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SUPPLEMENT TO PROSPECTUS OF
NORTH AMERICAN FUNDS
Dated March 1, 2000
CypressTree Asset Management Corporation ("CAM") has informed North
American Funds (the "Trust") that CypressTree Investments, Inc. ("CypressTree"),
CAM's parent company, expects to sell substantially all of CypressTree's assets,
including all of the stock of CAM, the Trust's investment adviser, and all of
the stock of CypressTree Funds Distributors, Inc. ("CFD"), the Trust's
distributor, to American General Corporation. The acquisition by American
General Corporation of CypressTree's assets (the "Acquisition") is expected to
occur in March of 2000. American General Corporation is a part of American
General Financial Group, a financial services company with approximately $115
billion in assets and over $6 billion in total stockholders' equity.
The Acquisition will result in the termination of (i) the investment
advisory agreement between CAM and the Trust with respect to each of the Funds,
(ii) the subadvisory agreements between CAM and the various subadvisers to the
Funds, and (iii) the distribution agreement between North American Funds and
CFD.
At a meeting of the Board of Trustees of North American Funds (the "Board")
on February 27, 2000, the Board took several actions described below.
Investment Advisory, Subadvisory, and Distribution Agreements
The Board approved an interim investment advisory agreement between CAM
(operating under its new name of American General Asset Management Corp.
("AGAM")) and North American Funds, in order to allow AGAM to continue to serve
as investment adviser to the Funds after the Acquisition. Under the Investment
Company Act, however, AGAM may continue to serve as the investment adviser for
each Fund beyond an interim period of 150 days only if shareholders of such Fund
approve a new investment advisory agreement. Accordingly, the Board has voted
to call a special meeting of shareholders for June 1, 2000 (the "June
Shareholder Meeting") to vote on adoption of a new two-year investment advisory
agreement with AGAM.
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By their terms, the subadvisory agreements between CAM and the various
subadvisers to the Funds will also terminate upon the Acquisition. Therefore,
the Board appointed the following new subadvisers to manage various Funds
pursuant to the Trust's Manager of Managers structure (note that some Fund's
names have also changed, as described below):
Fund Subadviser
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Large Cap Growth Fund Founders Asset Management, LLC
Global Equity Fund Founders Asset Management, LLC
International Small Cap Fund Founders Asset Management, LLC
International Equity Fund Morgan Stanley Dean Witter Investment
Management Inc.
Growth & Income Fund Wellington Management Company, LLP
Tax-Sensitive Equity Fund Wellington Management Company, LLP
Equity-Income Fund Wellington Management Company, LLP
Balanced Fund INVESCO Funds Group, Inc.
Mid Cap Growth Fund INVESCO Funds Group, Inc.
Small Cap Growth Fund Credit Suisse Asset Management, LLC
The Board also approved interim subadvisory agreements pursuant to which,
upon the Acquisition, American General Investment Management, L.P. ("AGIM"), a
subsidiary of American General, will become the subadviser to five of the Funds
(the Strategic Income Fund, the Municipal Bond Fund, the Core Bond Fund
(formerly, the Investment Quality Bond Fund - see below), the U.S. Government
Securities Fund and the Money Market Fund). As an "affiliated person" of
American General Corporation under the Investment Company Act, AGIM may continue
to serve as a subadviser to those five Funds beyond an interim period of 150
days only if shareholders of each such Fund approve a new subadvisory agreement.
Therefore shareholders of each of these five Funds will be asked to approve new
two year investment subadvisory agreements between AGAM and AGIM with respect to
each Fund at the June Shareholder Meeting.
CFD, under its new name American General Funds Distributors, Inc. ("AGFD"),
will continue to serve as the distributor of the Trust's shares since the
Acquisition. The Board approved a new distribution agreement substantially
similar to the Trust's previous distribution agreement with CFD (shareholder
approval of the new distribution agreement is not required under the Investment
Company Act).
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Changes of Certain Fund Names and Proposals to Reorganize Certain Funds
In conjunction with the Acquisition, the Board approved changes to several
of the Funds' names:
<TABLE>
<CAPTION>
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Old Fund Name New Fund Name
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<S> <C>
Growth Equity Fund Large Cap Growth Fund
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Growth and Income Fund Growth & Income Fund
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Small/Mid Cap Fund Mid Cap Growth Fund
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Emerging Growth Fund Small Cap Growth Fund
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National Municipal Bond Fund Municipal Bond Fund
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Investment Quality Bond Fund Core Bond Fund
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</TABLE>
These name changes will facilitate the expected future integration of
American General's family of retail mutual funds into the Trust. As part of
this effort, the Board voted to call a meeting of shareholders of the Tax-
Sensitive Equity Fund and the Equity-Income Fund to consider the reorganization
of those Funds into the Growth & Income Fund.
Changes to Certain Fund's Investment Strategies
The Board approved changes to the investment strategies of several Funds to
take effect in conjunction with the changes to such Funds' subadvisers upon
consummation of the Acquisition.
Strategic Income Fund. The Fund invests at least 65% of its 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). 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
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15% of the Fund's assets), investment companies, loan participations, money
market securities, mortgage-related securities, real estate securities,
repurchase agreements, reverse repurchase agreements, dollar rolls, structured
securities, swaps, variable amount master demand notes, variable rate demand
notes, and when-issued securities.
Municipal Bond Fund. The Fund will invest at least 80% of total assets in
investment grade municipal fixed-income securities, such as municipal bonds,
municipal notes, and other municipal obligations. Investment grade bonds are
those rated at least Baa3 by Moody's or BBB- by S&P or Fitch, or of comparable
quality. The municipal notes are short-term obligations rated high quality or
better by Moody's, S&P, or Fitch. The Fund may invest up to 20% of total assets
in taxable fixed-income securities, including money market instruments, U.S.
Government obligations, and other investment grade securities rated as above.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government which are supported by the full faith and credit of the U.S.
Government; the right of the issuer to borrow from the U.S. Treasury; the credit
of the issuing government agency; or the authority of the U.S. Government to
purchase obligations of the agency. The Fund may invest in asset-backed
securities, equity securities, futures and options, illiquid securities (limited
to 15% of the Fund's assets), investment companies, loan participations,
mortgage-related securities, real estate securities, repurchase agreements,
reverse repurchase agreements, variable amount master demand notes, variable
rate demand notes, and when-issued securities. If the Fund invests in municipal
securities issued for certain private purposes, a portion of the Fund's
dividends may be subject to the alternative minimum tax.
Money Market Fund. 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 guaranteed by the U.S. Government (and its agencies or
instrumentalities), certificates of deposit and other obligations of domestic
banks that have total assets in excess of $1 billion, commercial paper sold by
corporations and finance companies, corporate debt obligations with remaining
maturities of 13 months or less, repurchase agreements, money market instruments
of foreign issuers payable in U.S. dollars (limited to no more than 20% of the
Fund's net assets), asset-backed securities, loan participations, adjustable
rate securities, Variable 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.
Core Bond Fund. The Fund invests at least 65% of its total assets in
medium to high quality fixed-income securities, or in securities issued or
guaranteed by the U.S. Government, mortgage-backed, or asset-backed securities
(U.S. Government securities are securities issued or guaranteed by the U.S.
Government which are supported by the full faith and credit of the
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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 obligations 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 Funds 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 securities, including common or preferred stocks, convertible securities,
and warrants, may comprise up to 20% of the Fund's total assets. The Fund may
invest in depositary receipts, foreign currency, futures and options, illiquid
securities (limited to 15% of the Fund's assets), investment companies, loan
participations, 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.
Balanced Fund. The Fund 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 common
stocks and approximately one-quarter of its assets in investment grade debt
securities. The portion of the Fund's portfolio invested in equity securities
emphasizes companies the subadviser believes to have better-than-average
earnings growth potential, as well as companies within industries that the
subadviser believes are well-positioned for the current and expected economic
climate. Since current income is a component of total return, the subadviser
also considers companies' dividend 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.
A 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.
Mid Cap Growth Fund. The Fund 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 companies that are leaders in attractive
growth markets with a history of strong returns. The remainder of the portfolio
will be invested in securities of companies that show accelerating growth,
driven by product cycles, favorable industry or sector conditions and other
factors that the subadviser believes will lead to rapid
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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 monetary conditions.
Consequently, the Fund's investments will usually be bought and sold frequently.
Global Equity Fund. 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.
Board of Trustees
Bradford K. Gallagher, Chairman of the Board and President of CAM, is
expected to resign from the Board upon consummation of the Acquisition. Alice
T. Kane, President of American General Fund Group, was appointed by the Board as
a Trustee of North American Funds and Chairperson of the Board, effective upon
the resignation of Mr. Gallagher. Additionally, the Board nominated six
additional Trustees to be proposed for election, along with Ms. Kane, at the
June Shareholder Meeting. Two of these nominees would replace current Trustees
(Don B. Allen and William F. Achtmeyer) who are expected to resign effective
upon their successors' election. If shareholders approve the nominees, the Board
will increase in size from five to nine Trustees.
March 7, 2000
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