<PAGE>
NORTH AMERICAN FUNDS
Equity-Income Fund
Tax-Sensitive Equity Fund
286 Congress Street
Boston, MA 02210
April 14, 2000
Dear Equity-Income Fund and Tax-Sensitive Equity Fund Shareholders:
Each of your Funds will hold a Special Meeting of Shareholders on June 1,
2000 at 10:00 a.m., Eastern Time, at the Wyndham Boston Hotel, 89 Broad Street,
Boston, Massachusetts 02110, for the purpose of considering the proposed
Mergers of the Funds into the Growth & Income Fund, another series of North
American Funds, as well as any other business that may properly come before the
meeting.
If the Mergers are approved by the shareholders of each of the Funds, all of
the assets of each Fund will be transferred to the Growth & Income Fund in
exchange for shares of the Growth & Income Fund as described in the enclosed
Prospectus/Proxy Statement. You will receive a number of shares of the Growth &
Income Fund equal in value to the total shares that you hold of the Equity-
Income Fund and/or the Tax-Sensitive Equity Fund.
The Mergers are part of the restructuring of certain funds of North American
Funds and American General Series Portfolio Company 2 arising from the
acquisition by American General Corporation on March 10, 2000 of all of the
stock of American General Asset Management Corp. (formerly CypressTree Asset
Management Corporation, Inc.), the Funds' investment adviser, and all of the
stock of American General Funds Distributors, Inc. (formerly CypressTree Funds
Distributors, Inc.), the Funds' distributor. For more information about the
acquisition, please refer to the proxy materials (the "Acquisition Proxy
Materials") dated April 12, 2000 that were provided to you in a separate
mailing.
In light of the compatibility of investment objectives and policies of the
Funds and the decrease in overall expenses expected to result from the proposed
Mergers, your Board of Trustees unanimously agreed that the Mergers are in the
best interests of the Funds' shareholders and voted to approve them, as more
fully described in the enclosed Prospectus/Proxy Statement. This is your
opportunity to review the proposals and cast your vote. For more information
about the Mergers, please refer to the enclosed Prospectus/Proxy Statement.
Your vote is important.
No matter how many shares you own, your timely vote is important. If you are
not able to attend the meeting, then please complete, sign, date and mail the
enclosed proxy promptly in order to avoid the expense of additional mailings or
having our proxy solicitor, Shareholder Communications Corporation ("SCC"),
telephone you. You may also give a proxy by calling SCC at 1-800-611-9049.
Please also remember to vote with respect to the proposals contained in the
Acquisition Proxy Materials. Your vote on those proposals is also important.
Thank you in advance for your participation in this important event.
Sincerely,
/s/ Alice T. Kane
Alice T. Kane
Chairman and President
North American Funds
<PAGE>
NORTH AMERICAN FUNDS
Equity-Income Fund
Tax-Sensitive Equity Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
June 1, 2000
To the Shareholders:
This is to notify you that a Special Meeting of Shareholders of the Equity-
Income Fund and the Tax-Sensitive Equity Fund, each a series of North American
Funds, will be held on June 1, 2000 at 10:00 a.m., Eastern Time, at the Wyndham
Boston Hotel, 89 Broad Street, Boston, Massachusetts 02110, for the following
purposes:
1. Equity-Income Fund: To approve or disapprove an Agreement and Plan of
Reorganization providing for the acquisition of all of the assets and
liabilities of the Equity-Income Fund by the Growth & Income Fund.
2. Tax-Sensitive Equity Fund: To approve or disapprove an Agreement and
Plan of Reorganization providing for the acquisition of all of the assets
and liabilities of the Tax-Sensitive Equity Fund by the Growth & Income
Fund.
3. To transact such other business as may properly come before the
meeting.
The Trustees have fixed the close of business on April 7, 2000 as the record
date for determination of shareholders entitled to notice of, and to vote at,
the Special Meeting.
By Order of the Board of Trustees
/s/ John I. Fitzgerald
John I. Fitzgerald
Secretary
April 14, 2000
WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE POSTAGE-
PAID ENVELOPE PROVIDED SO THAT YOU WILL BE REPRESENTED AT THE SPECIAL
MEETING.
<PAGE>
PROSPECTUS/PROXY STATEMENT
April 14, 2000
This Prospectus/Proxy Statement relates to the proposed mergers (the
"Mergers") of the Equity-Income Fund and the Tax-Sensitive Equity Fund (each an
"Acquired Fund") into the Growth & Income Fund (the "Acquiring Fund"). Each of
the Acquired Funds and the Acquiring Fund is a series of North American Funds.
The Acquired Funds and the Acquiring Fund are referred to in this
Prospectus/Proxy Statement as the "Funds." The Mergers are to be effected
through the transfer of all of the assets of each Acquired Fund to the
Acquiring Fund in exchange for shares of beneficial interest of the Acquiring
Fund (the "Merger Shares") and the assumption by the Acquiring Fund of all of
the liabilities of the Acquired Fund. This will be followed by the distribution
of the Merger Shares to the shareholders of the Acquired Fund in liquidation of
the Acquired Fund. As a result of each proposed transaction, each shareholder
of the Acquired Fund will receive in exchange for his or her Acquired Fund
shares a number of Acquiring Fund shares of the same class equal in value at
the date of the exchange to the aggregate value of the shareholder's Acquired
Fund shares. This means that you may end up with a different number of shares
compared to what you originally held, but the total dollar value of your shares
will remain the same.
Because shareholders of the Acquired Funds are being asked to approve
transactions which will result in their receiving shares of the Acquiring Fund,
this Proxy Statement also serves as a Prospectus for the Merger Shares of the
Acquiring Fund.
North American Funds is an open-end series management investment company
organized as a Massachusetts business trust.
This Prospectus/Proxy Statement explains concisely what you should know
before investing in the Acquiring Fund. Please read it carefully and keep it
for future reference.
The following documents have been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated into this Prospectus/Proxy
Statement by reference:
. the Funds' current Prospectus, dated March 1, 2000 (the "Fund Prospectus");
. the Funds' current Statement of Additional Information, dated March 1, 2000
(the "Fund SAI");
. the Statement of Additional Information relating to this Prospectus/Proxy
Statement dated April 14, 2000 (the "Merger SAI"); and
. the Report of Independent Accountants and financial statements in respect of
each Fund included in the Funds' Annual Report to Shareholders for the year
ended October 31, 1999 (the "Annual Report").
This Prospectus/Proxy Statement is accompanied by or has been preceded by a
copy of the Fund Prospectus. For a free copy of the Fund Prospectus, Fund SAI,
Merger SAI, or Annual Report, please call 1-800-872-8037 or write to North
American Funds at:
North American Funds
286 Congress Street
Boston, MA 02210
The SEC has not approved or disapproved these securities or passed upon the
accuracy or adequacy of this Prospectus/Proxy Statement. Any representation to
the contrary is a crime.
You can lose money by investing in the Acquiring Fund. The Acquiring Fund
may not achieve its goals, and is not intended as a complete investment
program. An investment in the Acquiring Fund is not a deposit in a bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
1
<PAGE>
- --------------------------------------------------------------------------------
OVERVIEW OF MERGERS
Proposed Transactions
The Trustees of North American Funds on behalf of the Funds have approved
transactions involving the Merger of each Acquired Fund into the Acquiring
Fund. Each Merger is proposed to be accomplished pursuant to an Agreement and
Plan of Reorganization providing for the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange for shares of the Acquiring
Fund and the assumption by the Acquiring Fund of all the liabilities of the
Acquired Fund, followed by the liquidation of the Acquired Fund.
American General Asset Management Corp. ("AGAM"), formerly named CypressTree
Asset Management Corporation, Inc., has been in the business of investment
management since 1996. AGAM is the investment adviser to each Fund under an
interim investment advisory agreement adopted pursuant to Rule 15a-4 under the
Investment Company Act of 1940, as amended (the "1940 Act"), that expires on
August 7, 2000. Subject to approval by the shareholders of North American
Funds,* it is expected that AGAM will continue to serve as investment adviser
to North American Funds. AGAM has delegated responsibility for managing the
portfolios of each of the Funds to Wellington Management Company, LLP
("Wellington Management").
The investment objective of the Acquiring Fund is similar to the investment
objectives of the Acquired Funds, which objectives and certain differences are
explained further below under "Comparison of Investment Objectives, Policies,
Restrictions and Risks."
- --------
* Shareholder approval of the investment advisory agreements with AGAM is the
subject of a separate proxy statement dated April 12, 2000, which will be
mailed to North American Funds shareholders on or about April 12, 2000. For a
copy of this proxy statement, call 1-800-872-8037.
As a result of each proposed Merger, each Acquired Fund will receive a
number of Class A, Class B and Class C Merger Shares of the Acquiring Fund
equal in value to the value of the net assets of the Acquired Fund being
transferred and attributable to the Class A, Class B and Class C shares of the
Acquired Fund. Following the transfer, (i) the Acquired Fund will distribute to
each of its Class A, Class B and Class C shareholders a number of full and
fractional Class A, Class B and Class C Merger Shares of the Acquiring Fund
equal in value to the aggregate value of the shareholder's Class A, Class B and
Class C Acquired Fund shares, as the case may be, and (ii) the Acquired Fund
will be liquidated.
The Class A, Class B and Class C shares of the Acquiring Fund have identical
characteristics to the corresponding classes of the Acquired Funds.
Class A Shares
Class A shares of the Funds are sold subject to a front-end sales load and
are subject to a distribution and servicing fee at an aggregate annual rate of
0.35% of assets attributable to Class A shares. Class A shares are generally
not subject to a contingent deferred sales charge (a "CDSC"), except in the
case of certain purchases of Class A shares without a sales load which are
redeemed within one year of purchase.
Class B Shares
Class B shares of the Funds are sold at net asset value, without an initial
sales charge but subject to a CDSC at declining rates if redeemed within six
years of purchase. Class B shares of the Funds are subject to servicing and
distribution fees at an aggregate annual rate of 1.00% of assets attributable
to Class B shares and generally convert automatically to Class A shares
approximately eight years after purchase for purchases on or after October 1,
1997. Class B shares purchased before October 1, 1997 convert six years after
purchase.
Class C Shares
Class C shares of the Funds also are sold at net asset value without an
initial sales charge but subject to a CDSC if redeemed within the first year of
purchase. Class C shares are subject to servicing and
2
<PAGE>
distribution fees at an aggregate annual rate of 1.00% of assets attributable
to Class C shares and generally convert automatically to Class A shares
approximately ten years after purchase for purchases prior to July 1, 1999.
Class C shares purchased on or after July 1, 1999 will not convert into Class A
shares.
You will not be charged a front end sales load on the issuance of the Merger
Shares, or a CDSC on Acquired Fund shares exchanged for Merger Shares. The
Merger Shares that you receive will be subject to a CDSC on redemption to the
same extent that that Acquired Fund shares exchanged were so subject. In other
words, the Merger Shares will be treated as having been purchased on the date
that you originally purchased the Acquired Fund shares and for the price you
originally paid. For purposes of determining the conversion date of the Class B
and Class C Merger Shares into Class A shares, the Merger Shares will be
treated as having been purchased on the date that you originally purchased the
Acquired Fund shares (so that the conversion of such shares will be unchanged
by the Mergers). See the Fund Prospectus for more information about the
characteristics of Class A, Class B and Class C shares of the Funds.
As described more fully below, the Trustees of North American Funds approved
the Mergers based on, among other things, a careful review of the investment
capabilities, philosophy and performance of AGAM and Wellington Management. The
Trustees of North American Funds unanimously recommend that shareholders of
each Acquired Fund approve the Merger for such Fund. In reaching that
conclusion, the Trustees considered that each Merger offers shareholders the
opportunity to pursue a similar investment objective in a larger Fund, which
should offer economies of scale and opportunities for greater diversification
of risk. See "Proposals--Background and Reasons for the Proposed Mergers."
Operating Expenses
As the following tables suggest, the Mergers should result in Acquired Fund
shareholders experiencing lower Fund expenses. Of course, there can be no
assurance that the Mergers will result in expense savings for shareholders.
These tables summarize, for Class A shares, Class B shares and Class C shares,
expenses
. that each Fund incurred in its fiscal year ended October 31, 1999, restated
to reflect the elimination of fee waivers and expense reimbursements
previously in effect; and
. that the Acquiring Fund would have incurred in its most recent fiscal year
after giving effect on a pro forma combined basis to the proposed Merger, if
the Merger had occurred at the beginning of such fiscal year.
The tables are provided to help you understand an investor's share of the
operating expenses which each Fund incurs. The examples show the estimated
cumulative expenses attributable to a hypothetical $10,000 investment in each
Acquired Fund, the Acquiring Fund and the Acquiring Fund on a pro forma basis,
over specified periods. 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.
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Fees
Maximum Sales Charge Imposed on Purchase (as a
percentage of offering price at the time of
purchase)............................................ 5.75% None None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
price, whichever is lower)........................... 1%(1) 5%(2) 1%(3)
</TABLE>
- --------
(1) First year after purchase for purchases of $1 million or more.
(2) 5% first and second year; 4% third year; 3% fourth year; 2% fifth year; 1%
sixth year and 0% thereafter.
(3) 0% after first year.
3
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Expenses
---------
Current Expenses
---------------------------------------
Annual Fund Operating Growth &
Expenses Equity-Income Tax-Sensitive Growth & Income
(as a percentage of average Fund Equity Fund Income Fund Fund
net assets) ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Management Fees
Class A.................... 0.75% 0.85% 0.73% 0.65%
Class B.................... 0.75% 0.85% 0.73% 0.65%
Class C.................... 0.75% 0.85% 0.73% 0.65%
12b-1 Fees
Class A.................... 0.35% 0.35% 0.35% 0.35%
Class B.................... 1.00% 1.00% 1.00% 1.00%
Class C.................... 1.00% 1.00% 1.00% 1.00%
Other Expenses
Class A.................... 0.48% 0.85% 0.41% 0.40%
Class B.................... 0.48% 0.86% 0.40% 0.39%
Class C.................... 0.48% 0.86% 0.40% 0.39%
Total Fund Operating
Expenses
Class A.................... 1.58% 2.05% 1.49% 1.40%
Class B.................... 2.23% 2.71% 2.13% 2.04%
Class C.................... 2.23% 2.71% 2.13% 2.04%
</TABLE>
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses and, except as indicated, redemption at the
end of each time period:
<TABLE>
<CAPTION>
Pro Forma
Expenses
---------
Current Expenses
--------------------------------------- Growth &
Equity-Income Tax-Sensitive Growth & Income
Fund Equity Fund Income Fund Fund
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Class A
1 year..................... $ 726 $ 771 $ 718 $ 709
3 years.................... $1,045 $1,181 $1,019 $ 993
5 years.................... $1,386 $1,615 $1,341 $1,297
10 years .................. $2,345 $2,817 $2,252 $2,158
Class B
1 year..................... $ 726 $ 774 $ 716 $ 707
3 years.................... $1,097 $1,241 $1,067 $1,040
5 years.................... $1,395 $1,635 $1,344 $1,298
10 years .................. $2,398(1) $2,880(1) $2,252(1) $2,202(1)
Class B (no redemption)
1 year..................... $ 226 $ 274 $ 216 $ 207
3 years.................... $ 697 $ 841 $ 667 $ 640
5 years.................... $1,195 $1,435 $1,144 $1,098
10 years................... $2,398(1) $2,880(1) $2,297(1) $2,202(1)
Class C
1 year..................... $ 326 $ 374 $ 316 $ 307
3 years.................... $ 697 $ 841 $ 667 $ 640
5 years.................... $1,195 $1,435 $1,144 $1,098
10 years................... $2,565 $3,041 $2,462 $2,369
Class C (no redemption)
1 year..................... $ 226 $ 274 $ 216 $ 207
3 years.................... $ 697 $ 841 $ 667 $ 640
5 years.................... $1,195 $1,435 $1,144 $1,098
10 years................... $2,565 $3,041 $2,462 $2,369
</TABLE>
- --------
(1) Assumes conversion to Class A shares after eight years.
4
<PAGE>
Federal Income Tax Consequences
For federal income tax purposes, the Mergers of the Acquired Funds into the
Acquiring Fund will be tax-free reorganizations. Accordingly, no gain or loss
will be recognized by the Acquired Funds or by their shareholders as a result
of the Mergers, and the tax basis of the Merger Shares received by each
Acquired Fund shareholder will be the same as the tax basis of the
shareholder's Acquired Fund shares.
A substantial portion of the portfolio assets of each of the Acquired Funds
may be sold in connection with the Mergers of those Funds into the Acquiring
Fund. The actual tax impact of such sales will depend on the difference between
the price at which such portfolio assets are sold and the selling Fund's basis
in such assets. Any capital gains recognized in these sales will be distributed
to the selling Fund's shareholders as capital gain dividends (to the extent of
net realized long-term capital gains) and/or ordinary dividends (to the extent
of net realized short-term capital gains) during or with respect to the year of
sale, and such distributions will be taxable to shareholders.
For more information about the federal income tax consequences of the
Mergers, see "Information About the Mergers--Federal Income Tax Consequences."
Comparison of Investment Objectives, Policies, Restrictions and Risks
The investment objectives, policies, restrictions and risks of the Funds,
and certain differences between them, are summarized below. For a more detailed
description of the investment techniques used by the Funds, please see the Fund
Prospectus. For more information concerning the risks associated with
investments in the various Funds, see "Risk Factors," below.
Equity-Income Fund vs. Growth & Income Fund
The following compares the investment objectives, strategies and performance
of the Growth & Income Fund and the Equity-Income Fund. The Growth & Income
Fund seeks to provide long-term growth of capital and income consistent with
prudent investment risk. The Growth & Income Fund typically invests in
dividend-paying common stocks of larger U.S. issuers. The Equity-Income Fund
seeks to provide substantial dividend income and also long-term capital
appreciation. The Equity-Income Fund typically invests in dividend-paying
common stock of companies that also offer the opportunity for price
appreciation.
The average annual total returns for the Equity-Income Fund and the Growth &
Income Fund are set forth in the table below.
Total Return Comparison
As of 12/31/99*
<TABLE>
<CAPTION>
Since
1 Year 5 Years 4/01/94**
------- ------- ---------
<S> <C> <C> <C>
Equity-Income Fund.................................... -12.58% 12.67% 10.51%
Growth & Income Fund.................................. 10.78% 23.47% 20.95%
</TABLE>
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* Performance is for Class A shares of both Funds. Due to differences in
expenses, the returns for Class B and Class C shares would be lower. Fund
performance data is after all expenses and sales charges. The Funds' past
performance is not an indication of how the Funds will perform in the future.
For further information about the Growth & Income Fund's performance,
including information about waivers/ reimbursements that affected the Fund's
performance, see the Fund Prospectus.
** Inception date of Class A shares.
Selection of stocks for the Growth & Income Fund involves the assessment of
companies and their business environments, management, balance sheets, income
statements, anticipated earnings and dividends, and other related measures of
fundamental value. Wellington Management, the Growth & Income Fund's
subadviser, will also monitor and evaluate the economic and political climate
and the principal securities markets of the countries in which target companies
are located. The Equity-Income Fund selects stocks based on relative dividend
yield (a measure of the stock's current yield relative to the yields available
in the broader stock market) coupled with a disciplined research approach. The
Equity-Income Fund generally considers companies with the following
characteristics: established operating histories; above-average current
dividend yield relative to the S&P 500 Stock Index; low price/earnings ratios
relative to the S&P 500 Stock Index; sound balance sheets and other financial
characteristics; low stock price relative to underlying value as measured by
assets, earnings, cash flow, or business franchises. The Equity-Income Fund's
portfolio generally includes approximately thirty stocks.
5
<PAGE>
In addition to investment in dividend-paying stocks of larger companies, the
Growth & Income 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 Equity-Income Fund may also
invest in convertible securities, as well as preferred stocks and warrants. The
Equity-Income Fund may invest in bonds of any quality (including "junk bonds"),
while the Growth & Income Fund may likewise invest in marketable debt
securities of domestic issuers and of foreign issuers (payable in U.S.
dollars), but any such securities must either be rated at the time of purchase
"A" or better by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P"), or must be unrated securities considered of
equivalent quality by Wellington Management. The Growth & Income Fund may
invest in derivatives, and may invest up to 20% of its assets in foreign
securities, while the Equity-Income Fund limits investment in derivatives to
repurchase agreements, and does not typically invest in foreign securities. The
Equity-Income Fund may invest in U.S. dollar-denominated money market
securities, including repurchase agreements, in the two highest rating
categories that mature in one year or less. Both the Growth & Income Fund and
the Equity-Income Fund may lend up to 33% of portfolio assets to brokers,
dealers, and other financial institutions.
The Funds are subject to similar investment risks, including Management Risk
and Equity Risk, particularly with respect to the risks associated with value
stocks. Because the Growth & Income Fund may invest to a greater extent in
derivatives and foreign securities, it may be subject to greater Derivatives
Risk and Foreign Investment Risk than the Equity-Income Fund.
Tax-Sensitive Equity Fund vs. Growth & Income Fund
The following compares the investment objectives, strategies and performance
of the Growth & Income Fund and the Tax-Sensitive Equity Fund. The Growth &
Income Fund seeks to provide long-term growth of capital and income consistent
with prudent investment risk. The Growth & Income Fund typically invests in
dividend-paying common stocks of larger U.S. issuers. The Tax-Sensitive Equity
Fund seeks to maximize after-tax total return, with an emphasis on long-term
growth of capital, primarily through investment in equity securities of
companies that appear to be undervalued. The Tax-Sensitive Equity Fund focuses
on medium to large capitalization companies with above-average capital growth
potential.
The average annual total returns for the Growth & Income Fund and the Tax-
Sensitive Equity Fund are set forth in the table below.
Total Return Comparison
As of 12/31/99*
<TABLE>
<CAPTION>
Since
1 Year 5 Years 1/06/98**
------ ------- ---------
<S> <C> <C> <C>
Tax-Sensitive Equity Fund.............................. -6.49% N/A -2.16%
<CAPTION>
Since
1 Year 5 Years 4/01/94**
------ ------- ---------
<S> <C> <C> <C>
Growth & Income Fund................................... 10.78% 23.47% 20.95%
</TABLE>
- --------
* Performance is for Class A shares of both Funds. Due to differences in
expenses, the returns for Class B and Class C shares would be lower. Fund
performance data is after all expenses and sales charges. The Funds' past
performance is not an indication of how the Funds will perform in the
future. For further information about the Growth & Income Fund's
performance, including information about waivers/ reimbursements that
affected the Fund's performance, see the Fund Prospectus.
** Inception date of Class A shares.
Selection of stocks for the Growth & Income Fund involves the assessment of
companies and their business environments, management, balance sheets, income
statements, anticipated earnings and dividends, and other related measures of
fundamental value. Wellington Management, the Growth & Income Fund's
subadviser, will also monitor and evaluate the economic and political climate
and the principal securities markets of the countries in which target companies
are located.
The Tax-Sensitive Equity Fund emphasizes investment in securities with low
dividend yields, and seeks to minimize investment in income-producing
securities. The Tax-Sensitive Equity Fund selects stocks by use of a
mathematical model that identifies companies that have strong and consistent
historic earnings, are valued attractively by the market, and have improving
growth prospects. Stock-specific
6
<PAGE>
factors employed in mathematical modeling include: current price/earnings
ratios; stability of earnings growth; forecasted changes in earnings growth;
trends in consensus analysts' estimates; and measures of earnings relative to
expectations. The Tax-Sensitive Equity Fund also undertakes fundamental
research and qualitative analysis of the companies identified by mathematical
modeling, in search of those with sustainable profit growth, proven management
teams, attractive businesses, and strong financial characteristics.
Unlike the Growth & Income Fund, the Tax-Sensitive Equity Fund consistently
uses tax-sensitive strategies designed to reduce the impact of federal income
tax on the after-tax returns actually achieved by the Tax-Sensitive Equity
Fund's shareholders. These strategies include minimizing the sale of securities
resulting in capital gains, favoring the sale of securities with the smallest
capital gains, and selling securities with long-term gains first. The Tax-
Sensitive Equity Fund also seeks to sell securities to create capital losses,
which can offset realized capital gains. Because the Growth & Income Fund does
not emphasize tax mitigation strategies, it is likely to generate higher
taxable income for Growth & Income Fund shareholders. In addition, the
portfolio turnover rate of the Growth & Income Fund may exceed that of the Tax-
Sensitive Equity Fund, which may result in higher transaction costs.
The Tax-Sensitive Equity Fund usually invests at least 80% of its total
assets in equity and equity-related securities, such as common stocks and
preferred stocks. The Growth & Income Fund also emphasizes investment in equity
securities, but is not subject to any analogous percentage threshold. Unlike
the Tax-Sensitive Equity Fund, the Growth & Income Fund invests in securities
that can be converted into, or that include the right to buy common stocks,
including convertible securities issued in the Euromarket or preferred stocks.
Both Funds may invest in the foreign securities, but the Tax-Sensitive Equity
Fund limits such investments that are not listed on a U.S. securities exchange
or traded in the U.S. over-the-counter market to 10% of its total assets, while
the Growth & Income Fund may invest up to 20% of its assets in foreign
securities (without regard to where they are traded). The Growth & Income Fund
may invest in marketable debt securities of domestic issuers and of foreign
issuers rated at the time of purchase "A" or better by Moody's or S&P, or
unrated securities considered by Wellington Management to be of equivalent
quality. Both Funds currently limit their investments to securities that are
denominated or quoted in U.S. dollars. Both Funds may invest in derivatives.
Both the Growth & Income Fund and the Tax-Sensitive Equity Fund may lend up to
33% of portfolio assets to brokers, dealers, and other financial institutions.
The Funds are subject to similar investment risks, including Derivatives
Risk, Foreign Investment Risk, Management Risk and Equity Risk, particularly
the risks associated with value stocks.
Risk Factors
Certain risks associated with an investment in the Acquiring Fund are
summarized below. Because the Acquiring Fund and the Acquired Funds share
certain policies described more fully above under "Overview of Mergers--
Comparison of Investment Objectives, Policies, Restrictions and Risks," many of
the risks of an investment in the Acquiring Fund are substantially similar to
the risks of an investment in the Acquired Funds. A more detailed description
of the risks associated with an investment in the Acquiring Fund may be found
in the Fund Prospectus under the captions "More Information About Investment
Strategies and Risks," and "Other Risks of Investing" and in the Fund SAI under
the caption "Investment Policies and Risks."
The values of all securities and other instruments held by the Acquiring
Fund vary from time to time in response to a wide variety of market factors.
Consequently, the net asset value per share of the Acquiring Fund will vary,
and may be less at the time of redemption than it was at the time of
investment.
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 security, 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.
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.
7
<PAGE>
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 between two parties
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. Because
derivatives are contracts between parties, there is also some credit risk
associated with using derivatives. Additional risks associated with derivatives
include mispricing and improper valuation. Derivatives risk for some Funds may
be increased by their investments in structured securities.
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 affecting 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 sensitive to changes in current or expected earnings than the
values of other stocks.
Value stocks are the stocks of companies that are undervalued, or are
inexpensive relative 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
actively, 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.
Foreign Investment Risk. Funds that invest 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 significantly, from U.S. standards.
The possibility of political instability or diplomatic developments in
foreign countries could trigger nationalization of companies and industries,
expropriation (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 securities are obligations of the issuer to
make
8
<PAGE>
payments of principal and/or interest 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 mortgage-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.
Management Risk. Management risk is the risk that the subadviser of a Fund,
despite using various investment and risk analysis techniques, may not produce
the desired investment results.
Comparison of Distribution Policies and Purchase, Exchange and Redemption
Procedures
The Growth & Income Fund declares and pays dividends semi-annually, and the
Tax-Sensitive Equity Fund and the Equity-Income Fund declare and pay dividends
annually. Each Fund distributes any net realized capital gains annually. It is
expected that, shortly prior to the Exchange Date (defined in each Agreement
and Plan of Reorganization to be July 7, 2000 or such other date as may be
agreed upon by the Acquiring Fund and the Acquired Fund), each of the Acquired
Funds will declare and distribute as a special dividend any investment company
taxable income (computed without regard to the deduction for dividends paid)
and any net realized capital gains through the Exchange Date not previously
distributed.
The Funds have identical procedures for purchasing shares. Each of the Funds
offers three classes of shares, Class A, Class B and Class C. Class A, Class B
and Class C shares of the Funds may be purchased at their net asset value next
determined, plus applicable sales charges in the case of Class A shares, from
American General Funds Distributors, Inc. ("AGFD"), formerly named CypressTree
Funds Distributors, Inc., the Funds' principal underwriter. In addition, shares
of the Funds may be purchased through other broker-dealers that have dealer
agreements with AGFD.
Class B shares of the Funds are subject to a CDSC at declining rates if
redeemed within six years of purchase. Class C shares of the Funds are subject
to a CDSC if redeemed within one year of purchase. Class B and Class C Merger
Shares will be subject to a CDSC on redemption to the same extent that the
Class B and Class C Acquired Fund shares were so subject. No sales charge will
be charged to Acquired Fund shareholders on the issuance of the Merger Shares,
and no CDSC will be charged by the Acquired Funds.
Shares of each Fund can generally be exchanged for shares of the same class
of any other North American Fund. For more details, see the Fund Prospectus and
Fund SAI.
The Funds have identical redemption procedures. Shares of a Fund may be
redeemed at their net asset value next determined after receipt of the
redemption request, less any applicable CDSC, on any day the New York Stock
Exchange is open. Shares can be redeemed by contacting the relevant Fund by
mail, by telephone, through broker dealers if a dealer agreement is in place or
by wire communication.
See the Fund Prospectus for further information.
9
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is being furnished in connection with a
Special Meeting of Shareholders of each Acquired Fund to be held on June 1,
2000 or at such later time made necessary by adjournment (the "Meeting") and
the solicitation of proxies by and on behalf of the shareholders of the
Acquired Funds for use at the Meeting. The Meeting is being held to consider
the proposed Mergers of each Acquired Fund with the Acquiring Fund by the
transfer of all of the Acquired Fund's assets and liabilities to the Acquiring
Fund. The approval of each Merger is a condition to the Merger of the other
Funds. This Prospectus/Proxy Statement and the enclosed form of proxy are being
mailed to shareholders on or about April 14, 2000.
The Trustees of North American Funds know of no matters other than those set
forth herein to be brought before the Meeting. If, however, any other matters
properly come before the Meeting, it is the Trustees' intention that proxies
will be voted on such matters in accordance with the judgment of the persons
named in the enclosed form of proxy.
- --------------------------------------------------------------------------------
THE PROPOSALS:
APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
Shareholders of the Equity-Income Fund are being asked to approve or
disapprove a Merger between the Equity-Income Fund and the Growth & Income Fund
(Proposal 1); and shareholders of the Tax-Sensitive Equity Fund are being asked
to approve or disapprove a Merger between the Tax-Sensitive Equity Fund and the
Growth & Income Fund (Proposal 2). Each Merger is proposed to take place
pursuant to an Agreement and Plan of Reorganization between the Acquired Fund
and the Acquiring Fund (the "Agreement"), each of which is in the form attached
to this Prospectus/Proxy Statement as Appendix A.
Each Agreement provides, among other things, for the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange for (i) the
issuance to the Acquired Fund of the Class A, Class B and Class C Merger
Shares, the number of which will be calculated based on the value of the net
assets attributable to the Class A, Class B and Class C shares, respectively,
of the Acquired Fund acquired by the Acquiring Fund and the net asset value per
Class A, Class B and Class C shares of the Acquiring Fund and (ii) the
assumption by the Acquiring Fund of all of the liabilities of the Acquired
Fund, all as more fully described below under "Information About the Mergers."
After receipt of the Merger Shares, each Acquired Fund will cause the Class
A Merger Shares to be distributed to its Class A shareholders, the Class B
Merger Shares to be distributed to its Class B shareholders, and the Class C
Merger Shares to be distributed to its Class C shareholders, in complete
liquidation of the Acquired Fund. Each shareholder of an Acquired Fund will
receive a number of full and fractional Class A, Class B and Class C Merger
Shares equal in value at the date of the exchange to the aggregate value of the
shareholder's Class A, Class B and Class C Acquired Fund shares, as the case
may be.
Board of Trustees' Recommendations. The Board of Trustees of North American
Funds has voted unanimously to approve each proposed Merger and to recommend
that shareholders of each Acquired Fund also approve the Merger for such Fund.
Required Shareholder Vote. Approval of the proposed Merger for each Acquired
Fund will require the affirmative vote of the lesser of (i) 67% or more of the
Class A, Class B and Class C shares of the relevant Acquired Fund, voting
together as a single class, if holders of more than 50% of the Class A, Class B
and Class C shares, taken as a single class, of the relevant Acquired Fund are
present or represented by proxy at the meeting; or (ii) more than 50% of the
Class A, Class B and Class C shares, voting together as a single class,
provided a quorum is present at the meeting. The holders of thirty percent of
the Class A, Class B and Class C shares of each Acquired Fund outstanding at
the close of business on the Record Date present in person or represented by
proxy will constitute a quorum for the Meeting with respect to that Fund.
10
<PAGE>
Background and Reasons for the Proposed Mergers
The Board of Trustees of North American Funds, including all of its Trustees
who are not "interested persons" of North American Funds (the "Independent
Trustees"), has unanimously determined that each Merger would be in the best
interests of the relevant Funds, and that the interests of the Funds'
shareholders would not be diluted as a result of effecting the Merger. At a
meeting held on February 27, 2000, the Board unanimously approved each proposed
Merger and recommended its approval by shareholders. Before reaching their
conclusions, the Board conducted an extensive "due diligence" review. The Board
took into account the fact that current owners of AGAM will be bearing the
expenses associated with the Mergers, including those described under
"Information about the Mergers." The Board also took into account the depth and
strength of staffing of investment professionals and administrative personnel
at AGAM, the portfolio managers of the Acquiring Fund and the other service
providers to the Acquiring Fund, as well as AGFD's plans for distribution of
the Funds following the Mergers. In addition, the Board took into account the
relative historical investment performance of the Acquiring Fund, on the one
hand, and the Acquired Funds, on the other hand. Furthermore, Trustees took
into account the capital loss carry-forwards for each Acquired Fund and the
Acquiring Fund, and the unrealized capital appreciation in each Acquired Fund
and in the Acquiring Fund, in each case as a percentage of the Fund's total net
assets. Those percentages as of October 31, 1999 were as follows:
<TABLE>
<CAPTION>
Unrealized Capital
Capital Loss Appreciation
Carry-Forwards (Depreciation)
(as a percentage (as a percentage
of total net assets) of total net assets)
Fund on 10/31/99 on 10/31/99
---- -------------------- --------------------
<S> <C> <C>
Equity-Income Fund.................... * 6.6%
Tax-Sensitive Equity Fund............. 19.45% 8.2%
Growth & Income Fund.................. * 36.6%
</TABLE>
- --------
* Less than $50,000 or less than 0.01% of net assets.
The principal reasons why the Board of Trustees is recommending the Mergers
are as follows:
(i) Decreases in overall expenses. The Mergers are expected to result in
aggregate operating expenses that would be lower than those expected to be
borne by the Acquired Funds as described more fully in the Overview under
"Operating Expenses." Of course, there can be no assurance that the Mergers
will result in savings in operating expenses to shareholders.
(ii) Appropriate investment objectives, diversification, etc. The investment
objective, policies, and restrictions of the Acquiring Fund are compatible with
those of the Acquired Funds, and the Trustees believe that an investment in
shares of the Acquiring Fund (whose portfolio will have been combined with
those of the Acquired Funds) will provide shareholders with an investment
opportunity comparable to those currently afforded by the Acquired Funds, with
the potential for reduced investment risk because of the opportunities for
additional diversification of portfolio investments through increased Fund
assets.
INFORMATION ABOUT THE MERGERS
Agreement and Plan of Reorganization. Each proposed Agreement and Plan of
Reorganization provides that the Acquiring Fund will acquire all of the assets
of the Acquired Funds in exchange for the issuance of the Class A, Class B and
Class C Merger Shares and for the assumption by the Acquiring Fund of all of
the liabilities of the Acquired Fund, all as of the Exchange Date. The
following discussion of the Agreements is qualified in its entirety by the full
text of each Agreement, the form of which is attached as Appendix A to this
Prospectus/Proxy Statement.
Each Acquired Fund will sell all of its assets to the Acquiring Fund, and,
in exchange, the Acquiring Fund will assume all of the liabilities of the
Acquired Fund and deliver to the Acquired Fund (i) a number of full and
fractional Class A Merger Shares having an aggregate net asset value equal to
the value of the assets of the Acquired Fund
11
<PAGE>
attributable to its Class A shares, less the value of the liabilities of the
Acquired Fund assumed by the Acquiring Fund attributable to the Class A shares
of the Acquired Fund, (ii) a number of full and fractional Class B Merger
Shares having an aggregate net asset value equal to the value of assets of the
Acquired Fund attributable to its Class B shares, less the value of the
liabilities of the Acquired Fund assumed by the Acquiring Fund attributable to
the Class B shares of the Acquired Fund, and (iii) a number of full and
fractional Class C Merger Shares having an aggregate net asset value equal to
the value of the assets of the Acquired Fund attributable to its Class C
shares, less the value of the liabilities of the Acquired Fund assumed by the
Acquiring Fund attributable to the Class C shares of the Acquired Fund.
Immediately following the Exchange Date, each Acquired Fund will distribute
pro rata to its shareholders of record as of the close of business on the
Exchange Date the full and fractional Merger Shares received by the Acquired
Fund, with Class A Merger Shares being distributed to holders of Class A shares
of the Acquired Fund, Class B Merger Shares being distributed to holders of
Class B shares of the Acquired Fund and Class C Merger Shares being distributed
to holders of Class C shares of the Acquired Fund. As a result of the proposed
transaction, each holder of Class A, Class B and Class C shares of the Acquired
Fund will receive a number of Class A, Class B and Class C Merger Shares equal
in aggregate value at the Exchange Date to the value of the Class A, Class B
and Class C shares of the Acquired Fund held by the shareholder. This
distribution will be accomplished by the establishment of accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund shareholders,
each account representing the respective number of full and fractional Class A,
Class B and Class C Merger Shares due such shareholder. Because the shares of
the Acquiring Fund will not be represented by certificates, certificates for
Merger Shares will not be issued.
The consummation of each Merger is subject to the conditions set forth in
the Agreement, any of which may be waived, except for the condition requiring
shareholder approval of the Agreement. The Agreement may be terminated and the
Merger abandoned at any time, before or after approval by the shareholders of
each Acquired Fund, prior to the Exchange Date, by mutual consent of the
relevant Funds or, if any condition set forth in the Agreement has not been
fulfilled and has not been waived by the party entitled to its benefits, by
such party.
All legal, accounting, printing and other fees and expenses incurred in
connection with the consummation of the transactions contemplated by the
Agreement will be borne by American General Corporation and/or its affiliates,
including registration fees. Notwithstanding the foregoing, expenses will in
any event be paid by the party directly incurring such expenses if and to the
extent that the payment by any other party of such expenses would result in the
disqualification of the first party as a "regulated investment company" within
the meaning of Section 851 of the Internal Revenue Code of 1986, as amended
(the "Code").
Description of the Merger Shares. Full and fractional Merger Shares will be
issued to each Acquired Fund's shareholders in accordance with the procedure
under the Agreement as described above. The Merger Shares are Class A, Class B
and Class C shares of the Acquiring Fund, which have characteristics identical
to those of the corresponding class of Acquired Fund shares with respect to
sales charges, CDSCs, conversion and 12b-1 servicing and distribution fees.
Organization. Each of the Merger Shares will be fully paid and nonassessable
by the Acquiring Fund when issued, will be transferable without restriction,
and will have no preemptive or conversion rights, except that certain Class B
and Class C Merger Shares convert automatically into Class A shares as
described above. The Amended and Restated Agreement and Declaration of Trust of
North American Funds (the "Declaration of Trust") permits North American Funds
to divide its shares, without shareholder approval, into two or more series of
shares representing separate investment portfolios and to further divide any
such series, without shareholder approval, into two or more classes of shares
having such preferences and special or relative rights and privileges as the
Trustees may determine. The Acquiring Fund's shares are currently divided into
four classes. The rights of shareholders of the Acquired Funds and the
Acquiring Fund are identical.
12
<PAGE>
Federal Income Tax Consequences
The Mergers will be tax-free reorganizations. Each Merger will be
conditioned on receipt of an opinion from Ropes & Gray, special counsel to
North American Funds, to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court decisions, for
federal income tax purposes: (i) under Section 361 of the Code, no gain or loss
will be recognized by the Acquired Fund as a result of the Mergers; (ii) under
Section 354 of the Code, no gain or loss will be recognized by shareholders of
the Acquired Fund on the distribution of Merger Shares to them in exchange for
their shares of the Acquired Fund; (iii) under Section 358 of the Code, the tax
basis of the Merger Shares that the Acquired Fund's shareholders receive in
place of their Acquired Fund shares will be the same as the basis of the
Acquired Fund shares; (iv) under Section 1223(1) of the Code, an Acquired
Fund's shareholder's holding period for the Merger Shares received pursuant to
the Agreement will be determined by including the holding period for the
Acquired Fund shares exchanged for the Merger Shares, provided that the
shareholder held the Acquired Fund shares as a capital asset; (v) under Section
1032 of the Code, no gain or loss will be recognized by the Acquiring Fund as a
result of the Mergers; (vi) under Section 362(b) of the Code, the Acquiring
Fund's tax basis in the assets that the Acquiring Fund receives from the
Acquired Fund will be the same as the Acquired Fund's basis in such assets; and
(vii) under Section 1223(2) of the Code, the Acquiring Fund's holding period in
such assets will include the Acquired Fund's holding period in such assets. The
opinion will be based on certain factual certifications made by officers of
North American Funds, and will also include certain qualifications and be based
on customary assumptions.
A substantial portion of the portfolio assets of each of the Acquired Funds
may be sold in connection with the Mergers of those Funds into the Acquiring
Fund. The actual tax impact of such sales will depend on the difference between
the price at which such portfolio assets are sold and the selling Fund's basis
in such assets. Any capital gains recognized in these sales will be distributed
to the selling Fund's shareholders as capital gain dividends (to the extent of
net realized long-term capital gains) and/or ordinary dividends (to the extent
of net realized short-term capital gains) during or with respect to the year of
sale, and such distributions will be taxable to shareholders.
Prior to the Exchange Date, each Acquired Fund will declare a distribution
to shareholders which, together with all previous distributions, will have the
effect of distributing to shareholders all of its investment company taxable
income (computed without regard to the deduction for dividends paid) and net
realized capital gains, if any, through the Exchange Date.
The foregoing description of the federal income tax consequences of the
Mergers is made without regard to the particular facts and circumstances of any
shareholder. Shareholders are urged to consult their own tax advisers as to the
specific consequences to them of the Mergers, including the applicability and
effect of state, local, foreign and other tax laws.
Capitalization. The following tables show the capitalization of the
Acquiring Fund and each Acquired Fund as of March 31, 2000 and of the Acquiring
Fund on a pro forma basis as of that date, giving effect to the proposed
acquisition by the Acquiring Fund of the assets and liabilities of the Acquired
Fund at net asset value:
13
<PAGE>
Capitalization Tables
3/31/00
(Unaudited)
<TABLE>
<CAPTION>
Equity-
Income Tax-Sensitive Growth & Pro Forma
Fund Equity Fund Income Fund Combined
------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net assets (000's omitted)
Class A.......................... $ 9,775 $ 312 $ 38,735 $ 48,822
Class B.......................... 19,608 2,641 106,491 128,740
Class C.......................... 46,019 2,812 158,499 207,330
Shares outstanding (000's omitted)
Class A.......................... 814 30 1,351 1,703
Class B.......................... 1,650 260 3,797 4,592
Class C.......................... 3,842 278 5,627 7,359
Net asset value per share
Class A.......................... $ 12.01 $10.35 $ 28.67 $ 28.67
Class B.......................... 11.89 10.15 28.04 28.04
Class C.......................... 11.98 10.12 28.17 28.17
</TABLE>
Pro forma financial statements of the Acquiring Fund as of and for the
fiscal year ended October 31, 1999 are included in the Merger SAI. Because each
Agreement provides that the Acquiring Fund will be the surviving Fund following
the Merger and because the Acquiring Fund's investment objective and policies
will remain unchanged by the Merger, the pro forma financial statements reflect
the transfer of the assets and liabilities of the Acquired Fund to the
Acquiring Fund as contemplated by the Agreement.
- --------------------------------------------------------------------------------
INFORMATION ABOUT THE FUNDS
Other information regarding the Funds, including information with respect to
their investment objectives, policies and restrictions and financial history
may be found in the Merger SAI, the Fund Prospectus, the Fund SAI and the
Annual Report, which are available upon request by calling 1-800-872-8037.
Other information filed by North American Funds with respect to the Funds
can be inspected and copied at the Public Reference Facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates, or at no charge from the EDGAR
database on the SEC's website at "www.sec.gov."
14
<PAGE>
- --------------------------------------------------------------------------------
VOTING INFORMATION
Record date, quorum and method of tabulation. Shareholders of record of each
Acquired Fund at the close of business on April 7, 2000 (the "Record Date")
will be entitled to notice of and to vote at the Meeting or any adjournment
thereof. The holders of thirty percent of the outstanding shares of each
Acquired Fund outstanding at the close of business on the Record Date present
in person or represented by proxy will constitute a quorum for the Meeting with
respect to that Fund. Shareholders are entitled to one vote for each share
held, with fractional shares voting proportionally. Class A, Class B and Class
C shareholders of each Acquired Fund vote together as a single class in
connection with the approval or disapproval of the Mergers. Shareholders of
each Acquired Fund will vote only on the approval or disapproval of that Fund's
Merger.
Votes cast by proxy or in person at the Meeting will be counted by persons
appointed by North American Funds as tellers for the Meeting. The tellers will
count the total number of votes cast "for" approval of the Proposal for
purposes of determining whether sufficient affirmative votes have been cast.
The tellers will count shares represented by proxies that reflect abstentions
and "broker non-votes" (i.e., shares held by brokers or nominees as to which
(i) instructions have not been received from the beneficial owners or the
persons entitled to vote and (ii) the broker or nominee does not have the
discretionary voting power on a particular matter) as shares that are present
and entitled to vote on the matter for purposes of determining the presence of
a quorum. So long as a quorum is present, abstentions and broker non-votes have
the effect of negative votes on the Proposals relating to the Mergers.
Shares outstanding and beneficial ownership. As of the Record Date, as shown
on the books of the Acquired Funds, there were issued and outstanding the
following number of shares of beneficial interest of each class of each
Acquired Fund:
<TABLE>
<CAPTION>
Class A Class B Class C
------- --------- ---------
<S> <C> <C> <C>
Equity-Income Fund.................................. 767,862 1,633,723 3,726,226
Tax-Sensitive Equity Fund........................... 28,666 258,820 276,373
</TABLE>
As of March 20, 2000, the officers and Trustees of North American Funds as a
group beneficially owned less than 1% of the outstanding shares of each class
of each Acquired Fund. As of March 20, 2000, to the best of the knowledge of
North American Funds, the following persons each owned of record or
beneficially 5% or more of the outstanding shares of the Acquired Funds and the
Acquiring Fund:
<TABLE>
<CAPTION>
% of Growth & Income
Fund Held After
Fund Shareholder % of Fund Held Mergers
---- ----------- -------------- --------------------
<C> <S> <C> <C>
Tax-Sensitive Equity Fund Margaret M. Werner Family Trust 9% .06%
Class A Shares 3 Sweets View Lane
Fairport, NY 14450-8423
Donaldson Lufkin Jenrette 7% .04%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052
Wexford Clearing Services Corp. FBO 14% .09%
Eloise C. Basler
10023 Willow Cove Road, SE
Huntsville, AL 35803-2623
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
% of Growth & Income
Fund Held After
Fund Shareholder % of Fund Held Mergers
---- ----------- -------------- --------------------
<C> <S> <C> <C>
Richard R. Irwin, Cust. 12% .07%
Jennifer Irwin UTMA--PA
1269 Barnstaple Dr.
Library, PA 15129-8975
Tax-Sensitive Equity Fund Joanne Cichanowicz 6% .12%
Class B Shares 7 Bay Point Circle
Rochester, NY 14622-3332
Tax-Sensitive Equity Fund Doris J. Hoag, TTEE 34% .48%
Class C Shares Robert A. Johnston
Irrevocable Trust DTD 1/4/90
2988 County House Woods Road
Bluff Point, NY 14478-9709
PaineWebber For the 15% .21%
Benefit of
Sheri Ellen Schwartz
Revocable Trust DTD 11-4-94
Managed Account Two
500 Duvall Drive
Greenville, SC 29607-3629
</TABLE>
Shareholder voting. You may give your voting instructions over the telephone
by calling 1-800-611-9049. A representative of Shareholder Communications
Corporation ("SCC") will answer your call. When receiving your instructions by
telephone, the SCC representative is required to ask you for your full name,
address, social security or employer identification number, title (if the
person giving the proxy is authorized to act for an entity, such as a
corporation), the number of shares of the Fund owned and to confirm that you
have received the Prospectus/Proxy Statement in the mail. If the information
you provide matches the information provided to SCC by AGAM then the SCC
representative will explain the process. SCC is not permitted to recommend to
you how to vote, other than to read any recommendation included in the
Prospectus/Proxy Statement. SCC will record your instructions and transmit them
to the official tabulator and send you a letter or mailgram to confirm your
vote. That letter will also ask you to call SCC immediately if the confirmation
does not reflect your instructions correctly.
You may receive a call from a representative of SCC if AGAM has not yet
received your vote. SCC may ask you for authority by telephone to permit SCC to
sign a proxy on your behalf. SCC will record all instructions it receives from
shareholders by telephone, and the proxies it signs in accordance with those
instructions, in accordance with the procedures set forth above. The Trustees
of North American Funds believe those procedures are reasonably designed to
determine accurately the shareholder's identity and voting instructions.
If you wish to participate in the Meeting, but do not wish to give a proxy
by telephone, you can still complete, sign and mail the proxy card received
with the Prospectus/Proxy Statement or attend the Meeting in person.
Revocation of proxies. Any shareholder giving a proxy has the power to
revoke it by mail (addressed to the Secretary of North American Funds at the
principal office of North American Funds, 286 Congress Street, Boston, MA
02210) or in person at the Meeting, by executing a superseding proxy, or by
submitting a notice of revocation to the Secretary of North American Funds. All
properly executed proxies received in time for the Meeting will be voted as
specified in the proxy, or, if no specification is made FOR the proposal (set
forth in the Proposals of the Notice of Meeting) to implement the Merger with
respect to the relevant Acquired Fund.
16
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Shareholder proposals at future meetings of shareholders. The Declaration of
Trust does not provide for annual meetings of shareholders, and North American
Funds does not currently intend to hold such a meeting for shareholders of the
Acquired Funds in 2000. Shareholder proposals for inclusion in a proxy
statement for any subsequent meeting of the Acquired Funds' shareholders must
be received by North American Funds a reasonable period of time prior to any
such meeting. If the Mergers are consummated, there will be no meetings of the
shareholders of the Acquired Funds.
Adjournment. If sufficient votes in favor of any proposal are not received
by the time scheduled for the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies. Any adjournment will require the affirmative vote of a plurality of
the votes cast on the question in person or by proxy at the session of the
Meeting to be adjourned. If the Meeting is adjourned only with respect to one
Proposal, any other Proposal may still be acted upon by the shareholders. The
persons named as proxies will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of the Proposal. They will vote
against any such adjournment those proxies required to be voted against the
Proposal.
April 14, 2000
17
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Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
April 6, 2000 in Boston, Massachusetts, by and between North American Funds, a
Massachusetts business trust, on behalf of its [ ] Fund series (the
"Acquired Fund"), and North American Funds, on behalf of its Growth & Income
Fund series (the "Acquiring Fund").
Plan of Reorganization
(a) The Acquired Fund will sell, assign, convey, transfer and deliver to the
Acquiring Fund on the Exchange Date (as defined in Section 6) all of its
properties and assets. In consideration therefor, the Acquiring Fund shall, on
the Exchange Date, assume all of the liabilities of the Acquired Fund existing
at the Valuation Time (as defined in Section 3(c)) and deliver to the Acquired
Fund (i) a number of full and fractional Class A shares of beneficial interest
of the Acquiring Fund (the "Class A Merger Shares") having an aggregate net
asset value equal to the value of the assets of the Acquired Fund attributable
to the Class A shares of the Acquired Fund transferred to the Acquiring Fund on
such date less the value of the liabilities of the Acquired Fund attributable
to the Class A shares of the Acquired Fund assumed by the Acquiring Fund on
that date, (ii) a number of full and fractional Class B shares of beneficial
interest of the Acquiring Fund (the "Class B Merger Shares") having an
aggregate net asset value equal to the value of the assets of the Acquired Fund
attributable to the Class B shares of the Acquired Fund transferred to the
Acquiring Fund on such date less the value of the liabilities of the Acquired
Fund attributable to the Class B shares of the Acquired Fund assumed by the
Acquiring Fund on that date, and (iii) a number of full and fractional Class C
shares of beneficial interest of the Acquiring Fund (the "Class C Merger
Shares") having an aggregate net asset value equal to the value of the assets
of the Acquired Fund attributable to the Class C shares of the Acquired Fund
transferred to the Acquiring Fund on such date less the value of the
liabilities of the Acquired Fund attributable to the Class C shares of the
Acquired Fund assumed by the Acquiring Fund on that date. (The Class A Merger
Shares, the Class B Merger Shares and the Class C Merger Shares shall be
referred to collectively as the "Merger Shares"). It is intended that the
reorganization described in this Agreement shall be a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code").
(b) Upon consummation of the transaction described in paragraph (a) of this
Agreement, the Acquired Fund shall distribute in complete liquidation to its
Class A, Class B and Class C shareholders of record as of the Exchange Date the
Class A, Class B and Class C Merger Shares, each such shareholder being
entitled to receive that proportion of such Class A, Class B and Class C Merger
Shares which the number of Class A, Class B and Class C shares of beneficial
interest of the Acquired Fund held by such shareholder bears to the number of
Class A, Class B and Class C shares of the Acquired Fund outstanding on such
date. Certificates representing the Class A, Class B and Class C Merger Shares
will not be issued. All issued and outstanding Class A, Class B and Class C
shares of the Acquired Fund will simultaneously be canceled on the books of the
Acquired Fund.
(c) As promptly as practicable after the liquidation of the Acquired Fund as
aforesaid, the Acquired Fund shall be dissolved pursuant to the provisions of
the Amended and Restated Agreement and Declaration of Trust of North American
Funds (the "Declaration of Trust"), as amended, and applicable law, and its
legal existence terminated. Any reporting responsibility of the Acquired Fund
is and shall remain the responsibility of the Acquired Fund up to and including
the Exchange Date and, if applicable, such later date on which the Acquired
Fund is liquidated.
Agreement
The Acquiring Fund and the Acquired Fund agree as follows:
1. Representations, Warranties and Agreements of the Acquiring Fund. The
Acquiring Fund represents and warrants to and agrees with the Acquired Fund
that:
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a. The Acquiring Fund is a series of North American Funds, a
Massachusetts business trust duly established and validly existing under
the laws of The Commonwealth of Massachusetts, and has power to own all of
its properties and assets and to carry out its obligations under this
Agreement. North American Funds is qualified as a foreign association in
every jurisdiction where required, except to the extent that failure to so
qualify would not have a material adverse effect on North American Funds.
Each of North American Funds and the Acquiring Fund has all necessary
federal, state and local authorizations to carry on its business as now
being conducted and to carry out this Agreement.
b. Reserved
c. The statement of assets and liabilities, statement of operations,
statement of changes in net assets and a schedule of investments
(indicating their market values) of the Acquiring Fund as of and for the
year ended October 31, 1999 have been furnished to the Acquired Fund. Such
statement of assets and liabilities and schedule fairly present the
financial position of the Acquiring Fund as of that date and such
statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the periods covered
thereby in conformity with generally accepted accounting principles.
d. The current prospectus and statement of additional information of
North American Funds, each dated March 1, 2000 (collectively, as from time
to time amended, the "Prospectus"), which have previously been furnished to
the Acquired Fund, did not as of such date and does not contain as of the
date hereof, with respect to the Acquiring Fund, any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
e. There are no material legal, administrative or other proceedings
pending or, to the knowledge of North American Funds or the Acquiring Fund,
threatened against North American Funds or the Acquiring Fund, which assert
liability on the part of the Acquiring Fund. The Acquiring Fund knows of no
facts which might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated.
f. The Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown belonging to it on its
statement of assets and liabilities as of October 31, 1999, those incurred
in the ordinary course of its business as an investment company since
October 31, 1999 and those to be assumed pursuant to this Agreement. Prior
to the Exchange Date, the Acquiring Fund will endeavor to quantify and to
reflect on its balance sheet all of its material known liabilities and will
advise the Acquired Fund of all material liabilities, contingent or
otherwise, incurred by it subsequent to October 31, 1999, whether or not
incurred in the ordinary course of business.
g. As of the Exchange Date, the Acquiring Fund will have filed all
federal and other tax returns and reports which, to the knowledge of North
American Funds' officers, are required to have been filed by the Acquiring
Fund and will have paid or will pay all federal and other taxes shown to be
due on said returns or on any assessments received by the Acquiring Fund.
All tax liabilities of the Acquiring Fund have been adequately provided for
on its books, and no tax deficiency or liability of the Acquiring Fund has
been asserted, and no question with respect thereto has been raised or is
under audit, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
h. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated by this Agreement, except such as may
be required under the Securities Act of 1933, as amended (the "1933 Act"),
the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Investment Company Act of 1940, as amended (the "1940 Act") and state
insurance, securities or blue sky laws (which term as used herein shall
include the laws of the District of Columbia and of Puerto Rico).
i. The registration statement (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") by North American
Funds on Form N-14 on behalf of the Acquiring Fund and relating to the
Merger Shares issuable hereunder and the proxy statement of the Acquired
Fund
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relating to the meeting of the Acquired Fund shareholders referred to in
Section 7(a) herein (together with the documents incorporated therein by
reference, the "Acquired Fund Proxy Statement"), on the effective date of
the Registration Statement, (i) will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules
and regulations thereunder and (ii) will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at
the time of the shareholders meeting referred to in Section 7(a) and on the
Exchange Date, the prospectus which is contained in the Registration
Statement, as amended or supplemented by any amendments or supplements
filed with the Commission by North American Funds, and the Acquired Fund
Proxy Statement will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the Registration Statement or the Acquired
Fund Proxy Statement made in reliance upon and in conformity with
information furnished in writing by the Acquired Fund to the Acquiring Fund
specifically for use in the Registration Statement or the Acquired Fund
Proxy Statement.
j. There are no material contracts outstanding to which the Acquiring
Fund is a party, other than as are or will be disclosed in the Prospectus,
the Registration Statement or the Acquired Fund Proxy Statement.
k. All of the issued and outstanding shares of beneficial interest of
the Acquiring Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws (including any applicable
exemptions therefrom), or the Acquiring Fund has taken any action necessary
to remedy any prior failure to have offered for sale and sold such shares
in conformity with such laws.
l. The Acquiring Fund qualifies and will at all times through the
Exchange Date qualify for taxation as a "regulated investment company"
under Sections 851 and 852 of the Code.
m. The issuance of the Merger Shares pursuant to this Agreement will be
in compliance with all applicable federal and state securities laws.
n. The Merger Shares to be issued to the Acquired Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
be legally and validly issued and will be fully paid and non-assessable by
the Acquiring Fund, and no shareholder of the Acquiring Fund will have any
preemptive right of subscription or purchase in respect thereof.
o. All issued and outstanding shares of the Acquiring Fund are, and at
the Exchange Date will be, duly authorized, validly issued, fully paid and
non-assessable by the Acquiring Fund. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund shares, nor is there outstanding any security
convertible into any Acquiring Fund shares.
2. Representations, Warranties and Agreements of the Acquired Fund. The
Acquired Fund represents and warrants to and agrees with the Acquiring Fund
that:
a. The Acquired Fund is a series of North American Funds, a
Massachusetts business trust duly established and validly existing under
the laws of The Commonwealth of Massachusetts, and has power to own all of
its properties and assets and to carry out this Agreement. North American
Funds is qualified as a foreign association in every jurisdiction where
required, except to the extent that failure to so qualify would not have a
material adverse effect on North American Funds. Each of North American
Funds and the Acquired Fund has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry on its
business as now being conducted and to carry out this Agreement.
b. Reserved
c. A statement of assets and liabilities, statement of operations,
statement of changes in net assets and a schedule of investments
(indicating their market values) of the Acquired Fund as of and for the
year
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ended October 31, 1999 have been furnished to the Acquiring Fund. Such
statement of assets and liabilities and schedule fairly present the
financial position of the Acquired Fund as of that date, and such
statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the period covered
thereby, in conformity with generally accepted accounting principles.
d. The Prospectus, which has been previously furnished to the Acquiring
Fund, did not contain as of such dates and does not contain, with respect
to the Acquired Fund, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
e. There are no material legal, administrative or other proceedings
pending or, to the knowledge of North American Funds or the Acquired Fund,
threatened against North American Funds or the Acquired Fund, which assert
liability on the part of the Acquired Fund. The Acquired Fund knows of no
facts which might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated.
f. There are no material contracts outstanding to which the Acquired
Fund is a party, other than as are disclosed in the North American Funds'
registration statement on Form N-1A or the Prospectus.
g. The Acquired Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown on the Acquired Fund's
statement of assets and liabilities as of October 31, 1999 referred to
above and those incurred in the ordinary course of its business as an
investment company since such date. Prior to the Exchange Date, the
Acquired Fund will endeavor to quantify and to reflect on its balance sheet
all of its material known liabilities and will advise the Acquiring Fund of
all material liabilities, contingent or otherwise, incurred by it
subsequent to October 31, 1999, whether or not incurred in the ordinary
course of business.
h. As of the Exchange Date, the Acquired Fund will have filed all
federal and other tax returns and reports which, to the knowledge of North
American Funds' officers, are required to have been filed by the Acquired
Fund and has paid or will pay all federal and other taxes shown to be due
on said returns or on any assessments received by the Acquired Fund. All
tax liabilities of the Acquired Fund have been adequately provided for on
its books, and no tax deficiency or liability of the Acquired Fund has been
asserted, and no question with respect thereto has been raised or is under
audit, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
i. At the Exchange Date, North American Funds, on behalf of the Acquired
Fund, will have full right, power and authority to sell, assign, transfer
and deliver the Investments (as defined below) and any other assets and
liabilities of the Acquired Fund to be transferred to the Acquiring Fund
pursuant to this Agreement. At the Exchange Date, subject only to the
delivery of the Investments and any such other assets and liabilities as
contemplated by this Agreement, the Acquiring Fund will acquire the
Investments and any such other assets and liabilities subject to no
encumbrances, liens or security interests whatsoever and without any
restrictions upon the transfer thereof, except as previously disclosed to
the Acquiring Fund. As used in this Agreement, the term "Investments" shall
mean the Acquired Fund's investments shown on the schedule of its
investments as of October 31, 1999 referred to in Section 2(c) hereof, as
supplemented with such changes in the portfolio as the Acquired Fund shall
make, and changes resulting from stock dividends, stock split-ups, mergers
and similar corporate actions through the Exchange Date.
j. No registration under the 1933 Act of any of the Investments would be
required if they were, as of the time of such transfer, the subject of a
public distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed to the Acquiring Fund by the Acquired Fund.
k. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement, except such as may
be required under the 1933 Act, 1934 Act, the 1940 Act or state insurance,
securities or blue sky laws.
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<PAGE>
l. The Registration Statement and the Acquired Fund Proxy Statement, on
the effective date of the Registration Statement, (i) will comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and (ii) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and at the time of the shareholders meeting referred to in
Section 7(a) and on the Exchange Date, the Acquired Fund Proxy Statement
and the Registration Statement will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement or the Acquired Fund Proxy Statement made in reliance upon and in
conformity with information furnished in writing by the Acquiring Fund to
the Acquired Fund or North American Funds specifically for use in the
Registration Statement or the Acquired Fund Proxy Statement.
m. The Acquired Fund qualifies and will at all times through the
Exchange Date qualify for taxation as a "regulated investment company"
under Section 851 and 852 of the Code.
n. At the Exchange Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving effect to the
acquisition of the assets of the Acquired Fund pursuant to this Agreement,
the Acquiring Fund will remain a "diversified company" within the meaning
of Section 5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the Prospectus, as
amended through the Exchange Date. Notwithstanding the foregoing, nothing
herein will require the Acquired Fund to dispose of any assets if, in the
reasonable judgment of the Acquired Fund, such disposition would adversely
affect the tax-free nature of the reorganization or would violate the
Acquired Fund's fiduciary duty to its shareholders.
o. All of the issued and outstanding shares of beneficial interest of
the Acquired Fund shall have been offered for sale and sold in conformity
with all applicable federal and state securities laws (including any
applicable exemptions therefrom), or the Acquired Fund has taken any action
necessary to remedy any prior failure to have offered for sale and sold
such shares in conformity with such laws.
p. All issued and outstanding shares of the Acquired Fund are, and at
the Exchange Date will be, duly authorized, validly issued, fully paid and
non-assessable by the Acquired Fund. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
3. Reorganization.
a. Subject to the requisite approval of the shareholders of the Acquired
Fund and to the other terms and conditions contained herein (including the
Acquired Fund's obligation to distribute to its shareholders all of its
investment company taxable income and net capital gain as described in Section
8(m)), the Acquired Fund agrees to sell, assign, convey, transfer and deliver
to the Acquiring Fund, and the Acquiring Fund agrees to acquire from the
Acquired Fund, on the Exchange Date all of the Investments and all of the cash
and other properties and assets of the Acquired Fund, whether accrued or
contingent (including cash received by the Acquired Fund upon the liquidation
by the Acquired Fund of any Investments), in exchange for that number of shares
of beneficial interest of the Acquiring Fund provided for in Section 4 and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired
Fund, whether accrued or contingent, existing at the Valuation Time (as defined
below) except for the Acquired Fund's liabilities, if any, arising in
connection with this Agreement. Pursuant to this Agreement, the Acquired Fund
will, as soon as practicable after the Exchange Date, distribute all of the
Class A, Class B and Class C Merger Shares received by it to the shareholders
of the Acquired Fund in exchange for their Class A, Class B and Class C shares
of the Acquired Fund.
b. The Acquired Fund will pay or cause to be paid to the Acquiring Fund any
interest, cash or such dividends, rights and other payments received by it on
or after the Exchange Date with respect to the
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Investments and other properties and assets of the Acquired Fund, whether
accrued or contingent, received by it on or after the Exchange Date. Any such
distribution shall be deemed included in the assets transferred to the
Acquiring Fund at the Exchange Date and shall not be separately valued unless
the securities in respect of which such distribution is made shall have gone
"ex" such distribution prior to the Valuation Time, in which case any such
distribution which remains unpaid at the Exchange Date shall be included in the
determination of the value of the assets of the Acquired Fund acquired by the
Acquiring Fund.
c. The Valuation Time shall be 4:00 p.m. Eastern time on the Exchange Date
or such earlier or later day as may be mutually agreed upon in writing by the
parties hereto (the "Valuation Time").
4. Transaction. On the Exchange Date, the Acquiring Fund will deliver to the
Acquired Fund (i) a number of full and fractional Class A Merger Shares having
an aggregate net asset value equal to the value of the assets of the Acquired
Fund attributable to the Class A shares of the Acquired Fund transferred to the
Acquiring Fund on such date less the value of the liabilities of the Acquired
Fund attributable to the Class A shares of the Acquired Fund assumed by the
Acquiring Fund on that date, (ii) a number of full and fractional Class B
Merger Shares having an aggregate net asset value equal to the value of the
assets of the Acquired Fund attributable to the Class B shares of the Acquired
Fund transferred to the Acquiring Fund on such date less the value of the
liabilities of the Acquired Fund attributable to the Class B shares of the
Acquired Fund assumed by the Acquiring Fund on that date, and (iii) a number of
full and fractional Class C Merger Shares having an aggregate net asset value
equal to the value of the assets of the Acquired Fund attributable to the Class
C shares of the Acquired Fund transferred to the Acquiring Fund on such date
less the value of the liabilities of the Acquired Fund attributable to the
Class C shares of the Acquired Fund assumed by the Acquiring Fund on that date.
a. The net asset value of the Class A, Class B and Class C Merger Shares
to be delivered to the Acquired Fund, the value of the assets attributable
to the Class A, Class B and Class C shares of the Acquired Fund, and the
value of the liabilities attributable to the Class A, Class B and Class C
shares of the Acquired Fund to be assumed by the Acquiring Fund, shall in
each case be determined as of the Valuation Time.
b. The net asset value of the Class A, Class B and Class C Merger Shares
shall be computed in the manner set forth in the Prospectus. The value of
the assets and liabilities of the Class A, Class B and Class C shares of
the Acquired Fund shall be determined by the Acquiring Fund, in cooperation
with the Acquired Fund, pursuant to procedures which the Acquiring Fund
would use in determining the fair market value of the Acquiring Fund's
assets and liabilities.
c. No adjustment shall be made in the net asset value of either the
Acquired Fund or the Acquiring Fund to take into account differences in
realized and unrealized gains and losses.
d. The Acquired Fund shall distribute the Merger Shares to the
shareholders of the Acquired Fund by furnishing written instructions to the
Acquiring Fund's transfer agent, which will as soon as practicable set up
open accounts for each Acquired Fund shareholder in accordance with such
written instructions.
e. The Acquiring Fund shall assume all liabilities of the Acquired Fund,
whether accrued or contingent, in connection with the acquisition of assets
and subsequent dissolution of the Acquired Fund or otherwise, except for
the Acquired Fund's liabilities, if any, pursuant to this Agreement.
5. Expenses, Fees, etc.
a. The parties hereto understand and agree that the transactions
contemplated by this Agreement are being undertaken contemporaneously with a
general restructuring and consolidation of certain of the registered investment
companies advised by American General Asset Management Corp., formerly named
CypressTree Asset Management Corporation, Inc. and its affiliates; and that in
connection therewith the costs of all such transactions are being borne by
American General Corporation ("AGC") and/or its affiliates. Notwithstanding
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any of the foregoing, expenses will in any event be paid by the party directly
incurring such expenses if and to the extent that the payment by the other
party of such expenses would result in the disqualification of such party as a
"regulated investment company" within the meaning of Section 851 of the Code.
b. Reserved
c. Reserved
d. In the event the transactions contemplated by this Agreement are not
consummated for any reason, AGC and/or its affiliates shall bear all expenses
incurred in connection with such transactions.
e. Notwithstanding any other provisions of this Agreement, if for any reason
the transactions contemplated by this Agreement are not consummated, no party
shall be liable to the other party for any damages resulting therefrom,
including, without limitation, consequential damages, except as specifically
set forth above.
6. Exchange Date. Delivery of the assets of the Acquired Fund to be
transferred, assumption of the liabilities of the Acquired Fund to be assumed,
and the delivery of the Merger Shares to be issued shall be made at Boston,
Massachusetts, as of July 7, 2000, or at such other date agreed to by the
Acquiring Fund and the Acquired Fund, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
7. Meetings of Shareholders; Dissolution.
a. North American Funds, on behalf of the Acquired Fund, agrees to call a
meeting of the Acquired Fund's shareholders as soon as is practicable after the
effective date of the Registration Statement for the purpose of considering the
sale of all of its assets to and the assumption of all of its liabilities by
the Acquiring Fund as herein provided and adopting this Agreement.
b. The Acquired Fund agrees that the liquidation and dissolution of the
Acquired Fund will be effected in the manner provided in the Declaration of
Trust in accordance with applicable law and that on and after the Exchange
Date, the Acquired Fund shall not conduct any business except in connection
with its liquidation and dissolution.
c. The Acquiring Fund has, in consultation with the Acquired Fund and based
in part on information furnished by the Acquired Fund, filed the Registration
Statement with the Commission. Each of the Acquired Fund and the Acquiring Fund
will cooperate with the other, and each will furnish to the other the
information relating to itself required by the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder to be set forth in the
Registration Statement.
8. Conditions to the Acquiring Fund's Obligations. The obligations of the
Acquiring Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of the
holders of the outstanding shares of beneficial interest of the Acquired
Fund entitled to vote.
b. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, with values
determined as provided in Section 4 of this Agreement, together with a list
of Investments with their respective tax costs, all as of the Valuation
Time, certified on the Acquired Fund's behalf by North American Funds'
President (or any Vice President) and Treasurer (or any Assistant
Treasurer), and a certificate of both such officers, dated the Exchange
Date, that there has been no material adverse change in the financial
position of the Acquired Fund since October 31, 1999, other
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<PAGE>
than changes in the Investments and other assets and properties since that
date or changes in the market value of the Investments and other assets of
the Acquired Fund, or changes due to dividends paid or losses from
operations.
c. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement, dated the Exchange Date, signed by North American Funds'
President (or any Vice President) and Treasurer (or any Assistant
Treasurer) certifying that as of the Valuation Time and as of the Exchange
Date all representations and warranties of the Acquired Fund made in this
Agreement are true and correct in all material respects as if made at and
as of such dates and the Acquired Fund has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied
at or prior to such dates.
d. Reserved
e. That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
f. That the Acquiring Fund shall have received an opinion of Ropes &
Gray, counsel to the Acquired Fund, in form satisfactory to counsel to the
Acquiring Fund, and dated the Exchange Date, to the effect that (i) North
American Funds is a Massachusetts business trust duly formed and is validly
existing under the laws of The Commonwealth of Massachusetts and has the
power to own all its properties and to carry on its business as presently
conducted; (ii) this Agreement has been duly authorized, executed and
delivered by North American Funds on behalf of the Acquired Fund and,
assuming that the Registration Statement, the Prospectus and the Acquired
Fund Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940
Act and assuming due authorization, execution and delivery of this
Agreement by North American Funds on behalf of the Acquiring Fund, is a
valid and binding obligation of North American Funds and the Acquired Fund;
(iii) North American Funds, on behalf of the Acquired Fund, has power to
sell, assign, convey, transfer and deliver the assets contemplated hereby
and, upon consummation of the transactions contemplated hereby in
accordance with the terms of this Agreement, the Acquired Fund will have
duly sold, assigned, conveyed, transferred and delivered such assets to the
Acquiring Fund; (iv) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate the Declaration of Trust or By-Laws or any provision of any
agreement known to such counsel to which North American Funds or the
Acquired Fund is a party or by which it is bound; and (v) to the knowledge
of such counsel, no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by North
American Funds on behalf of the Acquired Fund of the transactions
contemplated hereby, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities or blue sky laws.
g. That the Acquiring Fund shall have received an opinion of Ropes &
Gray (which opinion would be based upon certain factual representations and
subject to certain qualifications), dated the Exchange Date, in form
satisfactory to the Acquiring Fund and its counsel, to the effect that, on
the basis of the existing provisions of the Code, current administrative
rules, and the court decisions, for federal income tax purposes (i) no gain
or loss will be recognized by the Acquiring Fund upon receipt of the
Investments transferred to the Acquiring Fund pursuant to this Agreement in
exchange for the Merger Shares; (ii) the basis to the Acquiring Fund of the
Investments will be the same as the basis of the Investments in the hands
of the Acquired Fund immediately prior to such exchange; and (iii) the
Acquiring Fund's holding periods with respect to the Investments will
include the respective periods for which the Investments were held by the
Acquiring Fund.
h. That the assets of the Acquired Fund to be acquired by the Acquiring
Fund will include no assets which the Acquiring Fund, by reason of charter
limitations or of investment restrictions disclosed in the Registration
Statement in effect on the Exchange Date, may not properly acquire.
i. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of North American Funds or the Acquiring
Fund, threatened by the Commission.
A-8
<PAGE>
j. That North American Funds shall have received from the Commission,
any relevant state securities administrator and any relevant state
insurance regulatory authority such order or orders as are reasonably
necessary or desirable under the 1933 Act, the 1934 Act, the 1940 Act, and
any applicable state securities or blue sky laws or state insurance laws in
connection with the transactions contemplated hereby, and that all such
orders shall be in full force and effect.
k. That all actions taken by North American Funds on behalf of the
Acquired Fund in connection with the transactions contemplated by this
Agreement and all documents incidental thereto shall be satisfactory in
form and substance to the Acquiring Fund and its counsel.
l. That, prior to the Exchange Date, the Acquired Fund shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to the shareholders of the
Acquired Fund (i) all of the excess of (x) the Acquired Fund's investment
income excludable from gross income under Section 103(a) of the Code over
(y) the Acquired Fund's deductions disallowed under Sections 265 and
171(a)(2) of the Code, (ii) all of the Acquired Fund's investment company
taxable income (as defined in Section 852 of the Code) (computed without
regard to any deduction for dividends paid) and (iii) all of the Acquired
Fund's net capital gain realized (after reduction for any capital loss
carryover), in each case for its taxable years ending on or after October
31, 1999 and on or prior to the Exchange Date.
m. That the Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer (or any Assistant Treasurer) of North American Funds, as to the
tax cost to the Acquired Fund of the securities delivered to the Acquiring
Fund pursuant to this Agreement, together with any such other evidence as
to such tax cost as the Acquiring Fund may reasonably request.
n. That the Acquired Fund's custodian shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the Acquired
Fund held or maintained by such custodian as of the Valuation Time.
o. That the Acquired Fund's transfer agent shall have provided to the
Acquiring Fund (i) the originals or true copies of all of the records of
the Acquired Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Acquired Fund outstanding as of the Valuation Time, and (iii) the name and
address of each holder of record of any shares and the number of shares
held of record by each such shareholder.
p. Reserved
q. Reserved
r. That the merger of the [ ] Fund into the Growth & Income Fund
shall be approved by the requisite votes of the holders of the outstanding
shares of beneficial interest of the [ ] Fund.
9. Conditions to the Acquired Fund's Obligations. The obligations of the
Acquired Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of the
holders of the outstanding shares of beneficial interest of the Acquired
Fund entitled to vote.
b. That North American Funds, on behalf of the Acquiring Fund, shall
have executed and delivered to the Acquired Fund an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Fund will assume all of the liabilities of the Acquired Fund existing at
the Valuation Time in connection with the transactions contemplated by this
Agreement, other than liabilities arising pursuant to this Agreement.
c. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement, dated the Exchange Date, signed by North American Funds'
President (or any Vice President) and Treasurer (or any
A-9
<PAGE>
Assistant Treasurer) certifying that as of the Valuation Time and as of the
Exchange Date all representations and warranties of the Acquiring Fund made
in this Agreement are true and correct in all material respects as if made
at and as of such dates, and that the Acquiring Fund has complied with all
of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to each of such dates; and that North
American Funds shall have furnished to the Acquired Fund a statement, dated
the Exchange Date, signed by an officer of North American Funds certifying
that as of the Valuation Time and as of the Exchange Date, to the best of
North American Funds' knowledge, after due inquiry, all representations and
warranties of the Acquiring Fund made in this Agreement are true and
correct in all material respects as if made at and as of such date.
d. That there shall not be any material litigation pending or threatened
with respect to the matters contemplated by this Agreement.
e. That the Acquired Fund shall have received an opinion of Ropes &
Gray, counsel to the Acquiring Fund, in form satisfactory to counsel to the
Acquired Fund, and dated the Exchange Date, to the effect that (i) North
American Funds is a Massachusetts business trust duly formed and is validly
existing under the laws of The Commonwealth of Massachusetts and has the
power to own all its properties and to carry on its business as presently
conducted; (ii) the Merger Shares to be delivered to the Acquired Fund as
provided for by this Agreement are duly authorized and upon such delivery
will be validly issued and will be fully paid and non-assessable by North
American Funds and the Acquiring Fund and no shareholder of the Acquiring
Fund has any preemptive right to subscription or purchase in respect
thereof; (iii) this Agreement has been duly authorized, executed and
delivered by North American Funds on behalf of the Acquiring Fund and,
assuming that the Prospectus, the Registration Statement and the Acquired
Fund Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940
Act and assuming due authorization, execution and delivery of this
Agreement by North American Funds on behalf of the Acquired Fund, is a
valid and binding obligation of North American Funds and the Acquiring
Fund; (iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate the
Declaration of Trust or By-Laws, or any provision of any agreement known to
such counsel to which North American Funds or the Acquiring Fund is a party
or by which it is bound; (v) no consent, approval, authorization or order
of any court or governmental authority is required for the consummation by
North American Funds on behalf of the Acquiring Fund of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities or blue sky laws; and (vi) the Registration Statement has become
effective under the 1933 Act, and to best of the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or
are pending or contemplated under the 1933 Act. In addition, such counsel
shall also state that they have participated in conferences with officers
and other representatives of the Acquiring Fund at which the contents of
the Acquired Fund Proxy Statement and related matters were discussed, and,
although they are not passing upon and do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Acquired Fund Proxy Statement, on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of officers and other
representatives of the Acquiring Fund), no facts have come to their
attention that lead them to believe that the portions of the Acquired Fund
Proxy Statement relevant to the transfer of assets contemplated by this
Agreement as of its date, as of the date of the Acquired Fund shareholders'
meeting, or as of the Exchange Date, contained an untrue statement of a
material fact regarding the Acquiring Fund or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein regarding the Acquiring Fund, in light of the circumstances under
which they were made, not misleading. Such opinion may state that such
counsel does not express any opinion or belief as to the financial
statements or other financial data, or as to the information relating to
the Acquired Fund, contained in the Acquired Fund Proxy Statement or the
Registration Statement, and may contain other customary or appropriate
qualifications.
f. That the Acquired Fund shall have received an opinion of Ropes &
Gray, dated the Exchange Date (which opinion would be based upon certain
factual representations and subject to certain qualifications),
A-10
<PAGE>
in form satisfactory to the Acquired Fund and its counsel, to the effect
that, on the basis of the existing provisions of the Code, current
administrative rules, and court decisions, for federal income tax purposes:
(i) no gain or loss will be recognized by the Acquired Fund as a result of
the reorganization; (ii) no gain or loss will be recognized by shareholders
of the Acquired Fund on the distribution of Merger Shares to them in
exchange for their shares of the Acquired Fund; (iii) the tax basis of the
Merger Shares that the Acquired Fund's shareholders receive in place of
their Acquired Fund shares will be the same as the basis of the Acquired
Fund shares; and (iv) an Acquired Fund's shareholder's holding period for
the Merger Shares received pursuant to the Agreement will be determined by
including the holding period for the Acquired Fund shares exchanged for the
Merger Shares, provided that the shareholder held the Acquired Fund shares
as a capital asset.
g. That all actions taken by North American Funds on behalf of the
Acquiring Fund in connection with the transactions contemplated by this
Agreement and all documents incidental thereto shall be satisfactory in
form and substance to the Acquired Fund and its counsel.
h. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of North American Funds or the Acquiring
Fund, threatened by the Commission.
i. That North American Funds shall have received from the Commission,
any relevant state securities administrator and any relevant state
insurance regulatory authority such order or orders as are reasonably
necessary or desirable under the 1933 Act, the 1934 Act, the 1940 Act, and
any applicable state securities or blue sky laws or state insurance laws in
connection with the transactions contemplated hereby, and that all such
orders shall be in full force and effect.
j. That the merger of the [ ] Fund into the Growth & Income Fund
shall be approved by the requisite votes of the holders of the outstanding
shares of beneficial interest of the [ ] Fund.
10. Reserved
11. Waiver of Conditions. Each of the Acquired Fund or the Acquiring Fund,
after consultation with counsel and by consent of the trustees of North
American Funds on its behalf, or an officer authorized by such trustees, may
waive any condition to their respective obligations hereunder, except for the
conditions set forth in Sections 8(a) and 9(a).
12. No Broker, etc. Each of the Acquired Fund and the Acquiring Fund
represents that there is no person who has dealt with it or North American
Funds who by reason of such dealings is entitled to any broker's or finder's or
other similar fee or commission arising out of the transactions contemplated by
this Agreement.
13. Termination. The Acquired Fund and the Acquiring Fund may, by consent of
the trustees of North American Funds on behalf of each Fund, terminate this
Agreement. If the transactions contemplated by this Agreement have not been
substantially completed by November 27, 2000, this Agreement shall
automatically terminate on that date unless a later date is agreed to by the
Acquired Fund and the Acquiring Fund.
14. Reserved
15. Covenants, etc. Deemed Material. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding an investigation made by
them or on their behalf.
16. Sole Agreement; Amendments. This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the
subject matter hereof, constitutes the only understanding with respect to such
subject matter, may not be changed except by a letter of agreement signed by
each party hereto, and shall be construed in accordance with and governed by
the laws of The Commonwealth of Massachusetts.
A-11
<PAGE>
17. Declaration of Trust. A copy of the Declaration of Trust is on file with
the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the trustees of
North American Funds on behalf of the Acquired Fund and on behalf of the
Acquiring Fund, as trustees and not individually and that the obligations of
this instrument are not binding upon any of the trustees, officers or
shareholders of North American Funds individually but are binding only upon the
assets and property of the Acquired Fund and the Acquiring Fund.
NORTH AMERICAN FUNDS,
on behalf of its [ ] Fund series
By: _________________________________
NORTH AMERICAN FUNDS,
on behalf of its Growth & Income
Fund series
By: _________________________________
A-12
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
OVERVIEW OF MERGERS....................................................... 2
Proposed Transactions................................................... 2
Operating Expenses...................................................... 3
Federal Income Tax Consequences......................................... 5
Comparison of Investment Objectives, Policies, Restrictions and Risks... 5
Risk Factors............................................................ 7
Comparison of Distribution Policies and Purchase, Exchange and
Redemption Procedures.................................................. 9
SPECIAL MEETING OF SHAREHOLDERS........................................... 10
THE PROPOSALS: APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION........................................................... 10
Board of Trustees' Recommendations...................................... 10
Required Shareholder Vote............................................... 10
Background and Reasons for the Proposed Mergers......................... 11
INFORMATION ABOUT THE MERGERS............................................. 11
Agreement and Plan of Reorganization.................................... 11
Description of the Merger Shares........................................ 12
Organization............................................................ 12
Federal Income Tax Consequences......................................... 13
Capitalization.......................................................... 13
INFORMATION ABOUT THE FUNDS............................................... 14
VOTING INFORMATION........................................................ 15
Record date, quorum and method of tabulation............................ 15
Shares outstanding and beneficial ownership............................. 15
Shareholder voting ..................................................... 16
Revocation of proxies................................................... 16
Shareholder proposals at future meetings of shareholders................ 17
Adjournment............................................................. 17
</TABLE>
<PAGE>
NORTH AMERICAN FUNDS
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
April 14, 2000
This Joint Statement of Additional Information (the "SAI") relates to
proposed mergers (the "Mergers") of the Equity-Income Fund and the Tax-
Sensitive Equity Fund (each an "Acquired Fund") into the Growth & Income Fund
(the "Acquiring Fund"). Each of the Acquired Funds and the Acquiring Fund is a
series of North American Funds, a Massachusetts business trust.
This SAI contains information which may be of interest to shareholders but
which is not included in the Prospectus/Proxy Statement dated April 14, 2000
(the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to the
Mergers. As described in the Prospectus/Proxy Statement, the Mergers would
involve the transfer of all the assets of each Acquired Fund in exchange for
shares of the Acquiring Fund and the assumption of all the liabilities of the
Acquired Fund. Each Acquired Fund would distribute the Acquiring Fund shares it
receives to its shareholders in complete liquidation of the Acquired Fund.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and
without charge by writing to North American Funds, 286 Congress Street, Boston,
Massachusetts 02210, or by calling 1-800-872-8037.
Table of Contents
<TABLE>
<C> <S> <C>
I. Additional Information about the Acquiring Fund and the Acquired
Funds...............................................................
II. Financial Statements................................................
</TABLE>
I. Additional Information about the Acquiring Fund and the Acquired Funds.
Incorporated by reference to Post-Effective Amendment No. 31 to the
Registrant's Registration Statement Form N-1A (filed on March 2, 2000)
(Registration Nos. 33-27958 and 811-5797).
II. Financial Statements.
This SAI is accompanied by the Annual Report for the year ended October 31,
1999 of the Acquiring Fund and Acquired Funds, which contains historical
financial information regarding such Funds. Such report has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
Pro forma financial statements of the Acquiring Fund for its Merger with
North American Equity-Income Fund are provided on the following pages. Pro
forma financial statements of the Acquiring Fund for its Merger with North
American Tax-Sensitive Equity Fund are not provided because the Acquired Fund's
net assets are less than 10% of the Acquiring Fund's net assets.
<PAGE>
PRO-FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
October 31, 1999
<TABLE>
<CAPTION>
North American North American
Equity-Income Growth & Pro-forma Pro-forma
ASSETS: Fund Income Fund Adjustments Combined
- ------ ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Investments in securities, at value .............................. $ 115,694,225 $ 298,543,702 $ 414,237,927
Cash ............................................................. 41 538 579
Investment in State Street Bank & Trust Company Navigator
Securities Lending Trust held as collateral for
securities on loan, at value ................................ 1,242,600 4,962,600 6,205,200
Receivables:
Fund shares sold ......................................... 219,680 870,080 1,089,760
Dividends ................................................ 266,679 320,593 587,272
Interest ................................................. 42 1,328 1,370
Foreign tax withholding reclaims ......................... 5,829 5,829
Other assets ..................................................... 1,998 2,049 4,047
------------- ------------- ------- -------------
Total assets ...................................... 117,425,265 304,706,719 -- 422,131,984
LIABILITIES:
Collateral on securities loaned, at value ........................ 1,242,600 4,962,600 6,205,200
Payables:
Investments purchased .................................... 844,918 844,918
Fund shares redeemed ..................................... 150,648 484,718 635,366
Dividend and interest withholding tax .................... 36 -- 36
Investment adviser ....................................... 61,661 198,339 260,000
Custodian and transfer agent fees ........................ 19,662 18,309 37,971
Distribution fee ......................................... 29,738 87,817 117,555
Other accrued expenses ................................... 71,697 147,863 219,560
------------- ------------- ------- -------------
Total liabilities ................................. 1,576,042 6,744,564 -- 8,320,606
NET ASSETS ....................................................... $ 115,849,223 $ 297,962,155 $ 0 $ 413,811,378
============= ============= ======= =============
NET ASSETS CONSIST OF:
Undistributed net investment income/(loss) ............... $ 509,106 -- $ 509,106
Accumulated undistributed net realized gain (loss) on
investments, foreign currency and forward foreign
currency contracts ................................ 21,841,836 $ 25,033,619 46,875,455
Unrealized appreciation (depreciation) on:
Investments ....................................... 7,699,450 108,981,644 116,681,094
Futures ........................................... -- --
Foreign currency and forward foreign currency
contracts ....................................... (12) (12)
Capital shares at par value of $.001 ..................... 6,900 10,492 (2,822)/1/ 14,570
Additional paid-in capital ............................... 85,791,931 163,936,412 2,822 /1/ 249,731,165
------------- ------------- ------- -------------
Net assets ........................................ $ 115,849,223 $ 297,962,155 $ 0 $ 413,811,378
============= ============= ======= =============
</TABLE>
/1/ Reflects change in shares due to merger exchange.
See Notes to Pro-Forma Financial Statements
2
<PAGE>
COMBINED PRO-FORMA STATEMENT OF ASSETS AND LIABILITIES (cont'd) (Unaudited)
October 31, 1999
<TABLE>
<CAPTION>
North American North American
Equity-Income Growth & Pro-forma Pro-forma
Fund Income Fund Adjustments Combined
---- ----------- ----------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUES:
- -----------------
Class A Shares
Net assets at value ........................................ $ 13,989,760 $ 37,210,426 $ 51,200,186
Shares outstanding ......................................... 827,331 1,293,038 (341,238) 1,779,131
Net asset value (NAV) and redemption price per share ......... $ 16.91 $ 28.78 $ 28.78
Public offering price per share (100/94.25 of NAV)
On sales of $100,000 or more the offering price is
reduced .................................................. $ 17.94 $ 30.54 $ 30.54
Class B Shares
Net assets at value ........................................ $ 31,659,383 $104,695,326 $136,354,709
Shares outstanding ......................................... 1,894,670 3,702,446 (775,173) 4,821,943
Net asset value, offering price and
redemption price per share ................................. $ 16.71 $ 28.28 $ 28.28
Class C Shares
Net assets at value ........................................ $ 70,200,080 $156,056,403 $226,256,483
Shares outstanding ......................................... 4,177,566 5,496,180 (1,704,862) 7,968,884
Net asset value, offering price and
redemption price per share ................................. $ 16.80 $ 28.39 $ 28.39
</TABLE>
See Notes to Pro-Forma Financial Statements
3
<PAGE>
COMBINED PRO-FORMA STATEMENT OF OPERATIONS (Unaudited)
for the Year Ended October 31, 1999
<TABLE>
<CAPTION>
North American North American
Equity-Income Growth & Pro-forma Pro-forma
Fund Income Fund Adjustments Combined
---- ----------- ----------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
- ------------------
Interest ...................................................... $ 127,679 $ 222,376 $ 350,055
Dividends ..................................................... 3,799,150 3,928,924 7,728,074
------------ ------------ ----------- ------------
Total income ........................................... 3,926,829 4,151,300 -- 8,078,129
EXPENSES:
- --------
Distribution for Class A ...................................... 96,309 158,039 254,348
Distribution for Class B ...................................... 363,445 943,742 1,307,187
Distribution for Class C ...................................... 849,454 1,464,659 2,314,113
Investment adviser fee ........................................ 1,060,879 1,912,464 (128,659)/2/ 2,844,684
Custodian fee ................................................. 83,437 140,315 223,752
Transfer agent fee ............................................ 233,528 376,715 610,243
Accounting/administration ..................................... 231,614 434,861 (200,000)/3/ 466,475
Audit and legal fees .......................................... 76,533 148,248 (50,000)/3/ 174,781
Miscellaneous ................................................. 139,534 234,964 (125,000)/3/ 249,498
------------ ------------ ----------- ------------
Expenses before reimbursement by investment adviser ........... 3,134,733 5,814,007 (503,659) 8,445,081
Reimbursement of expenses by investment adviser ............... (277,002) (414,305) 428,659 /4/ (262,648)
------------ ------------ ----------- ------------
Net expenses ................................... 2,857,731 5,399,702 (75,000) 8,182,433
------------ ------------ ----------- ------------
Net investment income/(loss) .................. 1,069,098 (1,248,402) 75,000 (104,304)
------------ ------------ ----------- ------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS, FOREIGN CURRENCY AND FORWARD
FOREIGN CURRENCY CONTRACTS:
Net realized gain/(loss) on:
Investment transactions .................................... 25,209,364 29,073,940 54,283,304
Foreign currency and forward foreign currency contracts .... (11,895) (244) (12,139)
Change in unrealized appreciation (depreciation) on:
Investments ................................................ (19,384,683) 27,366,787 7,982,104
Translation of foreign currency and forward foreign currency
contracts .............................................. 101 153 254
------------ ------------ ----------- ------------
Net gain/(loss) on investments, foreign currency
and forward foreign currency contracts ....... 5,812,887 56,440,636 -- 62,253,523
Net increase in net assets resulting from operations ............... $ 6,881,985 $ 55,192,234 $ 75,000 $ 62,149,219
</TABLE>
/2/ Reflects the surviving fund's Advisory fee rate.
/3/ Reflects expected savings due to economies of scale.
/4/ Reflects adjustment to level of the acquiring fund's expense reimbursement.
See Notes to Pro-Forma Financial Statements
4
<PAGE>
COMBINING PRO-FORMA PORTFOLIO OF INVESTMENTS (Unaudited)
October 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
- --------------------------------------- --------------------------------------
NAF NAF NAF NAF
Equity- Growth & Equity- Growth &
Income Income Combined Income Income Combined
------ ------ -------- ------ ------ --------
<C> <C> <C> <S> <C> <C> <C>
Common Stocks
-------------
83,300 83,300 Abbott Laboratories $3,363,238 $3,363,238
71,000 71,000 ACE, Ltd. 1,380,063 1,380,063
38,700 38,700 Allied Signal, Inc. 2,203,481 2,203,481
41,700 41,700 Aluminum Company of America 2,533,275 2,533,275
7,000 7,000 America Online, Inc.* 907,812 907,812
47,400 47,400 American General Corp. $3,516,487 3,516,487
136,100 104,400 240,500 American Home Products Corp. 7,111,225 5,454,900 12,566,125
42,625 42,625 American International Group, Inc. 4,387,711 4,387,711
44,800 44,800 AMR Corporation* 2,844,800 2,844,800
28,400 28,400 Analog Devices, Inc.* 1,508,750 1,508,750
39,900 39,900 Anheuser-Busch Companies, Inc. 2,865,319 2,865,319
111,200 111,200 Associates First Capital Corp. 4,058,800 4,058,800
47,700 47,700 Astrazeneca Plc 2,182,275 2,182,275
36,400 36,400 AT & T Corp. - Liberty Media Group 1,444,625 1,444,625
92,400 92,400 AT & T Corp.* 4,319,700 4,319,700
62,500 62,500 Automatic Data Processing, Inc. 3,011,719 3,011,719
31,800 31,800 Bankamerica Corp. 2,047,125 2,047,125
48,300 49,300 97,600 Baxter International, Inc. 3,133,463 3,198,337 6,331,800
107,750 100,492 208,242 Bell Atlantic Corp. 6,997,016 6,525,699 13,522,715
75,800 45,100 120,900 Bristol-Myers Squibb Co. 5,822,388 3,464,244 9,286,632
38,400 38,400 Cardinal Health, Inc. 1,656,000 1,656,000
33,800 33,800 Caterpillar, Inc. 1,867,450 1,867,450
52,500 36,900 89,400 Chevron Corp. 4,793,906 3,369,431 8,163,337
97,000 97,000 Cisco Systems, Inc.* 7,178,000 7,178,000
170,400 170,400 Citigroup, Inc. 9,222,900 9,222,900
34,000 34,000 Colgate Palmolive Co. 2,057,000 2,057,000
94,600 94,600 Columbia/HCA Healthcare Corp. 2,282,225 2,282,225
37,900 37,900 Computer Sciences Corp.* 2,603,256 2,603,256
16,400 16,400 Corning, Inc. 1,289,450 1,289,450
27,700 27,700 CSX Corp. 1,135,700 1,135,700
78,200 78,200 Dayton Hudson Corp. 5,053,675 5,053,675
45,800 45,800 Duke Energy Do. 2,587,700 2,587,700
37,900 64,400 102,300 E.I. Du Pont de Nemours & Co. 2,442,181 4,149,775 6,591,956
15,000 15,000 Eaton Corporation 1,128,750 1,128,750
26,600 26,600 EMC Corp.* 1,941,800 1,941,800
25,800 91,900 117,700 Exxon Corp. 1,910,812 6,806,344 8,717,156
59,600 59,600 Federal National Mortgage Association 4,216,700 4,216,700
71,200 71,200 First Data Corp. 3,252,950 3,252,950
114,000 70,000 184,000 First Union Corp. 4,866,375 2,988,125 7,854,500
31,200 31,200 Ford Motor Company 1,712,100 1,712,100
54,900 54,900 Gannett, Inc. 4,234,162 4,234,162
87,200 87,200 General Electric Co. 11,821,060 11,821,060
52,800 52,800 General Mills, Inc. 4,603,500 4,603,500
21,000 21,000 General Motors Corp.* 1,529,062 1,529,062
24,500 31,000 55,500 Gillette Company 886,594 1,121,813 2,008,407
47,300 47,300 GTE Corp. 3,547,500 3,547,500
</TABLE>
5
<PAGE>
COMBINING PRO-FORMA PORTFOLIO OF INVESTMENTS (Unaudited)
October 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
- --------------------------------------- --------------------------------------
NAF NAF NAF NAF
Equity- Growth & Equity- Growth &
Income Income Combined Income Income Combined
------ ------ -------- ------ ------ --------
Common Stocks - continued
-------------------------
<C> <C> <C> <S> <C> <C> <C>
113,300 113,300 H.J. Heinz Co. $5,410,075 $5,410,075
28,800 28,800 Hewlett-Packard Company 2,133,000 2,133,000
25,100 25,100 Illinois Tool Works, Inc. 1,838,575 1,838,575
92,500 92,500 Intel Corp. 7,162,969 7,162,969
56,200 56,200 International Business Machines Corp. 5,528,675 5,528,675
52,807 61,200 114,007 International Paper Co. 2,778,968 3,220,650 5,999,618
34,600 34,600 Johnson & Johnson 3,624,350 3,624,350
91,600 55,800 147,400 Kimberly Clark Corp. 5,782,250 3,522,375 9,304,625
77,100 77,100 Lucent Technologies 4,953,675 4,953,675
53,800 58,700 112,500 Marsh & McLennan Companies, Inc. 4,253,563 4,640,969 8,894,532
45,700 45,700 May Dept Stores 1,585,219 1,585,219
104,100 104,100 McDonald's Corp. 4,294,125 4,294,125
73,900 73,900 MCI WorldCom, Inc.* 6,341,544 6,341,544
184,850 184,850 Mellon Financial Corp. 6,827,897 6,827,897
54,600 54,600 Merck & Company, Inc. 4,344,112 4,344,112
48,800 48,800 Merrill Lynch & Co., Inc. 3,830,800 3,830,800
41,900 41,900 Micron Technology, Inc.* 2,987,994 2,987,994
121,200 121,200 Microsoft Corp.* 11,218,575 11,218,575
42,400 21,800 64,200 Minnesota Mining & Manufacturing Co. 4,030,650 2,072,363 6,103,013
20,000 20,000 Monsanto Co. 770,000 770,000
27,000 27,000 Motorola, Inc. 2,630,813 2,630,813
27,000 27,000 National Fuel Gas Co. NJ 1,319,625 1,319,625
58,400 58,400 Pepsico, Inc. 2,025,750 2,025,750
123,400 72,300 195,700 Pharmacia & Upjohn, Inc. 6,655,888 3,899,681 10,555,569
125,400 92,600 218,000 Philip Morris Companies, Inc. 3,158,512 2,332,363 5,490,875
28,400 28,400 Pinnacle West Capital Corp. 1,047,250 1,047,250
98,900 98,900 Pitney Bowes, Inc. 4,506,131 4,506,131
50,500 50,500 Procter & Gamble Co. 5,296,187 5,296,187
83,600 83,600 Royal Dutch Petroleum Co. 5,010,775 5,010,775
111,754 113,400 225,154 SBC Communications, Inc. 5,692,469 5,776,312 11,468,781
60,500 60,500 Schlumberger, Ltd. 3,664,031 3,664,031
50,700 50,700 Texaco, Inc. 3,111,713 3,111,713
35,600 35,600 Texas Instruments, Inc. 3,195,100 3,195,100
39,800 39,800 Texas Utilities Co. 1,542,250 1,542,250
26,600 26,600 The Chase Manhattan Corp. 2,324,175 2,324,175
11,900 11,900 The Dow Chemical Co. 1,407,175 1,407,175
81,300 81,300 The GAP, Inc. 3,018,263 3,018,263
85,800 85,800 The Walt Disney Co. 2,262,975 2,262,975
16,400 16,400 Time Warner, Inc. 1,142,875 1,142,875
82,600 82,600 Tyco International Ltd. 3,298,838 3,298,838
41,900 105,100 147,000 U.S. Bancorp 1,552,919 3,895,269 5,448,188
65,000 65,000 U.S. West, Inc. 3,969,062 3,969,062
36,300 36,300 Unicom Corp. 1,390,744 1,390,744
32,200 32,200 United Technologies Corp. 1,948,100 1,948,100
37,900 37,900 UNOCAL Corp. 1,307,550 1,307,550
42,500 42,500 Wachovia Corp. 3,665,625 3,665,625
</TABLE>
6
<PAGE>
COMBINING PRO-FORMA PORTFOLIO OF INVESTMENTS (Unaudited)
October 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
- --------------------------------------- --------------------------------------
NAF NAF NAF NAF
Equity- Growth & Equity- Growth &
Income Income Combined Income Income Combined
------ ------ -------- ------ ------ --------
Common Stocks - continued
-------------------------
<C> <C> <C> <S> <C> <C> <C>
151,500 151,500 Wal-Mart Stores, Inc. $8,588,156 $8,588,156
67,400 67,400 Warner-Lambert Co. 5,379,362 5,379,362
46,650 46,650 Wells Fargo & Co. $2,233,369 2,233,369
21,800 21,800 Weyerhaeuser Co. 1,301,187 1,301,187
94,000 76,200 170,200 Xerox Corp. 2,632,000 2,133,600 4,765,600
Total Common Stocks $115,575,225 $294,432,990$410,008,215
(Cost - $107,875,775, $185,392,058
& $293,267,833, respectively)
Preferred Stocks
----------------
27,900 27,900 Monsanto Corp. $1,056,712 $1,056,712
(Cost - $1,116,000)
<CAPTION>
PAR VALUE MARKET VALUE
- --------------------------------------- --------------------------------------
Short Term
----------
<C> <C> <C> <S> <C> <C> <C>
$3,054,000 $3,054,000 Repurchase Agreement with Paine Webber
dated 10/29/99 at 5.22% to be repurchased
at $3,055,328 on 11/01/99, collateralized by
$2,960,000 U.S. Treasury Bills, 6.75% due
08/15/26 (valued at $3,020,069 including
interest) $3,054,000 $3,054,000
$119,000 119,000 Repurchase Agreement with State Street Bank
& Trust dated 10/29/99 at 4.25%, to be
repurchased at $119,042 on 11/01/99,
collateralized by $125,000 U.S. Treasury
Notes, 5.75% due 08/15/03 (valued at
$126,791, including interest) $119,000 119,000
Total Short Term $119,000 $3,054,000 $3,173,000
(Cost - $119,000, $3,054,000 & $3,173,000
respectively)
TOTAL INVESTMENTS $115,694,225 $298,543,702 $414,237,927
(Cost - $107,994,775, $189,562,058 &
$297,556,883, respectively)
</TABLE>
* Non-income producing
7
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS OF MERGER BETWEEN
NORTH AMERICAN GROWTH & INCOME FUND,
NORTH AMERICAN EQUITY-INCOME FUND AND
October 31, 1999 (unaudited)
1. BASIS OF COMBINATION
North American Growth & Income Fund ("Growth & Income") is a series of North
American Funds, which is a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The pro-forma combined financial statements
reflect the pro-forma combined financial position of the proposed acquisition of
North American Equity-Income Fund ("Equity-Income") by Growth & Income as if
such acquisition had taken place as of October 31, 1999, and the pro-forma
combined results of operations for the year ended October 31, 1999 as though the
reorganization had occurred as of November 1, 1998.
The pro-forma statements give effect to the proposed transfer of the assets and
stated liabilities of Equity-Income in exchange for shares of Growth & Income at
net asset value. Under generally accepted accounting principles, the historical
cost of investment securities will be carried forward to the surviving entity
and the results of operations of Growth & Income for pre-combination periods
will not be restated. The pro-forma combined financial statements do not reflect
the expenses of either fund in carrying out its obligation under the proposed
Agreement and Plan or Reorganization.
The pro forma financial statements should be read in conjunction with the
historical financial statements and schedules of investments of Equity-Income
and Growth & Income which are incorporated by reference in the Statement of
Additional Information.
2. PRO-FORMA COMBINED PORTFOLIO OF INVESTMENTS
Securities held by the two funds have been combined in the accompanying Combined
Portfolio of Investments. Securities are valued using the pricing procedures and
policies of the respective Acquiring Fund or Acquired Fund, as applicable. For
more information, see the North American Funds Annual Reports. Historical cost
amounts represent the combined cost basis of the securities.
3. PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES
Shares outstanding have been adjusted to reflect the conversion of Equity-Income
shares into Growth & Income shares based upon the net asset value of the Growth
& Income shares at October 31, 1999.
4. PRO FORMA OPERATIONS
Pro forma operating expenses include the actual expenses of each fund and the
combined fund, with certain expenses adjusted to reflect the expenses of the
combined entity. The investment advisor fee and distribution fees have been
calculated for the combined fund based on the contractual rates expected to be
in effect for Growth & Income at the time of the Reorganization at the combined
level of average net assets for the twelve month period ended October 31, 1999.
8