<PAGE>
Prospectus 2000
[GRAPHIC] [NORTH AMERICAN FUNDS]
Institutional Class I Shares
Institutional Class II Shares
International Small Cap Fund Core Bond Fund
International Equity Fund U.S. Government Securities Fund
Global Equity Fund Money Market Fund
Small Cap Growth Fund Mid Cap Value Fund
Mid Cap Growth Fund Stock Index Fund
Large Cap Growth Fund Small Cap Index Fund
Growth & Income Fund Socially Responsible Fund
Science & Technology Fund High Yield Bond Fund
Balanced Fund Aggressive Growth LifeStyle Fund
Strategic Income Fund Moderate Growth LifeStyle Fund
Conservative Growth LifeStyle Fund
The Securities and Exchange Commission has not approved or disapproved of these
securities or passed on the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
May 31, 2000
<PAGE>
[LOGO]
Table of Contents
Organization of Information
This Prospectus includes information about 21 different Funds.
.Section I of the Prospectus includes summaries of each Fund.
.Section II includes additional information about the Funds' investment
strategies, additional risk information and information about the Funds'
management.
.Section III of the Prospectus includes information about how to invest
and manage your North American Funds account.
<TABLE>
<S> <C>
Section I: Summaries of the Funds............. Page 1
Summary of each Fund
.Investment Objective
.Principal Investment Strategies
.Main Investing Risks
.Investment Performance
.Descriptions of Main Investment Risks
Section II: Other Information about each Page 28
Fund..........................................
.Fees and Expenses
.More Information About Investment
Strategies and Risks
.Other Risks of Investing
.Fund Management
Section III: Investing in the Funds........... Page 49
</TABLE>
This section includes the information you need about how to invest and how to
redeem shares. It also includes other important information about sales
charges, taxes and account privileges.
More Information
If you'd like information additional to that included in this Prospectus, the
back cover lists a number of places to call or to visit for additional materi-
als.
<PAGE>
Section I:
Fund Summaries
North American Funds (the "Trust") is a group of mutual funds that includes 25
separate investment portfolios, or "Funds." Each Fund also has a specific,
unique investment objective. Each Fund has a subadvisor, a firm responsible for
making investment decisions for the Fund. This Prospectus includes information
about Institutional Class I shares and Institutional Class II shares for 21 of
the Funds.
The summaries on the next 21 pages describe each Fund's investment objective
and principal investment strategies, list the main risks of investing in the
Fund, and show the Fund's past investment performance. Explanations of the main
risks of investing in each Fund starts on page 23.
Below certain of the Funds' descriptions are a bar chart and a table. Funds
without a bar chart or table are new Funds which have operated for less than
one year.
The bar chart shows how the investment returns of one class of each Fund's
shares have varied in the past ten years, or in the years since the Fund began
if it is less than ten years old. The class shown in the bar chart (either
Class A shares or Class C shares, depending on the Fund) is not offered by this
Prospectus, but the performance would have been substantially similar for
Institutional Class I or Institutional Class II shares of the same fund,
differing only to the extent that the classes have different expenses. The bar
chart does not reflect sales charges; if it did, performance would be less than
shown.
The table (the Average Annual Total Return Table) following each bar chart
shows how that Fund's average annual returns for each class of shares for the
last one, five and ten years (or since the Fund began, for newer Funds)
compared to returns of a broad-based securities market index. The table
reflects sales charges, including the maximum initial sales charge for Class A
shares, and the maximum applicable deferred sales charge for Class C shares.
Like the bar chart, the Average Annual Total Return Table shows performance
information for either Class A shares or Class C shares, depending on the Fund,
neither of which are offered by this Prospectus.
A Fund's bar chart and Average Annual Total Return Table provides an indication
of the historical risk/return of an investment in the Fund.
It is important to remember that past performance does not predict future
performance, and that as with any investment, it is possible for investors to
lose money by investing in the Funds. An investment in any of the Funds is not
a deposit in a bank and is not insured by the Federal Deposit Insurance
Corporation or any other government agency.
------
1
<PAGE>
International Small Cap Fund
Investment Goal and Strategies
The investment objective of the International Small Cap Fund is to seek capital
appreciation. To achieve this objective, Founders Asset Management, LLC
("Founders"), the Fund's subadvisor, invests primarily in equity securities
issued by foreign companies with market capitalization or annual revenue of $1
billion or less.
These companies are located in both established and emerging economies
throughout the world. Founders selects securities based on its evaluation of
their potential to offer capital appreciation opportunities. Small companies
are still in the developing stages of their life cycles and may have limited
product lines, markets or financial resources and/or lack management depth.
The Fund may invest in derivatives.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks associated with invest-
ing in smaller companies)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1997 -0.36%
1998 10.18%
1999 94.45%
Best quarter: quarter ended 12/31/99 64.58%
Worst quarter: quarter ended 9/30/98 -20.28%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Life of Fund
(since 2/20/96)
------------------------------------------------------
<S> <C> <C>
Class A 83.27% 23.09%
------------------------------------------------------
MSCI WORLD ex-U.S. 27.93% 13.18%
Index
</TABLE>
--------------------------------------------------------------------------------
------
2
<PAGE>
International Equity Fund
Investment Goal and Strategies
The investment objective of the International Equity Fund is to seek long-term
capital appreciation. Morgan Stanley Asset Management ("MSAM"), the Fund's
subadvisor, pursues this objective by investing primarily in accordance with
country and sector weightings determined by MSAM in equity securities of non-
U.S. issuers which, in the aggregate, replicate broad market indices.
MSAM seeks to maintain a diversified portfolio of international equity securi-
ties based on a top-down approach that emphasizes country and sector selection
and weighting rather than individual stock selection. MSAM capitalizes on the
significance of country and sector selection in international equity portfolio
returns by over- and underweighting countries based on three factors: (i) valu-
ation, (ii) fundamental change, and (iii) market momentum/technicals.
The Fund may use various instruments that derive their values from those of
specified securities, indices, currencies or other points of reference for both
hedging and non-hedging purposes. Derivatives may include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation). In
particular, the Fund may, but is not required to, buy or sell foreign curren-
cies and options and futures contracts on foreign currencies for hedging pur-
poses in connection with its foreign investments.
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1996 12.12%
1997 -0.47%
1998 8.19%
1999 28.29%
Best quarter: quarter ended 12/21/98 20.89%
Worst quarter: quarter ended 9/30/98 -20.56%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Life of Fund
(since 1/9/95)
------------------------------------------------------
<S> <C> <C>
Class A 20.91% 9.55%
------------------------------------------------------
MSCI All Country World 30.91% 12.38%
EX-US Index
------------------------------------------------------
MSCI EAFE Index 26.96% 12.83%
</TABLE>
--------------------------------------------------------------------------------
------
3
<PAGE>
Global Equity Fund
Investment Goal and Strategies
The investment objective of the Global Equity Fund is long-term capital appre-
ciation. To achieve this objective, Founders Asset Management, LLC ("Found-
ers"), the Fund's subadvisor, invests in a globally diversified portfolio of
equity securities.
The Fund normally invests at least 65% of total assets in equity securities of
growth companies in a variety of markets throughout the world. The Fund may
purchase securities in any foreign country, as well as the United States, and
emphasizes common stocks of both emerging and established growth companies that
generally have proven performance records and strong market positions. The
Fund's portfolio will always invest at least 65% of its total assets in three
or more countries. The Fund will not invest more than 50% of its total assets
in the securities of any one foreign country.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks associated with invest-
ments in growth stocks)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for C shares
Annual Total Return
1991 11.34%
1992 -2.87%
1993 29.56%
1994 1.20%
1995 6.43%
1996 10.71%
1997 19.98%
1998 10.59%
1999 2.33%
Best quarter: quarter ended 12/31/98 15.23%
Worst quarter: quarter ended 9/30/98 -14.52%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past Past Life of Fund
One Year Five Years (since 11/1/90)
---------------------------------------------------------
<S> <C> <C> <C>
Class C 1.33% 9.85% 9.37%
---------------------------------------------------------
MSCI WORLD Index 24.93% 19.76% 14.88%
</TABLE>
--------------------------------------------------------------------------------
------
4
<PAGE>
Small Cap Growth Fund
Investment Goal and Strategies
The investment objective of the Small Cap Growth Fund is maximum capital
appreciation. Credit Suisse Asset Management, LLC ("CSAM"), the Fund's
subadvisor, pursues this objective by investing primarily in equity securities
of U.S. companies. The focus of the Fund is emerging growth companies, which
often are small or medium-size companies (those with market capitalizations of
$250 million to $4 billion, with growth characteristics such as positive earn-
ings and potential for accelerated growth.
The Fund may also invest in high-quality bonds, and, to a certain extent, in
foreign securities.
The Fund is not "diversified," which means that it may invest in
a relatively small number of
issuers of securities, and its value may be affected very significantly by the
change in value of a single security.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor
their obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks associated with
investing in smaller companies)
.Foreign Investment Risk (the risk that the value of the Fund's foreign
investments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities
will decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regu-
lar basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Non-Diversification Risk (the risk that investing in a smaller number of
securities increases investment risks)
The bar chart and table
provide an indication
of risk by showing the
variability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1999 73.13%
Best quarter: quarter ended 12/31/99 45.94%
Worst quarter: quarter ended
-------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Life of Fund
(since 1/6/98)
---------------------------------------------------
<S> <C> <C>
Class A 63.18% 28.58%
---------------------------------------------------
Russell 2000 Growth 43.09% 20.35%
</TABLE>
-------------------------------------------------------------------------------
------
5
<PAGE>
Mid Cap Growth Fund
Investment Goal and Strategies
The investment objective of the Mid Cap Growth Fund is to seek long term capi-
tal appreciation. INVESCO Funds Group, Inc. ("INVESCO"), the Fund's subadvisor,
invests primarily in common stocks of mid-sized companies--those with market
capitalizations ranging from approximately $2 billion to $15 billion at the
time of purchase--but also has the flexibility to invest in other types of
securities including preferred stocks, convertible securities and bonds. The
core of the Fund's portfolio will be invested in securities of established com-
panies that are leaders in attractive growth markets with a history of strong
returns. The remainder of the portfolio will be invested in securities of com-
panies that show accelerating growth, driven by product cycles, favorable
industry or sector conditions and other factors that the subadviser believes
will lead to rapid sales or earnings growth. The Fund's strategy relies on many
short-term factors including current information about a company, investor
interest, price movements of a company's securities and general market and mon-
etary conditions. Consequently, the Fund's investments will usually be bought
and sold frequently, which may cause the Fund to incur higher trading costs
and/or to have a relatively high amount of short-term capital gains, which are
generally taxable to you at your ordinary income tax rate.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks associated with invest-
ing in smaller companies)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and table
provide an indication
of risk by showing the
variability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1997 15.89%
1998 29.65%
1999 32.20%
Best quarter: quarter ended 12/31/99 30.15%
Worst quarter: quarter ended 9/30/98 -16.39%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Life of Fund
(since 3/4/96)
--------------------------------------------------
<S> <C> <C>
Class A 24.60% 19.33%
--------------------------------------------------
S&P MidCap 14.72% 20.64%
400 Index
--------------------------------------------------
Russell 2000 Index 21.26% 13.70%
</TABLE>
--------------------------------------------------------------------------------
------
6
<PAGE>
Large Cap Growth Fund
Investment Goal and Strategies
The investment objective of the Large Cap Growth Fund is to seek long-term cap-
ital growth. To achieve this goal, Founders Asset Management LLC ("Founders"),
the Fund's subadvisor, invests at least 65% of the Fund's total assets in the
common stocks of well-established, high-quality growth companies whose earnings
are expected by Founders to increase faster than the market average. High qual-
ity companies are companies that Founders believe have solid balance sheets,
strong management teams, consistent earnings growth and market leadership in
their industry.
The Fund may invest in other types of equity securities, such as preferred
stocks and convertible securities, that offer opportunities for capital appre-
ciation. The Fund may also invest in high-quality bonds. The Fund may invest up
to 100% of its total assets in American Depositary Receipts (ADRs) and up to
30% of its total assets in foreign securities (other than ADRs). The Fund may
not invest more than 25% of its total assets in any one foreign
country.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks associated with growth
stocks)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1997 25.37%
1998 25.13%
1999 38.37%
Best quarter: quarter ended 12/31/99 31.53%
Worst quarter: quarter ended 9/30/98 -13.75%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Life of Fund
(since 3/4/96)
---------------------------------------
<S> <C> <C>
Class A 30.42% 24.39%
---------------------------------------
S&P 500
Index 21.04% 26.26%
</TABLE>
--------------------------------------------------------------------------------
------
7
<PAGE>
Growth & Income Fund
Investment Goal and Strategies
The investment objective of the Growth & Income Fund is to provide long-term
growth of capital and income consistent with prudent investment risk. Welling-
ton Management Company, LLP ("Wellington"), the Fund's subadvisor, pursues
this objective by investing mostly in a diversified portfolio of common stocks
of U.S. issuers that Wellington believes are of high quality. High quality
companies are companies that Wellington believes have solid balance sheets,
strong management teams, consistent earnings growth and market leadership in
their industry. The Fund will typically invest in dividend-paying stocks of
larger companies. The Fund may invest up to 20% of its total assets in foreign
securities.
To select stocks for the Fund, Wellington assesses a company and its business
environment, management, balance sheet, income statement, anticipated earnings
and dividends, and other related measures of fundamental value. Wellington
will also monitor and evaluate the economic and political climate and the
principal securities markets of the country in which each company is located.
Main Investing Risks
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks associated with value
stocks and the risk that the stocks the Fund buys may stop paying dividends)
.Foreign Investment Risk (the risk that the value of the Fund's foreign
investments will decline as a result of foreign political, social or economic
changes)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and table
provide an indication
of risk by showing the
vari- ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for C shares
Annual Total Return
1992 8.29%
1993 9.20%
1994 2.11%
1995 26.78%
1996 20.90%
1997 31.64%
1998 25.39%
1999 16.74%
Best quarter: quarter ended 12/31/98 20.07%
Worst quarter: quarter ended 9/30/98 -9.81%
-------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Past Five Years Life of Fund
(since 5/1/91)
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class C 15.74% 24.18% 17.17%
------------------------------------------------------------------------------------------
S&P 500
Index 21.04% 28.54% 19.80%
</TABLE>
-------------------------------------------------------------------------------
------
8
<PAGE>
Science & Technology Fund
Investment Goal and Strategies
The objective of the Science & Technology Fund is long-term growth of capital.
The Fund's subadvisor, T. Rowe Price Associates, Inc., pursues this objective
by investing at least 65% of the Fund's assets in the common stocks and equity-
related securities of companies that are expected to benefit from scientific
breakthroughs and advancements in technology. Some of the industries that are
likely to be included in the portfolio are:
.Chemicals and synthetic materials, including pharmaceuticals
.Computers, including hardware and software
.Defense and aerospace
.E-Commerce
.Electronics, including hardware, software and components
.Media and information services
.Telecommunications
Stock selection reflects a growth approach and is based on intensive research
that assesses a company's fundamental prospects for above average earnings.
Holdings can range from small companies developing new technologies to blue
chip firms with established track records of developing and marketing technolo-
gy. Investments may also include companies that are expected to benefit from
technological advances even if they are not directly involved in research and
development.
The Fund may invest up to 30% of its assets in foreign securities, including
American Depositary Receipts ("ADRs") and other dollar-denominated foreign
securities. The Fund may invest up to 25% in other equity-related securities of
science and technology companies, including convertible debt securities and
convertible preferred stock. In addition, the Fund may invest in money market
securities in order to have cash available for redemptions.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Science & Technology Company Risk (the risk that the prices of science and
technology companies will be particularly volatile)
------
9
<PAGE>
Balanced Fund
Investment Goal and Strategies
The investment objective of the Balanced Fund is current income and capital
appreciation. To achieve this goal, INVESCO Funds Group, Inc. ("INVESCO"), the
Fund's subadvisor, invests in a combination of common stocks and fixed-income
securities, including preferred stocks, convertible securities and bonds. The
Fund normally invests the majority of its total assets in U.S. and foreign com-
mon stocks and approximately 25% of its assets in investment grade debt securi-
ties. The portion of the Fund's portfolio invested in equity securities empha-
sizes companies INVESCO believes to have better-than-average earnings growth
potential, as well as companies within industries that INVESCO believes are
well-positioned for the current and expected economic climate. Since current
income is a component of total return, INVESCO also considers companies' divi-
dend payout records. Most of these holdings are traded on national stock
exchanges or in the over-the-counter market. The Fund may also take positions
in securities traded on regional or foreign exchanges. The portion of the
Fund's portfolio invested in debt securities may include obligations of the
U.S. government, government agencies, and investment grade corporate bonds.
Obligations issued by U.S. government agencies may include some supported only
by the credit of the issuing agency rather than by the full faith and credit of
the U.S. government. The Fund may hold securities of any maturity, with the
average maturity of the portfolio varying depending upon economic and market
conditions.
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for C shares
Annual Total Return
1990 -12.04%
1991 21.45%
1992 12.89%
1993 10.07%
1994 -2.80%
1995 23.53%
1996 10.15%
1997 16.30%
1998 13.12%
1999 -3.78%
Best quarter: quarter ended 6/30/97 10.31%
Worst quarter: quarter ended 9/30/99 -4.30%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past Past Past
One Year Five Years Ten Years
----------------------------------------------------------
<S> <C> <C> <C>
Class C -4.74% 11.49% 7.74%
----------------------------------------------------------
S&P 500 21.04% 28.54% 21.24%
Index
----------------------------------------------------------
Lehman Brothers Aggregate -0.83% 7.73% 6.62%
Bond Index
</TABLE>
--------------------------------------------------------------------------------
-------
10
<PAGE>
Balanced Fund
Investment Goal and Strategies -- Continued
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
-------
11
<PAGE>
Strategic Income Fund
Investment Goal and Strategies
The investment objective of the Strategic Income Fund is to seek a high level
of total return consistent with preservation of capital. To achieve this goal,
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
invests at least 65% of the Fund's total assets in a broad range of fixed-
income securities, including investment grade bonds (rated Baa or higher by
Moody's and BBB or higher by S&P), U.S. Government and agency obligations,
mortgage- backed securities, and U.S., Canadian, and foreign high-risk, high-
yield bonds (rated C or higher by
Moody's and CC or higher by S&P, or comparable unrated securities, commonly
known as "junk bonds"). Up to 25% of the Fund's total assets will be invested
in foreign emerging market debt, and up to an additional 25% in non-U.S. dollar
bonds. The Fund may invest up to 20% of total assets in equity securities, such
as common and preferred stocks, convertible securities, and warrants. The Fund
may invest in asset-backed securities, foreign currency, futures and options,
illiquid securities (limited to 15% of the Fund's assets), investment compa-
nies, loan participations, money market securities, mortgage-related securi-
ties, real estate securities, repurchase agreements, reverse repurchase agree-
ments, dollar rolls, structured securities, swaps, variable amount master
demand notes, variable rate demand notes, and when-issued securities.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations including, in particular, the risks associated with junk bonds)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1994 -6.79%
1995 18.57%
1996 14.82%
1997 10.76%
1998 0.72%
1999 1.36%
Best quarter: quarter ended 6/30/95 8.22%
Worst quarter: quarter ended 3/31/94 -5.76%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Past Five Years Life of Fund
(Since 11/1/93)
----------------------------------------------------------------
<S> <C> <C> <C>
Class A -4.47% 7.73% 5.22%
----------------------------------------------------------------
Lehman Brothers -0.83% 7.73% 5.66%
Aggregate Bond
Index
</TABLE>
--------------------------------------------------------------------------------
-------
12
<PAGE>
Core Bond Fund
Investment Goal and Strategies
The investment objective of the Core Bond Fund is to provide a high level of
current income consistent with the maintenance of principal and liquidity.
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
invests at least 65% of the Fund's total assets in medium to high quality
fixed-income securities, or in securities issued or guaranteed by the U.S. Gov-
ernment, mortgage-backed, or asset-backed securities (U.S. Government securi-
ties are securities issued or guaranteed by the U.S. Government which are sup-
ported by the full faith and credit of the U.S. Government, or by the right of
the issuer to borrow from the U.S. Treasury, or by the credit of the issuing
government agency, or by the authority of the U.S. Government to purchase obli-
gations of the agency). A portion of the 65% may be invested in U.S. dollar-
denominated fixed-income securities issued by foreign issuers, although the
Fund currently intends to limit these investments to no more than 40% of its
total assets. These fixed-income securities will be rated investment grade or
higher. AGIM will not be required to dispose of a security if its rating is
downgraded, however. Up to 10% of the Fund's total assets may be invested in
lower quality fixed-income securities, those rated below Baa3 by Moody's and
BBB by S&P. Up to 35% of the Fund's total assets may be invested in interest-
bearing short-term investments, such as commercial paper, bankers' acceptances,
bank certificates of deposit, and other cash equivalents and cash. Equity secu-
rities, including common or preferred stocks, convertible securities, and war-
rants, may comprise up to 20% of the Fund's total assets. The Fund may invest
in depositary receipts, foreign currency, futures and options, illiquid securi-
ties (limited to 15% of the Fund's assets), investment companies, loan partici-
pations, real estate securities, repurchase agreements, reverse repurchase
agreements, dollar rolls, structured securities, variable amount master demand
notes, variable rate demand notes, and when-issued securities.
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1992 8.27%
1993 9.29%
1994 -5.43%
1995 18.79%
1996 2.17%
1997 9.28%
1998 7.61%
1999 -2.55%
Best quarter: quarter ended 6/30/95 6.23%
Worst quarter: quarter ended 12/31/94 -4.53%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past One Year Past Five Years Life of Fund
(since 5/1/91)
---------------------------------------------------------------
<S> <C> <C> <C>
Class A -8.15% 5.56% 5.89%
---------------------------------------------------------------
100% Lehman -1.94% 8.16% 7.38%
Brothers
Corporate
---------------------------------------------------------------
50% Lehman -2.10% 7.80% 7.61%
Brothers
Corporate
50% Lehman
Brothers
Government
</TABLE>
------------------------------------------
-------
13
<PAGE>
Core Bond Fund
Investment Goal and Strategies -- Continued
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations, including, in particular, the risks associated with junk bonds)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
-------
14
<PAGE>
U.S. Government Securities Fund
Investment Goal and Strategies
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 main-
tenance of liquidity. American General Investment Management, L.P. ("AGIM"),
the Fund's subadvisor, pursues this objective by emphasizing investments in
debt obligations and mortgage-backed securities by such securities and related
repurchase agreements).
issued or guaranteed by the U.S. Government or its agencies (including the Gov-
ernment National Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Associa-
tion ("Fannie Mae")), and in derivative investments (such as privately-issued
mortgage obligations collateralized by such securities and related repurchase
agreements).
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1990 8.22%
1991 13.36%
1992 6.63%
1993 7.64%
1994 -1.59%
1995 15.28%
1996 3.04%
1997 7.99%
1998 6.86%
1999 -0.96%
Best quarter: quarter ended 6/30/95 5.42%
Worst quarter: quarter ended 3/31/94 -1.65%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past Past Past
One Year Five Years Ten Years
--------------------------------------------------------------
<S> <C> <C> <C>
Class A -6.66% 5.03% 6.97%
--------------------------------------------------------------
Merrill Lynch 1-10 year 0.55% 6.9% %
Government Index
</TABLE>
------------------------------------------
-------
15
<PAGE>
Money Market Fund
Investment Goal and Strategies
The investment objective of the Money Market Fund is to obtain maximum current
income consistent with preservation of principal and liquidity. American Gen-
eral Investment Management, L.P. ("AGIM") is, the Fund's subadvisor. The Fund
invests in short-term money market securities to provide you with liquidity,
protection of your investment and current income. In accordance with Rule 2a-7
of the Investment Company Act, such securities must mature in 13 months or less
and the Fund must have a dollar-weighted average portfolio maturity of 90 days
or less. The investments of the Fund may include securities issued or guaran-
teed by the U.S. Government (and its agencies or instrumentalities), certifi-
cates of deposit and other obligations of domestic banks that have total assets
in excess of $1 billion, commercial paper sold by corporations and finance com-
panies, corporate debt obligations with remaining maturities of 13 months or
less, repurchase agreements, money market instruments of foreign issuers pay-
able in U.S. dollars (limited to no more than 20% of the fund's net assets),
asset-backed securities, loan participations, adjustable rate securities, Vari-
able Rate Demand Notes, illiquid and restricted securities (limited to 10% of
the Fund's net assets at all times), and Rule 144A securities. The Fund may
invest in investment companies, real estate securities, and reverse repurchase
agreements.
Main Investing Risks
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.An investment in the Money Market Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or by any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
The bar chart and
table provide an
indication of risk
by showing the vari-
ability of the
Fund's historical
returns.
[GRAPH]
Calendar Year Total Returns for A shares
Annual Total Return
1990 5.70%
1991 5.97%
1992 3.42%
1993 2.76%
1994 3.88%
1995 5.66%
1996 5.08%
1997 5.19%
1998 5.05%
1999 4.62%
Best quarter: quarter ended 6/30/91 1.64%
Worst quarter: quarter ended 6/30/93 0.66%
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
Past Past Past
One Year Five Years Ten Years
----------------------------------------
<S> <C> <C> <C>
Class A 4.62% 5.12% 4.73%
</TABLE>
--------------------------------------------------------------------------------
-------
16
<PAGE>
Mid Cap Value Fund
Investment Goal and Strategies
The investment objective of the Mid Cap Value Fund is to seek capital growth.
Neuberger Berman Management, Inc. ("NBM"), the Fund's subadvisor, pursues this
objective by investing at least 65% of the Fund's total assets in equity secu-
rities of medium capitalization companies using a value-oriented investment
approach.
Medium capitalization companies include companies with the characteristics of
companies included in the Russell Midcap(TM) Index. As of December 31, 1999,
the largest company included in the Russell Midcap(TM) Index had an approximate
market capitalization of $36.84 billion, while the average market capitaliza-
tion was approximately $4.4 billion.
NBM chooses securities it believes are undervalued based on strong fundamen-
tals, including a low price-to-earnings ratio, consistent cash flow, and the
company's track record through all parts of the market cycle. When selecting
securities for this Fund, NBM also considers other factors, including ownership
by a company's management of the company's stock and the dominance of a company
in its particular field. Up to 35% of the Fund's total assets may be invested
in other equity securities, including common and preferred stocks, convertible
securities, and related equities. The Fund may invest in derivatives.
The Fund may participate in the initial public offering ("IPO") market, and a
portion of the Fund's returns may be attributable to the Fund's investments in
IPOs. There is no guarantee that as the Fund's assets grow that it will be able
to experience significant improvement in performance by investing in IPOs. The
Fund will be actively traded, which will be reflected in its portfolio turnover
rate. The Fund's active trading strategy may cause the Fund to incur higher
trading costs and/or have a relatively high amount of short-term capital gains,
which are generally taxable to you at your ordinary income tax rate.
Main Investing Risks
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks of investing in IPOs)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
-------
17
<PAGE>
Stock Index Fund
Investment Goal and Strategies
The Stock Index Fund seeks to provide investment results that are similar to
the total return of the S&P 500 Index (the "Index").
The Index is composed of 500 common stocks which are chosen by Standard &
Poor's Corporation. The Index approximates the general distribution of indus-
tries in the U.S. economy, and captures the price performance of a large cross-
section of the publicly traded stock market. The Index is capitalization-
weighted, meaning that it holds each stock in proportion to its total value in
the stock market.
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
pursues this objective by investing in companies that are listed in the Index,
except for a small portion in cash, to be available for redemptions. Since it
may not be possible for this Fund to buy every stock included in the Index, or
in the same proportions, the Fund invests in a sampling of common stocks in the
Index. The common stocks of the Index to be included in the Fund will be
selected utilizing a statistical sampling technique known as "optimization."
This process selects stocks for the Fund so that various industry weightings,
market capitalizations and fundamental characteristics (e.g., price-to-book,
price-to-earnings, debt-to-asset ratios and dividend yields) closely approxi-
mate those of the Index. The common stocks held by the Fund are weighted to
make the Fund's aggregate investment characteristics similar to those of the
Index as a whole.
An index fund's performance will not exactly match that of an index because the
index fund incurs operating expenses and other investment overhead as part of
its normal operations. The index is an unmanaged group of securities, so it
does not have these expenses. These differences between an index fund and its
index are called tracking differences.
The tracking differences are reviewed daily by AGIM for the Fund. If the Fund
does not accurately track an index, AGIM will rebalance the Fund's portfolio by
selecting securities which will provide a more representative sampling of the
securities in the index as a whole or the sector diversification within the
index, as appropriate.
Financial futures will be used to hedge cashflows and maintain liquidity in the
Fund's portfolio.
Main Investing Risks
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation).
Although financial futures track the underlying Index fairly closely there is
the risk that, at times, their results will diverge from the Index.
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Index Risk (the risk that the Fund's performance will not match that of the
underlying Index)
-------
18
<PAGE>
Small Cap Index Fund
Investment Goal and Strategies
The Small Cap Index Fund seeks to provide investment results that are similar
to the total return of the Russell 2000(R) Index (the "Index").
The Index is a sub-index of the Russell 3000(R) Index, which follows the 3,000
largest U.S. companies based on total market capitalization. The Index measures
the performance of the 2,000 smallest companies in the Russell 3000(R) Index,
and represents about 8% of the total market capitalization of the Russell
3000(R) Index. The average market capitalization in the Index was $650 million
as of December 31, 1999. As of the same date, the largest company in the Index
had a market capitalization of nearly $13.04 billion.
To achieve this objective, American General Investment Management, L.P.
("AGIM"), the Fund's subadvisor, invests in companies that are listed in the
Index, except for a small portion in cash, to be available for redemptions.
Since it may not be possible for this Fund to buy every stock included in the
Index, or in the same proportions, the Fund invests in a sampling of common
stocks in the Index. The common stocks of the Index to be included in the Fund
will be selected utilizing a statistical sampling technique known as "optimiza-
tion." This process selects stocks for the fund so that various industry
weightings, market capitalizations and fundamental characteristics (e.g.,
price-to-book, price-to-earnings, debt-to-asset ratios and dividend yields)
closely approximate those of the Index. The common stocks held by the Fund are
weighted to make the Fund's aggregate investment characteristics similar to
those of the Index as a whole.
Generally, an index fund tries to mirror the target index and its performance.
An index fund's performance will not exactly march that of an index because the
index fund incurs operating expenses and other investment overhead as part of
its normal operations. The index is an unmanaged group of securities, so it
does not have these expenses. These differences between an index fund and its
index are called tracking differences.
The tracking differences are reviewed daily by AGIM for the Fund. If the Fund
does not accurately track an index, AGIM will rebalance the Fund's portfolio by
selecting securities which will provide a more representative sampling of the
securities in the index as a whole or the sector diversification within the
index, as appropriate.
Financial futures will be used to hedge cashflows and maintain liquidity in the
Fund's portfolio.
Main Investing Risks
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation).
Although financial futures track the underlying Index fairly closely there is
the risk that, at times, their results will diverge from the Index.
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally) (including the risks associated with investing in smaller
companies)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the subadvisor of a Fund may not produce the
desired investment results)
-------
19
<PAGE>
Socially Responsible Fund
Investment Goal and Strategies
The investment objective of the Socially Responsible Fund is to obtain growth
of capital.
To achieve this objective, American General Investment Management, L.P.
("AGIM"), the Fund's subadvisor, will invest at least 80% of the Fund's assets
in the equity securities of companies meeting social criteria established for
the Fund. To find out which companies meet the Fund's social criteria, AGIM
relies on industry classifications and research services such as the Investor
Responsibility Research Center ("IRRC").
The Fund does not invest in companies that are significantly engaged in:
.the production of nuclear energy;
.the manufacture of weapons or delivery systems;
.the manufacture of alcoholic beverages or tobacco products;
.the operation of gambling casinos; or
.business practices or the production of products that significantly pollute
the environment.
The manager of the Socially Responsible Fund determines whether a company "sig-
nificantly" engages in prohibited activities by screening the Fund's investable
universe against a proprietary database of stocks. Companies in the database
generating more than 5% of revenues from any violating activity are not pur-
chased by the fund. In addition to this database, the manager uses various
other resources to screen out companies whose operations appear to violate the
social criteria.
At least once a year, the IRRC surveys state laws to see if there are any new
or revised state laws that govern or affect the investments of public funds. If
the survey shows that at least 20 states have adopted laws that restrict public
funds from being invested in a clearly definable category of investments, this
category is automatically added to the Fund's social criteria list.
The manager of the Socially Responsible Fund determines whether a company "sig-
nificantly pollutes the environment" by screening the Fund's investable uni-
verse against a list of the top 75 global emitters. Emissions data is collected
from various sources including, by not limited to, government agencies and com-
pany filings. In addition to this list, the manager uses various publications
to screen out companies whose operations appear to violate the social criteria.
Up to 20% of the Fund's total assets may be invested in high quality money mar-
ket securities and warrants, or in other types of equity securities of compa-
nies meeting social criteria, including American Depositary Receipts ("ADRs"),
foreign securities, preferred stock, and convertible securities. The Fund may
invest in derivatives.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Social Criteria Risk (the risk that the securities of companies meeting the
Fund's criteria will underperform the market generally)
-------
20
<PAGE>
High Yield Bond Fund
Investment Goal and Strategies
The High Yield Bond Fund seeks the highest possible total return consistent
with conservation of capital through investment in a diversified portfolio of
high yielding, high risk fixed-income securities.
To achieve this objective, American General Investment Management, L.P.
("AGIM"), the Fund's subadvisor, invests at least 65% of the Fund's total
assets in below-investment grade U.S. and foreign junk bonds. These high yield-
ing, high risk fixed-income securities are rated below Baa3 by Moody's and BBB-
by S&P. Up to 15% can be rated below Caa3 by Moody's or CCC- by S&P. The Fund
may also invest up to 35% of total assets in below-investment grade foreign
fixed-income securities.
The Fund may invest up to 35% in investment grade securities, those rated Baa3
or higher by Moody's and BBB- or higher by S&P. In addition, the Fund may
invest up to 15% in zero coupon securities (securities not paying current cash
interest), and up to 20% of total assets in equity securities. Equity securi-
ties include common or preferred stocks, warrants, and convertible securities.
AGIM is not required to dispose of a bond that is downgraded to below-invest-
ment grade.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations, including, in particular, risks associated with junk bonds)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
-------
21
<PAGE>
Aggressive Growth Lifestyle Fund
Investment Goal and Strategies
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
seeks growth through investments in a combination of the North American Funds
("Underlying Funds"). This Fund is suitable for investors seeking the potential
for capital growth that a fund investing predominately in equity securities may
offer.
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies,
small capitalization companies and bonds is the most critical investment deci-
sion that you make as an investor. Selecting the appropriate combination should
be based on your personal investment goals, time horizons and risk tolerance.
The chart below reflects the projected asset allocation ranges and Underlying
Fund choices for this Fund.
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The
Underlying Funds have been selected to represent a reasonable spectrum of
investment options for the Fund. We have based the target investment percent-
ages for the Fund on the degree to which we believe the Underlying Funds, in
combination, to be appropriate for the Fund's investment objective. We may
change the asset allocation ranges and the particular Underlying Funds in which
the Fund may invest from time to time.
The Fund is a non-diversified investment company under the 1940 Act because it
invests in a limited number of the Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Non-Diversification Risk (the risk that investing in a smaller number of secu-
rities increases investment risks)
<TABLE>
<S> <C>
International Equity Securities 15%-35%
Underlying Fund:
International Equity Fund
(This Fund invests at least 65% in non-U.S. companies.)
Domestic Equity Securities 60%-80%
Underlying Funds:
Small Cap Growth Fund
(This Fund invests in the equity securities of small capitalization
companies.)
Mid Cap Value Fund
Mid Cap Growth Fund
(These Funds invest in the equity securities of medium capitalization
companies.)
Large Cap Growth Fund
Growth & Income Fund
(These Funds invest in the equity securities of large capitalization
companies.)
Bonds 5%-15%
Underlying Funds:
Core Bond Fund
High Yield Bond Fund
(These Funds invest in fixed-income securities.)
</TABLE>
-------
22
<PAGE>
Moderate Growth Lifestyle Fund
Investment Goal and Strategies
American General Investment Management. L.P. ("AGIM"), the Fund's subadvisor,
seeks growth and current income through investments in a combination of the
North American Funds ("Underlying Funds"). This Fund is suitable for investors
who wish to invest in equity securities, but who are not willing to assume the
substantial market risks of the Growth Lifestyle Fund.
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as
an investor. Selecting the appropriate combination should be based on your per-
sonal investment goals, time horizons and risk tolerance. The chart below
reflects the projected asset allocation ranges and Underlying Fund choices for
this Fund.
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Funds have been
selected to represent a reasonable spectrum of investment options for the Fund.
We have based the target investment percentages for the Fund on the degree to
which we believe the Underlying Funds, in combination, to be appropriate for
the Fund's investment objective. We may change the asset allocation ranges and
the particular Underlying Funds in which the Fund may invest from time to time.
The Fund is a non-diversified investment company under the 1940 Act because it
invests in a limited number of the Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Non-Diversification Risk (the risk that investing in a smaller number of secu-
rities increases investment risks)
<TABLE>
<S> <C>
International Equity Securities 10%-20%
Underlying Fund:
International Equity Fund
(This Fund invests at least 65% in non-U.S. companies.)
Domestic Equity Securities 35%-65%
Underlying Funds:
Small Cap Growth Fund
(This Fund invests in the equity securities of small capitalization
companies.)
Mid Cap Value Fund
Mid Cap Growth Fund
(These Funds invest in the equity securities of medium capitalization
companies.)
Large Cap Growth Fund
Growth & Income Fund
(These Funds invest in the equity securities of large capitalization
companies.)
Bonds 25%-45%
Underlying Funds:
Core Bond Fund
High Yield Bond Fund
(These Funds invest in fixed-income securities.)
</TABLE>
-------
23
<PAGE>
Conservative Growth Lifestyle Fund
Investment Goal and Strategies
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
seeks current income and low to moderate growth of capital through investments
in a combination of the North American Funds ("Underlying Funds"). This Fund is
suitable for investors who wish to invest in equity securities, but who are not
willing to assume the market risks of either the Growth Lifestyle Fund or the
Moderate Growth Lifestyle Fund.
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as
an investor. Selecting the appropriate combination should be based on your per-
sonal investment goals, time horizons and risk tolerance. The chart below
reflects the projected asset allocation ranges and Underlying Fund choices for
this Fund.
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Funds have been
selected to represent a reasonable spectrum of investment options for the Fund.
We have based the target investment percentages for the Fund on the degree to
which we believe the Underlying Funds, in combination, to be appropriate for
the Fund's investment objective. We may change the asset allocation ranges and
the particular Underlying Funds in which the Fund may invest from time to time.
The Fund is a non-diversified investment company under the 1940 Act because it
invests in a limited number of the Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Non-Diversification Risk (the risk that investing in a smaller number of secu-
rities increases investment risks)
<TABLE>
<S> <C>
International Equity Securities 5%-15%
Underlying Fund:
International Equity Fund
(This Fund invests at least 65% in non-U.S. companies.)
Domestic Equity Securities 20%-50%
Underlying Funds:
Small Cap Growth Fund
(This Fund invests in the equity securities of small capitalization
companies.)
Underlying Funds:
Mid Cap Value Fund
Mid Cap Growth Fund
(These Funds invest in the equity securities of medium capitalization
companies.)
Large Cap Growth Fund
Growth & Income Fund
(These Funds invest in the equity securities of large capitalization
companies.)
Bonds 45%-65%
Underlying Funds:
Core Bond Fund
High Yield Bond Fund
(These Funds invest in fixed-income securities.)
</TABLE>
-------
24
<PAGE>
Descriptions of Main Investing Risks
The value of your investment in a Fund can change for many reasons, and may
decrease. The primary reasons for possible decreases in a Fund's value are
called "Main Investing Risks," and are explained in this section. Because the
types of investments a Fund may change over time, the types of risks affecting
the Fund will change as well. Section II of the Prospectus includes more
information about other risks that might affect the Funds' values.
Non-Diversification Risk
Investment professionals believe that investment risk can be reduced through
diversification, which is simply the practice of choosing more than one type of
investment. On the other hand, concentrating investments in a smaller number of
securities increases risk.
Credit Risk
Credit risk is the risk that the issuer or the guarantor (the entity that
agrees to pay the debt if the issuer cannot) of a debt or fixed income securi-
ty, or the counterparty to a derivatives contract or a securities loan, will
not repay the principal and interest owed to the investors or otherwise honor
its obligations. There are different levels of credit risk. Debt securities
rated in one of the four highest rating categories by a rating agency (and com-
parable unrated securities) are known as "investment grade." Debt securities
rated below the four highest rating categories by a rating agency (and compara-
ble unrated securities) are known as "lower-rated" or junk bonds." Funds that
invest in lower-rated securities have higher levels of credit risk. Lower-rated
or unrated securities of equivalent quality (generally known as junk bonds)
have very high levels of credit risk. Securities that are highly rated have
lower levels of credit risk.
Funds may be subject to greater credit risk because they may invest in debt
securities issued in connection with corporate restructurings by highly
leveraged (indebted) issuers and in debt securities not current in the payment
of interest or principal, or in default.
Funds that invest in foreign securities are also subject to increased credit
risk because of the difficulties of requiring foreign entities, including
issuers of sovereign (national) debt, to honor their contractual commitments,
and because a number of foreign governments and other issuers are already in
default.
Currency Risk
Funds that invest in securities that are denominated in and/or are receiving
revenues in foreign currencies are subject to currency risk. Currency risk is
the risk that foreign currencies will decline in value relative to the U.S.
dollar. In the case of hedging positions, it is the risk that the U.S. dollar
will decline in value relative to the currency hedged.
Derivatives Risk
Derivatives are financial contracts whose value depends on, or is derived from,
the change in value of an underlying asset, reference rate or index. When the
value of the underlying security or index changes, the value of the derivative
changes as well. As a result, derivatives can lose all of their value very
quickly. Derivatives involve credit risk if the other party to the derivative
should fail to meet its obligations to the Fund. Additional risks associated
with derivatives include imperfect correlation (between the values of the
derivative and the underlying investment) and improper valuation. Derivatives
risk for some Funds will be increased by their investments in structured secu-
rities.
Equity Risk
Equity securities, such as a company's common stock, may fall in value in
response to factors relating to the issuer, such as management decisions or
falling demand for a company's goods or services. Additionally, factors affect-
ing a company's particular
-------
25
<PAGE>
industry, such as increased production costs, may affect the value of its
equity securities. Equity securities also rise and fall in value as a result of
factors affecting entire financial markets, such as political or economic
developments, or changes in investor psychology.
Growth stocks are the stocks of companies that have earnings that are expected
to grow relatively rapidly. As a result, the values of growth stocks may be
more sensitive to changes in current or expected earnings than the values of
other stocks.
Value stocks are the stocks of companies that are not expected to experience
significant earnings growth, but that are undervalued, or are inexpensive rela-
tive to the value of the company and its business as a whole. These companies
may have experienced recent troubles that have caused their stocks to be out of
favor with investors. If the market does not recognize the value of the company
over time, the price of its stock may fall, or simply may not increase as
expected.
Market capitalization refers to the total value of a company's outstanding
stock. Smaller companies with market capitalizations of less than $1 billion or
so are more likely than larger companies to have limited product lines, smaller
markets for their products and services, and they may depend on a small or
inexperienced management group. Small company stocks may not trade very active-
ly, and their prices may fluctuate more than stocks of larger companies. Stocks
of smaller companies may be more vulnerable to negative changes than stocks of
larger companies.
The risks associated with equity securities are typically higher for equity
securities purchased in IPOs. Issuers in IPOs typically have a limited operat-
ing history, and the prices of equity securities are often very volatile for
some time following an IPO.
Foreign Investment Risk
Funds investing in foreign securities may experience rapid changes in value.
One reason for this volatility is that the securities markets of many foreign
countries are relatively small, with a limited number of companies representing
a small number of industries. Also, foreign securities issuers are usually not
subject to the same degree of regulation as U.S. issuers. Reporting, accounting
and auditing standards of foreign countries differ, in some cases significant-
ly, from U.S. standards.
The possibility of political instability or diplomatic developments in foreign
countries could trigger nationalization of companies and industries, expropria-
tion (confiscation of property), extremely high levels of taxation, and other
negative developments. In the event of nationalization, expropriation or other
confiscation, a Fund could lose its entire investment. Funds that invest in
sovereign debt obligations are exposed to the risks of political, social and
economic change in the countries that issued the bonds.
Interest Rate Risk (Market Risk)
Interest rate risk, or market risk, is the risk that a change in interest rates
will negatively affect the value of a security. This risk applies primarily to
debt securities such as bonds, notes and asset backed securities. Debt securi-
ties are obligations of the issuer to make payments of principal and/ or inter-
est on future dates. As interest rates rise, an investment in a Fund can lose
value, because the value of the securities the Fund holds may fall.
Market risk is generally greater for Funds that invest in debt securities with
longer maturities. This risk may be increased for Funds that invest in mort-
gage-backed or other types of asset-backed securities that are often prepaid.
Even Funds that invest in the highest quality debt securities are subject to
interest rate risk.
Liquidity Risk
Liquidity risk is the risk that a Fund will not be able to sell a security
because there are too few people who actively buy and sell, or trade, that
security on a regular basis. A Fund holding an illiquid security may not be
able to sell the security at a fair price. Liquidity risk increases for Funds
investing in derivatives, foreign investments or restricted securities.
-------
26
<PAGE>
Management Risk
Management risk is the risk that the subadvisor of a Fund, despite using vari-
ous investment and risk analysis techniques, may not produce the desired
investment results.
Social Criteria Risk
This risk applies only to the Socially Responsible Fund. If a company stops
meeting the Fund's social criteria after the Fund invested in it, the Fund will
sell these investments even if this means the Fund loses money. Also, if the
Fund changes its social criteria and the companies the Fund has already
invested in no longer qualify, the Fund will sell these investments, even if
this means the Fund loses money. Social criteria screening will limit the
availability of investment opportunities for the Fund more than for funds hav-
ing no such criteria.
Science & Technology Company Risk
Companies in the rapidly changing fields of science and technology often face
unusually high price volatility, both in terms of gains and losses. The poten-
tial for wide variation in performance is based on the special risks common to
these stocks. For example, products or services that at first appear promising
may not prove commercially successful or may become obsolete quickly. Earnings
disappointments can result in sharp price declines. A portfolio focused primar-
ily on these stocks is, therefore, likely to be much more volatile.
-------
27
<PAGE>
Section II:
Fees and Expenses of the North American Funds--Institutional Class I Shares
and Institutional Class II Shares*
This table describes the fees and expenses that you may pay if you invest in
the Funds.
*Institutional Class II Shares are offered only by the Core Bond Fund and
the High Yield Bond Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Institutional Institutional
Class I Class II/1/
------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (as a percentage of
original purchase price or redemption price,
whichever is lower) None None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<CAPTION>
Institutional Institutional
Fund Class I Class II
------------------------------------------------------------------------------
<S> <C> <C>
International Small Cap Fund
Management Fees 1.05%
Other Expenses 1.02%
Total Annual Fund Operating Expenses/2/ 2.07%
------------------------------------------------------------------------------
International Equity Fund
Management Fees 0.90%
Other Expenses 0.91%
Total Annual Fund Operating Expenses/2/ 1.81%
------------------------------------------------------------------------------
Global Equity Fund
Management Fees 0.88%
Other Expenses 0.78%
Total Annual Fund Operating Expenses/2/ 1.66%
------------------------------------------------------------------------------
Small Cap Growth Fund
Management Fees 0.95%
Other Expenses 0.84%
Total Annual Fund Operating Expenses/2/ 1.79%
------------------------------------------------------------------------------
Mid Cap Growth Fund
Management Fees 0.93%
Other Expenses 0.79%
Total Annual Fund Operating Expenses/2/ 1.72%
------------------------------------------------------------------------------
</TABLE>
-------
28
<PAGE>
<TABLE>
<CAPTION>
Institutional Institutional
Fund Class I Class II
---------------------------------------------------------------------
<S> <C> <C>
Large Cap Growth Fund
Management Fees 0.90%
Other Expenses 0.82%
Total Annual Fund Operating Expenses/2/ 1.72%
---------------------------------------------------------------------
Growth & Income Fund
Management Fees 0.73%
Other Expenses 0.56%
Total Annual Fund Operating Expenses/2/ 1.29%
---------------------------------------------------------------------
Science & Technology Fund
Management Fees 0.90%
Other Expenses 1.25%
Total Annual Fund Operating Expenses/2/ 2.15%
---------------------------------------------------------------------
Balanced Fund
Management Fees 0.78%
Other Expenses 0.65%
Total Annual Fund Operating Expenses/2/ 1.43%
---------------------------------------------------------------------
Strategic Income Fund
Management Fees 0.75%
Other Expenses 0.75%
Total Annual Fund Operating Expenses/2/ 1.50%
---------------------------------------------------------------------
Core Bond Fund
Management Fees 0.60% 0.60%
Other Expenses 0.69% 0.44%
Total Annual Fund Operating Expenses/2/ 1.29% 1.04%
---------------------------------------------------------------------
U.S. Government Securities Fund
Management Fees 0.60%
Other Expenses 0.69%
Total Annual Fund Operating Expenses/2/ 1.29%
---------------------------------------------------------------------
Money Market Fund
Management Fees 0.20%
Other Expenses 0.97%
Total Annual Fund Operating Expenses/2/ 1.17%
---------------------------------------------------------------------
</TABLE>
-------
29
<PAGE>
<TABLE>
<CAPTION>
Institutional Institutional
Fund Class I Class II
----------------------------------------------------------------------
<S> <C> <C>
Mid Cap Value Fund
Management Fees 0.90%
Other Expenses 0.85%
Total Annual Fund Operating Expenses/2/ 1.75%
----------------------------------------------------------------------
Stock Index Fund
Management Fees 0.27%
Other Expenses 0.91%
Total Annual Fund Operating Expenses/2/ 1.18%
----------------------------------------------------------------------
Socially Responsible Fund
Management Fees 0.65%
Other Expenses 1.03%
Total Annual Fund Operating Expenses/2/ 1.68%
----------------------------------------------------------------------
High Yield Bond Fund
Management Fees 0.83% 0.83%
Other Expenses 0.80% 0.55%
Total Annual Fund Operating Expenses/2/ 1.63% 1.38%
----------------------------------------------------------------------
Aggressive Growth Lifestyle Fund
Management Fees 0.10%
Other Expenses 0%
Total Annual Fund Operating Expenses/2/ 0.10%
Estimated Total Annual Combined Operating
Expenses/3/ 1.77%
----------------------------------------------------------------------
Small Cap Index Fund
Management Fees 0.28%
Other Expenses 1.34%
Total Annual Fund Operating Expenses 1.62%
----------------------------------------------------------------------
</TABLE>
-------
30
<PAGE>
<TABLE>
<CAPTION>
Institutional Institutional
Fund Class I Class II
----------------------------------------------------------------------
<S> <C> <C>
Moderate Growth Lifestyle Fund
Management Fees 0.10%
Other Expenses 0%
Total Annual Fund Operating Expenses/2/ 0.10%
Estimated Total Annual Combined Operating
Expenses/3/ 1.65%
----------------------------------------------------------------------
Conservative Growth Lifestyle Fund 0.10%
Management Fees 0%
Other Expenses
Total Annual Fund Operating Expenses/2/ 0.10%
Estimated Total Annual Combined Operating
Expenses/3/ 1.56%
----------------------------------------------------------------------
</TABLE>
1 Only the Core Bond Fund and the High Yield Bond Fund offer Institutional
Class II Shares.
2 Fund fees and expenses are currently being voluntarily waived and/or reim-
bursed by AGAM such that the Funds have the following net total annual operat-
ing expenses:
<TABLE>
<CAPTION>
Institutional Institutional
Class I Class II
------------------------------------------------------------
<S> <C> <C>
International Small Cap Fund 1.95%
------------------------------------------------------------
International Equity Fund 1.80%
------------------------------------------------------------
Global Equity Fund 1.65%
------------------------------------------------------------
Small Cap Growth Fund 1.72%
------------------------------------------------------------
Mid Cap Growth Fund 1.68%
------------------------------------------------------------
Large Cap Growth Fund 1.67%
------------------------------------------------------------
Growth & Income Fund N/A
------------------------------------------------------------
Science & Technology Fund 1.35%
------------------------------------------------------------
Balanced Fund 1.41%
------------------------------------------------------------
Strategic Income Fund 1.45%
------------------------------------------------------------
Core Bond Fund 1.20% 0.95%
------------------------------------------------------------
U.S. Government Securities Fund 1.15%
------------------------------------------------------------
Money Market Fund 0.95%
------------------------------------------------------------
Mid Cap Value Fund 1.68%
------------------------------------------------------------
Stock Index Fund 0.90%
------------------------------------------------------------
Socially Responsible Fund 1.90%
------------------------------------------------------------
High Yield Bond Fund 1.45% 1.13%
------------------------------------------------------------
Small Cap Index Fund 0.90%
------------------------------------------------------------
</TABLE>
-------
31
<PAGE>
3 These estimates are based upon the Funds' expenses shown above and the
expenses of the Underlying Funds' Institutional Class I shares shown in the
prospectus for such shares. The estimates assume the following constant allo-
cation by the Funds of their assets among the Underlying Funds:
<TABLE>
<CAPTION>
Agressive Growth Moderate Growth Conservative Growth
Lifestyle Fund Lifestyle Fund Lifestyle Fund
<S> <C> <C> <C>
International Equity 25% 15% 8%
Fund
Small Cap Growth Fund 20% 13% 8%
Mid Cap Value Fund 10% 9% 6%
Mid Cap Growth Fund 5% 3% 2%
Large Cap Growth Fund 20% 15% 13%
Growth & Income Fund 10% 15% 13%
Core Bond Fund 10% 30% 50%
High Yield Bond Fund 0% 0% 0%
</TABLE>
The Funds' actual expenses may be higher or lower as a result of their allo-
cation of its assets among the Underlying Funds, the expenses of the Under-
lying Funds, and/or the Funds' own expenses.
By translating "Total Annual Fund Operating Expenses" into dollar amounts,
these examples help you compare the costs of investing in a particular Fund, or
a particular class of shares, with the costs of investing in other mutual
funds.
The examples assume that you:
. Invest $10,000 in a Fund for the time period indicated and then redeem all
of your shares at the end of those periods.
. Your investment earns a 5% return each year and that each Fund's operating
expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------
<S> <C> <C> <C> <C>
International Small Cap Fund
Institutional Class I Shares $210 $649 $1,114 $2,400
-------------------------------------------------------------
International Equity Fund
Institutional Class I Shares 184 569 980 2,127
-------------------------------------------------------------
Global Equity Fund
Institutional Class I Shares 169 523 902 1,965
-------------------------------------------------------------
Small Cap Growth Fund
Institutional Class I Shares 182 563 970 2,105
-------------------------------------------------------------
Mid Cap Growth Fund
Institutional Class I Shares 175 542 933 2,030
-------------------------------------------------------------
</TABLE>
-------
32
<PAGE>
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Growth Fund
Institutional Class I Shares $175 $542 $933 $2,030
-------------------------------------------------------------------
Growth & Income Fund
Institutional Class I Shares 131 409 708 1,556
-------------------------------------------------------------------
Science & Technology Fund
Institutional Class I Shares 218 673 1,154 2,483
-------------------------------------------------------------------
Balanced Fund
Institutional Class I Shares 146 452 782 1,713
-------------------------------------------------------------------
Strategic Income Fund
Institutional Class I Shares 153 474 818 1,791
-------------------------------------------------------------------
Core Bond Fund
Institutional Class I Shares 131 409 708 1,556
Institutional Class II Shares 106 331 574 1,271
-------------------------------------------------------------------
U.S. Government Securities Fund
Institutional Class I Shares 131 409 708 1,556
-------------------------------------------------------------------
Money Market Fund
Institutional Class I Shares 119 372 644 1,420
-------------------------------------------------------------------
Mid Cap Value Fund
Institutional Class I Shares 178 551 949 2,062
-------------------------------------------------------------------
Stock Index Fund
Institutional Class I Shares 120 375 649 1,432
-------------------------------------------------------------------
Socially Responsible Fund
Institutional Class I Shares 171 530 913 1,987
-------------------------------------------------------------------
High Yield Bond Fund
Institutional Class I Shares 166 514 887 1,933
Institutional Class II Shares 140 437 755 1,657
-------------------------------------------------------------------
Aggressive Growth Lifestyle Fund
Institutional Class I Shares 10 32 56 128
-------------------------------------------------------------------
Moderate Growth Lifestyle Fund
Institutional Class I Shares 10 32 56 128
-------------------------------------------------------------------
Conservative Growth Lifestyle Fund
Institutional Class I Shares 10 32 56 128
-------------------------------------------------------------------
</TABLE>
-------
33
<PAGE>
More Information About
Investment Strategies and Risks
This Prospectus does not attempt to disclose all of the different investment
techniques that the Funds might use, or all of the types of securities in which
the Funds might invest. As with any mutual fund, investors must rely on the
professional judgment and skill of the Funds' management. A subadvisor may
choose not to use some or all of the investment techniques available to a Fund,
and these choices may cause the Fund to lose money or not achieve its goal.
Each Fund has a unique investment goal (see the Fund Summaries) that it tries
to achieve through its investment strategies. The investment goals, or objec-
tives, of the Funds cannot be changed without the approval of the holders of a
majority of the outstanding shares of each Fund. However, except as noted for
certain investment restrictions, the strategies a Fund uses to achieve its
investment objective may be changed by the Trustees without approval of the
shareholders. Because each Fund is different, they have different investment
policies and risks, and will also have different returns over time. This sec-
tion provides additional information about the Funds, and should be read in
conjunction with the Fund Summaries.
International Small Cap Fund
The Fund may invest without limit in American Depositary Receipts and American
Depositary Shares (collectively, "ADRs"). ADRs are receipts representing shares
of a foreign corporation held by a U.S. bank that entitle the holder to all
dividends and capital gains on the underlying foreign shares. ADRs are
denominated in U.S. dollars and trade in the U.S. securities markets.
The Fund may invest a significant portion of its assets in the securities of
small companies. The securities of small companies may have limited marketabil-
ity and may experience more abrupt or erratic movements in price than securi-
ties of larger companies or the market averages in general. Because of this,
the net asset value of the International Small Cap Fund may fluctuate more
widely than popular market averages.
The Fund 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.
The Fund may invest in investment-grade bonds, debt securities and corporate
obligations. For purposes of this Fund, investment grade securities are those
rated Baa or higher by Moody's, or BBB or higher by S&P. The Fund may choose to
invest in lower-rated convertible securities and preferred stocks (securities
rated Ba or lower by Moody's and BB or lower by S&P). The Fund may also invest
in unrated convertible securities and preferred stocks if Founders believes
they are equivalent in quality to the rated securities that the Fund may buy.
The Fund will not invest more than 5% of its total assets in unrated or below
investment-grade fixed-income securities, with the exception of preferred
stocks. If the Fund holds securities that are downgraded to below investment
grade after they are purchased, the Fund does not have to sell them unless the
Fund's investments in unrated and below investment grade securities are equal
to or greater than 5% of total fund assets.
Since the Fund's assets will be invested primarily in foreign securities and
since substantially all of the Fund's revenues will be received in foreign cur-
rencies, the Fund's net asset values will be affected by changes in currency
exchange rates. The Fund will pay dividends in dollars and will incur currency
conversion costs.
-------
34
<PAGE>
International Equity Fund
MSAM's Active International Allocation team analyzes both the global economic
environment and the economies of the industrialized countries comprising the
MSCI Europe, Australasia, Far East (EAFE) Index. EAFE countries include Japan,
most nations in Western Europe, Australia, New Zealand, Hong Kong and
Singapore. MSAM views each country and sector as unique investment
opportunities and evaluates prospects for value, growth, inflation, interest
rates, corporate earnings, liquidity and risk characteristics, investor
sentiment and currency outlook. After determining to invest in a country or
sector, MSAM establishes overweight, underweight or neutral positions relative
to the broad market index for that country or sector. Within the countries or
sectors selected for investment, MSAM purchases optimized baskets of equity
securities designed to track the local market index. The Fund does not invest
in securities of U.S. issuers. MSAM considers an issuer to be from a particular
country if: (i) its principal securities trading market is in that country;
(ii) alone or on a consolidated basis it derives 50% or more of its annual
revenue from either goods produced, sales made or services performed in that
country; or (iii) it is organized under the laws of, and has a principal office
in, that country.
The Fund will limit its use of derivatives for non-hedging purposes to 33 1/3%
of its total assets measured by the aggregate notional amount of outstanding
derivatives. While the use of derivatives may be advantageous to the Fund, if
MSAM is not successful in employing them, the Fund's performance may be worse
than if it did not make such investments.
The Fund may invest in emerging market countries and, with regard to such
investments, make global and regional allocations to emerging markets, as well
as allocations to specific emerging market countries. Emerging market countries
are countries that major international financial institutions, such as the
World Bank, generally consider to be less economically mature than developed
nations, such as the United States or most nations in Western Europe. Emerging
market countries can include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most countries located in
Western Europe. Emerging market countries may be more likely to experience
political turmoil or rapid changes in economic conditions than more developed
countries, and the financial condition of issuers in emerging market countries
may be more precarious than in other countries. The characteristics result in
greater risk of price volatility in emerging market countries, which may be
heightened by currency fluctuations relative to the U.S. dollar.
Global Equity Fund
The Fund invests primarily in equity securities of issuers throughout the
world, including issuers in the U.S. and emerging market countries.
The Fund may also invest in money market instruments. Although the Fund intends
to invest primarily in securities listed on stock exchanges, it will also
invest in equity securities that are traded over-the-counter or that are not
admitted to listing on a stock exchange or dealt in on a regulated market. Pri-
vately traded securities may have additional liquidity risks. The Fund may also
engage in forward foreign currency transactions and purchase when-issued or
delayed delivery securities.
-------
35
<PAGE>
Small Cap Growth Fund
The Fund will usually invest at least 65% of its total assets in common stocks
or warrants of emerging growth companies that represent attractive
opportunities for maximum capital appreciation. Emerging growth companies are
small- or medium-sized companies beyond their start-up phase showing positive
earnings or the potential for accelerated earnings growth.
Although the Fund will typically invest in smaller companies, the Fund may
invest in emerging growth companies of any size. Emerging growth companies gen-
erally benefit from new products or services, technological developments,
changes in management or other factors. The Fund may also invest in companies
experiencing unusual developments affecting their market value, called "special
situation" companies. These companies may be involved in acquisitions or con-
solidations, reorganization, recapitalization, mergers, liquidation, or distri-
bution of cash, securities or other assets, tender or exchange offers, a
breakup or workout of a holding company, lawsuits which, if resolved favorably,
would improve the value of the company's stock, or a change in corporate con-
trol.
The Fund may invest up to 20% of its total assets in investment grade debt
securities (other than money market obligations) and preferred stocks that are
not convertible into common stock. The Fund may also invest up to 20% of its
total assets in the securities of foreign issuers, which have certain risks
associated with them. The Fund's status is non-diversified , although its port-
folio managers have typically diversified the Fund's investments.
The interest income to be derived may be considered as one factor in selecting
debt securities for investment. Because the market value of debt obligations
can be expected to vary inversely with changes in prevailing interest rates,
investing in debt obligations may provide an opportunity for capital apprecia-
tion when interest rates are expected to decline. The success of such a strat-
egy is dependent upon the manager's ability to accurately forecast changes in
interest rates.
A security will be considered investment grade if it is rated within the four
highest grades by Moody's or S&P or, if unrated, is determined by the manager
to be of comparable quality. Bonds rated in the fourth highest grade may have
speculative characteristics. If a security held by the Fund is no longer rated,
or is rated below the Fund's minimum allowed rating, the manager factors this
information into the decision about whether the Fund should continue to hold
the securities. The Fund can normally invest up to 20% of its total assets in
domestic and foreign short-term money market obligations.
Investing in securities of emerging growth and small-sized companies can
involve greater risks because these securities may have limited marketability.
Because small and medium-sized companies normally have fewer shares outstanding
than larger companies, it may be more difficult for the Fund to buy or sell
large numbers of shares without affecting current prices. Small- and medium-
sized companies are typically subject to a greater degree of changes in earn-
ings and business prospects than are larger, more established companies. There
is typically less publicly available information concerning small- and medium-
sized companies than for larger, more established ones. And companies with
small market capitalizations may also be dependent upon a single proprietary
product or market niche, may have limited product lines, markets or financial
resources, or may depend on a limited management group.
The Fund may invest in derivatives.
-------
36
<PAGE>
Mid Cap Growth Fund
The Fund invests in equity securities, including common and preferred stocks,
and securities that can be converted into or exchanged for equity securities,
including warrants and rights. The Fund will typically invest in companies
whose securities are traded on domestic stock exchanges or in the over-the-
counter market.
To give the Fund the flexibility to take advantage of new opportunities that
can help to meet the Fund's investment objectives, the Fund can invest up to
15% of its net assets 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 repurchase agreements.
The Fund 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. The Fund may
also purchase American Depositary Receipts ("ADRs") or U.S. dollar-denominated
securities of foreign issuers that are not included in the 20% foreign securi-
ties limitation.
The Fund may invest in derivatives.
Large Cap Growth Fund
At least 65% of the Fund's total assets will be invested in common stocks of
well-established, high-quality growth companies. The Fund may also invest in
convertible securities, preferred stocks, debentures and other corporate
obligations when Founders believes that these investments offer opportunities
for capital appreciation. Although these securities may produce current income,
income will not be a substantial factor in selecting these securities.
The Fund may invest in investment grade bonds, debentures and corporate obliga-
tions rated Baa or higher by Moody's or BBB or higher by S&P. The Fund may
choose to invest in lower-rated (Ba or lower by Moody's and BB or lower by S&P)
convertible and preferred stocks but not rated below B. The Fund may also
invest in unrated convertible securities and preferred stocks if Founders
believes that they are equivalent in quality to the rated securities the Fund
may buy.
The Fund will never have more than 5% of its total assets invested in unrated
or below-investment-grade fixed income securities, with the exception of pre-
ferred stocks. If the Fund holds securities that are downgraded after they are
purchased, the Fund does not have to sell them unless the Fund assets in
unrated and blow investment-grade securities reaches 5% of total assets.
The Fund is also permitted to use forward foreign currency contracts and
futures contracts. The Fund may also purchase and/or write options on securi-
ties and on indices, and may invest in Rule 144A securities.
Growth & Income Fund
Wellington Management seeks to achieve the Fund's objective by investing pri-
marily in a diversified portfolio of common stocks of U.S. issuers which Wel-
lington Management believes are of high quality. Wellington Management believes
that high quality companies are evidenced by a leadership position within an
industry, a strong or improving balance sheet, relatively high return on equi-
ty, steady or increasing dividend payout, and strong management skills. The
Fund's investments will emphasize primarily dividend paying stocks of larger
companies. The Fund may invest in securities that can be converted into, or
that include the right to buy common stocks, including convertible securities
issued in the Euromarket and preferred stocks. The Fund may also invest in mar-
ketable 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
unrated securities considered to be of equivalent quality in Wellington Manage-
ment's judgment. Under normal market conditions, the subadvisor expects that
the Fund's portfolio will consist primarily of equity securities.
The Fund may invest in derivatives.
-------
37
<PAGE>
Balanced Fund
The Fund may invest in convertible securities, preferred stocks, bonds, deben-
tures, and other corporate obligations when Founders believes that these
investments offer opportunities for capital appreciation. Current income is
also a factor in the selection of these securities.
The Fund may invest without limit in ADRs and up to 30% of its total assets in
foreign securities (other than ADRs). The Fund will not invest more than 25% of
its total assets in the securities of any one foreign country. The Fund will be
subject to special risks as a result of its ability to invest up to 30% of its
total assets in foreign securities, excluding ADRs.
The Fund may invest in derivatives.
Strategic Income Fund
The Fund may invest in debt obligations issued or guaranteed by a foreign sov-
ereign government or one of its agencies or political subdivisions, and debt
obligations issued or guaranteed by international organizations designated or
supported by governmental entities to promote economic reconstruction or devel-
opment 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. These securities may be denomi-
nated in multi-national currency units.
The purpose of investing a portion of the Fund's assets in below investment
grade, mortgage, and international debt securities, is to provide investors
with a higher yield than a high-quality domestic corporate bond fund, and with
less risk than a fund that invests principally in below investment grade secu-
rities. Some of the debt securities the Fund may select may be considered com-
parable 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).
The Fund may invest in derivatives.
Core Bond Fund
Credit research on corporate bonds includes examining both quantitative (mathe-
matical) and qualitative criteria established by AGIM. These criteria include
an issuer's industry, operating and financial profiles, business strategy, man-
agement quality, and projected financial and business conditions.
At least 65% of the Fund's assets will be invested in high quality debt securi-
ties. "High quality" debt securities are those rated (at the time of purchase)
"A" or better by Moody's or S&P (in the three highest rating tiers), or unrated
debt securities considered to be of comparable quality by AGIM. The Fund may
only invest up to 20% of its total assets in debt securities rated below "Baa"
by Moody's or "BBB" by S&P, or unrated debt securities considered to be of com-
parable quality by AGIM. The Fund will not be required to sell any downgraded
bonds that cause the Fund to exceed this 20% maximum guideline.
The Fund may invest up to 20% of its assets in domestic and foreign high yield
corporate and government debt securities, commonly referred to as "high
yield/high risk" or "junk" bonds. These bonds may be rated "B" or below by
Moody's (Moody's lowest rating is "C"), or "BB" or below by S&P (S&P's lowest
rating is "D"), or they may be unrated but considered to be of comparable qual-
ity by AGIM. There is no minimum rating required by the Fund. Domestic and for-
eign high yield debt securities involve greater risks than higher quality secu-
rities, including price volatility and risk of default in the payment of inter-
est and principal.
The Fund may invest in derivatives.
-------
38
<PAGE>
U.S. Government Securities Fund
The Fund may invest in:
.Mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA"), popularly known as "Ginnie Maes," that are backed by the
full faith and credit of the U.S. Government. These are known as a "modified
pass through" type of mortgage- backed security ("GNMA Certificates"). These
securities entitle the holder to receive all interest and principal payments
due whether or not payments are actually made on the underlying mortgages
.U.S. Treasury obligations
.Obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government. These securities are backed by their own credit, and may not be
backed by the full faith and credit of the U.S. Government
.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 Cor-
poration and the Federal National Mortgage Association;
.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; and
.Repurchase agreements collateralized by any of the foregoing.
Money Market Fund
The Fund invests in high quality, U.S. dollar-denominated money market instru-
ments, as described on page 16.
-------
39
<PAGE>
Other Risks of Investing in the North American Funds
Although a Fund may have the flexibility to use some or all of the investments
or strategies described in this Prospectus and the Statement of Additional
Information, its subadvisor may choose not to use these investments or strate-
gies for a variety of reasons. These choices may cause a Fund to miss opportu-
nities, lose money or not achieve its goal.
High Yield/High Risk Securities
High yield securities (often known as "junk bonds") include debt instruments
that have an equity security attached to them. Securities rated below invest-
ment grade and comparable unrated securities offer yields that fluctuate over
time, but generally offer higher yields than do higher rated securities. Howev-
er, 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 qual-
ity and protective characteristics that are outweighed by large uncertainties
or major risk exposures to adverse conditions.
Some of the debt securities in which the Funds may choose to invest may be, or
may be similar to, the lowest rated non-subordinated debt (securities rated C
by Moody's or CCC or lower by S&P). This type of security is very risky, as
issuers may not have the ability to repay principal and interest, and may even
default. If this should occur, the value of shares of the Fund holding them
would likely fall.
Foreign Securities
There are risks associated with investing in foreign securities. These risks
include unforeseen changes in tax laws, political changes, and changes in for-
eign currency values and exchange rates.
There may be less publicly available information about foreign issuers. 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 for domestic issuers. Foreign stock markets generally have
substantially less volume than the U.S. exchanges and securities of foreign
issuers are generally less liquid and more volatile, relative to U.S. issuers.
For emerging markets, these risks can be more extreme.
There is frequently less governmental regulation of foreign exchanges, broker-
dealers and issuers than in the United States, and brokerage costs may be high-
er. In addition, investments in foreign companies may be subject to the possi-
bility of nationalization or other changes in policy. Policy changes may allow
foreign governments to withhold dividends, expropriate (confiscate, or keep)
investment returns, or raise taxes to extremely high levels, among other
things. Also, should a foreign issuer default, it may be difficult to recover
anything in a bankruptcy proceeding.
Lending Fund Securities
Each Fund may lend up to 33% of its total portfolio assets, or securities, to
brokers, dealers and other financial institutions. These loans must be callable
(the Fund may ask that the loan be repaid in full) at any time by the Fund. The
loans must be at all times fully secured by cash, cash equivalents or securi-
ties issued or guaranteed by the U.S. government or its agencies or instrumen-
talities, and marked to market (priced at market value) 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 collat-
eral should the borrower of the securities fail financially. However, these
loans of Fund securities will only be made to firms deemed by the subadvisors
to be creditworthy.
Leverage Risk
Funds that borrow money to buy securities are using leverage. Leverage risk is
the risk that leverage, or debt, will enable a Fund to buy more of a security
that falls in value. In this case, the Fund would still need to repay the money
it borrowed. Funds can create leverage, or borrow money, by using different
types of techniques including reverse repurchase agreements, dollar rolls, and
derivatives including inverse floating rate instruments.
-------
40
<PAGE>
Hedging and Other
Strategic Transactions
Individual Funds 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 Fund. Hedging is simply believing that certain securi-
ties will fall, or rise, in value, and structuring transactions that take
advantage of those changes. These transactions are generally used to protect
against possible changes in the market value of securities a Fund already owns
or plans to buy, to protect unrealized gains or to improve the Fund's return in
some way.
Where allowed, individual Funds may 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. This category
includes derivative transactions. A "derivative" is generally defined as an
instrument whose value is based upon, or derived from, some underlying index or
rate. Interest rate transactions may include swaps, caps, floors and collars,
and currency transactions may include currency forward contracts, currency
futures contracts, currency swaps and options on currencies or currency futures
contracts.
Frequent Trading
A Fund may buy or sell investments extremely frequently, increasing brokerage
commissions and other expenses of the Fund. Frequent trading may also increase
the amount of capital gains realized by a Fund, including short-term capital
gains, which are generally taxable to shareholders at ordinary income tax
rates.
Temporary Defensive Strategies
A Fund's subadvisor may at certain times decide that pursuing the Fund's
investment strategies is inconsistent with market conditions. A subadvisor may
then employ defensive strategies designed mostly to limit losses. However, the
subadvisor may choose not to use defensive strategies, even in volatile or
unsettled market conditions. Such defensive strategies may cause the Fund to
miss opportunities or to not achieve its goal.
-------
41
<PAGE>
More about Index Funds and Tracking an Index
The factors that cause a Fund to perform differently from the index it tries to
track are called tracking differences. There is no assurance that an Index Fund
can track its index.
The coefficient of correlation (r) is an index number which shows how closely
two variables are related. If r = 0 there is no tendency for one variable to
change with the other. A value of +1 means that one variable will vary exactly
with the other. Index funds try to keep their coefficient of correlation as
close to 1 as possible.
Tracking accuracy is reviewed daily by the subadvisor for each of the Index
Funds. If an Index Fund does not accurately track an index, the subadvisor will
rebalance the Fund's portfolio by selecting securities which will provide a
more representative sampling of the securities in the index as a whole or the
sector diversification within the index, as appropriate.
The index may remove one stock and substitute another, requiring the Fund to do
the same. When a stock is sold and the new stock purchased, the Fund incurs
transaction costs.The index incurs no transaction costs. Therefore, any index
fund portfolio manager cannot match exactly the performance of an index.
An index fund may not buy every single stock in its index or in the same pro-
portions as the index. The subadvisor may rely on a statistical selection tech-
nique to figure out, of the stocks tracked by their index, how many and which
ones to buy. Stocks are bought and sold in response to cash flows into and out
of the Fund and when they are added to or dropped from the index. This gener-
ally helps to keep brokerage fees and other transaction costs lower than other
funds.
-------
42
<PAGE>
Management of the Funds
Under the federal securities laws, Massachusetts law and the Trust's Agreement
and Declaration of Trust and By-Laws, the business and affairs of the Trust are
managed under the direction of the Trustees.
American General Asset Management Corp. ("AGAM"), formerly CypressTree Asset
Management Corporation, Inc., is the investment adviser for the Trust. AGAM was
formed in 1996 to advise, acquire and distribute mutual funds through broker-
dealers, banks and other intermediaries. AGAM's address is 286 Congress Street,
Boston, Massachusetts 02210.
According to its Advisory Agreement with the Trust (the "Advisory Agreement"),
AGAM:
.Oversees the administration of all aspects of the business and affairs of the
Funds
.Selects, contracts with and compensates subadvisors to manage the assets of
the Funds
The following table shows the management fees each Fund paid (or, in the case
of new Funds will pay) to AGAM for the last fiscal year under the Advisory
Agreement as a percentage of the Fund's average daily net asset value.
<TABLE>
<CAPTION>
Funds Management
Fees
--------------------------------------------------------------------------
<S> <C>
International Small Cap Fund 1.05%
International Equity Fund .90%
Global Equity Fund .88%
Small Cap Growth Fund .95%
Mid Cap Growth Fund .93%
Large Cap Growth Fund .90%
Growth & Income Fund .73%
Balanced Fund .78%
Strategic Income Fund .75%
Core Bond Fund .60%
U.S. Government Securities Fund .60%
Money Market Fund .20%
Conservative Growth Lifestyle 0.10%
Fund
Aggressive Growth Lifestyle Fund 0.10%
Moderate Growth Lifestyle Fund 0.10%
High Yield Bond Fund 0.825% on the first $200 million
0.725% on the next $300 million
0.675% on assets over $500 million
Mid Cap Value Fund 0.900% on the first $100 million
0.875% on the next $150 million
0.850% on the next $250 million
0.825% on the next $250 million
0.800% on the assets over $750 million
Socially Responsible Fund 0.65%
Stock Index Fund 0.27% on the first $500 million
0.26% on assets over $500 million
Small Cap Index Fund 0.28% on the first $500 million
0.27% on assets over $500 million
Science and Technology Fund 0.90%
</TABLE>
--------------------------------------------------------------------------------
-------
43
<PAGE>
.Makes recommendations to the Trustees regarding the hiring, termination and
replacement of subadvisors
.Reimburses the Fund if the total of certain expenses allocated to any Fund
exceeds certain limitations
.Monitors the subadvisors for compliance with the investment objectives and
related policies of each Fund
.Reviews the performance of the subadvisors
.Periodically reports to the Trustees
Under an order granted to the Funds by the Securities and Exchange Commission,
AGAM is permitted to appoint a subadvisor, to create a subadvisory agreement,
and to terminate or amend a subadvisory agreement, in each case without share-
holder approval. This "Manager of Managers" structure permits the Funds to
change subadvisors or the fees paid to subadvisors without the expense and
delays associated with obtaining shareholder approval. AGAM has ultimate
responsibility under the Manager of Managers structure to oversee the
subadvisors, including making recommendations to the Trust regarding the hir-
ing, termination and replacement of subadvisors.
-------
44
<PAGE>
Subadvisory Agreements
Wellington Management Company, LLP
Wellington Management Company, LLP, the subadvisor to the Growth & Income Fund
("Wellington Management"), whose principal business address is 75 State Street,
Boston, Massachusetts 02109.
Wellington Management and its predecessor organizations have provided invest-
ment management services to investment companies, employee benefit plans,
endowments, foundations and other institutions and individuals since 1928. As
of September 30, 1999, Wellington Management had investment management author-
ity with respect to approximately $217 billion of assets.
Matthew E. Megargel, Senior Vice President of Wellington Management, has served
as fund manager to the Growth & Income Fund since February 1992. Mr. Megargel
joined Wellington Management in 1983 as a research analyst and took on addi-
tional responsibilities as a fund manager in 1988. In 1991, he became solely a
fund manager with Wellington Management.
Credit Suisse Asset Management, LLC.
Credit Suisse Asset Management, LLC., the subadvisor to the Small Cap Growth
Fund ("CSAM"), is located at 153 E. 53rd Street, New York, New York, 10022.
CSAM is a professional investment counseling firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of November 30, 1999,
CSAM managed approximately $60 billion of assets, and together with its global
affiliates, managed $168 billion worldwide.
The co-fund managers of the Small Cap Growth Fund are Elizabeth B. Dater and
Stephen J. Lurito. Ms. Dater, a managing director, has been fund manager of the
Small Cap Growth Fund since its inception and has been a fund manager since
1978. Mr. Lurito, a managing director, has been a fund manager of the Small Cap
Growth Fund since its inception and has been with the firm since 1987.
Founders Asset Management, LLC.
Investment decisions for the Large Cap Growth Fund, International Small Cap
Fund and Global Equity Funds are made by their subadvisor, Founders Asset Man-
agement, LLC, located at 2930 East Third Avenue, Denver, Colorado 80206. Found-
ers is a registered investment adviser first established as an asset manager in
1938, and is a subsidiary of Mellon Bank, N.A. As of September 30, 1999, Found-
ers had over $7.5 billion of assets under management, including approximately
$5.2 billion in mutual fund accounts and $2.3 billion in other advisory
accounts.
To facilitate the day-to-day investment management of the Large Cap Growth
Fund, International Small Cap Fund, and Global Equity Fund, Founders employs a
unique team-and-lead-manager system. The management team is composed of several
members of the Investment Department, including lead portfolio managers, port-
folio traders and research analysts. Team members share responsibility for pro-
viding ideas, information, knowledge and expertise in the management of the
Funds. Each team member has one or more areas of expertise that is applied to
the management of the Fund. Daily decisions on Fund selection for the Fund
rests with a lead fund manager assigned to the Fund.
-------
45
<PAGE>
Tracy P. Stouffer, Vice President of Investments, has been the lead fund man-
ager for the International Small Cap Fund since July 1999. Previously, Mr.
Stouffer was a vice president and portfolio manager with Federated Global
Incorporated from 1995 to July 1999 and a vice president and portfolio manager
with Clariden Asset Management from 1988 to 1995.
Thomas M. Arrington, Vice President of Investments, is a Chartered Financial
Analyst who has been the co-portfolio manager, along with Scott Chapman, of the
Large Cap Growth Fund since December 1998. Mr. Arrington has served as co-port-
folio manager to the Global Equity Fund since March 2000. Prior to joining
Founders, he was vice president and director of income equity strategy at
HighMark Capital Management, a subsidiary of Union BanCal Corp., where he man-
aged the HighMark Income Equity Fund, a large-cap fund. He received a bache-
lor's degree in economics from the University of California, Los Angeles and an
MBA from San Francisco State University.
Scott Chapman, Vice President of Investments, is a Chartered Financial Analyst
who has been the co-portfolio manager, along with Thomas Arrington, of the
Large Cap Growth Fund since December 1998. Mr. Chapman has served as co-portfo-
lio manager to the Global Equity Fund since March 2000. Before joining Found-
ers, Chapman was vice president and director of growth strategy for HighMark
Capital. He has more than 10 years experience in equity investment management,
including security analysis positions with McCullough, Andrews and Cappiello
and Cooper Development Co. Chapman received a bachelor of science degree in
accounting from Santa Clara University and an MBA in finance from Golden Gate
University.
Douglas A. Loeffler, Vice President of Investments, is a Chartered Financial
Analyst who has served as the co-portfolio manager of the Global Equity Fund
since March, 2000. Mr. Loeffler has been the lead portfolio manager for Dreyfus
Founders Worldwide Growth Fund since July, 1999. Prior to joining Founders in
1995, Mr. Loeffler was an investment professional at Scudder, Stevens & Clark
for seven years.
INVESCO Funds Group, Inc. ("INVESCO")
INVESCO, with principal offices at 7800 E. Union Blvd., Denver, Colorado 80237,
has been the subadvisor to the Balanced Fund and the Mid Cap Growth Fund since
March 2000. Established in 1932, INVESCO Funds Group is one of the oldest
existing mutual fund management companies in the United States. Some of the
world's largest institutions and more than one million individual investors
rely on the knowledge of INVESCO's investment specialists. As of December 31,
1999, INVESCO and its affiliates managed approximately $357 billion in assets,
including $40 billion in shareholder accounts.
Charles P. Mayer, Director of Investments & Senior Vice President, manages the
equity portion of the Balanced Fund. Mr. Mayer, who joined INVESCO in 1993, has
been an investment professional since 1969. Mr. Mayer holds a BA from St.
Peter's College, and an MBA from St. John's University.
Donovan J. Paul, Senior Vice President, manages the fixed-income portion of the
Balanced Fund. Mr. Paul, who joined INVESCO in 1994, has been an investment
professional since 1976. Mr. Paul holds a BBA from the University of Iowa, and
an MBA from the University of Northern Iowa.
Peter Lovell, Vice President, is a co-manager of the Balanced Fund. Mr. Lovell,
who joined INVESCO in 1994, has been an investment professional since 1976. Mr.
Lovell holds a BBA from the University of Iowa, and an MBA from the University
of Northern Iowa.
Timothy J. Miller, Senior Vice President, manages the Mid Cap Growth Fund. Mr.
Miller, who joined INVESCO in 1992, has been an investment professional since
1979. Mr. Miller holds a BSBA from St. Louis University, and an MBA from the
University of Missouri.
-------
46
<PAGE>
Morgan Stanley Dean Witter Investment Management Inc.
Morgan Stanley Dean Witter Investment Management Inc., with principal offices
at 1221 Avenue of the Americas, New York, New York 10020, has been the
subadvisor to the International Equity Fund since April 1, 1999. Morgan Stanley
Dean Witter Investment Management Inc. in certain instances does business using
the name Morgan Stanley Asset Management ("MSAM"). MSAM, a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., conducts a worldwide fund
management business, providing a broad range of fund management services to
customers in the United States and abroad. As of September 30, 1999, MSAM,
together with its affiliated institutional asset management companies, managed
investments totaling approximately $173.5 billion.
Ann D. Thivierge shares portfolio management responsibility for the Interna-
tional Equity Fund with Barton M. Biggs. Ms. Thivierge is a Managing Director
of MSAM. She joined MSAM in 1986 and holds a B.A. in International Relations
from James Madison College, Michigan State University, and an M.B.A. in Finance
from New York University.
Barton M. Biggs has been Chairman and a director of MSAM since 1980. He is also
a director and chairman of various registered investment companies to which
MSAM and certain of its affiliates provide investment advisory services. Mr.
Biggs holds a B.A. from Yale University and an M.B.A. from New York University.
American General Investment Management, L.P. ("AGIM")
AGIM has been the subadvisor to the Strategic Income Fund, the Core Bond Fund,
the U.S. Government Securities Fund, and the Money Market Fund since March,
2000, and of the Stock Index Fund, the Socially Responsible Fund, the High
Yield Bond Fund, the Aggressive Growth Lifestyle Fund, the Moderate Growth
Lifestyle Fund, and the Conservative Growth Lifestyle Fund since inception.
AGIM was formed in 1998 as a successor to the investment management division of
American General Corporation, and is an indirect wholly-owned subsidiary of
American General Corporation. AGIM also provides investment management and
advisory services to pension and profit sharing plans, financial institutions
and other investors. Accounts managed by AGIM had combined assets, as of
December 31, 1999, of approximately $68.9 billion. AGIM is located at 2929
Allen Parkway, Houston, Texas 77019.
Magali E. Azema-Barac is responsible for AGIM's equity group. She heads the
team making investment decisions for each of the Index Funds, as well as for
the Socially Responsible Fund. Ms. Azema-Barac joined American General in Sep-
tember, 1999. Prior to that, she worked on the equity desk of US West Invest-
ment Management Company in Englewood, Colorado, where she managed an enhanced
equity portfolio.
Steven Guterman, Executive Vice President portfolio manager of the Strategic
Income Fund, joined AGIM in 1998. Mr. Guterman served as Managing Director at
Salomon Brothers, Inc. from 1996 to 1998 and as Senior Portfolio Manager and
head of the U.S. Fixed Income Portfolio Group from 1990 to 1998.
Robert N. Kase, Portfolio Manager, who serves as the portfolio manager of the
Core Bond Fund and the U.S. Government Securities Fund, joined AGIM in 1998.
Mr. Kase has served as Investment Officer of Variable Annuity Life Insurance
Company and Senior Portfolio Manager of AGIM since 1998, and was Senior Portfo-
lio Manager with CL Capital Management, Inc. from 1992 to 1998.
Investment decisions for the High Yield Bond Fund are made by a team, headed by
Gordon Massie. Mr. Massie, Senior Vice President, joined AGIM in April 1998.
Previously, Mr. Massie was Director of High Yield Research at American General
Corporation from August 1985 to April 1998.
Investment decisions for the Municipal Money Market Fund are made by a team of
investment professionals at AGIM.
Teresa Moro, Portfolio Manager, who serves as the portfolio manager of the
Money Market Fund, has served as Vice President and Investment Officer of Amer-
ican General Series Portfolio Company and as portfolio manager of the American
General Series Portfolio Company Money Market Fund since 1991.
-------
47
<PAGE>
Neuberger Berman
Management, Inc. ("NBM") 605 Third Avenue, Second Floor, New York, New York
10158-0180
NBM is the subadvisor for the Mid Cap Value Fund. NBM and its predecessor firms
have specialized in the management of no-load mutual funds since 1950. As of
December 31, 1999, NBM and its affiliates managed approximately $54 billion in
aggregate net assets.
Robert I. Gendelman and S. Basu Mullick serve as co-managers of the Mid Cap
Value Fund. Messrs. Gendelman and Mullick are Vice Presidents of NBM and Mr.
Gendelman is a managing director of Neuberger Berman, LLC. Messrs. Gendelman
and Mullick have been associated with NBM since 1994 and 1998, respectively.
Prior to joining NBM, Mr. Mullick was Managing Director of Ark Asset Management
from 1993-1998.
T. Rowe Price Associates, Inc., ("T. Rowe Price")
T. Rowe Price is the subadvisor for the Science & Technology Fund. Founded in
1937 by Thomas Rowe Price, Jr., the Baltimore-based investment management firm
is one of the nation's leading providers of no-load mutual funds for individual
investors and corporate retirement programs. As of September 30, 1999, T. Rowe
Price and its affiliates served as investment advisor to more than 75 stock,
bond, and money market funds and managed about $157.4 billion.
The Fund is managed by an investment advisory committee, chaired by Charles A.
Morris. Mr. Morris has day-to-day responsibility for managing the portfolio and
works with the committee to develop and execute the Fund's investment program.
-------
48
<PAGE>
Section III:
Investing in the North American Funds
Institutional Classes of Shares
Two classes of shares of North American Funds are offered by this Prospectus:
Institutional Class I shares and Institutional Class II shares.
Institutional Class I shares of each Fund and Institutional Class II shares of
the Core Bond Fund and High Yield Bond Fund are available to you through your
employer plan. Institutional Class I shares are available to any qualifying
employer plan once the plan establishes a minimum account balance of $1 million
with the Trust and Institutional Class II shares are available once the plan
establishes a minimum account balance of $500 million with the Trust. Institu-
tional Class I shares are also available for purchase by the Aggressive, Moder-
ate and Conservative Growth Lifestyle Funds. A plan's account balance is equal
at any time to the aggregate of all amounts contributed by the plan to the
Trust, less the cost of all redemptions by such plan from the Trust. The Dis-
tributor may waive the minimum account balance requirement if it reasonably
anticipates that the size of the plan and/or the anticipated amount of contri-
butions will present economies of scale. As a participant in an employer
retirement plan, you do not purchase Institutional Class I and Class II shares
of the Funds directly. Rather, Institutional Class I and Class II shares of a
Fund are purchased for you when you elect to allocate your retirement contribu-
tions to a Fund plan that is avail- able as an investment option in your
retirement or savings plan. You may be permitted to elect different investment
options, alter the amounts contributed to your plan, or change how contribu-
tions are allocated among your investment options in accordance with your
plan's specific provisions. See your plan administrator or employee benefits
office for more details. Investments by individual participants in employer
retirement plans are made through their plan sponsor or administrator, who is
responsible for transmitting instructions for all orders for the purchase,
redemption and exchange of Fund shares. The availability of an investment by a
plan participant in the Funds, and the procedures for investing depend upon the
provisions of the plan and whether the plan sponsor or administrator has con-
tracted with the Trust or designated agent for special processing services.
For more information on how to participate in the Funds through an employee
retirement plan, please refer to your plan materials or contact your employee
benefits office.
Transfer or exchange of balances
An employer retirement plan may allow you to exchange all or part of your
existing plan balance from one investment option to another. Check with your
plan administrator for details on the rules governing exchanges in your plan.
Exchanges will be accepted by the Trust only as permitted by your plan. Your
plan administrator can explain how frequently exchanges are allowed. The Trust
reserves the right to re-fuse any exchange purchase request.
-------
49
<PAGE>
Pricing of Fund Shares
The price of the shares of each Fund is the net asset value per share (next
determined following receipt of a properly completed order). The net asset
value of the shares of each class of each Fund is calculated separately and,
except as described below, is determined once daily as of the close of regu-
larly scheduled trading on the New York Stock Exchange generally, 4:00 p.m.,
Eastern Time. Net asset value per share of each class of each Fund is calcu-
lated by dividing the value of the portion of the Fund'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 Fund's securities
holdings will not materially affect the current net asset value of the shares
of the Fund and (ii) days when the New York Stock Exchange is closed (for exam-
ple, national holidays). Generally, trading in non-U.S. Government securities
as well as U.S. Government Securities and money market instruments, is substan-
tially completed each day at various times prior to the close of regularly
scheduled trading on the New York Stock Exchange. The values of such securities
used in computing the net asset value of the shares of a class of a Fund 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 gener-
ally 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 deter-
mined in good faith by the subadvisors under procedures established and regu-
larly reviewed by the Trustees.
All instruments held by the Money Market Fund and short-term debt instruments
with a remaining maturity of 60 days or less held by the other Funds are valued
on an amortized cost basis.
Unless you request cash payment, all dividends and distributions will be rein-
vested. All Funds except the Money Market Fund declare and pay capital gains
annually.
-------
50
<PAGE>
Dividends and Distributions from North American Funds
These Funds declare and pay income dividends annually:
.International Small Cap Fund
.Global Equity Fund
.Small Cap Growth Fund
.Mid Cap Growth Fund
.Large Cap Growth Fund
.Balanced Fund
These Funds declare and pay income dividends semi-annually:
.International Equity Fund
.Growth & Income Fund
This Fund declares and pays income dividends monthly:
.High Yield Bond
These Funds declare income dividends daily and pay quarterly:
.Conservative Growth Lifestyle
.Aggressive Growth Lifestyle
.Mid Cap Value
.Moderate Growth Lifestyle
.Socially Responsible
These Funds declare income dividends daily and pay monthly:
.Strategic Income Fund
.Core Bond Fund
.U.S. Government Securities Fund
.Money Market Fund
-------
51
<PAGE>
Taxes
It is expected that each Fund of the Trust will qualify as a "regulated invest-
ment company" under the Code. If it so qualifies, a Fund will not be subject to
United States federal income taxes on its net investment income and net capital
gain, if any, that it distributes to its shareholders in each taxable year,
provided that it distributes to its shareholders (i) at least 90% of its net
investment income for such taxable year, and at least 90% of its net tax-exempt
interest income for such taxable year. If in any year a Fund fails to qualify
as a regulated investment company, such Fund would incur regular corporate fed-
eral income tax on its taxable income for that year and be subject to certain
additional distribution requirements upon re-qualification. Each Fund 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 Fund intends to make sufficient distributions to avoid application
of the corporate income and excise taxes.
Certain investments, including investments in assets "marked to the market" for
federal income tax purposes, debt obligations issued or purchased at a discount
and potentially so-called "index securities", may create taxable income in
excess of the cash they generate. In such cases, a Fund may be required to sell
assets (including when it is not advantageous to do so) to generate the cash
necessary to distribute as dividends to its shareholders all of its income and
gains and thereby to eliminate any tax liability at the Fund level. In addi-
tion, transactions in options, futures contracts, hedging trans- actions, for-
ward contracts, and straddles may accelerate income, defer losses, cause
adjustments in the holding periods of a Fund's securities and convert long-term
capital gains into short-term capital gains and short-term capital losses into
long-term capital losses. These transactions may affect the amount, timing and
character of distributions to shareholders.
Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments on dividends and interest.
The investment yield of the Funds 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 Fund is eligible for and makes an election to
allow the shareholders of that Fund to claim a foreign tax credit or deduction
for these taxes for any taxable year, the shareholders will be notified. The
ability of the shareholders to utilize such a foreign tax credit is subject to
a holding period requirement. In addition, Funds investing in securities of
passive foreign investment companies may be subject to U.S. fed- eral income
taxes (and interest on such taxes) as a result of such investments. The invest-
ment yield of the Funds 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.
A Fund's distributions derived from interest, dividends and certain other
income, including in general short-term capital gains, will result in taxable
ordinary income to the shareholders of the Fund, whether received in cash or
reinvested in shares. Properly designated Fund distributions derived from net
long-term capital gains (i.e., net gains derived from the sale of securities
held for more than 12 months) will result in taxable long-term capital gain
income to the shareholders of the Fund, regardless of whether the distributions
are received in cash or reinvested in shares and regardless of how long a
shareholder has held shares in the Fund. Distributions are taxed as described
in this paragraph even if such distributions economically represent a return of
a particular shareholder's investment. Distributions that represent a return of
a particular shareholder's investment are likely to occur in respect of shares
purchased at a time when a Fund's net asset value reflects gains that are
either unrealized, or realized but not distributed.
The redemption, sale or exchange of Fund shares (including the exchange of
shares of one Fund 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 disposi-
tion of shares of the Fund will be taxed as capital gain or loss if the shares
are capital assets in the
-------
52
<PAGE>
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 a Fund before hold-
ing 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 on which the shares are disposed.
Generally, unless a shareholder of any Fund includes his or her taxpayer iden-
tification 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% from divi-
dends (other than exempt-interest dividends) and other reportable payments to
the shareholder.
Depending on the residence of the shareholder for tax purposes, distributions
may also be subject to state and local taxes or withholding taxes. Most states
provide that a regulated investment company may pass through (without restric-
tion) to its shareholders state and local income tax exemptions available to
direct owners of certain types of U.S. government securities. Thus, for resi-
dents of these states, distributions derived from a Fund's investment in cer-
tain types of U.S. government securities should be free from state and local
income taxes to the extent that the interest income from such investments
would have been exempt from state and local income taxes if such securities
had been held directly by the respective shareholders themselves.
-------
53
<PAGE>
[LOGO OF NORTH AMERICAN FUNDS]
North American Funds
286 Congress Street
Boston, Massachusetts 02210
(800) 872-8037
International Small Cap Fund Mid Cap Value Fund
International Equity Fund Stock Index Fund
Global Equity Fund Small Cap Index Fund
Small Cap Growth Fund Socially Responsible Fund
Mid Cap Growth Fund High Yield Bond Fund
Large Cap Growth Fund Aggressive Growth LifeStyle Fund
Growth & Income Fund Moderate Growth LifeStyle Fund
Balanced Fund Conservative Growth LifeStyle Fund
Strategic Income Fund Municipal Money Market Fund
Core Bond Fund Science & Technology Fund
Municipal Bond Fund
U.S. Government Securities Fund
Money Market Fund
For Additional Information
More information about the Funds, including the SAI, is available to you free of
charge. To request additional information:
By Telephone
Call 1-800-872-8037
By Mail from the Funds (There is no fee.)
Write to:
North American Funds
286 Congress Street
Boston, MA 02210
By Mail or In Person from the Public Reference Room of the Securities and
Exchange Commission (SEC). (You will pay a duplication fee.)
Visit or Write to:
SEC's Public Reference Section
450 Fifth Street, NW
Washington, DC, 20549-6009
1-800-SEC-0330
Online at the SEC's Internet Site Text-only versions of fund documents can be
viewed online or downloaded from http://www.sec.gov.
Statement of Additional Information (SAI)
The SAI provides additional information about the Trust and the Funds. The SAI
and the auditor's report and financial statements included in the Trust's most
recent Annual Report to its shareholders are incorporated by reference as part
of this Prospectus.
Annual and Semi-annual Reports
The Annual and Semi-annual Reports describe the Funds' performance, list
portfolio holdings and include additional information about the Funds'
investments. The Annual Report discusses the market conditions and investment
strategies that significantly affected the Fund's performance during their last
fiscal year.
File No. 811-5797
0500:90201I
<PAGE>
Prospectus 2000
[GRAPHIC]
[NORTH AMERICAN FUNDS]
Class A Shares
Class B Shares
Class C Shares
Mid Cap Value Fund Aggressive Growth LifeStyle Fund
Stock Index Fund Moderate Growth LifeStyle Fund
Small Cap Index Fund Conservative Growth LifeStyle Fund
Socially Responsible Fund Municipal Money Market Fund
High Yield Bond Fund Science & Technology Fund
The Securities and Exchange Commission has not approved or disapproved of these
securities or passed on the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
May 31, 2000
<PAGE>
[LOGO]
Table of Contents
Organization of Information
This Prospectus includes information about 10 different Funds.
.Section I of the Prospectus includes summaries of each Fund.
.Section II includes additional information about the Funds' investment
strategies, additional risk information and information about the Funds'
management.
.Section III of the Prospectus includes information about how to invest
and manage your North American Funds account.
<TABLE>
<S> <C>
Section I: Summaries of the Funds............. Page 1
Summary of each Fund
.Investment Objective
.Principal Investment Strategies
.Main Investing Risks
.Investment Performance
.Descriptions of Main Investment Risks
Section II: Other Information about each Page 15
Fund..........................................
.Fees and Expenses
.More Information About Investment
Strategies and Risks
.Other Risks of Investment
.Fund Management
Section III: Investing in the Funds........... Page 26
</TABLE>
This section includes the information you need about how to invest and how to
redeem shares. It also includes other important information about sales
charges, taxes and account privileges.
More Information
If you'd like information additional to that included in this Prospectus, the
back cover lists a number of places to call or to visit for
additional materials.
<PAGE>
Section I:
Fund Summaries
North American Funds (the "Trust") is a group of mutual funds that includes 25
separate investment portfolios, or "Funds." Each Fund has a specific, unique
investment objective. Each Fund also has a subadvisor, a firm responsible for
making investment decisions for the Fund. This Prospectus includes information
about Class A shares, Class B shares and Class C shares for 10 of the Funds.
The summaries starting on the next page describe the investment objective and
principal investment strategies of these Funds. The summaries also list the
main risks of investing in each Fund. Explanations of these main risks start on
page 12.
No performance information is available for the Funds because they have oper-
ated for less than one year.
It is important to remember that, as with any investment, it is possible for
investors to lose money by investing in the Funds. An investment in any of the
Funds is not a deposit in a bank and is not insured by the Federal Deposit
Insurance Corporation or any other government agency.
------
1
<PAGE>
Mid Cap Value Fund
Investment Goal and Strategies
The investment objective of the Mid Cap Value Fund is to seek capital growth.
Neuberger Berman Management, Inc. ("NBM"), the Fund's subadvisor, pursues this
objective by investing at least 65% of the Fund's total assets in equity secu-
rities of medium capitalization companies using a value-oriented investment
approach.
Medium capitalization companies include companies with the characteristics of
companies included in the Russell MidcapTM Index. As of December 31, 1999, the
largest company included in the Russell MidcapTM Index had an approximate mar-
ket capitalization of $36.84 billion, while the average market capitalization
was approximately $4.4 billion.
NBM chooses securities it believes are undervalued based on strong fundamen-
tals, including a low price-to-earnings ratio, consistent cash flow, and the
company's track record through all parts of the market cycle. When selecting
securities for this Fund, NBM also considers other factors, including ownership
by a company's management of the company's stock and the dominance of a company
in its particular field. Up to 35% of the Fund's total assets may be invested
in other equity securities, including common and preferred stocks, convertible
securities, and related equities. The Fund may invest in derivatives.
The Fund may participate in the initial public offering ("IPO") market, and a
portion of the Fund's returns may be attributable to the Fund's investments in
IPOs. There is no guarantee that as the Fund's assets grow that it will be able
to experience significant improvement in performance by investing in IPOs. The
Fund will be actively traded, which will be reflected in its portfolio turnover
rate. The Fund's active trading strategy may cause the Fund to incur higher
trading costs and/or to have a relatively high amount of short-term capital
gains, which are generally taxable to you at your ordinary income tax rate.
Main Investing Risks
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally including, in particular, the risks of investing in IPOs)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
------
2
<PAGE>
Stock Index Fund
Investment Goal and Strategies
The Stock Index Fund seeks to provide investment results that are similar to
the total return of the S&P 500 Index (the "Index").
The Index is composed of 500 common stocks which are chosen by Standard &
Poor's Corporation. The Index approximates the general distribution of indus-
tries in the U.S. economy, and captures the price performance of a large cross-
section of the publicly traded stock market. The Index is capitalization-
weighted, meaning that it holds each stock in proportion to its total value in
the stock market.
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
pursues this objective by investing in companies that are listed in the Index,
except for a small portion in cash, to be available for redemptions. Since it
may not be possible for this Fund to buy every stock included in the Index, or
in the same proportions, the Fund invests in a sampling of common stocks in the
Index. The common stocks of the Index to be included in the Fund will be
selected utilizing a statistical sampling technique known as "optimization."
This process selects stocks for the Fund so that various industry weightings,
market capitalizations and fundamental characteristics (e.g., price-to-book,
price-to-earnings, debt-to-asset ratios and dividend yields) closely approxi-
mate those of the Index. The common stocks held by the Fund are weighted to
make the Fund's aggregate investment characteristics similar to those of the
Index as a whole.
An index fund's performance will not exactly match that of an index because the
index fund incurs operating expenses and other investment overhead as part of
its normal operations. The index is an unmanaged group of securities, so it
does not have these expenses. These differences between an index fund and its
index are called tracking differences.
The tracking differences are reviewed daily by AGIM for the Fund. If the Fund
does not accurately track an index, AGI will rebalance the Fund's portfolio by
selecting securities which will provide a more representative sampling of the
securities in the index as a whole or the sector diversification within the
index, as appropriate.
Financial futures will be used to hedge cashflows and maintain liquidity in the
Fund's portfolio.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities
denominated in foreign curren-
cies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation).
Although financial futures track the underlying Index fairly closely there is
the risk that, at times, their results will diverge from the Index.
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Index Risk (the risk that the Fund's performance will not match that of the
underlying Index)
------
3
<PAGE>
Small Cap Index Fund
Investment Goal and Strategies
The Small Cap Index Fund seeks to provide investment results that are similar
to the total return of the Russell 2000(R) Index (the "Index").
The Index is a sub-index of the Russell 3000(R) Index, which follows the 3,000
largest U.S. companies based on total market capitalization. The Index measures
the performance of the 2,000 smallest companies in the Russell 3000(R) Index,
and represents about 8% of the total market capitalization of the Russell
3000(R) Index. The average market capitalization in the Index was $650 million
as of December 31, 1999. As of the same date, the largest company in the Index
had a market capitalization of nearly $13.04 billion.
To achieve this objective, American General Investment Management, L.P.
("AGIM"), the Fund's subadvisor, invests in companies that are listed in the
Index, except for a small portion in cash, to be available for redemptions.
Since it may not be possible for this Fund to buy every stock included in the
Index, or in the same proportions, the Fund invests in a sampling of common
stocks in the Index. The common stocks of the Index to be included in the Fund
will be selected utilizing a statistical sampling technique known as "optimiza-
tion." This process selects stocks for the fund so that various industry
weightings, market capitalizations and fundamental characteristics (e.g.,
price-to-book, price-to-earnings, debt-to-asset ratios and dividend yields)
closely approximate those of the Index. The common stocks held by the Fund are
weighted to make the Fund's aggregate investment characteristics similar to
those of the Index as a whole.
Generally, an index fund tries to mirror the target index and its performance.
An index fund's performance will not exactly march that of an index because the
index fund incurs operating expenses and other investment overhead as part of
its normal operations. The index is an unmanaged group of securities, so it
does not have these expenses. These differences between an index fund and its
index are called tracking differences.
The tracking differences are reviewed daily by AGIM for the Fund. If the Fund
does not accurately track an index, AGIM will rebalance the Fund's portfolio by
selecting securities which will provide a more representative sampling of the
securities in the index as a whole or the sector diversification within the
index, as appropriate.
Financial futures will be used to hedge cashflows and maintain liquidity in the
Fund's portfolio.
Main Investing Risks
.Derivatives Risk (the risk that the value of the Fund's derivative investments
will decline as a result of imperfect correlation or improper valuation).
Although financial futures track the underlying Index fairly closely there is
the risk that, at times, their results will diverge from the Index.
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally, including, in particular, the risks associated with invest-
ing in smaller companies)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Index Risk (the risk that the Fund's performance will not match that of the
underlying index)
------
4
<PAGE>
Socially Responsible Fund
Investment Goal and Strategies
The investment objective of the Socially Responsible Fund is to obtain growth
of capital.
To achieve this objective, American General Investment Management, L.P.
("AGIM"), the Fund's subadvisor, will invest at least 80% of the Fund's assets
in the equity securities of companies meeting social criteria established for
the Fund. To find out which companies meet the Fund's social criteria, AGIM
relies on industry classifications and research services such as the Investor
Responsibility Research Center ("IRRC").
The Fund does not invest in companies that are significantly engaged in:
.the production of nuclear energy;
.the manufacture of weapons or delivery systems;
.the manufacture of alcoholic beverages or tobacco products;
.the operation of gambling casinos; or
.business practices or the production of products that significantly pollute
the environment.
The manager of the Socially Responsible Fund determines whether a company "sig-
nificantly" engages in prohibited activities by screening the Fund's investable
universe against a proprietary database of stocks. Companies in the database
generating more than 5% of revenues from any violating activity are not pur-
chased by the fund. In addition to this database, the manager uses various
other resources to screen out companies whose operations appear to violate the
social criteria.
At least once a year, the IRRC surveys state laws to see if there are any new
or revised state laws that govern or affect the investments of public funds. If
the survey shows that at least 20 states have adopted laws that restrict public
funds from being invested in a clearly definable category of investments, this
category is automatically added to the Fund's social criteria list.
The manager of the Socially Responsible Fund determines whether a company "sig-
nificantly pollutes the environment" by screening the Fund's investable uni-
verse against a list of the top 75 global emitters. Emissions data is collected
from various sources including, but not limited to, government agencies and
company filings. In addition to this list, the manager uses various publica-
tions to screen out companies whose operations appear to violate the social
criteria.
Up to 20% of the Fund's total assets may be invested in high quality money mar-
ket securities and warrants, or in other types of equity securities of compa-
nies meeting social criteria, including American Depositary Receipts ("ADRs"),
foreign securities, preferred stock, and convertible securities. The Fund may
invest in derivatives.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Social Criteria Risk (the risk that securities of companies meeting the Fund's
social criteria will underperform the market generally)
------
5
<PAGE>
High Yield Bond Fund
Investment Goal and Strategies
The High Yield Bond Fund seeks the highest possible total return consistent
with conservation of capital through investment in a diversified portfolio of
high yielding, high risk fixed-income securities.
To achieve this objective, American General Investment Management, L.P.
("AGIM"), the Fund's subadvisor, invests at least 65% of the Fund's total
assets in below-investment grade U.S. and foreign junk bonds. These high yield-
ing, high risk fixed-income securities are rated below Baa3 by Moody's and BBB-
by S&P. Up to 15% can be rated below Caa3 by Moody's or CCC- by S&P. The Fund
may also invest up to 35% of total assets in below-investment grade foreign
fixed-income securities.
The Fund may invest up to 35% in investment grade securities, those rated Baa3
or higher by Moody's and BBB- or higher by S&P. In addition, the Fund may
invest up to 15% in zero coupon securities (securities not paying current cash
interest), and up to 20% of total assets in equity securities. Equity securi-
ties include common or preferred stocks, warrants, and convertible securities.
AGIM is not required to dispose of a bond that is downgraded to below-invest-
ment grade. The Fund may invest in derivatives.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations, including, in particular, the risks associated with junk bonds)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
------
6
<PAGE>
Aggressive Growth Lifestyle Fund
Investment Goal and Strategies
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
seeks growth through investments in a combination of the North American Funds
("Underlying Funds"). This Fund is suitable for investors seeking the potential
for capital growth that a fund investing predominately in equity securities may
offer.
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as
an investor. Selecting the appropriate combination should be based on your per-
sonal investment goals, time horizons and risk tolerance. The chart below
reflects the projected asset allocation ranges and Underlying Fund choices for
this Fund.
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Funds have been
selected to represent a reasonable spectrum of investment options for the Fund.
We have based the target investment percentages for the Fund on the degree to
which we believe the Underlying Funds, in combination, to be appropriate for
the Fund's investment objective. We may change the asset allocation ranges and
the particular Underlying Funds in which the Fund may invest from time to time.
The Fund is a non-diversified investment company under the 1940 Act because it
invests in a limited number of the Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the Fund's derivative investments will decline
as a result of imperfect correlation or improper valuation)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Non-Diversification Risk (the risk that investing in a smaller number of secu-
rities increases investment risks)
International Equity Securities 15%-35%
Underlying Fund:
International Equity Fund
(This Fund invests at least 65% in non-U.S. companies.)
Domestic Equity Securities 60%-80%
Underlying Funds:
Small Cap Growth Fund
(This Fund invests in the equity securities of small capitalization
companies.)
Mid Cap Value Fund
Mid Cap Growth Fund
(These Funds invest in the equity securities of medium capitalization
companies.)
Large Cap Growth Fund
Growth & Income Fund
(These Funds invest in the equity securities of large capitalization
companies.)
Bonds 5%-15%
Underlying Funds:
Core Bond Fund
High Yield Bond Fund
(These Funds invest in fixed-income securities.)
------
7
<PAGE>
Moderate Growth Lifestyle Fund
Investment Goal and Strategies
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
seeks growth and current income through investments in a combination of the
North American Funds ("Underlying Funds"). This Fund is suitable for investors
who wish to invest in equity securities, but who are not willing to assume the
substantial market risks of the Growth Lifestyle Fund.
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as
an investor. Selecting the appropriate combination should be based on your per-
sonal investment goals, time horizons and risk tolerance. The chart below
reflects the projected asset allocation ranges and Underlying Fund choices for
this Fund.
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Funds have been
selected to represent a reasonable spectrum of investment options for the Fund.
We have based the target investment percentages for the Fund on the degree to
which we believe the Underlying Funds, in combination, to be appropriate for
the Fund's investment objective. We may change the asset allocation ranges and
the particular Underlying Funds in which the Fund may invest from time to time.
The Fund is a non-diversified investment company under the 1940 Act because it
invests in a limited number of the Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the Fund's derivative investments will decline
as a result of imperfect correlation or improper valuation)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Non-Diversification Risk (the risk that investing in a smaller number of secu-
rities increases investment risks)
International Equity Securities 10%-20%
Underlying Fund:
International Equity Fund
(This Fund invests at least 65% in non-U.S. companies.)
Domestic Equity Securities 35%-65%
Underlying Funds:
Small Cap Growth Fund
(This Fund invests in the equity securities of small capitalization
companies.)
Mid Cap Value Fund
Mid Cap Growth Fund
(These Funds invest in the equity securities of medium capitalization
companies.)
Large Cap Growth Fund
Growth & Income Fund
(These Funds invest in the equity securities of large capitalization
companies.)
Bonds 25%-45%
Underlying Funds:
Core Bond Fund
High Yield Bond Fund
(These Funds invest in fixed-income securities.)
------
8
<PAGE>
Conservative Growth Lifestyle Fund
Investment Goal and Strategies
American General Investment Management, L.P. ("AGIM"), the Fund's subadvisor,
seeks current income and low to moderate growth of capital through investments
in a combination of the North American Funds ("Underlying Funds"). This Fund is
suitable for investors who wish to invest in equity securities, but who are not
willing to assume the market risks of either the Growth Lifestyle Fund or the
Moderate Growth Lifestyle Fund.
Asset allocation among the equity securities of international companies, large
capitalization companies,
medium capitalization companies, small capitalization companies and bonds is
the most critical investment decision that you make as an investor. Selecting
the appropriate combination should be based on your personal investment goals,
time horizons and risk tolerance. The chart below reflects the projected asset
allocation ranges and Underlying Fund choices for this Fund.
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Funds have been
selected to represent a reasonable spectrum of investment options for the Fund.
We have based the target investment percentages for the Fund on the degree to
which we believe the Underlying Funds, in combination, to be appropriate for
the Fund's investment objective. We may change the asset allocation ranges and
the particular Underlying Funds in which the
Fund may invest from time to time. The Fund is a non-diversified investment
company under the 1940 Act because it invests in a limited number of the Under-
lying Funds. However, the Underlying Funds themselves are diversified compa-
nies.
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Derivatives Risk (the risk that the Fund's derivative investments will decline
as a result of imperfect correlation or improper valuation)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Liquidity Risk (the risk that the Fund may be unable to sell a security
because there are too few people who actively trade that security on a regular
basis)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Non-Diversification Risk (the risk that investing in a smaller number of secu-
rities increases investment risks)
International Equity Securities 5%-15%
Underlying Fund:
International Equity Fund
(This Fund invests at least 65% in non-U.S. companies.)
Domestic Equity Securities 20%-50%
Underlying Funds:
Small Cap Growth Fund
(This Fund invests in the equity securities of small capitalization
companies.)
Mid Cap Value Fund
Mid Cap Growth Fund
(These Funds invest in the equity securities of medium capitalization
companies.)
Large Cap Growth Fund
Growth & Income Fund
(These Funds invest in the equity securities of large capitalization
companies.)
Bonds 45%-65%
Underlying Funds:
Core Bond Fund
High Yield Bond Fund
(These Funds invest in fixed-income securities.)
------
9
<PAGE>
Municipal Money Market Fund
Investment Goal and Strategies
The Fund seeks liquidity, protection of capital and current income through
investments in short-term money market securities that are exempt from regular
federal income taxation.
To achieve this objective, American General Investment Management, L.P.
("AGIM"), the Fund's subadvisor, invests in short-term money market securities
to provide you with liquidity, protection of your investment and current income
that is exempt from federal income tax. AGIM uses 95% of the Fund's total
assets to buy short-term securities that are rated within the highest rating
category for short-term fixed-income securities by at least two nationally rec-
ognized rating services or unrated securities of comparable investment quality.
If the Fund invests in municipal securities issued for certain private purpos-
es, a portion of the Fund's dividends may be subject to the alternative minimum
tax.
The investments this Fund may buy include:
.Municipal fixed-income securities with remaining maturities of 13 months or
less
.Commercial paper sold by municipalities rated at least MIG1 or MIG2 by Moody's
or A1 or A2 by S&P
.Variable rate demand notes
.Auction rate preferred stock and other adjustable rate obligations that are
exempt from federal income taxation
.Illiquid and restricted securities, limited to 10% of the Fund's net assets at
all times
.Rule 144A securities (liquid)
Main Investing Risks
.Credit Risk (the risk that the companies in which the Fund invests, or with
which it does business, will fail financially or otherwise fail to honor their
obligations)
.Interest Rate Risk (the risk that the value of the Fund's debt securities will
decline as a result of a change in interest rates)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
-------
10
<PAGE>
Science & Technology Fund
Investment Goal and Strategies
The objective of the Science & Technology Fund is long-term growth of capital.
The Fund's subadvisor, T. Rowe Price Associates, Inc., pursues this objective
by investing at least 65% of the Fund's assets in the common stocks and equity-
related securities of companies that are expected to benefit from scientific
breakthroughs and advancements in technology. Some of the industries that are
likely to be included in the portfolio are:
.Chemicals and synthetic materials, including pharmaceuticals
.Computers, including hardware and software
.Defense and aerospace
.E-Commerce
.Electronics, including hardware, software and components
.Media and information services
.Telecommunications
Stock selection reflects a growth approach and is based on intensive research
that assesses a company's fundamental prospects for above average earnings.
Holdings can range from small companies developing new technologies to blue
chip firms with established track records of developing and marketing technolo-
gy. Investments may also include companies that are expected to benefit from
technological advances even if they are not directly involved in research and
development.
The Fund may invest up to 30% of its assets in foreign securities, including
American Depositary Receipts ("ADRs") and other dollar-denominated foreign
securities. The Fund may invest up to 25% in other equity-related securities of
science and technology companies, including convertible debt securities and
convertible preferred stock. In addition, the Fund may invest in money market
securities in order to have cash available for redemptions. The Fund may invest
in derivatives.
Main Investing Risks
.Currency Risk (the risk that the Fund's investments in securities denominated
in foreign currencies will decline as a result of changes in exchange rates)
.Equity Risk (the risk that the value of the Fund's equity investments will
decline as a result of factors affecting the particular issuers or financial
markets generally)
.Foreign Investment Risk (the risk that the value of the Fund's foreign invest-
ments will decline as a result of foreign political, social or economic
changes)
.Management Risk (the risk that the Fund's subadvisor may not produce the
desired investment results)
.Science & Technology Company Risk (the risk that the prices of securities of
science and technology companies will be particularly volatile)
-------
11
<PAGE>
Descriptions of Main Investing Risks
The value of your investment in a Fund can change for many reasons, and may
decrease. The primary reasons for possible decreases in a Fund's value are
called "Main Investing Risks," and are explained in this section. Because the
types of investments a Fund makes change over time, the types of risks
affecting the Fund will change as well. Section II of the Prospectus includes
more information about other risks that might affect the Funds' values.
Non-Diversification Risk
Investment professionals believe that investment risk can be reduced through
diversification, which is simply the practice of choosing more than one type of
investment. On the other hand, concentrating investments in a smaller number of
securities increases risk.
Credit Risk
Credit Risk is the risk that the issuer or the guarantor (the entity that
agrees to pay the debt if the issuer cannot) of a debt or fixed income securi-
ty, or the counterpart to a derivatives contract or a securities loan, will not
repay the principal and interest owed to the investors or otherwise honor its
obligations. There are different levels of credit risk. Debt securities rated
in one of the four highest rating categories by a rating agency (and comparable
unrated securities) are known as "investment grade." Debt securities rated
below the four highest rating categories by a rating agency (and comparable
unrated securities) are known as "lower-rated" or "junk bonds." Funds that
invest in lower-rated securities have higher levels of credit risk. Lower-rated
or unrated securities of equivalent quality (generally known as junk bonds)
have very high levels of credit risk. Securities that are highly rated have
lower levels of credit risk.
Funds may be subject to greater credit risk because they may invest in debt
securities issued in connection with corporate restructurings by highly
leveraged (indebted) issuers and in debt securities not current in the payment
of interest or principal, or in default.
Funds that invest in foreign securities are also subject to increased credit
risk because of the difficulties of requiring foreign entities, including
issuers of sovereign (national) debt, to honor their contractual commitments,
and because a number of foreign governments and other issuers are already in
default.
Currency Risk
Funds that invest in securities that are denominated in and/or are receiving
revenues in foreign currencies are subject to currency risk. Currency risk is
the risk that foreign currencies will decline in value relative to the U.S.
dollar. In the case of hedging positions, it is the risk that the U.S. dollar
will decline in value relative to the currency hedged.
Derivatives Risk
Derivatives are financial contracts whose value depends on, or is derived from,
the change in value of an underlying asset, reference rate or index. When the
value of the underlying security or index changes, the value of the derivative
changes as well. As a result, derivatives can lose all of their value very
quickly. Derivatives involve credit risk if the other party is the derivative
should fail to meet its obligations to the Fund. Additional risks associated
with derivatives include imperfect corellation (between the values of the
derivative and the underlying investment) and improper valuation. Derivatives
risk for some Funds will be increased by their investments in structured secu-
rities.
-------
12
<PAGE>
Equity Risk
Equity securities, such as a company's common stock, may fall in value in
response to factors relating to the issuer, such as management decisions or
falling demand for a company's goods or services. Additionally, factors affect-
ing a company's particular industry, such as increased production costs, may
affect the value of its equity securities. Equity securities also rise and fall
in value as a result of factors affecting entire financial markets, such as
political or economic developments, or changes in investor psychology. Growth
stocks are the stocks of companies that have earnings that are expected to grow
relatively rapidly. As a result, the values of growth stocks may be more sensi-
tive to changes in current or expected earnings than the values of other
stocks.
Value stocks are the stocks of companies that are not expected to experience
significant earnings growth, but that are undervalued, or are inexpensive rela-
tive to the value of the company and its business as a whole. These companies
may have experienced recent troubles that have caused their stocks to be out of
favor with investors. If the market does not recognize the value of the company
over time, the price of its stock may fall, or simply may not increase as
expected.
Market capitalization refers to the total value of a company's outstanding
stock. Smaller companies with market capitalizations of less than $1 billion or
so are more likely than larger companies to have limited product lines, smaller
markets for their products and services, and they may depend on a small or
inexperienced management group. Small company stocks may not trade very active-
ly, and their prices may fluctuate more than stocks of larger companies. Stocks
of smaller companies may be more vulnerable to negative changes than stocks of
larger companies.
The risks associated with equity securities are typically higher for equity
securities purchased in IPOs. Issuers in IPOs typically have a limited operat-
ing history, and the prices of equity securities are often very volatile for
some time following an IPO.
Foreign Investment Risk
Funds investing in foreign securities may experience rapid changes in value.
One reason for this volatility is that the securities markets of many foreign
countries are relatively small, with a limited number of industries. Also, for-
eign securities issuers are usually not subject to the same degree of regula-
tion as U.S. issuers. Reporting, accounting and auditing standards of foreign
countries differ, in some cases significantly, from U.S. standards.
The possibility of political instability or diplomatic developments in foreign
countries could trigger nationalization of companies and industries, expropria-
tion (confiscation of property), extremely high levels of taxation, and other
negative developments. In the event of nationalization, expropriation or other
confiscation, a Fund could lose its entire investment. Funds that invest in
sovereign debt obligations are exposed to the risks of political, social and
economic change in the countries that issued the bonds.
Interest Rate Risk (Market Risk)
Interest rate risk, or market risk, is the risk that a change in interest rates
will negatively affect the value of a security. This risk applies primarily to
debt securities such as bonds, notes and asset backed securities. Debt securi-
ties are obligations of the issuer to make payments of principal and/or inter-
est on future dates. As interest rates rise, an investment in a Fund can lose
value, because the value of the securities the Fund holds may fall.
Market risk is generally greater for Funds that invest in debt securities with
longer maturities. This risk may be increased for Funds that invest in mort-
gage-backed or other types of asset-backed securities that are often prepaid.
Even Funds that invest in the highest quality debt securities are subject to
interest rate risk.
-------
13
<PAGE>
Liquidity Risk
Liquidity risk is the risk that a Fund will not be able to sell a security
because there are too few people who actively buy and sell, or trade, that
security on a regular basis. A Fund holding an illiquid security may not be
able to sell the security at a fair price. Liquidity risk increases for Funds
investing in derivatives, foreign investments or restricted securities.
Management Risk
Management risk is the risk that the subadvisor of a Fund, despite using vari-
ous investment and risk analysis techniques, may not produce the desired
investment results.
Social Criteria Risk
This risk applies only to the Socially Responsible Fund. If a company stops
meeting the Fund's social criteria after the Fund invested in it, the Fund will
sell these investments even if this means the Fund loses money. Also, if the
Fund changes its social criteria and the companies the Fund has already
invested in no longer qualify, the Fund will sell these investments, even if
this means the Fund loses money. Social criteria screening will limit the
availability of investment opportunities for the Fund more than for funds hav-
ing no such criteria.
Science & Technology Company Risk
Companies in the rapidly changing fields of science and technology often face
unusually high price volatility, both in terms of gains and losses. The poten-
tial for wide variation in performance is based on the special risks common to
these stocks. For example, products or services that at first appear promising
may not prove commercially successful or may become obsolete quickly. Earnings
disappointments can result in sharp price declines. A portfolio focused primar-
ily on these stocks is, therefore, likely to be much more volatile.
-------
14
<PAGE>
Section II:
Fees and Expenses of the North American Funds
This table describes the fees and expenses that you may pay if you invest in
the Funds.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Class B Class C
----------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)
Equity Funds (all Funds other than High-Yield Bond
Fund and Municipal Money Market Fund) 5.75% None None
High Yield Bond Fund 4.75% None None
Municipal Money Market Fund None None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or redemption price, whichever is lower)
Equity Funds and High Yield Bond Fund 1%/1/ 5%/2/ 1%/3/
Municipal Money Market Fund None None None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<CAPTION>
Fund Class A Class B Class C
----------------------------------------------------------------------------
<S> <C> <C> <C>
Mid Cap Value Fund
Management Fees 0.90% 0.90% 0.90%
Distribution (12b-1) Fees 0.35% 1.00% 1.00%
Other Expenses 0.60% 0.60% 0.60%
Total Annual Fund Operating Expenses/4/ 1.85% 2.50% 2.50%
----------------------------------------------------------------------------
Stock Index Fund
Management Fees 0.27% 0.27% 0.27%
Distribution (12b-1) Fees 0.35% 1.00% 1.00%
Other Expenses 0.66% 0.66% 0.66%
Total Annual Fund Operating Expenses/4/ 1.28% 1.93% 1.93%
----------------------------------------------------------------------------
Small Cap Index Fund
Management Fees 0.28% 0.28% 0.28%
Distribution (12b-1) Fees 0.35% 1.00% 1.00%
Other Expenses 1.09% 1.09% 1.09%
Total Annual Fund Operating Expenses/4/ 1.72% 2.37% 2.37%
----------------------------------------------------------------------------
Socially Responsible Fund
Management Fees 0.65% 0.65% 0.65%
Distribution (12b-1) Fees 0.35% 1.00% 1.00%
Other Expenses 0.78% 0.78% 0.78%
Total Annual Fund Operating Expenses/4/ 1.78% 2.43% 2.43%
----------------------------------------------------------------------------
</TABLE>
-------
15
<PAGE>
<TABLE>
<CAPTION>
Class Class Class
Fund A B C
-------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Bond Fund
Management Fees 0.83% 0.83% 0.83%
Distribution (12b-1) Fees 0.35% 1.00% 1.00%
Other Expenses 0.55% 0.55% 0.55%
Total Annual Fund Operating Expenses/4/ 1.73% 2.38% 2.38%
-------------------------------------------------------------------------
Aggressive Growth Lifestyle Fund
Management Fees 0.10% 0.10% 0.10%
Distribution (12b-1) Fees 0.10% 0.75% 0.75%
Other Expenses 0% 0% 0%
Total Annual Fund Operating Expenses/4/ 0.20% 0.85% 0.85%
Estimated Total Annual Combined Operating Expenses/5/ 1.87% 2.52% 2.52%
-------------------------------------------------------------------------
Moderate Growth Lifestyle Fund
Management Fees 0.10% 0.10% 0.10%
Distribution (12b-1) Fees 0.10% 0.75% 0.75%
Other Expenses 0% 0% 0%
Total Annual Fund Operating Expenses/4/ 0.20% 0.85% 0.85%
Estimated Annual Total Combined Operating Expenses/5/ 1.75% 2.40% 2.40%
-------------------------------------------------------------------------
Conservative Growth Lifestyle Fund
Management Fees 0.10% 0.10% 0.10%
Distribution (12b-1) Fees 0.10% 0.75% 0.75%
Other Expenses 0% 0% 0%
Total Annual Fund Operating Expenses/4/ 0.20% 0.85% 0.85%
Estimated Annual Total Combined Operating Expenses/5/ 1.66% 2.31% 2.31%
</TABLE>
-------
16
<PAGE>
<TABLE>
<CAPTION>
Class Class Class
Fund A B C
-----------------------------------------------------------
<S> <C> <C> <C>
Municipal Money Market Fund
Management Fees 0.35% 0.35% 0.35%
Distribution (12b-1) Fees 0% 0% 0%
Other Expenses 0.85% 0.85% 0.85%
Total Annual Fund Operating Expenses/4/ 1.20% 1.20% 1.20%
-----------------------------------------------------------
Science & Technology Fund
Management Fees 0.90% 0.90% 0.90%
Distribution (12b-1) Fees 0.35% 1.00% 1.00%
Other Expenses 1.00% 1.00% 1.00%
Total Annual Fund Operating Expenses/4/ 2.25% 2.90% 2.90%
-----------------------------------------------------------
1 1% first year
after purchase The higher
for purchases Distribution Fees
of $1 million borne by Class B
or more. and Class C shares
2 5% first and may cause long-
second year; 4% term shareholders
third year; 3% to pay more in
fourth year; 2% sales charges than
fifth year; 1% the maximum
sixth year and permitted front-
0% thereafter. end sales charge
3 0% after first on Class A shares.
year.
4 Fund fees and
expenses are
currently being
voluntarily
waived and/or
reimbursed by
AGAM such that
the Funds have
the following
net total
annual
operating
expenses:
<CAPTION>
Class Class Class
A B C
<S> <C> <C> <C>
Mid Cap Value Fund 1.78% 2.43% 2.43%
-----------------------------------------------------------
Stock Index Fund 1.00% 1.65% 1.65%
-----------------------------------------------------------
Small Cap Index Fund 1.00% 1.65% 1.65%
-----------------------------------------------------------
Socially Responsible Fund 1.50% 2.15% 2.15%
-----------------------------------------------------------
High Yield Bond Fund 1.55% 2.20% 2.20%
-----------------------------------------------------------
Municipal Money Market Fund 0.75% 0.75% 0.75%
-----------------------------------------------------------
Science & Technology Fund 1.45% 2.10% 2.10%
-----------------------------------------------------------
</TABLE>
5 These estimates are based upon the Funds' Expenses shown above and the
expenses of the Underlying Funds' Institutional Class I shares shown in the
current prospectus for such shares. The estimates assume the following con-
stant allocation by the Funds of their assets among the Underlying Funds:
<TABLE>
<CAPTION>
Aggressive Growth Moderate Growth Conservative Growth
Lifestyle Fund Lifestyle Fund Lifestyle Fund
<S> <C> <C> <C>
International Equity 25% 15% 8%
Fund
Small Cap Growth Fund 20% 13% 8%
Mid Cap Value Fund 10% 9% 6%
Mid Cap Growth Fund 5% 3% 2%
Large Cap Growth Fund 20% 15% 13%
Growth & Income Fund 10% 15% 13%
Core Bond Fund 10% 30% 50%
High Yield Bond Fund 0% 0% 0%
</TABLE>
The Funds' actual expense may be higher or lower as a result of the allocation
of their assets among the Underlying Funds, the expenses of the Underlying
Funds, and/or the Funds' own expenses.
<TABLE>
<S> <C> <C> <C>
</TABLE>
-------
17
<PAGE>
By translating "Total Annual Fund Operating Expenses" into dollar amounts,
these examples help you compare the costs of investing in a particular Fund, or
a particular class of shares, with the costs of investing in other mutual
funds.
The examples assume that you:
. Invest $10,000 in a Fund for the time period indicated and then redeem all of
your shares at the end of those periods.
. Your investment earns a 5% return each year and that each Fund's operating
expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Mid Cap Value Fund
Class A Shares $752 $1,123 $1,518 $2,619
Class B Shares $753 $1,179 $1,531 $2,673
Class B No Redemption $253 $ 779 $1,331 $2,673
Class C Shares $353 $ 779 $1,331 $2,836
Class C No Redemption $253 $ 779 $1,331 $2,836
-----------------------------------------------------------------
Stock Index Fund
Class A Shares $698 $ 958 $1,237 $2,031
Class B Shares $696 $1,006 $1,242 $2,083
Class B No Redemption $196 $ 606 $1,042 $2,083
Class C Shares $296 $ 606 $1,042 $2,254
Class C No Redemption $196 $ 606 $1,042 $2,254
-----------------------------------------------------------------
Small Cap Index Fund
Class A Shares $740 $1,086 $1,455 $2,488
Class B Shares $740 $1,139 $1,465 $2,542
Class B No Redemption $240 $ 739 $1,265 $2,542
Class C Shares $340 $ 739 $1,265 $2,706
Class C No Redemption $240 $ 739 $1,265 $2,706
-----------------------------------------------------------------
Socially Responsible Fund
Class A Shares $745 $1,103 $1,484 $2,549
Class B Shares $746 $1,158 $1,496 $2,603
Class B No Redemption $246 $ 758 $1,296 $2,603
Class C Shares $346 $ 758 $1,296 $2,766
Class C No Redemption $246 $ 758 $1,296 $2,766
-----------------------------------------------------------------
High Yield Bond Fund
Class A Shares $642 $ 994 $1,369 $2,419
Class B Shares $741 $1,142 $1,470 $2,552
Class B No Redemption $241 $ 742 $1,270 $2,552
Class C Shares $341 $ 742 $1,270 $2,716
Class C No Redemption $241 $ 742 $1,270 $2,716
-----------------------------------------------------------------
Aggressive Growth Lifestyle Fund
Class A Shares $585 $ 605 $ 628 $ 696
Class B Shares $510 $ 432 $ 256 $ 128
Class B No Redemption $ 10 $ 32 $ 56 $ 128
Class C Shares $110 $ 32 $ 56 $ 128
Class C No Redemption $ 10 $ 32 $ 56 $ 128
-----------------------------------------------------------------
Moderate Growth Lifestyle Fund
Class A Shares $585 $ 605 $ 628 $ 696
Class B Shares $510 $ 432 $ 256 $ 128
Class B No Redemption $ 10 $ 32 $ 56 $ 128
Class C Shares $110 $ 32 $ 56 $ 128
Class C No Redemption $ 10 $ 32 $ 56 $ 128
-----------------------------------------------------------------
</TABLE>
-------
18
<PAGE>
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Conservative Growth Lifestyle Fund
Class A Shares $ 585 $ 605 $628 $ 696
Class B Shares $ 510 $ 432 $256 $ 128
Class B No Redemption $ 10 $ 32 $ 56 $ 128
Class C Shares $ 110 $ 32 $ 56 $ 128
Class C No Redemption $ 10 $ 32 $ 56 $ 128
-------------------------------------------------------------------
Municipal Money Market Fund
Class A Shares $ 122 $ 381 $660 $1,455
Class B Shares $ 122 $ 381 $660 $1,455
Class B No Redemption $ 122 $ 381 $660 $1,455
Class C Shares $ 122 $ 381 $660 $1,455
Class C No Redemption $ 122 $ 381 $660 $1,455
-------------------------------------------------------------------
Science & Technology Fund
Class A Shares $ 790 $1,238
Class B Shares $ 793 $1,298
Class B No Redemption $ 293 $ 898
Class C Shares $ 393 $ 898
Class C No Redemption $ 293 $ 898
-------------------------------------------------------------------
</TABLE>
-------
19
<PAGE>
More Information About
Investment Strategies and Risks
This Prospectus does not attempt to disclose all of the different investment
techniques that the Funds might use, or all of the types of securities in which
the Funds might invest. As with any mutual fund, investors must rely on the
professional judgment and skill of the Funds' management. A subadvisor may
choose not to use some or all of the investment techniques available to a Fund,
and these choices may cause the Fund to lose money or not achieve its goal.
Each Fund has a unique investment objective (see the Fund Summaries) that it
tries to achieve through its investment strategies. The investment objectives
of the Funds may be changed by the Trustees without the approval of a Fund's
shareholders. Except as noted for certain investment restrictions, the strate-
gies a Fund uses to achieve its investment objective also may be changed by the
Trustees without approval of the shareholders. Because each Fund is different,
they have different investment policies and risks, and will also have different
returns over time. This section provides additional information about the
Funds' investments, and should be read in conjunction with the Fund Summaries.
Other Risks of Investing
in the North American Funds
Although a Fund may have the flexibility to use some or all of the investments
or strategies described in this Prospectus and the Statement of Additional
Information, its subadvisor may choose not to use these investments or strate-
gies for a variety of reasons. These choices may cause a Fund to miss opportu-
nities, lose money or not achieve its goal.
High Yield/High Risk Securities
High yield securities (often known as "junk bonds") include debt instruments
that have an equity security attached to them. Securities rated below invest-
ment grade and comparable unrated securities offer yields that fluctuate over
time, but generally offer higher yields than do higher rated securities. Howev-
er, 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 qual-
ity and protective characteristics that are outweighed by large uncertainties
or major risk exposures to adverse conditions.
Some of the debt securities in which the Funds may choose to invest may be, or
may be similar to, the lowest rated non-subordinated debt (securities rated C
by Moody's or CCC or lower by S&P). This type of security is very risky, as
issuers may not have the ability to repay principal and interest, and may even
default. If this should occur, the value of shares of the Fund holding them
would likely fall.
Foreign Securities
There are risks associated with investing in foreign securities. These risks
include unforeseen changes in tax laws, political changes, and changes in for-
eign currency values and exchange rates.
There may be less publicly available information about foreign issuers. 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 for domestic issuers. Foreign stock markets generally have
substantially less volume than the U.S. exchanges and securities of foreign
issuers are generally less liquid and more volatile, relative to U.S. issuers.
For emerging markets, these risks can be more extreme.
There is frequently less governmental regulation of foreign
-------
20
<PAGE>
exchanges, broker-dealers and issuers than in the United States, and brokerage
costs may be high- er. In addition, investments in foreign companies may be
subject to the possibility of nationalization or other changes in policy. Pol-
icy changes may allow foreign governments to withhold dividends, expropriate
(confiscate, or keep) investment returns, or raise taxes to extremely high lev-
els, among other things. Also, should a foreign issuer default, it may be dif-
ficult to recover anything in a bankruptcy proceeding.
Lending Fund Securities
Each Fund may lend up to 33% of its total portfolio assets, or securities, to
brokers, dealers and other financial institutions. These loans must be callable
(the Fund may ask that the loan be repaid in full) at any time by the Fund. The
loans must be at all times fully secured by cash, cash equivalents or securi-
ties issued or guaranteed by the U.S. government or its agencies or instrumen-
talities, and marked to market (priced at market value) 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 collat-
eral should the borrower of the securities fail financially. However, these
loans of Fund securities will only be made to firms deemed by the subadvisors
to be creditworthy.
Leverage Risk
Funds that borrow money to buy securities are using leverage. Leverage risk is
the risk that leverage, or debt, will enable a Fund to buy more of a security
that falls in value. In this case, the Fund would still need to repay the money
it borrowed. Funds can create leverage, or borrow money, by using different
types of techniques including reverse repurchase agreements, dollar rolls, and
derivatives including inverse floating rate instruments.
Hedging and Other
Strategic Transactions
Individual Funds 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 Fund. Hedging is simply believing that certain securi-
ties will fall, or rise, in value, and structuring transactions that take
advantage of those changes. These transactions are generally used to protect
against possible changes in the market value of securities a Fund already owns
or plans to buy, to protect unrealized gains or to improve the Fund's return in
some way.
Where allowed, individual Funds may 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. This category
includes derivative transactions. A "derivative" is generally defined as an
instrument whose value is based upon, or derived from, some underlying index or
rate. Interest rate transactions may include swaps, caps, floors and collars,
and currency transactions may include currency forward contracts, currency
futures contracts, currency swaps and options on currencies or currency futures
contracts.
Frequent Trading
A Fund may buy or sell investments extremely frequently, increasing brokerage
commissions and other expenses of the Fund. Frequent trading may also increase
the amount of capital gains realized by a Fund, including short-term capital
gains, which are generally taxable to shareholders at ordinary income tax
rates.
Temporary Defensive Strategies
A Fund's subadvisor may at certain times decide that pursuing the Fund's
investment strategies is inconsistent with market conditions. A subadvisor may
then employ defensive strategies designed mostly to limit losses. However, the
subadvisor may choose not to use defensive strategies, even in volatile or
unsettled market conditions. Such defensive strategies may cause the Fund to
miss opportunities or to not achieve its goal.
The factors that cause a Fund to perform differently from the index it tries to
track are called tracking differences. There is no assurance that an Index Fund
can track its index.
-------
21
<PAGE>
More about Index Funds and Tracking an Index
The coefficient of correlation (r) is an index number which shows how closely
two variables are related. If r = 0 there is no tendency for one variable to
change with the other. A value of +1 means that one variable will vary exactly
with the other. Index funds try to keep their coefficient of correlation as
close to 1 as possible.
Tracking accuracy is reviewed daily by the subadvisor for each of the Index
Funds. If an Index Fund does not accurately track an index, the subadvisor will
rebalance the Fund's portfolio by selecting securities which will provide a
more representative sampling of the securities in the index as a whole or the
sector diversification within the index, as appropriate.
The index may remove one stock and substitute another, requiring the Fund to do
the same. When a stock is sold and the new stock purchased, the Fund incurs
transaction costs.The index incurs no transaction costs. Therefore, any index
fund portfolio manager cannot match exactly the performance of an index.
An index fund may not buy every single stock in its index or in the same pro-
portions as the index. The subadvisor may rely on a statistical selection tech-
nique to figure out, of the stocks tracked by their index, how many and which
ones to buy. Stocks are bought and sold in response to cash flows into and out
of the Fund and when they are added to or dropped from the index. This gener-
ally helps to keep brokerage fees and other transaction costs lower than other
funds.
-------
22
<PAGE>
Management of the Funds
Investment Adviser
Under the federal securities laws, Massachusetts law, and the Trust's Agreement
and Declaration of Trust and By-Laws, the business and affairs of the Trust are
managed under the direction of the Trustees.
American General Asset Management Corp. ("AGAM"), formerly CypressTree Asset
Management Corporation, Inc., is the investment adviser for the Trust. AGAM was
formed in 1996 to advise, acquire and distribute mutual funds through broker-
dealers, banks and other intermediaries. AGAM's address is 286 Congress Street,
Boston, Massachusetts 02210.
According to its Advisory Agreement with the Trust (the "Advisory Agreement"),
AGAM:
.Oversees the administration of all aspects of the business and affairs of the
North American Funds
.Selects, contracts with and compensates subadvisors to manage the assets of
the North American Funds
.Makes recommendations to the Trustees regarding the hiring, termination and
replacement of subadvisors
.Reimburses the North American Funds if the total of certain expenses allocated
to any Fund exceeds certain limitation
.Monitors the subadvisors for compliance with the investment objectives and
related policies of each Fund
.Reviews the performance of the subadvisors
.Periodically reports to the Trustees
The following table shows the management fees each Fund will pay annually as a
percentage of the Fund's average daily net asset value.
<TABLE>
<CAPTION>
Fund Name Management Fees
-------------------------------------------------------------------------
<S> <C>
Conservative Growth Lifestyle 0.10%
Fund
Aggressive Growth Lifestyle Fund 0.10%
Moderate Growth Lifestyle Fund 0.10%
High Yield Bond Fund 0.825% on the first $200 million
0.725% on the next $300 million
0.675% on assets over $500 million
Mid Cap Value Fund 0.90% on the first $100 million
0.875% on the next $150 million
0.85% on the next $250 million
0.825% on the next $250 million
0.80% on the assets over $750 million
Municipal Money Market Fund 0.35%
Small Cap Index Fund 0.28% on the first $500 million
0.27% on assets over $500 million
Socially Responsible Fund 0.65%
Stock Index Fund 0.27% on the first $500 million
0.26% on assets over $500 million
Science and Technology Fund 0.90%
</TABLE>
--------------------------------------------------------------------------------
-------
23
<PAGE>
Investment Subadvisors
Under an order granted to the Funds by the Securities and Exchange Commission,
AGAM is permitted to appoint a subadvisor, to create a subadvisory agreement,
and to terminate or amend a subadvisory agreement, in each case without share-
holder approval. This "Manager of Managers" structure permits the Funds to
change subadvisors or the fees paid to subadvisors without the expense and
delays associated with obtaining shareholder approval. AGAM has ultimate
responsibility under the Manager of Managers structure to oversee the
subadvisors, including making recommendations to the Trust regarding the hir-
ing, termination and replacement of subadvisors.
The Subadvisors are:
American General Investment Management, L.P. ("AGIM")
2929 Allen Parkway, Houston, Texas 77015
AGIM is the Subadvisor for the Stock Index Fund, the Small Cap Index Fund, the
Socially Responsible Fund, the High Yield Bond Fund, the Aggressive Growth
Lifestyle Fund, the Moderate Growth Lifestyle Fund, the Conservative Growth
Lifestyle Fund and the Municipal Money Market Fund. AGIM was formed in 1998 as
a successor to the investment management division of American General Corpora-
tion, and is an indirect wholly-owned subsidiary of American General Corpora-
tion. AGIM also provides investment management and advisory services to pension
and profit sharing plans, financial institutions and other investors. Invest-
ment decisions for several Funds are made by teams as noted below. Each team
meets regularly to review portfolio holdings and discuss purchase and sale
activity.
Magali E. Azema-Barac is responsible for AGIM's equity group. She heads the
team making investment decisions for each of the Index Funds, as well as for
the Socially Responsible Fund. Ms. Azema-Barac joined American General in Sep-
tember, 1999. Prior to that, she worked on the equity desk of US West Invest-
ment Management Company in Englewood, Colorado, where she managed an enhanced
equity portfolio.
Robert N. Kase, CFA, has been Investment Officer of AGIM since September 1998,
and Senior Portfolio Manager of AGIM since September 1998. Previously, Mr. Kase
was Senior Portfolio Manager with CL Capital Management, Inc. from September
1992 until July 1998.
Steven Guterman, Executive Vice President, joined AGIM in June 1998. Previous-
ly, Mr. Guterman was with Salomon Brothers, Inc. from 1983 to May 1998, where
he served as Managing Director from 1996 to May 1998 and with Salomon Brothers
Asset Management, Inc., where he was a Senior Portfolio Manager and head of the
U.S. Fixed Income Portfolio Group from 1990 to May 1998.
Investment decisions for the High Yield Bond Fund are made by a team, headed by
Gordon Massie. Mr. Massie, Senior Vice President, joined AGIM in April 1998.
Previously, Mr. Massie was Director of High Yield Research at American General
Corporation from August 1985 to April 1998.
Investment decisions for the Municipal Money Market Fund are made by a team of
investment professionals at AGIM.
Neuberger Berman Management, Inc. ("NBM")
605 Third Avenue, Second Floor, New York, New York 10158-0180
NBM is the subadvisor for the Mid Cap Value Fund. NBM and its predecessor firms
have specialized in the management of no-load mutual funds since 1950. As of
December 31, 1999, NBM and its affiliates managed approximately $54 billion in
aggregate net assets.
-------
24
<PAGE>
Robert I. Gendelman and S. Basu Mullick serve as co-managers of the Mid Cap
Value Fund. Messrs. Gendelman and Mullick are Vice Presidents of NBM and Mr.
Gendelman is a managing director of Neuberger Berman, LLC. Messrs. Gendelman
and Mullick have been associated with NBM since 1994 and 1998, respectively.
Prior to joining NBM, Mr. Mullick was Managing Director of Ark Asset Management
from 1993-1998.
T. Rowe Price Associates, Inc.,
("T. Rowe Price")
T. Rowe Price is the subadvisor for the Science & Technology Fund. Founded in
1937 by Thomas Rowe Price, Jr., the Baltimore-based investment management firm
is one of the nation's leading providers of no-load mutual funds for individual
investors and corporate retirement programs. As of September 30, 1999, T. Rowe
Price and its affiliates served as investment advisor to more than 75 stock,
bond, and money market funds and managed about $157.4 billion.
The Fund is managed by an investment advisory committee, chaired by Charles A.
Morris. Mr. Morris has day-to-day responsibility for managing the portfolio and
works with the committee to develop and execute the Fund's investment program.
-------
25
<PAGE>
Section III:
Investing in the North American Funds
Classes of Shares
There are three classes of shares of North American Funds offered by this pro-
spectus: Class A shares, Class B shares and Class C shares.
The initial investment minimum for all classes of shares per fund is $1,000.
For retirement plans and other automatic investment programs, the initial pur-
chase minimum is $50. You must maintain a minimum account balance of $500, or
$50 for retirement plans and other automatic investing programs. Purchases and
redemptions will be made at the share price next calculated by North American
Funds after the request is received in good order. Confirmations of all trans-
actions will be mailed to you promptly, and a copy will be sent to your broker
of record. North American Funds may refuse any request to purchase shares.
<TABLE>
<CAPTION>
Buying Fund Redeeming Fund
Shares Shares
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
By Mail Mail a check and account Send a written request to:
application to: North American Funds
North American Funds P.O. Box 8505
P.O. Box 8505 Boston, MA 02266-8505
Boston, MA 02266-8505
To add to an existing account, mail
a check with your account number:
North American Funds
P.O. Box 8505
Boston, MA 02266-8505
Overnight Mailing Address:
North American Funds
c/o Boston Financial
attn: Leadership Services
66 Brooks Dr.
Braintree, MA 02184
----------------------------------------------------------------------------------------------------------
By Wire Transfer For wire instructions, contact Yes, with a minimum of $1,000. For wire
Customer Service at 1-800-872-8037 instructions, contact Customer Service at
1-800-872-8037
----------------------------------------------------------------------------------------------------------
By Phone No Yes, simply call 1-800-872-8037 by 4:00
p.m. to receive that day's closing price
----------------------------------------------------------------------------------------------------------
Through Broker Dealers Yes, if a dealer agreement is in place Yes, if a dealer agreement is in place
----------------------------------------------------------------------------------------------------------
</TABLE>
-------
26
<PAGE>
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Charges .Purchases of less .Shares are sold .Shares are sold
than without a front end without a front end
$1 million are sold sales charge. For sales charge. For
with a front end shares redeemed shares redeemed
sales charge within six years within one year
(see table on next there is a sales there is a 1% sales
page). charge at redemption charge at
.Purchases over $1 (see table on next redemption.
million are sold page). .Available for
without a front end .Available for purchases under $1
sales charge. For purchases of million.
such shares redeemed $250,000 or less.
within one year
there is a 1% back
end sales charge at
redemption.
-----------------------------------------------------------------------------------
Programs That .Rights of .For B and C Shares,
Reduce Accumulation - you the back end sales
Sales Charges will pay the sales charge is assessed
charge applicable to on the lesser of the
your total account net asset value at
balance in all redemption, or the
classes of shares. original purchase
.Statement of price.
intention -agree to
invest a certain
amount over 13
months and you will
pay the sales charge
based on your goal.
---------------------------------------------------------------------
.For an account
opened after 5-1-95,
in any class of
shares, there will
be no deferred sales
charge applied on
redemptions of up to
12% of the account
value annually
pursuant to a
systematic
withdrawal plan.
.For qualified group
retirement plans,
please see the
Statement of
Additional
Information (SAI)
for a more detailed
discussion.
-----------------------------------------------------------------------------------
</TABLE>
-------
27
<PAGE>
Sales Charge Tables
Class A Shares Sales
Charge Table
There is no front end sales charge for Class A shares of the Municipal Money
Market Fund and no payments are made to broker-dealers on sales of such shares.
If Class A shares of this Fund are exchanged for Class A shares of another
Fund, the regular sales charge for Class A shares will be charged.
<TABLE>
<CAPTION>
Amount of Sales Charge Sales Charge Concession to
Purchase Payment as a as a Broker Dealer as
Percentage of Percentage of a Percentage of
the Offering Price the Net Amount Offering Price
Invested
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000
Equity Funds 5.75% 6.10% 5.00%
High-Yield Bond Fund 4.75% 4.99% 4.00%
-----------------------------------------------------------------------------------
$50,000 but less than 4.75% 4.99% 4.00%
$100,000
-----------------------------------------------------------------------------------
$100,000 but less than 4.00% 4.17% 3.25%
$250,000
-----------------------------------------------------------------------------------
$250,000 but less than 3.00% 3.09% 2.50%
$500,000
-----------------------------------------------------------------------------------
$500,000 but less than $1 2.25% 2.30% 1.75%
million
-----------------------------------------------------------------------------------
$1 million or more None* None* See Below**
-----------------------------------------------------------------------------------
</TABLE>
* A CDSC (back end sales charge) may apply.
** 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 ,
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.
-------
28
<PAGE>
Class B Shares Sales Charge Table*
<TABLE>
<CAPTION>
Year(s) Since Purchase Deferred Sales Charge
as Percentage of
Amount Redeemed
--------------------------------------------------------------
<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>
Class B shares purchased on or after October 1, 1997 will automatically convert
into Class A shares eight years after the calendar month in which a sharehold-
er's order to purchase the shares was accepted.
Class C Shares*
Class C shares are offered for sale at net asset value and are offered for pur-
chases of less than $1 million. Class C shares are sold without a front end
sales charge. Class C shares are subject to a deferred sales charge of 1% of
the dollar amount subject thereto during the first year after purchase.
Class C shares will be redeemed or exchanged in order of the date purchased,
with the shares purchased earlier being redeemed or exchanged first, unless a
shareholder specifically requests that specific shares be redeemed or
exchanged.
Redemption in Kind
The Funds reserve the right to pay redemption proceeds in whole or in part by a
distribution "in kind" of securities held by the Fund.
Payment Following Redemption
Each Fund will normally send the proceeds from a redemption (less any applica-
ble deferred sales charge) on the next business day, but may delay payment for
up to seven days.
Payment may be delayed if the shares to be redeemed were purchased by a check
that has not cleared. Each Fund may suspend the right of redemption and may
postpone payment for more than seven days when the New York Stock Exchange is
closed for other than weekends or holidays, or if permitted by the rules of, or
action by, the SEC.
* Any shares in the redeeming shareholder's account that can be redeemed with-
out charge will be redeemed prior to those subject to a charge. Only time of
ownership spent in Funds other than the Municipal Money Market Fund counts
towards determining the applicable deferred sales charge.
-------
29
<PAGE>
Pricing of Fund Shares
The public offering price of the Class A shares of each Fund is the net asset
value per share (next determined following receipt of a properly completed
order) plus, in the case of all Funds except the Municipal 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 a properly completed order).
The net asset value of the shares of each class of each Fund is calculated sep-
arately and, except as described below, is determined once daily as of the
close of regularly scheduled trading on the New York Stock Exchange (generally
4:00 p.m., Eastern Time). Net asset value per share of each class of each Fund
is calculated by dividing the value of the portion of the Fund'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 Fund's securities
holdings will not materially affect the current net asset value of the shares
of the Fund and (ii) days when the New York Stock Exchange is closed (for exam-
ple, weekends and national holidays). Generally, trading in non-U.S. securi-
ties, as well as U.S. Government securities and money market instruments, is
substantially completed each day at various times prior to the close of regu-
larly scheduled trading on the New York Stock Exchange. The values of such
securities used in computing the net asset value of the shares of a class of a
Fund 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 subadvisors under procedures estab-
lished by the Trustees.
Shares of the Fund are available at the net asset value to investors purchasing
shares of the Funds with redemption proceeds from other mutual fund complexes
on which the investor has paid for front end sales charge or was subject to a
deferred sales charge, whether or not paid, if such redemption occurred more
than 60 days prior to such purchase. The Distributor will require satisfactory
evidence of your qualification of this waiver. Please call for more informa-
tion. The redemption of the shares from the other mutual fund is, for federal
income tax purposes, a sale upon which a gain or loss may be realized.
All instruments held by the Municipal Money Market Fund and short-term debt
instruments with a remaining maturity of 60 days or less held by the other
Funds are valued on an amortized cost basis.
Unless you request cash payment, all dividends and distributions will be rein-
vested. All Funds declare and pay capital gains annually.
-------
30
<PAGE>
Dividends and Distributions from North American Funds
These Funds declare and pay income dividends daily:
.Municipal Money Market
These Funds declare and pay income dividends monthly:
.High Yield Bond
These Funds declare income dividends daily and pay quarterly:
.Conservative Growth Lifestyle
.Aggressive Growth Lifestyle
.Mid Cap Value
.Moderate Growth Lifestyle
.Science & Technology
.Small Cap Index
.Socially Responsible
.Stock Index
-------
31
<PAGE>
Taxes
It is expected that each Fund of the Trust will qualify as a "regulated invest-
ment company" under the Code. If it so qualifies, a Fund will not be subject to
United States federal income taxes on its net investment income and net capital
gain, if any, that it distributes to its shareholders in each taxable year,
provided that it distributed to its shareholders (i) at least 90% of its net
investment income for such taxable year, and (ii) with respect to the Municipal
Money Market Fund at least 90% of its net tax-exempt interest income for such
taxable year. If in any year a Fund fails to qualify as a regulated investment
company, such Fund would incur regular corporate federal income tax on its tax-
able income for that year and be subject to certain additional distribution
requirements upon re-qualifica tion. Each Fund will be subject to a 4% nonde-
ductible excise tax on its taxable income to the extent it does not meet cer-
tain distribution requirements by the end of each calendar year. Each Fund
intends to make sufficient distributions to avoid application of the corporate
income and excise taxes.
Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments on dividends and interest.
The investment yield of the Funds 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 Fund is eligible for and makes an election to
allow the shareholders of that Fund to claim a foreign tax credit or deduction
for these taxes for any taxable year, the shareholders will be notified. The
ability of the shareholders to utilize such a foreign tax credit is subject to
a holding period requirement. In addition, Funds 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 invest-
ment yield of the Funds 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 Fund 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 disposi-
tion of shares of the Fund will be 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. Pursuant to the Taxpayer Relief Act of 1997, long-term capital
gains generally are subject to a maximum tax rate of 20%.
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 (i) treated as a long-term capital loss to the extent of
any capital gain dividends received by the shareholder with respect to such
share or (ii) in the case of the Municipal Money Market Fund, disallowed to the
extent of any exempt-interest dividend received by the shareholder with respect
to such shares. A loss realized on a sale or exchange of shares may be disal-
lowed if other shares are acquired within a 61-day period beginning 30 days
before and ending 30 days after the date on which the shares are disposed.
Generally, unless a shareholder of any Fund includes his or her taxpayer iden-
tification 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% from divi-
dends other than exempt-interest dividends and other reportable payments to the
shareholder.
Depending on the residence of the shareholder for tax purposes, distributions
may also be subject to state and local taxes or withholding taxes. Most states
provide that a regulated investment company may pass through (without restric-
tion) to its shareholders state and local income tax exemptions available to
direct owners of certain types of U.S. government securities. Thus, for resi-
dents of these states, distributions derived from a Fund's investment in cer-
tain types of U.S. government securities should be free from state and local
income taxes to the extent that the interest income from such investments would
have been exempt from state and local
-------
32
<PAGE>
income taxes if such securities had been held directly by the respective share-
holders themselves.
Municipal Money Market Fund-Taxation
The Municipal Money Market 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 Fund, to qualify as "exempt-
interest dividends" when distributed to such Fund's shareholders. Except as
discussed below, such dividends are exempt from regular federal income taxes.
Although exempt-interest dividends paid by the Municipal Money Market Fund will
be excluded by shareholders of the Funds 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 or railroad retirement benefits are
taxable. Moreover, the receipt of exempt-interest dividends from each of the
Funds affects the federal tax liability of certain foreign corporations, S Cor-
porations and insurance companies. Furthermore, under the Code, interest on
indebtedness incurred or continued to purchase or carry Fund shares, which
interest is deemed to relate to exempt-interest dividends, will not be deduct-
ible by shareholders of the Fund for federal income tax purposes.
The exemption of exempt-interest dividend income from regular federal income
taxation does not necessarily result in similar exemptions for such income
under 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 hold-
ings or obligations issued by that state or its political subdivisions and
instrumentalities.
A notice detailing the tax status of dividends and distributions paid by the
Municipal Money Market Fund will be mailed annually to its shareholders. As
part of this notice, the Fund will report to its shareholders the percentage of
interest income earned by the Fund 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 State-
ment of Additional Information are intended to be a general guide. Investors
should consult their tax advisers with respect to the specific tax consequences
of an investment in a Fund, including the effect and applicability of state,
local, foreign, and other tax laws and the possible effects of changes in fed-
eral or other tax laws. This discussion is not intended as a substitute for
careful tax planning.
-------
33
<PAGE>
Rule 12b-1 Fees
The Trust has adopted a distribution plan under Rule 12b-1 of the Investment
Company Act of 1940, as amended, that allows the Funds to pay distribution fees
for the sale and distribution of fund shares. Portions of the fees are used to
provide payments for services provided to shareholders ("service fees"), as
indicated below.
Class A shares of each Fund, except the Municipal Money Market Fund, are sub-
ject to a Rule 12b-1 fee of up to .35% of average daily net assets, five- sev-
enths of which (.25%) is a "service fee." There are no Rule 12b-1 fees on the
Municipal Money Market Fund.
Class B shares of each Fund except the Municipal Money Market Fund are subject
to a Rule 12b-1 fee of up to 1.00% of average annual net assets, one-fourth
(.25%) of this is a "service fee."
Class C shares of each Fund except the Municipal Money Market Fund are subject
to a Rule 12b-1 fee of up to 1.00% of average annual net assets, one-fourth
(.25%) of this is a "service fee."
For the Aggressive Growth Lifestyle Fund, the Moderate Growth Lifestyle Fund
and the Conservative Growth Lifestyle Fund, the Trustees presently limit pay-
ments under the Rule 12b-1 Plan to .10%, .75% and .75% of average daily net
assets of Class A, Class B and Class C shares, respectively.
Because these fees are paid out of the Fund's assets on an ongoing basis, over
time they will increase the cost of your investment and may cost you more than
paying other types of sales charges. The higher fees for Class B and Class C
shares may therefore cost you more than paying the maximum permitted front end
sales charge on Class A Shares.
-------
34
<PAGE>
Account Services
To use any of these programs, simply fill out the appropriate section of your
account application, or request the appropriate form.
Automatic Dividend Diversification
With this program, you can have all dividends and other distributions from one
Fund automatically invested in the same class of shares of another Fund.
Automatic Investment Plan
Shareholders can set up an Automatic Investment Plan. Once each month the
shareholder's account will be debited the amount (at least $50) specified by
the shareholder.
Checkwriting
Checkwriting is available to Class A and Class C shareholders of the Municipal
Money Market Fund. Simply request this on your account application, and com-
plete a signature card, and you will receive a book of blank checks. The mini-
mum amount of a check is $250. When a check is presented for payment, enough
shares will be redeemed to cover the amount of the check and any applicable
deferred sales charge. If the amount of the check plus the sales charge is more
than the account value, the check will be returned unpaid.
Exchange Privilege
Shareholders may make free unlimited exchanges by mail or telephone within
classes of shares without any sales charge (except that Class A shares of the
Municipal Money Market Fund are subject to a sales charge upon exchange).
Shares of one class may not be exchanged for shares of any other class of any
Fund. Be aware that exchanges are regarded as sales for federal and state
income tax purposes and could result in a gain or loss, depending on the origi-
nal cost of shares exchanged. Exchanges usually occur on the same day they are
requested. The terms of the exchange privilege may change and the privilege may
be revoked at any time without notice.
The Fund will not be responsible for any losses resulting from unauthorized
telephone transactions if it follows reasonable procedures designed to verify
the identify of the caller. The Fund will request personal or other information
from the caller, and will record calls. By establishing an account with the
Fund, you consent to all recording of telephone calls.
You may make exchanges over the telephone by calling 1-800-872-8037.
Reinstatement Privilege
If you redeem Class A shares (under $1 million) and reinvest within 90 days,
you will not have to pay a sales charge. If you redeem Class A shares over $1
million, or Class B or C shares and pay a deferred sales charge and then rein-
vest within 90 days, your account will be credited the amount of the deferred
sales charge.
Systematic Investing
Your shares of any class of the Municipal Money Market Fund can be exchanged
monthly for shares of the same class of other Funds. An exchange of at least
$50 per exchange will be made around the 15th of each month in accordance with
your instructions. This program takes advantage of dollar cost averaging.
Systematic Withdrawal Plan
If you have an account balance of at least $10,000, you can set up a plan to
have redemptions paid to you, or someone you designate, on a monthly, quarter-
ly, semi-annual or annual basis. You can withdraw up to 12% of the account
value annually, if a monthly plan, up to 1% per month, without a deferred sales
charge. If you request this service after completing our application and pay-
ments are to be made to someone other than yourself, you will have to provide a
signature guarantee. Redemption checks are generally mailed within two days
after redemption. The availability of this service may end, and a fee of up to
$5 per withdrawal may be charged with 30 days written notice to you.
Transfer of Shares
You may transfer Fund shares to family members and others at any time without a
sales charge. Consult your tax adviser concerning such transfers.
-------
35
<PAGE>
[LOGO OF NORTH AMERICAN FUNDS]
North American Funds
286 Congress Street
Boston, Massachusetts 02210
(800) 872-8037
Class A Shares
Class B Shares
Class C Shares
International Small Cap Fund Mid Cap Value Fund
International Equity Fund Stock Index Fund
Global Equity Fund Small Cap Index Fund
Small Cap Growth Fund Socially Responsible Fund
Mid Cap Growth Fund High Yield Bond Fund
Large Cap Growth Fund Aggressive Growth LifeStyle Fund
Growth & Income Fund Moderate Growth LifeStyle Fund
Balanced Fund Conservative Growth LifeStyle Fund
Strategic Income Fund Municipal Money Market Fund
Core Bond Fund Science & Technology Fund
Municipal Bond Fund
U.S. Government Securities Fund
Money Market Fund
For Additional Information
More information about the Funds, including the SAI, is available to you free of
charge. To request additional information:
By Telephone
Call 1-800-872-8037
By Mail from the Funds (There is no fee.)
Write to:
North American Funds
286 Congress Street
Boston, MA 02210
By Mail, by electronic request at [email protected] or In Person from the
Public Reference Room of the Securities and Exchange Commission (SEC). (You will
pay a duplication fee.)
Visit or Write to:
SEC's Public Reference Section
450 Fifth Street, NW
Washington, DC, 20549-6009
1-202-942-8090
Online at the SEC's Internet Site
Text-only versions of fund documents can be viewed online or downloaded from
http://www.sec.gov.
Statement of Additional Information (SAI)
The SAI provides additional information about the Trust and the North American
Funds. The SAI and the auditor's report and financial statements included in the
Trust's most recent Annual Report to its shareholders are incorporated by
reference as part of this Prospectus.
Annual and Semi-annual Reports
The Annual and Semi-annual Reports describe the Funds' performance, list
portfolio holdings and include additional information about the Funds'
investments. The Annual Report discusses the market conditions and investment
strategies that significantly affected the Fund's performance during their last
fiscal year.
[GRAPHIC]
File No. 811-5797
0500:90201C
