As filed with the Securities and Exchange Commission on January 26, 2001
Securities Act File No. 33-_____
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
286 Congress Street, Boston, Massachusetts 02210
(Address of Principal Executive Offices) (Zip Code)
(800) 872-8037
(Registrant's Area Code and Telephone Number)
John I. Fitzgerald, Esq.
286 Congress Street, Boston, Massachusetts 02210
(Name and Address of Agent for Service)
With copies to:
Ruth S. Epstein, Esq.
Dechert
1775 Eye Street, N.W.
Washington, DC 20006
________________________
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
________________________________________________________________________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
TITLE OF SECURITIES AMOUNT BEING PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING PRICE REGISTRATION FEE
UNIT (1) (1)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock ($0.01
par value)
Class D Shares 6,425,000 $ 9.62 $ 61,808,500 $ 15,452
- ----------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
286 Congress Street
BOSTON, MASSACHUSETTS 02210
(617) 368-3535
__________, 2001
Dear CypressTree Senior Floating Rate Fund, Inc. Shareholder:
A Special Meeting of Shareholders of the CypressTree Senior Floating Rate
Fund, Inc. ("CypressTree Fund") will be held on April 20, 2001 at the offices of
American General Asset Management Corp., 286 Congress Street, Boston,
Massachusetts 02210.
The Board of Directors has approved the Reorganization (the
"Reorganization") of CypressTree Fund into North American Senior Floating Rate
Fund, Inc. ("North American Fund"), which is managed by CypressTree Fund's
investment adviser, American General Asset Management Corp. If the
Reorganization is approved by Shareholders, you would become a shareholder of
North American Fund on the date that the Reorganization occurs. North American
Fund has the same investment objectives and policies and repurchase policy as
CypressTree Fund.
You are being asked to vote to approve an Agreement and Plan of
Reorganization. The enclosed Proxy Statement/Prospectus describes the
Reorganization and compares the investment objectives and policies, the fees and
expenses, and other matters relating to CypressTree Fund and North American Fund
for your evaluation.
After careful consideration, the Board of Directors unanimously approved
this proposal and recommended that shareholders vote "FOR" the proposal.
You are encouraged to attend and vote at the Meeting in person or vote your
shares by completing and returning the enclosed proxy in the envelope provided
at your earliest convenience.
YOUR VOTE IS IMPORTANT.
Your timely vote is important, no matter how many shares you own. If you
are unable to attend the meeting, please complete, sign, date and mail the
enclosed proxy card promptly. IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED NO
LATER THAN APRIL 18, 2001. An immediate response from you will eliminate the
expense of additional mailings or having our proxy solicitor, Shareholder
Communications Corporation, telephone you. You may also record your vote by
telephone by calling 1-888-433-6235 or by faxing your completed and signed proxy
card (both front and back sides) to 1-800-733-1885. If you have any questions
regarding the meeting or the proxy card, you may call Customer Service at the
American General Fund Group at 1-800-872-8037.
Thank you in advance for your participation in this important event.
Sincerely,
--------------------------------
Alice T. Kane
Chairman of the Board and President
CypressTree Senior Floating Rate Fund, Inc.
THE OFFICES OF AMERICAN GENERAL
ASSET MANAGEMENT CORP.
286 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
286 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210
(617) 368-3535
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
TO BE HELD ON APRIL 20, 2001
To the Shareholders:
A Special Meeting of Shareholders of the CypressTree Senior Floating Rate
Fund, Inc. ("CypressTree Fund") will be held on April 20, 2001 at 10:00 A.M.,
local time, at the offices of American General Asset Management Corp., 286
Congress Street, Boston, Massachusetts 02210 for the following purposes:
1. To approve an Agreement and Plan of Reorganization providing for
the acquisition of all of the assets and liabilities of CypressTree
Fund by North American Senior Floating Rate Fund, Inc. ("North
American Fund") in exchange for Class D shares of North American
Fund, and the subsequent liquidation and dissolution of CypressTree
Fund; and
2. To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournments thereof.
Shareholders of record at the close of business on February 15, 2001, are
entitled to notice of, and to vote at, the meeting. Your attention is called to
the accompanying Proxy Statement/Prospectus. Regardless of whether you plan to
attend the meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY
CARD so that a quorum will be present and a maximum number of shares may be
voted. If you are present at the meeting, you may change your vote, if desired,
at that time.
By Order of the Board of Directors
---------------------------------
John I. Fitzgerald,
Secretary
____________, 2001
TABLE OF CONTENTS
INTRODUCTION................................................................... 1
SUMMARY........................................................................ 3
The Proposed Reorganization............................................... 3
Background and Reasons for the Proposed Reorganization.................... 3
Comparison of Investment Objectives, Investment Policies, and Management.. 4
Size of the Funds......................................................... 6
Comparison of Fees and Expenses........................................... 6
Operating Expenses........................................................ 6
Expense Limitation Arrangements........................................... 7
Example................................................................... 8
Federal Income Tax Consequences of the Reorganization..................... 8
Purchase, Repurchase and Exchange......................................... 8
The Board's Considerations................................................ 9
COMPARISON OF RISKS INVOLVED IN INVESTING IN THE FUNDS......................... 9
Credit Risk............................................................... 10
Collateral Impairment..................................................... 10
Investments in Lower Quality Securities................................... 12
Non-Diversification and Industry Concentration............................ 12
Illiquid Instruments...................................................... 13
Borrowing By The Fund..................................................... 13
Limited Availability of Loans............................................. 14
INFORMATION ABOUT THE REORGANIZATION........................................... 14
The Reorganization Agreement.............................................. 14
Reasons for the Reorganization............................................ 15
Board Consideration....................................................... 16
Tax Considerations........................................................ 17
Expenses of the Reorganization............................................ 17
Interest of AGAM in the Reorganization.................................... 18
ADDITIONAL INFORMATION ABOUT THE FUNDS......................................... 18
Investment Personnel of the North American Fund........................... 18
Form of Organization...................................................... 18
Distributor............................................................... 18
Distributions............................................................. 18
Capitalization............................................................ 19
Repurchase Offers......................................................... 19
Repurchase Amount......................................................... 20
Repurchase Requests....................................................... 20
Determination of Repurchase Price......................................... 20
Payment................................................................... 21
Oversubscribed Repurchase Offers; Pro Rata Allocation..................... 21
Adoption of Repurchase Policy............................................. 21
Liquidity Requirements.................................................... 22
Suspension or Postponement of a Repurchase Offer.......................... 22
Consequences of Repurchase Offers......................................... 23
Change of Notice and Monthly Board Meeting Requirements................... 23
Comparison of Securities and Investment Techniques........................ 23
Loans..................................................................... 23
Unsecured Loans and Short-Termand Medium-Term Obligations................. 27
Foreign Investments....................................................... 28
Repurchase Agreements..................................................... 28
Other Investments......................................................... 28
Fundamental Investment Restrictions And Policies.......................... 29
GENERAL INFORMATION............................................................ 29
Solicitation of Proxies................................................... 29
Voting Rights............................................................. 30
Information on Appraisal Rights........................................... 31
Other Matters to Come Before the Meeting.................................. 32
Shareholder Proposals..................................................... 32
Reports to Shareholders................................................... 33
APPENDIX A..................................................................... A-1
APPENDIX B..................................................................... B-1
APPENDIX C..................................................................... C-1
PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
APRIL 20, 2001
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
Relating to the Reorganization into
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about a
proposed transaction. This transaction involves the transfer of all the assets
and liabilities of CypressTree Senior Floating Rate Fund, Inc. ("CypressTree
Fund") to North American Senior Floating Rate Fund, Inc. ("North American Fund")
in exchange for Class D shares of North American Fund (the "Reorganization").
CypressTree Fund would then liquidate and distribute to you in the liquidation
your portion of the Class D shares of North American Fund it receives in the
Reorganization, followed by a dissolution of CypressTree Fund. You would receive
Class D shares of North American Fund having an aggregate value equal to the
aggregate value of the shares you held of CypressTree Fund as of the close of
business on the closing date of the Reorganization ("Closing Date"). You are
being asked to vote on the Agreement and Plan of Reorganization ("Reorganization
Agreement") through which these transactions would be accomplished.
Because you, as a shareholder of CypressTree Fund, are being asked to
approve a transaction that will result in your holding Class D shares of North
American Fund, this Proxy Statement also serves as a Prospectus for those shares
of North American Fund.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about North American Fund that you
should know before investing in that Fund. For a more detailed discussion of
the investment objectives, policies, restrictions and risks of North American
Fund, see North American Fund's Prospectus (the "North American Prospectus") and
Statement of Additional Information (the "North American SAI"), both dated
January 17, 2001, which may be obtained, without charge, by calling (800) 872-
8037. Each of CypressTree Fund and North American Fund also provides periodic
reports to its shareholders which highlight certain important information about
these Funds, including investment results and financial information. The annual
report for North American Fund dated December 31, 2000, and the semi-annual
report dated June 30, 2000, are incorporated herein by reference. You may
receive a copy of the most recent annual report for North American Fund and a
copy of any more recent semi-annual report, without charge, by calling (800)
872-8037. You may receive a copy of the most recent annual report for
CypressTree Fund and a copy of any more recent semi-annual report, without
charge, by calling (800) 872-8037.
North American Fund is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and therefore files reports and
other information with the
1
Securities and Exchange Commission ("SEC"). You may also obtain proxy materials,
reports and other information filed by CypressTree Fund or North American Fund
from the SEC's Public Reference Room (1-800-SEC-0330) or from the SEC's internet
website at www.sec.gov.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED
THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
2
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For
additional information, you should consult the North American Prospectus, as
well as the Reorganization Agreement, which is attached hereto as Appendix A.
THE PROPOSED REORGANIZATION
On January 23, 2001, the Board of Directors of CypressTree Fund approved the
Reorganization Agreement. Subject to shareholder approval, the Reorganization
Agreement provides for:
. the transfer of all of the assets of CypressTree Fund to North American
Fund, in exchange for Class D shares of North American Fund;
. the assumption by North American Fund of all of the liabilities of
CypressTree Fund;
. the distribution of Class D shares of North American Fund to the
shareholders of CypressTree Fund, and
. the complete liquidation and subsequent dissolution of CypressTree Fund.
The Reorganization is expected to be effective upon the close of business
on May 10, 2001, or on a later date as the parties may agree (the "Closing").
As a result of the Reorganization, each shareholder of common stock of
CypressTree Fund would become a shareholder of Class D shares of North American
Fund. Each shareholder would hold, immediately after the Closing, Class D
shares of North American Fund having an aggregate value equal to the aggregate
value of the shares of CypressTree Fund held by that shareholder as of the close
of business on the Closing Date. Shareholders of CypressTree Fund will be
entitled to exercise "appraisal rights." See "General Information About the
Proxy Statement- Information on Appraisal Rights."
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
CypressTree Fund began operations in April 1998 as one of the first so-
called "interval" funds. Interval funds are closed-end funds that offer
liquidity to their shareholders by periodic offers to repurchase a portion of
their outstanding shares, unlike open-end funds, which offer daily redemption of
all outstanding shares. As a matter of fundamental policy, CypressTree Fund
makes a repurchase offer to its shareholders every month, generally for up to
10% of its outstanding shares.
CypressTree Fund's investment policy is to provide as high a level of
interest income as is consistent with the preservation of capital by investing
primarily in senior secured floating rate loans and other senior secured
floating rate debt obligations. The Fund was organized by CypressTree Asset
Management Corporation, Inc. (now called American General Asset Management Corp.
or "AGAM"), which remains the Fund's investment adviser.
3
CypressTree Investment Management Company, Inc. ("CIMCO"), a specialist in the
floating rate loan asset class, subadvises the Fund.
CypressTree Fund is a no-load fund. Its shares are sold without a sales
charge, primarily on a direct marketing basis or through fund supermarkets, and
without a financial intermediary.
North American Fund began operations a few months later, in August 1998, a
multiple class interval fund. North American Fund has the same investment
objectives and policies as CypressTree Fund, the same investment adviser and
subadviser, and the same fundamental repurchase offer policy. However, unlike
CypressTree Fund, which offers a single no-load class of shares, North American
Fund has three different classes of shares, of which two classes -- Class B and
Class C shares -- are currently sold by retail broker dealers, and a third
class -- Class A shares -- will be available upon conversion of Class B and some
Class C shares. North American Fund's Class A, B, and C shares are subject to
sales loads and service and/or distribution fees, which differ by class.
The purpose of the Reorganization is to combine the two similar Funds to
achieve a larger asset base for shareholders of both Funds, and to eliminate
duplication of costs and other inefficiencies arising from having two separate
funds with similar portfolios in the same fund group. The increased asset base
is likely to provide greater investment opportunities and has the potential to
achieve economies of scale for shareholders of both Funds, particularly
CypressTree Fund, which is substantially smaller than North American Fund (See
"Summary - Size of the Funds"). The Reorganization is expected to provide
CypressTree Fund shareholders, as holders of North American Fund Class D shares,
with a more effective distribution support network, with access to North
American Fund's distribution platform.
The larger asset base may also have a favorable impact on CypressTree Fund
shareholders who wish to tender their shares for repurchase in the Fund's
monthly repurchase offers. This possible impact is further explained under
"Information About the Reorganization."
COMPARISON OF INVESTMENT OBJECTIVES, INVESTMENT POLICIES, AND MANAGEMENT
The investment objectives and policies are the same for both CypressTree
Fund and North American Fund. These are described in the table below. The two
Funds also have the same investment adviser and subadviser. References to the
"Fund" refer to both Funds.
4
NORTH AMERICAN FUND AND CYPRESSTREE FUND
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE (SAME FOR To provide as high a level of current income as is consistent with the
BOTH FUNDS) preservation of capital by investing in senior secured floating rate loans
and other senior secured floating rate debt obligations ("Loans").
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT POLICIES (SAME FOR a) Under normal market conditions, each Fund will invest at least 80% of its
BOTH FUNDS) total assets in Loans. The Fund may invest up to 20% of the Fund's total
assets in cash, in investment grade short-term and medium-term debt
obligations, or in senior unsecured floating rate loans ("Unsecured Loans").
b) Loans consist generally of direct obligations of companies (collectively,
"Borrowers"), primarily U.S. companies or their affiliates, undertaken to
finance the growth of the Borrower's business, internally or externally, or
to finance a capital restructuring. Loans in which the Fund will invest are
primarily highly-leveraged Loans made in connection with recapitalizations,
acquisitions, leveraged buyouts, and refinancings.
c) In selecting Loans, the Fund will employ credit standards established by
the subadviser. The Fund will purchase Loans only if, in the judgment of
the subadviser, the Borrower can meet debt service on the Loan (except in
the case of Discount Loans as described below). The Fund will acquire Loans
that are, in the judgment of the subadviser, in the category of senior debt
of the Borrower and that generally hold the most senior position in the
Borrower's capitalization structure. A Borrower must also meet other
criteria established by the subadviser and deemed by it to be appropriate to
the analysis of the Borrower and the Loan.
d) The Fund's primary consideration in selecting Loans for investment by
the Fund is the Borrower's creditworthiness. Some of the Loans in which the
Fund invests are not currently rated by any nationally recognized
statistical rating organization. The Fund has no minimum rating requirement
for Loans. The quality ratings assigned to other debt obligations of a
Borrower are generally not a material factor in evaluating Loans because
these rated obligations typically will be subordinated to the Loans and will
be unsecured. Instead, the subadviser will perform its own independent
credit analysis of the Borrower. This analysis will include an evaluation
of the Borrower's industry and business, its management and financial
statements, and the particular terms of the Loan that the Fund may acquire.
The subadviser will use information prepared and supplied by the Agent (as
defined below) or other participants in the Loans. The subadviser will
continue to analyze in a similar manner on an ongoing basis any Loan in
which the Fund invests. There can be no assurance that the Fund will be
able to acquire Loans satisfying the Fund's investment criteria at
acceptable prices.
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER AGAM
(SAME FOR BOTH FUNDS)
- ----------------------------------------------------------------------------------------------------------------
SUBADVISER CIMCO
(SAME FOR BOTH FUNDS)
- ----------------------------------------------------------------------------------------------------------------
5
SIZE OF THE FUNDS
As of December 31, 2000, CypressTree Fund had total assets of approximately
$64 million and North American Fund had total assets of approximately $297
million.
COMPARISON OF FEES AND EXPENSES
The following discussion describes and compares the fees and expenses of
CypressTree Fund and Class D Shares of North American Fund.
The fees and expenses of CypressTree Fund and the Class D shares are the
same, without giving effect to any expense waiver or reimbursement arrangements.
In addition, AGAM has agreed to limit total ordinary operating expenses of the
Class D shares to 1.25% of average daily gross assets (total assets minus all
liabilities except debt); AGAM's current agreement with CypressTree Fund would
similarly limit the Fund's total ordinary operating expenses to 1.25% of average
daily gross assets. In both cases, the agreement may be discontinued at any
time upon thirty (30) days' written notice. For further information, including
information on the fees and expenses of the other classes of the North American
Fund, see Appendix B.
OPERATING EXPENSES
As shown below CypressTree Fund pays a management fee, an administration
fee, and other operating expenses. The management fee is 0.85% of average daily
gross assets; the administration fee is 0.40% of average daily gross assets; and
for the year ending December 31, 2000, other expenses were approximately 0.25%
of average daily net assets (all without giving effect to any fee waivers or
reimbursements). North American Fund pays the same management fee and
administrative fee. Its other operating expenses for the same period were also
approximately 0.25% of average daily net assets (also without giving effect to
any fee waivers or reimbursements).
Class A, B and C shares of North American Fund also pay service and/or
distribution fees, and impose front end or contingent deferred sales loads.
These shares are not offered by this Proxy Statement/Prospectus. The fees and
expenses applicable to these shares are set forth in Appendix B.
The Class D shares that you would receive in the Reorganization have not
previously been issued, and have no operating history. The table below sets
forth the current expenses of CypressTree Fund and the estimated pro forma fees
of the Class D Shares of North American Fund after giving effect to the
Reorganization, both without taking into account any fee waiver or reimbursement
arrangements, and net of expense reimbursement arrangements.
6
ANNUAL FUND OPERATING EXPENSES
CLASS D SHARES
NORTH AMERICAN FUND
CYPRESSTREE FUND PRO FORMA
---------------------------- ---------------------------
- ------------------------------------------------------------------------
MANAGEMENT 0.85% 0.85%
FEE (1)
- ------------------------------------------------------------------------
INTEREST 0.00% 0.00%
PAYMENTS ON
BORROWED
FUNDS
- ------------------------------------------------------------------------
SERVICE FEE None None
- ------------------------------------------------------------------------
DISTRIBUTION None None
FEE
- ------------------------------------------------------------------------
ADMINISTRATION 0.40% 0.40%
FEE (1)
- ------------------------------------------------------------------------
OTHER 0.25% 0.25%
EXPENSES
- ------------------------------------------------------------------------
TOTAL FUND 1.50% 1.50%
OPERATING
EXPENSES (2)
- ------------------------------------------------------------------------
TOTAL FUND 1.25% 1.25%
OPERATING
EXPENSES -
(NET OF
EXPENSE
REIMBURSEMENTS)
- ------------------------------------------------------------------------
(1) The management fee and administration fee are based on a percentage of the
Fund's average daily gross assets (gross assets are total assets minus
liabilities except debt).
(2) See the section "Expense Limitation Arrangements," as set forth below.
EXPENSE LIMITATION ARRANGEMENTS
An expense limitation arrangement is in place for CypressTree Fund, under
which the investment adviser limits the ordinary operating expenses borne by
CypressTree Fund. The investment adviser has agreed to waive or reimburse the
Fund's expenses to the extent necessary so that Fund expenses do not exceed
1.25% of average daily gross assets. Absent such waiver or reimbursements,
estimated expenses for CypressTree Fund would be 1.50% of average daily gross
assets, as shown in the table above.
The agreement may be terminated by the investment adviser at any time on
thirty (30) days' written notice.
The investment adviser has agreed to enter into an expense limitation
arrangement regarding the Class D shares of North American Fund, under which the
adviser would agree to waive or reimburse North America's Fund's Class D
expenses to the extent necessary so that Class D share expenses would not exceed
1.25% of average daily gross assets attributable to those shares.
7
This agreement may be terminated by the adviser at any time on thirty (30)
days' written notice.
EXAMPLE
This example is intended to help you compare the cost of investing in
CypressTree Fund and in Class D shares of North American Fund on a pro forma
basis. The example assumes that you invest $1,000 in CypressTree Fund and in
Class D shares of North American Fund after the Reorganization for the time
periods indicated. The Example also assumes that your investment has a 5%
return each year and that each Fund's operating expenses remain the same. The
5% return is an assumption and is not intended to portray past or future
investment results. Based on the above assumptions, you would pay the following
expenses if you redeem your shares at the end of each period shown; your actual
costs may be higher or lower. The Example assumes that the fee waivers and
reimbursements described above are in effect.
NORTH
CYPRESSTREE AMERICAN
FUND FUND CLASS D SHARES PRO FORMA
- -------------------------------------------- -----------------------------------------------------
1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
- ---- ----------- ----------- ------------ ---------------- ------------ ------------ --------
$13 $40 $69 $151 $13 $40 $69 $151
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The Funds expect that the Reorganization will be considered a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). As such you will not recognize gain or
loss as a result of the Reorganization. See "INFORMATION ABOUT THE
REORGANIZATION - Tax Considerations."
PURCHASE, REPURCHASE AND EXCHANGE
After the Reorganization, Class D shares of North American Fund will be
available for sale on the same basis as CypressTree Fund shares are currently
sold. They will be sold without a sales load to certain institutions or in
connection with certain "wrap accounts" or similarly managed account programs
under which clients pay an asset-based fee, and will not bear either a
distribution or service fee.
Both Funds are closed-end investment companies and, as such, do not redeem
their shares. There currently is no secondary market for shares of either Fund
and we do not anticipate that such a market will develop. In order to provide
shareholders with liquidity and the ability to receive net asset value on
disposition of shares, each Fund conducts monthly offers to repurchase at net
asset value a percentage of its outstanding shares, which we generally expect
will be 10%. For North American Fund, this percentage applies to all
outstanding classes of shares taken together. If a Repurchase Offer is
oversubscribed, each Fund will repurchase shares pro rata, and may repurchase up
to an additional 2% of outstanding shares during any three-month period.
8
North American Fund has never experienced an oversubscribed repurchase
offer. CypressTree Fund's repurchase offer in March, 2000 was oversubscribed by
about 0.89%, and the Fund used part of the permissible 2% increase so that all
requests for repurchase were satisfied, without prorating.
The "Repurchase Request Date" is the last business day of each month. The
Repurchase Price is the Fund's net asset value as determined after the close of
business on the Pricing Date, which, under normal circumstances, is expected to
be the Repurchase Request Date. The Funds expect to distribute payment on the
next business day, whichever period is shorter after the Pricing Date ( the
"Repurchase Payment Deadline"). Shareholders are sent notification of each
upcoming Repurchase Offer 7 to 14 days before the next Repurchase Request Date.
For further information about the Funds' Repurchase offers, see "Additional
Information about the Funds --Repurchase Offers."
Shares of CypressTree Fund are not exchangeable with shares of any other
fund. Class D shares of North American Fund will be exchangeable, at net asset
value, with Class A shares of all portfolios of the North American Funds, a
family of open-end mutual funds advised by AGAM.
THE BOARD'S CONSIDERATIONS'
Based on its evaluation of all relevant information, the Directors of
CypressTree Fund have determined that the Reorganization will benefit the Fund's
shareholders. Specifically, the Board of Directors considered that after the
Reorganization, CypressTree Fund shareholders will remain invested in a closed-
end interval fund with the same investment objectives and policies and the same
fundamental policy with respect to repurchase offers, but with a substantially
greater asset base. The Board considered the potential for greater investment
opportunities, economies of scale, efficiencies, improved distribution, and
increased liquidity for shareholders, discussed above, under "Background and
Reasons for the Proposed Reorganization."
Approval of the Reorganization Agreement requires the affirmative vote of a
majority of the outstanding shares of CypressTree Fund.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS, INCLUDING THE
INDEPENDENT DIRECTORS, OF CYPRESSTREE FUND UNANIMOUSLY APPROVED THE PROPOSED
REORGANIZATION. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSED REORGANIZATION.
COMPARISON OF RISKS INVOLVED IN INVESTING IN THE FUNDS
The risks associated with an investment in North American Fund are
summarized below. Because North American Fund and CypressTree Fund share the
same investment objectives and policies (described more fully under "Comparison
of Objectives, Investment Policies, and Management,") the risks of investment
for both Funds are the same. All references to the "Fund" refer to both Funds,
unless otherwise indicated.
It is likely that the value of the Fund's portfolios will fluctuate less
with changes in interest rates than a portfolio that includes fixed-rate debt.
There are, of course, a number of factors that could cause a decline in the
Fund's net asset value, including loan default, changes in
9
creditworthiness, or a sudden and dramatic increase in interest rates. At the
same time, a sudden and extreme decline in interest rates could result in an
increase in the Fund's net asset value.
The Funds are not money market funds and the Funds' net asset values will
fluctuate.
CREDIT RISK
Under normal conditions, the Fund will invest at least 80% of its assets in
Loans. One of the most significant risks to investing in Loans is credit risk,
the risk that the Borrower will not pay interest or repay principal in a timely
manner. The Fund's receipt of principal and interest also depends on the
creditworthiness of Agents and Intermediate Participants. If payments are late
or do not occur at all, the dividends paid to investors and the net asset value
of the Fund may fall.
Loans made in connection with recapitalizations, acquisitions, leveraged
buy-outs, and refinancings may involve more credit risk than other Loans in
which the Fund invests, including the possibility of default on the Loan or
bankruptcy of the Borrower. This type of Loan may be more volatile and less
liquid than other Loans. We expect the Fund's Loans will be primarily this type
of Loan.
The Fund will generally invest in Loans that are most senior in a
Borrower's capitalization structure. These Loans require repayment ahead of
other obligations if credit restructuring occurs. Still, many of these
Borrowers may also have non-investment grade subordinated debt that they may
find difficult to repay if economic conditions deteriorate. If this occurs, the
Borrower may be perceived as less creditworthy, may have difficulties obtaining
financing to cover short-term cash flow needs, and may even be forced into
bankruptcy or other forms of credit restructuring.
"Bridge" loans provide Borrowers with temporary financing until other
assets are sold, or longer term financing is arranged. The Fund may invest
directly in these types of Loans, or may invest in Loans of Borrowers that have
obtained bridge loans from other parties. Bridge loans are subject to the risk
that the Borrower may not find permanent financing to replace the bridge loan.
This could damage the Borrower's perceived creditworthiness.
COLLATERAL IMPAIRMENT
Collateral impairment is the risk that the value of the collateral for a
loan will fall. The Fund expects to invest in collateralized loans, loans
secured by other things of value the Borrower owns.
Loans are secured unless:
(a) The value of the collateral declines below the amount of the Loan, or
(b) The Fund's security interest in the collateral is invalidated for any
reason by a court, or
10
(c) The collateral is no longer required under the terms of the Loan
Agreement as the creditworthiness of the Borrower improves.
There is no guarantee that the sale of collateral would allow Borrowers to
meet their obligations should they become unable to repay principal or interest,
or that the collateral could be sold quickly and easily.
The value of the collateral will be set using several criteria:
. The Borrower's financial statements
. An independent appraisal
. The market value of the collateral
. Other customary techniques chosen by the investment adviser.
Collateral is valued generally with the understanding that the Borrower is
an ongoing concern. As a result, the value of the collateral may exceed its
immediate liquidation value.
Collateral may include:
(a) Working capital assets, such as accounts receivable and inventory;
(b) Tangible fixed assets, such as real property, buildings and equipment;
(c) Intangible assets, such as licenses, trademarks and patent rights (but
excluding goodwill);
(d) Security interests in shares of stock of subsidiaries or affiliates;
and
(e) Assets of shareholders of the Borrower, if the Borrower is a private
company.
If the collateral is the stock of the Borrower's subsidiaries or other
affiliates, the Fund will be subject to the risk that this stock will decline in
value.
Any type of decline in the value of collateral could cause the Loan to
become undercollateralized or unsecured. In this case, there is usually no
requirement to pledge more collateral. The Fund may invest in Loans that are
guaranteed or collateralized by the shareholders of private companies.
If a Borrower becomes involved in bankruptcy proceedings, a court may
decide that the Loan does not require repayment through the sale of collateral
and may even determine that other obligations be repaid first. Other things
could occur, including errors in paperwork, which could invalidate the Fund's
security interest in Loan collateral. If this occurs, the Fund is unlikely to
recover the full amount of the principal and interest due on the Loan.
11
Loans may be unsecured for brief periods if a Borrower's principal asset is
the stock of a related company which may not legally be pledged, until this
stock can be pledged or is exchanged for other assets.
INVESTMENTS IN LOWER QUALITY SECURITIES
The Fund may invest all or nearly all of its assets in Loans or other
securities that are rated below investment grade by Moody's Investors Service,
similarly rated by another nationally recognized statistical rating
organization, or, if unrated, deemed by the investment adviser to be of
equivalent quality.
Debt rated Baa or higher by Moody's is considered to be investment grade.
Moody's considers debt rated Baa by Moody's to have speculative characteristics.
Moody's considers debt rated Ba or B by Moody's to be predominantly speculative
regarding the issuer's ability to pay interest and repay principal. Moody's
also uses the numerical modifiers 1, 2 and 3 to indicate where in the generic
rating classification a particular security ranks, with 1 being the highest and
3 the lowest.
These ratings of debt securities represent the rating agency's opinion
regarding their quality, they are not a guarantee of quality. Rating agencies
try to evaluate the safety of principal and interest payments, they do not take
into consideration the risks of fluctuations in market value. Because rating
agencies may not change ratings quickly in response to company changes, an
issuer's current financial condition may be better or worse than a rating
indicates. Securities rated Ba and lower are the equivalent of high-yield, high-
risk bonds, commonly known as "junk bonds," and involve a high degree of risk.
They are generally more vulnerable to economic downturns or developments
affecting the Borrower. The investment advisers do not expect to invest in any
securities rated lower than B3 at the time of investment. In the event of a
downgrade or decrease in the rating of a Loan, the subadviser will consider
whether to sell that Loan. See Appendix A to the North American SAI "Description
of Ratings" for a full description of Moody's long-term debt ratings.
Typically, the market values of lower-quality loans change in response to
company changes more than higher quality loans. Higher quality loans react
primarily to fluctuations in the general level of interest rates. Also, lower-
quality debt securities tend to be more sensitive to economic conditions and
generally have more volatile prices than higher-quality securities.
NON-DIVERSIFICATION AND INDUSTRY CONCENTRATION
The Fund is classified as a "non-diversified" investment company within the
meaning of the 1940 Act. This means that the only limits on the amount the Fund
may invest in a single issuer are the diversification requirements of Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). See "Taxes" in
the North American SAI for a description of these requirements. The Fund plans,
under normal market conditions, to invest no more than 10% of its assets in
Loans of any one Borrower.
When the Fund chooses to invest a high percentage of its assets in the
obligations of just a few issuers, the value of the Fund's investments can react
more significantly to any one event than the value of a fund that is more
diversified.
12
The Fund may acquire Loans made to Borrowers in any industry. The Fund
will not concentrate its investments in any one industry. However, because the
Fund may buy loans through intermediaries who may be legally considered issuers,
the Fund may be deemed concentrated in the financial services industry. Because
this is so, the Fund is subject to certain risks. Some of the risks related to
financial services include regulatory controls and legislative changes that may
limit lending or make it riskier or less profitable, and general financial and
economic conditions. [See "Investment Restrictions" in the North American SAI].
ILLIQUID INSTRUMENTS
Not all Loans are easy to sell because of legal and contractual
restrictions. Although Loans are traded among certain financial institutions,
some of the Loans that the Fund buys are not as liquid, or saleable, as typical
investment grade debt and may be considered illiquid. It may be more difficult
to sell Loans where the creditworthiness of the Borrower has changed, or is
thought to have changed. Reselling loans may also become more difficult with
market changes or other concerns about Borrowers' ability to repay loans in
general.
This illiquidity may affect the Fund's ability to maintain its net asset
value if Loans must be sold. Over time, the liquidity of Loans should improve.
SEC rules and Board of Directors procedures require that the Fund maintain
enough liquidity to make its monthly Repurchase offers, generally expected to be
10% of outstanding shares, but there are no other liquidity restrictions.
BORROWING BY THE FUND
The Fund may borrow money in amounts up to 33 1/3% of the value of its
total assets to finance Repurchase Offers, for temporary, extraordinary or
emergency purposes. Although it currently does not intend to, the Fund also may
issue one or more series of preferred shares or borrow money to finance
additional investments but only when it believes that the return will exceed the
costs of this strategy. If costs do exceed returns, the return realized by the
Fund's shareholders will be adversely affected. While borrowing and issuing a
class of preferred stock having priority over the Fund's common shares creates
an opportunity for greater income per common share, it also involves increased
exposure to losses. These risks may be reduced through borrowing and preferred
stock with floating rates of interest. Borrowing may also limit the Fund's
freedom to pay dividends or engage in other activities.
The Fund has established an unsecured, discretionary credit facility (the
"Facility") to partially finance Repurchases. The Facility allows the Fund to
borrow up to $10,000,000 or 33 1/3% of the Fund's total assets, whichever is
less, on an unsecured uncommitted basis. This Facility will have a floating
interest rate.
Under the 1940 Act, the Fund may only borrow money provided that right
after borrowing, the Fund has assets that equal 300% of the total outstanding
principal balance of indebtedness. Also, the 1940 Act requires that the Fund
may only declare dividends or distributions or purchase capital stock provided
that right after doing so, the Fund has assets that equal 300% of total
principal balance of debt.
13
If the Fund cannot make distributions as a result of these requirements the
Fund may no longer qualify as a regulated investment company and could be
required to pay additional taxes. The Fund may also be forced to sell
investments on unfavorable terms if market fluctuations or other factors reduce
the required asset below what is required.
The Fund's willingness to borrow money for investment purposes, and the
amount it will borrow, will depend on many factors, the most important of which
are investment outlook, market conditions and interest rates. Successful use of
a borrowing strategy depends on the subadviser's ability to predict correctly
interest rates and market movements, and there is no assurance that a borrowing
strategy will be successful during any period in which it is employed.
Any indebtedness issued by the Fund or borrowing by the Fund either:
(a) Will mature by the next repurchase request date; or
(b) Can be redeemed, called or repaid by the Fund by the next repurchase
request date without penalty or premium, if that is necessary to allow
the Fund to repurchase shares as required by the Board of Directors
and the 1940 Act.
LIMITED AVAILABILITY OF LOANS
Investment in Loans that meet the Fund's standards may be subject to
limited availability. There is a risk that the Fund may not be able to invest
80% or more of its total assets in Loans.
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT
Shareholders are being asked to approve or disapprove the Reorganization
between CypressTree Fund and North American Fund, pursuant to the Reorganization
Agreement. The Reorganization Agreement provides for the transfer of all of the
assets and liabilities of CypressTree Fund to North American Fund in exchange
for Class D shares of North American Fund. CypressTree Fund will distribute the
shares of North American Fund received in the exchange to shareholders of
CypressTree Fund and, thereafter, CypressTree Fund will be dissolved.
After the Reorganization, each shareholder of common stock of CypressTree
Fund will own Class D shares in North American Fund having an aggregate value
equal to the aggregate value of the shares in CypressTree Fund held by that
shareholder as of the close of business on the Closing Date. In the interest of
economy and convenience, shares of North American Fund will not be represented
by physical certificates.
The obligations of the Funds under the Reorganization Agreement are subject
to various conditions, including approval of the shareholders of CypressTree
Fund. The Reorganization Agreement also requires that each Fund take, or cause
to be taken, all actions, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the Reorganization Agreement. The Reorganization Agreement may
be terminated by mutual agreement of the parties or on certain other grounds.
14
The Reorganization is subject to the condition that holders of no more than 8%
of the outstanding shares of CypressTree Fund exercise their appraisal rights.
For a complete description of the terms and conditions of the Reorganization,
see the Reorganization Agreement at Appendix A.
REASONS FOR THE REORGANIZATION
As described in the Summary under "Background and Reasons for the Proposed
Reorganization," both CypressTree Fund and North American Fund began operations
in 1998 with the same investment objectives and policies, management, and
fundamental repurchase policy, but with different plans of distribution.
CypressTree Fund was designated as a no-load fund, one of the first in the
floating rate loan asset class, to be sold without a sales charge or financial
intermediary. North American Fund, on the other hand, was designed with several
load classes, to be sold by retail broker-dealers. Since the inception of these
Funds, the North American Fund's multiple class distribution approach has been
more successful. As of December 31, 2000, CypressTree Fund had approximately
$64 million in total assets and North American Fund had approximately $297
million in total assets.
In light of this background, management determined to conduct a complete
review of the distribution and distribution support of the two Funds, their
repurchase offer history, possible inefficiencies in operating two similar funds
and the level of the total expense ratios for CypressTree Fund, and a possible
similar no-load class of North American Fund.
Management sought in this review to establish an improved distribution
support system for CypressTree Fund that would: (i) remain competitive with
other closed-end funds having a similar investment focus, asset type and size;
and (ii) provide appropriate long-term incentives to support management's
allocation of personnel and resources to CypressTree Fund. As a result of this
review and consideration of the circumstances of CypressTree Fund, management
began to discuss with the Board of Directors preliminary recommendations
regarding a proposed reorganization into North American Fund.
Before reaching its conclusions, the Board of Directors conducted a "due
diligence" review of the matters discussed above. The Board of Directors of
CypressTree Fund concluded that the Reorganization is in the best interests of
the shareholders of CypressTree Fund. CypressTree Fund and North American Fund
share the same investment objectives, strategies and risks, and thus are
duplicative within the same group of funds. Therefore, it was determined that
the Funds should be reorganized to take advantage of potential investment
opportunities and economic and operating efficiencies that would benefit the
shareholders of both Funds by spreading costs across a larger combined asset
base. Further, the combined Funds are expected to have a more effective
distribution and distribution support network which will likely result in
longer-term growth potential.
The larger asset base may also benefit shareholders of CypressTree Fund, in
connection with the Fund's repurchase offers. Under the rules governing
interval funds, if shareholders of the Fund tender shares for repurchase in
excess of the amount of the repurchase offer (usually 10%) (this is referred to
as an "oversubscription"), the Fund may increase the repurchase amount slightly
(another 2%), but otherwise must prorate its repurchases among the tendering
shareholders.
15
Repurchase requests by shareholders of CypressTree Fund have generally been
at a higher rate (averaging 7.01% over the last 12-month period) than those of
North American Fund (averaging 3.81% over the last 12-month period). Spreading
the repurchase demand of CypressTree Fund shareholders over a large asset base
may reduce the likelihood of an oversubscription, and thus increase the
likelihood that the Fund will be able to repurchase all shares tendered for
repurchase, without the need to prorate shareholder participation in the
repurchase offer.
The proposed Reorganization was presented to the Board of Directors of
CypressTree Fund for consideration and approval at a meeting on January 22,
2001. For the reasons discussed below, the Board of Directors, including all of
the Directors who are not "interested persons" of CypressTree Fund (as defined
in the 1940 Act) ("Independent Directors"), determined that the interests of the
shareholders of CypressTree Fund will not be diluted as a result of the proposed
Reorganization, and that the proposed Reorganization is in the best interests of
CypressTree Fund and its shareholders.
BOARD CONSIDERATION
In evaluating and approving the Reorganization, the Board of Directors,
including the Independent Directors, in consultation with their separate
counsel, requested and evaluated information provided by management which, in
its opinion constituted all the information reasonably necessary for the Board
to form a judgment as to whether the Reorganization would be in the best
interests of CypressTree Fund and its shareholders.
The Board of Directors of CypressTree Fund, in recommending the proposed
transaction, among other factors, considered the following factors:
(1) enhanced investment opportunities available from a substantially
larger asset base (approximately $361 million as opposed to
CypressTree Fund's current size of approximately $64 million);
(2) potential benefits to CypressTree Fund shareholders from a more
effective distribution and distribution support network used by North
American Fund;
(3) potential benefits to CypressTree Fund shareholders from North
American's marketing and sales efforts of a single branded loan fund
that offers both load and no-load share classes;
(4) duplicative investment objective, policies and restrictions within the
same fund family; elimination of duplication of costs, market
confusion and inefficiencies of having two similar funds; governance
under a single set of organizational documents;
(5) ongoing net repurchases by CypressTree Fund shareholders at levels
that could result in oversubscribed repurchase offers and pro rata
participation by tendering shareholders;
16
(6) terms and conditions of the Reorganization; the Board's determination
that the Reorganization would not dilute the interests of CypressTree
Fund's current shareholders;
(7) overall expense ratios and information regarding fees and expenses of
the Funds, including the planned expense limitation arrangement
offered by the North American Fund's investment adviser; and
(8) tax-free nature of the Reorganization to CypressTree Fund and its
shareholders.
THE BOARD OF DIRECTORS OF THE CYPRESSTREE FUND, INCLUDING THE INDEPENDENT
DIRECTORS, RECOMMEND THAT SHAREHOLDERS APPROVE THE REORGANIZATION WITH THE NORTH
AMERICAN FUND.
TAX CONSIDERATIONS
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, pursuant to this treatment, neither
CypressTree Fund nor its shareholders nor North American Fund is expected to
recognize any gain or loss for federal income tax purposes from the transactions
contemplated by the Reorganization Agreement. As a condition to the Closing of
the Reorganization, the Funds will receive an opinion from the law firm of
Dechert to the effect that the Reorganization will qualify as a tax-free
reorganization for Federal income tax purposes. That opinion will be based in
part upon certain assumptions and upon certain representations made by the
Funds.
Immediately prior to the Reorganization, CypressTree Fund will pay a
dividend or dividends which, together with all previous dividends, will have the
effect of distributing to its shareholders all of CypressTree Fund's investment
company taxable income for taxable years ending on or prior to the
Reorganization (computed without regard to any deduction for dividends paid) and
all of its net capital gain, if any, realized in taxable years ending on or
prior to the Reorganization (after reduction for any available capital loss
carryforward). Such dividends will be included in the taxable income of
CypressTree Fund's shareholders.
EXPENSES OF THE REORGANIZATION
The Reorganization Agreement provides that expenses relating to the
Reorganization will be borne by CypressTree Fund and North American Fund pro
rata based upon the relative net assets of each of the Funds as of the close of
business on the record date for determining the shareholders of CypressTree Fund
entitled to vote on the Reorganization. However, as a result of current expense
waiver and reimbursement agreements of AGAM, AGAM will be bearing these
expenses. The costs of the Reorganization shall include, but not be limited to,
costs associated with preparation of the N-14 Registration Statement, printing
and distributing the prospectus and the proxy materials, legal fees, accounting
fees, securities registration fees, proxy solicitation expenses and expenses of
holding shareholders' meetings. The expenses related to the transfer of
portfolio securities necessitated by the Reorganization will be paid by AGAM.
17
INTEREST OF AGAM IN THE REORGANIZATION
To the extent AGAM continues to agree to reimburse the Funds for expenses
in excess of certain levels, economies of scale and other efficiencies resulting
from the Reorganization may benefit AGAM.
ADDITIONAL INFORMATION ABOUT THE FUNDS
INVESTMENT PERSONNEL OF THE NORTH AMERICAN FUND
Jeffrey S. Garner, age 43, has been employed as Chief Investment Officer of
CIMCO since 1996, and is an Executive Vice President of North American Fund.
Mr. Garner is responsible for the overall supervision of CIMCO's investment
management of North American Fund. From 1989 to 1996, Mr. Garner was a Vice
President of Eaton Vance Management, where he served as the portfolio manager
for the Senior Debt Portfolio managed by Eaton Vance (the "master" fund for
Eaton Vance Prime Rate Reserves, EV Classic Senior Floating-Rate Fund, and the
EV Medallion Senior Floating-Rate Funds).
Peter K. Merrill, age 38, is the Portfolio Manager of North American Fund,
and is a Vice President of CIMCO. Mr. Merrill joined CIMCO in June 1997.
Previously, from 1988, Mr. Merrill held a variety of positions with BankBoston
Corporation, specializing in high yield portfolio management and leveraged bank
loans.
FORM OF ORGANIZATION
Both North American Fund and CypressTree Fund are closed-end non-
diversified investment management companies organized as Maryland corporations.
North American Fund and CypressTree Fund are each governed by a Board of
Directors comprised of the same nine individuals.
DISTRIBUTOR
American General Funds Distributors, Inc. (the "Distributor"), whose
address is 286 Congress Street, Boston, Massachusetts 02210, is the principal
distributor for both Funds.
DISTRIBUTIONS
The distribution schedule for each of the Funds is the same, and there
would be no change to shareholders of CypressTree Fund with respect to the
Fund's distribution policy after the Reorganization. Each of the Funds declares
distributions daily and pays distributions monthly. Substantially all of the
Fund's investment income, less Fund expenses, will be declared daily as a
distribution to shareholders of record as recorded by the transfer agent at the
time of declaration. Daily distribution crediting will begin on the day after
the transfer agent has received funds for the purchase of Fund shares, even if
orders to purchase shares had been placed with authorized intermediaries. The
Funds ordinarily pay investment income distributions on the last day of each
month, whether the shareholder elects to receive cash or to reinvest in
additional shares. The Funds distribute realized net capital gains, if any, at
least annually, usually in December, after offset by any capital loss
carryovers.
18
If the Reorganization Agreement is approved by CypressTree Fund's
shareholders, then as soon as practicable before the Closing, CypressTree Fund
will pay its shareholders a cash distribution of all undistributed 2000 net
investment income and undistributed realized net capital gains for the 2000
year.
CAPITALIZATION
The following unaudited table shows capitalization of North American Fund
and CypressTree Fund as of January 19, 2001 and on a pro forma basis as of that
date giving effect to the Reorganization:
NET ASSET VALUE
NET ASSETS PER SHARE SHARES OUTSTANDING
-------------- ------------------- ------------------------
North American Fund
Class A --- --- ---
Class B $ 51,780,728 $9.62 5,382,683
Class C $228,898,121 $9.62 23,795,219
CypressTree Fund $ 60,873,880 $9.52 6,392,850
Pro Forma - North American Fund
Class A --- --- ---
Class B $ 51,780,728 $9.62 5,382,683
Class C $228,898,121 $9.62 23,795,219
Class D $ 60,873,880 $9.62 6,327,846
(including
CypressTree
Fund)
Unaudited pro forma financial statements of North American Fund as of and
for the fiscal year ended December 31, 2000 are included in Part B of this Proxy
Statement/Prospectus. The pro forma financial statements reflect the transfer of
the assets and liabilities of CypressTree Fund to North American Fund as
contemplated by the Reorganization Agreement.
REPURCHASE OFFERS
Each Fund is a closed-end interval fund that makes monthly offers to
repurchase a portion of its shares at net asset value. In order to provide
shareholders with liquidity and the ability to receive net asset value on a
disposition of shares, both Funds make monthly offers to repurchase a percentage
of outstanding shares at net asset value ("Repurchase Offers"). For this
purpose, Class A, Class B, Class C and Class D shares would be considered as a
single class. Because the Funds are closed-end funds, shareholders are not able
to redeem their shares on a daily basis.
The Repurchase Offer process and procedures for CypressTree Fund are
identical to North American Fund's Repurchase Offer process and procedures.
There will be no change in the Repurchase Offer procedures in light of the
Reorganization. All references to the "Fund" refer to both Funds, unless
otherwise indicated.
19
As explained in more detail below, the "Repurchase Request Date" is the
last business day of each month. Under normal circumstances, we expect that the
Fund will determine the net asset value applicable to repurchases on that date.
The Fund expects to distribute payment on the next business day, and will
distribute payment on or before the Repurchase Payment Deadline, which is no
later than five business days (or seven calendar days, whichever period is
shorter) after the Pricing Date. Shareholders will be sent notification of the
next Repurchase Offer 7 to 14 days prior to the next Repurchase Request Date.
It is unlikely that a secondary market for the Fund's shares will develop, and
the distributor will not engage in any efforts to develop a secondary market.
REPURCHASE AMOUNT
Each month, the Fund's Board of Directors will determine the percentage of
shares to be repurchased ("Repurchase Amount"). We expect that the Repurchase
Amount generally will be 10%, but it may vary between 5% and 25%, of shares
outstanding on the Repurchase Request Date. Currently, the Fund is subject to
an undertaking that the Repurchase Amount will not exceed 10%.
There is no minimum number of shares that must be tendered before the Fund
will honor repurchase requests. In other words, if, in the aggregate, only one
share is tendered in a given month, the Fund must repurchase it. However, there
is a maximum Repurchase Amount, so you should be aware of the risk that the Fund
may not be able to repurchase all shares tendered in any given month. See
"Oversubscribed Repurchase Offers: Pro Rata Allocation."
REPURCHASE REQUESTS
Shareholders will be sent a Notification of Repurchase Offer
("Notification") 7 to 14 days before the next Repurchase Request Date. The
Notification will provide information about the Repurchase Offer, including the
Repurchase Amount, the Repurchase Request Date, and the means by which
shareholders may obtain the Fund's net asset value.
Shareholders who wish to tender shares for repurchase must notify the Fund
or their Authorized Intermediary on or before the Repurchase Request Date in a
manner designated by the Fund. THE REPURCHASE REQUEST DATE IS A DEADLINE THAT
WILL BE STRICTLY OBSERVED. Shareholders and Authorized Intermediaries that fail
to submit Repurchase Requests in good order by this deadline will be unable to
liquidate their shares until a subsequent Repurchase Offer.
A shareholder may tender all or a portion of his or her holdings (although
the Fund may not be able to repurchase the shareholder's entire tender if
aggregate tenders exceed the Repurchase Amount (as discussed further below)). A
shareholder may withdraw or change a Repurchase Request at any point before the
Repurchase Request Date, but not after that date.
DETERMINATION OF REPURCHASE PRICE
The Fund will establish the Repurchase Price at a share's net asset value
as determined after the close of business on the Pricing Date. Under normal
circumstances, we expect that the Pricing Date generally will be the Repurchase
Request Date. In no event will the Pricing Date be
20
more than three business days after the Repurchase Request Date. The Fund will
compute net asset value daily (as described under "Valuing Fund Shares"), and
you may obtain daily net asset value by calling (800) 872-8037.
CypressTree Fund does not presently intend to deduct any repurchase fees
from this amount and North American Fund does not presently intend to deduct any
repurchase fees from this amount for Class D shares. However, in the future,
the Board of Directors may determine to charge a repurchase fee payable to the
Fund reasonably to compensate it for its expenses directly related to the
repurchase. These fees could be used to compensate the Fund for, among other
things, its costs incurred in disposing of securities or in borrowing in order
to make payment for repurchased shares. Any repurchase fee will never exceed
two percent of the proceeds of the repurchase and will be charged to all
repurchased shares on a pro rata basis. It should be noted that the Board may
implement repurchase fees without a shareholder vote.
PAYMENT
The Fund expects to distribute payment on the next business day after the
Pricing Date; in any event, the Fund will pay repurchase proceeds no later than
the Repurchase Payment Deadline, which is five business days (or seven calendar
days, whichever is shorter) after the Pricing Date. Repurchase proceeds will be
paid by wire transfer or check.
OVERSUBSCRIBED REPURCHASE OFFERS; PRO RATA ALLOCATION
In any given month, shareholders may tender a number of shares that exceeds
the Repurchase Offer Amount (this situation is referred to as an "Oversubscribed
Repurchase Offer"). In the event of an Oversubscribed Repurchase Offer, the
Fund may repurchase additional shares in excess of 10% but only up to a maximum
aggregate of 2% of the shares outstanding for any three consecutive Repurchase
Offers ("Additional Repurchase Amount").
For example, if in Month 1 the Fund offers to repurchase 10% of shares then
outstanding, and shareholders tender 11%, the Fund could determine to repurchase
the extra 1% of shares then outstanding. In that event, over the next two
repurchase offers, the Fund only would be able to repurchase an aggregate of 1%
of shares outstanding pursuant to an Oversubscribed Repurchase Offer. If the
Fund determines not to repurchase the Additional Repurchase Amount, or if
shareholders tender an amount exceeding the Repurchase Offer Amount plus the
Additional Repurchase Amount, the Fund will repurchase the shares tendered on a
pro rata basis.
In the event of an Oversubscribed Repurchase Offer, shareholders may be
unable to liquidate some or all of their investment during that monthly
Repurchase Offer. A shareholder may have to wait until a later month to tender
shares that the Fund is unable to repurchase, and would be subject to the risk
of net asset value fluctuations during this time period.
ADOPTION OF REPURCHASE POLICY
The Board has adopted a resolution setting forth the Fund's fundamental
policy to conduct Repurchase Offers ("Repurchase Policy"). The Repurchase
Policy may be changed only by a majority vote of the Fund's outstanding voting
securities. The Repurchase Policy states that the Fund will make monthly
Repurchase Offers, that the Repurchase Date will be the last
21
business day of the month, and that the Pricing Date will be no later than three
business days after the Repurchase Request Date. Under the Repurchase Policy,
the Repurchase Amount may be from 5% to 25% of the Fund's shares outstanding on
the Repurchase Request Date. The Fund's undertaking to limit the Repurchase
Amount to 10% is not part of the Repurchase Policy and may be changed without a
shareholder vote. The Fund also may offer to repurchase its shares on a
discretionary basis, not pursuant to its fundamental policy, not more frequently
than once every two years.
LIQUIDITY REQUIREMENTS
The Fund must maintain liquid assets equal to the Repurchase Offer Amount
from the time that the Notification is sent to shareholders until the Pricing
Date. The Fund will ensure that a percentage of its net assets equal to at
least 100% of the Repurchase Offer Amount consists of assets (a) that can be
sold or disposed of in the ordinary course of business at approximately the
price at which the Fund has valued the investment within the time period between
the Repurchase Request Date and the Repurchase Payment Deadline; or (b) that
mature by the Repurchase Payment Deadline.
The Board has adopted procedures that are reasonably designed to ensure
that the Fund's assets are sufficiently liquid so that the Fund can comply with
the Repurchase Policy and the liquidity requirements described in the previous
paragraph. If, at any time, the Fund falls out of compliance with these
liquidity requirements, the Board will take whatever action it deems appropriate
to ensure compliance.
The Fund intends to satisfy the liquidity requirements with cash on hand,
cash raised through borrowings, and Loans. There is some risk that the need to
sell Loans to fund Repurchase Offers may affect the market for those Loans. In
turn, this could diminish the Fund's net asset value.
SUSPENSION OR POSTPONEMENT OF A REPURCHASE OFFER
The Fund may suspend or postpone a Repurchase Offer in limited
circumstances, and only by vote of a majority of the Board of Directors,
including a majority of the Independent Directors. These circumstances are
limited and include the following:
(a) if the repurchase would cause the Fund to lose its status as a
regulated investment company under Subchapter M of the Internal
Revenue Code;
(b) for any period during which an emergency exists as a result of which
it is not reasonably practicable for the Fund to dispose of securities
it owns or to determine the value of the Fund's net assets;
(c) for any other periods that the Securities and Exchange Commission
permits by order for the protection of shareholders;
(d) if the shares are listed on a national securities exchange or quoted
in an inter-dealer quotation system of a national securities
association (e.g. NASDAQ) and the repurchase would cause the shares to
lose that status; or
22
(e) during any period in which any market on which the shares are
principally traded is closed, or during any period in which trading on
the market is restricted.
CONSEQUENCES OF REPURCHASE OFFERS
Although the Board believes that Repurchase Offers generally will be
beneficial to the Fund's shareholders, repurchases will decrease the Fund's
total assets and therefore have the possible effect of increasing the Fund's
expense ratio. Furthermore, if the Fund borrows to finance repurchases,
interest on that borrowing may reduce the Fund's net investment income. The
Fund intends to offer new shares continuously, which may alleviate these
potential consequences, although there is no assurance that the Fund will be
able to secure new investments.
Repurchase Offers provide shareholders with the opportunity to dispose of
shares at net asset value. The Fund does not anticipate that a secondary market
will develop, but in the event that a secondary market were to develop, it is
possible that shares would trade in that market at a discount to net asset
value. The existence of periodic Repurchase Offers at net asset value may not
alleviate such a discount.
In addition, the repurchase of shares by the Fund will be a taxable event
to shareholders. See "Distributions and Taxes" for further information.
CHANGE OF NOTICE AND MONTHLY BOARD MEETING REQUIREMENTS
Currently, the Fund's Board of Directors determines the amount of the
Repurchase Offer once each month, and shareholders receive a notice before each
Repurchase Offer, under rules of the Securities and Exchange Commission. The
Fund may request approval from the Securities and Exchange Commission to make
its determination and provide notice to its shareholders on a quarterly basis.
If such approval is granted, then the Board would meet once each quarter to
determine the amount of the next three Repurchase Offers, and you would receive
one notice for those three Repurchase Offers.
COMPARISON OF SECURITIES AND INVESTMENT TECHNIQUES
The following is a summary of the types of securities in which both
CypressTree Fund and North American Fund may invest and strategies they may
employ in pursuit of their investment objectives. References to the "Fund"
refer to both Funds, unless otherwise indicated. As with any security, an
investment in the Fund's shares involves certain risks, including loss of
principal. An investment in the Fund is not a deposit of a bank and is not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
LOANS
Characteristics of Loans
Each Loan will be secured by collateral that the subadviser believes to
have a market value, at the time of acquiring the Loan, that equals or exceeds
the principal amount of the Loan. The value of the collateral underlying a Loan
may decline after purchase, with the result that the
23
Loan may no longer be fully secured. The Fund will not necessarily dispose of
such a Loan, even if the collateral impairment of a Loan would result in the
Fund having less than 80% of its assets in fully secured Loans.
The Loans typically will have a stated term of five to nine years.
However, because the Loans typically amortize principal over their stated life
and are frequently prepaid, their average credit exposure is expected to be two
to three years. The degree to which Borrowers prepay Loans, whether as a
contractual requirement or at their election, may be affected by general
business conditions, the Borrower's financial condition, and competitive
conditions among lenders. Accordingly, prepayments cannot be predicted with
accuracy. Prepayments generally will not have a material effect on the Fund's
performance because, under normal market conditions, the Funds should be able to
reinvest prepayments in other Loans that have similar or identical yields, and
because receipt of prepayment and facility fees may mitigate any adverse impact
on the Fund's yield.
The rate of interest payable on Loans is the sum of a base lending rate
plus a specified spread. These base lending rates are generally the LIBOR for
90-day dollar deposits, the Certificate of Deposit ("CD") Rate of a designated
U.S. bank, the Prime Rate of a designated U.S. bank, or another base lending
rate used by commercial lenders. A Borrower usually has the right to select the
base lending rate and to change the base lending rate at specified intervals.
The interest rate on LIBOR-based and CD Rate-based Loans is reset
periodically at intervals ranging from 30 to 180 days, while the interest rate
on Prime Rate-based Loans floats daily as the Prime Rate changes. Investment in
Loans with a longer interest rate reset period may increase fluctuations in the
Fund's net asset value as a result of changes in interest rates. The Fund will
attempt to maintain a portfolio of Loans that will have a dollar-weighted
average period to next interest rate adjustment of approximately 90 days or
less.
The yield on a Loan primarily will depend on the terms of the underlying
Loan and the base lending rate chosen by the Borrower initially and on
subsequent dates specified in the applicable loan agreement. The relationship
between LIBOR, the CD Rate, and the Prime Rate will vary as market conditions
change. Borrowers tend to select the base lending rate that results in the
lowest interest cost, and the rate selected may change from time to time.
Agents and Intermediate Participants
Loans are typically originated, negotiated and structured by a U.S. or
foreign commercial bank, insurance company, finance company or other financial
institution (the "Agent") for a lending syndicate of financial institutions.
The Borrower and the lender or lending syndicate enter into a loan agreement
(the "Loan Agreement"). The Agent typically administers and enforces the Loan
on behalf of the other lenders in the syndicate. In addition, an institution,
typically but not always the Agent (the "Collateral Bank"), holds any collateral
on behalf of the lenders. The Collateral Bank must be a qualified custodian
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
may not act as an Agent, a Collateral Bank, a guarantor or sole negotiator or
structuror with respect to a Loan.
24
In a typical Loan, the Agent administers the terms of the Loan Agreement
and is responsible for the collection of principal and interest and fee payments
from the Borrower and the apportionment of these payments to the credit of all
lenders that are parties to the Loan Agreement. The Fund generally will rely on
the Agent to collect its portion of the payments on a Loan. Furthermore, the
Fund will rely on the Agent to use appropriate creditor remedies against the
Borrower. Typically, under Loan Agreements, the Agent is given broad discretion
in enforcing the Loan Agreement and is obligated to use only the same care it
would use in the management of its own property. The Borrower compensates the
Agent for these services. This compensation may include special fees paid on
structuring and funding the Loan and other fees paid on a continuing basis. The
typical practice of an Agent or a lender in relying exclusively or primarily on
reports from the Borrower may involve a risk of fraud by the Borrower.
If an Agent becomes insolvent, or has a receiver, conservator, or similar
official appointed for it by the appropriate bank regulatory authority or
becomes a debtor in a bankruptcy proceeding, the Agent's appointment may be
terminated, and a successor agent would be appointed. Assets held by the Agent
under the Loan Agreement should remain available to holders of Loans. However,
if an appropriate regulatory authority or court determines that assets held by
the Agent for the benefit of the Fund are subject to the claims of the Agent's
general or secured creditors, the Fund might incur certain costs and delays in
realizing payment on a Loan or suffer a loss of principal and/or interest.
Furthermore, in the event of the Borrower's bankruptcy or insolvency, the
Borrower's obligation to repay the Loan may be subject to certain defenses that
the Borrower can assert as a result of improper conduct by the Agent.
The Fund's investment in a Loan may take the form of a "Participation."
Lenders may sell Loans to third parties called "Participants." Participations
may be acquired from a lender or from other Participants. If the Fund purchases
a Participation either from a lender or a Participant, the Fund will not have
established any direct contractual relationship with the Borrower. The Fund
would be required to rely on the lender or the Participant that sold the
Participation not only for the enforcement of the Fund's rights against the
Borrower but also for the receipt and processing of payments due to the Fund
under the Loan. The Fund is thus subject to the credit risk of both the
Borrower and a Participant. Lenders and Participants interposed between the
Fund and a Borrower are referred to as "Intermediate Participants."
In the case of Participations, because it may be necessary to assert
through an Intermediate Participant such rights as may exist against the
Borrower in the event the Borrower fails to pay principal and interest when due,
the Fund may be subject to delays, expenses and risks that are greater than
those that would be involved if the Fund could enforce its rights directly
against the Borrower. Moreover, under the terms of a Participation, the Fund
may be regarded as a creditor of the Intermediate Participant (rather that of
the Borrower), so that the Fund also may be subject to the risk that the
Intermediate Participant may become insolvent. The agreement between the buyer
and seller may also limit the rights of the holder of the Loan to vote on
certain changes that may be made to the Loan Agreement, such as waiving a breach
of a covenant. However, in almost all cases, the holder of a Loan will have the
right to vote on certain fundamental issues such as changes in principal amount,
payment dates, and interest rate.
25
The subadviser also analyzes and evaluates the financial condition of the
Agent and, if applicable, the Intermediate Participant. The Fund will invest in
a Loan only if the outstanding debt obligations of the Agent and Intermediate
Participants, if any, are, at the time of investment, investment grade (i.e.,
(a) rated BBB or better by Standard and Poor's Rating Group ("S&P") or Baa or
better by Moody's Investors Service, Inc. ("Moody's"); or (b) rated A-3 or
better by S&P or P-3 or better by Moody's; or (c) determined by the subadviser
to be of comparable quality).
Although the Fund generally holds only Loans for which the Agent and
Intermediate Participants, if any, are banks, the Fund may acquire Loans from
non-bank financial institutions and Loans originated, negotiated and structured
by non-bank financial institutions, if the Loans conform to the credit
requirements described above. As other types of Loans are developed and offered
to investors, the subadviser will consider making investments in these Loans,
consistent with the Fund's investment objective, policies and quality standards,
and in accordance with applicable custody and other requirements of the 1940
Act.
Discount Loans
The Fund may from time to time acquire Loans at a discount from their
nominal value or with a facility fee that exceeds the fee traditionally received
in connection with the acquisition of Loans ("Discount Loans"). The Borrowers
with respect to Discount Loans may have experienced, or may be perceived to be
likely to experience, credit problems, including involvement in or recent
emergence from bankruptcy reorganization proceedings or other forms of credit
restructuring. In addition, Discount Loans may become available as a result of
an imbalance in the supply of and demand for certain Loans. The Fund may
acquire Discount Loans in order to realize an enhanced yield or potential
appreciation when the subadviser believes that the market has undervalued those
Loans due to an excessively negative assessment of a Borrower's creditworthiness
or an imbalance between supply and demand. The Fund may benefit from any
appreciation in value of a Discount Loan, even if the Fund does not obtain 100%
of the Loan's face value or the Borrower is not wholly successful in resolving
its credit problems.
Other Information About Loans
A Borrower must comply with various restrictive covenants contained in the
applicable Loan Agreement. In addition to requiring the scheduled payment of
interest and principal, these covenants may include restrictions on dividend
payments and other distributions to stockholders, provisions requiring the
Borrower to maintain specific financial ratios, and limits on total debt. The
Loan Agreement may also contain a covenant requiring the Borrower to prepay the
Loan with any free cash flow. Free cash flow generally is defined as net cash
flow after scheduled debt service payments and permitted capital expenditures,
and includes the proceeds from asset dispositions or securities sales. A breach
of a covenant that is not waived by the Agent (or by the lenders directly, as
the case may be) is normally an event of default, which provides the Agent or
the lenders directly the right to call the outstanding Loan.
The Fund may have certain obligations in connection with a Loan, such as,
under a revolving credit facility that is not fully drawn down to loan
additional funds under the terms of the credit facility. The Fund will not
invest in Loans that would require the Fund to make any
26
additional investments in connection with future advances if such commitments
would exceed 20% of the Fund's total assets or would cause the Fund to fail to
meet the diversification requirements described below. The Fund will maintain a
segregated account with its Custodian of liquid, high-grade debt obligations
with a value equal to the amount, if any, of the Loan that the Fund has
obligated itself to make to the Borrower, but that the Borrower has not yet
requested.
The Fund may receive and/or pay certain fees in connection with its
activities in buying, selling and holding Loans. These fees are in addition to
interest payments received, and may include facility fees, commitment fees,
commissions and prepayment penalty fees. When the Fund buys a Loan, it may
receive a facility fee, and when it sells a Loan, it may pay a facility fee.
The Fund may receive a commitment fee based on the undrawn portion of the
underlying line of credit portion of a Loan, or, in certain circumstances, the
Fund may receive a prepayment penalty fee on the prepayment of a Loan by a
Borrower. The Fund may also receive other fees, including covenant waiver fees
and covenant modification fees.
From time to time, AGAM, CIMCO, or their affiliates may borrow money from
various banks in connection with their business activities. These banks also
may sell Loans to the Fund or acquire Loans from the Fund or may be Intermediate
Participants with respect to Loans owned by the Fund. These banks also may act
as Agents for Loans that the Fund owns.
UNSECURED LOANS AND SHORT-TERM AND MEDIUM-TERM OBLIGATIONS.
The Fund may hold up to 20% of its total assets in cash or invested in
short-term or medium-term debt obligations or in Unsecured Loans. The Fund will
invest only in Unsecured Loans that the subadviser determines have a credit
quality at least equal to that of the collateralized Loans in which the Fund
primarily invests. With respect to an Unsecured Loan, if the Borrower defaults
on its obligation, there is no specific collateral on which the Fund can
foreclose, although the Borrower typically will have assets that the subadviser
believes exceed the amount of the Unsecured Loan at the time of purchase.
The short-term and medium-term debt obligations in which the Fund may
invest include, but are not limited to, senior Unsecured Loans with a remaining
maturity of one year or less, certificates of deposit, commercial paper, short-
term and medium-term notes, bonds with remaining maturities of less than five
years, obligations issued by the U.S. Government or any of its agencies or
instrumentalities, and repurchase agreements. All of the debt instruments
described in this paragraph, other than Unsecured Loans, will be investment
grade (i.e., rated Baa, P-3 or better by Moody's or BBB, A-3 or better by S&P
or, if unrated, determined by the subadviser to be of comparable quality). For a
definition of the ratings assigned to instruments, see Appendix A to the
Statement of Additional Information. Pending investment of the proceeds of the
Fund's sales, or when the subadviser believes that investing for defensive
purposes is appropriate, more than 20% (up to 100%) of the Fund's total assets
may be temporarily held in cash or in the short-term and medium-term debt
obligations described in this paragraph.
27
FOREIGN INVESTMENTS
The Fund may acquire U.S. dollar denominated Loans made to non-U.S.
Borrowers: (a) (i) located in any country whose unguaranteed, unsecured and
otherwise unsupported long-term sovereign debt obligations are rated A3 or
better by Moody's and A- or better by S&P; or (ii) with significant U.S. dollar-
based revenues or significant U.S.-based operations; and (b) located in a
country that does not impose withholding taxes on payment of principal,
interest, fees, or other payments to be made by the Borrower; provided, however,
that any such Borrower meets the credit standards established by the subadviser
for U.S. Borrowers, and no more than 25% of the Fund's net assets are invested
in Loans of non-U.S. Borrowers. Loans to non-U.S. Borrowers may involve certain
special considerations not typically associated with investing in U.S.
Borrowers. Information about a foreign company may differ from that available
with respect to U.S. Borrowers, because foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. Borrowers.
There may be greater risk in valuing and monitoring the value of collateral
underlying loans to non-U.S. Borrowers. There generally is less government
supervision and regulation of financial markets and listed companies in foreign
countries than in the United States. The Fund will not invest in Unsecured
Loans of non-U.S. Borrowers.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with respect to its permitted
investments, but currently intends to do so only with member banks of the
Federal Reserve System or with primary dealers in U.S. Government securities.
Under a repurchase agreement, the Fund buys a security at one price and
simultaneously promises to sell that same security back to the seller at a
higher price. The Fund's repurchase agreements will provide that the value of
the collateral underlying the repurchase agreement always will be at least 102%
of the repurchase price, including any accrued interest earned on the repurchase
agreement, and will be marked to market daily. The repurchase date is usually
within seven days of the original purchase date. In all cases, the subadviser
must be satisfied with the creditworthiness of the other party to the agreement
before entering into a repurchase agreement. In the event of the bankruptcy (or
other insolvency proceeding) of the other party to a repurchase agreement, the
Fund might experience delays in recovering its cash. To the extent that the
value of the securities the Fund purchased may have declined in the meantime,
the Fund could experience a loss.
OTHER INVESTMENTS
The Fund may acquire warrants and other equity securities as part of a unit
combining Loans and equity securities of the Borrower or its affiliates, but
only incidentally to the Fund's purchase of a Loan. The Fund also may acquire
equity securities issued in exchange for a Loan or issued in connection with a
Borrower's debt restructuring or reorganization, or if the acquisition, in the
judgment of the subadviser, may enhance the value of a Loan or otherwise would
be consistent with the Fund's investment policies.
28
FUNDAMENTAL INVESTMENT RESTRICTIONS AND POLICIES
The Fund has adopted certain fundamental investment restrictions and
policies which may not be changed unless authorized by a shareholder vote.
These are set forth in the Statement of Additional Information. Among these
fundamental restrictions, the Fund may not purchase any security if, as a result
of the purchase, more than 25% of the Fund's total assets (taken at current
value) would be invested in the securities of Borrowers and other issuers having
their principal business activities in the same industry (the electric, gas,
water and telephone utility industries being treated as separate industries for
the purpose of this restriction). There is no limitation on purchasing
securities the issuer of which is deemed to be in the financial institutions
industry, which includes commercial banks, thrift institutions, insurance
companies and finance companies. There is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities. Except for the fundamental restrictions and policies set
forth as such in the Fund's Statement of Additional Information, the Fund's
investment objective and policies are not fundamental policies and accordingly
may be changed by the Fund's Board of Directors without obtaining the approval
of the Fund's shareholders. Notwithstanding the Fund's investment policies and
restrictions, the Fund may invest all or part of its investable assets in a
management investment company with substantially the same investment objective,
policies and restrictions as the Fund, which could allow creation of a
"master/feeder" structure.
GENERAL INFORMATION ABOUT THE PROXY STATEMENT
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this
Notice and Proxy Statement with its enclosures on or about March ___, 2001.
Shareholders of CypressTree Fund whose shares are held by nominees, such as
brokers, can vote their proxies by contacting their respective nominee. In
addition to the solicitation of proxies by mail, employees of American General
Asset Management Corp. and its affiliates, without additional compensation, may
solicit proxies in person or by telephone, telegraph, facsimile, or oral
communication. CypressTree Fund has retained Shareholder Communications
Corporation, a professional proxy solicitation firm, to assist with any
necessary solicitation of proxies. Shareholders of CypressTree Fund may receive
a telephone call from the professional proxy solicitation firm asking the
shareholder to vote. The expenses of the Reorganization, including proxy
solicitation services, will be paid by CypressTree Fund and North American Fund
pro rata based upon the relative net assets of each of the Funds as of the close
of business on the record date for determining the shareholders of CypressTree
Fund entitled to vote on the Reorganization. See "Information About the
Reorganization - Expenses of the Reorganization."
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with CypressTree Fund a written revocation or duly executed proxy
bearing a later date. In addition, any shareholder who attends the Meeting in
person may vote by ballot at the Meeting, thereby canceling any proxy previously
given. The persons named in the accompanying proxy will vote as directed by the
proxy, but in the absence of voting directions in any proxy that is signed and
returned, they intend to vote "FOR" the Reorganization proposal and may vote in
29
their discretion with respect to other matters not now known to the Board of
Directors of the CypressTree Fund that may be presented at the Meeting.
VOTING RIGHTS
Shares of CypressTree Fund entitle its holders to one vote for each share
held, and a proportionate fraction of a vote for each fraction of a share held.
Shares have noncumulative voting rights and no preemptive or subscription
rights. CypressTree Fund is not required to hold shareholder meetings annually,
although shareholder meetings may be called for purposes such as electing
Directors, changing fundamental policies or approving an investment management
agreement.
Shareholders of CypressTree Fund at the close of business on February 15,
2001 (the "Record Date") will be entitled to be present and give voting
instructions for CypressTree Fund at the Meeting with respect to their shares
owned as of that Record Date. As of the Record Date, ____________ shares were
outstanding and entitled to vote.
Approval of the Reorganization requires the affirmative vote of a majority
of the outstanding shares of CypressTree Fund. The Fund must have a quorum to
conduct its business at the Special Meeting. The holders of a majority of
outstanding shares present in person or by proxy shall constitute a quorum. In
the absence of a quorum, a majority of outstanding shares entitled to vote
present in person or by proxy may adjourn the meeting from the time to time
until a quorum is present.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
the shares represented by the abstention or non-vote will be deemed present at
the Meeting for purposes of determining a quorum. However, abstentions and
broker non-votes will not be deemed to have voted in favor of the
Reorganization. As a result, an abstention or broker non-vote will have the same
effect as a vote against the Reorganization.
Prior to the Meeting, CypressTree Fund expects that broker-dealer firms
holding its shares in "street name" for their customers will request voting
instructions from their customers and beneficial owners.
All of the directors of CypressTree Fund, as of January 25, 2001, owned
less than 1% or more of the outstanding shares of the Fund and the officers and
directors of CypressTree Fund owned, as a group, less than 1% of the shares of
CypressTree Fund.
All of the directors of North American Fund, as of January 25, 2001, owned
less than 1% or more of the outstanding shares of the Fund and the officers and
directors of North American Fund owned, as a group, less than 1% of the shares
of North American Fund.
As of January 25, 2001, no person owned beneficially or of record 5% or
more of the outstanding shares of CypressTree Fund or any Class of North
American Fund.
30
INFORMATION ON APPRAISAL RIGHTS
Under the Maryland General Corporation Law, certain relevant sections
of which are attached as Exhibit C, each shareholder of CypressTree Fund will be
entitled to demand and receive payment of the "fair value" of his or her shares
in cash, if he or she:
. prior to or at the special meeting of shareholders, files with
CypressTree Fund a written objection to the Reorganization;
. does not vote in favor of the Reorganization; and
. within 20 days after the Articles of Transfer have been accepted for
record by the Maryland State Department of Assessments and Taxation
(the "SDAT"), makes a written demand on North American Fund for
payment of his or her shares (a "Payment Demand") stating the number
of shares for which payment is demanded.
A written objection to the Reorganization may be delivered to
CypressTree Fund at the special meeting of shareholders, or if sent prior
thereto should be sent to CypressTree Fund, 286 Congress Street, Boston,
Massachusetts 02210, Attn: John I. Fitzgerald.
Any CypressTree Fund shareholder who fails to comply with the above
requirements will be bound by the terms of the Reorganization. Under the
Maryland General Corporation Law, "fair value" of CypressTree Fund shares is
determined as of the close of business on the day of the shareholders' meeting.
Fair value does not include any appreciation or depreciation that results,
directly or indirectly, from the Reorganization. However, the exercise of
appraisal rights is subject to any applicable "forward pricing" requirements of
Rule 22c-1 under the Investment Company Act of 1940, as amended, which would
supercede contrary provisions of state law. A CypressTree Fund shareholder who
makes a Payment Demand would not be entitled to receive any of the dividends or
distributions that will be payable to shareholders of record on a record date
that is after the close of business on the day CypressTree Fund shareholders
vote on the Reorganization.
North American Fund will promptly deliver or send by certified mail,
return receipt requested, to each CypressTree Fund shareholder who has properly
filed a written objection to the Reorganization and not voted in its favor,
written notice of the date of acceptance of the articles by the SDAT. This
notice may include a written offer by the North American Fund to pay the
objecting shareholder what the North American Fund considers to be the "fair
value" of his or her shares of CypressTree Fund (fair value will be subject to
any applicable forward pricing requirements). Within 50 days after the
acceptance of the Articles of Transfer by SDAT, North American Fund or any
shareholder who has made a Payment Demand but has not received payment for his
or her shares may petition a court of equity in Baltimore City, Maryland for an
appraisal to determine the "fair value" of such shares. If the court finds that
a shareholder is entitled to appraisal of his or her stock, the court will
appoint three disinterested appraisers to determine "fair value" of such shares
on terms and conditions the court considers proper. The appraisers will, within
60 days after appointment (or such longer period as the court may direct), file
with the court and mail to each party their report stating their conclusions as
to the "fair value" of the shares. Within 15 days after the filing of the
report, any party may object to the report and request a hearing. The court
will, upon motion of any party, enter an order either
31
confirming, modifying or rejecting the report and, if confirmed or modified,
enter judgment directing the time within which payment must be made. If the
appraisers' report is rejected, the court may determine the "fair value" of the
shares of common stock of CypressTree Fund shareholder requesting appraisal or
may remit the proceeding to the same or other appraisers. Any judgment entered
pursuant to a court proceeding will include interest from the date of the
shareholders' meeting unless the court finds that the shareholder's refusal to
accept a written offer to purchase the stock previously made by North American
Fund was arbitrary and vexatious or not in good faith. The costs of the
proceeding (not including attorneys' fees) will be determined by the court and
will be assessed against North American Fund or, under certain circumstances,
the shareholder, or both.
A CypressTree Fund shareholder who has made a Payment Demand shall cease to
have any rights as a shareholder, except the right to receive the payment of the
"fair value" of the shares. The rights of a CypressTree Fund shareholder who has
made a Payment Demand may be restored only upon:
. the withdrawal, with the consent of North American Fund, of the
Payment Demand;
. the failure both of the shareholder and North American Fund to file a
petition for appraisal within the time required;
. the determination of the court that the shareholder is not entitled to
an appraisal; or
. the abandonment or rescission of the Reorganization
It is a condition of closing the Reorganization that holders of no more
than 8% of the outstanding shares of CypressTree Fund exercise these rights.
OTHER MATTERS TO COME BEFORE THE MEETING
CypressTree Fund does not know of any matters to be presented at the
Meeting other than those described in this Proxy Statement/Prospectus. If other
business should properly come before the Meeting, the proxyholders will vote
thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
CypressTree Fund is not required to hold regular annual meetings and, in
order to minimize costs, does not intend to hold meetings of shareholders unless
so required by applicable law, regulation, regulatory policy or if otherwise
deemed advisable by its management. Therefore it is not practicable to specify
a date by which Shareholder proposals must be received in order to be
incorporated in an upcoming proxy statement for an annual meeting.
32
REPORTS TO SHAREHOLDERS
The Distributor will furnish, without charge, a copy of the most recent
Annual Report regarding the CypressTree Fund and the most recent Semi-Annual
Report succeeding the Annual Report, if any, on request. Requests for such
reports should be directed to 286 Congress Street, Boston, Massachusetts 02210
or at (800) 872-8037.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-
ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
John I. Fitzgerald, Secretary
_____________________, 2001
286 Congress Street
Boston, Massachusetts 02210
33
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 2001, by and between North American Senior
Floating Rate Fund, Inc., a Maryland corporation (the "Acquiring Fund" or "NASFR
Fund") with its principal place of business at 286 Congress Street, Boston,
Massachusetts 02210, and CypressTree Senior Floating Rate Fund, Inc., a Maryland
corporation (the "Acquired Fund" or "CSFR Fund") with its principal place of
business at 286 Congress Street, Boston, Massachusetts 02210.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class D voting shares
of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all liabilities of the Acquired Fund, and the distribution of
the Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement. The Acquired Fund will,
thereafter, dissolve.
WHEREAS, the Acquired Fund and the Acquiring Fund are both closed-end,
registered investment companies under the Investment Company Act of 1940, as
amended ("1940 Act"), and the Acquired Fund owns securities which generally are
assets of the same character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Acquired Fund and the Acquiring Fund are both closed-end
interval funds that make monthly offers to repurchase a percentage of their
outstanding shares at net asset value, subject to the terms and conditions of
certain exemptive relief under the 1940 Act and the rules thereunder;
WHEREAS, on and subject to the terms and conditions of this Agreement, the
Acquired Fund will transfer all of its assets for Acquiring Fund Shares at the
closing (provided for in Section 3.1 "Closing") in accordance with the Maryland
General Corporation Law ("MGCL");
WHEREAS, the Directors of the Acquiring Fund have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquiring Fund and its shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Directors of the Acquired Fund have determined that the exchange
of all of the assets of the Acquired Fund for Acquiring Fund Shares and the
assumption of all liabilities of the Acquired Fund by the Acquiring Fund is in
the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction;
NOW, THEREFORE, in consideration of the promises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
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1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2, to
the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of full and fractional Acquiring Fund
Shares determined by dividing the value of the Acquired Fund's net assets
computed in the manner and as of the time and date set forth in paragraph 2.1,
by the net asset value of one Acquiring Fund Share, computed in the manner and
as of the time and date set forth in paragraph 2.2; and (ii) to assume all
liabilities of the Acquired Fund, as set forth in paragraph 1.3. Such
transactions shall take place at the Closing.
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities (including loans as defined in the prospectus for the Acquired
Fund), commodities and futures interests and dividends or interests receivable,
that are owned by the Acquired Fund, and any deferred or prepaid expenses shown
as an asset on the books of the Acquired Fund (collectively, "Assets"), on the
closing date provided for in paragraph 3.1 (the "Closing Date").
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
assume all of the liabilities of the Acquired Fund, whether accrued or
contingent, known or unknown, existing at the Valuation Date (as defined in
paragraph 2.1) (collectively, "Liabilities"). On or as soon as practicable
prior to the Closing Date, the Acquired Fund will declare and pay to its
shareholders of record one or more dividends and/or other distributions so that
it will have distributed substantially all (and in no event less than 98%) of
its investment company taxable income (computed without regard to any deduction
for dividends paid) and realized net capital gain, if any, for the current
taxable year through the Closing Date.
1.4 Immediately after the transfer of assets provided for in paragraph 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record,
determined immediately after the close of business on the Closing Date (the
"Acquired Fund Shareholders"), on a pro rata basis, the Acquiring Fund Shares
received by the Acquired Fund pursuant to paragraph 1.1, and upon such
distribution will completely liquidate. Such distribution and liquidation will
be accomplished, with respect to the Acquired Fund's shares, by the transfer of
the Acquiring Fund Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to the Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders on the Closing Date. All issued and
outstanding shares of the Acquired Fund will simultaneously be canceled on the
books of the Acquired Fund. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange. The
Acquired Fund will, thereafter, dissolve.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent.
1.6 Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or
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local tax authorities or any other relevant regulatory authority, is and shall
remain the responsibility of the Acquired Fund.
1.7 Shares issued and distributions made under the above provisions are
subject to provisions of Title 3, Subtitle 2 of the Maryland General Corporation
Law relating to dissenting shareholders, as applicable.
2. VALUATION
2.1 The value of the Assets shall be the value computed immediately after
the close of business of the New York Stock Exchange and after the declaration
of any dividends on the Closing Date (such time and date being hereinafter
called the "Valuation Date"), using the valuation procedures in the then-current
prospectus and statement of additional information with respect to the Acquiring
Fund, and valuation procedures established by the Acquiring Fund's Board of
Directors.
2.2 The net asset value of the Acquiring Fund Shares shall be the net asset
value per share of the Acquiring Fund's outstanding shares computed as of the
Valuation Date, using the valuation procedures set forth in the Acquiring Fund's
then-current prospectus and statement of additional information with respect to
the Acquiring Fund, and valuation procedures established by the Acquiring Fund's
Board of Directors.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's assets shall be
determined by dividing the value of the net assets of the Acquired Fund,
determined using the same valuation procedures referred to in paragraph 2.1, by
the net asset value of an Acquiring Fund Share, determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made by the Acquired Fund's
designated record keeping agent and shall be subject to confirmation by
Acquiring Fund's record keeping agent and by each fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be May 10, 2001, or such other date as the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of immediately after the close of business on the
Closing Date unless otherwise agreed to by the parties. The close of business
on the Closing Date shall be as of 4:00 p.m., Eastern time. The Closing shall
be held at the offices of the Acquiring Fund or at such other time and/or place
as the parties may agree.
3.2 The Acquired Fund shall direct State Street Bank and Trust Company, as
custodian for the Acquired Fund (the "Custodian"), to deliver at the Closing, a
certificate of an authorized officer stating that (i) the Assets shall have been
delivered in proper form to the Acquiring Fund within two business days prior to
or on the Closing Date, and (ii) all necessary taxes in connection with the
delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
The Acquired Fund's portfolio securities represented by a certificate or other
written instrument shall be presented for examination by the Custodian to the
custodian for the Acquiring Fund no later than five business days preceding the
Closing Date, and shall be transferred and delivered by the Acquired Fund as of
the Closing Date for the account of the Acquiring Fund duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof. The
Custodian shall deliver as of the Closing Date by book entry, in accordance with
the customary practices of
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any securities depository, as defined in Rule 17f-4 under the 1940 Act in which
the Acquired Fund's Assets are deposited and the Custodian, the Acquired Fund's
Assets deposited with such depositories. The cash to be transferred by the
Acquired Fund shall be delivered by wire transfer of federal funds on the
Closing Date.
3.3 The Acquired Fund shall direct State Street Bank & Trust Company as
transfer agent for the Acquired Fund (the "Transfer Agent"), on behalf of the
Acquired Fund, to deliver at the Closing, a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquiring Fund, or
provide evidence satisfactory to the Acquired Fund that such Acquiring Fund
Shares have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request.
3.4 In the event that on the Valuation Date (a) the primary trading market
for portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereupon shall be restricted, or (b) trading or
the reporting of trading on such exchange or elsewhere shall be disrupted so
that, in the judgment of the Board of Directors of the Acquired Fund and the
Board of Directors of the Acquiring Fund, accurate appraisal of the value of the
net assets of the Acquired Fund or the Acquiring Fund, respectively, is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
3.5 The Acquired Fund and the Acquiring Fund shall file Articles of Transfer
with the Maryland State Department of Assessments and Taxation ("SDAT"), such
Articles of Transfer to be effective as of the Closing.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents and warrants to the Acquiring Fund that the
statements contained in this paragraph 4.1 are correct and complete in all
material respects as of the execution of this Agreement and the date hereof.
The Acquired Fund represents and warrants to the Acquiring Fund as follows:
(a) The Acquired Fund is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland, with power to own all
of its properties and assets, to carry on its business as it is now being
conducted and to carry out this Agreement;
(b) The Acquired Fund is a duly registered investment company classified as a
closed-end type, and its registration with the Commission as an investment
company under the 1940 Act, and the registration of its shares under the
Securities Act of 1933, as amended ("1933 Act"), is in full force and effect;
(c) 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 herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, such as may be required by state securities laws, and the
acceptance of Articles of Transfer for record by the SDAT;
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(d) The current prospectus and statement of additional information of the
Acquired Fund and each prospectus and statement of additional information of the
Acquired Fund used during the three years previous to the date of this
Agreement, or since the inception of the Acquired Fund if such date is less than
three years, conforms or conformed at the time of its use in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder and does not or did not at
the time of its use include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and marketable
title to the Assets and full right, power, and authority to sell, assign,
transfer and deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets and the
effectiveness of the Articles of Transfer, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the 1933 Act, other
than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Acquired Fund's Articles of Incorporation or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound, or (ii) the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the Acquired
Fund is a party or by which it is bound;
(g) All material contracts or other commitments of the Acquired Fund (other
than this Agreement and certain investment contracts, including options,
futures, and forward contracts) will terminate without liability to the Acquired
Fund on or prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by the Acquiring
Fund, no litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or, to its knowledge,
threatened against the Acquired Fund, or any of its properties or assets that,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. 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;
(i) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets, and Schedule of Investments of the Acquired Fund at
December 31, 2000 have been audited by _________________, independent
accountants, and are in accordance with generally accepted accounting principles
("GAAP") consistently applied, and such statements (copies of which have been
furnished to the Acquiring Fund) present fairly, in all material respects, the
financial condition of the Acquired Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquired Fund
required to be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(j) Since December 31, 2000, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise
A-5
disclosed to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (j), a decline in net asset value per share of the Acquired Fund
due to declines in market values of securities in the Acquired Fund's portfolio,
the discharge of Acquired Fund liabilities, or the repurchase of Acquired Fund
Shares by shareholders of the Acquired Fund shall not constitute a material
adverse change;
(k) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquired Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns;
(l) For each taxable year of its operation (including the taxable year ending
on the Closing Date), the Acquired Fund has met (or will meet) the requirements
of Subchapter M of the Code for qualification as a regulated investment company,
has been (or will be) eligible to and has computed (or will compute) its federal
income tax under Section 852 of the Code, and will have distributed all of its
investment company taxable income and net capital gain (as defined in the Code)
that has accrued through the Closing Date, and before the Closing Date will have
declared dividends sufficient to distribute all of its investment company
taxable income and net capital gain for the period ending on the Closing Date;
(m) All issued and outstanding shares of the Acquired Fund are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Acquired Fund and have been offered and sold in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws. All of the issued and outstanding shares of the
Acquired Fund will, at the time of Closing, be held by the persons and in the
amounts set forth in the records of the Transfer Agent, on behalf of the
Acquired Fund, as provided in paragraph 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the shares of the Acquired Fund, nor is there outstanding any security
convertible into any of the Acquired Fund shares;
(n) The execution, delivery and performance of this Agreement will have been
duly authorized prior to the Closing Date by all necessary action, if any, on
the part of the Directors of the Acquired Fund, and, subject to the approval of
the shareholders of the Acquired Fund, this Agreement will constitute a valid
and binding obligation of the Acquired Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(o) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed or to be
filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable thereto;
and
(p) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.6, insofar as
it relates to the Acquired Fund, will, on the effective date of the Registration
Statement and on the Closing Date (i) 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, in light of the circumstances under
which
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such statements were made, not materially misleading provided, however, that the
representations and warranties in this subparagraph (p) shall not apply to
statements in or omissions from the Proxy Statement and the Registration
Statement made in reliance upon and in conformity with information that was
furnished by the Acquiring Fund for use therein, and (ii) 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.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund that the
statements contained in this paragraph 4.2 are correct and complete in all
material respects as of the execution of this Agreement and the date hereof.
The Acquiring Fund represents and warrants to the Acquired Fund as follows:
(a) The Acquiring Fund is a duly organized, validly existing and in good
standing under the laws of the State of Maryland, and has the power to own all
of its properties and assets, to carry on its business as it is now being
conducted and to carry out this Agreement;
(b) The Acquiring Fund is a duly registered investment company classified as
a closed-end type, and its registration with the Commission as an investment
company under the 1940 Act and the registration of its shares under the 1933
Act, is in full force and effect;
(c) 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 herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws and the acceptance of Articles of Transfer for record by the
SDAT;
(d) The current prospectus and statement of additional information of the
Acquiring Fund and each prospectus and statement of additional information of
the Acquiring Fund used during the three years previous to the date of this
Agreement, or since the inception of the Acquiring Fund if such date is less
than three years, conforms or conformed at the time of its use in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder and does not or did not at
the time of its use include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens or other encumbrances,
except those liens or encumbrances as to which the Acquired Fund has received
notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Articles of Incorporation or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquiring Fund, is
a party or by which it is bound, or (ii) the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquired Fund on behalf of the
Acquiring Fund, is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by the Acquired
Fund, no litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or, to its knowledge,
threatened against the Acquiring Fund, or any of its properties or assets that,
if adversely determined, would materially and adversely affect its
A-7
financial condition or the conduct of its business. 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;
(h) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets and Schedule of Investments of the Acquiring Fund at
December 31, 2000 have been audited by _______________, independent accountants,
and are in accordance with GAAP consistently applied, and such statements
(copies of which have been furnished to the Acquired Fund) present fairly, in
all material respects, the financial condition of the Acquiring Fund as of such
date in accordance with GAAP, and there are no known contingent liabilities of
the Acquiring Fund required to be reflected on a balance sheet (including the
notes thereto) in accordance with GAAP as of such date not disclosed therein;
(i) Since December 31, 2000, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquired Fund. For purposes of this subparagraph (i), a
decline in net asset value per share of the Acquiring Fund due to declines in
market values of securities in the Acquiring Fund's portfolio, the discharge of
Acquiring Fund liabilities, or the repurchase of Acquiring Fund Shares by
shareholders of the Acquiring Fund, shall not constitute a material adverse
change;
(j) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquiring Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to such
returns;
(k) For each taxable year of its operation (including the taxable year that
includes the Closing Date), the Acquiring Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been eligible to and has computed (or will compute) its
federal income tax under Section 852 of the Code, and has distributed all of its
investment company taxable income and net capital gain (as defined in the Code)
for periods ending prior to the Closing Date;
(l) All issued and outstanding Acquiring Fund Shares are, and on the Closing
Date will be, duly and validly issued and outstanding, fully paid and non-
assessable by the Acquiring Fund and have been offered and sold in compliance in
all material respects with applicable registration requirements of the 1933 Act
and state securities laws. 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;
(m) The execution, delivery and performance of this Agreement will have been
fully authorized prior to the Closing Date by all necessary action, if any, on
the part of the Directors of the Acquiring Fund, and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
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(n) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the terms
of this Agreement, will on the Closing Date have been duly authorized and, when
so issued and delivered, will be duly and validly issued Acquiring Fund Shares,
and will be fully paid and non-assessable by the Acquiring Fund;
(o) The information to be furnished by the Acquiring Fund for use in the
registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, and the
proxy materials of the Acquired Fund to be included in the Registration
Statement, and any amendment or supplement to the foregoing, will, from the
effective date of the Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) 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, in light of the
circumstances under which such statements were made, not misleading, provided,
however, that the representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished by the
Acquired Fund for use therein, and (ii) 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
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such
necessary state securities laws in order to continue its operations after the
Closing.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution
that may be advisable.
5.2 The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms of this Agreement.
5.4 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares, including upon reasonable notice, access
by the officers and agents of the Acquiring Fund to the Acquired Fund's relevant
books and records.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
A-9
5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the 1934 Act and the
1940 Act, in connection with the meeting of the shareholders of the Acquired
Fund to consider approval of this Agreement and the transactions contemplated
herein.
5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.8 The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
5.9 The Acquired Fund, covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm (a) the
Acquired Fund's, title to and possession of the Acquiring Fund Shares to be
delivered hereunder, and (b) the Acquiring Fund's, title to and possession of
all the assets, and otherwise to carry out the intent and purpose of this
Agreement.
5.10 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.
5.11 The Acquired Fund undertakes that, if the Reorganization is
consummated, it will file, or cause its agents to file, an application pursuant
to Section 8(f) of the 1940 Act for an order declaring that the Acquired Fund
has ceased to be a registered investment company.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at the Acquired Fund's election, to the performance
by the Acquiring Fund, of all the obligations to be performed by it hereunder on
or before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date;
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the
Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement and as to such other matters
as the Acquired Fund shall reasonably request;
A-10
6.3 The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund, on or before the Closing Date; and
6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the number
of full and fractional Acquiring Fund Shares to be issued in connection with the
Reorganization after such number has been calculated in accordance with
paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund, to complete the transactions provided
for herein shall be subject, at the Acquiring Fund's election, to the
performance by the Acquired Fund, of all of the obligations to be performed by
it hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement
of the Acquired Fund's assets and liabilities, as of the Closing Date, certified
by the Treasurer of the Acquired Fund;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquired Fund, made in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Acquiring Fund shall reasonably request;
7.4 The Acquired Fund shall have performed all of the covenants and complied
with all of the provisions required by this Agreement to be performed or
complied with by the Acquired Fund, on or before the Closing Date;
7.5 The Acquired Fund and the Acquiring Fund shall have agreed on the number
of full and fractional Acquiring Fund Shares to be issued in connection with the
Reorganization after such number has been calculated in accordance with
paragraph 1.1; and
7.6 The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00
p.m. Eastern time on the Closing Date; and (ii) any undistributed investment
company taxable income and net realized capital gains from any period to the
extent not otherwise already distributed.
A-11
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been satisfied on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Fund's Articles
of Incorporation, By-Laws, applicable Maryland law and the 1940 Act, and
certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this paragraph 8.1;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
or, to its knowledge, threatened before any court or governmental agency in
which it is sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits
of Federal, state and local regulatory authorities deemed necessary by the
Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5 The parties shall have received the opinion of Dechert addressed to the
Acquired Fund and the Acquiring Fund substantially to the effect that, based
upon certain facts, assumptions, and representations, the transaction
contemplated by this Agreement shall constitute a tax-free reorganization for
Federal income tax purposes. The delivery of such opinion is conditioned upon
receipt by Dechert of representations it shall request of the Acquiring Fund and
the Acquired Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the condition set forth in this
paragraph 8.5.
8.6 The Acquired Fund shareholders who shall have, in accordance with Title
3 Subtitle 2 of the Maryland General Corporation Law, exercised their rights to
dissent to the Reorganization represent less than 8% of the outstanding shares
of the Acquired Fund.
9. FEES AND EXPENSES
9.1 The Acquiring Fund and the Acquired Fund, represent and warrant to each
other that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 The expenses relating to the proposed Reorganization will be paid by the
Acquired Fund and Acquiring Fund pro rata based upon the relative net assets of
the Acquired Fund and
A-12
Acquiring Fund as of the close of business on the record date for determining
the shareholders of the Acquired Fund entitled to vote on the Reorganization.
The costs of the Reorganization shall include, but not be limited to, costs
associated with obtaining any necessary order of exemption from the 1940 Act,
preparation of the N-14 Registration Statement, printing and distributing the
Acquiring Fund's prospectus and the Acquired Fund's proxy materials, legal fees,
accounting fees, securities registration fees, proxy solicitation expenses and
expenses of holding shareholders' meetings. The expenses related to the transfer
of portfolio securities necessitated by the Reorganization will be paid by the
investment adviser. Notwithstanding 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 another person 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.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Directors of the Acquired Fund or
the Board of Directors of the Acquiring Fund at any time prior to the Closing
Date, if circumstances should develop that, in the opinion of the Board, make
proceeding with the Agreement inadvisable.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be deemed necessary or advisable by the authorized officers of the Acquired
Fund and the Acquiring Fund; provided, however, that following the meeting of
the shareholders of the Acquired Fund pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of the Acquiring Fund Shares to be issued to the Acquired
Fund Shareholders under this Agreement to the detriment of such shareholders
without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to the CSFR
Fund, 286 Congress Street, Boston, Massachusetts 02210, attn: John I.
Fitzgerald, in each case with a copy to Dechert, 1775 Eye Street, Washington,
D.C. 20006, attn: Ruth S. Epstein; and to the NASFR Fund, 286 Congress Street,
Boston, Massachusetts 02210, attn: John I. Fitzgerald, in each case with a copy
to Dechert, 1775 Eye Street, N.W., Washington, D.C. 20006, attn: Ruth S.
Epstein.
A-13
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts without regard to its principles
of conflicts of laws.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: NORTH AMERICAN SENIOR FLOATING RATE
FUND, INC.
___________________________________ By:__________________________________
SECRETARY
Its:_________________________________
Attest: CYPRESSTREE SENIOR FLOATING RATE
FUND, INC.
___________________________________ By:___________________________________
SECRETARY
Its:_________________________________
A-14
APPENDIX B
ADDITIONAL INFORMATION REGARDING NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
(THE "FUND")
MANAGEMENT OF THE FUND
The Board of Directors oversees the management of the Fund and elects its
officers. The Fund's officers are responsible for the Fund's day-to-day
operations.
ADVISORY AND ADMINISTRATION ARRANGEMENTS
American General Asset Management Corp. ("AGAM") is the Fund's investment
adviser under an investment advisory agreement (the "Advisory Agreement")
between AGAM and the Fund. AGAM is also the Fund's administrator under an
administration agreement (the "Administration Agreement") between AGAM and the
Fund. AGAM is a Delaware corporation founded in 1996, and is a general
investment advisory firm. The Directors of AGAM are Alice T. Kane, John A. Graf,
Joseph T. Grause, Jr. and Kent E. Barrett. Members of the American General
Corporation ("American General") group of companies (the "American General
Financial Group") operate in each of the 50 states, the District of Columbia,
and Canada and collectively engage in all forms of financial services. AGAM is a
wholly-owned subsidiary of American General. The American General Financial
Group has approximately $115 billion in assets and over $16 billion
stockholders' equity. Its address is 2929 Allen Parkway, Houston, Texas 77019.
CIMCO serves as the Fund's subadviser under an investment subadvisory
agreement (the "Subadvisory Agreement") between AGAM and CIMCO. Pursuant to the
Subadvisory Agreement, CIMCO selects the investments made by the Fund and
establishes and applies credit standards applicable to the Fund's investments in
Loans. CIMCO is a Delaware corporation founded in August 1996, and is engaged
in the business of providing investment advisory and other services to
institutional, offshore, and other clients with respect to portfolios consisting
primarily of Loans. As of December 31, 2000, CIMCO had approximately $2.7
billion assets under management. The directors of CIMCO are Bradford K.
Gallagher and J. Christopher Clifford.
CIMCO is a wholly-owned subsidiary of Cypress Holding Company ("Cypress").
Cypress is a Delaware corporation founded in 1995, and is an integrated
investment management firm. The Directors of Cypress are Bradford K. Gallagher
and J. Christopher Clifford. The largest shareholders of Cypress are Mr.
Gallagher (approximately 15.6%) and Berkshire Fund IV L.P., an investment
partnership (approximately 66.5%). The remaining stock of Cypress is owned by
current or former Cypress employees.
In October 1997, AGAM and other certain affiliates of Cypress acquired from
NASL Financial Services, Inc. ("NASL Financial") that portion of NASL
Financial's business related to acting as investment adviser and distributor of
the North American Funds, an open-end investment company offering shares in 15
different portfolios. As of December 31, 2000, the North American Funds had
approximately $1.9 billion in assets. AGAM serves as investment adviser to the
North American Funds.
B-1
The Advisory Agreement and Subadvisory Agreement were approved by
shareholders at a special meeting on June 1, 2000 and each will remain in effect
until June 1, 2002. The Advisory Agreement may be continued from year to year
after June 1, 2002 so long as the continuance is approved at least annually (a)
by the vote of a majority of the Fund's Directors who are not "interested
persons" of the Fund or AGAM cast in person at a meeting specifically called for
the purpose of voting on such approval; and (b) by the vote of a majority of the
Board of Directors or by the vote of a majority of the outstanding Fund shares.
The Advisory Agreement will terminate automatically in the event of its
assignment. The Subadvisory Agreement may be continued from year to year after
June 1, 2002 so long as the continuance is approved at least annually (a) by the
vote of a majority of the Fund's Directors who are not "interested persons" of
the Fund or CIMCO cast in person at a meeting specifically called for the
purpose of voting on such approval; and (b) by the vote of a majority of the
Board of Directors or by the vote of a majority of the outstanding Fund shares.
The Subadvisory Agreement will terminate automatically in the event of its
assignment. The Administration Agreement was approved by the Directors on March
10, 2000 for a two-year term and may be continued from year to year after March
10, 2002 so long as the continuance is approved annually (a) by the vote of a
majority of the Fund's Directors who are not "interested persons" of the Fund or
AGAM cast in person at a meeting specifically called for the purpose of voting
on such approval; and (b) by the vote of a majority of the Board of Directors or
by the vote of a majority of the outstanding Fund shares. Each agreement may be
terminated at any time without penalty on sixty (60) days' notice by the
Directors or AGAM or CIMCO, as applicable, or by the vote of the majority of the
outstanding Fund shares. Each agreement provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties to the Fund on the part of CIMCO, AGAM or CIMCO as
applicable, will not be liable to the Fund for any loss incurred.
AGAM will receive fees under the Advisory Agreement and the Administration
Agreement. As compensation for its services, AGAM receives from the Fund an
annual fee paid monthly equal to the following percentage of average daily gross
assets, depending on the size of the Fund: 0.85% for the first $1 billion of
average daily gross assets; 0.80% for the average daily gross assets of between
$1 billion and $2 billion; and 0.75% for average daily gross assets of more than
$2 billion. For purposes of computing the advisory fee, average daily gross
assets are determined by deducting from total assets of the Fund all liabilities
except the principal amount of any indebtedness from money borrowed, including
debt securities issued by the Fund. For the fiscal years ended December 31,
2000, 1999 and 1998, the Fund paid the Adviser $2,028,106, $899,365 and $26,085
respectively, under the Advisory Agreement.
As compensation for its services as subadviser, CIMCO receives from AGAM an
annual fee paid monthly equal to the following percentage of average daily gross
assets, based on the size of the Fund: 0.45% for the first $1 billion of
average daily gross assets; 0.40% for average daily gross assets between $1
billion and $2 billion; and 0.35% for average daily gross assets of more than $2
billion. Average daily gross assets are computed as described above. The fee
to CIMCO is paid by AGAM and is not an additional charge to the Fund or its
shareholders.
B-2
FUND COSTS AND EXPENSES
The Fund is responsible for all of its costs and expenses not expressly
stated to be payable by AGAM under the Advisory Agreement and the Administration
Agreement by CIMCO under the Subadvisory Agreement, or by Distributors under its
Distribution Agreement. These costs and expenses may include (without
limitation): expenses of acquiring, holding and disposing of securities and
other investments, including brokerage commissions; shareholder servicing
expenses; investment advisory and administration fees; custody and transfer
agency fees and expenses, including those incurred for determining net asset
value and keeping accounting books and records; expenses of pricing and
valuation services; expenses of conducting repurchase offers; fees and expenses
of registering under the securities laws, and other governmental fees; expenses
of reports to shareholders and investors, proxy statements and other expenses of
shareholders' or investors' meetings; compensation and expenses of Directors not
affiliated with AGAM, CIMCO or Cypress; interest, taxes and corporate fees;
legal and accounting expenses; printing and mailing expenses; insurance
premiums; expenses incurred in connection with litigation in which the Fund is a
party and any legal obligation to indemnify its officers and Directors with
respect to litigation; membership dues in investment company organizations;
communications equipment expenses; and any nonrecurring or extraordinary
expenses.
MULTIPLE PRICING SYSTEM
North American Fund has four classes of shares, designated Class A, Class
B, Class C and Class D, pursuant to a multiple pricing plan adopted by its Board
of Directors. Only Class D shares will be issued in the Reorganization. Class
D shares have not previously been offered, but will be offered on a continuous
basis commencing May 1, 2001.
The Fund offers Class B and Class C shares by a separate prospectus.
Class A shares are available only upon conversion of Class B and some Class C
shares. Class B and Class C shares are subject to early withdrawal charges and
ongoing shareholder service and distribution fees, as set forth in the following
table. Class A shares are subject to an ongoing service fee. (See also
"Description of Shares").
B-3
NORTH AMERICAN FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Class B CLASS C CLASS D
-------------------------- ------------------------ ---------------------------
- ------------------------------------------------------------------------------------------------------------
SALES CHARGE IMPOSED ON None None None
PURCHASES OF SHARES (AS
A PERCENTAGE OF
OFFERING PRICE)
- ------------------------------------------------------------------------------------------------------------
SALES CHARGE IMPOSED ON None None None
DIVIDEND REINVESTMENT
- ------------------------------------------------------------------------------------------------------------
EARLY WITHDRAWAL CHARGE 3% first year None
(AS A PERCENTAGE OF 2.5% second year
ORIGINAL PURCHASE PRICE 2% third year
OR REPURCHASE PRICE, 1% fourth year 1% first year
WHICHEVER IS LOWER) 0% after fourth year 0% after first year
- ------------------------------------------------------------------------------------------------------------
EXCHANGE FEE None None None
- ------------------------------------------------------------------------------------------------------------
B-4
ANNUAL FUND OPERATING EXPENSES
NORTH AMERICAN FUND
CYPRESSTREE FUND NORTH AMERICAN FUND PRO FORMA
----------------- ---------------------- --------------------------------
- --------------------------------------------------------------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A (1) B C A(1) B C D*
------ ------ ------ -------- ------ ------ ------
- --------------------------------------------------------------------------------------------
MANAGEMENT FEE 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%
(2)
- --------------------------------------------------------------------------------------------
INTEREST 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
PAYMENTS ON
BORROWED FUNDS
- --------------------------------------------------------------------------------------------
SERVICE FEE None 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% None
- --------------------------------------------------------------------------------------------
DISTRIBUTION FEE None 0.00% 0.50% 0.50% 0.00% 0.50% 0.50% None
- --------------------------------------------------------------------------------------------
ADMINISTRATION 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
FEE
- --------------------------------------------------------------------------------------------
OTHER EXPENSES 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------
TOTAL FUND
OPERATING 1.50% 1.75% 2.25% 2.25% 1.75% 2.25% 2.25% 1.50%
EXPENSES
- --------------------------------------------------------------------------------------------
TOTAL FUND 1.25% 1.45% 1.45% 1.55% 1.45% 1.45% 1.55% 1.25%
OPERATING
EXPENSES (NET
OF EXPENSE
REIMBURSEMENTS) (3)
- --------------------------------------------------------------------------------------------
(1) The North American Fund also has Class A shares which are not offered to
the public. Class B shares of the North American Fund will automatically
convert into Class A shares eight years after purchase. Class C shares do
not have a conversion feature (except that Class C shares purchased before
August 18, 1999 automatically convert into Class A shares ten years after
purchase).
(2) The management fee and administration fee are based on a percentage of the
Fund's average daily gross assets (gross assets are total assets minus
liabilities except debt).
B-5
(3) See the section "Expense Limitation Arrangements," as set forth below.
* If the Reorganization is consummated, you will receive Class D shares.
As a result of the distribution (Rule 12b-1) fees, a long term investor may
pay more than the economic equivalent of the maximum sales charge allowed by the
Rules of the National Association of Securities Dealers, Inc. ("NASD").
EXPENSE LIMITATION ARRANGEMENTS
An expense limitation arrangement is in place for North American Fund,
under which the investment adviser limits the ordinary operating expenses borne
by the North American Fund. The investment adviser has agreed to reimburse the
North American Fund's expenses to the extent necessary so that Fund expenses do
not exceed 1.45%, 1.55% and 1.25% of average daily gross assets for Class B,
Class C and Class D, respectively (gross assets are total assets minus all
liabilities except debt).
VALUING FUND SHARES
The Fund values its shares once on each day the New York Stock Exchange
("NYSE") is open for trading as of the close of regular trading on the exchange.
The Fund is informed that, as of the date of this prospectus, the NYSE observes
the following business holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund's net asset value per share is determined by State Street Bank &
Trust Company (as agent for the Fund) in the manner authorized by the Fund's
Board of Directors. State Street Bank & Trust Company also serves as Transfer
Agent and Custodian for the Fund and has custody of the Fund's assets. The
Custodian's address is 225 Franklin Street, Boston, Massachusetts 02110.
The net asset value of the shares of each class of the Fund is calculated
separately. In determining the net asset value of a share of each class of the
Fund, the value of the securities and other assets attributable to that class
(including interest and dividends accumulated but not yet received) minus all
liabilities (including accrued expenses) attributable to that class is divided
by the total number of shares of that class of the Fund outstanding at that
time. Expenses, including the fees payable to AGAM, are accrued daily.
Loans will be valued in accordance with guidelines established by the Board
of Directors. Under the Fund's current guidelines, Loans for which an active
secondary market exists to a reliable degree in the opinion of the subadviser
and for which the subadviser can obtain at least two quotations from banks or
dealers in Loans will be valued by calculating the mean of the last available
bid and asked prices in the market for such Loans, and then using the mean of
those two means. If only one quote for a particular Loan is available, the Loan
will be valued on the basis of the mean of the last available bid and asked
price in the market.
Loans for which an active secondary market does not exist to a reliable
degree in the opinion of the subadviser will be valued at fair value, which is
intended to approximate market value. In valuing a Loan at fair value, the
subadviser will consider, among other factors: (a) the creditworthiness of the
Borrower and any Intermediate Participants; (b) the terms of the Loan;
B-6
(c) recent prices in the market for similar Loans, if any; and (d) recent prices
in the market for instruments of similar quality, rate, period until next
interest rate reset and maturity.
Other portfolio securities (other than short-term obligations but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services that determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, other portfolio
securities are valued at the last sale price on the exchange that is the primary
market for such securities, or the last quoted bid price for those securities
for which the over-the-counter market is the primary market or for listed
securities in which there were no sales during the day. Positions in options
are valued at the last sale price on the principal trading market for the
option. Obligations purchased with remaining maturities of 60 days or less are
valued at amortized cost unless this method no longer produces fair valuation.
Repurchase agreements are valued at cost plus accrued interest. Rights or
warrants to acquire stock, or stock acquired pursuant to the exercise of a right
or warrant may be valued taking into account various factors such as original
cost to the Fund, earnings and net worth of the issuer, market prices for
securities of similar issuers, assessment of the issuer's future prosperity, or
liquidation value or third party transactions involving the issuer's securities.
Securities for which there exist no price quotations or valuations and all other
assets are valued at fair value as determined in good faith by or on behalf of
the Board of Directors of the Fund.
PERFORMANCE INFORMATION
North American Fund seeks to provide an effective yield that is higher than
other short-term instrument alternatives. From time to time, the Fund may
include its current and/or effective yield based on various specific time
periods. Yields will fluctuate from time to time and are not necessarily
representative of future results.
The current yield is calculated by annualizing the most recent monthly
distribution (i.e., multiplying the distribution amount by 365/31 for a 31 day
month) and dividing the product by the current maximum offering price. The
effective yield is calculated by dividing the current yield by 12 and adding 1.
The resulting quotient is then taken to the 12th power and reduced by 1. The
result is the effective yield.
On occasion, the Fund may compare its yield to: (a) LIBOR, quoted daily in
the Wall Street Journal, (b) the CD Rate as quoted daily in the Wall Street
Journal as the average of top rates paid by major New York banks on primary new
issues of negotiable CDs, usually on amounts of $1 million or more, (c) the
Prime Rate, quoted daily in The Wall Street Journal as the base rate on
corporate loans at large U.S. money center commercial banks, (d) one or more
averages compiled by Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market mutual
funds, (e) the average yield reported by the Bank Rate Monitor National Index
for money market deposit accounts offered by the 100 leading banks and thrift
institutions in the ten largest standard metropolitan statistical areas, (f)
yield data published by Lipper Analytical Services, Inc., (g) the yield on an
investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding, or (h) the yield on an index of loan funds comprised of all
continually offered closed-end bank loan funds, as
B-7
categorized by Lipper (the "loan fund index"). In addition, the Fund may compare
the Prime Rate, the Donoghue's averages and the other yield data described above
to each other. Yield comparisons should not be considered indicative of the
Fund's yield or relative performance for any future period.
Advertisements and communications to present or prospective shareholders
also may cite a total return for any period. Total return is calculated by
subtracting the net asset value of a single purchase of shares at a given date
from the net asset value of those shares (assuming reinvestment of
distributions) on a later date. The difference divided by the original net
asset value is the total return. The Fund may include information about the
total return on the loan fund index, and compare that to the total return of the
Fund and other indices.
All dividends and distributions are assumed to be reinvested in additional
shares of the Fund at net asset value. Therefore, the calculation of the Fund's
total return and effective yield reflects the effect of compounding. The
calculation of total return, current yield and effective yield does not reflect
the amount of any shareholder income tax liability, which would reduce the
performance quoted. If the Fund's fees or expenses are waived or reimbursed,
the Fund's performance will be higher.
Finally, the Fund may include information on the history of the Fund's net
asset value per share and the net asset value per share of the loan fund index,
including comparisons between them, in advertisements and other material
furnished to present and prospective shareholders. Information about the
performance of the Fund or other investments is not necessarily indicative of
future performance and should not be considered a representation of what an
investor's yield or total return may be in the future.
HOW TO BUY CLASS D SHARES
Class D shares will be offered continuously for sale through securities
dealers and banks that have executed an agreement (a "Dealer Agreement") with
Distributors. Certain states require that purchases of shares of the Fund be
made only through a broker-dealer registered in the state.
The initial purchase of any class of shares must be at least $5,000. The
minimum subsequent investment is $500. There is a $100 minimum initial and a $50
subsequent investment requirement for purchases made in connection with tax-
sheltered retirement accounts.
When purchasing shares, you must specify that the purchase is for Class D
shares.
GENERAL METHODS OF PURCHASING CLASS D SHARES
1. By Mail. To make an initial account purchase, mail a check made
payable in U.S. dollars to "North American Funds" with a completed New
Account Application to:
North American Funds
P.O. Box 8505
Boston, MA 02266-8505
B-8
Third party checks payable to an existing shareholder of the Fund who is a
natural person (as opposed to a corporation or partnership) and endorsed over to
the Fund will be accepted.
To make a purchase of shares to an existing North American Funds account,
please note your account number on the check and forward it with an account
investment slip to the above address.
Note: To establish certain tax deferred retirement plan accounts, such as
IRAs, you will be required to complete a separate application which may be
obtained from Distributors or a securities dealer who has a Dealer Agreement
with Distributors.
2. By Federal Funds Wire. Shares may be purchased by wire transfer. To
obtain instructions for Federal Funds Wire purchases, please contact
the Customer Service Department at (800) 872-8037.
3. Through a Securities Dealer. You may purchase shares by contacting a
securities dealer who has a Dealer Agreement with Distributors.
Orders will be assigned the next closing price after receipt of the order.
Class D shares are also available for purchase by or through:
1. Certain broker-dealers and other financial institutions that have
entered into an agreement with the Distributor which includes a
requirement that such shares be sold for the benefit of clients
participating in a "wrap account" or a similar managed account program
under which clients pay an asset-based fee.
2. Registered investment advisers offering a "wrap account" or a similar
managed account program under which clients pay an asset-based fee.
3. Trust institutions and bank trust departments that charge an asset-
based fee.
The Distributor may waive the minimum investment requirement in certain
instances due to sales efficiencies and competitive considerations.
SHAREHOLDER SERVICES
For additional information on any of the programs described in the
following sections, you should contact the Fund or eligible securities dealers.
AUTOMATIC INVESTMENT PLAN
Shareholders who open an account who wish to make subsequent monthly
investments in the Fund may establish an Automatic Investment Plan as part of
the initial Application or subsequently by submitting an Application. Under
this plan, on or about the tenth day of each month the Transfer Agent will debit
the shareholder's bank account in the amount specified by the shareholder (which
monthly amount may not be less than $500). The proceeds will be invested in
shares of the specified class of the Fund at the applicable offering price
determined
B-9
on the date of the debit. Participation in the Automatic Investment Plan may be
discontinued on 30 days' written notice to the Transfer Agent, or if a debit is
not honored.
PAYMENT
Payment for shares repurchased will be made by federal wire or by mail as
specified by the shareholder in the Fund Application. Payment will normally be
sent on the business day following the date of receipt of the request. Payment
by wire to the shareholder's bank account must be in amounts of $1,000 or more.
Although the Fund does not assess a charge for wire transfers, banks may assess
charges for the transaction. Payments by mail may only be sent to an account
address of record and may only be payable to the registered owner(s).
ADDITIONAL SHAREHOLDER PRIVILEGES
Certain privileges listed in this section may not be offered by the Fund if
a shareholder holds shares with the Fund in the "street name" of a financial
institution, or if the account is networked through National Securities Clearing
Corporation (NSCC).
Automatic Investment Plan. A shareholder who wishes to make subsequent,
periodic investments in the Fund by electronic funds transfer from a bank
account may establish an Automatic Investment Plan on the shareholder's account.
The bank at which the account is maintained must be a member of the Automated
Clearing House. The frequency with which the investments occur is specified by
the shareholder (monthly, every alternate month, quarterly, etc.) with the
exception that no more than one investment will be processed each month. On or
about the tenth of the month, the Fund will debit the shareholder's bank account
in the specified amount (minimum of $50 per draft) and the proceeds will be
invested at the applicable offering price determined on the date of the debit.
Automatic Dividend Reinvestment. Dividends and distributions will be
automatically reinvested at the net asset value per share next determined on the
payable date of the dividend or distribution. Pursuant to the Fund's Automatic
Dividend Reinvestment ("ADR") Program (the "Program"), all dividends and other
distributions, net of any applicable withholding taxes, will be automatically
reinvested in additional shares of the same class, newly issued by the Fund,
unless the shareholder otherwise instructs in writing the Fund's Transfer Agent,
as the Program agent (the "Program Agent"). There will be no charge to
participants for reinvesting dividends or other distributions. The Fund will
pay the Program Agent's fees for the handling of reinvestment of distributions.
A shareholder whose shares are held by a broker-dealer or nominee that does
not provide a dividend reinvestment service may be required to have his or her
shares registered in his or her own name to participate in the Program.
Similarly, a shareholder may be unable to transfer his or her account to certain
broker-dealers and continue to participate in the Program. Investors who own
shares registered in street name should contact the broker or nominee for
details concerning participation in the Program.
The Program Agent will maintain all participant accounts in the Program and
furnish written confirmations of all transactions in the accounts, including
information needed for personal and tax records, the Program Agent may hold
shares in the participant's account in non-
B-10
certificated form in the name of the Program Agent or the Program Agent's
nominee, and each shareholder's proxy will include those shares purchased
pursuant to the Program. Participants in the Program may withdraw from the
Program on written notice to the Program Agent.
In the case of a shareholder of record, such as a bank, broker-dealer or
nominee, that holds shares for others who are the beneficial owners, the Program
Agent will administer the Program on the basis of the number of shares certified
from time to time by the record shareholder as representing the total amount
registered in the shareholder's name and held for the account of beneficial
owners who participate in the Program.
All registered holders of shares (other than brokers and nominees) will be
mailed information regarding the Program, including a form with which they may
elect to terminate participation in the Program and receive further dividends
and other distributions in cash. An election to terminate participation in the
Program must be made in writing to the Program Agent and should include the
shareholder's name and address as they appear on the account registration. An
election to terminate will be deemed to be an election by a shareholder to take
all subsequent distributions in cash until the election is changed. An election
will be effective only for distributions declared and having a record date at
least ten days after the date on which the election is received.
Shareholders who do not participate in the Program will receive all
dividends and other distributions in cash, net of any applicable withholding
taxes, paid in U.S. dollars by check or wire transfer. Shareholders who do not
wish to have dividends and other distributions reinvested automatically should
notify the Program Agent at P.O. Box 8505, Boston, MA 02266-8505. Dividends and
other distributions with respect to shares registered in the name of a broker-
dealer or other nominee (i.e., in "street name") will be reinvested under the
Program unless the broker-dealer does not provide that service, or if the
nominee or the shareholder elects to receive dividends and other distributions
in cash.
The Fund and the Program Agent reserve the right to terminate the Program
as applied to any dividend or other distribution paid subsequent to notice of
the termination sent to the participants in the Program at least 30 days before
the record date for the distribution. The Program also may be amended by the
Fund or the Program Agent, but (except when necessary or appropriate to comply
with applicable law, rules or policies of a regulatory authority) only by at
least 30 days' written notice to participants in the Program. Shareholders
should direct all correspondence regarding the Program to the Program Agent, at
P.O. Box 8505, Boston, MA 02266-8505.
The receipt of dividends and other distributions in shares under the
Program will not relieve participants of any income tax (including withholding
taxes) that may be payable with respect to the distributions. See "Taxes."
HOW TO OBTAIN INVESTMENT INFORMATION
1. Confirmation of Share Transactions and Dividend Payments. Share
transactions, other than transactions pursuant to a Systematic Withdrawal Plan,
Automatic Investment Plan,
B-11
and Systematic Investing Plan, will be confirmed immediately in the form of an
account confirmation statement which will be mailed to the account address of
record.
The Fund will confirm all account activity occurring within a calendar
quarter, including the payment of dividend and capital gain distributions and
transactions made as a result of a Systematic Withdrawal Plan, Automatic
Investment Plan, and Systematic Investing Plan, shortly after the end of each
calendar quarter.
The Fund also reserves the right to confirm, with respect to certain tax
qualified plans and certain group plans, purchases and sales of Fund shares on a
quarterly basis.
A copy of all confirmation statements will be sent to the securities dealer
firm listed on the shareholder's account.
2. Shareholder Inquiries. Shareholders should direct any questions or
requests concerning the Fund or your account by writing to the North American
Funds, P.O. Box 8505, Boston, Massachusetts 02266-8505, or by calling the Fund
Customer Service Department at 1-800-872-8037.
TAXES
The Fund intends to satisfy those requirements relating to the sources of
its income, the distribution of its income, and the diversification of its
assets necessary to qualify for the special tax treatment afforded to regulated
investment companies under the Internal Revenue Code (the "Code"). In any
taxable year in which it so qualifies, the Fund will not be liable for federal
income or excise taxes to the extent that it distributes its net investment
income and net realized capital gains to shareholders in accordance with the
timing requirements imposed by the Code. (For a detailed discussion of tax
issues pertaining to the Fund, see "Taxes" in the Statement of Additional
Information.)
Distributions paid by the Fund from its ordinary income or from an excess
of net short-term capital gain over net long-term capital loss will be treated
as ordinary income in the hands of the shareholders to the extent of the Fund's
earnings and profits. (Any such distributions in excess of the Fund's earnings
and profits first will reduce a shareholder's basis in his or her shares and,
after that basis is reduced to zero, will constitute capital gains to the
shareholder, assuming the shares are held as a capital asset.) Distributions,
if any, from the excess of net long-term capital gain over net short-term
capital loss and designated as capital gains dividends are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Fund have been held by such shareholders and will generally be
subject to a maximum federal tax rate of 20%. Distributions will be taxed as
described above, whether received by the shareholders in cash or in additional
shares. It is not expected that any portion of distributions will be eligible
for the corporate dividends-received deduction.
Not later than 60 days after the close of the calendar year, the Fund will
provide its shareholders with a written notice designating the amounts of any
ordinary income dividends or capital gain dividends. If the Fund pays a
dividend in January that was declared in the previous October, November or
December to shareholders of record on a specified date in one of those months,
then such dividend will be treated for tax purposes as being paid by the Fund
and
B-12
received by its shareholders on December 31 of the earlier year in which the
dividend was declared.
A holder of Fund shares who, pursuant to a Repurchase Offer, tenders all of
his or her Fund shares (and any Fund shares the holder is considered to own
pursuant to attribution rules contained in the Code) may realize a taxable gain
or loss depending upon the shareholder's basis in the shares. Such gain or loss
realized on the disposition of shares (whether pursuant to a Repurchase Offer or
in connection with a sale or other taxable disposition of shares in a secondary
market) generally will be treated as long-term capital gain or loss if the
shares have been held as a capital asset for more than one year and as short-
term capital gain or loss if held as a capital asset for one year or less. If
Fund shares are sold at a loss after being held six months or less, the loss
will be treated as long-term-instead of short-term-capital loss to the extent of
any capital gain distributions received on those shares. All or a portion of
any loss realized on a sale or exchange of shares of the Fund will be disallowed
if the shareholder acquires other Fund shares within 30 days before or after the
disposition. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.
Different tax consequences may apply to tendering shareholders other than
fully-tendering shareholders described in the previous paragraph and to non-
tendering shareholders in connection with a Repurchase Offer. For example, if a
shareholder tenders fewer than all shares owned by or attributed to him or her,
the proceeds received could be treated as a taxable dividend, a return of
capital, or capital gain depending on the portion of shares tendered, the Fund's
earnings and profits, and the shareholder's basis in the tendered shares.
Moreover, when a shareholder tenders fewer than all shares owned pursuant to a
Repurchase Offer, there is a risk that non-tendering shareholders may be
considered to have received a deemed distribution that is taxable to them in
whole or in part. Shareholders may wish to consult their tax advisors.
The Fund has obtained an opinion of counsel (the "Opinion) (which opinion
is not binding on the Internal Revenue Service) concluding that shareholders
will not recognize gain or loss upon the conversion of Class B or Class C shares
into Class A shares. The Opinion also concludes that a shareholder's basis in
Class A shares received will equal his basis in the shares surrendered, and that
the shareholder's holding period for the shares received will include his
holding period for the shares surrendered.
The Fund must withhold 31% from distributions and repurchase payments, if
any, payable to any individuals and certain other noncorporate shareholders who
have not furnished to the Fund a correct taxpayer identification number ("TIN")
or a properly completed claim for exemption on Form W-8 or W-9, or who are
otherwise subject to such "backup withholding." When establishing an account, an
investor must certify under penalties of perjury that the investor's TIN
(generally, his or her social security number) is correct and that the investor
is not otherwise subject to backup withholding.
Nonresident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% (or lower treaty rate) on distributions from ordinary income and from the
excess of net short-term capital gain over net long-term capital loss.
Distributions to such shareholders from the excess of net long-term capital gain
over net short-term capital loss and any amount treated as gain from the sale or
other
B-13
disposition of shares of the Fund generally will not be subject to U.S.
taxation, provided that the shareholder has certified nonresident alien status.
Different U.S. tax consequences may result if the shareholder is engaged in a
trade or business in the United States or is present in the United States for
specified periods of time during a taxable year. Foreign shareholders should
consult their tax advisers regarding the U.S. and foreign tax consequences of an
investment in the Fund.
The discussion contained in this section is a general and abbreviated
summary of certain federal tax considerations affecting the Fund and its
shareholders, and is not intended as tax advice or to address a shareholder's
particular circumstances. This discussion does not address non-federal tax
consequences, or the special tax rules applicable to certain classes of
investors, such as retirement plans, tax-exempt entities, insurance companies
and financial institutions. For further information, reference should be made
to the pertinent sections of the Code and the regulations promulgated
thereunder, which are subject to change by legislative, judicial, or
administrative action, either prospectively or retroactively. Investors are
urged to consult their tax advisors regarding specific questions as to federal,
state, local, or foreign taxes. The Fund does not provide any guarantee
regarding the tax consequences of investing in the Fund.
DESCRIPTION OF SHARES
The Fund is a corporation organized under Maryland law. The Fund was
incorporated on March 6, 1998. The Fund's Board of Directors is responsible for
the overall management and supervision of its affairs.
The Fund is authorized to issue 1 billion shares of common stock $0.01 par
value per share. These shares are currently divided into four classes of shares,
designated as Class A, Class B, Class C and Class D shares. All shares of common
stock have equal voting rights (except as described below with respect to
matters specifically affecting a class of shares) and have no preemptive or
conversion rights (other than the automatic conversion rights of Class B and
some previously sold Class C shares to convert to Class A shares under the
Multiple Pricing System.) The per-share net asset value of each class of shares
is calculated separately and may differ as between classes as a result of the
differences in distribution and service fees payable by the classes and the
allocation of certain incremental class-specific expenses to the appropriate
class to which such expenses apply.
All shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law, or
where the matter involved affects only one class (for example matters pertaining
to the plan of distribution relating to Class B shares will only be voted on by
Class B shares). In accordance with the Fund's Articles of Incorporation, the
Board of Directors may classify and reclassify unissued shares and may authorize
the creation of additional classes of shares with such preferences, privileges,
limitations and voting and dividend rights as the Board may determine.
Each share of each class of common stock is equal as to earnings, assets
and voting privileges, except as noted above, and each class bears the expenses
related to the distribution of its shares. In the event of liquidation, each
share of common stock of the Fund is entitled to its portion of all the Fund's
assets after all debts and expenses of the Fund have been paid. The Fund's
shares do not have cumulative voting rights for the election of directors.
B-14
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of directors is required to be
acted on by shareholders under the 1940 Act.
The following table sets forth information for each class of the Fund's
authorized securities, as of January 23, 2001;
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF
AMOUNT REGISTRANT OR FOR ITS AMOUNT SHOWN
TITLE OF CLASS AUTHORIZED ACCOUNT UNDER PREVIOUS COLUMN
- -------------- ---------- --------------- ----------------------
Class A............................................. 300,000,000 shares None 0
Class B............................................. 300,000,000 shares None 6,388,603
Class C............................................. 300,000,000 shares None 37,918,255
Class D............................................. 100,000,000 shares --- ---
The Fund's Articles of Incorporation generally may not be amended without
the affirmative vote of a majority of the outstanding shares of the Fund (or
such greater vote as is described below under "Anti-Takeover Provisions"). The
Fund will continue indefinitely.
ANTI-TAKEOVER PROVISIONS
The Fund has certain anti-takeover provisions in its Articles of
Incorporation that are intended to limit, and could have the effect of limiting,
the ability of other entities or persons to acquire control of the Fund, to
cause the Fund to engage in certain transactions, or to modify the Fund's
structure.
The affirmative vote of the holders of two-thirds of the Fund's capital
stock outstanding and entitled to vote on the matter (a greater vote than that
required by the 1940 Act), is required to authorize the conversion of the Fund
from a closed-end to an open-end investment company. However, if two-thirds of
the Board of Directors recommends conversion, the approval by vote of the
holders of a majority of the outstanding shares entitled to vote on the matter
will be sufficient. This provision of the Fund's Articles of Incorporation may
not be amended without the affirmative vote of two-thirds of the Fund's
outstanding shares of capital stock.
The affirmative vote of the holders of at least three-fourths of the Fund's
shares of Capital stock outstanding and entitled to vote on the matter is
required to approve any of the following Fund transactions (the "Transactions"):
(a) merger, consolidation, or statutory share exchange with or into any
person;
(b) issuance of any Fund securities to any person for cash, securities, or
other property having a fair market value of $1,000,000 or more, except
for issuance or transfers of debt securities, sales of securities in
connection with a public offering, issuance of securities pursuant to a
dividend reinvestment plan, issuance of securities on the exercise of
any stock subscription rights distributed by the Fund, and portfolio
transactions effected in the ordinary course of business;
B-15
(c) sale, lease, exchange, mortgage, pledge, transfer, or other
disposition by the Fund of any assets having an aggregate fair market
value of $1,000,000 or more, except for portfolio transactions
conducted in the ordinary course of business;
(d) voluntary liquidation or dissolution of the Fund, or an amendment to
the Fund's Articles of Incorporation to terminate the Fund's
existence; or
(e) unless federal law requires a lesser vote, any shareholder proposal as
to specific investment decisions made or to be made with respect to
the Fund's assets as to which shareholder approval is required under
Maryland or federal law.
In addition, in the case of a Transaction listed in (a), (b) or (c) above,
the affirmative vote or consent of the holders of at least two-thirds of the
Fund's shares of capital stock outstanding and entitled to vote on the matter,
excluding votes entitled to be cast by an "Interested Party" who is, or whose
affiliate, is a party to the Transaction with the Fund, is required.
However, the shareholder votes mentioned above will not be required with
respect to any Transaction (other than those set forth in (e) above) approved by
a vote of three-fourths of the Continuing Directors, including a majority of the
Continuing Directors (as defined in the Articles of Incorporation) who are not
"interested persons" of the Fund, as that term is defined in the 1940 Act. In
that case, if Maryland law requires shareholder approval, the affirmative vote
of a majority of the shares of capital stock of the Fund outstanding and
entitled to vote on the matter is required.
The provisions of the Fund's Articles of Incorporation described in this
section relating to approval of Transactions may not be amended without the
affirmative vote or consent of three-fourths of the Fund's outstanding shares of
capital stock. For the full text of these provisions, see the Articles of
Incorporation on file with the Securities and Exchange Commission.
The provisions described in this section will make it more difficult to
convert the Fund to an open-end investment company and to consummate the
Transactions without the approval of the Board of Directors. These provisions
could have the effect of depriving shareholders of an opportunity to sell their
shares at a premium over prevailing market prices (in the event that a secondary
market for the Fund shares develops) by discouraging a third party from seeking
to obtain control of the Fund in a tender offer or similar transaction.
However, the Board of Directors has considered these anti-takeover provisions
and believes that they are in the shareholders' best interests and benefit
shareholders by providing the advantage of potentially requiring persons seeking
control of the Fund to negotiate with its management regarding the price to be
paid to shareholders.
B-16
FINANCIAL HIGHLIGHTS
This table summarizes the North American Fund's financial history. The
information (except for the period ended June 30, 2000) has been audited by
Deloitte & Touche L.L.P., the Fund's independent auditors. The audit report
covering the period shown along with the Fund's financial statements, are
included in the Fund's annual report, which is available upon request.
PER SHARE OPERATING PERFORMANCE (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
CLASS B SHARES CLASS C SHARES
------------------------ ----------------------------------------
SIX MONTHS YEAR PERIOD SIX MONTHS YEAR ENDED PERIOD
ENDED ENDED FROM ENDED 12/31/99 FROM
6/30/00 12/31/99 8/31/98* 6/30/00 8/31/98*
(UNAUDITED) THROUGH (UNAUDITED) THROUGH
12/31/98 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 9.98 $ 10.00 $ 9.98 $ 9.98 $ 10.00
INVESTMENT OPERATIONS:
Net investment income 0.37 0.69 0.20 0.37 0.69 0.20
Net realized and unrealized gain on investments (0.15) 0.00 (0.02) (0.15) 0.00 (0.02)
------- ------- ------- -------- -------- -------
Total from investment operations 0.22 0.69 0.18 0.22 0.69 0.18
------- ------- ------- -------- -------- -------
DISTRIBUTIONS
Dividends from net investment income (0.37) (0.69) (0.20) (0.37) (0.69) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 9.98 $ 9.98 $ 9.83 $ 9.98 $ 9.98
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.22%+ 7.13% 1.89%+ 2.22%+ 7.12% 1.89%+
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $46,300 $37,439 $ 4,826 $244,517 $173,322 $14,259
Ratio of net expenses to average net assets 1.40%# 0.70% 0.00%# . 1.40%# 0.79% 0.00%#
Ratio of net investment income to average net 7.50%# 6.87% 6.11%# 7.49% 6.82% 6.11%#
assets
Portfolio turnover rate 18%+ 30% 18% 18%+ 30% 18%+
Expense ratio before waiver of fees and 2.25%# 2.29% 4.02%# 2.25%# 2.25% 4.01%#
reimbursement of expenses by adviser
Net investment income before waiver of fees and 6.65%# 5.28% 2.09%# 6.64%# 5.36% 2.10%#
reimbursement of expenses by adviser
____________
* Commencement of Operations
+ Not annualized
# Annualized
B-17
APPENDIX C
SECTIONS 3-202 THROUGH 3-213 OF THE MARYLAND
GENERAL CORPORATION LAW
3-202 RIGHT TO FAIR VALUE OF STOCK. -- (a) Except as provided in subsection (c)
of this section, a stockholder of a Maryland corporation has the right to demand
and receive payment of the fair value of the stockholder's stock from the
successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action
under Section 3-105(e) of this title;
(4) The corporation amends its charter in a way which alters the contract
rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights,
unless the right to do so is reserved by the charter of the
corporation; or
(5) The transaction is governed by Section 3-602 of this title or exempted
by Section 3-603(b) of this title.
(b) (1) Fair value is determined as of the close of business:
(i) With respect to a merger under Section 3-106 of this title of a
90 percent or more owned subsidiary with or into its parent
corporation, on the day notice is given or waived under Section
3-106; or
(ii) With respect to any other transaction, on the day the
stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value may
not include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its
proposal.
(3) In any transaction governed by Section 3-602 of this title or exempted
by Section 3-603(b) of this title, fair value shall be value
determined in accordance with the requirements of Section 3-603(b) of
this title.
(c) Unless the transaction is governed by Section 3-602 of this title or is
exempted by Section 3-603(b) of this title, a stockholder may not demand
the fair value of the stockholder's stock and is bound by the terms of the
transaction if:
(1) The stock is listed on a national securities exchange, is designated
as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or is
designated for trading on the NASDAQ small cap market:
C-1
(i) With respect to a merger under Section 3-106 of this title of a
90 percent or more owned subsidiary with or into its parent
corporation, on the date notice is given or waived under
Section 3-106; or
(ii) With respect to any other transaction, on the record date for
determining stockholders entitled to vote on the transaction
objected to;
(2) The stock is that of the successor in a merger; unless:
(i) The merger alters the contract rights of the stock as expressly
set forth in the charter, and the charter does not reserve the
right to do so; or
(ii) The stock is to be changed or converted in whole or in part in
the merger into something other than either stock in the
successor or cash, scrip, or other rights or interests arising
out of provisions for the treatment of fractional shares of stock
in the successor;
(3) The stock is not entitled to be voted on the transaction or the
stockholder did not own the shares of stock on the record date for
determining stockholders entitled to vote on the transaction;
(4) The charter provides that the holders of the stock are not entitled to
exercise the rights of an objecting stockholder under this subtitle;
or
(5) The stock is that of an open-end investment company registered with
the Securities and Exchange Commission under the Investment Company
Act of 1940 and the value placed on the stock in the transaction is
its net asset value.
3-203 PROCEDURE BY STOCKHOLDER. -- (a) A stockholder of a corporation who
desires to receive payment of the fair value of the stockholder's stock under
this subtitle:
(1) Shall file with the corporation a written objection to the proposed
transaction:
(i) With respect to a merger under Section 3-106 of this title of a
90 percent or more owned subsidiary with or into its parent
corporation, within 30 days after notice is given or waived under
Section 3-106; or
(ii) With respect to any other transaction, at or before the
stockholders' meeting at which the transaction will be considered
or, in the case of action taken under Section 2-505(b) of this
article, within 10 days after the corporation gives the notice
required by Section 2-505(b) of this article;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for record,
shall make a written demand on the successor for payment for the
stockholder's stock, stating the number and class of shares for which
the stockholder demands payment.
C-2
(b) A stockholder who fails to comply with this section is bound by the terms
of the consolidation, merger, share exchange, transfer of assets, or
charter amendment.
3-204 EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS. -- A stockholder who
demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under
Section 3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that stock,
except the right to receive payment of its fair value.
3-205 WITHDRAWAL OF DEMAND. -- A demand for payment may be withdrawn only with
the consent of the successor.
3-206 RESTORATION OF DIVIDEND AND OTHER RIGHTS. -- (a) The rights of a
stockholder who demands payment are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by
this subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) The restoration of a stockholder's rights entitles him to receive the
dividends, distributions, and other rights he would have received if he had
not demanded payment for his stock. However, the restoration does not
prejudice any corporate proceedings taken before the restoration.
3-207 PROCEDURE BY SUCCESSOR. -- (a) (1) The successor promptly shall notify
each objecting stockholder in writing of the date the articles are accepted for
record by the Department.
(2) The successor also may send a written offer to pay the objecting
stockholder what it considers to be the fair value of his stock. Each
offer shall be accompanied by the following information relating to
the corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before the
date of the offer;
(ii) A profit and loss statement for the 12 months ending on the date
of the balance sheet; and
(iii) Any other information the successor considers pertinent.
C-3
(b) The successor shall deliver the notice and offer to each objecting
stockholder personally or mail them to him by registered mail at the
address he gives the successor in writing, or, if none, at his address as
it appears on the records of the corporation which issued the stock.
3-208 PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS; JOINDER OF
OBJECTORS. -- (a) Within 50 days after the Department accepts the articles for
record, the successor or an objecting stockholder who has not received payment
for his stock may petition a court of equity in the county where the principal
office of the successor is located or, if it does not have a principal office in
this State, where the resident agent of the successor is located, for an
appraisal to determine the fair value of the stock.
(b) (1) If more than one appraisal proceeding is instituted, the court shall
direct the consolidation of all the proceedings on terms and
conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an
appraisal proceeding.
3-209 CERTIFICATE MAY BE NOTED. -- (a) At any time after a petition for
appraisal is filed, the court may require the objecting stockholders parties to
the proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(b) If any stock represented by a certificate which bears a notation is
subsequently transferred, the new certificate issued for the stock shall
bear a similar notation and the name of the original objecting stockholder.
The transferee of this stock does not acquire rights of any character with
respect to the stock other than the rights of the original objecting
stockholder.
3-210 APPRAISAL OF FAIR VALUE. -- (a) If the court finds that the objecting
stockholder is entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on terms and
conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) Within 60 days after their appointment, unless the court sets a longer
time, the appraisers shall determine the fair value of the stock as of the
appropriate date and file a report stating the conclusion of the majority
as to the fair value of the stock.
(c) The report shall state the reasons for the conclusion and shall include a
transcript of all testimony and exhibits offered.
(d) (1) On the same day that the report is filed, the appraisers shall mail a
copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to it
and request a hearing.
C-4
3-211 CONSIDERATION BY COURT OF APPRAISERS' REPORT. -- (a) The court shall
consider the report and, on motion of any party to the proceeding, enter an
order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b) (1) If the appraisers' report is confirmed or modified by the order,
judgment shall be entered against the successor and in favor of each
objecting stockholder party to the proceeding for the appraised fair
value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the
stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms
and conditions it considers proper.
(c) (1) Except as provided in paragraph (2) of this subsection, a judgment for
the stockholder shall award the value of the stock and interest from
the date as to which fair value is to be determined under Section 3-
202 of this subtitle, and
(2) The court may not allow interest if it finds that the failure of the
stockholder to accept an offer for the stock made under Section 3-207
of this subtitle was arbitrary and vexatious or not in good faith. In
making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(d) (1) The costs of the proceedings, including reasonable compensation and
expenses of the appraisers, shall be set by the court and assessed
against the successor. However, the court may direct the costs to be
apportioned and assessed against any objecting stockholder if the
court finds that the failure of the stockholder to accept an offer for
the stock made under Section 3-207 of this subtitle was arbitrary and
vexatious or not in good faith. In making this finding, the court
shall consider:
(i) The price which the successor offered for the stock;
(ii) the financial statements and other information furnished to the
stockholder; and
C-5
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable
fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under
Section 3-207 of this subtitle; or
(ii) The value of the stock determined in the proceeding materially
exceeds the amount offered by the successor.
(e) The judgment is final and conclusive on all parties and has the same force
and effect as other decrees in equity. The judgment constitutes a lien on
the assets of the successor with priority over any mortgage or other lien
attaching on or after the effective date of the consolidation, merger,
transfer, or charter amendment.
3-212 SURRENDER OF STOCK. -- The successor is not required to pay for the stock
of an objecting stockholder or to pay a judgment rendered against it in a
proceeding for an appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it,
indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates
and sufficient indemnity bond are furnished.
3-213 RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK. -- (a) A successor which
acquires the stock of an objecting stockholder is entitled to any dividends or
distributions payable to holders of record of that stock on a record date after
the close of business on the day as at which fair value is to be determined
under Section 3-202 of this subtitle.
(b) After acquiring the stock of an objecting stockholder, a successor in a
transfer of assets may exercise all the rights of an owner of the stock.
(c) Unless the articles provide otherwise stock in the successor of a
consolidation, merger, or share exchange otherwise deliverable in exchange
for the stock of an objecting stockholder has the status of authorized but
unissued stock of the successor. However, a proceeding for reduction of the
capital of the successor is not necessary to retire the stock or to reduce
the capital of the successor represented by the stock.
C-6
TO VOTE BY MAIL, PLEASE DETACH CARD HERE
PROXY
CYPRESSTREE SENIOR FLOATING RATE FUND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS ON APRIL 20, 2001
The undersigned hereby appoints Alice T. Kane, Nori L. Gabert and John
I. Fitzgerald, and each of them separately, proxies with power of substitution
to each and hereby authorizes them to represent and to vote as designated below,
at the Special Meeting (the "Meeting") of Shareholders of the CypressTree Senior
Floating Rate Fund, Inc. (the "Fund") indicated above to be held at the offices
of American General Asset Management Corp. at 286 Congress Street, Boston,
Massachusetts 02210 on Friday, April 20, 2001, at 10:00 a.m. (Eastern time) and
at any adjournment thereof, all the shares of the Fund which the undersigned
would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSAL.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Meeting.
PLEASE SIGN ON THE REVERSE SIDE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
- ---------------- ----------------
SEE REVERSE SIDE SEE REVERSE SIDE
- ---------------- ----------------
Special Meeting of Shareholders
Friday, April 20, 2001
10:00 a.m. Eastern time
American General Asset Management Corp.
286 Congress Street
Boston, Massachusetts 02210
Instructions for Voting Your Proxy:
The Fund is now offering shareholders of record three alternative ways of voting
your proxies:
*By Telephone (using a touch-tone telephone) *By Fax (using facsimile) *By Mail
(traditional method)
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you had returned your proxy card. We encourage you to use these
cost effective and convenient ways of voting, 24 hours a day, 7 days a week.
TELEPHONE VOTING
Available only until 5:00 p.m. Eastern time on April 18, 2001.
* This method of voting is available for residents of the U.S. and Canada.
* On a touch-tone telephone, call TOLL FREE 1-888-433-6235 24 hours a day, 7
days a week.
* You will be asked to enter the company number and the control number shown
below.
* Have your proxy card ready, then follow the simple instructions.
* Your vote will be confirmed and cast as you directed.
FAX VOTING
Available only until 5:00 p.m. Eastern time on April 18, 2001.
* Complete your proxy card.
* Fax your Proxy Card (both front and back sides) to Proxy Department at 1-800-
733-1885.
VOTING BY MAIL
* Simply mark, sign and date your proxy card and return it in the postage-paid
envelope.
* If you are voting by telephone, please do not mail your proxy card.
[COMPANY NUMBER] [CONTROL NUMBER]
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
[X] Please mark votes as in this example.
The Directors recommend a vote FOR the proposal.
Proposal to approve or disapprove an Agreement and Plan of Reorganization
providing for the acquisition of all of the assets and liabilities of the fund
named on the reverse side of this card by North American Senior Floating Rate
Fund, Inc.
FOR AGAINST ABSTAIN
[_] [_] [_]
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY CARD. All joint
owners should sign. When signing as executor, administrator, attorney, trustee
or guardian or as custodian for a minor, please give full title as such. If a
corporation, name and indicate the signer's office. If a partner, sign in the
partnership name.
_______________________________________________________________________________
Signature
_______________________________________________________________________________
Signature (if held jointly)
_______________________________________________________________________________
Date
PART B
NORTH AMERICAN SENIOR FLOATING RATE FUND, INC.
______________________________________________________________________________
Statement of Additional Information
_________ ___, 2001
______________________________________________________________________________
Acquisition of the Assets and Liabilities of By and in Exchange for Class D Shares of
CypressTree Senior Floating Rate Fund, Inc. North American Senior Floating Rate Fund, Inc.
286 Congress Street 286 Congress Street
Boston, Massachusetts 02210 Boston, Massachusetts 02210
This Statement of Additional Information is available to the Shareholders
of CypressTree Fund in connection with a proposed transaction whereby all of the
assets and liabilities of CypressTree Fund will be transferred to the North
American Fund in exchange for Class D shares of the North American Fund. Unless
otherwise defined herein, capitalized terms have the meanings given to them in
the Prospectus/Proxy Statement.
This Statement of Additional Information of North American Fund consists of
this cover page and the following documents, each of which was filed
electronically with the Securities and Exchange Commission and is incorporated
by reference herein:
1. The Statement of Additional Information for North American Fund dated
January 17, 2000.
2. The Financial Statements of North American Fund included in the Annual
Report of North American Fund dated December 31, 1999, as filed on
March 13, 2000.
3. The Statement of Additional Information for CypressTree Fund dated May 1,
2000, as supplemented September 12, 2000, as filed on September 12, 2000.
4. The Financial Statements of CypressTree Fund included in the Annual Report
of CypressTree Fund dated December 31, 1999, as filed on March 13, 2000.
5. The Financial Statements of CypressTree Fund included in the Semi-Annual
Report dated June 30, 2000, as filed on September 5, 2000.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated January ___, 2001 relating to the
reorganization of the CypressTree Fund may be obtained, without charge, by
writing to American General Funds Distributors, Inc. at 286 Congress Street,
Boston, Massachusetts, 02210, or calling (800) 872-8037. This Statement of
Additional Information should be read in conjunction with the Prospectus/Proxy
Statement.
PRO FORMA FINANCIAL STATEMENTS
The following tables set forth the unaudited pro forma condensed statement
of assets and liabilities and unaudited pro forma condensed statement of
operations for each Fund for the year ended December 31, 2000.
PRO-FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
DECEMBER 31, 2000
CYPRESSTREE NORTH AMERICAN
SENIOR FLOATING SENIOR FLOATING PRO-FORMA PRO-FORMA
ASSETS: RATE FUND RATE FUND ADJUSTMENTS COMBINED
- ------- --------- --------- ----------- --------
Investments in securities, at value.......... $63,069,068 $291,707,356 $354,776,424
Cash......................................... 711,241 806,061 1,517,302
Receivables:
Investments sold......................... 284,867 2,900,845 3,185,712
Fund shares sold......................... 214,000 1,162,652 1,376,652
Interest................................. 764,192 3,159,392 3,923,584
From adviser............................. 40,381 51,610 91,991
Deferred organization costs.................. 112,500 - (112,500)/1/ -
Other assets................................. 2,181 17,331 19,512
----------- ------------ --------- ------------
TOTAL ASSETS......................... 65,198,430 299,805,247 (112,500) 364,891,177
LIABILITIES:
- ------------
Payables:
Fund shares redeemed...................... 220,217 89,277 309,494
Dividends................................. 496,237 2,115,478
Custodian and transfer agent fees......... 17,547 88,570 106,117
Distribution fee.......................... - 181,829 181,829
Other accrued expenses.................... 28,934 - 28,934
----------- ------------ --------- ------------
TOTAL LIABILITIES..................... 762,935 2,475,154 - 3,238,089
NET ASSETS.................................... $64,435,495 $297,330,093 ($112,500) $361,653,088
=========== ============ ========= ============
NET ASSETS CONSIST OF:
- ----------------------
Accumulated undistributed net
realized gain (loss) on investments,
foreign currency and forward foreign
currency contracts....................... (386,424) (363,737) ($750,161)
Unrealized appreciation (depreciation) on:
Investments............................... (2,965,406) (9,570,347) (12,535,753)
..........................................
Capital shares at par value of $.01....... 6,755 30,823 (75)/2/ 37,503
Additional paid-in capital................ 67,780,570 307,233,354 (112,425)/3/ 374,901,499
----------- ------------ --------- ------------
NET ASSETS............................ $64,435,495 $297,330,093 ($112,500) $361,653,088
=========== ============ ========= ============
/1/ Reflects absorption of deferred organization costs by investment adviser
prior to merger.
/2/ Reflects change in shares due to merger exchange.
/3/ Reflects change in shares due to merger exchange, and reduction of
organization costs to be expensed.
2
COMBINED PRO-FORMA STATEMENT OF ASSETS AND LIABILITIES (CONT'D) (UNAUDITED)
DECEMBER 31, 2000
CYPRESSTREE NORTH AMERICAN
SENIOR FLOATING SENIOR FLOATING PRO-FORMA PRO-FORMA
ASSETS: RATE FUND RATE FUND ADJUSTMENTS COMBINED
- ------- --------- --------- ----------- --------
NET ASSET VALUES:
- -----------------
CLASS B SHARES
Net assets at value........................ $ -- $ 53,653,154 $ 53,653,154
Shares outstanding......................... -- 5,561,859 5,561,859
Net asset value, offering price
and redemption price per share.............. $ -- $ 9.65 $ 9.65
CLASS C SHARES
Net assets at value........................ $ -- $243,676,939 $ 243,676,939
Shares outstanding......................... -- 25,261,075 -- 25,261,075
Net asset value, offering price
and redemption price per share.............. $ -- $ 9.65 $ 9.65
CLASS D SHARES
Net assets at value........................ $64,435,495 0 $ 64,435,495
Shares outstanding......................... 6,754,634 0 (74,848)/1/ 6,679,786
Net asset value, offering price
and redemption price per share.............. $ 9.54 $ -- $ 9.65
/1/ Reflects change in shares due to merger exchange.
3
COMBINED PRO-FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2000
CYPRESSTREE NORTH AMERICAN
SENIOR FLOATING SENIOR FLOATING PRO-FORMA PRO-FORMA
ASSETS: RATE FUND RATE FUND ADJUSTMENTS COMBINED
- ------- --------- --------- ----------- --------
INVESTMENT INCOME:
- ------------------
Interest................................. $ 7,191,642 $ 25,460,335 $ 32,651,977
Facility fee income...................... $ 161,918 $ 369,264 $ 531,182
----------- ------------ --------- ------------
TOTAL INCOME......................... 7,353,560 25,829,599 0 33,183,159
EXPENSES:
- ---------
Distribution for Class B................. - 344,943 344,943
Distribution for Class C................. - 1,738,302 1,738,302
Investment adviser fee................... 666,371 2,360,943 3,027,314
Custodian fee............................ 71,229 211,252 282,481
Transfer agent fee....................... 47,000 225,001 272,001
Accounting/administration................ 313,586 1,111,032 1,424,618
Audit and legal fees..................... 117,837 178,979 (100,000)/1/ 196,816
Amortization of deferred organization
expenses................................ 50,000 0 (50,000)/2/ -
Miscellaneous............................ 181,952 231,883 (50,000)/1/ 363,835
----------- ------------ --------- ------------
Expenses before reimbursement by
investment adviser...................... 1,447,975 6,402,335 (200,000) 7,650,310
Reimbursement of expenses by investment
adviser................................. (468,629) (2,467,839) 150,000 /3/ (2,786,468)
----------- ------------ --------- ------------
Net expenses......................... 979,346 3,934,496 (50,000) 4,863,842
----------- ------------ --------- ------------
Net investment income/(loss)........ 6,374,214 21,895,103 50,000 28,319,317
----------- ------------ --------- ------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS, FOREIGN CURRENCY AND FORWARD
FOREIGN CURRENCY CONTRACTS:
Net realized gain/(loss) on:
Investment transactions................ (404,074) (422,328) (826,402)
Facility fees.......................... 28,395 8,457 36,852
Change in unrealized appreciation
(depreciation) on:
Investments............................ (2,728,311) (9,135,236) (11,863,547)
----------- ------------ --------- ------------
Net gain/(loss) on investments....... (3,103,990) (9,549,107) - (12,653,097)
Net increase in net assets resulting from
operations.................................. $ 3,270,224 $ 12,345,996 - $ 15,666,220
/1/ Reflects expected savings to fund due to economies of scale.
/2/ Reflects the reimbursement of the remaining prepaid organization costs by
the investment adviser.
/3/ Reflects expected savings for investment adviser due to economies of scale.
4
COMBINED PRO-FORMA PORTFOLIO OF INVESTMENTS-- DECEMBER 31, 2000
Face Market
Amount Value
--------- ---------
North North
CypressTree American CypressTree American
Senior Senior Senior Senior Senior
Floating Floating Pro-Forma Floating Floating Floating Pro-Forma
Rate Fund Rate Fund Combined Description Maturity Rate Fund Rate Fund Rate Fund Combined
----------- ----------- --------- ---------------- -------- --------- ----------- ------------ ---------
LOANS - 91.1%
Aerospace & Defense - 1.5%
440,141 1,069,571 1,509,712 K&F Industries BTL-B 01/15/05 439,866 1,068,902 1,068,902 1,508,768
Inc (Aircraft
Braking)
997,487 997,487 Titan BTL-B 02/23/07 - 994,370 994,370 994,370
Corporation
746,250 1,488,750 2,235,000 Titan BTL-C 02/23/07 744,851 1,485,959 1,485,959 2,230,810
Corporation
61,708 343,152 404,860 United Defense BTL-B 10/06/05 61,207 340,364 340,364 401,571
Corp
95,559 333,996 429,555 United Defense BTL-C 10/06/06 94,782 331,283 331,283 426,065
Corp
--------- --------- --------- ----------
1,340,706 4,220,878 4,220,878 5,561,584
AUTOMOBILE - 4.8%
752,500 752,500 Accuride Corp BTL-C 01/21/07 - 707,350 707,350 707,350
748,000 2,244,000 2,992,000 American Axle & BTL-B 04/30/06 745,008 2,235,024 2,235,024 2,980,032
Manufacturing
236,000 236,000 Collins & BTL-B 06/30/06 226,412 - - 226,412
Aikman Corp
240,000 2,167,273 2,407,273 Collins & BTL-C 12/31/05 230,850 2,084,645 2,084,645 2,315,495
Aikman Corp
990,000 2,673,000 3,663,000 CSK Auto Inc BTL-B-2 10/31/03 853,050 2,303,236 2,303,236 3,156,286
496,250 2,235,612 2,731,862 Dura Automotive BTL-B 03/31/06 485,208 2,185,870 2,185,870 2,671,078
Systems Inc
246,581 1,393,996 1,640,577 Exide Corp BTL-B 03/18/05 237,128 1,340,560 1,340,560 1,577,688
245,006 490,012 735,019 Federal Mogul BTL-B 02/24/05 89,952 179,905 179,905 269,857
Corp
391,101 782,202 1,173,303 J.L. French BTL-B 04/21/06 346,613 693,227 693,227 1,039,840
Automotive
Castings Inc
1,492,500 1,492,500 Polypore Inc BTL-B 12/31/06 - 1,494,366 1,494,366 1,494,366
985,000 985,000 Venture BTL-B 04/01/05 - 866,800 866,800 866,800
Holdings Trust
--------- --------- --------- ----------
3,214,221 14,090,983 14,090,983 17,305,204
BEVERAGE, FOOD & TOBACCO - 2.8%
128,663 1,029,302 1,157,965 Aurora Foods Inc BTL-A 06/30/05 117,941 943,527 943,527 1,061,468
98,659 789,270 887,929 Aurora Foods Inc BTL-B 09/30/06 90,963 727,707 727,707 818,670
987,500 987,500 1,975,000 Aurora Foods Inc BTL-B2 06/30/06 905,209 905,209 905,209 1,810,418
500,000 1,000,000 1,500,000 B&G Foods Inc BTL-B 03/31/06 466,000 932,000 932,000 1,398,000
541,108 541,108 Captain D's Inc BTL-B 12/31/01 - 532,991 532,991 532,991
187,500 562,500 750,000 CP Kelco ApS BTL-B 03/31/08 182,391 547,172 547,172 729,563
62,500 168,750 231,250 CP Kelco ApS BTL-C 09/30/08 60,797 164,152 164,152 224,949
358,518 358,518 Doane Pet Care BTL-B 12/31/05 - 354,485 354,485 354,485
Company
249,577 249,577 Doane Pet Care BTL-B 12/31/05 - 248,693 248,693 248,693
Company
117,558 117,558 Doane Pet Care BTL-C 12/31/06 - 116,334 116,334 116,334
Company
482,531 965,061 1,447,592 Tabletop BTL-B 03/31/07 484,340 968,680 968,680 1,453,020
Acquisition
Corp (Merisant)
498,750 997,500 1,496,250 UST Inc BTL-B 02/16/05 501,763 1,003,527 1,003,527 1,505,290
--------- --------- --------- ----------
2,809,404 7,444,477 7,444,477 10,253,881
5
BROADCASTING & ENTERTAINMENT - 3.8%
1,000,000 1,000,000 Citadel BTL-B 03/31/07 - 1,003,750 1,003,750
Broadcasting
651,316 1,736,842 2,388,158 Classic Cable BTL-B 01/31/08 636,865 1,698,307 2,335,172
Inc
500,000 1,000,000 1,500,000 Entravision BTL-B 12/31/08 505,000 1,010,000 1,515,000
Communications
Co LLC
497,500 2,238,750 2,736,250 Muzak LLC BTL-B 12/31/06 489,208 2,201,437 2,690,645
246,875 2,483,674 2,730,549 Telemundo Group BTL-B 02/28/06 246,104 2,475,913 2,722,017
Inc
500,000 3,000,000 3,500,000 Young BTL-B 11/30/06 504,141 3,024,843 3,528,984
Broadcasting Inc
--------- ---------- ----------
2,381,318 11,414,250 13,795,568
BUILDINGS & REAL ESTATE - 3.9%
992,500 992,500 1,985,000 ClubCorp Inc BTL-B 03/24/07 990,329 990,329 1,980,658
247,465 2,723,136 2,970,600 Dal-Tile BTL-B 12/31/03 242,902 2,672,929 2,915,831
Intern'l
500,000 2,493,750 2,993,750 Lennar Corp BTL-C 05/03/07 501,459 2,501,024 3,002,483
980,000 980,000 Prison Realty BTL 12/31/02 - 740,559 740,559
Trust Inc
494,975 742,462 1,237,437 Prison Realty BTL-C 12/31/02 373,087 559,631 932,718
Trust Inc
245,000 245,000 184,669 - 184,669
462,891 1,234,375 1,697,266 Tapco BTL-B 06/23/07 462,891 1,234,375 1,697,266
International
Corporation
277,734 740,625 1,018,359 Tapco BTL-C 06/23/08 277,734 740,625 1,018,359
International
Corporation
746,154 746,154 Werner Holding BTL-B 11/30/04 - 740,931 740,931
Co (DE) Inc
746,154 746,154 Werner Holding BTL-C 11/30/05 - 741,863 741,863
Co (DE) Inc
--------- ---------- ----------
3,033,071 10,922,266 13,955,337
CARGO TRANSPORT - 2.3%
693,323 693,323 Atlas Freighter BTL-A 04/25/05 - 694,623 694,623
Leasing III Inc
1,078,708 1,078,708 Atlas Freighter BTL-B 04/25/06 - 1,080,730 1,080,730
Leasing III Inc
500,000 2,521,875 3,021,875 Gemini Air BTL-A 08/12/05 503,750 2,525,027 3,028,777
Cargo Inc
720,536 1,000,000 1,720,536 Interpool Inc 364-day 10/24/02 721,436 1,007,500 1,728,936
500,000 1,250,000 1,750,000 Kansas City BTL-B 01/11/07 503,360 1,258,399 1,761,759
Southern
Industries Inc
--------- ---------- ----------
1,728,546 6,566,279 8,294,825
CHEMICALS, PLASTICS & RUBBER - 4.9%
241,942 241,942 Foamex LP BTL-B 06/30/05 - 235,490 235,490
718,660 718,660 Foamex LP BTL-C 06/30/06 - 699,495 699,495
2,472,721 2,472,721 Foamex LP BTL-D 12/31/06 - 2,406,781 2,406,781
448,903 2,292,533 2,741,436 Hexcel Corp BTL-B 09/15/05 450,025 2,298,264 2,748,289
547,050 547,050 Huntsman Corp BTL-A 02/07/02 - 444,023 444,023
750,000 1,750,000 2,500,000 Huntsman Corp BTL-C 01/07/04 635,000 1,481,667 2,116,667
408,333 1,143,333 1,551,667 Huntsman ICI BTL-B 06/30/07 409,586 1,146,841 1,556,427
Chemicals LLC
6
CHEMICALS, PLASTICS & RUBBER - CONTINUED
408,333 1,131,667 1,540,000 Huntsman ICI BTL-C 06/30/08 409,586 1,135,139 1,544,725
Chemicals LLC
1,000,000 1,000,000 Huntsman BTL-B 05/31/08 - 895,909 895,909
Packaging Corp
75,439 241,017 316,455 Lyondell BTL-B 06/30/05 76,020 242,874 318,894
Petrochemical Co
537,162 3,016,982 3,554,144 Lyondell BTL-E 12/31/03 551,976 3,100,184 3,652,160
Petrochemical Co
1,000,000 1,000,000 Scotts Company BTL-B 12/31/07 - 1,005,687 1,005,687
--------- ---------- ----------
2,532,193 15,092,354 17,624,547
CONTAINERS, PACKAGING & GLASS - 3.4%
260,180 974,931 1,235,111 Graham BTL-B 01/31/06 256,060 959,495 1,215,555
Packaging Co
507,862 807,800 1,315,662 Graham BTL-C 1 01/31/07 500,417 794,505 1,294,922
Packaging Co
215,578 1,173,104 1,388,681 Graham BTL-C 2 01/31/07 212,030 1,155,907 1,367,937
Packaging Co
62,813 83,750 146,563 Graphic Bridge 08/02/04 57,375 76,500 133,875
Packaging Corp.
(ACX Tech)
18,056 54,167 72,222 Jefferson BTL-B 03/31/06 18,096 54,287 72,383
Smurfit
237,834 248,938 486,772 Packaging BTL-A 06/29/07 237,438 248,523 485,961
Corporation of
America
448,732 448,732 Packaging BTL-B 06/29/07 451,004 451,004
Corporation of
America
401,317 802,635 1,203,952 RIC/Riverwood BTL-A 02/28/03 400,126 800,252 1,200,378
International
1,350,775 1,350,775 RIC/Riverwood BTL-B 02/28/04 1,356,147 1,356,147
International
396,776 396,776 RIC/Riverwood BTL-C 08/31/04 398,354 398,354
International
848,307 3,493,353 4,341,660 Stone Container BTL-D 10/01/03 851,651 3,507,124 4,358,775
--------- ---------- ----------
2,533,193 9,802,098 12,335,291
DIVERSIFIED & CONGLOMERATE MANUFACTURING - 6.4%
498,750 1,995,000 2,493,750 Alliance BTL-B 06/30/05 486,281 1,945,125 2,431,406
Laundry Systems
LLC
209,494 209,494 CII Carbon LLC Hybrid 06/30/08 208,709 - 208,709
TL
495,673 991,346 1,487,020 Dayco (Mark IV BTL-B 05/31/07 484,521 969,041 1,453,562
Industries)
663,412 1,851,542 2,514,954 General Cable BTL-B 05/27/07 647,987 1,808,494 2,456,481
Corporation
246,250 985,000 1,231,250 GenTek Inc BTL-B 04/30/07 245,634 982,538 1,228,172
498,750 2,244,375 2,743,125 GenTek Inc BTL-C 10/31/07 499,218 2,246,480 2,745,698
236,828 947,312 1,184,139 Goodman BTL-B 07/31/05 233,720 934,878 1,168,598
Manufacturing
Co LP
1,498,125 1,498,125 Iron Mountain BTL-B 02/28/06 1,510,832 1,510,832
Inc
368,131 1,732,470 2,100,601 Mueller Group BTL-B 08/16/06 370,565 1,739,509 2,110,074
Inc
368,131 1,732,470 2,100,601 Mueller Group BTL-C 08/16/07 370,623 1,739,779 2,110,402
Inc
3,486,215 3,486,215 SPX Corp BTL-B 12/31/06 3,498,201 3,498,201
197,829 615,659 813,488 Terex BTL-B 07/15/05 197,562 611,811 809,373
Corporation
819,050 819,050 Terex BTL-C 07/15/06 817,941 817,941
Corporation
249,375 498,750 748,125 Wilmar BTL-B 09/29/07 249,063 498,127 747,190
Industries Inc
--------- ---------- ----------
3,993,883 19,302,756 23,296,639
7
DIVERSIFIED & CONGLOMERATE SERVICE - 2.3%
1,000,000 1,000,000 Advanstar BTL-B 09/30/08 1,000,313 1,000,313
Communications
Inc
897,448 1,350,405 2,247,853 infoUSA Inc BTL-B 06/30/06 864,259 1,296,389 2,160,648
1,242,500 1,242,500 NationsRent Inc BTL-B 07/20/06 1,000,213 1,000,213
1,237,469 1,237,469 United Rentals BTL-B 06/30/05 1,192,094 1,192,094
Inc
746,250 2,244,375 2,990,625 United Rentals BTL-C 06/30/06 724,880 2,174,640 2,899,520
Inc
--------- --------- ---------
1,589,139 6,663,649 8,252,788
ECOLOGICAL - 3.1%
340,909 1,250,000 1,590,909 Allied Waste BTL-B 07/21/06 327,725 1,201,660 1,529,385
Industries
409,091 1,500,000 1,909,091 Allied Waste BTL-C 07/21/07 393,271 1,441,992 1,835,263
Industries
500,000 500,000 Casella Waste BTL-B 12/14/06 485,209 485,209
Systems Inc
712,403 1,697,148 2,409,551 Intern'l BTL-B 06/11/06 700,382 1,668,508 2,368,890
Technology Corp
230,656 322,918 553,574 Safety-Kleen BTL-A 04/03/04 72,657 101,719 174,376
Corp.
497,468 1,241,796 1,739,264 Safety-Kleen BTL-B 04/03/05 155,597 388,406 544,003
Corp.
497,468 1,241,796 1,739,264 Safety-Kleen BTL-C 04/03/06 155,597 388,406 544,003
Corp.
936,375 2,809,125 3,745,500 Stericycle Inc BTL-B 11/10/06 941,496 2,824,488 3,765,984
--------- --------- ---------
2,746,725 8,500,388 11,247,113
ELECTRONICS - 2.7%
609,933 894,737 1,504,670 Amkor Technology BTL-A 09/30/05 606,883 890,263 1,497,146
1,985,000 1,985,000 Amkor Technology BTL-B 09/30/05 - 1,997,130 1,997,130
148,156 148,156 Dynamic Details BTL-B 04/22/05 147,508 - 147,508
Inc.
2,238,750 2,238,750 Knowles BTL-B 06/29/07 - 2,121,216 2,121,216
Electronics
313,771 627,542 941,313 ON BTL-B 08/04/06 314,556 629,111 943,667
Semiconductor,
Inc.
(Semiconductor
Components)
337,907 675,815 1,013,722 ON BTL-C 08/04/07 338,752 677,504 1,016,256
Semiconductor,
Inc.
(Semiconductor
Components)
1,000,000 1,000,000 ON BTL 08/04/07 - 999,896 999,896
Semiconductor,
Inc.
(Semiconductor
Components)
1,000,000 1,000,000 Seagate BTL-B 11/22/06 - 994,375 994,375
Technology Inc
--------- --------- ---------
1,407,699 8,309,495 9,717,194
FARMING & AGRICULTURE - 1.0%
1,728,725 1,728,725 Central Tractor BTL-B 04/30/06 - 1,552,970 1,552,970
Farm & Country
(Quality Stores)
500,000 1,000,000 1,500,000 Hines Nurseries BTL-B 02/28/05 480,000 960,000 1,440,000
Inc
580,646 580,646 Purina Mills Inc BTL-A 03/12/07 - 552,097 552,097
------- --------- ---------
480,000 3,065,067 3,545,067
FINANCE - 0.1%
365,247 1,095,741 1,460,988 Bridge BTL-B 05/29/05 100,443 301,329 401,772
Information
Systems Inc
GROCERY - 1.7%
1,474,964 1,474,964 Pantry Inc BTL-B 01/31/06 - 1,479,573 1,479,573
744,375 744,375 Pantry Inc BTL-C 07/31/06 - 747,166 747,166
749,375 3,247,292 3,996,667 Pathmark Stores BTL-B 12/15/01 745,066 3,228,620 3,973,686
Inc
------- --------- ---------
745,066 5,455,359 6,200,425
8
HEALTHCARE, EDUCATION & CHILDCARE - 3.7%
309,701 825,871 1,135,572 Alliance BTL-B 11/02/07 305,830 815,547 1,121,377
Imaging Inc
440,299 1,174,129 1,614,428 Alliance BTL-C 12/18/04 434,795 1,159,453 1,594,248
Imaging Inc
1,243,194 1,243,194 CONMED Corp BTL-B 01/01/05 1,201,547 1,201,547
367,196 1,476,874 1,844,070 Dade Behring Inc BTL-B 06/30/06 254,414 1,023,262 1,277,676
367,196 1,476,874 1,844,070 Dade Behring Inc BTL-C 06/30/07 254,414 1,023,262 1,277,676
496,250 1,488,750 1,985,000 Hanger BTL-B 01/01/08 459,858 1,379,575 1,839,433
Orthopedic Group
871,017 871,017 Kinetic BTL-B 12/31/04 833,727 833,727
Concepts Inc
871,017 871,017 Kinetic BTL-C 12/31/05 833,727 833,727
Concepts Inc
257,350 257,350 Quest BTL-B 08/16/07 258,114 258,114
Diagnostics Inc
237,558 237,558 Quest BTL-C 08/16/07 238,263 238,263
Diagnostics Inc
147,149 2,506,110 2,653,259 Stryker Corp BTL-B 12/04/05 147,986 2,520,363 2,668,349
21,908 265,253 287,160 Stryker Corp BTL-C 12/04/06 22,032 266,761 288,793
--------- ---------- ----------
1,879,329 11,553,601 13,432,930
HOME & OFFICE FURNITURINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS - 1.0%
625,000 2,000,000 2,625,000 Shop Vac Corp BTL-B 07/08/07 624,609 1,998,750 2,623,359
348,371 348,371 Simmons Co BTL-B 10/29/05 - 348,502 348,502
784,844 784,844 Simmons Co BTL-C 10/29/06 - 785,139 785,139
--------- ---------- ----------
624,609 3,132,391 3,757,000
HOTELS, MOTELS, INNS & GAMING - 3.7%
750,000 2,500,000 3,250,000 Extended Stay BTL-D 06/07/07 753,750 2,512,500 3,266,250
America Inc
530,667 530,667 Isle of Capri BTL-B 03/02/06 533,901 533,901
Casinos Inc
464,333 464,333 Isle of Capri BTL-C 03/02/07 467,163 467,163
Casinos Inc
3,000,000 3,000,000 MGM Grand Inc 364-day 04/06/01 2,993,907 2,993,907
250,000 2,000,000 2,250,000 Starwood Hotels BTL-2 02/23/03 250,703 2,005,626 2,256,329
& Resorts Trust
750,000 3,000,000 3,750,000 Wyndham BTL-B 06/30/06 742,969 2,971,875 3,714,844
International
Inc
--------- ---------- ----------
1,747,422 11,484,972 13,232,394
INSURANCE - 0.7%
254,423 1,483,073 1,737,496 Willis Corroon BTL-B 11/19/06 254,304 1,482,377 1,736,681
Group plc
109,038 218,077 327,115 Willis Corroon BTL-C 11/19/07 109,175 218,350 327,525
Group plc
109,038 218,077 327,115 Willis Corroon BTL-D 05/19/08 109,175 218,350 327,525
Group plc
--------- ---------- ----------
472,654 1,919,077 2,391,731
9
LEISURE, AMUSEMENT, ENTERTAINMENT - 3.3%
247,449 989,796 1,237,245 Amfac Parks & BTL-B 09/30/04 244,356 977,423 1,221,779
Resorts Inc
247,449 989,796 1,237,245 Amfac Parks & BTL-C 09/30/05 244,356 977,423 1,221,779
Resorts Inc
1,000,000 2,000,000 3,000,000 DreamWorks LLC BTL-B 1/105/09 1,007,188 2,014,376 3,021,564
500,000 2,500,000 3,000,000 Metro-Goldwyn-Mayer BTL-B 03/31/06 496,484 2,482,423 2,978,907
500,000 2,000,000 2,500,000 Premier Parks Inc BTL-B 09/30/05 503,625 2,014,500 2,518,125
129,706 750,000 879,706 Regal Cinemas Inc BTL-B 06/15/06 89,821 531,563 621,384
97,348 97,348 United Artists BTL-B 04/21/06 66,197 - 66,197
Theatre Co
146,022 146,022 United Artists BTL-C 04/21/05 99,295 - 99,295
Theatre Co
--------- --------- ----------
2,751,322 8,997,708 11,749,030
MACHINERY - 1.0%
- 3,000,000 3,000,000 Flowserve BTL-B 06/30/08 - 2,996,874 2,996,874
Corporation
298,119 298,119 Thermadyne BTL-B 05/22/05 267,065 - 267,065
Holdings Corp
298,119 298,119 Thermadyne BTL-C 05/22/06 267,065 - 267,065
Holdings Corp
--------- --------- ----------
534,130 2,996,874 3,531,004
MINING, STEEL, IRON & NON-PRECIOUS METALS - 3.0%
368,065 1,724,114 2,092,180 Ispat Inland Inc Hybrid
TL 07/16/05 325,048 1,522,609 1,847,657
368,065 1,724,114 2,092,180 Ispat Inland Inc Hybrid
TL2 07/16/05 325,048 1,522,609 1,847,657
749,564 972,429 1,721,992 Neenah Corp BTL-B 09/30/05 712,086 923,807 1,635,893
1,224,616 1,224,616 Neenah Corp BTL-B2 09/30/05 1,163,385 1,163,385
417,500 1,741,667 2,159,167 Peabody Holding BTL-B 06/30/06 417,500 1,741,667 2,159,167
Company Inc
968,750 968,750 United States Can BTL-A 10/04/07 968,448 968,448
Company
500,000 739,583 1,239,583 United States Can BTL-B 10/04/08 503,021 744,052 1,247,073
Company
--------- --------- ----------
2,282,703 8,586,577 10,869,280
OIL & GAS - 0.6%
2,000,000 2,000,000 W-H Energy BTL-B 04/16/07 - 2,005,000 2,005,000
Services Inc --------- ----------
PERSONAL & NONDURABLE CONSUMER PRODUCTS (MFG ONLY) - 3.1%
241,719 241,719 Amscan Holdings Inc Hybrid
TL 12/31/04 210,296 - 210,296
418,448 3,019,577 3,438,025 Buhrmann NV BTL-B 10/26/07 419,462 3,026,890 3,446,352
3,233,282 3,233,282 Playtex Inc Hybrid
TL 09/15/03 - 3,169,628 3,169,628
186,870 1,124,230 1,311,101 Sealy Mattress BTL-B 12/15/04 187,259 1,126,572 1,313,831
134,692 810,324 945,017 Sealy Mattress BTL-C 12/15/05 135,043 812,434 947,477
172,157 1,035,714 1,207,871 Sealy Mattress BTL-D 12/15/06 172,516 1,037,872 1,210,388
229,184 916,734 1,145,918 United Industries BTL-B 01/20/06 192,514 770,057 962,571
Corp
--------- --------- ----------
1,317,090 9,943,453 11,260,543
10
PRINTING & PUBLISHING - 7.0%
500,000 2,746,493 3,246,493 American Color BTL-B 03/31/05 495,000 2,719,029 3,214,029
Graphics
1,000,000 2,500,000 3,500,000 American Media Inc BTL-B 04/01/07 1,004,688 2,511,720 3,516,408
500,000 3,000,000 3,500,000 Benedek BTL-B 11/20/07 491,406 2,948,439 3,439,845
Broadcasting Corp
483,838 2,903,030 3,386,869 Jostens Inc BTL-B 05/10/08 486,123 2,916,738 3,402,861
748,500 1,497,000 2,245,500 Journal Register BTL-B 09/06/06 742,731 1,485,461 2,228,192
Co
750,000 1,000,000 1,750,000 Lamar Advertising BTL-B 08/01/06 753,000 1,004,000 1,757,000
Company
1,678,927 1,678,927 Mail-Well Corp BTL-B 02/22/07 - 1,670,183 1,670,183
990,000 1,980,000 2,970,000 Merrill Corp BTL-B 11/23/07 919,462 1,838,925 2,758,387
127,602 255,204 382,806 R.H. Donnelley BTL-B 12/05/05 126,645 253,290 379,935
Corp
212,916 425,832 638,748 R.H. Donnelley BTL-C 12/05/06 211,319 422,639 633,958
Corp
975,933 975,933 1,951,866 Vertis Holdings, BTL-A 12/31/05 953,975 953,975 1,907,950
Inc. (Big Flower)
491,666 491,666 Vertis Holdings, BTL-B 12/31/08 - 484,599 484,599
Inc. (Big Flower)
--------- ---------- ----------
6,184,349 19,208,998 25,393,347
RETAIL STORES - 1.1%
484,978 1,576,178 2,061,156 SDM Corporation BTL-C 02/04/08 487,035 1,582,863 2,069,898
484,978 1,576,178 2,061,156 SDM Corporation BTL-E 02/04/09 487,035 1,582,863 2,069,898
--------- ---------- ----------
974,070 3,165,726 4,139,796
TELECOMMUNICATIONS - 14.2%
500,000 3,000,000 3,500,000 360networks inc BTL-B 05/31/07 488,021 2,928,125 3,416,146
2,000,000 2,000,000 Adelphia BTL-B-1 06/30/09 - 1,978,646 1,978,646
Communications
Corp
500,000 1,000,000 1,500,000 Adelphia Discr. 12/31/09 494,661 991,375 1,486,036
Communications Fac.
Corp
500,000 2,750,000 3,250,000 American Tower BTL-B 12/31/07 503,005 2,766,528 3,269,533
Corp
2,987,365 2,987,365 Centennial BTL-B-PR 05/31/07 - 2,993,275 2,993,275
Cellular Corp
250,000 1,500,000 1,750,000 Charter BTL-B 03/18/08 249,578 1,491,998 1,741,576
Communications
Holding Co LLC
750,000 250,000 1,000,000 Charter BTL-B 11/12/08 745,999 249,578 995,577
Communications
Holding Co LLC
1,500,000 1,500,000 Charter BTL-B 02/02/08 - 1,498,476 1,498,476
Communications
Holding Co LLC
1,850,000 1,850,000 Cincinnati Bell Del. TL 01/06/06 - 1,854,753 1,854,753
Inc
493,750 493,750 Davel BTL-B 06/23/05 - 79,823 79,823
Communications Inc
203,073 990,000 1,193,073 Dobson BTL-B 12/31/07 202,075 990,722 1,192,797
Communication
513,333 513,333 1,026,667 Dobson BTL-B 03/31/08 513,365 513,365 1,026,730
Communication
210,765 612,784 823,549 Dobson BTL-B 03/23/07 209,777 609,774 819,551
Communication
586,667 586,667 1,173,333 Dobson BTL-C 03/31/09 586,667 586,667 1,173,334
Communication
635,996 635,996 Dobson BTL-C 12/23/07 633,015 633,015
Communication
2,500,000 2,500,000 Global Crossing BTL-B 06/30/06 2,512,848 2,512,848
Ltd
11
TELECOMMUNICATIONS - CONTINUED
500,000 1,500,000 2,000,000 McLeodUSA Corp BTL-B 05/31/08 498,541 1,495,625 1,994,166
500,000 2,000,000 2,500,000 Microcell BTL-B 03/01/06 498,906 1,995,626 2,494,532
Telecommunications Inc
250,000 1,500,000 1,750,000 Nextel BTL-B 06/30/08 250,815 1,504,889 1,755,704
Communications
250,000 750,000 1,000,000 Nextel BTL-C 12/31/08 250,815 752,444 1,003,259
Communications
500,000 1,500,000 2,000,000 RCN Corp BTL-B 06/03/07 470,375 1,411,125 1,881,500
500,000 1,500,000 2,000,000 Rural Cellular BTL-B 01/03/08 498,906 1,496,720 1,995,626
Corp
500,000 1,500,000 2,000,000 Rural Cellular BTL-C 04/03/09 498,906 1,496,720 1,995,626
Corp
1,316,910 1,316,910 Superior TeleCom BTL-A 05/27/04 - 1,210,734 1,210,734
Inc
960,814 960,814 Superior TeleCom BTL-B 11/27/05 - 892,056 892,056
Inc
3,250,000 3,250,000 Tritel Inc BTL-B 12/31/07 - 3,257,110 3,257,110
2,500,000 2,500,000 Voicestream BTL-A 12/31/07 - 2,455,313 2,455,313
Wireless
1,000,000 1,000,000 Voicestream BTL-B 02/25/09 - 989,952 989,952
Wireless
1,000,000 2,000,000 3,000,000 XO Communications BTL-B 06/30/07 976,591 1,953,182 2,929,773
Inc (Nextlink)
--------- ---------- ----------
7,937,003 43,590,467 51,527,470
TEXTILES & LEATHER - 2.5%
1,357,247 1,357,247 Galey & Lord Inc BTL-B 04/02/05 1,230,853 1,230,853
962,812 962,812 Galey & Lord Inc BTL-C 04/01/06 873,150 873,150
246,250 993,750 1,240,000 Globe BTL-B 07/15/06 166,220 670,781 837,001
Manufacturing Co
969,860 969,860 Pillowtex Corp BTL-B 12/31/04 575,127 575,127
685,200 831,293 1,516,494 Polymer Group BTL-B 12/20/05 662,503 803,757 1,466,260
53,159 637,028 690,187 Polymer Group BTL-B-1 12/20/05 51,565 617,917 669,482
628,961 1,257,923 1,886,884 St John Knits Inc BTL-B 07/31/07 612,320 1,224,641 1,836,961
1,500,000 1,500,000 Synthetic BTL-B 12/14/07 - 1,455,000 1,455,000
Industries Inc
--------- ---------- ----------
1,492,608 7,451,226 8,943,834
TRANSPORTATION - 0.7%
345,026 574,162 919,188 American BTL-B 06/30/06 332,303 552,989 885,292
Commercial Lines LLC
470,063 1,259,329 1,729,392 American BTL-C 06/30/07 452,730 1,212,890 1,665,620
Commercial Lines LLC
--------- ---------- ----------
785,033 1,765,879 2,550,912
UTILITIES - 0.8%
500,000 2,500,000 3,000,000 Western Resources BTL-B 03/17/03 503,750 2,518,750 3,022,500
Inc
TOTAL LOANS (Cost $63,180,171, $245,632,538 and $308,812,709, respectively) $60,121,679 $269,472,327 $329,594,006
SHORT-TERM INVESTMENTS-6.9%
2,942,038 21,885,005 24,827,043 SSGA Money Market
Fund 2,942,038 21,885,005 24,827,043
- 262,000 262,000 Repurchase Agreement with State Street
Bank & Trust Co. dated 12/29/00 at 5.25%,
to be repurchased at $262,153 on
01/02/01, collateralized by U.S. Treasury
Notes, 6.625% due 1/2/01 (valued at
$271,714 including interest) - 262,000 262,000
----------- ------------
TOTAL SHORT-TERM INVESTMENTS (Cost $2,942,038, $42,394,489 and $$45,336,527,
respectively) 2,942,038 22,147,005 25,089,043
----------- ------------ ------------
TOTAL INVESTMENTS-98.0-- (COST $63,087,085, $288,027,027 AND $$351,114,112,
respectively)* 63,063,717 291,619,332 354,683,049
----------- ------------ ------------
OTHER ASSETS AND LIABILITIES, NET- 2.0% 1,371,778 5,710,761 7,082,539
NET ASSETS-100.0% 64,435,495 297,330,093 361,765,588
=========== ============ ============
12
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS OF MERGER BETWEEN
NORTH AMERICAN SENIOR FLOATING RATE FUND AND
CYPRESSTREE SENIOR FLOATING RATE FUND
DECEMBER 31, 2000 (UNAUDITED)
1. BASIS OF COMBINATION
North American Senior Floating Rate Fund, Inc. ("North American Fund") is a
Maryland Corporation, registered under the Investment Company Act of 1940, as
amended, as a closed-end investment company. The pro-forma combined financial
statements reflect the pro-forma combined financial position of the proposed
acquisition of CypressTree Senior Floating Rate Fund, Inc. ("CypressTree Fund")
by North American Fund as if such acquisition had taken place as of December 31,
2000, and the pro-forma combined results of operations for the year ended
December 31, 2000 as though the reorganization had occurred as of January 1,
2000.
The pro-forma statements give effect to the proposed transfer of the assets and
stated liabilities of CypressTree Fund in exchange for shares of North American
Fund 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 North American Fund 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 CypressTree Fund
and North American Fund 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 Fund Annual Report or the CypressTree
Fund Annual Report. 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 CypressTree
Fund shares into North American Fund Shares based upon the net asset value of
the North American Fund shares at December 31, 2000.
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 North American Fund at the time of the Reorganization at the
combined level of average net assets for the twelve month period ended December
31, 2000.
13
PART C
OTHER INFORMATION
Item 15. Indemnification
---------------
The Registrant's Articles of Incorporation and By-Laws contain
provisions limiting the liability, and providing for indemnification, of the
directors and officers under certain circumstances. Article IX of the Fund's
Articles of Incorporation, and Article VIII of the Fund's By-Laws, provide that
the Fund shall indemnify its present and past directors and officers, and may
indemnify its employees and agents to the maximum extent permitted by applicable
law (including Maryland law and the 1940 Act). Section 2-418(b) of the Maryland
General Corporation Law ("Maryland Code") permits the Fund to indemnify its
directors unless it is established that the act or omission of the director was
material to the matter giving rise to the preceding, and (a) the act or omission
was committed in bad faith or was the result of active and deliberate
dishonesty; (b) the director actually received an improper personal benefit in
money, property or services or; or (c) in the case of any criminal proceeding,
the director had reasonable cause to believe the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements and
reasonable expenses incurred by the director in connection with a proceeding, in
accordance with the Maryland Code. Pursuant to Section 2-418(j)(1) and Section
2-418(j)(2) of the Maryland Code, the Fund is permitted to indemnify its
officers, employees and agents to the same extent as its directors. The
provisions set forth above apply insofar as consistent with Section 17(h) of the
1940 Act, which prohibits indemnification of any director or officer of the Fund
against any liability to the Fund or its shareholders to which such director or
officer otherwise would by subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended ("1933 Act"), may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 16. Exhibits
--------
(1) (A) Articles of Incorporation(a)
(B) Articles Supplementary(b)
(C) Form of Articles Supplementary (filed herewith)
(2) (A) By-Laws(d)
(B) Form of Amendment to the By-Laws (filed herewith)
(3) Not applicable
(4) Form of Agreement and Plan of Reorganization between North American
Senior Floating Rate Fund, Inc. and CypressTree Senior Floating Rate
Fund, Inc. (filed herewith)
(5) Not applicable
(6) (A) Form of Advisory Agreement(f)
(B) Form of Sub-Advisory Agreement(f)
(7) (A) Form of Distribution Agreement(f)
(B) Form of Dealer Agreement(f)
(8) Not applicable
(9) Form of Custodian Agreement(d)
(A) Form of Amendment to the Custodian Agreement (f)
(10) (A) Distribution Plan--Class A Shares(d)
(B) Distribution Plan--Class B Shares(d)
(C) Distribution Plan--Class C Shares(d)
(D) Form of Amended and Restated Multi-class Plan
(filed herewith)
(11) Form of Opinion and Consent of Counsel (filed herewith)
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences (filed herewith)
(13) Form of Administration Agreement(f)
(14) Consent of Independent Auditors (filed herewith)
(15) Not applicable
(16) (A) Form of Power of Attorney of Joseph T. Grause, Jr.
(filed herewith)
(B) Form of Power of Attorney of William F. Devin
(filed herewith)
(C) Form of Power of Attorney of Judith L. Craven
(filed herewith)
(D) Form of Power of Attorney of Kenneth J. Lavery
(filed herewith)
(E) Form of Power of Attorney of Timothy J. Ebner
(filed herewith)
(F) Form of Power of Attorney of Alice T. Kane (filed herewith)
(G) Form of Power of Attorney of Gustavo E. Gonzales, Jr.
(filed herewith)
(H) Form of Power of Attorney of John E. Maupin, Jr.
(filed herewith)
(I) Form of Power of Attorney of Ben H. Love (filed herewith)
(J) Form of Power of Attorney of Thomas J. Brown (filed herewith)
(17) Not applicable
- --------------------
(a) Filed as an exhibit to Amendment No. 2 to Registration
Statement on Form N-2 of Registrant, filed August 6, 1998
(File No. 333-49273), incorporated by reference herein.
(b) Filed as an Exhibit to Registration Statement on Form N-2 of
Registrant, filed August 4, 1999 (File No. 333-84429),
incorporated by reference herein.
(c) Filed as an exhibit to Registration Statement on Form N-2 of
Registrant, filed April 3, 1998 (File No. 333-49273),
incorporated by reference herein.
(d) Filed as an exhibit to Amendment No. 1 to Registration
Statement on Form N-2 of Registrant, filed July 20, 1998
(File No. 333-49273), incorporated by reference herein.
(e) Filed as an exhibit to Amendment No. 7 to Registration
Statement on Form N-2 of Registrant, filed March 17, 2000
(File No. 333-32798), incorporated by reference herein.
(f) Filed as an exhibit to Amendment No. 8 to Registration
Statement on Form N-2 of Registrant, filed January 17, 2001
(File No. 333-53840), incorporated by reference herein.
Item 17. Undertakings
------------
(a) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) under
the 1933 Act (17 CFR 230.145(c)), the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(b) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts on the 25th day of January, 2001.
North American Senior Floating Rate Fund, Inc.
By: /s/ Alice T. Kane*
-------------------
Alice T. Kane
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alice T. Kane* Director; January 25, 2001
- ---------------------------------- Chief Executive Officer
Alice T. Kane
/s/ Thomas J. Brown* Principal Financial and January 25, 2001
- ---------------------------------- Accounting Officer
Thomas J. Brown
/s/ William F. Devin* Director January 25, 2001
- ----------------------------------
William F. Devin
/s/ Kenneth J. Lavery* Director January 25, 2001
- ----------------------------------
Kenneth J. Lavery
/s/ Joseph T. Grause, Jr* Director; January 25, 2001
- ---------------------------------- Vice President
Joseph T. Grause, Jr
/s/ Judith L. Craven* Director January 25, 2001
- ----------------------------------
Judith L. Craven
/s/ Timothy J. Ebner* Director January 25, 2001
- ----------------------------------
Timothy J. Ebner
/s/ Gustavo E. Gonzales, Jr* Director January 25, 2001
- ----------------------------------
Gustavo E. Gonzales, Jr
/s/ John E. Maupin, Jr* Director January 25, 2001
- ----------------------------------
John E. Maupin, Jr
/s/ Ben H. Love* Director January 25, 2001
- ----------------------------------
Ben H. Love
* BY /s/ John I. Fitzgerald, Attorney-in-Fact (pursuant to Power of Attorney filed herewith).
----------------------------------
EXHIBIT INDEX
-------------
(1)(A) Form of Articles Supplementary
(2)(B) Form of Amendment to the By-Laws
(4) Form of Agreement and Plan of Reorganization between North American
Senior Floating Rate Fund, Inc. and CypressTree Senior Floating Rate
Fund, Inc.
(10)(D) Form of Amended and Restated Multi-class Plan
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences
(14) Consent of Independent Auditors
(16)(A) Form of Power of Attorney of Joseph T. Grause, Jr.
(16)(B) Form of Power of Attorney of William F. Devin
(16)(C) Form of Power of Attorney of Judith L. Craven
(16)(D) Form of Power of Attorney of Kenneth J. Lavery
(16)(E) Form of Power of Attorney of Timothy J. Ebner
(16)(F) Form of Power of Attorney of Alice T. Kane
(16)(G) Form of Power of Attorney of Gustavo E. Gonzales, Jr.
(16)(H) Form of Power of Attorney of John E. Maupin, Jr.
(16)(I) Form of Power of Attorney of Ben H. Love
(16)(J) Form of Power of Attorney of Thomas J. Brown