AG 215 177,446
Sanofi 1,182 75,390
Schering AG 1,000 69,764
SmithKline Beecham, Class A 6,500 67,877
Synthelabo 975 62,766
---------
1,127,868
ELECTRIC UTILITIES - 3.51%
Electrabel 435 97,552
Empresa Nacional De Electridad SA 1,500 74,598
Fuerzas Electricas De Cataluna SA, Series A 9,500 57,519
Hong Kong Electric 16,500 56,126
RWE AG 100 35,592
Scottish Hydro Electric, PLC 9,000 48,379
Shikoku Electric Power, Incorporated 5,100 119,155
Tohoku Electric Power Company 3,030 71,089
Veba AG 3,900 160,117
---------
720,127
ELECTRICAL EQUIPMENT - 4.88%
Alcatel Alsthom Cie Generale D'Electric 560 47,822
BBC Brown Boveri AG 20 23,201
BICC Group, PLC 5,000 20,830
Fuji Electric Company 15,000 72,291
General Electric Company 10,000 49,644
Hitachi, Ltd. 17,000 174,495
Mitsubishi Cable 6,000 30,324
NEC Corporation 12,000 158,366
Nissin Electric 8,000 53,101
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Electrical Equipment - continued
Siemens AG 255 $ 133,696
Sumitomo Electric Industries 6,000 69,212
Toshiba Plant Kensetsu Company 8,000 62,564
Yaskawa Electric Corporation 12,000 50,325
Yorkshire Electricity Group 4,000 56,063
----------
1,001,934
Electronics - 0.43%
Alps Electric Company, Ltd. 5,000 51,322
SGS Thomson Microelectronics, Incorporated* 800 36,891
----------
88,213
Financial Services - 0.57%
Daiwa Securities 10,000 117,308
----------
Food & Beverages - 4.00%
Danone 560 89,438
Guinness 8,000 64,126
Hillsdown Holdings 22,000 58,261
Itoham Foods, Incorporated 5,000 36,610
Japan Tobacco, Incorporated 10 85,439
Nestle SA 90 94,336
Nippon Flour Mills 6,000 28,037
Nippon Suisan Kaisha, Ltd.* 18,000 73,024
Orkla 1,200 58,391
Reckitt & Colman, PLC 5,400 57,458
Scottish & Newcastle Breweries 4,400 40,800
Snow Brand Milk Products Company, Ltd. 4,000 26,199
Southcorp Holdings, Ltd. 24,000 51,737
United Biscuits, PLC 13,000 56,213
----------
820,069
Forest Products - 0.34%
Sumitomo Forestry Company 5,000 70,385
----------
Oil & Gas Production - 0.45%
Elf Aquitaine 1,369 93,224
----------
Gas & Pipeline Utilities - 0.40%
British Gas, PLC 10,000 38,103
Osaka Gas Company 13,000 43,590
----------
81,693
Homebuilders - 0.78%
Bilfinger & Berger
Bauaktiengesellschaft AG 180 66,240
Bouygues 332 35,304
Sekisui House 5,000 57,676
----------
159,220
Household Appliances - 1.91%
Matsushita Electric Industrial
Company, Ltd. 10,000 141,747
Pioneer Electronic 5,000 76,739
Sony Corporation 3,000 134,904
Thorn Emi, PLC 1,700 39,590
----------
392,980
<CAPTION>
Shares Value
-------- ----------
<S> <C> <C>
Household Products - 0.83%
Erid Beghin Say 200 $ 33,619
Uni Charm Corporation 2,000 44,968
Unilever NV 700 91,704
----------
170,291
Industrial Machinery - 4.14%
Daikin Industries 8,000 63,737
Ebara Corporation 4,000 55,526
Fischer AG 30 41,487
Glynwed International, PLC 5,000 26,640
Ishikawajima-Harima Heavy Industries 25,000 100,689
Kawasaki Heavy Industry 6,000 25,104
Kitz Corporation 10,000 43,013
M.A.N. AG 230 66,667
Minebea Company 10,000 81,138
NSK 7,000 41,947
Okamura Corporation 5,000 35,192
Sembawang Corporation, Ltd. 9,000 43,631
Sidel 100 34,723
Toshiba Corporation 10,000 72,438
Toyo Umpanki Company 5,000 17,596
Tsubakimoto Chain 4,000 18,769
Valeo 850 38,397
Vickers 11,000 43,652
----------
850,346
Insurance - 4.77%
Abbey National 7,000 59,265
Allianz AG Holdings 50 92,533
AXA Company 1,350 74,980
Chuo Trust & Banking 7,000 61,244
CIC Union Europe 400 27,402
Compagnie Financiere Richemont AG 30 41,751
Fortis AG 380 40,771
Guardian Royal Exchange 23,000 83,273
International Nederlanden 660 39,362
Munchener Ruckvers 80 166,070
Schweiz Ruckversicherungs 70 76,579
Tokio Marine & Fire Insurance Company 10,000 102,644
Willis Corroon Group, PLC 21,400 42,631
Zurich Versicherung 250 71,567
----------
980,072
International Oil - 1.54%
The British Petroleum Company 9,000 66,166
Cosmo Oil Company 20,000 97,756
Petrofina SA 170 52,751
Shell Transport & Trading Company 8,500 99,447
----------
316,120
Investment Companies - 0.93%
Marubeni Corporation 13,000 63,288
Nomura Securities 7,000 127,963
----------
191,251
Leisure Time - 0.49%
Forte 12,000 47,810
Granada Group, PLC 5,000 53,518
----------
101,328
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial sttements.
32
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - CONTINUED
(showing percentage of total value of investments)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
MINING - 0.26%
DSM NV 710 $ 53,189
--------
MISCELLANEOUS - 0.54%
Renault 1,900 59,447
Seita 1,500 52,146
--------
111,593
NON-FERROUS METALS - 1.16%
Alusuisse-Lonza Holding, Ltd. 35 26,759
Mitsubishi Material 15,000 67,745
RTZ Corporation, PLC 4,000 55,399
Western Mining Corporation Holdings 13,700 87,869
--------
237,772
PAPER - 0.52%
Nippon Paper Industries 10,000 68,723
Rexam, PLC 6,000 38,419
--------
107,142
PETROLEUM SERVICES - 3.17%
Broken Hill Proprietary Company, Ltd. 8,560 115,933
Norsk Hydro AS 4,200 167,272
Repsol SA 2,080 62,116
Royal Dutch Petroleum Company 1,420 176,308
Total, SA "B" Shares 1,740 107,529
Toyoda Machine Works, Ltd. 3,000 22,025
--------
651,183
PUBLISHING - 1.08%
Citic Pacific, Ltd. 23,000 71,841
Elsevier NV 4,460 57,665
Lagardere Groupe 2,425 45,276
Reuters Holdings 5,000 46,482
--------
221,264
RAILROADS & EQUIPMENT - 1.14%
East Japan Railway Company 17 80,268
Nagoya Railroad Company 8,000 37,617
Tobu Railway Company 10,000 56,601
Zexel Corporation 10,000 59,827
--------
234,313
REAL ESTATE - 1.85%
Cheung Kong Holdings 31,000 174,813
Mepc 6,000 35,668
Mitsui Fudosan Company 5,000 57,188
Tokyu Land Corporation 28,000 112,772
--------
380,441
RETAIL GROCERY - 0.58%
Maruetsu, Incorporated 8,000 61,782
Sainsbury 8,600 57,583
--------
119,365
RETAIL TRADE - 3.90%
Argos 6,000 48,474
Argyll Group 11,200 56,930
Ava Allgemeine Handles-Der Verbr AG 130 49,318
Carrefour 100 58,731
Castorama Dubois 165 26,757
Daiei, Incorporated 5,000 52,300
Douglas Holdings AG 800 29,270
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
RETAIL TRADE - CONTINUED
Familymart Company 1,000 $ 42,133
Izumiya Company 3,000 46,043
Kingfisher 7,000 52,624
Mitsukoshi, Ltd. 15,000 118,921
Nagasakiya Company* 10,000 37,538
Promodes 360 87,679
Sears, PLC 32,000 51,352
Takashimaya Company, Ltd. 3,000 41,644
--------
799,714
STEEL - 2.35%
Arbed SA* 300 29,855
Daido Steel Company 10,000 44,479
Nisshin Steel Company 20,000 74,099
NKK Company 25,000 60,365
Sumitomo Metal Industry 75,000 203,089
Thyssen AG 200 35,990
Usinor Sacilor* 2,300 34,335
--------
482,212
TELECOMMUNICATION SERVICES - 0.25%
Cable and Wireless 8,000 52,237
--------
TELEPHONE - 1.70%
British Telecommunications 23,500 139,700
Hong Kong Telecommunications, Ltd. 38,800 67,747
Kon PTT Nederland 1,100 38,693
Telekom Malaysia 9,000 64,463
Vodafone Group 9,400 38,863
--------
349,466
TIRES AND RUBBER - 0.47%
Yokohama Rubber Company 18,000 95,547
--------
TOBACCO - 0.44%
B.A.T. Industries 11,000 90,261
--------
TOYS, AMUSEMENTS & SPORTING GOODS - 0.45%
Casio Computer Company 6,000 52,495
Mizuno Company 5,000 40,227
--------
92,722
TRUCKING & FREIGHT - 1.12%
Nippon Express Company 10,000 81,138
Nippon Road Company 10,000 82,115
Peninsular & Oriental Steam Navigation Company 4,100 31,244
TNT, Ltd.* 25,000 35,230
--------
229,727
TOTAL COMMON STOCKS
(Cost $18,017,806) $17,689,584
-----------
PREFERRED STOCKS - 0.27%
Electrical Equipment - 0.27%
Legrand 500 55,009
------
TOTAL PREFERRED STOCKS
(Cost $46,816) $ 55,009
--------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - Continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
WARRANTS - 0.05%*
Construction Materials - 0.00%
Holderbank Financiere Glarus AG
(Expiration date 12/20/95; Strike
price CHF 640) 225 $ 268
----------
Non-Ferrous Metals - 0.05%
Maeda Corporation (Expiration date
02/05/97; Strike price $856) 10 10,563
----------
TOTAL WARRANTS
(Cost $15,875) $ 10,831
----------
<CAPTION>
Principal
Amount Value
--------------- ----------
<S> <C> <C>
CONVERTIBLE BONDS - 1.72%
Bot Cayman Finance,
4.25% due 03/31/49 (Yen) 30,000,000 $ 353,390
----------
TOTAL CONVERTIBLE BONDS
(Cost $391,691) $ 353,390
----------
CORPORATE BONDS - 0.23%
Treuhandanstalt,
7.75% due 10/01/02 DEM 60,000 46,313
----------
TOTAL CORPORATE BONDS
(Cost $45,129) $ 46,313
----------
FOREIGN GOVERNMENT OBLIGATIONS - 8.23%
Commonwealth of Australia - 0.23%
8.75%, due 01/15/01 AUD 60,000 46,425
----------
Government of Canada - 1.55%
8.75%, due 12/01/05 CAD 250,000 202,480
9.75%, due 06/01/01 CAD 140,000 116,536
----------
319,016
Kingdom of Denmark - 0.33%
7.00%, due 12/15/04 DKK 100,000 17,376
8.00%, due 11/15/01 DKK 260,000 49,345
----------
66,721
Government of France - 0.70%
7.50%, due 04/25/05 FRF 400,000 82,968
8.50%, due 04/25/03 FRF 272,000 60,089
----------
143,057
Government of Germany - 2.08%
7.375%, due 01/03/05 DEM 180,000 135,332
9.00%, due 10/20/00 DEM 360,000 292,072
----------
427,404
Government of Great Britain - 1.00%
United Kingdom Treasury,
7.00%, due 11/06/01 (Pounds) 80,000 122,806
United Kingdom Treasury,
8.50%, due 12/07/05 (Pounds) 50,000 82,065
----------
204,871
Government of Japan - 1.15%
4.80%, due 12/20/02 (Yen) 21,300,000 $ 236,935
----------
Government of Netherland - 1.19%
6.75%, due 11/15/05 NLG 380,000 244,695
----------
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS (Cost $1,653,812) $1,689,124
----------
<CAPTION>
Principal Maturity
Amount Amount
- --------- ----------
<S> <C>
REPURCHASE AGREEMENT - 3.32%
$681,000 Repurchase Agreement with State
Street Bank & Trust Company dated
10/31/95 at 5.25%, to be repurchase
at $681,099 on 11/01/95, collateralized
by $655,000 U.S. Treasury Note, 7.125%
due 02/29/00 (valued at $694,957,
including interest) $ 681,000
-----------
TOTAL INVESTMENTS
(International Growth & Income Fund)
(Cost $20,852,129) $20,525,251
===========
ASSET ALLOCATION FUND
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS - 47.24%
Aerospace - 2.60%
Lockheed Martin Corporation 4,600 $ 313,375
McDonnell Douglas Corporation 19,400 1,585,950
Northrop Grumman Corporation 16,900 967,525
----------
2,866,850
Auto Parts - 0.62%
Lear Seating Corporation* 24,600 682,650
----------
Automobiles - 2.04%
Ford Motor Company 62,200 1,788,250
General Motors Corporation 10,600 463,750
----------
2,252,000
Banking - 2.52%
BankAmerica Corporation 10,000 575,000
Nationsbank Corporation 24,200 1,591,150
Shawmut National Corporation 18,000 609,750
----------
2,775,900
Chemicals - 0.85%
Geon Company 37,700 937,787
----------
Computers & Business Equipment - 1.29%
Compaq Computer Corporation* 18,100 1,009,075
Storage Technology Corporation* 16,600 408,775
----------
1,417,850
Containers & Glass - 1.00%
Owens-Illinois, Incorporated* 87,400 1,103,425
----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
Domestic Oil - 1.58%
Ashland, Incorporated 14,900 $ 471,213
Atlantic Richfield Company 6,900 736,575
Mobil Corporation 5,300 533,975
----------
1,741,763
Drugs & Health Care - 2.17%
Columbia/HCA Healthcare Corporation 12,000 589,500
Tenet Healthcare Corporation* 100,600 1,798,225
----------
2,387,725
Electric Utilities - 2.24%
CMS Energy Corporation 17,400 480,675
Entergy Corporation 29,900 852,150
Long Island Lighting Company 66,500 1,130,500
----------
2,463,325
Electronics - 0.24%
Apple Computer, Incorporated 7,300 265,081
----------
Financial Services - 3.40%
Greenpoint Financial Corporation 44,500 1,201,500
Partner Re Holding 51,600 1,373,850
Travelers Group, Incorporated 23,200 1,171,600
----------
3,746,950
Food & Beverages - 1.65%
Chiquita Brands International,
Incorporated 112,000 1,820,000
----------
Forest Products - 1.56%
Georgia-Pacific Corporation 20,800 1,716,000
----------
Homebuilders - 1.05%
Centex Corporation 20,000 655,000
Lennar Corporation 22,000 503,250
----------
1,158,250
Household Appliances - 0.37%
Sunbeam Corporation 27,400 411,000
----------
Insurance - 1.82%
Integon Corporation 44,290 725,249
Lincoln National Corporation,
Incorporated 26,400 1,178,100
USLIFE Corporation 3,750 106,875
----------
2,010,224
International Oil - 1.98%
Royal Dutch Petroleum Company 8,600 1,056,725
Texaco, Incorporated 16,500 1,124,062
----------
2,180,787
Investment Companies - 0.24%
Lehman Brothers Holdings,
Incorporated 12,100 263,175
----------
Leisure Time - 1.64%
Brunswick Corporation 51,200 998,400
Outboard Marine Corporation 39,000 809,250
----------
1,807,650
<CAPTION>
Shares Value
-------- ----------
<S> <C> <C>
Liquor - 1.11%
Anheuser-Busch Companies,
Incorporated 18,600 $1,227,600
----------
Paper - 2.23%
Champion International Corporation 17,100 914,850
Stone Container Corporation 93,700 1,546,050
----------
2,460,900
Petroleum Services - 1.03%
Tosco Corporation 32,800 1,131,600
----------
Retail Grocery - 0.89%
Fleming Companies, Incorporated 43,300 979,663
----------
Retail Trade - 3.39%
Melville Corporation 19,500 624,000
J.C. Penney Company, Incorporated 28,300 1,192,137
Sears, Roebuck and Company 23,200 788,800
Supervalu, Incorporated 36,700 1,128,525
----------
3,733,462
Telecommunication Services - 1.75%
Tele-Communications, Incorporated* 56,700 963,900
Valassis Communications,
Incorporated* 69,400 962,925
----------
1,926,825
Tires and Rubber - 0.97%
The Goodyear Tire and Rubber
Company 28,000 1,064,000
----------
Tobacco - 3.75%
Philip Morris Companies, Incorporated 22,000 1,859,000
RJR Nabisco Holdings Corporation 49,540 1,523,355
Universal Corporation 35,800 751,800
----------
4,134,155
Trucking & Freight - 1.26%
Consolidated Freightways, Incorporated 59,700 1,388,025
----------
TOTAL COMMON STOCKS
(Cost $45,173,098) $52,054,622
----------
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
CORPORATE BONDS - 13.39%
Electric Utilities - 0.26%
Central Maine Power Company,
7.375% due 01/01/99 $ 290,000 $ 290,208
----------
Finance & Banking - 8.00%
Auburn Hills Trust,
12.00% due 05/01/20 250,000 374,840
BankAmerica Corporation,
7.75% due 07/15/02 400,000 426,004
BanPonce Financial Corporation,
5.17% due 07/15/96 1,000,000 992,300
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
FINANCE & BANKING - continued
Capital One Financial,
8.625% due 01/15/97 $ 900,000 $ 925,245
Chrysler Financial Corporation,
10.34% due 05/15/08 600,000 612,738
Comdisco, Incorporated,
7.33% due 03/06/97 500,000 506,805
Continental Bank, N.A.,
11.25% due 07/01/01 700,000 782,565
Continental Bank, N.A.,
12.50% due 04/01/01 450,000 571,563
Corporacion Andina De Fomento,
7.375% due 07/21/00 110,000 110,350
Corporation Andina De Fomento,
7.25% due 04/30/98 250,000 249,493
Countrywide Funding Corporation,
8.43% due 11/16/99 500,000 535,715
Financiera Energetica Nacional,
6.625% due 12/13/96 810,000 803,925
Ford Motor Credit Company,
6.80% due 08/15/97 800,000 809,400
General Motors Acceptance
Corporation, 7.625% due 03/09/98 575,000 593,274
General Motors Acceptance
Corporation, 7.50% due 11/04/97 175,000 179,525
Household Finance Corporation,
7.25% due 08/19/06 98,978 100,183
Security Pacific Corporation,
11.50% due 11/15/00 200,000 242,610
-----------
8,816,535
PETROLEUM SERVICES - 0.03%
Empresa Col De Petroleos,
7.25% due 07/08/98 30,000 29,400
-----------
INDUSTRIALS - 2.53%
Comdisco, Incorporated,
9.75% due 01/15/97 250,000 260,333
News America Holdings,
Incorporated, 7.50% due 03/01/00 550,000 569,382
News America Holdings,
Incorporated, 9.125% due 10/15/99 351,000 383,752
RJR Nabisco, Incorporated,
8.625% due 12/01/02 250,000 256,853
RJR Nabisco, Incorporated,
8.00% due 07/15/01 220,000 221,815
Tenneco, Incorporated,
10.00% due 08/01/98 1,000,000 1,092,730
-----------
2,784,865
OTHER - 1.88%
British Aerospace Finance,
Incorporated, 7.55% due 05/15/97 350,000 355,411
Time Warner, Incorporated,
7.975% due 08/15/04 125,000 128,411
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
OTHER - continued
Time Warner, Incorporated,
7.95% due 02/01/00 $1,525,000 $ 1,585,344
-----------
2,069,166
TELEPHONE - 0.69%
Tele-Communications, Incorporated,
7.00% due 08/04/97 750,000 757,762
-----------
TOTAL CORPORATE BONDS
(Cost $14,757,681) $14,747,936
-----------
U.S. TREASURY OBLIGATIONS - 7.26%
U.S. TREASURY STRIPS - 4.82%
Principal Only, due 11/15/04**** 5,670,000 3,275,276
Principal Only, due 08/15/09 1,500,000 628,875
Principal Only, due 05/15/20 2,480,000 499,869
Principal Only, due 08/15/20 4,600,000 912,180
-----------
5,316,200
U.S. TREASURY BONDS - 0.76%
8.00%, due 11/15/21 150,000 179,297
8.125%, due 08/15/21 130,000 157,218
11.125%, due 08/15/03 380,000 499,639
-----------
836,154
U.S TREASURY NOTES - 1.68%
6.25%, due 02/15/03 1,060,000 1,078,720
7.375%, due 11/15/97 520,000 536,983
7.75%, due 01/31/00 220,000 235,778
-----------
1,851,481
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $7,253,575) $ 8,003,835
-----------
U.S. GOVERNMENT AGENCY AND
MORTGAGE-BACKED OBLIGATIONS - 15.52%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.99%
6.125%, due 09/20/00 370,000 371,369
6.50%, due 11/15/18 800,000 790,744
7.50%, due 01/01/99 TBA** 2,000,000 2,021,860
8.20%, due 01/16/98 350,000 360,007
9.00%, due 01/01/05 - 11/01/05 809,026 846,694
-----------
4,390,674
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.57%
Zero coupon, due 01/25/24 - Remic 800,000 594,744
6.11%, due 09/20/00 330,000 331,036
7.00%, due 12/01/23 612,709 607,538
8.79%, due 01/30/02 190,000 193,435
-----------
1,726,753
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 9.96%
7.00%, due 01/01/99 TBA** 2,000,000 1,986,240
7.50%, due 01/01/99 TBA** 1,000,000 1,013,120
8.00%, due 01/01/99 TBA** 5,000,000 5,145,300
9.00%, due 07/15/16 - 01/15/22 1,733,137 1,829,321
9.50%, due 05/15/25 928,888 1,003,997
-----------
10,977,978
</TABLE>
** Purchased on a forward commitment (Note 2).
**** At October 31, 1995 a portion of this security was pledged to cover margin
requirements for open futures contracts.
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
---------- -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY AND
MORTGAGE-BACKED OBLIGATIONS
(Cost $16,876,845) $17,095,405
<CAPTION>
Principal
Amount Value
---------- -----------
<S> <C> <C>
FIXED INCOME - OTHER - 4.56%
Guaranteed - 0.47%
Resolution Funding Corporation,
zero coupon due 01/15/21 $ 390,000 $ 72,649
Resolution Funding Corporation,
zero coupon due 10/15/20 2,370,000 447,835
---------
520,484
Miscellaneous Asset Backed Securities - 3.09%
Case Equipment Loan Trust,
7.30% due 03/15/02 541,085 550,343
Discover Card Trust, Series 1991,
Class A, 7.20% due 04/16/98 580,000 580,539
General Motors Acceptance
Corporation, 6.30% due 06/15/99 283,601 284,398
General Motors Acceptance Corporation
Grantor Trust, Series 1995,
Class A, 7.15% due 03/15/00 445,316 451,715
Honda Auto Receivables Grantor
Trust, 6.20% due 12/15/00 242,505 243,131
Premier Auto Trust, Series 1995,
Class A4, 7.85% due 02/04/98 950,000 973,151
Premier Auto Trust, Series 1994,
Class A3, 4.75% due 02/02/00 60,000 59,306
Premier Auto Trust, Series 933,
Class A3, 4.90% due 12/15/98 208,851 206,762
Premier Auto Trust, Series 1995
Class A5, 7.90% due 05/04/99 50,000 51,640
----------
3,400,985
Other Collaterized Mortgage Obligations - 1.00%
Sears Credit Account Master Trust, Series
1995, Class A, 7.00% due 10/15/04 300,000 308,904
Standard Credit Card Master Trust, Series
1995, Class A, 7.85% due 02/07/02 510,000 540,121
Standard Credit Card Master Trust, Series
1994, Class A, 8.25% due 11/07/03 230,000 251,776
----------
1,100,801
TOTAL FIXED INCOME - OTHER
(Cost $4,942,449) $5,022,270
----------
FOREIGN BONDS - 0.71%
Province of Quebec, Canada,
13.25% due 09/15/14 500,000 631,010
Republic of Columbia,
9.25% due 02/03/00 150,000 150,889
----------
781,899
TOTAL FOREIGN BONDS
(Cost $782,723) $ 781,899
----------
***
REPURCHASE AGREEMENT - 11.32%****
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount Amount
--------- -----------
<S> <C>
$12,472,000 Repurchase Agreement with State
Street Bank & Trust Company dated
10/31/95 at 5.80%, to be repurchased
at $12,474,009 on 11/01/95, collateralized
by $9,535,000 U.S. Treasury Bond,
9.25% due 02/15/16 (valued at
$12,726,051, including interest) $ 12,472,000
------------
TOTAL INVESTMENTS
(Asset Allocation Fund) (Cost $102,258,371) $110,177,967
============
Strategic Income Fund
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ---------
<S> <C> <C>
CORPORATE BONDS - 47.38%
Business Services - 1.99%
Borg-Warner Security Corporation,
9.125% due 05/01/03 $ 500,000 $ 430,000
Katz Corporation,
12.75% due 11/15/02 500,000 535,000
---------
965,000
Drug & Health Care - 1.13%
Dade International, Incorporated,
Series B, 13.00% due 02/01/05 500,000 547,500
---------
Finance & Banking - 8.58%
Empress River Casino Finance
Corporation, 10.75% due 04/01/02 500,000 502,500
Foamex Capital Corporation,
11.875% due 10/01/04 500,000 497,500
Indah Kiat International Finance
Company, 11.375% due 06/15/99 500,000 521,250
Paine Webber Group, Incorporated,
6.30% due 02/15/96 1,400,000 1,399,770
Trump Taj Mahal Funding, Incorporated,
zero coupon due 11/15/99 509,875 433,394
United States Banknote Corporation,
11.625% due 08/01/02 500,000 380,000
Venture Holdings Trust,
9.75% due 04/01/04 500,000 435,000
----------
4,169,414
Food & Beverages - 0.50%
Flagstar Corporation,
10.75% due 09/15/01 260,000 240,500
----------
Food Stores - 0.74%
Penn Traffic Company,
9.625% due 04/15/05 500,000 360,000
----------
Gas Exploration - 1.02%
Petro PSC Properties,
12.50% due 06/01/02 500,000 495,000
----------
</TABLE>
*** At October 31, 1995 a portion of this security was pledged to cover forward
commitments purchased.
**** At October 31, 1995 a portion of this security was pledged to cover margin
requirements for open futures contracts.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
General Obligation - 0.45%
United States Leasing, International,
8.45% due 01/25/05 $200,000 $220,018
----------
Hotels & Restaurants - 0.26%
Family Restaurants, Incorporated,
9.75% due 02/01/02 250,000 125,000
----------
Industrials - 11.35%
American Safety Razor Company,
Series A, 9.875% due 08/01/05 500,000 501,250
Berry Plastics Corporation,
12.25% due 04/15/04 650,000 684,125
Consolidated Cigar Corporation,
10.50% due 03/01/03 550,000 555,500
Harris Chemical, Incorporated,
Step-up to 10.25% due 07/15/01 500,000 447,500
Jordan Industries, Incorporated,
10.375% due 08/01/03 450,000 405,000
Marcus Cable Company,
14.25% due 12/15/05 750,000 445,312
Pathmark Stores, Incorporated,
9.625% due 05/01/03 430,000 425,700
Plastic Specialties & Technologies,
Incorporated, 11.25% due 12/01/03 500,000 455,000
Renco Metals, Incorporated,
12.00% due 07/15/00 500,000 542,500
Revlon Worldwide Corporation,
Series B, zero coupon due 03/15/98 500,000 372,500
Specialty Equipment Companies,
Incorporated, 11.375% due 12/01/03 250,000 257,500
Terex Corporation,
13.75% due 05/15/02 500,000 422,500
----------
5,514,387
Leisure Time - 3.01%
Bally's Grand, Incorporated,
10.375% due 12/15/03 500,000 498,750
Bally's Park Place, Incorporated,
9.25% due 03/15/04 500,000 492,500
Hollywood Casino, Incorporated,
12.75% due 11/01/03 500,000 472,500
----------
1,463,750
Other - 8.84%
Decorative Home Accents,
Incorporated, 13.00% due 06/30/02 500,000 500,000
Herff Jones, Incorporated,
11.00% due 08/15/05 500,000 521,250
Hines Horticulture, Incorporated,
11.75% due 10/05/05 500,000 511,250
Outdoor Systems, Incorporated,
10.75% due 08/15/03 500,000 477,500
RBX Corporation,
11.25% due 10/15/05 500,000 497,500
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
Other - continued
SC International Services,
Incorporated, 13.00% due 10/01/05 $ 500,000 $ 515,000
Samsonite Corporation,
11.125% due 07/15/05 500,000 480,000
The Selmer Company, Incorporated,
11.00% due 05/15/05 500,000 492,500
Williamhouse Regency,
Incorporated, 11.50% due 06/15/05 300,000 297,000
-----------
4,292,000
Other Utilities - 1.69%
Waters Corporation, Series B,
12.75% due 09/30/04 750,000 821,250
-----------
Paper - 0.49%
Crown Paper Company,
11.00% due 09/01/05 250,000 238,750
-----------
Retail Trade - 2.78%
Apparel Retailers, Incorporated,
Series B, Step-up to 12.75%
due 08/15/05 1,000,000 610,000
Cole National Group, Incorporated,
11.25% due 10/01/01 500,000 495,000
Finlay Fine Jewerly Corporation,
10.625% due 05/01/03 250,000 246,875
-----------
1,351,875
Telephone - 3.01%
In Flight Phone Corporation,
Step-up to 14.00% due 05/15/02 1,000,000 390,000
A Plus Communications,
Incorporated, 11.875% due 11/01/05 500,000 503,750
Telex Communications, Incorporated,
12.00% due 07/15/04 550,000 569,250
-----------
1,463,000
Telecommunication Services - 1.54%
Adelphia Communications
Corporation, 12.50% due 05/15/02 500,000 487,500
Wireless One, Incorporated,
13.00% due 10/15/03 250,000 259,375
-----------
746,875
TOTAL CORPORATE BONDS
(Cost $23,568,299) $23,014,319
-----------
U.S. TREASURY OBLIGATIONS - 3.36%
U.S. Treasury Bonds - 0.53%
8.875%, due 08/15/17 200,000 257,032
-----------
U.S. Treasury Notes - 2.83%
6.75%, due 04/30/00 500,000 518,125
7.75%, due 01/31/00 800,000 857,376
-----------
1,375,501
TOTAL U.S. TREASURY
OBLIGATIONS (Cost $1,554,376) $ 1,632,533
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
--------- -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY AND
MORTGAGE-BACKED OBLIGATIONS - 10.97%
Federal Home Loan Mortgage Corporation - 1.59%
8.50%, due 05/01/08 $ 742,001 $ 771,265
-----------
Federal National Mortgage Association - 9.38%
6.50%, due 09/01/10 TBA** 1,005,000 996,829
6.50%, due 09/01/25 TBA** 2,500,000 2,425,000
7.00%, due 09/01/25 TBA** 837,500 830,432
7.52%, due 08/26/05 300,000 306,570
-----------
4,558,831
TOTAL U.S. GOVERNMENT AGENCY AND
MORTGAGE-BACKED OBLIGATIONS
(Cost $5,292,100) $ 5,330,096
-----------
FOREIGN GOVERNMENT OBLIGATIONS - 26.85%
Republic of Argentina - 4.58%
6.812%, due 03/31/05 3,750,000 2,226,563
-----------
Kingdom of Belgium - 0.21%
6.50%, due 03/31/05 BEF 3,000,000 100,387
-----------
Federal Republic of Brazil - 5.21%
4.00%, due 04/15/14 $1,820,700 924,005
4.25%, due 04/15/24 1,500,000 727,502
6.00%, due 09/15/13 750,000 382,500
6.812%, due 04/15/06 750,000 496,875
-----------
2,530,882
National Republic of Bulgaria - 2.57%
2.00%, due 07/28/12 4,500,000 1,248,750
-----------
Government of Canada - 0.37%
6.25%, due 02/01/98 CAD 76,000 56,299
9.00%, due 12/01/04 CAD 152,000 124,207
-----------
180,506
Government of Costa Rica - 0.33%
Series B, 6.25% due 05/21/15 $ 300,000 157,500
-----------
Kingdom of Denmark - 0.19%
7.00%, due 12/15/04 DKK 170,000 29,539
9.00%, due 11/15/98 DKK 310,000 60,712
-----------
90,251
Republic of Ecuador - 0.51%
6.812%, due 02/27/15 $ 750,000 247,500
-----------
Government of France - 1.31%
7.50%, due 04/25/05 FRF 2,190,000 454,248
8.00%, due 05/12/98 FRF 844,000 179,963
-----------
634,211
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
Federal Republic of Germany - 3.20%
6.875%, due 05/12/05 DEM 1,018,000 $ 742,599
7.375%, due 01/03/05 DEM 1,080,000 811,995
-----------
1,554,594
Republic of Italy - 0.70%
9.50%, due 12/01/97 ITL 405,000,000 247,421
9.50%, due 01/01/05 ITL 170,000,000 94,097
-----------
341,518
Netherland Government - 0.55%
7.00%, due 06/15/05 NLG 180,000 118,247
6.25%, due 07/15/98 NLG 230,000 151,020
-----------
269,267
Government of Mexico - 2.41%
Mexico United States Rights,
0% due 12/31/19 $2,000,000 0
Series B, 6.25% due 12/31/19 2,000,000 1,170,000
-----------
1,170,000
Government of Poland - 2.70%
2.75%, due 10/27/24 750,000 347,813
3.75%, due 10/27/14 1,500,000 963,750
-----------
1,311,563
Government of Spain - 0.27%
10.00%, due 02/28/05 ESP 3,310,000 25,614
11.45%, due 08/30/98 ESP 12,630,000 106,365
-----------
131,979
Government of United Kingdom - 1.74%
Great British Treasury,
7.00% due 11/06/01 POUND 550,000 844,293
-----------
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS (Cost $13,244,263) $13,039,764
-----------
<CAPTION>
Shares Value
------ ------
<S> <C> <C>
WARRANTS - 0.01%*
BPC Holdings Corporation (Expiration
date 04/15/04; strike price $18.797) 500 $6,250
------
TOTAL WARRANTS (Cost $0) $6,250
------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount Amount
- ----------- ----------
<S> <C>
REPURCHASE AGREEMENT - 11.43%***
$5,554,000 Repurchase Agreement with J.P. Morgan dated
10/31/95 at 5.85%, to be repurchased at
$5,554,903 on 11/01/95, collateralized by
$3,838,000 U.S. Treasury Bond, 12.00% due
05/15/05 (valued at $5,877,355, including
interest) $ 5,554,000
-----------
TOTAL INVESTMENTS
(Strategic Income Fund) (Cost $49,213,038) $48,576,962
===========
</TABLE>
* Non-income producing
** Purchased on a forward commitment (Note 2).
*** At October 31, 1995 a portion of this security was pledged to cover forward
commitments purchased.
The accompany notes are an integal part of the financial statements.
39
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
Investment Quality Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
CORPORATE BONDS - 34.65%
Drug & Health Care - 0.27%
OrNda Healthcorp, 11.375%, 08/15/04 $ 50,000 $ 56,000
Electric Utilities - 2.93%
Cincinnati Gas & Electric Company,
6.90% due 06/01/25 200,000 204,022
The Cleveland Electric Illuminating
Company, 9.50% due 05/15/05 25,000 25,000
Rochester Gas & Electric
Corporation, 8.25% due 03/15/02 100,000 107,394
Virginia Electric & Power Company,
9.375% due 06/01/98 262,000 282,213
----------
618,629
Finance & Banking - 15.93%
American General Finance
Corporation, 8.00% due 02/15/05 230,000 243,860
Associates Corporation of North
America, 6.95% due 08/01/02 320,000 328,502
BankAmerica Corporation,
9.50% due 04/01/01 114,000 129,477
Beneficial Corporation,
8.40% due 05/15/08 75,000 85,615
Beneficial Corporation,
8.90% due 06/06/01 30,000 33,417
Comerica, Incorporated,
7.125% due 12/01/13 175,000 169,794
Commercial Credit Group,
Incorporated, 10.00% due 05/01/99 50,000 55,846
First National Bank of Boston,
8.00% due 09/15/04 225,000 242,860
First Union Corporation,
7.50% due 04/15/35 300,000 320,013
General Motors Acceptance
Corporation, 7.00% due 09/15/02 200,000 203,716
General Motors Acceptance
Corporation, 6.00% due 01/11/99 150,000 148,929
International Lease Finance
Corporation, 7.50% due 03/01/99 200,000 207,522
NBD Bancorp, 8.25% due 11/01/24 300,000 349,480
Norwest Corporation, 6.00% due 03/15/00 100,000 98,835
Republic New York Corporation,
9.75% due 12/01/00 155,000 176,323
Republic New York Corporation,
9.70% due 02/01/09 100,000 124,318
Texaco Capital, Incorporated,
8.93% due 07/23/01 60,000 67,336
United Bankshares, Incorporated,
8.625% due 04/15/98 200,000 210,494
Wells Fargo & Company,
8.75% due 05/01/02 150,000 166,518
----------
3,362,855
Food Stores - 0.10%
Big V Supermarkets, Incorporated,
11.00% due 02/15/04 $ 25,000 $ 20,375
----------
Forest Products - 1.09%
Boise Cascade Corporation,
9.85% due 06/15/02 200,000 229,348
----------
Hotels & Restaurants - 0.23%
Hammons Hotels,
8.875% due 02/15/04 50,000 48,750
----------
Industrials - 6.96%
Allied-Signal, Incorporated
9.875% due 06/01/02 100,000 117,334
Amoco Canada Petroleum Company,
Ltd., 7.95% due 10/01/22 100,000 109,731
Armco, Incorporated,
9.375% due 11/01/00 50,000 49,250
Cablevision Industries Corporation,
9.25% due 04/01/08 25,000 26,625
Cincinnati Milacron, Incorporated,
7.875% due 05/15/00 130,000 132,113
Coastal Corporation,
8.75% due 05/15/99 400,000 427,020
Container Corporation of America,
9.75% due 04/01/03 50,000 50,375
Fort Howard Corporation,
9.25% due 03/15/01 50,000 49,625
General Re Corporation,
9.00% due 09/12/09 100,000 119,435
GS Technologies , Incorporated,
12.25% due 10/01/05 50,000 50,750
Interlake Corporation,
12.00% due 11/15/01 25,000 24,750
K & F Industries, Incorporated,
11.875% due 12/01/03 50,000 53,000
Monsanto Company,
8.875% due 02/06/98 140,000 148,443
Portola Packaging, Incorporated,
10.75% due 10/01/05 25,000 25,688
Repap New Brunswick, Incorporated,
9.875% due 07/15/00 50,000 51,125
Westvaco Corporation,
9.65% due 03/01/02 30,000 34,357
----------
1,469,621
Non-Bank Finance - 0.26%
KFW International Financial,
Incorporated, 8.85% due 06/15/99 50,000 54,449
----------
Other - 0.25%
Kindercare Learning Centers,
Incorporated, 10.375% due 06/01/01 50,000 51,750
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
Publishing - 1.51%
Time Warner, Incorporated,
9.125% due 01/15/13 $ 295,000 $ 319,694
----------
Retail Trade - 0.90%
Sears, Roebuck and Company,
9.25% due 08/01/97 180,000 189,407
----------
Steel - 0.26%
AK Steel Corporation,
10.75% due 04/01/04 50,000 54,500
----------
Telecommunication Services - 1.70%
Comcast Corporation,
9.125% due 10/15/06 50,000 51,250
Heritage Media Corporation,
11.00% due 06/15/02 50,000 53,125
Tele-Communications, Incorporated,
9.80% due 02/01/12 200,000 229,112
Videotron, Ltd., 10.25% due 10/15/02 25,000 26,063
----------
359,550
Telephone - 1.73%
GTE Florida, Incorporated,
6.31% due 12/15/02 200,000 198,332
Illinois Bell Telephone Company,
7.625% due 04/01/06 35,000 35,577
New York Telephone Company,
7.875% due 06/15/17 100,000 103,829
Paging Network, Incorporated,
10.125% due 08/01/07 25,000 26,625
----------
364,363
Transportation - 0.53%
CSX Corporation, 9.04% due 02/28/97 75,000 77,400
Southern Railway Company,
8.75% due 10/15/03 30,000 34,275
----------
111,675
TOTAL CORPORATE BONDS
(Cost $7,000,474) $7,310,966
----------
U.S. TREASURY OBLIGATIONS - 33.24%
U.S. Treasury Bonds - 33.24%
8.875%, due 02/15/19 810,000 1,046,674
9.25%, due 02/15/16 250,000 330,780
10.75%, due 02/15/03 1,850,000 2,367,704
12.00%, due 08/15/13 2,180,000 3,270,349
----------
7,015,507
TOTAL U.S. TREASURY
OBLIGATIONS (Cost $6,705,695) $7,015,507
----------
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY AND
MORTGAGE-BACKED OBLIGATIONS - 20.28%
Federal Home Loan Mortgage Corporation - 10.80%
6.50%, due 07/15/08 - 04/01/24 $1,003,501 $ 974,050
7.00%, due 10/01/25 895,502 888,499
8.00%, due 11/15/99 400,000 416,624
----------
2,279,173
Federal National Mortgage Association - 4.36%
4.50%, due 01/25/98 - Remic 129,953 127,435
6.25%, due 11/25/19 - Remic 500,000 491,405
6.60%, due 09/25/18 300,000 302,061
----------
920,901
Government National Mortgage Association - 5.12%
7.00%, due 10/15/23 398,000 395,262
8.00%, due 10/15/16 - 04/15/17 657,601 684,109
----------
1,079,371
TOTAL U.S. GOVERNMENT AGENCY AND
MORTGAGE-BACKED OBLIGATIONS
(Cost $4,225,039) $4,279,445
----------
FIXED INCOME - OTHER - 4.95%
Miscellaneous Asset Backed Securities - 4.95%
Advanta Credit Card Master Trust, Series
1994, Class A, 6.155% due 10/01/01 300,000 300,750
Premier Auto Trust, Series 1993,
Class A2, 4.65% due 11/02/99 113,820 112,112
Western Financial Grantor Trust, Series
1995, Class A1, 7.10% due 07/01/00 198,132 200,732
World Omni Automobile Lease,
6.05% due 11/25/01 200,000 200,812
World Omni Automobile Lease, Series
1994, Class A, 6.45% due 09/25/00 230,211 231,289
----------
1,045,695
TOTAL FIXED INCOME - OTHER
(Cost $1,037,984) $1,045,695
----------
FOREIGN BONDS - 2.09%
Canadian - 2.09%
Hydro-Quebec, 8.05% due 07/07/24 400,000 441,740
----------
TOTAL FOREIGN BONDS
(Cost $436,009) $ 441,740
----------
<CAPTION>
Principal Maturity
Amount Amount
- ---------- ----------
<S> <C>
REPURCHASE AGREEMENT - 4.79%
$1,011,000 Repurchase Agreement with Shearson
Lehman dated 10/31/95 at 5.86%, to
be repurchased at $1,011,165 on
11/01/95, collateralized by $915,000
U.S. Treasury Note, 8.875% due
11/15/98 (valued at $1,048,293,
including interest) $1,011,000
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Investment Quality Bond Fund)
(Cost $20,416,201) $21,104,353
===========
U.S. Government Securities Fund
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS - 27.17%
U.S. Treasury Bonds - 3.42%
8.875%, due 08/15/17 $ 3,400,000 $ 4,369,544
------------
U.S. Treasury Notes - 23.75%
6.125%, due 05/31/97 2,000,000 2,014,380
6.75%, due 04/30/00 15,500,000 16,061,875
7.125%, due 02/29/00 5,550,000 5,824,003
7.75%, due 01/31/00 6,000,000 6,430,320
------------
30,330,578
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $33,500,469) $ 34,700,122
------------
U.S. GOVERNMENT AGENCY
AND MORTGAGE-BACKED OBLIGATIONS - 56.41%
Federal Home Loan Mortgage Corporation - 19.37%
6.00%, due 05/01/09 - 10/01/10 23,999,985 23,429,985
8.00%, due 06/01/08 324,192 333,847
8.25%, due 07/01/06 319,418 329,176
8.50%, due 05/01/08 627,187 648,981
------------
24,741,989
Federal National Mortgage Association - 29.75%
6.50%, due 08/01/10 - 10/01/10 16,274,988 16,142,672
6.50%, due 08/01/25 TBA** 9,000,000 8,730,000
7.00%, due 08/01/25 TBA** 4,437,500 4,400,048
7.52%, due 08/26/05 4,000,000 4,087,604
8.00%, due 08/01/04 102,583 105,564
8.25%, due 03/25/06 - Remic 675,000 722,034
8.50%, due 08/01/02 245,782 255,306
11.00%, due 02/01/15 1,021 1,144
11.50%, due 02/01/20 3,139,191 3,553,156
------------
37,997,528
Government National Mortgage Association - 3.68%
7.50%, due 04/15/02 - 02/15/07 619,748 630,441
7.75%, due 04/15/04 83,284 85,651
8.00%, due 11/15/06 - 02/15/08 55,329 57,604
10.25%, due 02/15/00 - 03/15/01 295,621 309,107
10.50%, due 01/15/01 21,342 22,415
11.00%, due 03/15/00 - 09/20/15 254,030 272,541
11.25%, due 04/15/98 - 10/20/15 31,314 33,997
11.50%, due 08/20/00 - 02/15/16 1,131,760 1,268,516
11.75%, due 09/15/98 1,731 1,826
12.00%, due 02/15/14 - 06/20/15 208,200 238,116
12.25%, due 03/15/14 - 01/20/15 170,696 191,947
12.50%, due 11/15/10 - 07/15/15 1,003,166 1,162,447
13.25%, due 07/15/14 73,522 83,884
<CAPTION>
Principal
Amount Value
--------- ---------
<S> <C> <C>
Government National Mortgage
Association - continued
13.50%, due 11/15/12 $ 79,459 $ 93,930
14.50%, due 06/15/11 9,126 10,435
15.00%, due 07/15/11 - 09/15/12 189,745 230,954
--------------
4,693,811
Other U.S. Government Agency Obligations - 3.61%
Tennessee Valley Authority,
8.25% due 11/15/96 4,500,000 4,607,415
--------------
TOTAL U.S. GOVERNMENT AGENCY AND
MORTGAGE-BACKED OBLIGATIONS
(Cost $71,279,578) $ 72,040,743
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.24%
Drexel Burnham Lambert, 9.30%
due 06/01/17 (Collateralized by
GNMA, 10.00%) 66,366 67,755
Goldman Sachs Trust 7, 9.10%
due 04/27/17 (Collateralized by
FNMA, 10.00%) 39,336 39,140
Merrill Lynch Trust XXV, 8.75%
due 03/20/19 (Collateralized by
FHLMC, 10.00%) 60,673 60,787
Shearson Lehman, Incorporated,
7.50% due 06/01/18 (Collateralized
by GNMA, 11.50%) 1,412,979 1,418,277
--------------
1,585,959
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (Cost $1,620,695) $ 1,585,959
--------------
<CAPTION>
Principal Maturity
Amount Amount
---------- ----------
<S> <C>
REPURCHASE AGREEMENTS - 15.18%***
$9,695,000 Repurchase Agreement with J.P. Morgan dated
10/31/95 at 5.85%, to be repurchased at $9,696,575
on 11/01/95, collateralized by $6,699,000 U.S.
Treasury Bond, 12.00% due 05/15/05 (valued at
$10,258,572, including interest) $ 9,695,000
9,695,000 Repurchase Agreement with State Street Bank &
Trust Company dated 10/31/95 at 5.83%, to be
repurchased at $9,696,570 on 11/01/95,
collateralized by $10,145,000 U.S. Treasury Bill,
5.35% due 04/18/96 (valued at $9,891,375,
including interest) 9,695,000
------------
$ 19,390,000
TOTAL INVESTMENTS
(U.S. Government Securities Fund)
(Cost $125,790,742) $127,716,824
============
</TABLE>
* Purchased on a forward commitment (Note 2).
** At October 31, 1995 a portion of these securities was pledged to equal
forward commitments purchased.
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National Municipal Bond Fund
Principal
Amount Value
--------- -------
<S> <C> <C>
LONG-TERM INVESTMENTS - 96.14%
Alabama - 4.00%
Alabama Housing Finance Authority
Single Family Mortgage Revenue
Collateralized Home Mortgage Program,
Series B-2, 6.40%, 04/01/25 $ 575,000 $ 589,484
Courtland Alabama, Industrial Development
Board, Solid Waste Disposal Revenue
(Champion International Corporation
Project), 5.90%, 02/01/17 250,000 239,757
----------
829,241
California - 4.59%
California State Public Works Board
Lease Revenue, Various Community
College Projects, 7.00%, 03/01/14 500,000 544,320
Los Angeles, California Harbor Department
Revenue, Series B, 6.625%, 08/01/19 390,000 406,899
----------
951,219
Florida - 5.05%
Jacksonville, Florida Water & Sewer
Revenue, 6.35%, 08/01/25 1,000,000 1,045,410
----------
Georgia - 2.11%
Savannah, Georgia Hospital Authority
Revenue Refunding & Improvement
(Candler Hospital), 7.00%, 01/01/23 430,000 438,084
----------
Illinois - 5.74%
Illinois Health Facilities Authority
Revenue (OSF Health Care System),
6.00%, 11/15/23 200,000 194,448
Illinois Health Facilities Authority
Revenue (Hospital Association
Project), 7.00%, 02/15/22 200,000 210,092
Chicago, Illinois Wastewater Transmission
Revenue, 6.375%, 01/01/24 750,000 783,757
----------
1,188,297
Indiana - 2.11%
Indiana Bond Bank Special Program
(Sanitary District of City of Gary, Indiana
Project), Series B, 6.20%, 02/01/13 150,000 153,811
City of Lawrenceburg, Indiana Pollution
Control Revenue Refunding (Indiana
Michigan Power Company Project),
Series E, 5.90%, 11/01/19 300,000 283,836
----------
437,647
Iowa - 0.74%
Iowa Finance Authority Hospital Facility
Revenue Refunding (Trinity Regional
Hospital Project), 7.00%, 07/01/12 150,000 153,596
----------
<CAPTION>
Principal
Amount Value
----------- ---------
<S> <C> <C>
Kentucky - 0.22%
Trimble County, Kentucky Pollution
Control Revenue (Louisville Gas & Electric
Company), Series B, 6.55%, 11/01/20 $ 40,000 $ 44,708
----------
Louisiana - 2.23%
Louisiana Public Facilities Authority Hospital
Revenue Refunding (Touro Infirmary
Project), Series A, 6.125%, 08/15/23 500,000 462,135
----------
Maine - 0.12%
Maine State Housing Authority Mortgage
Purchase, Series A-4, 6.375%, 11/15/12 25,000 25,342
----------
Michigan - 2.20%
Clarkston, Michigan Community Schools,
5.90%, 05/01/16 450,000 454,887
----------
Nebraska - 6.04%
Nebraska Higher Education Loan Program
Income Revenue, 6.65%, 06/01/08 1,200,000 1,250,880
----------
Nevada - 9.03%
Clark County, Nevada Passenger Facilities
Charge Revenue, 5.50%, 07/01/25 500,000 470,765
Clark County, Nevada Passenger Facilities,
Charge Revenue, 5.75%, 07/01/23 500,000 479,925
Nevada Housing Division, Single-Family
Program, 6.35%, 10/01/12 600,000 606,270
Nevada Housing Division, Single-Family
Program, Series B-2, 6.95%, 10/01/26 300,000 312,615
----------
1,869,575
New Jersey - 5.22%
New Jersey Economic Development
Authority Water Facilities Revenue
(New Jersey American Water Company,
Incorporated Project) 6.875%, 11/01/34 1,000,000 1,080,610
----------
New York - 20.02%
Metropolitan Transportation Authority,
New York Service Contract (Transit
Facilities), Series O, 6.25%, 07/01/14 375,000 392,194
New York State Local Government Assistance
Corporation, Series B, 5.375%, 04/01/16 850,000 809,982
New York, NY, Series D,
6.00%, 02/15/20 1,000,000 972,510
New York City Housing Development
Corporation (Multi-Family Housing),
Series A, 5.85%, 05/01/25 200,000 191,878
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
New York - continued
New York State Dormitory Authority
Revenue, State University Educational
Facilities, Series A, 6.25%, 05/15/08 $ 500,000 $ 513,710
New York State Environmental Facilities
Corporation Pollution Control Revenue
Refunding (IBM Corporation Project),
7.125%, 07/01/12 580,000 621,569
New York State Mortgage Agency
Revenue, Series 40-A, 6.35%, 04/01/21 630,000 644,572
---------
4,146,415
Ohio - 4.15%
Ohio State Air Quality Development
Authority Revenue, 6.10%, 09/01/30 850,000 860,489
---------
Pennsylvania - 4.69%
Monroeville, Pennsylvania Hospitals
Authority Hospitals Revenue,
6.25%, 10/01/15 1,000,000 972,230
---------
Rhode Island - 2.76%
Rhode Island Depositors Economic
Protection Corporation Special Obligation
Refunding, Series A, 5.625%, 08/01/09 225,000 224,872
Rhode Island Housing & Mortgage
Finance Corporation, Homeownership
Opportunity, Series 5, 6.40%, 04/01/24 150,000 149,211
Rhode Island State Health & Educational
Building Corporation, J&W University,
Series A, 5.875%, 04/01/20 200,000 196,806
---------
570,889
South Dakota - 0.22%
South Dakota Housing Development
Authority, Homeowner Mortgage,
Series D, 6.85%, 05/01/26 45,000 46,232
---------
Tennessee - 2.27%
Humphreys County, Tennessee Industrial
Development Board Solid Waste Disposal
Revenue (E.I. Du Pont Denemours &
Company Project), 6.70%, 05/01/24 450,000 470,002
---------
Texas - 4.18%
Lower Neches Valley Authority, Texas
Industrial Development Corporation
Sewer Facilities Revenue, Mobil Oil
Refining Corporation, 6.40%, 03/01/30 750,000 768,757
Texas State Veterans Housing
Assistance, 6.80%, 12/01/23 95,000 97,856
---------
866,613
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
Virginia - 1.68%
Virginia State Housing Development
Authority Commonwealth Mortgage,
Subseries B-5, 6.30%, 01/01/27 $ 45,000 $ 44,451
Virginia State Housing Development
Authority Commonwealth Mortgage,
Subseries I-1, 6.55%, 07/01/17 300,000 304,185
---------
348,636
Washington - 0.81%
Economic Development Corporation
of Pierce County (Washington) Solid
Waste Revenue (Occidental Petroleum
Corporation Project), 5.80%, 09/01/29 95,000 84,522
Washington State Housing Finance
Commission Single-Family Mortgage
Revenue Refunding, Series D-1,
6.15%, 01/01/26 35,000 33,970
Washington State Public Power Supply
System Nuclear Project Number 1
Revenue Refunding, 5.70%, 07/01/17 50,000 48,901
-----------
167,393
Wisconsin - 5.96%
Wisconsin Housing & Economic
Development Authority Home Ownership
Revenue, Series D, 6.10%, 07/01/24 200,000 200,760
Wisconsin State Health & Educational
Facilities Authority Revenue, Mercy
Hospital of Janesville, Incorporated,
6.60%, 08/15/22 1,000,000 1,034,880
-----------
1,235,640
TOTAL LONG-TERM INVESTMENTS
(Cost $19,519,090) $19,916,170
-----------
SHORT-TERM INVESTMENTS - 3.86%
Arizona - 3.38%
Pinal County, Arizona Industrial
Development Authority Pollution Control
Revenue, VR, 4.00%, 11/01/95 700,000 700,000
-----------
Florida - 0.48%
Manatee County, Florida Pollution
Control Revenue, VR, 4.00%, 11/01/95 100,000 100,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $800,000) $ 800,000
-----------
TOTAL INVESTMENTS
(National Municipal Bond Fund)
(Cost $20,319,090) $20,716,170
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
NORTH AMERICAN FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995 - continued
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
Money Market Fund
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
COMMERCIAL PAPER - 99.35%
American General Finance
Corporation, 5.65% due 11/22/95 $420,000 $418,616
American Home Products
Corporation, 5.73% due 11/10/95 500,000 499,284
Assets Securitization Cooporative
Corporation, 5.70% due 11/17/95 600,000 598,480
Associates Corporation of North
America, 5.68% due 02/08/96 600,000 590,628
Cariplo Finance, Incorporated,
5.69% due 11/30/95 600,000 597,250
Central & South West Corporation,
5.67% due 11/13/95 400,000 399,244
Chase Manhattan Bank, New York,
5.77% due 04/15/96 600,000 600,000
CIESCO, Incorporated,
5.75% due 11/22/95 600,000 597,987
CIT Group Holdings, Incorporated,
5.70% due 01/24/96 600,000 592,020
The Coca-Cola Company,
5.77% due 12/01/95 400,000 398,077
Corporate Asset Fund,
5.70% due 11/15/95 300,000 299,335
Corporate Receivables Corporation,
5.70% due 11/08/95 450,000 449,501
Dean Witter Discover & Company,
5.73% due 11/17/95 600,000 598,472
Dresdner U.S. Finance,
5.72% due 01/22/96 600,000 592,183
ESC Securitization, Incorporated,
5.68% due 12/05/95 650,000 646,513
Falcon Asset Securitization,
5.72% due 11/14/95 250,000 249,483
Ford Motor Credit Corporation,
5.70% due 11/10/95 600,000 599,145
General Electric Capital Corporation,
5.59% due 03/01/96 600,000 588,727
General Motors Acceptance
Corporation, 5.65% due 12/15/95 600,000 595,857
Household International,
Incorporated, 5.73% due 02/08/96 600,000 590,545
IBM Credit Corporation,
5.72% due 11/08/95 560,000 559,377
Indosuez of North America,
Incorporated, 5.70% due 01/29/96 600,000 591,545
Kreditbank North America,
5.74% due 01/31/96 500,000 492,745
Matterhorn Capital Corporation,
5.72% due 11/17/95 600,000 598,475
MetLife Funding, Incorporated,
5.70% due 11/07/95 20,000 19,981
Monsanto Company,
5.75% due 11/21/95 800,000 797,445
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
COMMERCIAL PAPER - continued
Norwest Corporation,
5.66% due 11/17/95 $650,000 $648,365
PNC Funding Corporation,
5.75% due 02/05/96 600,000 590,800
PHH Corporation,
5.73% due 11/10/95 600,000 599,140
Preferred Receivables Funding,
5.72% due 01/25/96 600,000 591,897
Prudential Funding Corporation,
5.71% due 12/11/95 600,000 596,193
Riverwoods Funding Corporation,
5.69% due 11/13/95 600,000 598,862
Sears Roebuck Acceptance
Corporation, 5.70% due 02/22/96 600,000 589,265
Societe Generale of North America,
Incorporated, 5.64% due 03/18/96 650,000 635,947
SunTrust Banks, Incorporated,
5.71% due 11/27/95 500,000 497,938
Toshiba America,
5.65% due 01/12/96 600,000 593,220
TOTAL COMMERCIAL PAPER $19,502,542
-----------
<CAPTION>
Principal Maturity
Amount Amount
--------- ---------
<S> <C>
REPURCHASE AGREEMENT - 0.65%
$127,000 Repurchase Agreement with Shearson Lehman dated
10/31/95 at 5.87%, to be repurchased at $127,021
on 11/01/95, collateralized by $100,000 U.S.
Treasury Bond, 8.75% due 08/15/20 (value at
$129,925, including interest) $127,000
--------
TOTAL INVESTMENTS
(Money Market Fund) $19,629,542
===========
<CAPTION>
Key to Security
Key to Currency Abbreviations Abbreviations
- ----------------------------- ----------------
<S> <C>
AUD - Australian Dollar ADR - American Depository
BEF - Belgian Franc Receipt
CAD - Canadian Dollar FRN - Floating Rate Note
DKK - Danish Krone IO - Interest Only, carries
FRF - French Franc notional principal amount
DEM - German Deutsche Mark TBA - To Be Announced
- Great British Pound VR - Variable Rate
ITL - Italian Lira Demand Note*
- Japanese Yen *Maturity date shown is the
NLG - Netherland Guilder date of next interest rate
ESP - Spanish Peseta change and coupon rate is
CHF - Swiss Franc the rate effective as of
October 31, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE TRUST. North American Funds (the "Fund") is an open-end,
diversified management investment company. The Fund is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. It is a series company, which means it has several
portfolios, each with a stated investment objective which it pursues through
separate investment policies. As of October 31, 1995, the Fund offered the
following ten portfolios with A, B and C Classes: the Global Growth Fund, the
Growth Fund, the Growth and Income Fund, the International Growth and Income
Fund, the Asset Allocation Fund, the Strategic Income Fund, the Investment
Quality Bond Fund, the U.S. Government Securities Fund, the National Municipal
Bond Fund and the Money Market Fund.
On April 1, 1994, the multiple class structure as approved by the Board of
Trustees and shareholders was implemented. The Fund offers Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge up to
4.75%. Class B shares are sold with a contingent deferred sales charge which
declines to zero from 5% depending on the period of time shares are held. Class
B shares will automatically convert to Class A shares of the same portfolio six
years after purchase. Class C shares are sold without an initial sales charge.
Class C shares will automatically convert to Class A shares of the same
portfolio ten years after purchase. All three classes of shares have identical
voting, dividend, liquidation and other rights, except that each class has
exclusive voting rights with respect to its distribution plan. Classes A, B and
C of the Money Market Fund have the same expense structure and no distribution
expense.
NASL Financial Services, Inc. ("NASL Financial"), a wholly-owned subsidiary of
North American Security Life Insurance Company, serves as investment adviser,
principal underwriter and distributor for the Fund.
NEW PORTFOLIO. On January 9, 1995, the International Growth and Income Fund
commenced operations. The subadviser to this portfolio is J.P. Morgan
Investment Management Inc. Deferred organization costs of $635 were incurred
and are being amortized over five years.
2. SIGNIFICANT ACCOUNTING POLICIES. The Fund follows the policies described
below when preparing the portfolios' financial statements. These policies are
in accordance with generally accepted accounting principles.
SECURITY VALUATION. Securities held by the Money Market Fund and money market
instruments with remaining maturities of 60 days or less held by the other funds
are valued at either the amortized cost basis or original cost plus accrued
interest, both of which approximate current market value. All other securities
held by the Fund are valued at the last sale price as of the close of business
on a principal securities exchange (domestic or foreign) or, lacking any sales,
at the closing bid price. Securities traded only in the over-the-counter market
are valued at the last bid price quoted by brokers making markets in the
securities at the close of trading on the Exchange. Other assets and securities
for which no such quotation or valuations are readily available are valued at
their fair value as determined in good faith under consistently applied
procedures established by and under the general supervision of the Trustees.
FOREIGN CURRENCY TRANSLATIONS. The accounting records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of securities, other assets and other liabilities at the
current rate of exchange of such currencies against U.S. dollars; and
(ii) purchases and sales of securities, income and expenses at the rate of
exchange quoted on the respective dates of such transactions.
Gains and losses that arise from changes in foreign exchange rates have been
segregated from gains and losses that arise from changes in the market prices of
investments. These gains and losses are included with gains and losses on
foreign currency and forward foreign currency contracts in the Statements of
Operations.
46
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 2 - CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS. All portfolios with the exception of the
U.S. Government Securities, National Municipal Bond and Money Market Funds may
purchase and sell forward foreign currency contracts in order to hedge a
specific transaction or portfolio position.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held at the end of the period and the resulting net unrealized
appreciation (depreciation) and related net receivable or payable amount are
determined using forward currency exchange rates supplied by a quotation
service. The Fund could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts or if the value of the
foreign currency changes unfavorably.
Net realized gains (losses) on forward foreign currency contracts, shown in the
Statements of Operations, includes net gains or losses realized by a portfolio
on contracts which have matured or which the fund has terminated by entering
into an offsetting commitment.
FUTURES. All portfolios other than the U.S. Government Securities and Money
Market Fund may purchase and sell financial futures contracts and options on
those contracts. The portfolios invest in contracts based on financial
instruments such as U.S. Treasury bonds or notes or on securities indices such
as the S&P 500 Index, in order to hedge against a decline in the value of
securities owned by the portfolios.
When a portfolio sells a futures contract based on a financial instrument, the
portfolio becomes obligated to deliver that kind of instrument at an agreed upon
date for a specified price. The portfolio realizes a gain or loss depending on
whether the price of an offsetting purchase is less or more than the price of
the initial sale or on whether the price of an offsetting sale is more or less
than the price of the initial purchase. The Fund could be exposed to risks if
it could not close out futures positions because of an illiquid secondary market
or the inability of counterparties to meet the terms of their contracts. Upon
entering into futures contracts, the Fund is required to deposit with a broker
an amount, initial margin, which represents 5% of the purchase price indicated
in the futures contract.
Payments to and from the broker, known as variation margin, are required to be
made on a daily basis as the price of the futures contract fluctuates, making
the long or short positions in the contract more or less valuable. If the
position is closed out by taking an opposite position prior to the settlement
date of the futures contract, a final determination of variation margin is made,
cash is required to be paid to or released by the broker, and the portfolio
realizes a gain or loss.
FORWARD COMMITMENTS. The Fund may make forward commitments to purchase and sell
securities. Delivery and payment for securities which have been purchased or
sold on a forward commitment basis can take place a month or more (not to exceed
120 days) after the date of the transaction. The price of the underlying
securities and the date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated. The value of the securities
underlying a forward commitment to purchase securities, and any subsequent
fluctuations in their value, is taken into account when determining the
portfolio's net asset value starting on the day the portfolio agrees to purchase
the securities. At October 31, 1995, forward commitments in the Asset
Allocation, Strategic Income and U.S. Government Securities Funds were valued at
$10,166,520, $4,252,261 and $13,130,048, respectively.
MORTGAGE DOLLAR ROLLS. The Strategic Income and U. S. Government Securities
Funds may enter into mortgage dollar rolls in which it sells mortgage securities
for delivery in the current month and simultaneously contracts to repurchase
similar, but not identical, securities at the same price on an agreed upon date.
The Fund receives compensation as consideration for entering into the commitment
to repurchase. The compensation is recorded as deferred income and amortized to
income over the roll period. As the holder, the counterparty receives all
principal and interest payments, including prepayments, made with respect to the
similar security. Mortgage dollar rolls may be renewed with a new sale and
repurchase price with a cash settlement made at renewal without physical
delivery of the securities subject to the contract.
ORGANIZATION COSTS. Cost incurred by the Fund in connection with its
organization, its initial registration with the Securities and Exchange
Commission and with various states, and the initial public offering of its
shares is being amortized on a straight line basis over a five-year period for
the Global Growth, Growth and Income, International Growth and Income, Strategic
Income, Investment Quality Bond and the National Municipal Bond Funds. In the
event that any of the initial shares of each of the Global Growth, Growth and
Income and Investment Quality Bond Funds are redeemed by NASL Financial during
the amortization period, the portfolios of the Fund will be reimbursed for any
unamortized organization expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares outstanding
at the time of such redemption. All costs incurred by the implemention of the
multiple class structure were borne by NASL Financial.
47
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 2 - CONTINUED
FEDERAL INCOME TAXES. The Fund's policy is for each portfolio to qualify as "a
regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required. Each portfolio is
treated as a separate taxpayer for federal income tax purposes.
DISTRIBUTIONS OF INCOME AND GAINS. Distribution of net investment income is
declared as a dividend to shareholders of record as of the close of business
each day and is paid monthly for U.S. Government Securities and Investment
Quality Bond Funds, semi-annually to shareholders of the Growth and Income and
International Growth and Income Funds, and annually to shareholders of the
Growth, Global Growth and Asset Allocation Funds. All of the net investment
income of the Money Market, National Municipal Bond and Strategic Income Funds
are declared as a dividend to shareholders of record as of the close of business
each day and is paid monthly. During any particular year, net realized gains
from investment transactions for each portfolio, in excess of available capital
loss carryforwards of each portfolio, would be taxable to the fund if not
distributed and, therefore, will be distributed to shareholders. An additional
distribution may be made to the extent necessary to avoid the payment of a four
percent federal excise tax.
Pursuant to Section 852 of the Internal Revenue Code, the distributions set
forth below have been designated as capital gains distributions for the fiscal
year ended October 31, 1995:
<TABLE>
<CAPTION>
PORTFOLIO CAPITAL GAIN DISTRIBUTION
- -------------------- -------------------------
<S> <C>
Growth........................ $8,946,244
Growth and Income............. 817,125
Asset Allocation.............. 2,804,494
</TABLE>
EXEMPT INTEREST DIVIDENDS. The National Municipal Bond Fund designates all
dividends paid during the fiscal year ended October 31, 1995 as 100% exempt
interest dividends. Accordingly, 100% of the distributions paid are tax-exempt
for federal income tax purposes. Shareholders will receive pertinent tax
information in January, 1996.
CAPITAL LOSS CARRYFORWARDS. At October 31, 1995, capital loss carryforwards
available to offset future realized gains were approximately:
<TABLE>
<CAPTION>
CAPITAL LOSS CARRYFORWARDS
EXPIRATION YEAR
--------------------------------
PORTFOLIO 2003 2002 2001
- ---------------------------------------- ---------- ---------- -------
<S> <C> <C> <C>
Global Growth........................... $3,967,000 -- --
Strategic Income........................ -- $ 400,000 --
Investment Quality Bond................. -- 641,000 --
U.S. Government Securities.............. -- 3,316,000 --
National Municipal Bond................. 451,000 10,000 $11,000
</TABLE>
To the extent that capital loss carryforwards are available to offset any future
realized gains, it is unlikely that such gains would be distributed to
shareholders since they may be taxable as ordinary income.
EQUALIZATION. The Fund follows the accounting practice known as equalization,
by which a portion of the proceeds from sales and costs of repurchases of the
Fund's shares are allocated, on a per share basis, to undistributed net
investment income. As a result, undistributed net investment income per share
is unaffected by sales or redemptions of the Fund's shares.
48
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 2 - CONTINUED
REPURCHASE AGREEMENTS. Each portfolio may enter into repurchase agreements and,
additionally, the U.S. Government Securities Fund may enter into reverse
repurchase agreements. When a portfolio enters into a repurchase agreement
through its custodian, it receives delivery of the underlying securities, the
amount of which at the time of purchase and each subsequent business day is
required to be maintained at such a level that the market value is equal to 102%
of the resale price, and such portfolio will take constructive receipt of all
securities underlying the repurchase agreements until such agreements expire.
If the seller defaults, a portfolio would suffer a loss to the extent that
proceeds from the sale of underlying securities were less than the repurchase
price. Under a reverse repurchase agreement, the U.S. Government Securities
Fund may sell a debt security and agree to repurchase it at an agreed upon time
and at an agreed upon price.
OTHER. Investment security transactions are accounted for on the trade date.
Interest income is accrued as earned. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. All original issue discounts
are accreted for financial and federal income tax reporting purposes. The Fund
uses the First In, First Out method for determining realized gain or loss on
investments for both financial and federal income tax reporting purposes.
3. CAPITAL SHARES. Share activity for the year ended October 31, 1995 is as
follows:
<TABLE>
<CAPTION>
ADDITIONAL
SHARES PAR VALUE PAID-IN CAPITAL
------------- --------- ---------------
<S> <C> <C> <C>
GLOBAL GROWTH FUND-CLASS A
Outstanding at October 31, 1994..................... 1,224,996 $ 1,225 $ 17,767,966
Sold................................................ 2,614,767 2,615 35,326,143
Reinvestment of distributions....................... 43,249 43 574,845
Redeemed............................................ (2,156,352) (2,156) (29,335,582)
---------- ------- ------------
Net increase....................................... 501,664 502 6,565,406
---------- ------- ------------
Outstanding at October 31, 1995..................... 1,726,660 $ 1,727 $ 24,333,372
========== ======= ============
GLOBAL GROWTH FUND-CLASS B
Outstanding at October 31, 1994..................... 939,958 $ 940 $ 13,753,105
Sold................................................ 1,084,531 1,084 14,547,925
Reinvestment of distributions....................... 33,028 33 436,438
Redeemed............................................ (359,266) (359) (4,857,365)
---------- ------- ------------
Net increase....................................... 758,293 758 10,126,998
---------- ------- ------------
Outstanding at October 31, 1995..................... 1,698,251 $ 1,698 $ 23,880,103
========== ======= ============
GLOBAL GROWTH FUND-CLASS C
Outstanding at October 31, 1994..................... 6,858,508 $ 6,859 $ 87,720,725
Sold................................................ 1,985,403 1,985 26,819,807
Reinvestment of distributions....................... 217,568 218 2,873,413
Redeemed............................................ (2,991,542) (2,992) (40,342,651)
---------- ------- ------------
Net decrease....................................... (788,571) (789) (10,649,431)
---------- ------- ------------
Outstanding at October 31, 1995..................... 6,069,937 $ 6,070 $ 77,071,294
========== ======= ============
GROWTH FUND-CLASS A
Outstanding at October 31, 1994..................... 1,104,310 $ 1,105 $ 16,160,250
Sold................................................ 2,787,050 2,787 41,410,939
Reinvestment of distributions....................... 66,087 66 882,884
Redeemed............................................ (2,575,493) (2,576) (38,344,281)
---------- ------- ------------
Net increase....................................... 277,644 277 3,949,542
---------- ------- ------------
Outstanding at October 31, 1995..................... 1,381,954 $ 1,382 $ 20,109,792
========== ======= ============
</TABLE>
49
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - CONTINUED
<TABLE>
<CAPTION>
ADDITIONAL
SHARES PAR VALUE PAID-IN CAPITAL
------------- --------- ---------------
<S> <C> <C> <C>
GROWTH FUND-CLASS B
Outstanding at October 31, 1994..................... 342,170 $ 342 $ 5,057,636
Sold................................................ 1,105,241 1,105 16,739,875
Reinvestment of distributions....................... 22,061 22 295,151
Redeemed............................................ (215,051) (215) (3,170,839)
---------- -------- ------------
Net increase....................................... 912,251 912 13,864,187
---------- -------- ------------
Outstanding at October 31, 1995..................... 1,254,421 $ 1,254 $ 18,921,823
========== ======== ============
GROWTH FUND-CLASS C
Outstanding at October 31,1994...................... 4,821,130 $ 4,822 $ 60,566,636
Sold................................................ 1,959,707 1,960 29,146,831
Reinvestment of distributions....................... 268,435 268 3,591,716
Redeemed............................................ (1,764,770) (1,765) (26,251,253)
---------- -------- ------------
Net increase....................................... 463,372 463 6,487,294
---------- -------- ------------
Outstanding at October 31, 1995..................... 5,284,502 $ 5,285 $ 67,053,930
========== ======== ============
GROWTH AND INCOME FUND-CLASS A
Outstanding at October 31, 1994..................... 621,205 $ 620 $ 7,922,179
Sold................................................ 450,698 451 6,146,439
Reinvestment of distributions....................... 27,446 28 343,196
Redeemed............................................ (271,667) (271) (3,642,609)
---------- -------- ------------
Net increase....................................... 206,477 208 2,847,026
---------- -------- ------------
Outstanding at October 31, 1995..................... 827,682 $ 828 $ 10,769,205
========== ======== ============
GROWTH AND INCOME FUND-CLASS B
Outstanding at October 31, 1994..................... 297,011 $ 297 $ 3,788,970
Sold................................................ 1,059,205 1,059 14,494,136
Reinvestment of distributions....................... 15,257 15 194,994
Redeemed............................................ (74,117) (74) (1,015,224)
---------- -------- ------------
Net increase....................................... 1,000,345 1,000 13,673,906
---------- -------- ------------
Outstanding at October 31, 1995..................... 1,297,356 $ 1,297 $ 17,462,876
========== ======== ============
GROWTH AND INCOME FUND-CLASS C
Outstanding at October 31, 1994..................... 3,522,165 $ 3,523 $ 41,387,557
Sold................................................ 1,620,500 1,621 21,672,427
Reinvestment of distributions....................... 119,698 119 1,490,015
Redeemed............................................ (969,569) (970) (13,035,735)
---------- -------- ------------
Net increase....................................... 770,629 770 10,126,707
---------- -------- ------------
Outstanding at October 31, 1995..................... 4,292,794 $ 4,293 $ 51,514,264
========== ======== ============
INTERNATIONAL GROWTH & INCOME FUND-CLASS A
Outstanding at January 9, 1995 (commencement
of operations).................................... -- -- --
Sold................................................ 716,949 $ 717 $ 7,247,460
Reinvestment of distributions....................... 1,421 1 14,280
Redeemed............................................ (36,118) (36) (372,621)
---------- -------- ------------
Net increase....................................... 682,252 682 6,889,119
---------- -------- ------------
Outstanding at October 31, 1995..................... 682,252 $ 682 $ 6,889,119
========== ======== ============
</TABLE>
50
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - CONTINUED
<TABLE>
<CAPTION>
ADDITIONAL
SHARES PAR VALUE PAID-IN CAPITAL
------------- --------- ---------------
<S> <C> <C> <C>
INTERNATIONAL GROWTH & INCOME FUND-CLASS B
Outstanding at January 9, 1995 (commencement
of operations)..................................... -- -- --
Sold................................................. 884,328 $ 884 $ 8,904,323
Reinvestment of distributions........................ 1,333 1 13,391
Redeemed............................................. (51,644) (51) (531,844)
----------- -------- ------------
Net increase........................................ 834,017 834 8,385,870
----------- -------- ------------
Outstanding at October 31, 1995...................... 834,017 $ 834 $ 8,385,870
=========== ======== ============
INTERNATIONAL GROWTH & INCOME FUND-CLASS C
Outstanding at January 9, 1995 (commencement
of operations)..................................... -- -- --
Sold................................................. 715,656 $ 716 $ 7,212,058
Reinvestment of distributions........................ 1,205 1 12,110
Redeemed............................................. (90,626) (91) (922,023)
----------- -------- ------------
Net increase........................................ 626,235 626 6,302,145
----------- -------- ------------
Outstanding at October 31, 1995...................... 626,235 $ 626 $ 6,302,145
=========== ======== ============
ASSET ALLOCATION FUND-CLASS A
Outstanding at October 31, 1994...................... 703,762 $ 704 $ 7,788,441
Sold................................................. 395,929 396 4,381,529
Reinvestment of distributions........................ 58,811 59 581,460
Redeemed............................................. (323,788) (324) (3,544,361)
----------- -------- ------------
Net increase........................................ 130,952 131 1,418,628
----------- -------- ------------
Outstanding at October 31, 1995...................... 834,714 $ 835 $ 9,207,069
=========== ======== ============
ASSET ALLOCATION FUND-CLASS B
Outstanding at October 31, 1994...................... 428,233 $ 428 $ 4,723,308
Sold................................................. 553,227 553 6,154,105
Reinvestment of distributions........................ 32,102 32 318,497
Redeemed............................................. (189,119) (189) (2,134,397)
----------- -------- ------------
Net increase........................................ 396,210 396 4,338,205
----------- -------- ------------
Outstanding at October 31, 1995...................... 824,443 $ 824 $ 9,061,513
=========== ======== ============
ASSET ALLOCATION FUND-CLASS C
Outstanding at October 31, 1994...................... 7,817,975 $ 7,818 $ 78,582,597
Sold................................................. 679,384 679 7,452,549
Reinvestment of distributions........................ 533,978 534 5,274,850
Redeemed............................................. (2,325,312) (2,325) (25,448,909)
----------- -------- ------------
Net decrease........................................ (1,111,950) (1,112) (12,721,510)
----------- -------- ------------
Outstanding at October 31, 1995...................... 6,706,025 $ 6,706 $ 65,861,087
=========== ======== ============
STRATEGIC INCOME FUND-CLASS A
Outstanding at October 31, 1994...................... 1,742,569 $ 1,742 $ 17,465,582
Sold................................................. 259,399 259 2,298,835
Reinvestment of distributions........................ 74,276 74 654,611
Redeemed............................................. (968,677) (968) (8,454,458)
----------- -------- ------------
Net decrease........................................ (635,002) (635) (5,501,012)
----------- -------- ------------
Outstanding at October 31, 1995...................... 1,107,567 $ 1,107 $ 11,964,570
=========== ======== ============
STRATEGIC INCOME FUND-CLASS B
Outstanding at October 31, 1994...................... 611,434 $ 611 $ 5,531,932
Sold................................................. 1,761,381 1,761 15,421,853
Reinvestment of distributions........................ 58,903 59 522,672
Redeemed............................................. (151,535) (151) (1,346,797)
----------- -------- ------------
Net increase........................................ 1,668,749 1,669 14,597,728
----------- -------- ------------
Outstanding at October 31, 1995...................... 2,280,183 $ 2,280 $ 20,129,660
=========== ======== ============
</TABLE>
51
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - CONTINUED
<TABLE>
<CAPTION>
ADDITIONAL
SHARES PAR VALUE PAID-IN CAPITAL
------------- --------- ---------------
<S> <C> <C> <C>
STRATEGIC INCOME FUND-CLASS C
Outstanding at October 31, 1994....................... 948,389 $ 948 $ 8,561,907
Sold.................................................. 1,202,918 1,203 10,587,243
Reinvestment of distributions......................... 85,797 86 757,709
Redeemed.............................................. (662,761) (663) (5,838,101)
----------- -------- ------------
Net increase......................................... 625,954 626 5,506,851
----------- -------- ------------
Outstanding at October 31, 1995....................... 1,574,343 $ 1,574 $ 14,068,758
=========== ======== ============
INVESTMENT QUALITY BOND FUND-CLASS A
Outstanding at October 31, 1994....................... 1,144,475 $ 1,145 $ 12,371,914
Sold.................................................. 218,517 219 2,182,522
Reinvestment of distributions......................... 56,483 56 568,009
Redeemed.............................................. (439,949) (440) (4,383,544)
----------- -------- ------------
Net decrease......................................... (164,949) (165) (1,633,013)
----------- -------- ------------
Outstanding at October 31, 1995....................... 979,526 $ 980 $ 10,738,901
=========== ======== ============
INVESTMENT QUALITY BOND FUND-CLASS B
Outstanding at October 31, 1994....................... 50,263 $ 50 $ 505,884
Sold.................................................. 303,991 304 3,067,899
Reinvestment of distributions......................... 9,051 9 92,574
Redeemed.............................................. (34,335) (34) (353,550)
----------- -------- ------------
Net increase......................................... 278,707 279 2,806,923
----------- -------- ------------
Outstanding at October 31, 1995....................... 328,970 $ 329 $ 3,312,807
=========== ======== ============
INVESTMENT QUALITY BOND FUND-CLASS C
Outstanding at October 31, 1994....................... 247,124 $ 247 $ 2,475,051
Sold.................................................. 621,445 622 6,308,571
Reinvestment of distributions......................... 23,438 23 237,877
Redeemed.............................................. (208,994) (209) (2,106,429)
----------- -------- ------------
Net increase......................................... 435,889 436 4,440,019
----------- -------- ------------
Outstanding at October 31, 1995....................... 683,013 $ 683 $ 6,915,070
=========== ======== ============
U.S. GOVERNMENT SECURITIES FUND-CLASS A
Outstanding at October 31, 1994....................... 10,649,175 $ 10,646 $107,971,485
Sold.................................................. 1,084,823 1,086 10,528,395
Reinvestment of distributions......................... 417,271 418 4,033,739
Redeemed.............................................. (4,020,456) (4,020) (38,497,169)
----------- -------- ------------
Net decrease......................................... (2,518,362) (2,516) (23,935,035)
----------- -------- ------------
Outstanding at October 31, 1995....................... 8,130,813 $ 8,130 $ 84,036,450
=========== ======== ============
U.S. GOVERNMENT SECURITIES FUND-CLASS B
Outstanding at October 31, 1994....................... 290,668 $ 291 $ 2,785,075
Sold.................................................. 1,299,105 1,299 12,686,906
Reinvestment of distributions......................... 35,827 36 350,711
Redeemed.............................................. (223,531) (224) (2,172,937)
----------- -------- ------------
Net increase......................................... 1,111,401 1,111 10,864,680
----------- -------- ------------
Outstanding at October 31, 1995....................... 1,402,069 $ 1,402 $ 13,649,755
=========== ======== ============
U.S. GOVERNMENT SECURITIES FUND-CLASS C
Outstanding at October 31, 1994....................... 1,139,603 $ 1,140 $ 10,991,693
Sold.................................................. 2,142,383 2,142 20,669,554
Reinvestment of distributions......................... 87,554 88 852,730
Redeemed.............................................. (1,346,861) (1,347) (13,039,618)
----------- -------- ------------
Net increase......................................... 883,076 883 8,482,666
----------- -------- ------------
Outstanding at October 31, 1995....................... 2,022,679 $ 2,023 $ 19,474,359
=========== ======== ============
</TABLE>
52
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - CONTINUED
<TABLE>
<CAPTION>
ADDITIONAL
SHARES PAR VALUE PAID-IN CAPITAL
------------- --------- ---------------
<S> <C> <C> <C>
NATIONAL MUNICIPAL BOND FUND-CLASS A
Outstanding at October 31, 1994..................... 869,228 $ 869 $ 8,902,401
Sold................................................ 233,842 234 2,094,232
Reinvestment of distributions....................... 27,394 27 252,092
Redeemed............................................ (338,547) (338) (3,066,286)
----------- -------- ------------
Net decrease....................................... (77,311) (77) (719,962)
----------- -------- ------------
Outstanding at October 31, 1995..................... 791,917 $ 792 $ 8,182,439
=========== ======== ============
NATIONAL MUNICIPAL BOND FUND-CLASS B
Outstanding at October 31, 1994..................... 231,085 $ 231 $ 2,146,996
Sold................................................ 455,386 455 4,165,822
Reinvestment of distributions....................... 13,084 13 121,755
Redeemed............................................ (88,583) (88) (824,605)
----------- -------- ------------
Net increase....................................... 379,887 380 3,462,972
----------- -------- ------------
Outstanding at October 31, 1995..................... 610,972 $ 611 $ 5,609,968
=========== ======== ============
NATIONAL MUNICIPAL BOND FUND-CLASS C
Outstanding at October 31, 1994..................... 216,811 $ 217 $ 2,013,763
Sold................................................ 668,235 668 6,225,555
Reinvestment of distributions....................... 15,104 15 140,593
Redeemed............................................ (189,643) (189) (1,770,361)
----------- -------- ------------
Net increase....................................... 493,696 494 4,595,787
----------- -------- ------------
Outstanding at October 31, 1995..................... 710,507 $ 711 $ 6,609,550
=========== ======== ============
MONEY MARKET FUND-CLASS A
Outstanding at October 31, 1994..................... 8,498,879 $ 8,499 $ 8,490,380
Sold................................................ 73,826,098 73,826 73,752,272
Reinvestment of distributions....................... 434,750 435 434,315
Redeemed............................................ (71,380,879) (71,381) (71,309,497)
----------- -------- ------------
Net increase....................................... 2,879,969 2,880 2,877,090
----------- -------- ------------
Outstanding at October 31, 1995..................... 11,378,848 $ 11,379 $ 11,367,470
=========== ======== ============
MONEY MARKET FUND-CLASS B
Outstanding at October 31, 1994..................... 312,188 $ 312 $ 311,876
Sold................................................ 8,873,001 8,873 8,864,128
Reinvestment of distributions....................... 78,497 79 78,418
Redeemed............................................ (7,699,582) (7,700) (7,691,883)
----------- -------- ------------
Net increase....................................... 1,251,916 1,252 1,250,663
----------- -------- ------------
Outstanding at October 31, 1995..................... 1,564,104 $ 1,564 $ 1,562,539
=========== ======== ============
MONEY MARKET FUND-CLASS C
Outstanding at October 31, 1994..................... 12,169,980 $ 12,170 $ 12,157,810
Sold................................................ 27,470,721 27,471 27,443,250
Reinvestment of distributions....................... 592,451 593 591,858
Redeemed............................................ (30,838,656) (30,839) (30,807,817)
----------- -------- ------------
Net decrease....................................... (2,775,484) (2,775) (2,772,709)
----------- -------- ------------
Outstanding at October 31, 1995..................... 9,394,496 $ 9,395 $ 9,385,101
=========== ======== ============
</TABLE>
53
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES. The following table summarizes the
securities transactions (excluding short-term investments) for all portfolios,
excluding the Money Market Fund, for the year ended October 31, 1995:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------- ----------------------------
PORTFOLIO GOVERNMENT OTHER ISSUES GOVERNMENT OTHER ISSUES
- ------------------------------------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Global Growth............................. -- $82,677,286 -- $71,855,411
Growth.................................... -- 71,917,604 -- 51,179,364
Growth and Income......................... -- 53,580,404 -- 28,097,144
International Growth & Income............. -- 27,613,748 -- 7,730,130
Asset Allocation.......................... $150,607,897 66,985,457 $159,571,211 68,609,453
Strategic Income.......................... 32,350,588 41,627,120 30,579,760 28,589,655
Investment Quality Bond................... 20,563,067 5,941,407 15,521,396 5,760,100
U.S. Government Securities................ 499,334,976 -- 502,789,359 8,253,261
National Municipal Bond................... -- 14,228,804 -- 6,725,332
</TABLE>
Purchases and sales (maturities) for the Money Market Fund for the year ended
October 31, 1995 were $340,804,669 and $343,732,701, respectively.
At October 31, 1995, tax basis net unrealized appreciation was equal to the
aggregate gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over market value as
follows:
<TABLE>
<CAPTION>
TAX BASIS NET
UNREALIZED TAX BASIS TAX BASIS
TAX BASIS APPRECIATION UNREALIZED UNREALIZED
PORTFOLIO COST (DEPRECIATION) APPRECIATION DEPRECIATION
- ---------------------------------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Global Growth............................ $123,079,642 $ 8,015,387 $13,675,611 $5,660,224
Growth................................... 116,852,977 8,988,165 15,821,938 6,833,773
Growth and Income........................ 81,667,290 13,363,018 14,400,108 1,037,090
International Growth and Income.......... 20,859,290 (334,039) 929,484 1,263,523
Asset Allocation......................... 102,258,977 7,918,990 8,820,852 901,862
Strategic Income......................... 49,213,534 (636,572) 1,391,104 2,027,676
Investment Quality Bond.................. 20,456,212 648,141 669,212 21,071
U.S. Government Securities............... 125,790,742 1,926,082 2,083,838 157,756
National Municipal Bond.................. 20,319,090 397,080 508,153 111,073
</TABLE>
The following is a summary of futures contracts activity for the year ended
October 31, 1995:
<TABLE>
<CAPTION>
SALES OF FUTURES CONTRACTS PURCHASES OF FUTURES CONTRACTS
------------------------------------------ ---------------------------------------------
AGGREGATE AGGREGATE
NUMBER OF FACE VALUE OF UNREALIZED NUMBER OF FACE VALUE OF UNREALIZED
CONTRACTS CONTRACTS LOSS CONTRACTS CONTRACTS GAIN
--------- ------------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION FUND:
U.S. TREASURY BOND FUTURES:
Outstanding, October 31, 1994.... -- -- -- --
Contracts opened................. 28 $ 3,600,000 94 $ 9,400,000
Contracts closed................. (21) (2,900,000) (56) (5,600,000)
--- ----------- --- ----------
Outstanding, October 31, 1995.... 7 $ 700,000 ($38,178) 38 $ 3,800,000 $33,806
=== =========== ======== === ========== =======
</TABLE>
54
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. INVESTMENT ADVISORY AGREEMENTS. The Fund maintains an Investment Advisory
Agreement with NASL Financial ("the Adviser"). The Adviser is responsible for
managing the corporate and business affairs of the Fund and for selecting and
compensating subadvisers to handle the investment and reinvestment of the assets
of each portfolio, subject to the supervision of the Trustees of the Fund. As
compensation for its services, the Adviser receives a fee from the Fund computed
separately for each portfolio at an annual percentage of average net assets as
follows:
<TABLE>
<CAPTION>
BETWEEN BETWEEN
$50,000,000 $200,000,000
FIRST AND AND EXCESS OVER
PORTFOLIO $50,000,000 $200,000,000 $500,000,000 $500,000,000
- ---------------------------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Global Growth..................... .900% .900% .700% .700%
Growth............................ .725% .675% .625% .550%
Growth and Income................. .725% .675% .625% .550%
International Growth and Income... .900% .850% .800% .750%
Asset Allocation.................. .725% .675% .625% .550%
Strategic Income.................. .750% .700% .650% .600%
Investment Quality Bond........... .600% .600% .525% .475%
U.S. Government Securities........ .600% .600% .525% .475%
National Municipal Bond........... .600% .600% .600% .600%
Money Market...................... .200% .200% .200% .145%
</TABLE>
DISTRIBUTION PLAN AND EXPENSE REIMBURSEMENT. Pursuant to the Investment
Advisory Agreement, NASL Financial will reduce the advisory fee or if necessary
reimburse each portfolio of the Fund (excluding taxes, portfolio brokerage
commissions, interest, certain litigation and indemnification expenses,
extraordinary expenses and all of the portfolio's distribution fees) for
expenses incurred in excess (Expense limitation) of the following annual
percentages of average net assets as highlighted in the table below.
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940 to use its assets to finance certain
activities relating to the distribution of its shares to investors. The Plan is
a "compensation" plan providing for the payment by each fund, other than the
Money Market Fund, of a monthly distribution fee to NASL Financial, as principal
underwriter for the Fund as highlighted in the table below:
<TABLE>
<CAPTION>
PORTFOLIO CLASS A CLASS B CLASS C
- ---------------------------------- ------- ------- -------
<S> <C> <C> <C>
GLOBAL GROWTH
Management fees................. 0.900% 0.900% 0.900%
Other expenses.................. 0.500% 0.500% 0.500%
----- ----- -----
Expense limitation.............. 1.400% 1.400% 1.400%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
GROWTH
Management fees................. 0.725% 0.725% 0.725%
Other expenses.................. 0.265% 0.265% 0.265%
----- ----- -----
Expense limitation.............. 0.990% 0.990% 0.990%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
GROWTH AND INCOME
Management fees................. 0.725% 0.725% 0.725%
Other expenses.................. 0.265% 0.265% 0.265%
----- ----- -----
Expense limitation.............. 0.990% 0.990% 0.990%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
</TABLE>
55
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
NOTE 5 - CONTINUED
<TABLE>
<CAPTION>
PORTFOLIO CLASS A CLASS B CLASS C
- ---------------------------------- ------- ------- -------
<S> <C> <C> <C>
INTERNATIONAL GROWTH AND INCOME
Management fees................. 0.900% 0.900% 0.900%
Other expenses.................. 0.500% 0.500% 0.500%
----- ----- -----
Expense limitation.............. 1.400% 1.400% 1.400%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
ASSET ALLOCATION
Management fees................. 0.725% 0.725% 0.725%
Other expenses.................. 0.265% 0.265% 0.265%
----- ----- -----
Expense limitation.............. 0.990% 0.990% 0.990%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
STRATEGIC INCOME
Management fees**............... 0.750% 0.750% 0.750%
Other expenses.................. 0.400% 0.400% 0.400%
----- ----- -----
Expense limitation.............. 1.150% 1.150% 1.150%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
INVESTMENT QUALITY BOND
Management fees................. 0.600% 0.600% 0.600%
Other expenses.................. 0.300% 0.300% 0.300%
----- ----- -----
Expense limitation.............. 0.900% 0.900% 0.900%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
U.S. GOVERNMENT SECURITIES
Management fees................. 0.600% 0.600% 0.600%
Other expenses.................. 0.300% 0.300% 0.300%
----- ----- -----
Expense limitation.............. 0.900% 0.900% 0.900%
===== ===== =====
Rule 12b-1 fees................. 0.350% 1.000% 1.000%
===== ===== =====
NATIONAL MUNICIPAL BOND
Management fees *............... 0.600% 0.600% 0.600%
Other expenses.................. 0.240% 0.240% 0.240%
----- ----- -----
Expense limitation.............. 0.840% 0.840% 0.840%
===== ===== =====
Rule 12b-1 fees................. 0.150% 1.000% 1.000%
===== ===== =====
MONEY MARKET
Management fees................. 0.200% 0.200% 0.200%
Other expenses.................. 0.300% 0.300% 0.300%
----- ----- -----
Expense limitation.............. 0.500% 0.500% 0.500%
===== ===== =====
</TABLE>
56
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
NOTE 5 - CONTINUED
* Through July 31, 1995, the Adviser voluntarily waived 0.250% of its 0.600%
management fee for the National Municipal Bond Fund. As of August 1, 1995, the
Adviser ended the waiver.
** Through February 28, 1995, the Adviser voluntarily waived its management fee
of 0.750% for the Strategic Income Fund, and the Subadviser voluntarily waived
all of its subadvisory fee. As of March 1, 1995, the Adviser and Subadviser
ended the waiver.
In accordance with the advisory agreement, NASL Financial, in addition to
providing advisory services, provides accounting and administrative services for
which NASL Financial charged $903,188 to the Fund, before reimbursement based on
expense limitations, for the year ended October 31, 1995.
6. TRUSTEE'S FEES. The Fund pays each Trustee who is not an employee or a
director of the Adviser or its affiliates a fee of $1,000 plus travel expenses
for each Board of Trustees meeting attended and an annual retainer of $4,000.
7. COMMITMENTS. At October 31, 1995, the Global Growth, International Growth
and Income and Strategic Income Funds had entered into forward foreign currency
contracts which contractually obligate the fund to deliver currencies at future
dates. Open sale and purchase contracts at October 31, 1995 were as follows:
<TABLE>
<CAPTION>
NET
CONTRACTS UNREALIZED
TO IN EXCHANGE SETTLEMENT APPRECIATION
DELIVER FOR DATE VALUE (DEPRECIATION)
----------- ----------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
GLOBAL GROWTH
SALES
German Deutsche Mark........ 65,134 $ 46,341 11/01/95 $ 46,272 $ 69
Japanese Yen................ 54,020,986 534,004 11/01/95 528,407 5,597
German Deutsche Mark........ 11,154,000 7,582,433 12/20/95 7,928,543 (346,110)
French Franc................ 33,730,000 6,552,059 12/20/95 6,878,220 (326,161)
Japanese Yen................ 836,076,159 9,100,201 12/20/95 8,837,799 262,402
Netherland Guilder.......... 2,600,000 1,559,754 12/20/95 1,648,571 (88,817)
----------- ----------- ----------
$25,374,792 $25,867,812 $ (493,020)
=========== =========== ----------
PURCHASES
$ 1,671,545 DEM 2,370,000 12/20/95 $ 1,684,655 $ 13,110
============ =========== ----------
$ (479,910)
==========
INTERNATIONAL GROWTH AND
INCOME
SALES
Japanese Yen................ 347,174,530 $ 3,825,563 11/21/95 $ 3,406,848 418,715
Norwegian Krone............. 344,731 55,290 11/21/95 55,303 (13)
----------- ----------- ----------
$ 3,880,853 $ 3,462,151 $ 418,702
=========== =========== ----------
PURCHASES
$ 118,065 GBP 74,986 11/01/95 $ 118,555 $ 490
954,000 JPY 92,673,900 11/21/95 909,415 (44,585)
----------- ----------- ----------
$ 1,072,065 $1,027,970 $ (44,095)
============ ========== ----------
$ 374,607
==========
</TABLE>
57
<PAGE>
NORTH AMERICAN FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
NOTE 7- CONTINUED
<TABLE>
<CAPTION>
NET
CONTRACTS UNREALIZED
TO IN EXCHANGE SETTLEMENT APPRECIATION
DELIVER FOR DATE VALUE (DEPRECIATION)
----------- ----------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
STRATEGIC INCOME
SALES
French Franc................ 895,764 $ 182,660 11/02/95 $ 183,179 $ (519)
Belgian Franc............... 2,828,536 93,412 01/22/96 98,132 (4,720)
Canadian Dollar............. 235,479 172,033 01/22/96 175,676 (3,643)
Danish Krone................ 501,949 87,703 01/22/96 91,916 (4,213)
German Deutsche Mark........ 2,771,542 1,917,325 01/22/96 1,975,237 (57,912)
Spanish Peseta.............. 16,135,728 126,080 01/22/96 131,081 (5,001)
French Franc................ 1,930,916 379,728 01/22/96 394,283 (14,555)
Great British Pound......... 520,924 812,027 01/22/96 822,211 (10,184)
Italian Lira................ 933,150,236 571,633 01/22/96 578,987 (7,354)
Netherland Guilder.......... 318,004 193,257 01/22/96 202,466 (9,209)
------------ ---------- ----------
$ 4,535,858 $4,653,168 $ (117,310)
============ ========== ----------
PURCHASES
$ 169,666 GBP 107,738 11/01/95 $ 170,337 $ 671
182,218 DEM 257,566 11/02/95 182,982 764
395,354 DEM 553,762 01/22/96 394,650 (704)
601,301 FRF 2,971,384 01/22/96 606,740 5,439
244,696 ITL 394,865,646 01/22/96 245,000 304
72,229 NLG 115,278 01/22/96 73,395 1,166
------------ ---------- ----------
$ 1,665,464 $1,673,104 $ 7,640
============ ========== ----------
$ (109,670)
==========
</TABLE>
8. RECLASSIFICATIONS. Certain reclassifications have been made to the components
of capital in the statement of net assets and liabilities to conform with the
accounting and reporting guidelines of the Statement of Position 93-2
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies" (SOP)
issued on February 1, 1993. The SOP requires the Funds to report the accumulated
net realized capital gain (loss) account in such a manner as to approximate
amounts available for future tax distributions (or to offset future taxable
realized capital gains) and to achieve uniformity in the presentation of
distributions by investment companies. Certain distributions in excess of
accumulated net investment income, and/or accumulated realized gains or losses,
which resulted from differences between income tax regulations and generally
accepted accounting principles, have been reclassified to undistributed net
investment income. Distributions which were the result of permanent differences
between book and tax rules have been reclassified to paid-in-capital. The
following amounts represent the cumulative reclassifications as of October 31,
1995:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED ADDITIONAL
NET REALIZED NET INVESTMENT PAID-IN
PORTFOLIO GAINS (LOSSES) INCOME (LOSS) CAPITAL
- ---------------------------------- --------------- -------------- -------------
<S> <C> <C> <C>
Global Growth..................... $(3,270,597) $3,384,106 $(113,509)
Growth............................ (355,700) 353,839 1,861
Growth and Income................. (18,935) 2,530 16,405
International Growth and Income... 229,480 (229,480) --
Asset Allocation.................. (11,955) 5,236 6,719
Strategic Income.................. 101,170 (35,660) (65,510)
Investment Quality Bond........... 5,542 (19,157) 13,615
U. S. Government Securities....... 448,966 (262,538) (186,428)
National Municipal Bond........... (167) 228 (61)
</TABLE>
The Statement of Changes in Net Assets and Financial Highlights for previous
periods have not been restated to reflect this change in presentation. Net
investment income, net realized gains and net assets were not affected by this
change.
58
<PAGE>
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
(1) Audited Financial Statements filed herewith:
Report of Independent Public Accountants, December 22, 1995 -- Part B
Statements of Assets and Liabilities at October 31, 1995 -- Part B
Statements of Operations for the year ended October 31, 1995 -- Part B
Statements of Changes in Net Assets for the periods October 31, 1995
and October 31, 1994 -- Part B
Financial Highlights -- Parts A and B
Portfolio of Investments owned -- Part B
Notes to Financial Statements, October 31, 1995 -- Part B
(b) Exhibits
(1)(a) Agreement and Declaration of Trust dated September 28, 1988 --
previously filed as Exhibit (b)(1) to North American Security
Trust's initial registration statement on Form N-1A (File No.
33-27958) dated April 5, 1989.
(1)(b) Amended and Restated Agreement and Declaration of Trust dated
June 1, 1993 -- previously filed as Exhibit (b)(1)(b) to North
American Fund's Post-Effective Amendment No. 13 on Form N-1A
(File No. 33-27958) dated June 1, 1993.
(1)(c) Amended and Restated Agreement and Declaration of Trust dated
February 18, 1994 -- previously filed as Exhibit (b)(1)(c) to
North American Funds' Post-Effective Amendment No. 17 on Form
N-1A (File No. 33-27958) dated April 1, 1994.
(1)(d) Declaration of Trust Amendment -- Establishment and
Designation of Additional Series of Shares for the
International Growth and Income Fund, dated December 28, 1994
-- previously filed as Exhibit (b)(1)(d) to North American
Fund's Post Effective Amendment No. 19 on Form N-1A (File No.
33-27958) filed December 29, 1994.
<PAGE>
(1)(e) Declaration of Trust Amendment - Establishment and Designation
of Classes A, B and C, dated March 17, 1994 -- previously
filed as Exhibit (b)(1)(e) to North American Fund's Post-
Effective Amendment No. 19 on Form N-1A (File No. 33-27958)
filed December 29, 1994.
(2) By-laws of North American Security Trust -- previously filed
as Exhibit (b)(2) to North American Security Trust's initial
registration statement on Form N-1A (File No. 33-27958) dated
April 5, 1989.
(3) Not applicable.
(4) (a) Specimen Share Certificate for Global Growth Trust --
previously filed as Exhibit No. (b)(4)(a) to North American
Security Trust's Post-Effective Amendment No. 3 on Form N-1A
(File No. 33-27958) dated February 1, 1991.
(b) Specimen Share Certificate for Growth Trust -- previously
filed as Exhibit (b)(4)(a) to North American Security Trust's
Post-Effective Amendment No. 1 on Form N-1A (File No. 33-
27958) dated December 29, 1989.
(c) Specimen Share Certificate for Growth and Income Trust --
previously filed as Exhibit (b)(4)(c) to North American
Security Trust's Post-Effective Amendment No. 4 on Form N-1A
(File No. 33-27958) dated February 22, 1991.
(d) Specimen Share Certificate for Investment Quality Bond Trust
previously filed as Exhibit (b)(4)(d) to North American
Security Trust's Post-Effective Amendment No. 6 on Form N-1A
(File No. 33-27958) dated April 22, 1991.
(e) Specimen Share Certificate for U.S. Government Securities
Trust -- previously filed as Exhibit (b)(4)(b) to North
American Security Trust's Post-Effective Amendment No. 1 on
Form N-1A (File No. 33-27958) dated December 29, 1989.
(f) Specimen Share Certificate for Money Market Trust --
previously filed as Exhibit (b)(4)(c) to North American
Security Trust's Post-Effective Amendment No. 1 on Form N-1A
(File No. 33-27958) dated December 29, 1989.
(g) Specimen Share Certificate for Asset Allocation Trust --
previously filed as Exhibit (b)(4)(g) to North American
Security Trust's Post-Effective Amendment No. 8 on Form N-1A
(File No. 33-27958) dated May 12, 1992.
<PAGE>
(h) Forms of Specimen Share Certificates for Strategic Income
Fund, National Municipal Bond Fund, California Municipal Bond
Fund, Global Growth Fund, Growth Fund, Growth and Income Fund,
U.S. Government Securities Fund, Money Market Fund and Asset
Allocation Fund -- previously filed as Exhibit (b)(4)(h) to
North American Funds' Post-Effective Amendment No. 13 on Form
N-1A (File No. 33-27958) dated June 30, 1993.
(i) Forms of Specimen Share Certificates: for Strategic Income
Fund - A, Investment Quality Bond Fund - A, National Municipal
Bond Fund - A, California Municipal Bond Fund - A, Global
Growth Fund - A, Growth Fund - A, Growth and Income Fund - A,
U.S. Government Securities Fund - A, Money Market Fund - A,
Asset Allocation Fund - A; for Strategic Income Fund - B,
Investment Quality Bond Fund - B, National Municipal Bond Fund
- B, California Municipal Bond Fund - B, Global Growth Fund -
B, Growth Fund - B, Growth and Income Fund - B, U.S.
Government Securities Fund - B, Money Market Fund - B, Asset
Allocation Fund - B; for Strategic Income Fund - C, Investment
Quality Bond Fund - C, National Municipal Bond Fund - C,
California Municipal Bond Fund - C, Global Growth Fund - C,
Growth Fund - C, Growth and Income Fund - C, U.S. Government
Securities Fund - C, Money Market Fund - C, and Asset
Allocation Fund - C -- previously filed as Exhibit (b)(4)(i)
to North American Funds' Post-Effective Amendment No. 17 on
Form N-1A (File No. 33-27958) dated April 1, 1994.
(j) Forms of Specimen Share Certificates for International Growth
and Income Fund: A, B, C and D -- previously filed as Exhibit
(b)(4)(j) to North American Funds' Post-Effective Amendment
No. 18 on Form N-1A (File No. 33-27958) dated October 20,
1994.
(k) Forms of Specimen Share Certificates, for the Small/Mid Cap,
the International Small Cap and the Growth Equity Fund - A,B
and C. -- previously filed as
Exhibit (b)(4)(k) to North American Funds Post effective
Amendment No. 21 on Form N1-A (File No. 33-27958) dated
December 15, 1995.
5. (a)(ix) Form of Amended and Restated Advisory Agreement
betwen North American Funds and NASL Financial Services, Inc.
-- previously filed as
Exhibit (b)(5)(a)(ix) to North American Funds Post effective
Amendment No. 21 on Form N1-A (File No. 33-27958) dated
December 15, 1995.
(b) Subadvisory Agreement Between NASL Financial Services, Inc.
and Oechsle International Advisors, L.P. dated January 1, 1996
-- filed herewith.
<PAGE>
(c) Subadvisory Agreement Between NASL Financial Services, Inc.
and Wellington Management Company dated January 1, 1996 --
filed herewith.
(d) Subadvisory Agreement Between NASL Financial Services, Inc.
and Salomon Brothers Asset Management Inc dated January 1,
1996 -- filed herewith.
(d)(i) Subadvisory Consulting Agreement Between Salomon Brothers
Asset Management Inc and Salomon Brothers Asset Management
Limited on behalf of Strategic Income Fund dated January 1,
1996 -- filed herewith.
(e) Subadvisory Agreement Between NASL Financial Services, Inc.
and Goldman Sachs Asset Management dated January 1, 1996 --
filed herewith.
(f) Subadvisory Agreement between NASL Financial Services, Inc.
and J.P. Morgan Investment Management Inc. dated January 1,
1996 -- filed herewith.
(g) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Fred Alger Management, Inc., dated January 2, 1996 -
filed herewith.
(h) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Founders Asset Management, Inc., dated January 2,
1996 - filed herewith.
(6) (a) Distribution Agreement Between North American Funds and NASL
Financial Services, Inc. -- filed herewith.
(b)(i) Amended and Restated Promotional Agent Agreement Among NASL
Financial Services, Inc., Wood Logan Associates, Inc., and
North American Security Life Insurance Company dated June 15,
1990 -- previously filed as Exhibit (b)(6)(b)(i) to North
American Security Trust's Post-Effective Amendment No. 2 on
Form N-1A (File No. 33-27958) dated August 29, 1990.
(b)(ii) Form of Assignment from Wood Logan Associates, Inc. to Wood
Logan Distributors, Inc., dated July 27, 1990 -- previously
filed as Exhibit (b)(6)(b)(ii) to North American Security
Trust's Post-Effective Amendment No. 2 on Form N-1A (File No.
33-27958) dated August 29, 1990.
<PAGE>
(c)(i) Form of Dealer Agreement Among NASL Financial Services, Inc.,
Wood Logan Associates, Inc. and Selected Broker-Dealer --
previously filed as Exhibit (b)(6)(c) to North American
Security Trust's initial registration statement on Form N-1A
(File No. 33-27958) dated April 5, 1989.
(c)(ii) Form of Dealer Agreement -- previously filed as Exhibit
(b)(6)(c)(ii) to North American Fund's Post-Effective
Amendment 19 on Form N-1A (File No. 33-27958) filed December
29, 1994.
(c)(iii) Form of Dealer Agreement Among NASL Financial Services, Inc.,
Wood Logan Associates, Inc. and Selected Broker-Dealer -
previously filed as Exhibit (b)(6)(c)(iii) to North American
Fund's Post-Effective Amendment 20 on Form N-1A (File No. 33-
27958) filed June 30, 1995.
(7) Not applicable.
(8) (a) Custodian Agreement Between North American Security Trust and
Boston Safe Deposit and Trust Company -- previously filed as
Exhibit (b)(8)(a) to North American Security Trust's initial
registration statement on Form N-1A (File No. 33-27958) dated
November 1, 1991.
(b) Custodian Agreement Between North American Security Trust and
State Street Bank and Trust Company -- previously filed as
Exhibit (b)(8)(a) to North American Security Trust's initial
registration statement on Form N-1A (File No. 33-27958) dated
April 5, 1989.
(c) Transfer and Shareholder Services Contract Between North
American Security Trust and State Street Bank and Trust
Company -- previously filed as Exhibit (b)(8)(b) to North
American Security Trust's initial registration statement on
Form N-1A (File No. 33-27958) dated April 5, 1989.
(d) Forms of Sub-Custodian Agreements Between State Street Bank
and Trust Company and the Bank of New York, Chemical Bank and
Bankers Trust -- previously filed as Exhibit (8)(d) to North
American Funds' Post-Effective Amendment No. 17 on Form N-1A
(File No. 33-27958) dated April 1, 1994.
(9) Not applicable.
(10) (a) Opinion of Ruth Ann Fleming, Esq. -- previously filed as
Exhibit (b)(10) to North American Security Trust's Post-
Effective Amendment No. 2 on Form N-1A (File No. 33-27958)
dated August 29, 1990.
<PAGE>
(b) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(b) to North American Security Trust's Post-
Effective Amendment No. 6 on Form N-1A (File No. 33-27958)
dated April 22, 1991.
(c) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(c) to North American Security Trust's Post-
Effective Amendment No. 7 on Form N-1A (File No. 33-27958)
dated November 1, 1991.
(d) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(d) to North American Security Trust's Post-
Effective Amendment No. 9 on Form N-1A (File No. 33-27958)
dated July 7, 1992.
(e) Opinion of Jeffrey M. Ulness, Esq. -- previously filed as
Exhibit (b)(10)(e) to North American Security Trust's Post-
Effective Amendment No. 13 on Form N-1A (File No. 33-27958)
dated June 29, 1993.
(f) Opinion of Tracy A. Kane, Esq. -- previously filed as Exhibit
(10)(f) to North American Funds' Post-Effective Amendment No.
17 on Form N-1A (File No. 33-27958) dated April 1, 1994.
(g) Opinion of Counsel of Betsy Anne Seel, Esq. -- previously
filed as Exhibit (b)(10)(g) to North American Fund's Post
Effective Amendment No. 19 on Form N-1A (File No. 33-27958)
filed December 29, 1994.
(h) Opinion of Counsel of Betsy Anne Seel, Esq. -- previously
filed as Exhibit (b)(10)(h) to North American Funds Post
effective Amendment No. 21 on Form N1-A (File No. 33-27958)
dated December 15, 1995.
(11) Consent of Coopers & Lybrand -- Filed herewith.
(12) Not applicable.
(13) Letter Containing Investment Undertaking of North American
Life Assurance Company -- previously filed as Exhibit (b)(13)
to North American Security Trust's Post-Effective Amendment
No. 2 on Form N-1A (File No. 33-27958) dated August 29, 1990.
(14) Model Plans Documents for Custodial IRAs -- previously filed
as Exhibit (b)(14) to North American Security Trust's Post-
Effective Amendment No. 1 on Form N-1A (File No. 33-27958)
dated December 29, 1989.
(15) (a) Distribution Plan of North American Security Trust as amended
March 26, 1993 -- previously filed as Exhibit (15)(a) to North
American Funds' Post-
<PAGE>
Effective Amendment No. 13 on Form N-1A (File No. 33-27958)
dated June 30, 1993.
(b) Distribution Plan of North American Funds as amended June 18,
1993 -- previously filed as Exhibit (15)(b) to North American
Funds' Post-Effective Amendment No. 13 on Form N-1A (File No.
33-27958) dated June 30, 1993.
(c) Distribution Plan of North American Funds as amended September
30, 1993 -- previously filed as Exhibit (15)(d) to North
American Funds' Post-Effective Amendment No. 14 on Form N-1A
(File No. 33-27958) dated November 30, 1993.
(d) Class A Distribution Plan -- previously filed as Exhibit
(15)(d) to North American Funds' Post-Effective Amendment No.
16 on Form N-1A (File No. 33-27958) dated January 31, 1994.
(e) Class B Distribution Plan -- previously filed as Exhibit
(15)(e) to North American Funds' Post-Effective Amendment No.
16 on Form N-1A (File No. 33-27958) dated January 31, 1994.
(f) Class C Distribution Plan -- previously filed as Exhibit
(15)(f) to North American Funds' Post-Effective Amendment No.
16 on Form N-1A (File No. 33-27958) dated January 31, 1994.
(g) Class A, B and C Distribution Plans as amended March 18, 1994
-- previously filed as Exhibit (15)(g) to North American
Funds' Post-Effective Amendment No. 17 on Form N-1A (File
No. 33-27958) dated April 1, 1994.
(h) Form of Class D Distribution Plan -- previously filed as
Exhibit (15)(h) to North American Funds' Post-Effective
Amendment No. 18 on Form N-1A (File No. 33-27958) dated
October 20, 1994.
(i) Amendment to 12b-1 Distribution Plans for J.P. Morgan
International Growth and Income Fund - Classes A, B, and C --
previously filed as Exhibit 15. to North American Funds'
Post Effective Amendment No. 19 on Form N-1A on December 29,
1994.
(j) Amendment to 12b-1 Plans for the Small/Mid Cap, International
Small Cap and Growth Equity Fund Classes A, B and C --
previously filed as Exhibit (b)(15)(j) to North American Funds
Post effective Amendment No. 21 on Form N1-A (File No.
33-27958) dated December 15, 1995.
(16) (a) Schedule of Computations of Total Return and Yield Figures for
the Growth and Income, Investment Quality Bond and Global
Growth Trusts -- previously
<PAGE>
filed as Exhibit (b)(16)(a) to North American Security Trust's
Post-Effective Amendment No. 7 on Form N-1A (File No.
33-27958) dated November 1, 1991.
(b) Schedule of Computations of Total Return and Yield Figures for
the Growth, U.S. Government and Asset Allocation Trusts --
previously filed as Exhibit (b)(16) to North American Security
Trust's Post-Effective Amendment No. 1 on Form N-1A (File No.
33-27958) filed December 29, 1989.
(c) Schedule of Computations of Total Return and Yield Figures for
Class A, Class B and Class C shares -- previously filed as
Exhibit (16)(c) to North American Funds' Post-Effective
Amendment No. 17 on Form N-1A (File No. 33-27958) dated April
1, 1994.
(d) Schedule of Computations of Total Return and Yield Figures for
Strategic Income Fund Class A, Class B and Class C shares --
previously filed as Exhibit (b)(16)(d) to North American
Fund's Post-Effective Amendment No. 19 on Form N-1A (File No.
33-27958) filed December 29, 1994.
(e) Schedule of Computations of Total Return Figures for the
International Growth and Income Fund, Class A, Class B and
Class C Shares -- previously filed as Exhibit (b)(16)(e) to
North American Fund's Post-Effective Amendment No. 20 on Form
N-1A (File No. 33-27958) filed June 30, 1995.
(17) Financial Data Schedule for financials statements for the year
ended October 31, 1995 Filed herewith.
(18) Rule 18f-3 plan, as amended -- previously filed as Exhibit
(b)(18) to North American Funds Post effective Amendment No.
21 on Form N1-A (File No. 33-27958) dated December 15,
1995.
(19) (a) Power of Attorney - previously filed as Exhibit (b)(17) to
North American Security Trust's Post-Effective Amendment No.
10 on Form N-1A (File No. 33-27958) filed December 30, 1992.
(b) Power of Attorney - Frederick W. Gorbet -- previously filed as
Exhibit (b)(16) to North American Funds' Post-Effective
Amendment No. 16 on Form N-1A (File No. 33-27958) dated
January 31, 1994.
(c) Powers of Attorney -- previously filed as Exhibit (17)(c) to
North American Funds' Post-Effective Amendment No. 18 on Form
N-1A (File No. 33-27958) dated October 20, 1994.
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
No person is directly or indirectly controlled by the Registrant. With
respect to the other portfolios of the Registrant, no person controls the
Registrant by virtue of share ownership in the Registrant. While the Registrant
disclaims any such control relationship, it may be deemed to be controlled by
its investment adviser by virtue of the advisory relationship. In such case,
the Registrant and its adviser, NASL Financial Services, Inc., a Massachusetts
corporation, may be deemed to be under common control of the adviser's parent
corporations. NASL Financial Services, Inc. is 100% owned by North American
Security Life Insurance Company, a stock life insurance company organized under
the laws of Delaware, which in turn is 100% owned by North American Life. A
list of all companies under the control of North American Life is set forth on
the following pages.
THE MANUFACTURERS LIFE INSURANCE COMPANY
(Subsidiaries Organization Chart
- including certain Significant Investments)
The Manufacturers Life Insurance Company (Canada)
1. ManuLife Holdings (Hong Kong) Limited - H.K. (100%)
2. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%)
3. P.T. Asuransi Jiwa Dharmala Manulife - Indonesia (51%)
4. ManuLife (International) Limited - Bermuda (100%)
5. OUB Manulife Pte. Ltd. - Singapore (50%)
6. Manulife (Malaysia) SDN. BHD. - Malaysia (100%)
7. Manulife (Thailand) Ltd. - Thailand (100%)
8. Young Poong Manulife Insurance Company - Korea (50%)
9. Ennal, Inc. - Ohio (100%)
10. 495603 Ontario Limited - Ontario (100%)
11. 994744 Ontario Inc. - Ontario (100%)
<PAGE>
12. 1056416 Ontario Limited - Ontario (100%)
13. 484551 Ontario Limited - Ontario (100%)
(a) 911164 Ontario Limited - Ontario (100%)
14. NAWL (North American Wood Logan Holding Company) - Delaware (85%)
(a) Wood Logan Associates, Inc. - Connecticut (100%)
(i) Wood Logan Distributors, Inc. - Connecticut (100%)
(b) North American Security Life Insurance Company - Delaware (100%)
(i) NASL Financial Services, Inc. - Massachusetts (100%)
(ii) First North American Life Assurance Company - New York (100%)
(iii) North American Funds - Massachusetts (100%)
(iv) NASL Series Trust - Massachusetts (100%)
15. Domlife Realty Limited - Canada (100%)
16. Balmoral Developments Inc. - Canada (100%)
17. Cantay Holdings Inc. - Ontario (100%)
18. 576986 Ontario Inc. - Ontario (100%)
19. KY Holding Corporation - Canada (100%)
20. 172846 Canada Limited - Canada (100%)
21. First North American Realty, Inc. - Minnesota (100%)
22. North American Capital Corporation - Ontario (100%)
23. Elliott & Page Mutual Fund Corporation - Ontario (100%)
24. TBD Life Insurance Company - Canada (100%)
25. The North American Group Inc. - Canada (100%)
26. Capitol Bankers Life Insurance Company - Minnesota (100%)
27. Manulife Investment Management Corporation - Canada (100%)
(a) 159139 Canada Inc. - Canada (50%)
<PAGE>
i. Altamira Management Ltd. - Canada (60.96%)
A. ACI2 Limited - Cayman (100%)
a/ Regent Pacific Group Limited-Cayman (63.8%)
a.1 Manulife Regent Investment Corporation - Barbados (100%)
(50% by Regent Pacific Group Limited and 50% by Manulife Data
Services Inc.)
b.1 Manulife Regent Investment Asia Limited -
Hong Kong (100%)
B. Altamira Financial Services Inc. - Ontario (100%)
a/ AIS Securities (Partnership) - Ontario (100%)
(5% by Altamira Financial Services, Inc. and 95% by Altamira
Investment Services Inc.)
b/ Altamira Investment Services Inc. - Ontario (100%)
(a) AIS Securities (Partnership) - Ontario (100%)
(95% by Altamira Investments Services Inc. and 5% by Altamira
Financial Services Inc.)
(b) Altamira (Alberta) Ltd. - Alberta (100%)
(c) Capital Growth Financial Services Inc. -
Ontario (100%)
28. Manulife International Investment Management Limited - U.K. (100%)
(a) Manulife International Fund Management Limited - U.K. (100%)
29. ManuCab Ltd. - Canada (100%)
(a) Plazcab Service Limited - Canada (100%)
30. Manulife Data Services Inc.- Barbados (100%)
(a) Manulife Regent Investment Corporation - Barbados - (100%) (50% by
Manulife Data Services Inc. and 50% by Regent Pacific Group Limited)
(b) Manulife Regent Investment Asia Limited - Hong Kong (100%)
31. 16351 Canada Limited - Canada (100%)
32. Manufacturers Life Capital Corporation Inc. - Canada (100%)
33. Townvest Inc. - Ontario (100%)
34. Manulife Financial Holdings Limited - Ontario (100%)
(a) Family Financial Services Limited - Ontario (100%)
i. 742166 Ontario Inc. - Ontario (100%)
ii. Family Trust Corporation - Ontario (100%)
A. Family Financial Mortgage Corporation - Ontario (100%)
<PAGE>
B. Family Realty Firstcorp Limited - Ontario (100%)
C. Thos. N. Shea Investment Corporation Limited - Ontario (100%)
(b) Manulife Bank of Canada - Canada (100%)
i. Manulife Securities International Ltd. - Canada (100%)
ii. Cabot Financial Services Corporation - Ontario (100%)
iii.Cabot Investments Limited - Ontario (100%)
35. NALACO Mortgage Corporation - Ontario (100%)
(a) Underwater Gas Developers Limited - Ontario (100%)
36. Manulife (International) Reinsurance Limited - Bermuda (100%)
(a) Manulife (International) P&C Limited - Bermuda (100%)
(b) Manufacturers P&C Limited - Bermuda (100%)
37. FNA Financial Inc. - Canada (100%)
(a) NAL Resources Management Limited - Canada (100%)
(b) First North America Insurance Company - Canada (100%)
(c) NAL Trustco Inc. - Ontario (100%)
(d) North American Life Financial Services Inc. - Ontario (100%)
(e) Nalafund Investors Limited - Canada - (100%)
(f) Seamark Asset Management Ltd. - Canada (69.175%)
(g) Elliott & Page Limited - Ontario (100%)
38. NAL Resources Limited - Alberta (100%)
39. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
(a) Manulife Reinsurance Limited - Bermuda (100%)
(b) Manulife Holding Corporation - Delaware (100%)
i. Manufacturers Life Mortgage Securities
Corporation - Delaware (100%)
ii. Underwriters International Inc. - Delaware (50%)
iii. Capital Design Corporation - California - (100%)
iv. ManEquity, Inc. - Colorado (100%)
v. Manulife Service Corporation - Colorado (100%)
(c) The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%)
(d) The Manufacturers Life Insurance Company of America - Michigan (100%)
i. Manulife Series Fund, Inc. - Maryland (100%)
ii. Manufacturers Adviser Corporation - Colorado (100%)
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
As of January 31, 1996, the number of holders of the shares of beneficial
interest of each class of each series of shares of the Registrant was as
follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
- --------------- ------------------------
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Global Growth Fund Shares of 1,225 2,571 6,506
Beneficial Interest
Value Equity Fund Shares of 1,150 2,145 6,612
Beneficial Interest*
Growth and Income Fund Shares 726 1,961 4,317
of Beneficial Interest
Strategic Income Fund Shares of 593 1,131 645
Beneficial Interest
Asset Allocation Fund Shares of 480 923 5,005
Beneficial Interest
Investment Quality Bond Fund 583 361 375
Shares of Beneficial Interest
U.S. Government Securities Fund 3,274 856 898
Shares of Beneficial Interest
National Municipal Bond Fund 152 130 147
Shares of Beneficial Interest
Money Market Fund Shares of 761 162 519
Beneficial Interest
International Growth and Income 354 995 693
Fund Shares of Beneficial Interest
</TABLE>
<PAGE>
*Formerly the Growth Fund
Item 27. Indemnification
---------------
Sections 6.4 and 6.5 of the Agreement and Declaration of Trust of the
Registrant provide that the Registrant shall indemnify each of its Trustees and
officers against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and against
all expenses, including but not limited to accountants and counsel fees,
reasonably incurred in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such trustee or officer may be or
may have been involved as a party or otherwise or with which such person may be
or may have been threatened, while in office or thereafter, by reason of being
or having been such a trustee or officer, except that indemnification shall not
be provided if it shall have been finally adjudicated in a decision on the
merits by the court or other body before which the proceeding was brought that
such trustee or officer (i) did not act in good faith in the reasonable belief
that his or her action was in the best interests of the Registrant or (ii) is
liable to the Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office.
Registrant has previously provided the undertaking set forth in Rule 481
under the Securities Act of 1933.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
See "Management of the Fund" in the Prospectus and Statement of Additional
Information and "Investment Management Arrangements" in the Statement of
Additional Information for information regarding the business of the Adviser and
each of the Subadvisers. For information as to the business, profession,
vocation or employment of a substantial nature of each director, officer or
partner of the Adviser and each of the Subadvisers, reference is made to the
respective Form ADV, as amended, filed under the Investment Advisers Act of
1940, each of which is herein incorporated by reference.
Item 29. Principal Underwriters
----------------------
a. NASL Financial Services, Inc. also acts a principal underwriter for NASL
Variable Account, a separate account of North American Security Life
Insurance Company, and as investment adviser of NASL Series Trust, the
shares of which are the underlying investments of that separate account.
b. Officers and Directors of Principal Underwriter
<TABLE>
<CAPTION>
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
- ------------------ -------------------- ------------
<S> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Brian L. Moore * Chairman & Director Chairman
William J. Atherton ** President & Director Trustee
John G. Vrysen ** Vice President Vice President
Richard C. Hirtle ** Vice President & ----
Treasurer
James R. Boyle ---- Vice President,
Treasurer &
Chief
Administrative
Officer
John D. DesPrez III** Director President
James D. Gallagher** Vice President, Secretary
Secretary &
General Counsel
</TABLE>
- ----------------------
* 200 Bloor Street
North Tower, 11th Floor
Toronto, Ontario
Canada M4W-1E5
** 116 Huntington Avenue
Boston, MA 02116
c. None.
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books and other documents required to be maintained under
Section 31(a) of the Investment Company Act of 1940 are kept by NASL Financial
Services, Inc., the Registrant's investment adviser, at its offices at 116
Huntington Avenue, Boston, Massachusetts 02116, by Goldman Sachs Asset
Management, the investment subadviser to the Growth Fund and Asset Allocation
Fund, at its offices at 1 New York Plaza, New York, New York 10004, by Oechsle
International Advisors, L.P., the investment subadviser to the Global Growth
Fund, at its offices at One International Place, Boston, Massachusetts 02110, by
Wellington Management Company, the investment subadviser to the Growth and
Income Fund, the Investment Quality Bond Fund and the Money Market Fund at its
offices at 75 State Street, Boston, Massachusetts 02109, by Salomon
<PAGE>
Brothers Asset Management Inc, the investment subadviser to the U.S. Government
Securities Fund, Strategic Income Fund, National Municipal Bond Fund and
California Municipal Bond Fund at its offices at 7 World Trade Center, New York,
New York 10048, by Salomon Brothers Asset Management Limited, who provides
certain advisory services to SBAM relating to currency transactions and
investments in non-dollar denominated debt securities for the benefit of the
Strategic Income Fund at its offices at Victoria Plaza, 111 Buckingham Palace
Road, London SW1W OSB, England, by J.P. Morgan Investment Management Inc., the
investment subadviser to the International Growth and Income Fund at its offices
at 522 5th Avenue, New York, New York 10036, by Fred Alger Management, Inc., the
investment adviser to the Small/Mid Cap Fund at its offices at 30 Montgomery
Street, Jersey City, New Jersey 07302, by Founders Asset Management, Inc., the
investment adviser to the International Small Cap and Growth Equity Fund at its
offices at 2930 East Third Avenue, Denver, Colorado 80206, by the Registrant at
its principal business office located at 116 Huntington Avenue, Boston,
Massachusetts 02116, by Boston Safe Deposit and Trust Company, One Boston Place,
Boston, Massachusetts 02108, custodian for the Global Growth Fund's assets or by
State Street Bank and Trust Company, the custodian and transfer agent for all
the other portfolios of the Registrant, at its offices at 225 Franklin Street,
Boston, Massachusetts 02110.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment
containing financial statements with respect to the Small/Mid, International
Small Cap and Growth Equity Funds, which need to be certified, within four to
six months from the effective date of this Amendment under the Securities Act of
1933.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's Annual Report to Shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant, North American Funds, certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts on the 20th day of February, 1996 .
NORTH AMERICAN FUNDS
--------------------
(Registrant)
By: John D. DesPrez III
-------------------
John D. DesPres III, President
Attest:
Susan E. Heffernan
- ------------------
Susan E. Heffernan
Assistant Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
*______________________ Trustee February 20, 1996
Don B. Allen
*______________________ Trustee February 20, 1996
Charles L. Bardelis
*______________________ Trustee February 20, 1996
Samuel Hoar
*______________________ Trustee February 20, 1996
Brian L. Moore and Chairman
*______________________ Trustee February 20, 1996
Robert J. Myers
*_______________________ Vice President and February 20, 1996
James R. Boyle Treasurer (Prin-
cipal Financial and
Accounting Officer)
John D. DesPrez III
- -------------------
John D. DesPrez III President (Chief February 20, 1996
Executive Officer)
*By: James D. Gallagher February 20, 1996
------------------
James D. Gallagher
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Page No.
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- ----------
<S> <C> <C>
(b)(5)(b) Subadvisory Agreement between NASL
Financial Services, Inc. and Oechsle
International Advisors, L.P.
(b)(5)(c) Subadvisory Agreement between NASL
Financial Services, Inc. and Wellington
Management Company
(b)(5)(d) Subadvisory Agreement between NASL
Financial Services, Inc. and Salomon Brothers
Asset Management, Inc.
(b)(5)(d)(i) Subadvisory Agreement between NASL
Financial Services, Inc. and Salomon Brothers
Asset Management, Inc. and Salomon Brothers
Asset Management Limited on behalf of the
Strategic Income Fund
(b)(5)(e) Subadvisory Agreement between NASL
Financial Services, Inc. and Goldman Sachs
Asset Management
(b)(5)(f) Subadvisory Agreement between NASL
Financial Services, Inc. and J.P. Morgan
Investment Management, Inc.
(b)(5)(g) Subadvisory Agreement between NASL
Financial Services, Inc. and Fred Alger
Management, Inc.
(b)(5)(h) Subadvisory Agreement between NASL
Financial Services, Inc. and Founders Asset
Management, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(b)(6)(a) Distribution Agreement between North
American Funds and NASL Financial
Services, Inc.
(b)(11) Consent of Coopers & Lybrand
(b)(17) Financial Data Schedule
</TABLE>
<PAGE>
NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of January, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Oechsle International Advisors, L.P., a limited partnership organized under
Delaware law (the "Subadviser"). In consideration 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 each of the portfolios 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
"Portfolio" or "Portfolios"). The Subadviser will be an independent contractor
and will have no authority to act for or represent the Trust or Adviser in any
way or otherwise be deemed an agent unless 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 Portfolios. In fulfilling its obligations to manage the
investments and reinvestments of the assets of the Portfolios, 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
Portfolios or are under consideration for inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for each
Portfolio consistent with the investment objectives and related
investment policies for each such Portfolio 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;
iv. regularly report to the Trustees of the Trust with respect to the
implementation of these investment programs; and
v. provide determinations, in accordance with procedures and methods
established by the Trustees of the Trust, of the fair value of
securities held by the Portfolios for which market quotations are not
readily available for purposes of enabling the Trust's Custodian to
calculate net asset value.
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 Portfolios (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 necessary
orders with brokers, dealers, or issuers, and will negotiate brokerage
commissions if applicable. The Subadviser is directed at all times to seek
to execute brokerage transactions for the Portfolios 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
1
<PAGE>
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. The Subadviser will maintain all accounts, books and records with respect to
the Portfolios as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act of 1940 (the
"Investment Company Act") and Investment Advisers Act of 1940 (the
"Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its partners or 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 Portfolio 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 partners or
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
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. 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.
7. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on the
later of its execution, the effective date of the registration statement of the
Portfolio and the date of the meeting of the shareholders of the Portfolio, 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
Portfolio. 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 Portfolios,
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 Portfolio 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 Portfolio 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 Portfolio affected by the Agreement or (b) all the
portfolios of the Trust.
2
<PAGE>
If the shareholders of any Portfolio fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as investment
subadviser with respect to such Portfolio 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 Portfolio during such
period will be no more than its actual costs incurred in furnishing investment
subadvisory and management services to such Portfolio or the amount it would
have received under the Agreement in respect of such Portfolio, whichever is
less.
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 Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
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.
8. 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. the managing general partner or controlling partner of the Subadviser or the
portfolio manager of any Portfolio changes.
9. 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 Portfolios 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 Portfolio if a majority of the outstanding voting securities
of that Portfolio 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 Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
10. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolios listed in Appendix A.
11. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
12. 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
3
<PAGE>
providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
13. 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.
14. GOVERNING LAW
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.
15. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust establishing the Trust, dated
September 28, 1988, 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.
[SEAL] NASL Financial Services, Inc.
by:
----------------------------
William J. Atherton
President
[SEAL] Oechsle International Advisors,L.P.
by:
----------------------------
4
<PAGE>
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for each of the
following portfolios 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 Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
1. Global Growth Fund- .55% of the first $200,000,000 and .40% on the excess
over $200,000,000 of the current value of the net assets of the Global Equity
Trust.
The Subadviser Percentage Fee for each Portfolio 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 Portfolio 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.
5
<PAGE>
NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of January, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Wellington Management Company, a Massachusetts general partnership (the
"Subadviser"). In consideration 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 each of the portfolios 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
"Portfolio" or "Portfolios"). The Subadviser will be an independent contractor
and will have no authority to act for or represent the Trust or Adviser in any
way or otherwise be deemed an agent unless 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 Portfolios. In fulfilling its obligations to manage the
investments and reinvestments of the assets of the Portfolios, 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
Portfolios or are under consideration for inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for each
Portfolio consistent with the investment objectives and related
investment policies for each such Portfolio 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;
iv. regularly report to the Trustees of the Trust with respect to the
implementation of these investment programs;
v. provide determinations, in accordance with procedures and methods
established by the Trustees of the Trust, of the fair value of
securities held by the Portfolios for which market quotations are not
readily available for purposes of enabling the Trust's Custodian to
calculate net asset value; and
vi. comply with the procedures adopted by the Trustees of the Trust for
stabilizing the net asset value per share of the Money Market Trust
and regularly report to the Trustees in accordance with these
procedures.
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 Portfolios (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 applicable. The Subadviser is directed at all times to seek to execute
brokerage transactions for the Portfolios 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
<PAGE>
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. The Subadviser will maintain all accounts, books and records with respect
to the Portfolios as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act of 1940 (the
"Investment Company Act") and Investment Advisers Act of 1940 (the
"Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its partners or employees shall be liable
to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting
from its acts or omissions as Subadviser to the Portfolios, except for losses
resulting from willful misfeasance, bad faith, or gross negligence in the
performance of, or from reckless 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. 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.
7. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on the
later of its execution, the effective date of the registration statement of the
Portfolio and the date of the meeting of the shareholders of the Portfolio, 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
Portfolio. 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 Portfolios,
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 Portfolio 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 Portfolio 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 Portfolio affected by the Agreement or (b) all the
portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as investment
subadviser with respect to such Portfolio pending the required approval of
<PAGE>
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 Portfolio during such
period is in compliance with Rule 15a-4 under the Investment Company Act.
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 Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
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.
8. 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. the managing general partner or controlling partner of the Subadviser or
the portfolio manager of any Portfolio changes.
9. SALES LITERATURE
The Adviser will not use the Subadviser's name in Trust literature without
prior review and approval by the Subadviser, which will not be unreasonably
withheld or delayed.
10. 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 Portfolios 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 Portfolio if a majority of the outstanding voting securities
of that Portfolio 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 Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
11. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolios listed in Appendix A.
12. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
13. NOTICES
<PAGE>
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.
14. 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.
15. GOVERNING LAW
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.
16. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust establishing the Trust, dated
September 28, 1988, 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.
[SEAL] NASL Financial Services, Inc.
by: ___________________________
William J. Atherton
President
[SEAL] Wellington Management Company
by: ___________________________
4
<PAGE>
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for each of the
following portfolios 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 Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
1. Growth and Income Fund - .325% for the first $50,000,000, .275% for the
next $150,000,000, .225% for the next $300,000,000 and .15% on the excess
over $500,000,000 of the current value of the net assets of the Growth and
Income Fund.
2. Investment Quality Bond Fund - .225% for the first $200,000,000, .15% for
the next $300,000,000 and .10% on the excess over $500,000,000 of the
current value of the net assets of the Investment Quality Bond Fund.
3. Money Market Fund - .075% of the first $500,000,000 and .020% on the excess
over $500,000,000 of the current value of the net assets of the Money
Market Fund.
The Subadviser Percentage Fee for each Portfolio 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 Portfolio 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.
5
<PAGE>
NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of January 1996, between NASL Financial
Services, Inc. a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Salomon Brothers Asset Management Inc, a Delaware corporation (the
"Subadviser"). In consideration of the mutual convenants 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 portfolios 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 "Portfolio" or "Portfolios"). The Subadviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Adviser in any way or otherwise be deemed an agent unless 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 Portfolios. In fulfilling its obligations to manage the
investments and reinvestments of the assets of the Portfolios, 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
Portfolios or are under consideration for inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for each
Portfolio consistent with the investment objectives and related
investment policies for each such portfolio 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;
iv. regularly report to the Trustees of the Trust with respect to the
implementation of these investment programs; and
v. provide determinations of the fair value of certain securities when
market quotations are not readily available for purposes of
calculating net asset value for the Trust's Custodian in accordance
with procedures and methods established by the Trustees 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 Portfolios (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
necessary orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Subadviser is directed at all
times to seek to execute brokerage transactions for the Portfolios 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 provided research and
brokerage services a higher commission for a particular transaction than
otherwise might have been charged by another broker-dealer, if the
Subadviser determines that the higher 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
<PAGE>
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. The Subadviser will maintain all accounts, books and records with respect
to the Portfolios as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act of 1940 (the
"Investment Company Act") and Investment Advisers Act of 1940 (the
"Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its directors, officers or employees
shall be liable to the Adviser or Trust for any loss suffered by the Adviser or
Trust resulting from its acts or omissions as Subadviser to the Portfolios,
except for losses resulting from willful misfeasance, bad faith, or gross
negligence in the performance of, or from reckless disregard of, the duties of
the Subadviser or any of its directors, officers 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
It is understood that trustees, officers, agents and shareholders of the
Trust are or may be interested in the Subadviser as trustees, officers,
stockholders or otherwise; that directors, officers, agents and stockholders of
the Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may by 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 Articles 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 on the later of its execution or the
date the Subadviser is appointed to manage the Portfolios by the Trustees
pursuant to Rule 15a-4 under the Investment Company Act. This Agreement shall
remain in effect no more than 120 days from such effective date (unless a
greater period of time is permitted by the Securities and Exchange Commission),
unless approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of each of the Portfolios.
Thereafter, 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 Portfolios,
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 Portfolio if a majority of the
outstanding voting
2
<PAGE>
securities of the series (as defined in Rule 18f-2(h) under the Investment
Company Act) of shares of that Portfolio 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 Portfolio affected by the Agreement or (b) all the Portfolios of the
Trust.
If the shareholders of any Portfolio fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as investment
subadviser with respect to such Portfolio 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 Portfolio during such
period is in compliance with Rule 15a-4 under the Investment Company Act.
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 Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
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. the chief executive officer or controlling stockholder of the Subadviser or
the portfolio manager of any Portfolio changes.
10. 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 Portfolios 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 Portfolio if a majority of the outstanding voting securities
of that Portfolio 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 Portfolio affected by the amendment or (b) all the
Portfolios of the Trust.
11. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolios listed in Appendix A.
12. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
3
<PAGE>
13. 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.
14. SEVERABILITY
Should any portion of this Agreement for any reason be held to void in law
or in equity, the Agreement shall be construed, insofar as is possible, as if
such portion had never been contained herein.
15. GOVERNING LAW
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.
16. LIMITATION OF LIABILITY
The Declaration of Trust establishing the Trust, dated September 28, 1988,
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.
[SEAL] NASL Financial Services, Inc.
by: _________________________
William J. Atherton
President
[SEAL] Salomon Brothers Asset Management Inc
by: __________________________
4
<PAGE>
APPENDIX A
----------
The Subadviser shall serve as investment adviser for each of the following
portfolios 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 Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
1. 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 current value of the net assets of the Portfolio.
2. National Municipal Bond Fund: .25% of the first $50 million, .25% between
$50,000,000 and $200,000,000, .25% between $200,000,000 and $500,000,000
and .25% on the excess over $500,000,000 of the current net assets of the
portfolio.
3. Strategic Income Fund: .35% of the first $50 million, .30% between
$50,000,000 and $200,000,000, .25% between $200,000,000 and $500,000,000
and .20% on the excess over $500,000,000 of the current net assets of the
portfolio.
The Subadviser Percentage Fee for each Portfolio 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 Portfolio 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 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.
5
<PAGE>
CONSULTING AGREEMENT
SUBADVISORY CONSULTING AGREEMENT
STRATEGIC INCOME FUND
NORTH AMERICAN FUNDS
SUBADVISORY CONSULTING AGREEMENT made this 1st day of January, 1996, between
Salomon Brothers Asset Management Inc, a Delaware corporation ("SBAM") and
Salomon Brothers Asset Management Limited, a company incorporated under the laws
of England ("SBAM Limited").
In consideration of the mutual covenants contained herein, with effect on and
from the Effective Date (as defined in paragraph 5 of this Subadvisory
Consulting Agreement) the parties agree as follows:
1. APPOINTMENT OF SUBADVISORY CONSULTANT
Pursuant to paragraph 5 of the Subadvisory Agreement between NASL Financial
Services, Inc., a Massachusetts corporation (the "Adviser"), and SBAM
dated January 1, 1996 (the "Agreement"), SBAM Limited undertakes to act as a
subadviser and manage the investment and reinvestment of the assets or such part
of the assets of the Strategic Income Fund (the "Portfolio") of North American
Funds (the "Fund") as may be agreed between SBAM and SBAM Limited from time to
time (the "Delegated Portion"), subject to the supervision of SBAM and the
Trustees of the Fund and to the terms of this Subadvisory Consulting Agreement.
SBAM Limited will be an independent contractor and will have no authority to act
for or represent the Fund or the Adviser in any way or otherwise be deemed an
agent unless expressly authorized in this Subadvisory Consulting Agreement or
another writing by the Fund and the Adviser.
SBAM Limited is a member of the Investment Management Regulatory Organization
Limited ("IMRO") and is regulated in its conduct of Investment Business (as
defined in IMRO's rules) by IMRO and each of the Fund and SBAM will be a Non-
private Customer (as defined in IMRO's rules) of SBAM Limited.
2. SERVICES TO BE RENDERED BY THE SUBADVISORY CONSULTANT TO THE PORTFOLIO
Subject always to the direction and control of the Trustees of the Fund and
SBAM, SBAM Limited will manage the investments and determine the composition of
the assets of the Delegated Portion in accordance with the investment
objectives, policies and restrictions contained in the Fund's prospectus and
statement of additional information in so far as they relate to the Portfolio
(both as amended from time to time) and in compliance with the provisions of the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
the rules promulgated thereunder and, so far as permitted thereby, is hereby
authorized to borrow money and to effect transactions on or off any exchange on
behalf of the Portfolio.
3. COMPENSATION OF SUBADVISER
SBAM will pay SBAM Limited such compensation as specified in Appendix A to this
Subadvisory Consulting Agreement.
<PAGE>
4. APPLICABILITY OF PROVISIONS OF THE AGREEMENT
The provisions of paragraphs 2.c, 4, 7 and 9 of the Agreement are hereby
incorporated into this Subadvisory Consulting Agreement and shall be read herein
as if references to "the Subadviser" were references to SBAM Limited. For this
purpose, the following further modifications shall be deemed to be made to
paragraph 4 of the Agreement. In that paragraph, references to "the Adviser"
shall be deemed to include references to SBAM, the number "(i)" shall be deemed
to be inserted between "resulting from" and "its acts" and at the end of that
paragraph the words "or (ii) any breach by SBAM Limited or any of its directors,
officers or employees of its duties or obligations under the Financial Services
Act of 1986 of the United Kingdom or under the regulatory system (as defined in
IMRO's rules)" shall be deemed to be inserted between "employees" and ".".
5. DURATION AND TERMINATION OF SUBADVISORY CONSULTING AGREEMENT
This Subadvisory Consulting Agreement shall become effective on the later of:
(i) the date of its execution,
(ii) the effective date of the registration statement of the Portfolio,
(iii) the date this Subadvisory Consulting Agreement is approved by the
Trustees of the Fund in accordance with the Investment Company Act, and
(iv) the date of the meeting of the shareholders of the Portfolio, at which
meeting this Subadvisory Consulting Agreement is approved by the vote of
a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Portfolio.
such date being referred to in this Subadvisory Consulting Agreement as the
"Effective Date".
The Subadvisory Consulting 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 Fund or
by a majority of the outstanding voting securities of the Portfolio, provided
that in either event such continuance shall also be approved by the vote of a
majority of the Trustees of the Fund who are not interested persons (as defined
in the Investment Company Act) of any party to this Subadvisory Consulting
Agreement cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval of this Subadvisory Consulting
Agreement or of any continuance of this Subadvisory Consulting Agreement shall
be effective with respect to the Portfolio 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 the Portfolio votes to approve this
Subadvisory Consulting Agreement or its continuance, notwithstanding that the
Subadvisory Consulting Agreement or its continuance may not have been approved
by a majority of the outstanding voting securities of (a) any other portfolio of
the Fund or (b) all the portfolios of the Fund.
This Subadvisory Consulting Agreement may be terminated at any time, without the
payment of any penalty, by the Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities of the Portfolio, on sixty days'
written notice to SBAM and SBAM Limited or by SBAM or SBAM Limited on sixty
days' written notice to the Fund and the other party. This Subadvisory
Consulting Agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act), in the event the Advisory Agreement between the Adviser and the Fund
terminates for any reason or in the event the shareholders of the Portfolio fail
to approve any continuance of the Agreement or the Agreement terminates for any
reason.
2
<PAGE>
6. AMENDMENTS TO THE SUBADVISORY CONSULTING AGREEMENT
This Subadvisory Consulting 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 the Portfolio and by the vote of a majority of the Trustees
of the Fund who are not interested persons of any party to this Subadvisory
Consulting 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 the Portfolio if a majority of the outstanding voting securities
of the Portfolio 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 portfolio of the Fund or (b) all the portfolios of
the Fund.
7. COMPLAINTS
All formal complaints by SBAM or the Fund should in the first instance be made
in writing to the Compliance Officer of SBAM Limited in accordance with
paragraph 10 of this Subadvisory Consulting Agreement. In addition, SBAM and
the Fund have the right to complain direct to IMRO.
8. ENTIRE AGREEMENT
This Subadvisory Consulting Agreement contains the entire understanding and
agreement of the parties with respect to the Portfolio.
9. HEADINGS
The headings in the sections of this Subadvisory Consulting Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
10. NOTICES
All notices required to be given pursuant to this Subadvisory Consulting
Agreement shall be delivered or mailed to the last known business address of the
Fund 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.
11. SEVERABILITY
Should any portion of this Subadvisory Consulting Agreement for any reason be
held to be void in law or in equity, the Subadvisory Consulting Agreement shall
be construed insofar as is possible as if such portion had never been contained
herein.
12. GOVERNING LAW
The provisions of this Subadvisory Consulting 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 Subadvisory Consulting Agreement, conflict with applicable provisions of
the Investment Company Act, the latter shall control.
3
<PAGE>
13. LIMITATION OF LIABILITY
The Declaration of Trust establishing the Fund, dated September 28, 1988, 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 Security Trust" (now referred to as "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 Fund 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 Fund or any portfolio
thereof, but only the assets belonging to the Fund, or to the particular
portfolio with which the obligee or claimant dealt, shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Subadvisory Consulting
Agreement to be executed by their duly authorized officers as of the date first
mentioned above.
Salomon Brothers Asset
Management Inc
by: ___________________________
Salomon Brothers Asset
Management Limited
by: ___________________________
4
<PAGE>
APPENDIX A
----------
SBAM will pay SBAM Limited, as full compensation for all services provided under
this Subadvisory Consulting Agreement, a portion of the fee (such portion herein
referred to as the "Subadvisory Consulting Fee") payable to SBAM under the
Agreement being an amount equal to the fee payable under the Agreement
multiplied by the current value of the net assets of the Delegated Portion and
divided by the current value of the net assets of the portfolio.
The Subadvisory Consulting Fee shall be accrued for each calendar day in the
period commencing with the Effective Date and ending on the date on which this
Subadvisory Consulting Agreement terminates in accordance with its paragraph 5
and the sum of the daily fee accruals shall be paid to SBAM Limited by SBAM at
such times and for such periods as SBAM and SBAM Limited shall agree.
The Subadvisory Consulting Fee will be paid by SBAM out its fee paid pursuant to
the Agreement.
5
<PAGE>
NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of January, 1996, between NASL Financial
Services, Inc. a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Goldman Sachs Asset Management, a division of Goldman, Sachs & Co. (the
"Subadviser"). In consideration 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 Portfolios specified in Appendix A to this Agreement as it shall be
amended by the Adviser and the Subadviser from time to time (the "Portfolios").
The Subadviser will be an independent contractor and will have no authority to
act for or represent the Trust or Adviser in any way or otherwise be deemed an
agent unless 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 Portfolios. In fulfilling its obligations to manage the
investments and reinvestments of the assets of the Portfolios, 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
Portfolios or are under consideration for inclusion in the
Portfolios;
ii. formulate and implement a continuous investment program for each
Portfolio consistent with the investment objectives and related
investment policies for each such portfolio 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;
iv. regularly report to the Trustees of the Trust with respect to the
implementation of these investment programs; and
v. provide determinations of the fair value of certain securities when
market quotations are not readily available for purposes of
calculating net asset value for the Trust's Custodian in accordance
with procedures and methods established by the Trustees 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 Portfolios (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
necessary orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Subadviser is directed at all
times to seek to execute brokerage transactions for the Portfolios 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 provided research and
brokerage services a higher commission for a particular transaction than
otherwise might have been charged by another broker-dealer, if the
Subadviser determines that the higher 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
1
<PAGE>
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. The Subadviser will maintain all accounts, books and records with respect
to the Portfolios as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act of 1940 (the
"Investment Company Act") and Investment Advisers Act of 1940 (the
"Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its directors, officers or employees
shall be liable to the Adviser or Trust for any loss suffered by the Adviser or
Trust resulting from its acts or omissions as Subadviser to the Portfolios,
except for losses resulting from willful misfeasance, bad faith, or gross
negligence in the performance of, or from reckless disregard of, the duties of
the Subadviser or any of its directors, officers 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
It is understood that Trustees, officers, agents and shareholders of the
Trust are or may be interested in the Subadviser as Trustees, officers,
stockholders or otherwise; that directors, officers, agents and stockholders of
the Subadviser are or may be interested in the Trust as Trustees, officers,
shareholders or otherwise; that the Subadviser may by 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 Articles 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 on the later of its execution or the
date the Subadviser is appointed to manage the Portfolios by the Trustees
pursuant to Rule 15a-4 under the Investment Company Act. This Agreement shall
remain in effect no more than 120 days from such effective date (unless a
greater period of time is permitted by the Securities and Exchange Commission),
unless approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of each of the Portfolios.
Thereafter, 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 Portfolios,
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 Portfolio if a majority of the
outstanding voting
2
<PAGE>
securities of the series (as defined in Rule 18f-2(h) under the Investment
Company Act) of shares of that Portfolio 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 Portfolio affected by the Agreement or (b) all the Portfolios of the
Trust.
If the shareholders of any Portfolio fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as investment
subadviser with respect to such Portfolio 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 Portfolio during such
period will be no more than the amount it would have received under the
Agreement in respect of such Portfolio.
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 Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
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. the chief executive officer or controlling stockholder of the Subadviser or
the portfolio manager of any Portfolio changes.
10. 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 Portfolios 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 Portfolio if a majority of the outstanding voting securities
of that Portfolio 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 Portfolio affected by the amendment or (b) all the
Portfolios of the Trust.
11. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
12. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
3
<PAGE>
13. 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.
14. SEVERABILITY
Should any portion of this Agreement for any reason be held to void in law
or in equity, the Agreement shall be construed, insofar as is possible, as if
such portion had never been contained herein.
15. GOVERNING LAW
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.
16. LIMITATION OF LIABILITY
The Declaration of Trust establishing the Trust, dated September 28, 1988,
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.
[SEAL] NASL Financial Services, Inc.
------------------------
by: William J. Atherton
President
[SEAL] Goldman Sachs Asset Management
by:
-------------------------
4
<PAGE>
APPENDIX A
----------
The Subadviser shall serve as investment adviser for each of the following
portfolios 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 Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
1. Growth Fund: .325% of the first $50,000,000, .275% between $50,000,000 and
$200,000,000, .225% between $200,000,000 and $500,000,000 and .15% on the
excess over $500,000,000 of the current net assets of the Portfolio.
2. Asset Allocation Fund: .325% of the first $50,000,000, .275% between
$50,000,000 and $200,000,000, .225% between $200,000,000 and $500,000,000
and .15% on the excess over $500,000,000 of the current net assets of the
Portfolio.
The Subadviser Percentage Fee for each Portfolio 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 Portfolio 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 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.
5
<PAGE>
NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of January, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and J.P. Morgan Investment Management Inc., a Delaware Corporation (the
"Subadviser"). In consideration 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 Portfolios specified in Appendix A to this Agreement as it shall be
amended by the Adviser and the Subadviser from time to time (the "Portfolios").
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 Portfolios in accordance with the Portfolios'
registration statement, as amended. In fulfilling its obligations to
manage the investments and reinvestments of the assets of the Portfolios,
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
Portfolios or are under consideration for inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for each
Portfolio consistent with the investment objectives and related
investment policies for each such Portfolio 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;
iv. regularly report to the Trustees of the Trust with respect to the
implementation of these investment programs; and
v. provide determinations, in accordance with procedures and methods
established by the Trustees of the Trust, of the fair value of
securities held by the Portfolios for which market quotations are not
readily available for purposes of enabling the Trust's Custodian to
calculate net asset value.
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 Portfolios (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 applicable. The Subadviser is directed at all times to seek to execute
brokerage transactions for the Portfolios 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
<PAGE>
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. The Subadviser will maintain all accounts, books and records with respect
to the Portfolios as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act of 1940 (the
"Investment Company Act") and Investment Advisers Act of 1940 (the
"Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its partners or 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 Portfolio 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 partners or
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
negligence in the performance of, or from disregard of, the duties of the
Subadviser or any of its partners or employees.
Promptly following execution of this Agreement, the Adviser will provide
the Subadviser with a Guideline specifying the requirements of Subsection 851
(b) (3) of the Internal Revenue Code (the "Code") as it pertains to the
Portfolios. With respect to the short-three limitations imposed under
Subsection 851 (b)(3) of the Code, the Adviser will provide within fifteen days
of the end of each month a written Report dated the end of the previous month
with respect to each Portfolios' compliance for its current fiscal year with
those limitations. The Reports will include each Portfolios' gross income from
the beginning of the current fiscal year to the date of the Report and its
cumulative income and gains described in Subsection 851 (b)(3) of the Code for
such period. While the Subadviser is responsible for investing the Portfolio's
assets in accordance with the Portfolios' registration statement, including the
limitations imposed under Subsection 851 (b)(3) of the Code, the Adviser agrees
that the Subadviser may rely on, and will not be liable for failures
attributable to, information contained in the most recent Guideline and the
Reports.
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
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
2
<PAGE>
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 Portfolio on the
later of its execution, the effective date of the registration statement of the
Portfolio and the date of the meeting of the shareholders of the Portfolio, 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
Portfolio. 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 Portfolios,
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 Portfolio 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 Portfolio 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 Portfolio affected by the Agreement or (b) all the
portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as investment
subadviser with respect to such Portfolio 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 Portfolio during such
period is in compliance with Rule 15a-4 under the Investment Company Act.
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 Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
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. Without limiting in any way the requirements of the
foregoing provisions, the Adviser will provide the Subadviser 5 (five) days
written notice in the event the Advisory Agreement between the Adviser and the
Trust will be terminated.
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. the managing general partner or controlling partner of the Subadviser or
the portfolio manager of any Portfolio changes.
3
<PAGE>
10. 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 Portfolios 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 Portfolio if a majority of the outstanding voting securities
of that Portfolio 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 Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
11. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
12. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
13. 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.
14. 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.
15. GOVERNING LAW
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.
16. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust establishing the Trust, dated
September 28, 1988, 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.
4
<PAGE>
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.
[SEAL] NASL Financial Services, Inc.
by: _____________________________
William J. Atherton
President
[SEAL] J.P. Morgan Investment Management, Inc.
by: _____________________________
5
<PAGE>
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolio 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 Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
International Growth and Income Fund - .50% of the first $50,000,000, .45%
between $50,000,000 and $200,000,000, .40% between $200,000,000 and
$500,000,000 and .35% on the excess over $500,000,000 of the current value
of the net assets of the Portfolio;
The Subadviser Percentage Fee for each Portfolio 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 Portfolio 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.
6
<PAGE>
NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made this 2nd day of January , 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Fred Alger Management Inc., a Delaware Corporation (the "Subadviser"). In
consideration 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 Portfolios specified in Appendix A to this Agreement as it shall be
amended by the Adviser and the Subadviser from time to time (the "Portfolios").
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 Portfolios in accordance with the Portfolios'
registration statement, as amended. In fulfilling its obligations to
manage the investments and reinvestments of the assets of the Portfolios,
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
Portfolios or are under consideration for inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for each
Portfolio consistent with the investment objectives and related
investment policies for each such Portfolio 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;
iv. regularly report to the Trustees of the Trust with respect to the
implementation of these investment programs; and
v. provide determinations, in accordance with procedures and methods
established by the Trustees of the Trust, of the fair value of
securities held by the Portfolios for which market quotations are not
readily available for purposes of enabling the Trust's Custodian to
calculate net asset value.
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 Portfolios (excluding
determination of net asset value and shareholder accounting services).
c. The Subadviser will select brokers and dealers, including Fred Alger &
Company, Incorporated, an affiliate of the Subadviser, 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 applicable. The Subadviser is directed at all times to seek
to execute brokerage transactions for the Portfolios 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
<PAGE>
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. The Subadviser will maintain all accounts, books and records with respect
to the Portfolios as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act of 1940 (the
"Investment Company Act") and Investment Advisers Act of 1940 (the
"Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its partners or 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 Portfolio 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 partners or
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
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
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 Portfolio on the
later of its execution, the effective date of the registration statement of the
Portfolio and the date of the meeting of the shareholders of the Portfolio, at
which meeting this Agreement is approved by the vote of a majority of the
outstanding voting securities (as defined in the
2
<PAGE>
Investment Company Act) of the Portfolio. 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 Portfolios, 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 Portfolio 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 Portfolio
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 Portfolio affected by the
Agreement or (b) all the portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as investment
subadviser with respect to such Portfolio 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 Portfolio during such
period is in compliance with Rule 15a-4 under the Investment Company Act.
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 Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
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. the managing general partner or controlling partner of the Subadviser or
the portfolio manager of any Portfolio changes.
10. SERVICES TO OTHERS
The Adviser understands, 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. The Adviser has no objection to the Subadviser
acting in such capacities, provdied that whenever the Portfolios and one or more
other investment advisory clients of the Subadviser have available funds for
investment, investments suitable and appropriate for each will be allocated in a
manner believed by the Subadviser to be equitable to each. The Adviser
recognizes, and has advised the Trust's Board of Trustees, that in some cases
this procedure may adversely affect the size of the position that the
participating Portfolio(s) may obtain in a particular security. In addition,
the Adviser understands, and has advised the Trust's Board of Trustees, that the
persons employed by the Subadviser to assist in the Subadviser's duties under
this Agreement will not devote their full time to such service and nothing
contained in this Agreement will be deemed to limit or restrict the right of the
Subadviser or any of its affiliates to engage in and devote time and attention
to other businesses or to render services of whatever kind or nature.
3
<PAGE>
11. 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 Portfolios 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 Portfolio if a majority of the outstanding voting securities
of that Portfolio 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 Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
12. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
13. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
14. 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.
15. 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.
16. GOVERNING LAW
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.
17. 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.
4
<PAGE>
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.
[SEAL] NASL Financial Services, Inc.
by: _____________________________
William J. Atherton
President
[SEAL] Fred Alger Management, Inc.
by: _____________________________
5
<PAGE>
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolio 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 Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
Small/Mid Cap Fund: .525% of the first $50,000,000, .500% between
$50,000,000 and $200,000,000, .475% between $200,000,000 and $500,000,000
and .450% on the excess over $500,000,000 of the current value of the net
assets of the Portfolio;
The Subadviser Percentage Fee for each Portfolio 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 Portfolio 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.
6
<PAGE>
NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made this 4th day of January, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Founders Asset Management, Inc., a Delaware Corporation (the "Subadviser").
In consideration 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 Portfolios specified in Appendix A to this Agreement as it shall be
amended by the Adviser and the Subadviser from time to time (the "Portfolios").
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 Portfolios in accordance with the Portfolios'
registration statement, as amended. In fulfilling its obligations to
manage the investments and reinvestments of the assets of the Portfolios,
the Subadviser will:
i. obtain and evaluate pertinent economic, statistical, financial and
other information affecting the individual companies or industries the
securities of which are included in the Portfolios or are under
consideration for inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for each
Portfolio consistent with the investment objectives and related
investment policies for each such Portfolio 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;
iv. regularly report to the Trustees of the Trust with respect to the
implementation of these investment programs; and
v. provide recommendations, in accordance with procedures and methods
established by the Trustees of the Trust, of the fair value of
securities held by the Portfolios for which market quotations are not
readily available for purposes of enabling the Trust's Custodian to
calculate net asset value.
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 Portfolios (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 applicable. The Subadviser is directed at all times to seek to execute
brokerage transactions for the Portfolios 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
<PAGE>
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. The Subadviser will maintain all accounts, books and records with respect
to the Portfolios in connection with the Subadviser's provision of services
under this Agreement as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act of
1940 (the "Investment Company Act") and Investment Advisers Act of 1940
(the "Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its partners or 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 Portfolio 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 partners or
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
negligence in the performance of, or from disregard of, the duties of the
Subadviser or any of its partners or employees.
5. SUPPLEMENTAL AND OTHER 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.
The services of the Subadviser to the Trust are not to be deemed to be
exclusive, the Subadviser and any person controlled by or under common control
with the Subadviser being free to render investment advisory and other services
to any other person or entity.
6. CONFLICTS OF INTEREST
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.
2
<PAGE>
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on the
later of its execution, the effective date of the registration statement of the
Portfolio and the date of the meeting of the shareholders of the Portfolio, 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
Portfolio. 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 Portfolios,
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 Portfolio 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 Portfolio 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 Portfolio affected by the Agreement or (b) all the
portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or any
continuance of the Agreement, the Subadviser will continue to act as investment
subadviser with respect to such Portfolio 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 Portfolio during such
period is in compliance with Rule 15a-4 under the Investment Company Act.
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 Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
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. the managing general partner or controlling partner of the Subadviser or
the portfolio manager of any Portfolio changes.
10. 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 Portfolios 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 Portfolio if a majority of the outstanding voting securities
of that Portfolio 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 Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
3
<PAGE>
11. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
12. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
13. 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.
14. 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.
15. GOVERNING LAW
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.
16. 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.
[SEAL] NASL Financial Services, Inc.
by: _____________________________
William J. Atherton
President
[SEAL] Founders Asset Management, Inc.
by: _____________________________
4
<PAGE>
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolio 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 Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
International Small Cap Fund: .650% of the first $50,000,000, .600%
between $50,000,000 and $200,000,000, .500% between $200,000,000 and
$500,000,000 and .400% on the excess over $500,000,000 of the average daily
value of the net assets of the Portfolio;
Growth Fund: .500% of the first $50,000,000, .450% between $50,000,000 and
$200,000,000, .425% between $200,000,000 and $500,000,000 and .400% on the
excess over $500,000,000 of the average daily value of the net assets of
the Portfolio;
The Subadviser Percentage Fee for each Portfolio shall be accrued for each
calendar day this Agreement is in force 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 Portfolio 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.
5
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of January 1, 1996, by and between North American Funds
(the "Trust"), a Massachusetts business trust which intends to engage in
business as an open-end investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and NASL Financial Services,
Inc. (the "Distributor"), a Massachusetts corporation registered under the
Securities Exchange Act of 1934, as amended, as a broker-dealer.
1. Appointment of Distributor. The Trust hereby appoints the Distributor
--------------------------
as the principal underwriter and exclusive distributor of shares of each series
of shares of beneficial interest of the Trust (the "Shares") and the Distributor
hereby accepts that appointment.
2. Sale of Shares Through Distributor.
----------------------------------
(a) The Trust hereby grants to the Distributor the exclusive right to
sell, as agent for the Trust not as principal, and to arrange for the sale of
Shares upon the terms herein set forth. The exclusive right hereby granted
shall not apply to Shares issued or transferred or sold: ( i) in connection
with the merger or consolidation of any other investment company or personal
holding company with the Trust or one of its portfolio series or the acquisition
by purchase or otherwise of all (or substantially all) the assets or the
outstanding shares of any such company by the Trust or one of its portfolio
series; or (ii) pursuant to reinvestment of dividends or capital gains
distributions; or (iii) pursuant to any reinstatement privilege afforded
redeeming shareholders. It is understood that shares may be purchased directly
through the Trust's transfer and dividend disbursing agent in the manner set
forth in the Trust's prospectus.
(b) The Distributor, either directly or through a promotional agent
selected and compensated by the Distributor, will devote research, time and
effort to effect sales of Shares through dealers, and will assist those dealers
and their associated persons to the extent and in whatever manner the
Distributor deems appropriate in order to enhance the sale of Shares, but the
Distributor does not undertake to arrange for the sale of any specific number of
Shares. Neither the Distributor nor any selected dealer nor any other person is
authorized by the Trust to give any information or to make any representations,
other than those contained in the registration statement or related prospectus
and statement of additional information and
<PAGE>
any sales literature specifically approved by the Trust. The services of the
Distributor to the Trust hereunder are not to be deemed exclusive and nothing
herein contained shall prevent the Distributor from entering into like
arrangements with other investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(c) The Distributor shall have the right, as agent of the Trust, to order
from the Trust the Shares needed, but not more than the Shares needed (except
for reasonable allowances for clerical errors, delays and errors of transmission
and cancellation of orders), to fill unconditional orders for Shares received by
the Distributor from dealers and investors. The price which shall be paid to
the Trust for the Shares so purchased shall be the net asset value, determined
as set forth in Section 2 (e) hereof.
(d) The price at which the Distributor or dealer purchasing shares through
the Distributor may sell shares to the public shall be the public offering price
determined in accordance with the method set forth in the Trust's prospectus and
statement of additional information.
(e) The net asset value of Shares of the Trust shall be determined by the
Trust or any agent of the Trust in accordance with the method set forth in the
prospectus and statement of additional information of the Trust and guidelines
established by the trustees of the Trust (the "Trustees").
(f) The Trust shall have the right to suspend the sale of its Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 8 (c) hereof. The Trust shall also have the right to suspend the sale
of its Shares if a banking moratorium shall have been declared by Federal or
applicable state authorities, or if there shall have been some other event,
which, in the judgment of the Trustees, makes it impracticable or inadvisable to
sell the Shares.
(g) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be advised promptly of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Trust; provided, however,
that the Trust will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Shares. The Trust (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and, upon
2
<PAGE>
receipt by the Trust (or its agent) of payment therefor, will deliver deposit
receipts or certificates for such Shares pursuant to the instructions of the
Distributor.
3. Sales Charges. The Distributor shall have the right to receive the
-------------
sales charges in respect of Shares sold during the term of this Agreement or any
continuation hereof under the circumstances, upon the terms and conditions and
in the amounts set forth in the Trust's prospectus at the time of the sale.
4. Duties of the Trust. The Trust shall:
-------------------
(a) Furnish to the Distributor copies of its prospectus and statement of
additional information, its annual and interim reports, and other information,
financial statements and papers, including one certified copy of all financial
statements prepared for the Trust by independent public accountants, to the
extent reasonably requested by the Distributor for use in connection with the
distribution of Shares of the Trust.
(b) Take, from time to time, any steps necessary to register the Shares
under the Securities Act of 1933 (the "Securities Act"), so that there will be
available for sale as many Shares as the Distributor reasonably may be expected
to sell.
(c) Use its best efforts to qualify and maintain the qualification of an
appropriate number of its Shares for sale under the securities laws of those
states approved by the Distributor and the Trust, and, if necessary or
appropriate in connection therewith, to qualify and maintain the qualification
of the Trust as a broker-dealer in those states; provided that any such
qualification may be terminated or withdrawn by the Trust at any time in its
discretion. The Distributor shall furnish information and other material
relating to its affairs and activities reasonably required by the Trust in
connection with any such qualification(s).
5. Duties of the Distributor. The Distributor shall:
-------------------------
(a) Use its best efforts in all respects duly to conform with the
requirements of all Federal and state laws relating to the sale of the Shares of
the Trust and with all applicable rules and regulations of all regulatory
bodies, including the National Association of Securities Dealers, Inc. (the
"NASD").
(b) Use its best efforts to obtain any approval or clearance required from
the NASD or other regulatory authorities with respect to sales material for the
Trust or any of its portfolio series.
3
<PAGE>
6. Selected Dealer Agreements. The Distributor shall:
--------------------------
(a) Have the right to enter into an agreement with Wood Logan Associates,
Inc. ("WLA") and, jointly with WLA, into selected dealer agreements with
securities dealers of its choice ("selected dealers") for the sale of Shares.
Shares sold to selected dealers shall be for resale by the selected dealers only
at the public offering price determined as set forth in Section 2 (d) hereof.
Any agreement with WLA and the standard form of agreement with selected dealers
pertaining to sales of the Shares shall be approved by the Trustees.
(b) Offer and sell Shares, within the United States, only to selected
dealers that are members in good standing of the NASD.
(c) Act only as principal and not as agent for the Trust in making
agreements with selected dealers.
7. Payment of Expenses.
-------------------
(a) The Trust shall bear all costs and expenses of the Trust, except for
those expenses assumed by any investment adviser or subadviser of the Trust or
any other party contracting with the Trust or by the Distributor pursuant to
Section 7 (b) of this Agreement.
(b) The Distributor shall bear the costs and expenses of: ( i) any
payments made to WLA and to selected dealers; (ii) the printing and distributing
of any copies of prospectuses, statements of additional information and annual
and interim reports to be used in connection with the offering of Shares to
selected dealers or prospective investors pursuant to this Agreement after the
same have been prepared and set in type and copies have been printed and
distributed to regulatory bodies and existing shareholders as deemed necessary;
(iii) preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Shares for sale to the public; (iv) any advertising expenses
incurred by the Distributor in connection with the offering; and (v) the
registration or qualification of the Distributor as a broker-dealer under
federal and state laws and of continuing those registrations or qualifications.
It is understood and agreed that, so long as the Trust's Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act remains in effect, any
expenses incurred by the Distributor in performing or in providing for the
performance of its duties hereunder may be paid from amounts recovered by it
from the Trust under that Plan.
4
<PAGE>
8. Redemption of Shares. Any of the outstanding Shares may be tendered
--------------------
for redemption at any time, and the Trust agrees to redeem the Shares so
tendered in accordance with its obligations as set forth in Article IV of its
Agreement and Declaration of Trust, as amended from time to time, in accordance
with the applicable provisions set forth in the prospectus and statement of
additional information of the Trust, and subject to the following conditions:
(a) The price to be paid to redeem the Shares shall be equal to the net
asset value calculated in accordance with the provisions of Section 2 (e)
hereof.
(b) The Trust shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to receiving the notice of redemption in
proper form.
(c) Redemption of Shares or payment may be suspended at times when the New
York Stock Exchange is closed, when trading on that Exchange is suspended or
restricted, when an emergency exists as a result of which disposal by a
portfolio series of the Trust of its investment securities is not reasonably
practicable or it is not reasonably practicable for a portfolio series of the
Trust fairly to determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by order, so permits.
9. Repurchase of Shares. The Trust hereby authorizes the Distributor to
--------------------
repurchase upon the terms and conditions set forth in the Trust's prospectus and
statement of additional information (as supplemented by written instructions
given by the Trust to the Distributor from time to time), as the Trust's agent
and for the Trust's account, such Shares as may be offered for sale to the Trust
from time to time by holders of those Shares or their agents. No offers for
sale of Shares to the Trust shall be accepted by the Distributor during any time
when the redemption of Shares by the Trust shall have been suspended.
10. Indemnification.
---------------
(a) The Trust shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor, against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of any person
acquiring any Shares, which may be based upon the Securities Act, or on any
5
<PAGE>
other statute or at common law, on the ground that the registration statement or
related prospectus and statement of additional information, as from time to time
amended and supplemented, or an annual or interim report to shareholders of the
Trust, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless that statement or omission was made in
reliance upon, and in conformity with, information furnished to the Trust in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case ( i) is the indemnity of the Trust in favor of the Distributor and/or
its controlling persons to be deemed to protect the Distributor or any
controlling persons thereof against any liability to the Trust or its security
holders to which the Distributor or any of its controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of the reckless
disregard of their obligations and duties under this Agreement; or (ii) is the
Trust to be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or its controlling
persons, unless the Distributor or its controlling persons, as the case may be,
shall have notified the Trust in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor or its controlling persons (or
after the Distributor or its controlling persons shall have received notice of
service on any designated agent), but failure to notify the Trust of any claim
shall not relieve the Trust from any liability which it may have to the person
against whom the action is brought otherwise than on account of the indemnity
agreement contained in this paragraph. The Trust will be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the defense,
of any suit brought to enforce any such liability, but if the Trust elects to
assume the defense, that defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or the Distributor's controlling person or
persons, defendant or defendants in the suit. In the event the Trust elects to
assume the defense of a suit and retain satisfactory counsel, the Distributor or
its controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but, in
case the Trust does not elect to assume the defense of such a suit, it will
reimburse the Distributor or the Distributor's controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Trust shall promptly notify the Distributor of the
6
<PAGE>
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of the Shares.
(b) The Distributor shall indemnify and hold harmless the Trust and each
of its Trustees and officers and each person, if any, who controls the Trust
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section 10, but only with respect
to statements or omissions made in reliance upon, and in conformity with,
information furnished to the Trust by or on behalf of the Distributor for use in
connection with the registration statement or related prospectus and statement
of additional information, as from time to time amended, or the annual or
interim reports to shareholders. In case any action shall be brought against
the Trust or any person so indemnified, in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and duties
given to the Trust, and the Trust and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection (a)
of this Section 10.
11. Continuation, Amendment or Termination of the Agreement.
------------------------------------------------------
(a) This Agreement shall become effective as of the date first written
above and shall continue in full force and effect from year to year so long as
continuance is approved at least annually ( i) by the Trustees or by vote of a
majority of the outstanding voting securities of the Trust and (ii) by vote of a
majority of the Trustees who are not interested persons of the Distributor or of
the Trust cast in person at a meeting called for the purpose of voting on such
approval, provided, however, that (a) this Agreement may at any time be
terminated without the payment of any penalty either by vote of the Trustees or
by vote of a majority of the outstanding voting securities of the Trust, on
sixty (60) days' notice to the Distributor; (b) this Agreement shall immediately
terminate in the event of its assignment; and (c) this Agreement may be
terminated by the Distributor on ninety (90) days' written notice to the Trust.
(b) This Agreement may be amended at any time by mutual consent of the
parties, provided that the consent on the part of the Trust shall have been
approved ( i) by the Trustees or by vote of a majority of the outstanding voting
securities of the Trust and (ii) by vote of a majority of the Trustees who are
not interested persons of the Distributor or of the Trust cast in person at a
meeting called for the purpose of voting on the amendment.
7
<PAGE>
(c) Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed postpaid, to the other party at the principal office of
the other party.
12. Definitions. For the purposes of this Agreement, the terms "vote of a
-----------
majority of the outstanding voting securities," "interested person" and
"assignment" shall have the respective meanings specified in the Investment
Company Act.
13. Agreement and Declaration of Trust. The Agreement and Declaration of
----------------------------------
Trust establishing the Trust, dated September 28, 1988, 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 Security Trust" 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 series thereof, but only the assets belonging to the
Trust, or to the particular portfolio series with which the obligee or claimant
dealt, shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
NORTH AMERICAN FUNDS
By:
---------------------------------
NASL FINANCIAL SERVICES, INC.
By:
---------------------------------
8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this Post-Effective Amendment No. 22 under
the Securities Act of 1933 and Amendment No. 24 under the Investment Company Act
of 1940 to the Trust's Registration Statement Form N-1A (File No. 33-27958) of
our report dated December 22, 1995, on our audits of the financial statements
and financial highlights of the North American Funds as of October 31, 1995 and
1994 and for the years then ended, which are included in the Registration
Statement. We also consent to the reference to our Firm as "Experts" under the
caption "Independent Accountants" in Part A of the Registration Statement.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 011
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 116,849,641
<INVESTMENTS-AT-VALUE> 125,841,142
<RECEIVABLES> 2,033,846
<ASSETS-OTHER> 18,951
<OTHER-ITEMS-ASSETS> 497
<TOTAL-ASSETS> 127,894,436
<PAYABLE-FOR-SECURITIES> 751,067
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,524,398
<TOTAL-LIABILITIES> 2,275,465
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,093,466
<SHARES-COMMON-STOCK> 1,381,954
<SHARES-COMMON-PRIOR> 1,104,310
<ACCUMULATED-NII-CURRENT> 322,091
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,211,913
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,991,501
<NET-ASSETS> 125,618,971
<DIVIDEND-INCOME> 1,548,021
<INTEREST-INCOME> 771,583
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<EXPENSES-NET> 2,038,513
<NET-INVESTMENT-INCOME> 281,091
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<APPREC-INCREASE-CURRENT> 3,234,064
<NET-CHANGE-FROM-OPS> 13,734,263
<EQUALIZATION> 21,466
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 890,547
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,787,050
<NUMBER-OF-SHARES-REDEEMED> 2,575,493
<SHARES-REINVESTED> 66,087
<NET-CHANGE-IN-ASSETS> 33,019,632
<ACCUMULATED-NII-PRIOR> (334,304)
<ACCUMULATED-GAINS-PRIOR> 5,387,276
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 2,318,711
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<PER-SHARE-NAV-BEGIN> 14.78
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 1.83
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<PER-SHARE-NAV-END> 15.94
<EXPENSE-RATIO> 1.34
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 012
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 116,849,641
<INVESTMENTS-AT-VALUE> 125,841,142
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<OTHER-ITEMS-LIABILITIES> 1,524,398
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<PAID-IN-CAPITAL-COMMON> 106,093,466
<SHARES-COMMON-STOCK> 1,254,421
<SHARES-COMMON-PRIOR> 342,170
<ACCUMULATED-NII-CURRENT> 322,091
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<ACCUMULATED-NET-GAINS> 10,211,913
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,991,501
<NET-ASSETS> 125,618,971
<DIVIDEND-INCOME> 1,548,021
<INTEREST-INCOME> 771,583
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<EXPENSES-NET> 2,038,513
<NET-INVESTMENT-INCOME> 281,091
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<NET-CHANGE-FROM-OPS> 13,734,263
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 316,510
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<NUMBER-OF-SHARES-SOLD> 1,105,241
<NUMBER-OF-SHARES-REDEEMED> 215,051
<SHARES-REINVESTED> 22,061
<NET-CHANGE-IN-ASSETS> 33,019,632
<ACCUMULATED-NII-PRIOR> (334,304)
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<GROSS-EXPENSE> 2,318,711
<AVERAGE-NET-ASSETS> 108,695,372
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 013
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> NOV-01-1994
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<INVESTMENTS-AT-COST> 116,849,641
<INVESTMENTS-AT-VALUE> 125,841,142
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<TOTAL-LIABILITIES> 2,275,465
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<PAID-IN-CAPITAL-COMMON> 106,093,466
<SHARES-COMMON-STOCK> 5,284,502
<SHARES-COMMON-PRIOR> 4,821,130
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<ACCUMULATED-NET-GAINS> 10,211,913
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<EXPENSES-NET> 2,038,513
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<APPREC-INCREASE-CURRENT> 3,234,064
<NET-CHANGE-FROM-OPS> 13,734,263
<EQUALIZATION> 21,466
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,831,715
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,959,707
<NUMBER-OF-SHARES-REDEEMED> 1,764,770
<SHARES-REINVESTED> 268,435
<NET-CHANGE-IN-ASSETS> 33,019,632
<ACCUMULATED-NII-PRIOR> (334,304)
<ACCUMULATED-GAINS-PRIOR> 5,387,276
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 758,694
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,318,711
<AVERAGE-NET-ASSETS> 108,695,372
<PER-SHARE-NAV-BEGIN> 14.77
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.84
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<PER-SHARE-DISTRIBUTIONS> .79
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<PER-SHARE-NAV-END> 15.84
<EXPENSE-RATIO> 1.99
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 021
<NAME> U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 125,790,742
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<RECEIVABLES> 1,195,207
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<PAID-IN-CAPITAL-COMMON> 117,172,119
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<SHARES-COMMON-PRIOR> 10,649,175
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<ACCUMULATED-NET-GAINS> (3,350,703)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,926,082
<NET-ASSETS> 115,357,901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,527,776
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<REALIZED-GAINS-CURRENT> 2,016,765
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<EQUALIZATION> (101,581)
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<NUMBER-OF-SHARES-SOLD> 1,084,823
<NUMBER-OF-SHARES-REDEEMED> 4,020,456
<SHARES-REINVESTED> 417,271
<NET-CHANGE-IN-ASSETS> 1,223,378
<ACCUMULATED-NII-PRIOR> 432,979
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<GROSS-EXPENSE> 1,765,074
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 022
<NAME> U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 125,790,742
<INVESTMENTS-AT-VALUE> 127,716,824
<RECEIVABLES> 1,195,207
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<TOTAL-ASSETS> 128,928,163
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<NET-ASSETS> 115,357,901
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<EXPENSES-NET> 1,524,989
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<REALIZED-GAINS-CURRENT> 2,016,765
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<EQUALIZATION> (101,581)
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1,299,105
<NUMBER-OF-SHARES-REDEEMED> 223,531
<SHARES-REINVESTED> 35,827
<NET-CHANGE-IN-ASSETS> 1,223,378
<ACCUMULATED-NII-PRIOR> 432,979
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 661,449
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<AVERAGE-NET-ASSETS> 110,241,456
<PER-SHARE-NAV-BEGIN> 9.45
<PER-SHARE-NII> .56
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<PER-SHARE-NAV-END> 9.98
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 023
<NAME> U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 125,790,742
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<RECEIVABLES> 1,195,207
<ASSETS-OTHER> 15,236
<OTHER-ITEMS-ASSETS> 896
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<OTHER-ITEMS-LIABILITIES> 446,716
<TOTAL-LIABILITIES> 13,570,262
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<PAID-IN-CAPITAL-COMMON> 117,172,119
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<ACCUMULATED-NII-CURRENT> (389,597)
<OVERDISTRIBUTION-NII> 0
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<ACCUM-APPREC-OR-DEPREC> 1,926,082
<NET-ASSETS> 115,357,901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,527,776
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<EXPENSES-NET> 1,524,989
<NET-INVESTMENT-INCOME> 7,002,787
<REALIZED-GAINS-CURRENT> 2,016,765
<APPREC-INCREASE-CURRENT> 4,354,862
<NET-CHANGE-FROM-OPS> 13,374,414
<EQUALIZATION> (101,581)
<DISTRIBUTIONS-OF-INCOME> 1,008,460
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 2,142,383
<NUMBER-OF-SHARES-REDEEMED> 1,346,861
<SHARES-REINVESTED> 87,554
<NET-CHANGE-IN-ASSETS> 1,223,378
<ACCUMULATED-NII-PRIOR> 432,979
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 661,449
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,765,074
<AVERAGE-NET-ASSETS> 110,241,456
<PER-SHARE-NAV-BEGIN> 9.45
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 031
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
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<RECEIVABLES> 2,814,944
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<SHARES-COMMON-PRIOR> 8,498,879
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<NET-ASSETS> 22,337,448
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<OTHER-INCOME> 0
<EXPENSES-NET> 111,595
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<REALIZED-GAINS-CURRENT> 0
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<NET-CHANGE-FROM-OPS> 1,208,891
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 73,826,098
<NUMBER-OF-SHARES-REDEEMED> 71,380,879
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<NET-CHANGE-IN-ASSETS> 1,356,401
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-GAIN-APPREC> 0
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<PER-SHARE-NAV-END> 1.00
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 032
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 19,629,542
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<PAID-IN-CAPITAL-COMMON> 22,337,448
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<SHARES-COMMON-PRIOR> 312,188
<ACCUMULATED-NII-CURRENT> 0
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<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 22,337,448
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 8,873,001
<NUMBER-OF-SHARES-REDEEMED> 7,699,582
<SHARES-REINVESTED> 78,497
<NET-CHANGE-IN-ASSETS> 1,356,401
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-END> 1.00
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 033
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 19,629,542
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<NET-ASSETS> 22,337,448
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,320,486
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<EXPENSES-NET> 111,595
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<NUMBER-OF-SHARES-SOLD> 27,470,721
<NUMBER-OF-SHARES-REDEEMED> 30,838,656
<SHARES-REINVESTED> 592,451
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<GROSS-EXPENSE> 219,434
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 071
<NAME> GLOBAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
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<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 122,944,864
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<DIVIDEND-INCOME> 2,054,763
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<NET-CHANGE-IN-ASSETS> (2,946,148)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIN EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 072
<NAME> GLOBAL GROWTH FUND
<S> <C>
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<ACCUMULATED-NET-GAINS> (3,967,298)
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<NUMBER-OF-SHARES-SOLD> 1,084,531
<NUMBER-OF-SHARES-REDEEMED> 359,266
<SHARES-REINVESTED> 33,028
<NET-CHANGE-IN-ASSETS> (2,946,148)
<ACCUMULATED-NII-PRIOR> (1,092,560)
<ACCUMULATED-GAINS-PRIOR> 4,855,008
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,185,949
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,228,376
<AVERAGE-NET-ASSETS> 131,769,807
<PER-SHARE-NAV-BEGIN> 14.79
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> .53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.73
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 073
<NAME> GLOBAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 122,944,864
<INVESTMENTS-AT-VALUE> 131,095,029
<RECEIVABLES> 1,284,158
<ASSETS-OTHER> 23,661
<OTHER-ITEMS-ASSETS> 27,417,516
<TOTAL-ASSETS> 159,820,364
<PAYABLE-FOR-SECURITIES> 27,539,357
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,729,569
<TOTAL-LIABILITIES> 29,268,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 125,294,264
<SHARES-COMMON-STOCK> 6,069,937
<SHARES-COMMON-PRIOR> 6,858,508
<ACCUMULATED-NII-CURRENT> 1,556,196
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,967,298)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,668,276
<NET-ASSETS> 130,551,438
<DIVIDEND-INCOME> 2,054,763
<INTEREST-INCOME> 287,020
<OTHER-INCOME> 0
<EXPENSES-NET> 3,042,572
<NET-INVESTMENT-INCOME> (700,789)
<REALIZED-GAINS-CURRENT> (1,505,662)
<APPREC-INCREASE-CURRENT> (2,702,533)
<NET-CHANGE-FROM-OPS> (4,908,984)
<EQUALIZATION> (34,561)
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,476,968
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,985,403
<NUMBER-OF-SHARES-REDEEMED> 2,991,542
<SHARES-REINVESTED> 217,568
<NET-CHANGE-IN-ASSETS> (2,946,148)
<ACCUMULATED-NII-PRIOR> (1,092,560)
<ACCUMULATED-GAINS-PRIOR> 4,855,008
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,185,949
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,228,376
<AVERAGE-NET-ASSETS> 131,769,807
<PER-SHARE-NAV-BEGIN> 14.79
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> .53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.73
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 081
<NAME> INVESTMENT QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,416,201
<INVESTMENTS-AT-VALUE> 21,104,353
<RECEIVABLES> 409,081
<ASSETS-OTHER> 10,138
<OTHER-ITEMS-ASSETS> 211
<TOTAL-ASSETS> 21,523,783
<PAYABLE-FOR-SECURITIES> 446,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,867
<TOTAL-LIABILITIES> 501,107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,968,770
<SHARES-COMMON-STOCK> 979,526
<SHARES-COMMON-PRIOR> 1,144,475
<ACCUMULATED-NII-CURRENT> 46,769
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (681,015)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 688,152
<NET-ASSETS> 21,022,676
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,312,109
<OTHER-INCOME> 0
<EXPENSES-NET> 246,434
<NET-INVESTMENT-INCOME> 1,065,675
<REALIZED-GAINS-CURRENT> 24,835
<APPREC-INCREASE-CURRENT> 1,318,370
<NET-CHANGE-FROM-OPS> 2,408,880
<EQUALIZATION> 20,893
<DISTRIBUTIONS-OF-INCOME> 701,998
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 218,517
<NUMBER-OF-SHARES-REDEEMED> 439,949
<SHARES-REINVESTED> 56,483
<NET-CHANGE-IN-ASSETS> 6,977,166
<ACCUMULATED-NII-PRIOR> 46,444
<ACCUMULATED-GAINS-PRIOR> (711,392)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,260
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 336,040
<AVERAGE-NET-ASSETS> 16,543,380
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> .68
<PER-SHARE-GAIN-APPREC> .82
<PER-SHARE-DIVIDEND> .68
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 082
<NAME> INVESTMENT QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,416,201
<INVESTMENTS-AT-VALUE> 21,104,353
<RECEIVABLES> 409,081
<ASSETS-OTHER> 10,138
<OTHER-ITEMS-ASSETS> 211
<TOTAL-ASSETS> 21,523,783
<PAYABLE-FOR-SECURITIES> 446,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,867
<TOTAL-LIABILITIES> 501,107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,968,770
<SHARES-COMMON-STOCK> 328,970
<SHARES-COMMON-PRIOR> 50,263
<ACCUMULATED-NII-CURRENT> 46,769
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (681,015)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 688,152
<NET-ASSETS> 21,022,676
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,312,109
<OTHER-INCOME> 0
<EXPENSES-NET> 246,434
<NET-INVESTMENT-INCOME> 1,065,675
<REALIZED-GAINS-CURRENT> 24,835
<APPREC-INCREASE-CURRENT> 1,318,370
<NET-CHANGE-FROM-OPS> 2,408,880
<EQUALIZATION> 20,893
<DISTRIBUTIONS-OF-INCOME> 110,088
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 303,991
<NUMBER-OF-SHARES-REDEEMED> 34,335
<SHARES-REINVESTED> 9,051
<NET-CHANGE-IN-ASSETS> 6,977,166
<ACCUMULATED-NII-PRIOR> 46,444
<ACCUMULATED-GAINS-PRIOR> (711,392)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,260
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 336,040
<AVERAGE-NET-ASSETS> 16,543,380
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> .82
<PER-SHARE-DIVIDEND> .62
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 083
<NAME> INVESTMENT QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,416,201
<INVESTMENTS-AT-VALUE> 21,104,353
<RECEIVABLES> 409,081
<ASSETS-OTHER> 10,138
<OTHER-ITEMS-ASSETS> 211
<TOTAL-ASSETS> 21,523,783
<PAYABLE-FOR-SECURITIES> 446,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,867
<TOTAL-LIABILITIES> 501,107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,968,770
<SHARES-COMMON-STOCK> 683,013
<SHARES-COMMON-PRIOR> 247,124
<ACCUMULATED-NII-CURRENT> 46,769
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (681,015)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 688,152
<NET-ASSETS> 21,022,676
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,312,109
<OTHER-INCOME> 0
<EXPENSES-NET> 246,434
<NET-INVESTMENT-INCOME> 1,065,675
<REALIZED-GAINS-CURRENT> 24,835
<APPREC-INCREASE-CURRENT> 1,318,370
<NET-CHANGE-FROM-OPS> 2,408,880
<EQUALIZATION> 20,893
<DISTRIBUTIONS-OF-INCOME> 255,000
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 621,445
<NUMBER-OF-SHARES-REDEEMED> 208,994
<SHARES-REINVESTED> 23,438
<NET-CHANGE-IN-ASSETS> 6,977,166
<ACCUMULATED-NII-PRIOR> 46,444
<ACCUMULATED-GAINS-PRIOR> (711,392)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,260
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 336,040
<AVERAGE-NET-ASSETS> 16,543,380
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> .82
<PER-SHARE-DIVIDEND> .62
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 091
<NAME> GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 81,665,582
<INVESTMENTS-AT-VALUE> 95,030,308
<RECEIVABLES> 1,864,904
<ASSETS-OTHER> 20,783
<OTHER-ITEMS-ASSETS> 2,382
<TOTAL-ASSETS> 96,918,377
<PAYABLE-FOR-SECURITIES> 2,252,941
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 279,926
<TOTAL-LIABILITIES> 2,532,867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,752,763
<SHARES-COMMON-STOCK> 827,682
<SHARES-COMMON-PRIOR> 621,205
<ACCUMULATED-NII-CURRENT> 452,599
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 815,808
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,364,340
<NET-ASSETS> 94,385,510
<DIVIDEND-INCOME> 2,111,938
<INTEREST-INCOME> 269,878
<OTHER-INCOME> 0
<EXPENSES-NET> 1,403,921
<NET-INVESTMENT-INCOME> 977,895
<REALIZED-GAINS-CURRENT> 819,125
<APPREC-INCREASE-CURRENT> 9,980,460
<NET-CHANGE-FROM-OPS> 11,777,480
<EQUALIZATION> 83,756
<DISTRIBUTIONS-OF-INCOME> 161,680
<DISTRIBUTIONS-OF-GAINS> 128,810
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 450,698
<NUMBER-OF-SHARES-REDEEMED> 271,667
<SHARES-REINVESTED> 27,446
<NET-CHANGE-IN-ASSETS> 36,288,457
<ACCUMULATED-NII-PRIOR> 224,303
<ACCUMULATED-GAINS-PRIOR> 1,402,129
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 521,769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,614,813
<AVERAGE-NET-ASSETS> 73,595,355
<PER-SHARE-NAV-BEGIN> 13.09
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> .23
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.72
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 092
<NAME> GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 81,665,582
<INVESTMENTS-AT-VALUE> 95,030,308
<RECEIVABLES> 1,864,904
<ASSETS-OTHER> 20,783
<OTHER-ITEMS-ASSETS> 2,382
<TOTAL-ASSETS> 96,918,377
<PAYABLE-FOR-SECURITIES> 2,252,941
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 279,926
<TOTAL-LIABILITIES> 2,532,867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,752,763
<SHARES-COMMON-STOCK> 1,297,356
<SHARES-COMMON-PRIOR> 297,011
<ACCUMULATED-NII-CURRENT> 452,599
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 815,808
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,364,340
<NET-ASSETS> 94,385,510
<DIVIDEND-INCOME> 2,111,938
<INTEREST-INCOME> 269,878
<OTHER-INCOME> 0
<EXPENSES-NET> 1,403,921
<NET-INVESTMENT-INCOME> 977,895
<REALIZED-GAINS-CURRENT> 819,125
<APPREC-INCREASE-CURRENT> 9,980,460
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<EQUALIZATION> 83,756
<DISTRIBUTIONS-OF-INCOME> 104,194
<DISTRIBUTIONS-OF-GAINS> 109,460
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,059,205
<NUMBER-OF-SHARES-REDEEMED> 74,117
<SHARES-REINVESTED> 15,257
<NET-CHANGE-IN-ASSETS> 36,288,457
<ACCUMULATED-NII-PRIOR> 224,303
<ACCUMULATED-GAINS-PRIOR> 1,402,129
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 521,769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,614,813
<AVERAGE-NET-ASSETS> 73,595,355
<PER-SHARE-NAV-BEGIN> 13.08
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> .19
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.69
<EXPENSE-RATIO> 1.99
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 093
<NAME> GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 81,665,582
<INVESTMENTS-AT-VALUE> 95,030,308
<RECEIVABLES> 1,864,904
<ASSETS-OTHER> 20,783
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<ACCUM-APPREC-OR-DEPREC> 13,364,340
<NET-ASSETS> 94,385,510
<DIVIDEND-INCOME> 2,111,938
<INTEREST-INCOME> 269,878
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<EXPENSES-NET> 1,403,921
<NET-INVESTMENT-INCOME> 977,895
<REALIZED-GAINS-CURRENT> 819,125
<APPREC-INCREASE-CURRENT> 9,980,460
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<EQUALIZATION> 83,756
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<DISTRIBUTIONS-OF-GAINS> 1,148,241
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,620,500
<NUMBER-OF-SHARES-REDEEMED> 969,569
<SHARES-REINVESTED> 119,698
<NET-CHANGE-IN-ASSETS> 36,288,457
<ACCUMULATED-NII-PRIOR> 224,303
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<GROSS-ADVISORY-FEES> 521,769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,614,813
<AVERAGE-NET-ASSETS> 73,595,355
<PER-SHARE-NAV-BEGIN> 13.08
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> .15
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.71
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 101
<NAME> ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 102,258,371
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<RECEIVABLES> 10,658,608
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<PAYABLE-FOR-SECURITIES> 20,130,484
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,693
<TOTAL-LIABILITIES> 20,318,177
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,138,034
<SHARES-COMMON-STOCK> 834,714
<SHARES-COMMON-PRIOR> 703,762
<ACCUMULATED-NII-CURRENT> 2,141,058
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,339,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,915,224
<NET-ASSETS> 100,533,843
<DIVIDEND-INCOME> 1,081,735
<INTEREST-INCOME> 3,576,675
<OTHER-INCOME> 0
<EXPENSES-NET> 1,900,641
<NET-INVESTMENT-INCOME> 2,757,769
<REALIZED-GAINS-CURRENT> 6,532,109
<APPREC-INCREASE-CURRENT> 5,534,988
<NET-CHANGE-FROM-OPS> 14,824,866
<EQUALIZATION> (54,967)
<DISTRIBUTIONS-OF-INCOME> 235,768
<DISTRIBUTIONS-OF-GAINS> 362,509
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 395,929
<NUMBER-OF-SHARES-REDEEMED> 323,788
<SHARES-REINVESTED> 58,811
<NET-CHANGE-IN-ASSETS> 1,040,911
<ACCUMULATED-NII-PRIOR> 1,629,773
<ACCUMULATED-GAINS-PRIOR> 4,386,346
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 687,562
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,165,438
<AVERAGE-NET-ASSETS> 98,157,282
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> 1.35
<PER-SHARE-DIVIDEND> .32
<PER-SHARE-DISTRIBUTIONS> .52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.02
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 102
<NAME> ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 102,258,371
<INVESTMENTS-AT-VALUE> 110,177,967
<RECEIVABLES> 10,658,608
<ASSETS-OTHER> 15,240
<OTHER-ITEMS-ASSETS> 205
<TOTAL-ASSETS> 120,852,020
<PAYABLE-FOR-SECURITIES> 20,130,484
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,693
<TOTAL-LIABILITIES> 20,318,177
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,138,034
<SHARES-COMMON-STOCK> 824,443
<SHARES-COMMON-PRIOR> 428,233
<ACCUMULATED-NII-CURRENT> 2,141,058
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,339,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,915,224
<NET-ASSETS> 100,533,843
<DIVIDEND-INCOME> 1,081,735
<INTEREST-INCOME> 3,576,675
<OTHER-INCOME> 0
<EXPENSES-NET> 1,900,641
<NET-INVESTMENT-INCOME> 2,757,769
<REALIZED-GAINS-CURRENT> 6,532,109
<APPREC-INCREASE-CURRENT> 5,534,988
<NET-CHANGE-FROM-OPS> 14,824,866
<EQUALIZATION> (54,967)
<DISTRIBUTIONS-OF-INCOME> 110,719
<DISTRIBUTIONS-OF-GAINS> 237,460
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 553,227
<NUMBER-OF-SHARES-REDEEMED> 189,119
<SHARES-REINVESTED> 32,102
<NET-CHANGE-IN-ASSETS> 1,040,911
<ACCUMULATED-NII-PRIOR> 1,629,773
<ACCUMULATED-GAINS-PRIOR> 4,386,346
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 687,562
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,165,438
<AVERAGE-NET-ASSETS> 98,157,282
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> 1.36
<PER-SHARE-DIVIDEND> .28
<PER-SHARE-DISTRIBUTIONS> .52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.98
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 103
<NAME> ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 102,258,371
<INVESTMENTS-AT-VALUE> 110,177,967
<RECEIVABLES> 10,658,608
<ASSETS-OTHER> 15,240
<OTHER-ITEMS-ASSETS> 205
<TOTAL-ASSETS> 120,852,020
<PAYABLE-FOR-SECURITIES> 20,130,484
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,693
<TOTAL-LIABILITIES> 20,318,177
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,138,034
<SHARES-COMMON-STOCK> 6,706,025
<SHARES-COMMON-PRIOR> 7,817,975
<ACCUMULATED-NII-CURRENT> 2,141,058
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,339,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,915,224
<NET-ASSETS> 100,533,843
<DIVIDEND-INCOME> 1,081,735
<INTEREST-INCOME> 3,576,675
<OTHER-INCOME> 0
<EXPENSES-NET> 1,900,641
<NET-INVESTMENT-INCOME> 2,757,769
<REALIZED-GAINS-CURRENT> 6,532,109
<APPREC-INCREASE-CURRENT> 5,534,988
<NET-CHANGE-FROM-OPS> 14,824,866
<EQUALIZATION> (54,967)
<DISTRIBUTIONS-OF-INCOME> 1,850,266
<DISTRIBUTIONS-OF-GAINS> 3,967,004
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 679,384
<NUMBER-OF-SHARES-REDEEMED> 2,325,312
<SHARES-REINVESTED> 533,978
<NET-CHANGE-IN-ASSETS> 1,040,911
<ACCUMULATED-NII-PRIOR> 1,629,773
<ACCUMULATED-GAINS-PRIOR> 4,386,346
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 687,562
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,165,438
<AVERAGE-NET-ASSETS> 98,157,282
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> 1.35
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.02
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 111
<NAME> NATIONAL MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,319,090
<INVESTMENTS-AT-VALUE> 20,716,170
<RECEIVABLES> 550,804
<ASSETS-OTHER> 24,249
<OTHER-ITEMS-ASSETS> 73,291
<TOTAL-ASSETS> 21,364,514
<PAYABLE-FOR-SECURITIES> 974,950
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,429
<TOTAL-LIABILITIES> 1,036,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,404,071
<SHARES-COMMON-STOCK> 791,917
<SHARES-COMMON-PRIOR> 869,228
<ACCUMULATED-NII-CURRENT> (572)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (472,444)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 397,080
<NET-ASSETS> 20,328,135
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,001,625
<OTHER-INCOME> 0
<EXPENSES-NET> 199,864
<NET-INVESTMENT-INCOME> 801,761
<REALIZED-GAINS-CURRENT> (451,322)
<APPREC-INCREASE-CURRENT> 1,830,370
<NET-CHANGE-FROM-OPS> 2,180,809
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 429,394
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 233,842
<NUMBER-OF-SHARES-REDEEMED> 338,547
<SHARES-REINVESTED> 27,394
<NET-CHANGE-IN-ASSETS> 8,718,563
<ACCUMULATED-NII-PRIOR> (721)
<ACCUMULATED-GAINS-PRIOR> (20,955)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 308,986
<AVERAGE-NET-ASSETS> 16,049,794
<PER-SHARE-NAV-BEGIN> 8.82
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .80
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 112
<NAME> NATIONAL MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,319,090
<INVESTMENTS-AT-VALUE> 20,716,170
<RECEIVABLES> 550,804
<ASSETS-OTHER> 24,249
<OTHER-ITEMS-ASSETS> 73,291
<TOTAL-ASSETS> 21,364,514
<PAYABLE-FOR-SECURITIES> 974,950
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,429
<TOTAL-LIABILITIES> 1,036,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,404,071
<SHARES-COMMON-STOCK> 610,972
<SHARES-COMMON-PRIOR> 231,085
<ACCUMULATED-NII-CURRENT> (572)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (472,444)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 397,080
<NET-ASSETS> 20,328,135
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,001,625
<OTHER-INCOME> 0
<EXPENSES-NET> 199,864
<NET-INVESTMENT-INCOME> 801,761
<REALIZED-GAINS-CURRENT> (451,322)
<APPREC-INCREASE-CURRENT> 1,830,370
<NET-CHANGE-FROM-OPS> 2,180,809
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 188,030
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 455,386
<NUMBER-OF-SHARES-REDEEMED> 88,583
<SHARES-REINVESTED> 13,084
<NET-CHANGE-IN-ASSETS> 8,718,563
<ACCUMULATED-NII-PRIOR> (721)
<ACCUMULATED-GAINS-PRIOR> (20,955)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 308,986
<AVERAGE-NET-ASSETS> 16,049,794
<PER-SHARE-NAV-BEGIN> 8.81
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .81
<PER-SHARE-DIVIDEND> .43
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 113
<NAME> NATIONAL MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,319,090
<INVESTMENTS-AT-VALUE> 20,716,170
<RECEIVABLES> 550,804
<ASSETS-OTHER> 24,249
<OTHER-ITEMS-ASSETS> 73,291
<TOTAL-ASSETS> 21,364,514
<PAYABLE-FOR-SECURITIES> 974,950
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,429
<TOTAL-LIABILITIES> 1,036,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,404,071
<SHARES-COMMON-STOCK> 710,507
<SHARES-COMMON-PRIOR> 216,811
<ACCUMULATED-NII-CURRENT> (572)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (472,444)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 397,080
<NET-ASSETS> 20,328,135
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,001,625
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<EXPENSES-NET> 199,864
<NET-INVESTMENT-INCOME> 801,761
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 184,416
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 668,235
<NUMBER-OF-SHARES-REDEEMED> 189,643
<SHARES-REINVESTED> 15,104
<NET-CHANGE-IN-ASSETS> 8,718,563
<ACCUMULATED-NII-PRIOR> (721)
<ACCUMULATED-GAINS-PRIOR> (20,955)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 308,986
<AVERAGE-NET-ASSETS> 16,049,794
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<PER-SHARE-NII> .43
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<PER-SHARE-NAV-END> 9.62
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 131
<NAME> STRATEGIC INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 49,213,038
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<ACCUMULATED-NET-GAINS> (400,335)
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<NUMBER-OF-SHARES-SOLD> 259,399
<NUMBER-OF-SHARES-REDEEMED> 968,677
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<NET-CHANGE-IN-ASSETS> 15,599,853
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<GROSS-ADVISORY-FEES> 265,680
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<GROSS-EXPENSE> 758,914
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<PER-SHARE-NII> .78
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<PER-SHARE-NAV-END> 9.07
<EXPENSE-RATIO> 1.07
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 132
<NAME> STRATEGIC INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
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<NET-INVESTMENT-INCOME> 2,960,238
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</TABLE>
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<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 133
<NAME> STRATEGIC INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
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<NUMBER-OF-SHARES-SOLD> 1,202,918
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 141
<NAME> INTERNATIONAL GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31,1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 142
<NAME> INTERNATIONAL GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
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<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH
AMERICAN FUNDS ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000848103
<NAME> NORTH AMERICAN FUNDS
<SERIES>
<NUMBER> 143
<NAME> INTERNATIONAL GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
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</TABLE>
